ECC Platform Library

 

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

01 April, 2014
adelphi

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!

Article
Topic
Capacity Building
Civil Society
Energy
Minerals & Mining
Private Sector

Region
Global Issues

Topics

Adaptation & Resilience

All countries will need to adapt to some of the environmental, social and economic impacts of climate change that are already unavoidable. Food security, livelihoods, water resource availability and public health are some affected areas. People living in poverty are more vulnerable, having a lower capacity to adapt. Thus, it is essential to promote resilience building. The adaptation and resilience aspects need to be mainstreamed into planning by policy makers and the private sector as well as integrated into development strategies.

Biodiversity & Livelihoods

Nature protection is most sustainable if it essentially contributes to the long-term stability of human needs. Today many regions around the world are confronted with increasing destruction of the natural foundations of life. The consequences of wide-ranging resource destruction are no longer regionally limited, but rather represent a global threat. Those affected are mainly rural populations, who find the sources of their income and the foundations of their way of life swept away. The depletion and destruction of natural resources goes hand in hand with decreasing agricultural yields and increasing poverty, which in turn forces the affected populations to deplete the remaining resources.

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Capacity Building

On the one hand, conflicts are caused by structural factors, such as economic and social inequality or environmental destruction. On the other hand, conflicts are fuelled by a lack of democratic structures, deficient mechanisms of non-violent conflict settlement, inadequate rule of law, the destruction of social and cultural identity and the disregard of human rights. Against this backdrop, development policies have been dedicated to a broad concept of security, which comprises political, economic, ecological and social stability. As a consequence, development cooperation agencies and actors have developed a broad spectrum of approaches for conflict prevention and transformation as well as for sustainable use of natural resources.

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Cities

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Civil Society

Civil society is the first victim of environmental pollution, under-development and conflicts. Economically disadvantaged and politically marginalized population groups are particularly affected by violent conflicts as well as increasing resource degradation. Simultaneously, civil society is a fundamental pillar for implementing sustainable development. It contributes in many ways to strengthening conflict prevention and plays a significant role in the peaceful and democratic development of states. It must be supported to strengthen civil rights, adherence to human rights in general and democratic participation.

Climate Change

Climate change resulting from the emission of greenhouse gases represents one of the vital challenges for international environmental policy. Flooding, droughts, shifting of climate zones and increasingly frequent and intense extreme weather events will have serious economic and social consequences for entire regions. The climate problem is also directly linked to the question of future energy generation.

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Climate Diplomacy

To address the challenges posed by climate change, a new profile of climate diplomacy is evolving. This utilises a full range of policies, including development cooperation, conflict prevention efforts, and humanitarian assistance, in addition to more traditional measures of climate change adaptation and mitigation. Moving from a risk analysis of climate-related threats to well-timed preventive action requires a greater commitment to integrating climate change concerns into development, foreign, and security policies. Examples include strengthening diplomatic networks, building new alliances with partners, and raising awareness – not only of potentially negative climate change impacts, but also of opportunities to embark on a sustainable transformation of our societies.

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Co-Benefits

Climate action entails an array of economic, social, political and environmental co-benefits. It provides an opportunity for economic growth and new jobs. Many investments can take into account climate considerations without becoming more costly. Further important co-benefits include: improved energy security, less local air and water pollution, health benefits as well as ecosystem and biodiversity protection.

Conflict Transformation

In order to overcome the structural causes of violent conflicts and thus bring about an improvement in the framework conditions for peaceful and fair development, it is essential to have long term and broadly planned peace development and peace advancement. Various governmental and non-governmental, national and international actors and groups are involved in these processes.

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Development

Climate change and development are inextricably linked. Climate change endangers the development agenda and has the potential to reverse development goals. Furthermore, successful mitigation of climate change heavily depends on development choices around the world. Therefore, development strategies need to be climate-compatible to provide long-term success, and there are viable policy options that support this compatibility. Many mitigation and adaptation activities can present development opportunities to developing countries and avoid the lock-in to environmentally damaging technologies.

Early Warning & Risk Analysis

The reasons for the development and escalation of conflicts and the incidence of risks are multifaceted and complex. Simultaneously, the assessment of the specific causes in the form of risk and conflict analyses can contribute to a better understanding of these processes and make it possible to provide warning of negative developments, or ideally help prevent them. In the context of natural resource use, risks and conflicts have gained increasing attention in the past years. The debate on possible future water wars is merely one example.

