Post on 24-Jun-2015
Towards an Evidence-Based Framework for Addressing Corruption in Natural Resources
Daniel Kaufmann, President, RWI/NRC
Keynote Presentation to the Coalition against Corruption (CoCo) Summit, sponsored by the
Janaagraha CCDCD, Stanford CDDRL & the Sunlight Foundation, held in Bangalore, India,
January 13-15th, 2014
This presentation benefitted from inputs of RWI/NRC staff as well as the author’s collaboration with Brookings and the World Bank.
Addressing Corruption in Natural Resources (NR) within rigorous analytical & empirical framework
1. Sobering Evidence on Control of Corruption worldwide
2. Corruption: costly symptom of institutional failure, so ‘don’t fight corruption by fighting corruption’
3. Anti-Corruption is about governance, politics, accountability, incl. civil society space, IT and data
4. Distinct corruption vulnerabilities in Natural Resources (NRs), requiring detailed and rigorous framework
5. Governance in Natural Resources is far more than a ‘sectoral’ challenge. It is about Shared Prosperity, Stability: The Development Challenge of a generation
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
WG
I C
on
tro
l o
f C
orr
up
tio
n, 2
011
Non-ExtractiveIntensive Countries
Extractive-Intensive Countries(All)
Control of
Corruption in:
Trends in Control of Corruption past decade, Extractive vs.
Non-Extractive Intensive Countries, 2002-2011
Source: Worldwide Governance Indicators, 2012. The extractive countries with satisfactory control of corruption
trend line (atop) includes a dozen countries.
Control of Corruption over time: Sobering Trend
Control of Corruption 2012 (Worldwide Governance Indicators --WGI)
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September 2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130
It Can Be Done: Better Governance and Corruption Control results in
higher incomes per capita in Extractive-Intensive (& Other) Countries
Sources: GDP per capita (atop each column) from World Bank World Development Indicators, 2012.
Corruption Control data from Worldwide Governance Indicators (WGI), 2012. Countries grouped into terciles
based on WGI Control of Corruption scores. Extractive Intensive country classification according to IMF (2010).
Poor Corruption Control Average Corruption Control Good Corruption Control
GD
P p
er
ca
pit
a (
PP
P)
EXTRACTIVE INTENSIVE OTHER COUNTRIES
5,000
0
10,000
6,851
3,941
12,712
10,272
45,000
30,820
What’s at stake?
• Oil, gas and mining sector governance as a development challenge
– In resource rich countries, over 1 billion people live on less than $5 a day, and 640 million live on $2 a day or less.
– In 2011, Nigeria’s oil revenues alone were 60 percent higher than international aid to all of sub-Saharan Africa. Rents from oil in the continent are about 8 times higher than aid.
– Natural resource revenues expected to rise significantly further over next decade.
• Governance is the challenge, but also the potential solution.
6
What is the Resource Governance Index?
• A measure of transparency
and accountability of the oil, gas and mining sector in 58 countries.
• For each country, researchers, gathered primary information in 2012
to answer a standard questionnaire with 173 questions, vetted by a peer
reviewer.
12
How is the Index built?
