Interview with Peter Eigen: Transparency, Good Governance and Natural Resource Management

The governance challenges of natural resource extraction are enormous. What can be done to improve natural resource governance? ECC’s Stephan Wolters talked to Peter Eigen, Founder of Transparency International and Chair of the Extractive Industries Transparency Initiative (EITI) from 2006-11.

As a leading expert on the challenges of corruption, he provides exciting insights and evaluates success and failure of various approaches, including EITI in a six-part exclusive video interview series:

Part I:The resource curse: governance challenges of natural resource management

Part II:The beginnings of improving transparency in extractive industries: the Publish What You Pay Initiative

Part III: Why was the EITI set up with a focus on making money flows transparent rather than on assessing corruption?

Part IV:How does the Extractive Industries Transparency Initiative provide added value for civil society?

Part V:Current developments and future pathways towards improved accountability in natural resource governance

Part VI:China’s investments in natural resources in Africa and its implications for economic development and political accountability

 

Peter Eigen, why are transparency and accountability so important for natural resource management in particular?

We found at Transparency International that natural resource development is particularly vulnerable to corruption, and this has a number of reasons. First of all, the so-called resource curse has a very strong macroeconomic component called “Dutch disease”: a pervasive mining or gas sector can impede development in other sectors of the economy. Apart from this, there is a tremendous temptation which comes from the immense sums involved for both investors and host governments. The temptation for decision makers in the host country to accept payments for themselves is huge, in particular in countries where you have relatively fragile governments. The investors, on the other hand, want to get an enabling environment with little interference by the government. Extractive industries involve complex investments. Therefore it is very hard for the people or even for the members of parliament in the country to fully understand what is a just and fair deal. These are exactly the elements that tend to lead to grand corruption. This is why we at Transparency International found very soon that if you want to make a difference there, you need some very special tools, so we developed them.

The first of these was the Publish What You Pay Initiative.

Yes indeed. We started a campaign called Publish What You Pay together with a number of other NGOs such as Global Witness and Oxfam. It initially addressed companies because many of them made huge payments to host governments, which were not disclosed to the public or even to the countries’ parliaments. In the case of Nigeria, for instance, we found out that a small, powerful elite received revenues in the order of 50 billion dollars annually. They spent the money as they saw fit, with no accountability to the people. As a result, about half of Nigeria’s 150 million inhabitants live below the poverty line. That is why we asked them to “Publish what you pay”, but when some of the host governments, in particular Angola, did not allow publishing the numbers, we changed course to include governments as well. To our great delight, the president of Nigeria, Olusegun Obasanjo, decided not only to allow the companies to publish what they paid, but also to make it mandatory and further to report what the government received from the companies. As we found out through the years of reporting, billions of dollars fell between the cracks. This information was a direct benefit for the people of Nigeria, because otherwise this money would have disappeared unnoticed. We have 35 countries that have produced EITI reports. 26 of them comply with higher disclosure and auditing standards, including validation by independent companies. Hundreds of millions of people in resource-rich countries can now hold their governments accountable for resource related payments.

How do you assess its impact? What was the way forward?

We were all very disappointed when the Publish What You Pay campaign failed because host countries refused to continue with this campaign. But at that time we knew very well that there were quite a number of governments and companies interested in supporting what we were after. With the support of some personalities like George Soros, Tony Blair and Clare Short, Secretary of State for International Development at the time, we put together a group of people comprising one third each of civil society, company and government representatives to prepare a paper. I was invited to chair this group. At the end of that year we had enough ideas to put forward a proposal at a conference on the matter, which was well attended indeed. The proposal was accepted and became our gospel for the first couple of years.

EITI was set up with a narrow focus on the flow of funds, and that approach has drawn criticism. How do you respond to that?

I was convinced that we had to be very modest in our mandate, because we had very different interests in our board. We looked only at the flow of funds. We did not dare to say anything about the fairness of particular investment agreements, the adequacy of the flow of funds, the question of whether a particular mining venture served only the interests of the investor, only the people or only the cleptocrats in the country. We did not form any opinions about it. We only said: in that country, in that year, so much money was paid to the government. That in itself became so important that a lot of other interesting issues were discussed in that context. Some of the companies were extremely grateful for having the opportunity to enter into a dialogue with civil society and with the local population affected as a result of this multi-stakeholder conversation. I was very happy that we managed to put in place this relatively technocratic, relatively modest piece of work.

How does the approach empower civil society?

