Lotus Ruan, MAAPPS // Feb 26, 2015
In our last discussion, we debated over why subnational reporting matters to Mongolia. In other words, what might be some of the incentives for local governments, extracting companies, and social organizations to take one step further in introducing this new measure to Mongolia?
To answer this question, it would be useful to look at why countries are willing to participate in EITI practice at the national reporting level at the first place. There is no doubt that the EITI practice has been successful since it was launched in 2002. We witnessed substantive growth in the number of its member countries and of reporting companies in each country. While EITI’s principle and purpose is to increase the “public understanding of government revenues and expenditure over time” which could help inform the public choice of “appropriate and realistic options for sustainable development,” it somehow becomes a benchmark for investors when they are making decisions whether to invest in certain country or not. Perhaps this is also one of the reasons why even fragile states with corrupt governments such as Yemen would strike to keep their EITI membership and fight for a higher status.
As far as I’m concerned, the motivations for Mongolia and other countries to proceed with sub-national reporting can be explained in a similar vein, that is, sub-national reporting can assist the country in curtailing corruption at both national and subnational levels and thus win her a better international reputation and in attracting companies to invest in certain regions. In this blog entry, I’ll mainly focus on the first motivation.
While Mongolia has made a successful ad peaceful democratic transition from a communist one party regime based on the Soviet model two decades ago, it still has a long way to go in terms of fighting against corruption and increasing accountability in its newly established democracy system. In such as less develop system, the discovery of natural resources and wealth more often than not brings both economic opportunities and governance challenges.
Whereas Mongolia’s recent discovery of copper, gold, coal, and uranium deposits is bound to attract foreign investment, past experience has showed that natural resource wealth in the context of poverty and weak institutions can lead to corruption, conflict and insecurity. In the case of Mongolia, we already see that a mining development is generating concerns about its potential damage to the country’s environment and its traditntal agricultural setting, a lack of infrastructure and water resources, a rise of corruption, and an increasing economic inequality.
The EITI practice at a national level has undoubtedly helped Mongolia with its transparency level in extractive industries. Meanwhile, the country has implemented other measures to fight against corruption as well. The establishment of an Independent Authority Against Corruption in 2007, the Mongolia National Audit Office, and the like all contribute to maintain the country’s revenue transparency and expenditure transparency.
Institutionally speaking, the Mineral Resources and Petroleum Authority of Mongolia is responsible for implementing the mineral law, issuing mining licences, archiving geological data and conducting surveys and research. However, given the high risks involved in mining activities, companies are still tempted to pay bribes and politicians are often bending the rules and regulations applying to the sector in certain companies’ favour because of their corrupt networks. For Mongolia, this creates a rising concern for international organizations and local communities as well as a sense of insecurity among investors. According to World Bank, Mongolia’s regulatory framework is somewhat weak in the areas of public participation, sanctions, informal mining.
For Mongolia’s policy-makers, implementing sub-national EITI reporting can better hold local officials and companies accountable. By focusing on the sub-national level, EITI can actually deliver reports and discourse disagreed payments and intergovernmental transfers to citizens and concerned groups and thus have a stronger impact on its oil/gas and/or mining-producing regions where there is usually a lack of trust among local community, civil society, and potential investors.
I’ll elaborate more on the second motivation in my next blog post.