Extracting Transparency in Mongolia and Beyond

Justin Kwan, MAAPPS // Jan 26, 2015

Asia’s rise in the 21st century has been commonly characterized by the dominance of the region’s major powers such as China, Japan, South Korea and India. Far too often overlooked however is the important presence of Mongolia. Situated between both Russia to the north and China to the south, Mongolia has been overshadowed by two of its neighbouring superpowers. While Mongolia may go unnoticed to many countries across the world, China recognizes Mongolia’s strategic importance for its natural resources, primarily copper, coal, gold and uranium.

As an aspiring China scholar, the Middle Kingdom’s interest in Mongolian natural resources also sparked my curiosity for the country, its growing importance to the Asia Pacific Region and my participation here in this year’s policy project.  Roland Nash of Renaissance Capital described Mongolia as “a blue-sky opportunity” and as “a country on the point of transformation” (Business New Europe, 2009). His assertion six years ago has been extremely forth telling of the economic development that has been occurring.

This year’s policy project continues with the work produced by last year’s cohort who examined the policy mechanisms for discouraging corruption and improving human development in Mongolia. As part of our investigation, our research this year will look at EITI’s important move to push transparency reporting down from the national to the local level. My initial thoughts immediately gravitate towards a series of questions: Who within EITI is encouraging the reporting to be pushed down to the local level? What are the motivations behind this? In what ways will this benefit and/or complicate the way reporting is completed?

To answer these questions, one important aspect that must be investigated is how actors both at the domestic and national levels impact the policy making process. EITI is a coalition of governments, companies and civil society groups – all who play important roles in shaping the organization. As our research continues, I am particularly interested in investigating how these actors engage with each other to formulate policy as well as the regional variations between how EITI member countries implement them.

I hope from this experience to future my knowledge not only in the field of policy work and transparency initiatives but also to expand my knowledge of the Asia Pacific Region. My current research looks at EITI Compliant Country Indonesia in order to create a comparative framework which will allow us to assess how different member countries are adapting to local level reporting. While much work lies ahead of us, I am most definitely excited for the journey to come.

Myanmar to Follow the Mongolian Path?

 Debbie Prasad, MAAPPS // Jan 25, 2015

According to a study conducted European Research Centre for Anti-Corruption and State-Building, some reasons why corrupt countries join the EITI are “because they are concerned about international donors and expect to be rewarded by increase aid” 

A country comparison between Mongolia and Myanmar using Transparency international shows that Mongolia holds a rating of 39/100 while Myanmar stands at 21/100. The ratings uses a scorning guide of 0-100 in which 0 is the most corrupt and 100 is corruption free; both countries appear to be quite high on the corruption scale

There is arguably a link between corruption and its negative impact on economic growth. The more corrupt a country is, the less benefits their economy will reap. Since the Mongolia’s initial entry into the EITI in 2006, their GDP has shown steady growth. In 2006, their GDP was 3.4 billion USD and in 2014, their GDP was 11.7 USD. Perhaps, it can be said that the implementation of the EITI has been a positive factor in increasing transparency in resource extraction, and concurrently reducing corruption, attributing to economic growth.

In the case of Myanmar, which has recently sought entry into the EITI, it remains to be seen if the EITI will have a positive impact on reducing corruption and resultantly improving their GDP. Recently, Myanmar has been taking major steps to improve their economy through a new anti-corruption law, and also by requesting a World Bank Public Expenditure and Financial Accountability Assessment in 2013. The report recommended, among various other remedies, a need for more transparency and organized form of reporting in order to eliminate budgetary discrepancies.

According to the EITI, Mongolia, since it’s membership. has had a high level of transparency with their reporting. Company payments seem to equally match government revenues. Mongolia’s implementation of the EITI supports the idea that they have joined the EITI with the intention of improving their economy through sound implementation of transparency, rather than merely paying lip service to the EITI and using membership as a means to get foreign aid.

Currently, it appears that Myanmar may follow the Mongolian path in their entry into the EITI. Their changes in legislation in terms of new mining and anti corruption laws, and also requests of assessment from the World Bank give evidence of their willingness to join the EITI not just to receive foreign aid, and better their reputation in the international community, but rather, to follow the prescribed methods of transparency in order to improve their resource economy. Contrary to the study conducted by the European Research Centre for Anti-Corruption, it can be argued that both Mongolia and Myanmar, (who are seen to have corruption problems) are on their way to economic growth through self sufficiency from their resource extraction industry, rather than joining the EITI merely for foreign aid.