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Energy

The well-being of individuals, communities and nations depends on the availability of energy resources. The gap between energy supply and demand appears to be growing, making the world vulnerable to serious economic shocks. At the same time, the burning of fossil fuels causing climate change is one of the vital challenges of international environmental policy. So far, only rudimentary approaches exist for shaping climate and energy security in a sustainable way. The components of a strategy that can contribute to reducing vulnerabilities related to climate change and energy policy include a greater role for renewable energies, the improvement of energy efficiency and a stronger decentralisation of energy supply.

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Environment & Migration

The economic, social and environmental consequences of climate change aggravate the breakdown of eco-system-dependent livelihoods and are likely to become dominant drivers of long-term migration. Natural disasters already cause massive shorter-term displacement and the number of temporarily displaced people is likely to further increase with climate change. For vulnerable populations in vulnerable regions, such as the Sahel zone or the Ganges delta, migration often becomes the sole survival strategy. In order to address climate-related displacement and migration successfully, knowledge of effective adaptation and an improved understanding of how environmental change affects human mobility is essential. 

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Finance

Climate finance, from all sources, plays a key role in supporting and enabling adaptation and mitigation action as well as climate and energy innovation. The Paris Agreement ensured that the Green Climate Fund and the Global Environment Facility are at the core of climate finance architecture as entities entrusted with the operation of the Financial Mechanism of the UNFCCC. Increasing climate finance from all relevant public and private sources is crucial. Furthermore, much needs to be done to redirect finance flows to sustainable paths, e.g. reducing fossil fuel subsidies, introducing maritime and air transportation taxes. The conditions for green investment in developing countries should also be improved.

Forests

Forests are disappearing at an alarming rate. Competition for forest resources triggers, exacerbates, or finances numerous crises and conflicts in tropical developing countries. Illegal logging and timber trade foster instability and sometimes violent conflict by strengthening illegal and armed groups, increasing corruption and exacerbating use and claim conflicts among local communities, the state and the business sector. Forests are a vital resource to poor people but they can also become areas of conflict. Sustainable management of forest resources is therefore key to preventing violent conflict over and within forests.

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Gender

Gender plays an important role as a category of conflict for many reasons. The interlinkages between gender, environment and conflicts are complex and much research is still needed. Existing insights suggest that conflicts may worsen gender inequalities that existed before the outbreak of violence. The unequal distribution of land property rights in many parts of the world serves as an example. Moreover, women (and children) are among those most affected by both violent conflict and natural disasters. At the same time, women carry much of the burden of trying to implement rehabilitation measures after crisis events.

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Land & Food

Increasing water scarcity, desertification and crop failures due to extreme weather events are becoming more and more of a threat to global food production. While the world’s population continues to grow rapidly, food production is unable to keep pace. Due to the global food crisis in 2008, the number of hungry people reached the symbolic one billion threshold for the first time – corresponding to about 16 percent of world population. Food insecurity may be a consequence or cause of conflicts. Violent conflicts often lead to the destruction of agricultural infrastructure and means of production, as well as to the displacement of local communities.

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Minerals & Mining

In the past, the discovery and tapping of valuable or strategic resources like valuable minerals, oil and natural gas, particularly in developing and emerging countries, has often led to large scale environmental contamination and negative development. The "resource curse" of some countries shows that the wealth from resource yields is frequently unfairly distributed; instead of serving development it advanced the formation of corrupt elites and in some cases even led to conflicts and civil wars. Measures in various sectors and at all levels are important in order to use the potential of these natural resources in a manner that is sustainable and prevents conflicts.

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Private Sector

The spread of violent conflict not only affects people but also companies located in such regions. Destruction of investments and infrastructure, collapse of markets and trade partnerships, flight and expulsion of employees are phenomena of conflicts and environment-induced crises that directly affect companies in unstable regions. Almost all branches of the economy thus have a clear interest in a stable and peaceful environment for their activities. Conversely, the business sector plays an important role in the interaction of economic growth, social development and a healthy environment, all of which can advance peace and sustainable development. 

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Security

Environmental issues have a significant security dimension. Access to, and overuse of, natural resources often play a key role in civil wars or other forms of internal domestic conflict. This is compounded by climate change and environmental degradation. Climate change is now widely recognised as a non-traditional, risk-multiplying threat that will have increasing security impacts. Key risks with possible implications for human and national security include water scarcity, food crises, natural disasters, and displacement. More preventive diplomacy and advocacy is needed to address the strategic implications of climate and environmental change.

Sustainable Transformation

Sustainable Transformation allows societies to profit from a growing, environmentally sustainable and socially inclusive economy – especially in emerging and developing countries. This requires a higher up-front investment, but the benefits of a sustainable transformation in the medium and long term are significant. For instance, energy cost savings and reducing the impact of price volatility offer major incentives for deploying renewable energies and promoting energy efficiency. Such benefits exist in all key sectors of the economy.

