EITI IN PERSPECTIVE: Scope and Country Experiences

By Maryanne Agbiriogu

The discovery of oil, gas and other hydrocarbon minerals in developing countries raised the hopes of its citizens that their journey to economic, social and infrastructural development was underway. However, history has proven that the exploitation of these resources does not necessarily guarantee economic development and wealth acquisition. Most of the people living in some of these resource rich countries live in abject poverty. The very basic amenities, water, health, accommodation are not readily and easily accessible and are now more or less perceived as luxurious. This observable irreconcilable situation, principally as a result of political antics, has been frequently phrased as the “paradox of plenty” (Karl, 1997) and the “resource curse” (Auty, 1993).

Customarily, the activities of the extractive industry have been shrouded in secrecy, with the very highly placed politicians, transnational and national corporations’ bigwigs as the only benefactors of crucial financial information. The implication of this is that the people of these resource-rich countries are ignorant of the exact worth of the resources, the revenues they generate and the manner in which these revenues are spent. In order to rid these developing countries of the ‘resource curse’ (Ibid), the business activities transpiring between corporations and governments, particularly in the areas of taxes, royalties, rents etc  paid or received  and revenues generated, in the extractive industry should be made transparent.

The EITI (Extractive Industry Transparency Initiative), attempts to reverse the pattern in which business in the extractive industry has been carried out over time. The EITI was inaugurated at the World Summit for Sustainable Development in 2002 by the prime minister of the United Kingdom at the time, Tony Blair, as the outlook for international standard on transparency (Olcer, 2009). The initiative, which involves an alliance of corporations, civil society organisations, country governments, industry associations, institutional investors and international organisations, is aimed at promoting voluntary publication of payments made by corporations to governments which should consequently improve accountability of governments to their people and ultimately lead to adequate utilisation of revenues generated towards sustainable development and poverty eradication.

Questions have arisen, as regards what extent the EITI has impacted on corruption levels and on improving the standard of living in these resource-rich countries. This article, while highlighting the EITI as a cutting edge initiative that has brought attention to a sector that has been long shielded from public scrutiny, also addresses the questions raised as to why this initiative since its inception has not brought about the desired transition to reduced corruption levels in the extractive sector. The analysis identifies a number of inadequacies in its (EITI) setup which do not provide for the required standards on which accurate information on revenue flow can be made available. The analysis also examines the EITI from both theoretical and practical perspectives, in terms of its design, what it is supposed to achieve and what it has done so far practically, giving some specific country scenarios.

OVERVIEW OF EITI

I will start by giving an overview of the EITI theoretically and practically; describing the roles of the different players, the anticipated gains and the countries that have signed on to this initiative.

EITI: A THEORITICAL PERSPECTIVE

The EITI can be described as a voluntary reconciliatory procedure, between the governments of resource rich countries and corporations in the extractive industry. It encourages governments to make public, payments received from extractive industry firms- which are then compared with also published records of payments claimed to be made by the firms to the government. These records are compared and reports disclosed by an autonomous officer, highlighting the discrepancies discovered in the process. The process is overseen by a Multi-Stakeholder Group (MSG) comprising of representatives from the civil society[1], extractive industries and the government (Ibid). By making this information public to the citizens, they are empowered to keep track of revenues generated, hold their government accountable and have leverage over government expenditures. A pictorial representation of the EITI process is depicted in Figure 1.

 Figure 1: EITI Process

Source: EITI Website

In terms of country participation in the EITI, there are two divisions; a candidate country and a compliant country (EITI Homepage, 2010). A candidate country is one that has complied with the four sign up indicators as prescribed by the board, while a compliant one is one that has completed the EITI validation (Ibid). Presently, there are three compliant countries[2] and 27 candidate countries. A candidate country is expected to complete the four stage process of the EITI implementation within two years of attaining candidacy status, and would undergo a revalidation every 5 years (Ibid).

