Category Archives: EITI Country Case Studies

Carlos da Costa, PhD Student in Mining Engineering // April 7, 2015

Companies see value in EITI because it creates a more broadly supportive and secure operating environment. The EITI country process allows for companies to build the bonds of trust with a variety of stakeholders, and increases recognition of corporate contributions to development. Companies make large contributions to domestic tax bases, but also offer indirect benefits through their operation including job creation, capacity built through local supply chains, and local philanthropy. Companies also want to see local tax systems that are fair, transparent and encourage investment. Above all, companies want to see the onus of a country’s development on the country not on companies.

Developing countries, conversely, see value in EITI because it enhances a country’s international standing as a more stable destination for foreign direct investment while promoting a positive international image. EITI boosts transparency and spreads awareness on how governments are utilizing resource related incomes. A number of multilateral development banks (i.e.: the World Bank, Inter-American Development Bank, IMF, African Development Bank, Asian Development Bank, the European Bank for Reconstruction and Development, and the European Investment Bank) provide assistance to facilitate EITI implementation in developing countries. The EITI has also been endorsed by the UN, G8, G20, and AU and is supported by governments including Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, the United Kingdom, and the United States.

One of the central criticisms of EITI effectiveness is that it hinges on the existing conditions within a given country. Countries with strong civil society and an interest in transparent extractive payments (i.e.: Norway) will find EITI a meaningful tool, whereas countries with weak institutions and less than sincere desire for change (i.e.: Ethiopia) may try to just “go through the motions” to gain acceptance into EITI.

In countries where civil society is being squeezed (i.e.: Azerbaijan), there is an understandable urge to “fail” the country to send a message to the government, yet local NGOs say that the EITI multi-stakeholder group is the only free space of expression currently available. In Myanmar, which was admitted as an EITI Candidate country in July 2014, civil society, government, and industry are working together for the first time as they jointly produce the national EITI report over the next nine months (deadline for next EITI report: Saturday, 2 January 2016). The EITI process will assist the various stakeholders in learning patterns of cooperation while navigating the inevitable disagreements and differences. Beyond the effects on political inclusion, Myanmar’s admission as an EITI Candidate country has real development implications for the country. This responsibility falls with its government and people, but EITI is an instrument which can assist in facilitating the reform and transparency needed for responsible resource management.

One thing that has not been addressed by EITI, and is beyond the purview of extractive companies paying the taxes, is the issue of what governments “do” with tax revenues? In some instances the subnational EITI process has started to report this as well this, but the hope is that the availability of detailed extractive revenue information will create a transformative conversation at the country level. The reality is that this process will take longer in some countries than in others.

EITI does serve another important function in developing countries as often it provides the first opportunity for constructive multi-stakeholder dialogue and this in itself can have a positive effect on effective governance. There is hope that EITI, along with other initiatives focused on accountability and data transparency in the extractive sector, can help developing countries overcome the “resource curse.”

EITI is not a “be-all and end-all” solution, but has prompted a momentum of change in extractive transparency and accountability and will continue to spur dialogue leading to progressive change.

Sources:

African Development Bank Group. Extractive Industries Transparency Initiative. April 2015.
< http://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/extractive-industries-transparency-initiative/ >.

Compaoré, Nadège. South African Institute of International Affairs (SAIIA). Towards Understanding South Africa’s Differing Attitudes to the Extractive Industries Transparency Initiative and the Open Governance Partnership. South Africa, 2013.

EITI International Secretariat. EITI – Extractive Industries Transparency Initiative. April 2015.
< https://eiti.org/ >.

EITI International Secretariat. Impact of EITI in Africa: Stories from the ground. Norway, 2010.

Natural Resource Governance Institute. The Extractive Industries Transparency Initiative (EITI). April 2015.
< http://www.resourcegovernance.org/training/resource_center/backgrounders/extractive-industries-transparency-initiative-eiti >.

Mario Ramirez, MASc Mining Engineering // March 21, 2015

Today, I came across some interesting information that answered some of the questions and concerns I had from the beginning of this project.  I was, somehow, skeptical about EITI sub-national reporting, and wondered if these reports could really be of any use to communities where extracting projects are in operations. However, it was after reading the report“Implementing EITI at the Subnational Level[1]”, sponsored by the World Bank, and conducted by Mr. Javier Aguilar, that I began to see the light at the end of the tunnel.

The report is broken down in three main topics; being the first one, “the understanding of Subnational governments”, then it goes into “emerging experiences from EITI implementation countries”, which is my favorite, and ends with “the subnational dimension of EITI: an operational framework”.  The report uses the example of 6 countries which have implemented subnational reporting, and presents the case study of each country, describing each one’s distinctiveness but at the same time comparing its similarities.

In a note sent by the World Bank to the EITI in 2012[2], the World Bank mentions how sub-national EITI reconciliation can be identified from existing reporting practices, this note contains information extracted from the previous 2011 report presented by Aguilar:

Four different forms of possible sub-national EITI reconciliation can be identified from existing reporting practices:

1. The reconciliation process focused on direct EI revenues collected by the sub-national governments and compared them to companies’ payments (revenue collection, i.e. Mongolia).