Resource Governance Index composite
13
Index structure
14
Institutional & Legal Setting
(20%)
Reporting Practices (40%)
Safeguards & Quality Controls
(20%)
Enabling Environment (20%)
10 Indicators 20 Indicators 15 indicators 5 Indicators
Indicator Indicator Indicator Indicator
1 Freedom of information law 1 Licensing process 1 Checks on licensing process 1 Accountability & democracy (EIU
Democracy Index & WGI voice and accountability)
2 Comprehensive sector legislation 2 Contracts 2 Checks on budgetary process 2 Open Budget (IBP Index)
3 EITI participation 3 Environmental and social impact
assessments 3 Quality of government reports 3 Government effectiveness (WGI)
4 Independent licensing process 4 Exploration data 4 Government disclosure of conflicts
of interest 4 Rule of law (WGI)
5 Environmental and social impact
assessments required 5 Production volumes 5 Quality of SOC reports 5
Corruption (TI Corruption Perceptions Index & WGI control of
corruption)
6 Clarity in revenue collection 6 Production value 6 SOC reports audited
7 Comprehensive public sector
balance 7 Primary sources of revenue 7
SOC use of international accounting standards
8 SOC financial reports required 8 Secondary sources of revenue 8 SOC disclosure of conflicts of
interest
9 Fund rules defined in law 9 Subsidies 9 Quality of Fund reports
10 Subnational transfer rules defined
in law 10 Operating company names 10 Fund reports audited
11 Comprehensive SOC reports 11 Checks on Fund spending
12 SOC production data 12 Government follows Fund rules
13 SOC revenue data 13 Fund disclosure of conflicts of
interest
14 SOC quasi fiscal activities 14 Quality of subnational transfer
reports
15 SOC board of directors 15 Government follows subnational
transfer rules
16 Comprehensive Fund reports
17 Fund rules
18 Comprehensive subnational transfer
reports
19 Subnational transfer rules
20 Subnational reporting of transfers
80% of countries do not meet satisfactory governance standards
98
92
88
85
80
77 76 75 74 74 73
70 68
66
63 62 61 58 57
56 56 56 54 53 53
51 50 48
47 47 47 46 46 46 46 43 43 43 43 42 42 41 41
39 38 37
34 34 33 31 31
29 28 26
19
13
5 4
0
20
40
60
80
100
1. N
orw
ay
2. U
nit
ed
Sta
tes
(Gu
lf o
f M
exic
o)
3. U
nit
ed
Kin
gdo
m
4. A
ust
ralia
(W
este
rn A
ust
ralia
)
5. B
razi
l
6. M
exic
o
7. C
anad
a (A
lber
ta)
8. C
hile
9. C
olo
mb
ia
10
. Tri
nid
ad a
nd
To
bag
o
11
. Pe
ru
12
. In
dia
13
. Tim
or-
Lest
e
14
. In
do
nes
ia
15
. Gh
ana
16
. Lib
eri
a
17
. Zam
bia
18
. Ecu
ado
r
19
. Kaz
akh
stan
20
. Ven
ezu
ela
21
. So
uth
Afr
ica
22
. Ru
ssia
23
. Ph
ilip
pin
es
24
. Bo
livia
25
. Mo
rocc
o
26
. Mo
ngo
lia
27
. Tan
zan
ia
28
. Aze
rbai
jan
29
. Ira
q
30
. Bo
tsw
ana
31
. Bah
rain
32
. Gab
on
33
. Gu
ine
a
34
. Mal
aysi
a
35
. Sie
rra
Leo
ne
36
. Ch
ina
37
. Yem
en
38
. Egy
pt
39
. Pap
ua
Ne
w G
uin
ea
40
. Nig
eri
a
41
. An
gola
42
. Ku
wai
t
43
. Vie
tnam
44
. Co
ngo
(D
RC
)
45
. Alg
eria
46
. Mo
zam
biq
ue
47
. Cam
ero
on
48
. Sau
di A
rab
ia
49
. Afg
han
ista
n
50
. So
uth
Su
dan
51
. Zim
bab
we
52
. Cam
bo
dia
53
. Ira
n
54
. Qat
ar
55
. Lib
ya
56
. Eq
uat
ori
al G
uin
ea
57
. Tu
rkm
enis
tan
58
. Mya
nm
ar
Satisfactory (71-100)
Partial (51-70)
Weak (41-50)
Failing (0-40)
15
RGI Results for the 58 countries
BRIC Countries’ Performance by Component
18
0
20
40
60
80
100
120
Brazil Russia China India
Composite Institutional & Legal Setting
Reporting Practices Safeguards & Quality Controls
Enabling Environment
Source: 2013 Resource Governance Index
20
Source: 2013 Resource Governance Index
Importance of In-Depth Diagnostic and Mapping of Corruption Risks
• In-Depth, In-Country Diagnostic
• Rigorous, Empirically-based
• Focus ought to be on Institutions and on corruption risks at various stages of the chain.
• Nigeria case study specifically focused on the following manifestations of corruption:
i) licensing awards; ii) contract negotiations; iii) subcontracting; iv) State-Owned Enterprises in extractives; v) public procurement; vi) revenue leakages and public expenditures; vii) bunkering, & viii) export/trading.