For EITI implementing countries, apart from budgetary allocations to the initiative, there have been other financial and technical supports from the following groups (The International Bank for Reconstruction and Development / The World Bank, 2008):

i) EITI Multi-donor Trust Fund (MDTF): This fund, overseen by the World Bank is used as a channel for funds by many contributing parties towards the implementation of the EITI in participating countries. This fund remits the contributions to countries that have demonstrated commitments to upholding the initiative which can be utilized for technical improvements.

ii) Civil Society Groups (CSG) at the International level: These groups render guidance and assistance to national CSG that are part of the EITI implementation process at the country level. Some of the international CSG providing such support include the Revenue Watch Institute (RWI), Transparency International and the Publish What You Pay Coalition (PWYP).

iii) Extractive Industry Corporations: A good number of trans-national corporations as well as national corporations have contributed significantly to the implementation of the EITI.  At the national level, funds that are set up towards this initiative need to be properly monitored so that issues of inappropriate influence on the EITI process do not arise.

EITI IN PRACTICE: COUNTRY EXPERIENCES

Since the objective of the EITI programmes in Countries is to increase transparency in revenue management it would be insightful to study its progress so far in select countries. Study and observation of the countries has produced varied results but it would be instructive to analyze 2 of the Countries in terms of high performance and poor performance.

High Performance: Azerbaijan 

Azerbaijan is the first ever country to complete validation among EITI member Countries.  Located in the Caucus region, it is considered as part of Western Asia (United Nations, 2010). Azerbaijan was formerly a State under the Soviet Union; but gained independence in 1991 following the unravelling of the Soviet Union. The IMF 2010 put Azerbaijan’s Gross Domestic product (GDP) at US$51.78 billion.  Azerbaijan has been recording double digit economic growth since 2005 (in 2006, it recorded the World’s highest gross domestic product growth rate at 36%). Its 2008 growth rate was 11% (IMF, 2010). Its growth has been driven by oil and gas production and revenues. Its oil and gas receipts are estimated to account for over 70% of Azerbaijan’s exports and nearly 50% of budget revenues.  Azerbaijan has a State Oil Fund (SOFAZ). SOFAZ is one of the central components of Azerbaijan’s strategy for managing its oil revenues.  SOFAZ was established in 1999 and like most sovereign wealth funds, its mandate is to ensure intergenerational equality of benefit in the country's oil wealth, whilst improving the economic well-being of the population, and safeguarding economic security for future of the country’s future generations (saving for a rainy day).  SOFAZ’s assets as at April 2010 stood at US$ 16.24 billion (SOFAZ, 2010).  The EITI process and office is part of the SOFAZ structure and has further enhanced the accountability between the government and oil companies operating in the country.  Azerbaijan publishes annual and semi annual reports on its oil income every six months. It also holds a multi-stakeholder group (MSG) meeting which includes civil society, the government and oil companies that provide a platform for civil society and companies to meet and exchange opinions on how its natural resources could be managed. Managing such large funds and the seeing to the transparency of its expenditure would without doubt be challenging, but Azerbaijan has made acknowledged progress. However, a notable critique of Azerbaijan’s success has been the opinions of Non–profit organizations led by the ‘publish what you pay alliance’ (PWYP, 2009). Azerbaijan did not have a formal framework for its MSG till January 2010, a year after the country’s validation. Although Non-Governmental Organizations under a Coalition of Azerbaijan Non-Government Organizations were recognized as legitimate partners by stakeholders in the EITI process, a formal framework for cooperation did not exist until the first official MSG meeting took place in January 2010. This was partly caused by the fact that the creation of MSGs only became a condition for validation in recent years. Previously, the MSG arrangement relied upon a single memorandum of understanding (MOU) signed between the government, civil society and companies engaged in the EITI process in Azerbaijan. The memorandum was limited in scope and did not provide a mutually agreeable work plan for the oversight of Azerbaijan’s EITI implementation. A formal MSG was eventually agreed upon in January 2010 which followed extensive negotiations between stakeholders on important issues such as frequency of meetings, chairmanship of the MSG and scope of its activities. Analysis of the reasons for Azerbaijan’s success indicates that it is mainly due to the government’s willingness to accede to pressure for more transparency in the extractive industry. Non-governmental organizations also diligently sought to strengthen their role in the country and ensured that the multi-stake holder group was structured such that it would be an effective body. The EITI Board acknowledged the prompt corrective measures that the Azerbaijan Government adopted in its creation of its MSG and the establishment of an extractive industries work plan (EITI, 2010).