2. The effort focused on revenue transfers from the central to the sub-national governments and compared them to the sub-national governments’ receipts (revenue distribution cash flow, i.e. Peru).

3. The process focused on revenue transfers from the central to the sub-national governments and compared them to the rules that should be applied (revenue distribution process, i. e. Ghana).

4. In addition to these subnational EITI reconciliation processes, some governments have decided to unilaterally disclose subnational governments’ expenditures. (Aguilar, 2011)

Out of the four, the last practice called my attention significantly. In the report, Aguilar gives the example of two countries that have not only implemented sub-national reporting but went beyond EITI call for it.  They have segregated subnational government accounts to separate the money coming from extractive industries, by so doing, they can have better control of the money and the expenditure of it.  This initiative allows subnational governments explain, how and where the money from extractive industries is invested. Let us read the abstract from the World Bank report:

3.4.4  Going Beyond Disclosure of Access to Revenues: Disclosing Expenditures Both Ghana and the Cajamarca region in Peru also decided to disclose expenditures of the respective subnational governments. In Ghana, two of the three regions had a separate budget account allowing for disclosure of expenditures of mineral royalty transfers. In the Cajamarca region, selected municipalities reported on their expenditures, and the disbursement rate of the revenues for projects was taken as measure for efficiency (Aguilar, 2011, p. 42)

These types of initiatives by Subnational Governments are the ones that make a difference.  At the end of the day, this information is what a common citizen values the most.  Long reports with many numbers and graphs are indeed important for those who understand them. However, for the majority of us, regular citizens. It is by tangible actions that TRUST can be regained and transparency can be measured.

References
Aguilar, J. (2011, October). World Bank. Retrieved from World Bank Website: http://www-wds.worldbank.org/ external/default/ WDSContentServer/WDSP/IB/2011/ 11/04/000386194_ 20111104022536/Rendered/PDF/ 653730NWP0P1250he0Subnational0 Level.pdf

Bank, W. (2012, April). Retrieved from EITI, Extractive Industries Transparency Iniciative: https://eiti.org/files/SWG/ World_Bank_SWG_Paper_Note_on_ EITI_reporting_by_subnational_ governments_April_2012.pdf

Jocelyn Fraser, PhD student in Mining engineering // March 15, 2015

Research to assess the readiness of EITI countries to implement sub-national reporting has highlighted some interesting findings. The work has also raised some fundamental questions.
What does being compliant really mean?

EITI Chair Clare Short recently noted that compliance is neither a seal of approval nor an instant cure https://eiti.org/blog/eiti-not-seal-approval-sign-change. She acknowledges the apparent contradiction in countries of conflict and corruption being deemed “compliant” by the EITI, yet notes that membership in the EITI reflects a political and public commitment to reform. Reform may be easier to achieve in some countries that others and leads to a second question.

Is the legal framework in place to support reform?

Global Witness has noted that very few resource-rich countries have a strong legal framework to govern extractive sector, publish data and have some oversight on accountability. Without a strong governance framework, the risks of mismanagement increase when sub-national governments with limited staff, skills or experience receive large infusions of money. Especially if those revenue transfers occur sporadically. As the goal of sub-national reporting is to enhance transparency, the next question becomes . . .

Can the EITI be integrated into government systems to act as a platform for reform?

Philosophically, the EITI is presented as a platform for reform. Practically, it is a diagnostic tool. Easy for some members to use; more difficult for others. There is good reason to laud the progress EITI countries have made yet considerable effort is still required to achieve transparency in the extractive sector. As has been noted in previous blog posts, weak institutions are not well equipped to fight corruption and fraud.

The EITI may be able to do more to integrate into government systems to provide support for reform and address ineffective revenue management. Public debate about the reporting of extractive revenue should also lead to governance reform.

Can the complexity of resource revenue be explained clearly, concisely, and in a manner that will motivate ordinary citizens to take an interest?

The answer should be “yes”. However, in many EITI countries there is little evidence to date of effective communications – that is communication that enables lay people to become engaged with their country’s EITI effort. Existing websites and EITI country reports are dense, arcane documents potentially of some interest to experts but a challenge for many to decipher. Beyond the filing EITI country reports (many of which appear several years after the reporting period), information flow in the countries studied remains ad hoc, which undermines engagement. And without reporting on how extractive revenues are used at the local level there is little in the materials to address the average citizen’s principal interest: What is in it for me or my community?

How is money from extractive industries used?

The EITI has been clear that their mandate is not evaluating how resource revenue is used yet this remains an issue for member countries to address. In preparation for implementing sub-national reporting, in-country Multi Stakeholder Groups (MSG) could work with sub-national governments, civil society and citizen groups to establish criteria for balancing investment in short-term community needs with long-term economic development. The criteria might include engaging stakeholders to identify needs and maximize benefits from resource revenue at the local level; enabling small and medium enterprise; co-development of infrastructure required for both extractive industries and local communities; and investing to develop human capital. The later is a particularly relevant criteria in EITI member countries attempting to break the cycle of conflict and poverty, strengthen institutions, and support good governance.