Botswana or Zimbabwe? Exploiting Africa’s Resources Responsibly
December 12, 2012

To put it charitably, resource extraction industries have a mixed record with respect to operational transparency and accountability in Sub-Saharan Africa. This dubious reputation is earned through the historical (and ongoing) practices of companies that extract oil, gas and minerals across the continent, rarely improving local economic development or open governance in the process.

Recently, however, a coalition of governments, transparency advocates and companies is coming together to try and improve the notoriously poor practices of extractives. This should be welcomed; in spite of its mixed record, the industry represents one of Africa’s largest potential sources of foreign investment, technical expertise and government revenue.

The problem is not if to extract Africa’s natural resources, but how do so responsibly. As economist Joseph Stiglitz recently wrote in the Guardian, the continent’s “resources should be a blessing, not a curse.”

To that end, a useful question might be: how can we avoid ‘Zimbabwes’ (resource rich, but governance poor) and encourage more ‘Botswanas’ (resource rich and reasonably well governed)? Fortunately we can use the latter as a template — starting with differences that set the neighbouring countries apart, namely responsible institutions, sound public management and strategic negotiation of resource extraction contracts.

“Toronto is home to the world’s most important financial market for frontier resource-extraction companies, so what Canada now does really matters. Either you grasp the baton… or you become the exception that blows a hole in the struggle for transparency.”

Meeting these governance goals without some measure of transparency is hard to fathom, however. A popular response from policy makers outside Africa is to ensure companies based in their home countries are not contributing to poor governance practices in environments where they’re operating. This typically starts with public disclosure of all monies paid by foreign firms to African governments; in theory this allows citizens in African countries to compare government revenues with the quality and extent of public goods that are available.

Created in 2003, the Extractive Industries Transparency Initiative (EITI) is a British-led project that seeks to eliminate secrecy that shrouds resource exploitation around the world. EITI compliance entails that a member country (typically in the developing world) report all revenues received through resource extraction, while extractive companies also report payments to that government. The larger the accounting discrepancy between the two numbers, the greater the suspicions of corruption will be.

While a significant move in the right direction, there are a number of deficiencies with EITI, however. Most obviously, there are a number of non-implementing African countries (see map here), and even among those that comply, some do not produce reports on a project-by-project basis, making it difficult for civil society to use as a tool for demanding specified accountability. Also, it requires very little from developed countries, as many argue their domestic rules for corporate transparency are strong enough.

The US, for example, recently finalized its own transparency legislation that could supersede EITI. Currently undergoing implementation by the Securities Exchange Commission (SEC), the Cardin-Lugar Amendment to the Dodd-Frank Act will require all companies listed on a US stock exchange, including foreign issuers, to disclose payments above $100,000 in countries where they operate. Because of the size and exposure of US extraction companies, the impact of the amendment could be profound. Already it has put pressure on the European Union to pass its own version of this legislation, making transparency reform a trans-Atlantic initiative.

Canada may also have an important role to play in ensuring corporate responsibility, though currently, unless a Canadian firm is operating in an EITI compliant African country, or is a subsidiary of an American company, payments remain undisclosed. Oxford economist Paul Collier recently addressed the topic at the University of Waterloo, explaining that since the finalization of transparency rules by the SEC, it is now Canada’s turn to advance the cause of resource transparency. As he put it, “Toronto is home to the world’s most important financial market for frontier resource-extraction companies, so what Canada now does really matters. Either you grasp the baton… or you become the exception that blows a hole in the struggle for transparency.” 

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