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What Could be Wrong with Extractive Industries Transparency Initiative?  

In our previous post, we discussed several attempts to tackle the political problems raised by natural resources using greater transparency. Chief among these initiatives, as we mentioned there, is the Extractive Industries Transparency Initiative (EITI), and we have already noted that its effectiveness can be doubted, even if, at some level, it is taking the right perspective.

It can be asked whether such a voluntary program can do much good and whether or not civil society can really do much in most poor countries. Along these lines, Nicholas Shaxson has characterized Nigeria’s EITI involvement as “silence money” to mask the widespread crimes going on in the exploitation of the country’s resources. This would make the initiative not much more than window dressing.

But in fact, marginal reforms of the resource sectors such as EITI might even make things worse.

One issue worth considering is that a feasible path out of poverty for most countries with poor institutions is a messy one with a lot of compromise and bargains.

The recent literature on “developmental patrimonialism,” for example, as discussed by Tim Kelsall and David Booth and the supporting working papers all part of the interesting Africa Power and Politics project, has emphasized that patrimonial regimes with basically dysfunctional institutions can experience rapid growth in the right conditions, particularly when this can be made consistent with the interest of elites (of course, nothing but a form of extractive growth). The trick is to find a social contract or political settlement that will make elites secure in the face of institutional development or will give them a vested interest in such a process.

In poor resource rich countries, like the Democratic Republic of the Congo, Equatorial Guinea or Gabon, elite interests naturally focus on controlling resource wealth. In such circumstances, a feasible model of developmental patrimonialism may well involve tolerating some amount of extraction of resource rents and other aspects of patrimonialism by the elite in exchange for allowing institution building elsewhere in the state, for example, allowing the development of other fiscal bases such as a value-added tax and perhaps the building of the bureaucracy that can be a constraint on worse abuses in the future.

Perhaps in such a circumstance an obsession with the application of EITI might be counter-productive.


How to Combat the Resource Curse  

A while ago we discussed the economic and political dimensions of the resource curse (see here, herehere, here and here). We did not end on a happy note. The evidence suggests that countries with bad institutions are likely to experience the natural resource curse.

This is particularly bad news for Africa, which is rich in natural resources and many of the countries of the continent heavily depend on revenues from these resources. What’s more, historically, there has been underinvestment in exploration for natural resources in Africa and there is probably a lot more resources there to discover; high resource prices will guarantee that this happens.

How can these societies stop the resource curse from coming into operation?

It would be no surprise to the readers of this blog that one obvious answer is to improve institutions.

For example, we saw how resources have been a curse for Cameroon. It would be great in many dimensions to improve the institutions of the Cameroon. In fact, the international community and many in Cameroon have been trying to do just that. But readers of this blog will also know that improving institutions is a hard thing to do.

In the 1990s, Cameroon democratized. But this just meant that President Paul Biya effortlessly re-invented himself as a democratic politician, and since then, he has won every election. This is exactly the type of democratization that has not led to better development outcomes in Africa as Masa Kudamatsu has shown in his paper “Has Democratization Reduced Infant Mortality in sub-Saharan Africa? Evidence from Micro Data”.

Importantly the level of institutional quality attained in the Cameroon and many other African countries and the politics that lie beneath it imply that some types of policies that appear to be solutions to the oil/natural resource curse, such as petroleum funds of the sort used by Norway, are unlikely to be of any use. This is because to be of use, they have to realign the political incentives of powerful actors, and it seems very unlikely that such funds can have this effect.

The clearest illustration of how this type of approach to the problem of managing resource wealth is unlikely to be successful is the famous Chad pipeline case.

In 1999 the World Bank invested $190m in the construction of a 650 mile pipeline to the Gulf of Guinea so that Chad could start to export its oil. It only agreed to do this if Chad’s parliament passed a Petroleum Revenue Management Law (PRML). The parliament obliged.

One laudable goal of the law was in fact transparency. It required that Chad’s 12.5 percent share of direct revenues from oil production flow into a London-based Citibank escrow account (monitored by an independent body created to oversee the account’s management).

Another main, and equally laudable, goal was to channel Chad’s revenue into poverty-reduction programs. The “future generations” fund accounted for 10 percent of annual revenue and was created to provide Chad with reserve funds after the oil reserves are exhausted. Eastern Logone, Chad’s oil-producing region, received 5 percent of the royalties, while 15 percent of royalties and dividends went to the federal government.

But such laws under extractive political institutions mean little. In December 2005, President Idriss Déby overhauled the PRML, doing away with the future generations fund, and doubling the portion of money that would go directly to the federal government to 30 percent. Another change to the law was the inclusion of security as one of the priority poverty reduction measures to allow more arms spending.

Soon the government simply stopped complying with the expenditure earmarking of the PRML.