Technology & Innovation

Innovations and technologies are already readily available and affordable but their global diffusion and uptake remains a challenge. Innovation and technology are crucial to achieving ambitious climate change mitigation and adaptation targets. However, research and development often do not receive appropriate public support. Developing countries can leapfrog high-carbon industrialisation phases by adopting, deploying and improving existing innovations and technologies. For this, it is essential to minimise financial, administrative and political barriers.

Water

The availability of freshwater resources in sufficient quantity and quality is essential for the preservation of human health and sound ecosystems. The use of water resources is also vital, however, for economic development: whether for agriculture, industrial production or for electricity generation. The world's freshwater resources are distributed very unevenly in terms of geography and seasons. In addition, water shortage is becoming more prevalent in several regions due to population growth, economic development, urbanisation and increasing environmental pollution. Thus, water resources can hold potential for conflicts between parties who have different interests and needs.

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Regions

Asia

The environment in Asia is already under tremendous pressure as a result of the unsustainable use of land, forests, water and even air in many regions. Climate change will only exacerbate these challenges. Rising sea levels will likely endanger densely populated areas, changes in the monsoon patterns can strongly impact agriculture, melting glaciers will increase long-term water scarcity, and extreme weather events such as heavy rainfall and cyclones can pose further hazards.

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Central America & Caribbean

Natural disasters and water scarcity are key challenges for most of Central America and the Caribbean. These challenges will become even more pronounced as the climate changes. Weak resource and disaster risk management and land disputes pose additional security challenges for large parts of the region. Several countries of Central America and the Caribbean have limited adaptive capacities as they face political instability caused by high social inequality, crime, corruption, and intra-state conflicts.

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Europe

As one of the most developed and most densely populated regions in the world, Europe makes heavy use of its resources, resulting in difficult trade-offs and negative consequences for the environment and ecosystems. Land is used for settlements, agriculture and dense infrastructure, creating problems of soil degradation. Water resources are stressed due to unsustainable agricultural practices. Despite nature protection policies, Europe continues to lose biodiversity at an alarming pace. Some of these trends are exacerbated by climate change, which is expected, for instance, to lead to shifts in water availability.

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Global Issues

Resource scarcities, environmental pollution and climate change are not limited by national borders, but often have a transboundary or even global impact. These issues interact with political stability, governance structures and economic performance, and can trigger or worsen disputes and violent conflicts. Exacerbating some of these trends, climate change is likely to lead to the degradation of freshwater resources, declines in food production, increases in storm and flood disasters and environmentally induced migration. All these developments pose potential for conflict.

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Middle East & North Africa

The geopolitical position of the Middle East and North Africa (MENA), its fossil fuel resources, high population growth and the political changes spurred by the Arab Spring all make the region one of the most dynamic in the world. Nevertheless, it is also one of the most arid and environmentally stressed. Dwindling water resources, limited arable and grazing land, high pollution from household and industrial waste, remnants of conflicts and increasing desertification are key environmental challenges.

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North America

Climate change has various impacts on the three North American countries of Canada, Mexico and the US. Canada and the US have well-developed adaptive capacities and foster the strengthening of capacities in other regions as well. With high per capita emissions, these two countries also bear a greater responsibility for a changing climate. Mexico has a sound national strategy for climate change adaptation, yet fewer capacities than Canada and the US. The poorer and rural populations of Mexico are especially vulnerable to climate change, due to an increased sensitivity and a lower adaptive capacity.

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Oceania & Pacific

In Oceania, population growth and economic development trends put a strain on oceanic and island ecosystems. Freshwater scarcity, overexploitation of fisheries, loss of land biodiversity, forests and trees, invasive species, soil degradation, increasing levels of settlement, poor management of solid and hazardous waste and disproportionate use of coastal areas are some of the problems. Climate change exacerbates most of these trends, while also raising questions about the future sovereignty of some island states.

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South America

South America has diverse and unique ecosystems and is very rich in biodiversity. Weak natural resource management, land disputes and extreme weather events bring about significant challenges for the region. While South America accounts for relatively few CO2 emissions, the changing climate will alter its ecosystems and greater climate variability will lead to more hurricanes, landslides, and droughts.

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Sub-Saharan Africa

In many African states, environmental security issues rank high on the political agenda. Throughout the continent, countries suffer from water scarcity, food insecurity and energy poverty. These chronic and worsening resource scarcities have severe livelihood implications and are exacerbated by political conflicts over access to and control over these resources. Climate change may seriously threaten political and economic stability in Africa. It may also put a severe strain on the capacities of states and societies to co-ordinate activities, to communicate and to organize.

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