Some NGOs felt that EITI just produces numbers which do not mean anything, do not feed any hungry children, do not get anybody in a hospital, and so on, and that it did not change the behaviour of the companies and the countries. This is a criticism one has to take seriously. Still, we wanted to have a triangular arrangement where governments, private sector and civil society cooperate. We always tried to go as far as these three actors were able to agree. I had a feeling that creating transparency was all we could achieve, and it was important. Sometimes the companies were angry and threatened to walk out of the EITI, for example regarding the Dodd-Frank Act or with respect to reporting on a project basis. Some did not want to include sectors like forestry and fisheries, and so we had to put these on the back burner. Civil society also had objections sometimes: for instance, we did not allow Ethiopia to join because civil society members of the board felt that civil society in that country was not independent and strong enough. Similarly, people felt that the numbers we produce were merely a theoretical exercise. Therefore, it was very helpful that some countries started to broadly disseminate these numbers. In Liberia, the government put up big signs with key figures of the EITI report along the road to a mine, so people who came to a stakeholder meeting there - farmers, small entrepreneurs - knew the exact numbers. They knew exactly that there had been payments, whereas the government stated that they never received the money, so on the basis of this discrepancy proceedings started and people were prosecuted. There was tremendous participation of the people, but the reason was that the president of Liberia encouraged it by empowering civil society and making it a part of political awareness.

How is this changing now, also with the reform to the EITI standard that took place in 2013? What’s your view on that?

EITI, narrow as it was, technocratic as it was in the beginning, helped tremendously. It is wonderful that it has gained so much stature that the current Chair Clare Short can now be more ambitious and go further into the context within which mining takes place. She is postulating for a complying country to publish investment agreements. In some countries, like Kenya for instance, investment agreements are still confidential, so you cannot really hold your government accountable. The initiative can now go into financial flows inside the country. It can look at barter arrangements involved in many mining ventures or at the fairness of certain arrangements. It is possible to compare what the Norwegians get for one barrel of oil and what an African country gets for it, and see why there is a difference. There is a tremendous normative dynamism now in the EITI, which I always predicted. Now they can begin to harvest what we sowed at the beginning.

What’s your view on the Dodd-Frank Act and other current developments related to EITI?

When I left EITI two years ago, I was attacked by the companies for welcoming the Dodd-Frank Act. The Act makes some of the reporting requirements tougher and mandatory. Therefore, some of our member companies complained that they are suddenly subject to a much stricter regime than what they had agreed to with us. Some companies felt that the act undermined the strength of EITI, that it lost its raison d’ętre. But this is simply not correct. I believe that the Dodd-Frank Act supports what we are doing, so we welcome it and hope that it will be properly implemented. What is even better, the Europeans are contemplating guidelines very similar to the Dodd-Frank Act. I am delighted that some of the OECD countries are implementing EITI. Canada and Australia are considering it, and Germany is considering it on a pilot basis. These are all developments that go way beyond what I had hoped for. In other areas we are not doing that well. We should do better in Latin America and have Brazil, Mexico and Chile on board. We should have South Africa on board, which is the mining nation of the world. But overall I think EITI is a splendid example of effective cooperation between governments, the private sector and civil society.

China invests heavily in natural resources in Africa – with few strings attached for its African partners. Does China’s engagement in Africa undermine Western efforts to establish partnerships on the grounds of good governance?

Generally I am very pleased with Chinese investments there, because it gives Africa more options. It has helped to raise the price of natural resources which makes it possible for Africa to grow faster, a pre-condition for escaping poverty. The Chinese often don’t make their investments conditional e.g. on good governance requirements, which is a great luxury for some African leaders. The question is really whether the leadership in Africa has learned its lessons of how destructive and damaging bad governance was for it. I would say that many countries in Africa now have a leadership and a population that do not tolerate the same degree of corruption that we, the Western countries introduced in many of these countries. We should not forget that until the late 1990’s, systematic corruption was allowed in our countries. In Germany, you could deduct bribes for foreign investments from your taxes. It very often distorted economic decision making and supported corruption, and was in my opinion the main cause of poverty and misery in resource-rich countries. So it is very hard for us to criticise the particular risk of corruption that comes with Chinese investment because they will answer that they never allowed their exporters or investors to bribe outside Chinese borders.

Some of their methods like barter arrangements, however, are extremely dubious. If you say, “You allow me to mine all your copper and I will give you five billion dollars worth of roads, or railroads, or ports etc.,” this is a recipe for disaster because each one of these projects is a very complex negotiation, which has to be prepared properly and often takes years. If you throw these two things together, it cannot work. Therefore, there are a number of activities that one has to watch very carefully, but I think this task is up to the leaders of Africa. I talked to the minister of mines of Ghana and he said “We have learned our lesson. We have seen corrupt deals in the past with our European friends. We are very careful now and compare the offers we have from China, Russia, Brazil, Germany, Canada, Japan, and we take what is best for us. We do not need conditionality. We use our own common sense, because we know that we owe it our people to sell our natural resources in a way that is sustainable, helpful and leads to real development in the country.”

Thank you very much for this interview!