ECONOMIC RESEARCH INSTITUTE

Reality in the commodity markets: Opportunity for good governance reforms?

Daniel Kaufmann, President & CEO

Natural Resource Governance Institute (NRGI)www.resourcegovernance.org

Keynote speech at the Mongolia Economic Forum Ulaanbaatar, Mongolia, 31 March 2016

http://www.resourcegovernance.org/

The Governance Challenge: Outline in brief

• Economics: crucial, but not alone: integrating into

governance – political, economic & institutional

• What is Governance; how measured; does it

matter?

• Evidence from the world & Mongolia: Mixed

performance specific strengths & vulnerabilities

• Governance in Extractives: a framework for

assessment & main challenges & findings

• Lessons from global evidence & experience and

some implications for Mongolia: Governance

Reform Opportunity Now2

3

WGI: Six Dimensions of Governance

• The process by which those in authority are selected and replaced – VOICE AND ACCOUNTABILITY – POLITICAL STABILITY & ABSENCE OF

VIOLENCE/TERRORISM• The capacity of government to formulate and implement

policies– GOVERNMENT EFFECTIVENESS– REGULATORY QUALITY

• The respect of citizens and state for institutions that govern interactions among them – RULE OF LAW – CONTROL OF CORRUPTION

Governance as the set of traditions and institutions by which authority in a country is exercised-- specifically:

WGI Rule of Law, 2014

4Source: 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

http://ssrn.com/abstract=1682130

WGI Control of Corruption: the Americas, 2014

5Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September 2010). World Bank Policy Research



Voice and Accountability Performance WGI: Asia

Source: Worldwide Governance Indicators (http://www.govindicators.org), additional information at 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 (http://ssrn.com/abstract=1682130).

6

http://www.govindicators.org/


Political Stability & Absence of Violence Indicator: Asia


7



Government Effectiveness Indicator WGI: Asia


8



Control of Corruption WGI: Asia 2014


9



Mongolia Governance Indicators: WGI 2000, 2007, 2014


10



Ukraine Governance Indicators


11



Worldwide Governance Indicators for Chile:

2000, 2007, 2014

Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September 2010). World Bank Policy Research



-30%

-20%

-10%

0%

10%

20%

30%

40%

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

Chile

Government revenue growth(Chilean Peso)

Government expenditure growth(Chilean Peso)

Managing Volatile Revenues

-40%

-20%

0%

20%

40%

60%

80%

100%

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

Venezuela

Government revenue growth(Venezuelan Bolívar)

Government expenditure growth(Venezuelan Bolívar)

Source: IMF World Economic Outlook Database

Expenditure volatility in Mongolia vs Ukraine

Data source: IMF WEO

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Mongolia

General government revenue growth

General government total expenditure growth

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Ukraine

General government revenue growth

General government total expenditure growth

Mongolia’s Borrowing and Saving: Fiscal Balance

Mongolia’s Borrowing and Saving: Debt Accumulation

Makeup of Mongolia’s 2014 Exports

Source: The Atlas of Economic Complexity (http://atlas.cid.harvard.edu/explore/tree_map/export/mng/all/show/2014/) , this is a measurement of complexity that is calculated based on how many different products a country can produce and the number of countries able to make those products

17

http://atlas.cid.harvard.edu/explore/tree_map/export/mng/all/show/2014/

Makeup of Malaysia’s 2014 Exports

Source: The Atlas of Economic Complexity (http://atlas.cid.harvard.edu/explore/tree_map/export/mng/all/show/2014/) , this is a measurement of complexity that is calculated based on how many different products a country can produce and the number of countries able to make those products

18


The Atlas of Economic Complexity: Country Rankings*

*Note: Due to number of countries covered, only select countries are labeled in this chart. Mongolia is ranked 114th out of 124 countries.Source: The Atlas of Economic Complexity (http://atlas.cid.harvard.edu/explore/tree_map/export/mng/all/show/2014/) , this is a measurement of complexity that is calculated based on how many different products a country can produce and the number of countries able to make those products

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5Ja

pan

Sou

th K

ore

a

Cze

ch R

ep

ub

lic

Un

ite

d K

ingd

om

Slo

vaki

a

Ire

lan

d

Ch

ina

Me

xico

Esto

nia

Mal

aysi

a

Bel

aru

s

Lith

uan

ia

Bo

snia

-He

rze

govi

na

Ph

ilip

pin

es

Ukr

ain

e

Gre

ece

New

Zea

lan

d

El S

alva

do

r

Sou

th A

fric

a

Vie

tna

m

Egyp

t

Arg

enti

na

Mac

edo

nia

Gu

ate

mal

a

Ku

wai

t

Sen

egal

Cu

ba

Au

stra

lia

Zam

bia

Cam

ero

on

Qat

ar

Bo

tsw

ana

Uga

nd

a

Ban

glad

esh

Turk

men

ista

n

Mo

zam

biq

ue

Gab

on

Alg

eria

Mal

awi

Lib

ya

Gu

ine

a

An

gola

Eco

no

mic

Co

mp

lexi

ty I

nd

icat

or

Sco

re

Mongolia(score of -1.41)

