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Q&A-Charter aims to improve decisions on resource exploitation

Source: Thomson Reuters Foundation - Thu, 7 Oct 2010 17:39 GMT
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LONDON, Oct 7 (TrustLaw) - A few days before launching the Natural Resource Charter at the annual meetings of the International Monetary Fund and World Bank Group, Paul Collier, a founding member of the Charter’s technical group and economics professor at Oxford University, spoke to TrustLaw about the new governance initiative. 

The Charter is a set of economic principles to help governments and societies better manage their resources, such as oil or minerals. It contains 12 precepts that encapsulate the choices they face, and suggests strategies that increase the prospects of sustained economic development from natural resource exploitation. 

How did the idea for the Charter originally form?

This was something that needed to be done and has become more urgent with rising commodity prices and the consequential mass of discoveries (of natural resources) in low income countries. There’s really no substitute for building a critical mass of informed opinion both in the resource-rich countries and internationally because of course, with corruption, it takes two to tango.

Why do you think corruption is the pressing development issue over, say, new agricultural techniques?

New technology is always nice but just applying the technology we have already is enough to completely eliminate mass poverty. The biggest impediment to eliminating mass poverty is to do with policy choice in government.

Why are policy choices not better than they are? It’s partly ignorance, but ahead of ignorance is the self-interest of people with some public authority, taking the private interest rather than the public; and that’s just a euphemism for corruption.

How would you define the term “resource curse” and why does it exist as a phenomenon?

The resource curse is best seen as a missed opportunity rather than something that’s in absolute terms negative. Sometimes it is negative - with some confidence you can say that a country like Nigeria would have been better off now if it hadn’t discovered its oil. But the real horror of that statement is that the oil has been billions and billions of dollars worth of opportunity. That money could have been transformational.

The biggest feature of the resource curse is that here’s a tidal wave of money, an order of magnitude bigger than aid or remittances or foreign investment which is these societies’ own money. It’s a one-shot game, it (the money) depletes and so do the depletable natural assets, and the game is over then. Either you’ve got something to show for it, either you’ve transformed your society, or you haven’t. 

This is by far the most important development issue in poor societies over the next decade. That’s why it matters. 

Is there not a danger that transparent societies will happily take up the Charter and non-transparent societies will simply ignore it? 

First of all, it’s not oppositional to government. In many respects the Natural Resource Charter is first and foremost a tool for government. Building a critical mass of informed opinion is not just about building informed citizens who discipline government; it’s building informed people within government who see the whole and so can put their own bit of the decision chain into the context of what the whole chain can achieve.

It takes the whole decision chain from how you go about prospecting through to how you invest the money within the society. If any link in that chain of decisions goes seriously wrong, then what you end up with is plunder in one form on another. Either the few expropriating the many or the present expropriating the future.

Can the Charter be moulded to each individual country’s needs and requirements, or is it set in stone?

First of all, the Charter is a living document. It will keep being revised for some years to come; we’re still learning about these things.

Secondly, of course, each country has to be contextualised. There’s not one answer that (says that) 55 percent of revenues have to be saved everywhere, always. It depends on how poor you are, how long the natural resources are expected to last and the composition of those savings between domestic investment and foreign savings.

Similarly, the way you structure your taxation; it’s not that there’s a global best practice. Taxation is tied in particular to what minerals you’re taxing, what’s the geology, how big are the rents? What we’re trying to do is ignite these essentially domestic debates and analysis, and capture that information in a scoring system.

Is there not a danger a government will follow the Charter and gain the maximum amount of money from the extraction company legally, but then spend it on infrastructure projects, receiving bribes from the construction company instead?

One of the precepts of the Charter is about what we call “investing in investing” - that is, it’s not enough just to invest (the money), you’ve got to build a process by which the investment is productive. There is a whole precept on...reforming the domestic investment process which of course then would guard against exactly what you’re describing.

Nigeria, if we go back to the 1970s and early 80s...if you look at the budget, a lot of money went on what was called investment and 80 percent of the construction companies were ghost companies. So the Charter has taken the whole decision chain from how you manage prospecting through how you actually go through the business of spending the money in an efficient way, an equitable way. In that sense, a government that genuinely follows the precepts would harness this opportunity for transformation.

Presumably the recent Cardin-Lugar amendment in the Dodd-Frank Act in the United States makes it much easier to monitor, because you’ll now have extraction companies publicly saying exactly how much money they’ve given to a country?

(The Cardin-Lugar amendment requires that every resource extraction company listed on a U.S. stock exchange “include in an annual report…information relating to any payment made by the resource extraction issuer… to a foreign government or the Federal [U.S.] Government.)

Cardin-Lugar makes this easier - very obviously in the sense you describe, but also what needs to happen...is it needs to become a global standard ... What (it) has done at a stroke is to change all those U.S. listed companies from saying “Hold back, don’t do this!” to saying “If it applies to us, it better apply to everybody!” So it’s that shift in lobbying that has switched overnight, from having an interest in putting the brakes on transparency to demanding global transparency. Instead of all these companies not wanting it on the G20 agenda, they’ll now be begging to put it on the G20 agenda.

How can civil society, multinational companies and governments support the Charter going forward?

I think there are two things. One is to spread the word. What is the Charter? It’s about the full decision chain. That’s what’s distinctive about (it) compared to the EITI and Cardin-Lugar; these are huge opportunities to transform societies. The whole chain of decisions has to be got right and the Charter...lays out that chain of decisions.

(The second point) is just getting the message out that here is a tool, first and foremost for the resource-rich societies themselves. This is not finger-wagging. This is a tool that can build this critical mass of informed opinion and it’s in everybody’s interests pretty well that it happens… except for the crooks.

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