• Input to Reform formulation
23
What to do about corruption in Natural Resources?
32
Economic decisions determine the strength of each link…
Managing the
revenues
Getting a good deal
Discovering the wealth
Investing for development
…governance quality (both in country & internationally) determines the effectiveness, integrity & sustainability of these decisions
Overarching issues of
governance
Enabling international governance
The Natural Resource Charter (NRC): Transformation of sub-surface wealth to prosperity requires good governance – accountable & effective institutions + economic decision-making
Sub-surface wealth
Prosperity
35
Need to map Corruption risks at each stage: Charter guidance
Managing revenues
Getting a good deal
Discovering the wealth
Investing for development
Licences to inappropriate
individuals
Environmental & human rights
abuses
Government officials
personal gains
Investment in crony projects
Illicit flight of revenues
Savings fund malpractice
Preferential contract terms
Tax evasion
Crude mis-selling by NOC
37
TRANSPARENCY IS PART OF THE SOLUTION – YET IT HAS TO BE COMPREHENSIVE AND DETAILED
Transparency across the value chain
The basis for any decision to permit exploitation of a mineral deposit
should be set out clearly in
published laws and regulations
Contract terms,
including fiscal terms should be
made public
Financial information on revenues into
the public domain will
facilitate enforcement
and reduce tax avoidance
Disclosure of operations and financial data
of savings, stabilization
and investment funds
The disposition of extractive
revenues should be fully
transparent
‘Extra-budgetary expenditures’ and disappearing oil revenues (2007-2010): The Case of the Angola National Oil Company
The Missing $32 Billion (source: IMF)
Civil Society Participation Matters: Voice & Accountability WGI vs. Resource Governance Index (RGI)
Norway
United States
Brazil United Kingdom Mexico colombia Australia Trinidad and Tobago Timor-Leste Peru
Indonesia Liberia India Chile Canada Zambia Ghana Ecuador Kazakhstan Venezuela Bolivia
Russia South Africa Guinea Iraq Mongolia The Philippines Morocco Azerbaijan Tanzania
Sierra Leone Nigeria Yemen Angola Gabon Papual New Guinea Congo, Dem. Rep. Botswana Bahrain China
Vietnam South Sudan Egypt Afghanistan Zimbabwe
Algeria Malaysia Mozambique
Cameroon Cambodia Kuwait
Saudi Arabia Iran
Libya Qatar Equatorial Guinea
Turkmenistan Myanmar 0
20
40
60
80
100
120
-2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2
Ave
rage
Sco
re o
f R
eso
urc
e G
ove
rnan
ce In
dex
(R
GI)
Co
mp
on
en
ts (
Excl
ud
ing
EE)
Voice & Accountability WGI Score
r = 0.76
Source: 2012 Worldwide Governance Indicators and 2013 Resource Governance Index 1. Resource Governance Index Components excludes “Enabling Environment”
44
Technology in Natural Resource Governance
Technology as a major tool to enhance transparency and accountability in natural resource governance by:
– Leveraging the collection, analysis and dissemination of Data (Open Data, Budget, etc)
– Access and Sharing of Information, including on Contracts and operations – key for monitoring
– Mapping of Resources: Satellite imaging technology transforming the monitoring of resource use. Geographic Information Systems (GIS) is a combination of mapping, statistical analysis, and database technology. (In Ghana:
http://maps.worldbank.org/extractives/afr/ghana; in Tanzania: http://www.flexicadastre.com/tanzania/ )
– Mobilizing participatory civil society, collective action
In sum: to address Corruption in Natural Resources…
1. A comprehensive governance framework: The Charter, +
2. In-depth country diagnostic: Charter benchmarking, RGI, understanding of the political economy (incl. capture)
3. Transparency is key, but not alone: Rule of Law, Sanction
4. Accountability & Collective Action: Civil Society Space
5. Leverage the enormous Power of Technology & Data
6. Effective Policy-Making (e.g. Budget, Institutional innovations)
7. Focus on identified vulnerable institutions: SOEs, MNCs
8. Adoption of International Standards & Global Initiatives, such as the Extractive Industry Transparency Initiative (EITI) and Open Government Partnership (OGP)
45