19


Global Competitiveness Index: 2007-2015

2

3

4

5

6

7

Sin

gap

ore

Sou

thK

ore

a

Ch

ina

Ch

ile

Aze

rbai

jan

Kaz

akh

stan

Ru

ssia

Bra

zil

Ukr

ain

e

Tajik

ista

n

Kyr

gyzs

tan

Mo

ngo

lia

Glo

bal

Co

mp

etit

ive

nes

s In

dex

Sco

re

2007 2015

Note: Mongolia’s rank in 2007 is 101 out of 131 and in 2015 is 104 out of 140.Source: World Economic Forum, 2015-2016 Global Competitiveness Report, http://reports.weforum.org/global-competitiveness-report-2015-2016/

20

Best

Worst

http://reports.weforum.org/global-competitiveness-report-2015-2016/

2015 Open Budget Index: Mongolia scored 51 (ranked 39th among 102 countries)

0

10

20

30

40

50

60

70

80

90

100N

ew Z

eala

nd

No

rway

Fran

ce

Un

ited

Kin

gdo

m

Ger

man

y

Geo

rgia

Sou

th K

ore

a

Po

lan

d

Arg

enti

na

Spai

n

Ban

glad

esh

Co

sta

Ric

a

El S

alva

do

r

Do

min

ican

Re

pu

blic

Mo

ngo

lia

Ke

nya

Ukr

ain

e

Mal

i

Tan

zan

ia

Cam

ero

on

Bu

rkin

a Fa

so

Sen

egal

Tun

isia

Sri L

anka

Lib

eri

a

Rw

and

a

Trin

idad

& T

ob

ago

An

gola

Nig

eri

a

Bo

livia Fiji

Cam

bo

dia

Equ

ato

rial

Gu

ine

a

Mya

nm

ar

Op

en B

ud

get

Ind

ex S

core

Source: International Budget Partnership 2015 Open Budget Index, http://internationalbudget.org/opening-budgets/open-budget-initiative/open-budget-survey/

21

Worst

Best

http://internationalbudget.org/opening-budgets/open-budget-initiative/open-budget-survey/

2013 Resource Governance Index

98

92

8885

8077 76 75 74 74 73

7068

6663 62 61

58 57 56 56 5654 53 53

51 5048 47 47 47 46 46 46 46

43 43 43 43 42 42 41 4139 38

3734 34 33

31 3129 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

exi

co)

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

lbe

rta)

8. C

hile

9. C

olo

mb

ia

10.

Tri

nid

ad a

nd

To

bag

o

11.

Per

u

12.

Ind

ia

13.

Tim

or-

Lest

e

14.

Ind

on

esia

15.

Gh

ana

16.

Lib

eri

a

17.

Zam

bia

18.

Ecu

ado

r

19.

Kaz

akh

stan

20.

Ve

ne

zue

la

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.

Iraq

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.

Ye

me

n

38.

Egy

pt

39.

Pap

ua

New

Gu

inea

40.

Nig

eria

41.

An

gola

42.

Ku

wai

t

43.

Vie

tnam

44.

Co

ngo

(D

RC

)

45.

Alg

eri

a

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.

Iran

54.

Qat

ar

55.

Lib

ya

56.

Eq

uat

ori

al G

uin

ea

57.

Tu

rkm

enis

tan

58.

Mya

nm

ar

22

Satisfactory (71-100)Partial (51-70)Weak (41-50)Failing (0-40)

Source: Natural Resource Governance Institute: 2013 Resource Governance Index, http://www.resourcegovernance.org/rgi

http://www.resourcegovernance.org/rgi

2013 Resource Governance Index: Mongolia

23Source: Natural Resource Governance Institute: 2013 Resource Governance Index, http://www.resourcegovernance.org/rgi

http://www.resourcegovernance.org/rgi

But does Governance Matter?

• OK, governance can be measured,

with caution

• But does it really matter?

24

Development Dividend of good governance & corruption control: Resource-Rich vs. Non-Resource Rich 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. Resource Rich country classification according to IMF (2010).

Poor Corruption Control Average CorruptionControl

Good CorruptionControl

GD

P p

er

cap

ita (

PP

P)

Resource-Rich Countries Non Resource Rich

5,000

0

10,000

6,851

3,941

12,712

10,272

45,000

30,820

25

Domestic governance

International governance

Managing revenues

Getting a good deal

Discovery & deciding to

extract

Investing for sustainable

development

26

The Natural Resource Charter (NRC)

Global Lessons and Some Implications1. Consolidate & Build on earlier Transformative Achievements

in Political & Institutional Dimensions of Governance

-- Political and Civil Liberties, Free Press

-- Anti-Corruption program

-- Transparency reforms: i) Budget; ii) Mining Transparency:

Contracts, Beneficiary Ownership, Subnational, License

allocation, SOE (Erdenes), EITI +

2. Addressing major challenges in Economic Governance

-- Macroeconomic & debt management, lowering risks of default

or bailout: consensus on prudent fiscal, monetary & debt policies

-- Realism on mining prices, & policies of Future Heritage Fund

-- Reality of global mining foreign investments (& ‘art of negotiation’)

-- Economic diversification program: implementation & macro.

‘Seizing the Moment’: Towards national consensus 27

ECONOMIC RESEARCH INSTITUTE

Documents

Transcript of ECONOMIC RESEARCH INSTITUTE