 

Sources:

www.EITI.org/Mongolia/reports

http://www.worldbank.org/en/country/myanmar/publication/myanmar-economic-monitor-october-2013

Liz David-Barrett and Ken Okamura ”The Transparency Paradox:

Why do Corrupt Countries Join EITI? Working Paper No.38.

European Research Centre for Anti-Corruption and State-Building. November 2013.

www.transparencyinternational.org

 

Tackling the Tragedy of the Commons in mining

Lotus Ruan, MAAPPS // Jan 25, 2015

While the call for a cleaner environment and greener alternative energy is on the rise around the globe since years ago, mining, which often leads to erosion, formation of sinkholes, loss of biodiversity, and contamination of soil, groundwater, surface water by chemical during the mining process, is still an important economic activity in many countries.

Mining takes place in half of the countries in the world; among them, 50 were considered by the World Bank as “mining countries” because such industry stood as one of the backbones for the country’s exports, domestic markets, or for employment. It is estimated that the formal mining sectors provides over 3.7 million employment, with more than 20 million workers involved in artisanal and small-scale mining . Statistics, though not the most up-to-date, reported that in 2010 there were 1.5 million people employed in the mining sector in developed countries, the figure being 2.2 million in developing ones. 

However, whereas the development and sustenance of the world economy requires exponential amounts of energy, most of it is non-sustainable natural resource. With the increasing population and more and more industrialized societies, how to better utilize and sustain the use of energy—and in our project in particular, it ranges from metals, coals, oil shale and other geological materials to non-renewable resource such as petroleum an natural gas—has become a an unnegligible concern, if not a priority, for local communities, environmental groups, and governments.

Such concern or the dilemma between economic development and environmental preservation , seen from a policy studies student’s perspective such as myself, can and should be explained through the concept of “the tragedy of the commons”. “Commons” often refers to shared resources that are not formally regulated. Coined by economist Garrett Hardin in his famous paper published on Science in 1968, this is perhaps one of the most commonly-shared concerns among policy-makers. The tragedy of the commons concept can be briefly explained as  individuals acting independently and rationally according to each’s self-interest, behave contrary to the best interests of the whole group, by depleting some common resource. It is often cited in connection with sustainable development, meshing economic growth and environmental protection.

Hardin pessimistically predicted that “the population problem has no technical solution; it requires a fundamental extension in morality.” Perhaps this is where the Extractive Industries Transparency Initiative (EITI) and other local, domestic, or international monitoring organizations jump in in the field of mining. In essence, EITI, with the aim of increasing transparency in transactions between governments and companies within extractive industries, is hoping to establish a set of “morality” that helps regulate the mining industry.

The aim is encompassing and promising. However, regulations are not a cure-all. At the end of the way, it all boils down to whether local government, civil society, and mining companies themselves carry out and abide by these regulations or not. In fact, most mining countries have existing laws that require mining companies to follow stringent environmental and rehabilitation codes in order to minimize environmental impact and avoid impacting human health. The reality is, however, that relevant government or international regulations work out in some places but not others.

Why is that? What can we do to ensure the success of enforcement of regulations? IN the case of EITI regulations in particular, how can advance the transparency level in certain country and how is that related to its mineral resource development? These are some of the issues that I am concerned about in our project. Unfortunately, I don’t have any prior knowledge of mining or EITI and only little understanding of Mongolia and other EITI member countries. So my goal here is to learn as much as I can from my peers, instructors, published reports, and through interactions with local office, people, stakeholders that are actually involved in either EITI actives or the mining industry. Hopefully by the end of the project, I will be able to not only make sense of such economic activity but also produce policy recommendations to the tackle the tragedy of the commons problem in this resource-constrained industry.

UNLOCKING THE POWER OF CIVIL SOCIETY

Harry Li, MAAPPS student // Jan 24, 2015

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(Picture credit to CASPER CRUZ2014)

Coal, copper, and gold are the principal reserves mined in Mongolia. Currently, Mongolia exports 80% (expected to rise over 90%) of its mining resources, accounting for 21% of its national GDP. In 2011, Mongolia has been determined to be one of the Global Growth Generators and an emerging global market with most promising growth prospects for 2010–2050. Many resource-rich countries remain poor even after heavy exports, often due to local corruption. This is commonly referred to as the ‘Resource Curse.” EITI is a global Standard promoting openness and accountable management of natural resources.  It seeks to strengthen government and company systems, inform public debate, and enhance trust. As a member country, EITI aims to promote transparency in Mongolia in order to prevent the resource curse.

