Extractive Industries Transparency and the Resource Curse
September 26th, 2012
September 26th, 2012
The resource curse has long been a problem for Africa. The continent’s economies have remained stagnant and hollow for nearly 60 years while a succession of autocrats and their clients have become fabulously wealthy. With huge natural gas discoveries off of the Mozambican coast, vast newfound oil reserves in the Great Lakes region and more than $1 trillion worth of minerals in the Democratic Republic of Congo, there is vast potential for another wasted generation.
Equatorial Guinea, with an overabundance of lumber and petroleum, has one of the highest per capita GDP in Africa, yet more than 60 percent of the population struggles to survive on less than $1 a day. It is a similar story in Angola, a country that has become one of the United States’ largest source of oil imports but still struggles to feed its people. American and European extractive industries have done business for decades across Africa without having to report their payments to governments, a loophole that has allowed for the siphoning of funds to flourish. New developments in the U.S. regulatory mechanism should begin to change that.
On August 22nd, financial regulators ruled to implement Section 1504 of the Dodd-Frank Act, better known as the Cardin-Lugar Amendment. The amendment requires extractive companies to publish in an annual document for the Securities and Exchange Commission the payments they make to foreign governments in the countries where they operate. Almost instantly, the opacity in reporting that has allowed corrupt autocrats to drain their states’ resources has vanished. Beginning in 2013, extractive industries will publish all of their 2012 payments to governments worldwide.
There is support for legally-enforced transparency outside of the United States as well. In a recent op-ed for the New York Times, former UN Secretary General Kofi Annan called for European lawmakers to remove an exemption that would allow for autocrats to make laws prohibiting the disclosure of governmental financial transactions, allowing local laws to supersede European ones. In what feels like a rarity these days, Europe should instead follow the regulatory trail blazed by the United States.
In addition to legislation, there has been an international effort to increase transparency in the industry. Formally announced by former British Prime Minister Tony Blair in 2002, The Extractive Industries Transparency Initiative (EITI) aims to be the “globally developed standard that promotes revenue transparency at the local level.” Companies report their payments to governments to the Initiative while governments disclose their receipt of payments. Only seven African countries are currently EITI stakeholders, with 12 more up for candidacy. One must question the rigor of the initiative, however, if the Central African Republic, one of the most notoriously corrupt countries on Earth is a stakeholder.
Some corporate opponents of the Cardin-Lugar Amendment have pointed to EITI as an existing framework that sufficiently regulates the industry, thus making any U.S. legislation redundant. Considering the track record that multinational corporations have in abiding by international agreements such as these, those arguments should be dismissed.
The adoption of the Cardin-Lugar Amendment is an important step forward for financial transparency. For a bill largely opposed by pro-business groups, the amendment will support the long-term interests of worldwide business. European lawmakers should resist appeasing their autocratic clients and allow for the Western world to show unilateral support for legislation that would spread the wealth around in a completely un-Marxist way. Most of the 3.5 billion people living in resource-rich countries will never see a single benefit from the raw materials that the lands to which they were born hold in superfluity. The United States has taken a big step.
You’re turn, Europe.