This is just a reiteration of the conditional resource curse we discussed previously:

resources are a blessing with strong institutions but a curse with weak, extractive ones.

This is no surprise. This notion has been long understood in policy circles as has the notion that what works in Norway probably will not work in Gabon.

This understanding is probably at the root of efforts by various governments and NGOs to develop innovative policy proposals to try to reform the set of institutions that connect natural resource wealth to economic development.

One of the most important is the Extractive Industries Transparency Initiative (EITI) promoted by former British Prime Minister Tony Blair in 2002 that became an independent NGO in 2007.

As of 2010 37 countries had voluntarily signed up to this initiative and of these 16 have been rated by the EITI as being compliant. The main point of this is to get governments to publish adequate accounts of their receipts from natural resources and to create mechanisms by which society and voters can become informed about this. To become compliant there are 6 criteria that must be satisfied and these include most centrally:

  1. Regular publication of all material oil, gas and mining payments by companies to governments (“payments”) and all material revenues received by governments from oil, gas and mining companies (“revenues”) to a wide audience in a publicly accessible, comprehensive and comprehensible manner.

  2. Where such audits do not already exist, payments and revenues are the subject of a credible, independent audit, applying international auditing standards.

Also significant is the provision that:

Civil society is actively engaged as a participant in the design, monitoring and evaluation of this process and contributes towards public debate.

In fact, there has been progress on other transparency initiatives over the past decade.

Central has been the role of several other NGOs.

One NGO, Global Witness, has driven a campaign called “Publish What you Pay” which puts pressure on extractive industries to reveal how much they transfer to governments. Another, Revenue Watch Institute, promotes the use of natural resource wealth for the public good.

Finally, the Natural Resource Charter, launched in 2009 by academics and civil society, has developed 12 precepts that a country should follow if its natural resource wealth is to be used for the common good. This is aimed both at governments but also members of civil society to inform them of how the policy of their government might be deviating from what is socially desirable. African governments have themselves been getting into the action by endorsing the Africa Mining Vision along with the 2011 Action Plan and a great deal of pressure towards institutional change in the natural resource sector is coming from the Africa Progress Panel’s 2013 Report.

Any of these initiatives can and have been criticized. Many independent evaluations are quite scathing about EITI. They question, for example, whether it has had any impact on anything important.

Empowering civil society and voters through transparency is a sensible objective. But it is also a difficult task, particularly since quite a few of the EITI countries are fully autocratic regimes. Azerbaijan and Kazakhstan, for example, are EITI compliant, but both are autocratic, renowned for their corrupt politics, and consistently repressive of civil society activism.

Equatorial Guinea and Gabon have been judged as non-compliant with EITI. But what are the implications? No sanction or punishment so far as we are aware of.

In April 2006, for example, the government of Congo-Brazzaville locked up Christian Mounzeo and Brice Makosso, the coordinators of Publish What You Pay, which in response withdrew from the country. So information is power, but civil society must be able to organize and use this information effectively. Just information is probably not enough.

This is not to unduly criticize the EITI. Like many other schemes aimed at transparency, it is taking the right perspective on the importance of information, transparency and civil society. But if extractive political institutions are at the root of the problem, these schemes are unlikely to be enough by themselves and may need other methods of empowerment for non-elites in society.


The Paro Minero hits Quibdó  

We mentioned the legacy of slavery in Chocó in our first post on Quibdó.

Slaves were in Chocó to mine gold, and gold mining, much of it illegal and artisanal, is still going on all over the department. One figure claims that there are 250,000 small miners in Colombia, and they have recently been engaged in a series of ‘paros’ (a strike or a shutdown) trying to get the government to take them more seriously. Their more specific aim is to force the government to recognize their right to mine and to stop giving away lands that they consider theirs to large multinations.

As one artisanal miner, Carlos Latorre, put it in Quibdó (quoted here):

I have come asking for my title since 2000, I have asked 12 times and nothing happens. We are miners since 500 years ago, we were brought up to mining, gold mining started many years ago with punts. Please give us the title, despite all the papers delivered, what is the policy of the State to the small mining?

This situation with titles is the norm in rural Colombia.

Meanwhile the large mining multinational AngloGold Ashanti has managed to acquire from the government the title to mine 125,000 hectares of land in the Chocó. Hmmm….

The recent paro was called by Fedemichocó, which represents 8000 miners in the Chocó. It was due to start on the first day of the conference in Quibdó, but nothing much seemed to happen until Friday July 19 when miners flooded into town and received a great deal of solidarity from local people.

They blocked streets and overran the airport, causing the cancellation of all flights. Here is the scene as they rushed onto the runways and surrounded the waiting planes forcing passengers who were about to leave to disembark.

