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What Will it Take to End the “Resource Curses?”

The discovery of oil in Chad in the 1990s brought new hope to the impoverished, land-locked nation. After the World Bank financed a $4.2 billion pipeline to carry oil from Chad to the Atlantic port of Kibri in Cameroon, the African nation began to see significant economic benefits. In 10 years, oil extraction earned the country $9.8 billion. In 2011 alone, the Government of Chad received $2.1 billion from oil revenues, constituting about 80 percent of government revenue that year.

But the oil has come at a cost. According to the 2005 Corruption Perception Index, Chad ranked as the most corrupt of 158 countries. A World Bank report found that the Chad oil project failed to reduce poverty, while oil revenues were associated with increased civil conflict and a worsening of governance. News reports say that local villagers lost land and crops, and received little to no financial compensation. And the oil fields continue to leach chemicals into soil and waterways, create air pollution, and contribute to degrading Lake Chad, a once-thriving ecosystem.

Chad is hardly alone in its experience. Communities around the world are witnessing the double-edged sword of extractive industries. While these industries can bring much-needed income—which theoretically could be invested in poverty alleviation and public services like education, better infrastructure, and healthcare—they often come paired with corruption, pollution, and misuse of natural resources.

Better transparency—both in how governments spend extractive revenues and how natural resource decisions are made—could help tackle this problem. And while some new initiatives are making progress, more needs to be done to ensure that drilling and mining doesn’t come at the expense of communities and the land, water, and wildlife they rely on.

The Resource Curse(s)

The case of oil development in Chad and other countries very clearly illustrates the “resource curse,” a paradox, so identified in 1994, where countries rich in oil, gas, and minerals remain largely impoverished. Theories about the resource curse have shown that one of the problems with “modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than natural-resource-scarce economies.”

However, environmental impacts of natural resource exploitation typically begin when oil, gas, or minerals are discovered. At the approval of governments, companies start exploring these resources with little regard for people living nearby. These communities are seldom consulted before governments issue exploration contracts, and often, their land is degraded in the process. Once companies map the resource and evaluate its commercial quantities – a process that mostly occurs in secret - neighboring communities are either cheated into selling their lands and rights or simply evicted by force, often without compensation.

Natural resource extraction then begins in earnest, oftentimes at the expense of the environment. Governments may allow companies to begin extraction without first conducting environmental impact assessments (EIAs). Even when EIAs are done, they are not made public, and the affected people are rarely consulted. Because there is such a lack of transparency in enforcement and monitoring, citizens can’t access the information they need to hold companies or government officials accountable. And most of the time, they can’t bring their concerns to judicial or administrative tribunals, because they have no recognized legal rights to do so or the process is prohibitively expensive.

Finally, extraction revenues are oftentimes not invested in public goods. Corrupt officials, politicians, and unscrupulous companies may siphon off revenues for their own uses—to the detriment of the populace to whom the wealth really belongs. The resource curse is therefore a double curse—one that involves misuse of finances and natural resources.

Seeking Greater Revenue Transparency

With the rising concern for the resource curse, the international development community has been focusing more attention on revenue transparency of extractive industries. Organizations such as the Extractive Industries Transparency Initiative (EITI), Publish What You Pay (PWYP), and the Revenue Watch Institute (RWI) are investing millions of dollars in efforts to push governments to make oil, gas, and mining contracts, concession data, and revenue streams public. By “following the money,” their logic goes, citizens can hold governments and companies accountable for misusing public funds.

These efforts are starting to yield some results. Twenty-seven countries are now recognized as “EITI-Compliant,” meaning that they fully disclose taxes and other payments they receive from oil, gas, and mining companies. And another 17 countries are currently implementing the EITI Standard, and may soon be recognized as “compliant.” New U.S. laws now require companies to file annual reports with the Securities and Exchange Commission (SEC), disclosing the payments they make to host governments for the extraction of oil, natural gas and minerals. And a 2013 European Union Directive requires companies to disclose payments by companies to governments for oil, natural gas, and mineral exploitation.

Side-Stepping Natural Resource Management

There is no question that keeping a public eye on revenue streams is critical to ensuring public funds are used for the public benefit. However, there is also a need to focus on issues other than revenue transparency –and these include the management of the natural resource itself. Revenue transparency efforts like those of the EITI originally focused only on company payments and government revenues. More recently, these efforts have begun to focus other issues, such as extractive contracting, price determination, revenue management, accounting, and distribution of revenues.

Yet equally important resource management issues—such as mitigation of environmental impacts, involuntary displacement, customary and indigenous land rights, and pollution control—have been largely neglected by the international revenue transparency movement thus far. In short, even though we’re making progress on following the money, resource extraction is still coming at the expense of communities and ecosystems.

Reversing the Trend

However, things may be beginning the change: As of last week, there are signs that the larger transparency community is starting to pay some attention to natural resource management.

The Open Government Partnership (OGP) is a huge, international initiative in which 64 governments and more than 200 civil society organizations are collaborating to encourage greater transparency, accountability, and citizen engagement. The initiative recently established five working groups to push its issues forward, with one group focused exclusively on transparency in the extractives sector (and co-chaired by the government of Ghana and the RWI). Recognizing the limited nature of its focus, last week the working group decided to expand its scope to also cover natural resource management transparency and citizen engagement. WRI and the government of Indonesia have been added as co-anchors of the working group on openness and extractives, and the group is currently revising its work plans to explore both revenue transparency and environmental management.

It’s an encouraging step. Inclusion in the OGP helps bring natural resource management to the attention of all participating governments—and hopefully, to the larger international transparency community.

Steps to End the Resource Curses

Transparency, accountability, and citizen engagement are essential in assessing, managing, and monitoring environmental and social impacts of extractive industries. However, this transparency cannot only apply to financial bottom lines.

While OGP has taken the first steps in the right direction, other actors such as revenue transparency groups, multi-lateral financial institutions, governments, and extractive industries can and should do more to ensure that both of the resource curses are addressed. Resource extraction affects economies, communities, and the environment—so it’s not enough to just follow the money. To focus solely on revenues is to keep one of the resource curses alive and kicking.

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It should also consider the capacity building for communities, so that people know how to enforce their rights of access to information, public participation and justice

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