Aside from preventing the resource curse, there are many other benefits in complying with the EITI standard.  Barrett, Liz and Okamura argue that even corrupt countries would want to join EITI because governments are concerned about their reputation with international donors and expect to be rewarded by increased aid.  Their quantitative analysis demonstrates that EITI countries gain access to increased aid the further they progress through the EITI implementation stages. It takes three stages to become an EITI country: ‘Commitment, Candidacy and Compliance.’ The whole process would take over 5 years and Barrett’s analysis illustrated that the CPI (Corruption Percentage Index from Transparency International) score does improve when a country implement EITI standards overtime.

The Asia Pacific Policy Project on Mongolia mining aims to promote civil society engagement on Mongolian mining, thus improving government’s transparency and democracy building. At the moment, many Mongolian mines are unregulated and the rights of miners are not protected. More civil society engagement would pressure further proper mining regulations from the Mongolian government. In the end, Mongolia would practice‘Responsible Mining,’ benefit local citizens and truly prevent the “Resource Curse.”

I am thrilled to work on this project. I grew up in Inner-Mongolia, China, where mining projects had been a constant problem. Many mines in Inner Mongolia are unregulated with deaths occurring daily. Private mining companies exploit the land resources in cooperation with the corrupted officials. Private mining often forces relocation of Mongolian herders and rural citizens.  I have witnessed accounts of Inner Mongolians protesting against mining companies.  Thus, promoting the engagement of civil society in Mongolia would prevent tragedies alike.

My first task is to look at another EITI country and investigate how it engages its civil society. If suitable, Mongolia could learn and adapt its method and promote civil society engagement and transparency. I have chosen the Republic of Congo for my investigation.

Reference

David-Barrett, Liz, and Ken Okamura. “The Transparency Paradox: Why do Corrupt Countries Join EITI?.” online],< http://eiti. org/files/The-Transparency-Paradox.-Whydo-Corrupt-Countries-Join-EITI1. pdf>(accessed 9 December 2013). Oxford: University of Oxford (2013).

TRUST AND TRANSPARENCY

Jocelyn Fraser, PhD student in Mining Engineering // Jan 22, 2015

As representatives of international governments, business and civil society gather together this week at the World Economic Forum, delegates are grappling with issues similar to those faced by the EITI: securing economic growth and social inclusion, and enhancing environment and resource security.  Making progress on these matters requires the participation of multi-stakeholder groups committed to transparency – of which there are many.  It also requires trust – of which there is little.

According to the 2015 Edelman Trust Barometer, the past year brought a sharp decline in trust in public institutions and business as gains of recent years were swept away in a series of disasters and mismanagement ranging from data hacks to mysterious air crashes, from financial scandals to Ebola.  The Trust Barometer findings are echoed in research by Globescan (Viewpoints for Business in 2015) that shows national governments, global companies, media, and even the United Nations, all scoring negative trust ratings.  In both cases, the research suggests that citizens want stronger regulation of business yet have little confidence that policy makers can develop, implement and enforce the rules.

Transparency is a key driver of trust. And earning trust will be a critical requirement as the EITI seeks to implement stronger provisions for tracking transfers of resource revenues to sub-national tiers, and to address issues associated with shell companies (corporate entities that are little more than a mailing address in a foreign tax haven) and transfer pricing (the manipulation of costs and prices to reduce tax liability). These focus areas are in addition to the EITI’s ongoing effort to account for revenues lost to corruption and bribery, an amount the World Bank estimates at US$1T annually in the global oil and gas and mining sectors.

How will Mongolia, with its numerous opportunities for economic advancement through resource development, manage these issues?  As an EITI member country, are there lessons to be learned from the experience of other members, or from initiatives such as Dodd Frank, the EU directive on transparency, or Britain’s legislation requiring companies to disclose their owners? Is Mongolia better positioned to succeed given its political stability and the relatively recent addition of mining to its economy? And, perhaps most importantly, can mining companies and communities in Mongolia work to identify points of intersection between the needs of the two so that co-benefits can be pursued and shared value created?