Absence of Progress: Guinea

Guinea, located in the western part of Africa, had a Gross Domestic Product (GDP) of US$9.3 Billion as at 2009 (IMF, 2010). Guinea’s economy shrank by 0.28% from 2008 (Ibid). Guinea’s noteworthy mineral resources include diamonds, gold, bauxite and alumina. Guinea’s main export is bauxite and it possesses over 25 billion metric tons of bauxite which is estimated to be between one third and half of the world's bauxite reserves.  Bauxite mining and alumina provide between 80 and 90% of Guinea's foreign exchange.  Guinea joined the EITI in April 2005. In the same year, Guinea was able to publish a report on its 2005 revenue flows. It established a 24-man working committee comprising of members from the government, companies and civil society.  In December 2009 Guinea voluntarily suspended its EITI Candidate status following the EITI Board's approval. The government of Guinea had made the request realizing the political challenges it was facing.  Guinea’s progress in implementing an extractive industry transparency has been affected by government instability.  Between 2000 and 2008 the country has been affected by leadership instability, and economic and political strikes. President Conte’s death in 2008 further increased instability in the Country. This has hampered its ability to implement the EITI effectively. Corruption in Guinea has also affected its ability to report revenues effectively. In 2006, Transparency International’s corruption perception index rated Guinea 161 out of 163 countries surveyed, making it the third most corrupt country in the world at the time. In its most recent rankings Guinea was ranked 168 out of 180 Countries surveyed.  Meanwhile, Guinean authorities have informed the EITI of their intention to continue unilateral EITI implementation during the period of its suspension. Guinea’s issues showcase the necessity of government’s support and stability in implementing the EITI process in a country. Countries that suppress non-official opinion such as those of trade unions and NGOs would also typically not do well with the EITI process. During the several strikes the military opened fire on protesters, in 2007, some were killed and scores of women raped during a peaceful demonstration at a Stadium. This underpins the mindset of government authority in Guinea.

ANTICIPATED BENEFITS OF THE EITI

The benefits stemming from efficient implementation of the EITI are far-reaching. For the governments involved, gains from being perceived internationally as credible and committed to good governance and tackling corruption will translate to increased investment and increased revenue. For the citizens, the era of ‘suffering in the midst of plenty’ will be foregone, as governments becoming more accountable, will channel revenues earned towards sustainable developments and improved standards of living.

The government and peoples of the implementing country are not the only beneficiaries of the initiative. The benefits are extended to the extractive industry firms as transparency in dealings creates a more conducive environment for business which can consequently increase profits. Stability of energy supply from energy exporting countries as a result of sustained investments in production is also a gain from a transparent and equitable system which in turn will improve global energy supply and energy security.

NUTSHELL:

According to Maryanne, many developing countries are rich in natural hydrocarbon resources. However, despite this wealth of resources, a significant number of them still wallow in abject poverty.   To her, these countries do not reflect economic and social developments expected by virtue of revenues earned from harnessing these resources. High level corruption resulting from weak accountability and transparency are viewed as drivers of this stagnancy in developments. The Extractive Industries Transparency Initiative (EITI) is an international standard aimed at promoting transparency and accountability of revenues generated in the extractive industry. This initiative is expected to enhance positive transitions to a level such that the well known  phrase, ‘resource curse’ used to describe resource rich countries that have not experienced economic growth parallel to their wealth of resources will be gradually replaced with a positive adage; ‘from dirt to wealth’. This article highlights the expected impacts of the EITI both in theory and from a practical perspective. To view Maryanne's professional profile and for more information on this article, please click here..-->