In times of high commodity prices, good management of oil and mining revenues had the potential to be a springboard for development. With a far less hospitable global environment, it becomes even more urgent for governments to make judicious use of their available resources, and to take the structural and institutional measures that will ensure that future booms – which will undoubtedly occur again – are harnessed to fight poverty and improve the lives of citizens.
How can governments make sure that resource revenues are well used?
Some 28 African governments have adopted the Extractive Industries Transparency Initiative (EITI), with the aim of improving governance through the verification and full publication of company payments and government revenues from oil, gas and mining. In addition, 37 oil, gas and mining companies have agreed to support the initiative, as have institutional investors managing assets amounting, before the financial crisis, to more than $14 trillion.
Joining the EITI is a first step, and one that sends a strong signal of government’s commitment to transparency. Going further, if citizens are to reap the benefits from mining revenues, transparency is needed throughout the entire resource stream, from how contracts are awarded and monitored, to how taxes and royalties are collected, to how investment choices are made and executed. This is referred to as the “EITI ++” approach, which focuses on the better management of the entire resource chain that links commodity revenues to results for citizens. The international community, including the World Bank, can support countries in improving management of the commodity resource stream, and civil society will have a key role in this endeavor.
Several countries are now focusing on that resource chain. Niger and Liberia have approached their partners for technical legal assistance on awarding contracts. In Mozambique and Tanzania, analytical work is helping to foster a dialogue on public expenditure management and financial accountability in the context of rising revenues from mineral extraction. Some countries request support in such areas as auctioning of licenses and contract negotiations with major investors, management of volatile commodity-related revenues, or in improving the composition and quality of public investments.
As the crisis illustrates, commodity rich countries also need to prepare for a time when oil and mining resources might be depleted, by diversifying their sources of growth. Diversification is not a simple task; it requires major policy shifts and significant investments of resources in institutions, human capacities, health, education and infrastructure. For example, many countries with mining resources have untapped agriculture potential. The agriculture sector has accounted for one-third of Africa’s GDP growth over the last 15 years, and with the right kinds of support, including improved water and land management, rural roads and a better policy environment, productivity and value added could increase significantly, making the sector a much stronger contributor to economic growth and poverty reduction, mitigating risk of over-dependency on mineral resources.
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