Carlos da Costa, PhD Student in Mining Engineering // March 25, 2015
The Extractive Industries Transparency Initiative (EITI), a multi-stakeholder (comprised of governments, companies, civil society groups, investors and international organizations) ground-breaking initiative against corruption and secrecy in the mining and oil industries, was founded in 2003. Its compliant members recognize that transparency is a critical component of sound governance in countries’ oil and other extractive sectors. In May 2013, the EITI Board adopted extensive revisions to the EITI rules to make them more effective in ensuring transparency and accountability in the extractive sector for the citizens of countries implementing this initiative.
Becoming “compliant” is a voluntary initiative that is implemented by countries whose governments sign-up to do so. EITI Standard is currently implemented in 48 countries. It consists of a set of requirements that governments and companies have to adhere to in order to become recognized as “EITI Compliant.”
Before being accepted as an EITI “candidate country,” governments must meet five sign-up criteria. Implementing the EITI involves a range of activities, but in essence it boils down to governments publishing what they receive from extractive companies and the latter publishing what they pay to governments. These figures are then matched up – or not, as the case may be. A country is deemed “compliant” once it has been assessed through the validation process. Although “EITI compliant” does not mean that a country is free from the risk of corruption, or that all areas of its oil or mining sectors are open to public scrutiny, it is a powerful signal to the world that the country is committed to openness.
Despite its successes to date the EITI is still a work in progress, and there are opportunities for further achievements, as well as challenges to such achievements. The EITI must continually meet challenges if it is to be a success in the struggle against corruption and poverty in the resource-rich countries of the world, and in turn possibly become a true global standard for the extractive industry sector. The initiative’s true success, however, is that it is a transparent, multi-stakeholder process, by the continuing alliance between companies, governments and society organisations.
Civil society groups must be able to play a full and free part in EITI since they are not just observers: they help to design, run and oversee the EITI and provide it with legitimacy. This formal, active role for civil society is what makes the EITI more than just a forum for worthy speeches about governance. Because civil society is so central to the EITI, any government that harasses, intimidates or censors its civil society activists is ensuring the failure of EITI in that country and undermining the work of other countries that implement it in good faith. So all EITI stakeholders must take a strong and public stand against any government that harasses its own civil society activists. To retain the support of civil society groups, the initiative must be able to defend its own principles.
In order to be awarded the status of EITI Compliant, a country must implement a series of steps towards greater transparency and have these actions checked by an independent third party. Validation is the gold standard because it shows that a Candidate country has met the standards of the EITI. Without it, the EITI would be little different from the many well-meaning but ineffectual initiatives on governance that exist around the world. For this reason, validation needs to be as objective and credible as possible. Any suggestion that a country has been given special treatment, for political or commercial reasons, would be fatal to the EITI’s credibility. It would also be deeply unfair to other Candidate countries which are making good-faith efforts to reach Compliance. So all EITI stakeholders must be ready to defend the objectivity of the Validation process, even if it produces results which are uncomfortable for some. This is the only way to protect the achievement of the EITI and give it value in the eyes of the world
Reaching EITI Compliance helps a country to build trust with its citizens, improve the efficiency of their extractive sectors and signal to the world their credibility as a destination for foreign investment and credit, at a time when both are scarce. However, these long-term benefits may not be visible at the point when a country achieves Compliance. So the international community must ensure in the short term that EITI Compliant countries receive the recognition that is due to them. This recognition needs to be nuanced by the fact that EITI Compliance is only one of many steps towards beating the “resource curse.” It does not mean, for example, that country no longer faces any risk of corruption. And Compliance is not a once-only event but a process which ensures continuing transparency and public debate.
The resource curse (most often witnessed in emerging markets following a major natural resource discovery) is a paradoxical situation in which countries with an abundance of non-renewable resources experience stagnant growth or even economic contraction. The resource curse occurs as a country begins to focus all of its energies on a single industry, such as mining, and neglects other major sectors. As a result, the nation becomes overly dependent on the price of commodities, and overall gross domestic product becomes extremely volatile. Additionally, government corruption often results when proper resource rights and an income distribution framework is not established in the society, resulting in unfair regulation of the industry.
The core of the EITI is the publication, auditing and oversight of payments to countries, and subsequently to local municipalities, from extractive companies. All EITI stakeholders believe that revenue transparency is vital to combat the resource curse but few believe it is sufficient because there are many other areas to address, from the award of oil, gas or mining rights, to the management and spending of revenues, to the flow of resource wealth through the global banking system.
EITI must continue to evolve beyond its current remit. Some countries (for example: Zambia, Liberia, Democratic Republic of Congo, Kyrgyzstan, Mauritania, Madagascar, and Togo) have already chosen to broaden their implementation of the EITI to other aspects of the oil, gas or mining sectors, or other resources (forestry, hydro, agriculture, fisheries, and tourism), or to trace revenue flows to sub-national levels of government (such as Ghana, Indonesia, Guatemala, Mongolia, and Peru). This versatility and national ownership of EITI is one of its great strengths. As the practice of EITI evolves in different countries, the international rules of the EITI are expected to also evolve.
There is continued international debate about the laws and policies that are needed to fight the resource curse around the world. This debate includes the EITI but goes far beyond it. The ongoing test of the EITI Standard is whether or not it has any real bite to devour the challenges that stand in front of it.
Sources:
Aguilar, J.; Caspary, G.; and Seiler, V. World Bank. Implementing EITI at the Sub National Level: Emerging Experience and Operational Framework. Washington, 2011.
EITI International Secretariat. EITI – Extractive Industries Transparency Initiative. March 2015.
< https://eiti.org/Ghana/ >.
Ernst & Young Global Ltd. Disclosing government payments: Implications for the oil and gas industry. United States, 2013.
Rotberg, Robert I. Corruption, Global Security, and World Order. Cambridge, MA: World Peace Foundation, 2009.