Trapped in the airport terminal were the people from the conference who got eventually extracted by the army and taken by helicopter to Medellín that did at least give this wonderful view of the Cordillera Occidental of the Andes.


There were paros not just in Chocó during this time but also in the departments of Antioquia, Norte de Santander, Valle and elsewhere.

That there should be all this seething discontent in Colombia at a time when the national government is in the midst of what appears likely to be a successful peace negotiation with the FARC guerilla group might strike some as surprising.

But some interpret it as representing civil society flexing its muscles at a time when people are beginning to sense the prospect of real political change in Colombia.

Yet this may take some time, as attested the nature of the political elites in Colombia.

For example, the three leading candidates for next year’s presidential election are likely to be the incumbent, Juan Manuel Santos, Francisco Santos and Clara López. Francisco and Juan Manuel are not just cousins. They are also both scions of one of the great elite Colombian families. Francisco’s great uncle Eduardo Santos was President between 1938 and 1942 (see this nice article on the Santos dynasty which traces its roots far back into the colonial period).

Between 1913 and 2007 the Santos family was the largest shareholders in Colombia’s biggest national newspaper El Tiempo. Pretty handy if you are trying to build a political dynasty….

Clara López is a scion of one of the other great Colombian political dynasties, the López family. They provided not one but two presidents, Alfonso López Pumarejo between 1934 and 1938 and again between 1942 and 1945, and Alfonso López Michelsen who was president between 1974 and 1978.

So on the face of it Colombian politics doesn’t look like it’s changing yet. , All the same, the widespread discontent raises the thought:

What if the FARC finally put down their guns, could new political movements become legitimized and could they find a way to forge a common agenda amongst all the discontented people in Colombia?


Rapping Why Nations Fail in Quibdó (with Alexis Play)  

Paula Moreno, director of Manos Visibles, who we mentioned in our previous post, used to be the Colombian Minister of Culture so she knows about a lot more than just the economy. Part of her agenda is to promote the amazingly rich cultural and artistic life of the Chocó (not just raise GDP per capita).

So she sprung a surprise at the conference. Local Colombian, Chocoano rapero (rapper) Alexis Play was invited to attend the first day and conclude the sessions by improvising a rap based on the themes of the discussions.

This didn’t only include Why Nations Fail but also a lecture by Adolfo Meisel of the Central Bank on regional inequality in Colombia.

However, Alexis did start off with our presentation, see here for his very clever and funny improvisation (unfortunately only in Spanish)

Here is Alexis with one of the proud co-authors!


Why Nations, and Regions, Fail in Quibdó  

Quibdó is the poorest department of Colombia, once the home of intensive slave labor (around 75% of the population of what is now Chocó were slaves in the late colonial period).

It is now one of the most isolated parts of the country. The nearest thing to a road connecting Quibdó to the rest of Colombia is a mud track from Medellín which apparently takes about 12 hours to traverse the 189 kms (according to Google Maps). This is slow even by Congolese standards.

If you get to Quibdó there are not really any other roads, all traffic goes by the great Atrato River and its tributaries. The Chocó borders the Pacific to the West and the Panama and the Caribbean to the North. To get from Quibdó to the beautiful beaches of the Pacific you take, OK you guessed it, a plane, since there isn’t a road.

This week Why Nations Fail was in Quibdó at the invitation of Paula Moreno and her NGO Manos Visibles (Visible Hands).

Manos Visibles organized the first of a regional workshop on “The Pacific and its challenges of Governance” (see the web site here), and invited Jim to talk about how the ideas in Why Nations Fail could be applied to explain the underdevelopment of the Chocó.

To give you a sense of this around 80% of the population of the department live below the poverty line and income per capita is 40% of the national level in Colombia. This gives the Chocó an income per capita of a country like Guatemala or Honduras in Central America, or alternatively India or Indonesia.

As we argued in our previous post on Mexican regions, the framework of our book can be fruitfully applied to explain why regions fail.

There is a lot of variation within a country in the extent to which institutions are extractive and some parts (like the US South historically or the South of Italy) had and have in the Italian case, much more extractive institutions than other parts of the country.

In the case of the Chocó, there is a heavy legacy of slavery which we investigated systematically in our joint work with Camilo García-Jimeno of the University of Pennsylvania. In our paper “Finding Eldorado”, we found that this legacy of extractive economic institutions is associated not only with lower incomes but also with intense neglect by the state as attested in this case by the complete absence of any attempt to connect the department to the rest of the country. This lack of state capacity in parts of Colombia is also the subject of ongoing research with Camilo, on which we hope to report sometime soon.

For now, those interested can look at Jim’s lecture slides applying the framework of Why Nations Fail to Colombia and the Chocó (unfortunately only in Spanish).