Marcelo Giugale, World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa
March 7th, 2012
Wouldn’t you want to know how much money your government gets from the companies that exploit your country‘s oil, gas or minerals? It doesn’t have to be exact, but a ball-park figure? And how about taking a peek at the contracts that your leaders sign on your behalf (remember, you and your fellow citizens are the real owners of your national wealth)? And aren’t you curious about where the money goes–or went? It is a bit of a puzzle that only 35 countries in the world have agreed to join the “Extractive Industries Transparency Initiative” (EITI), an invitation dating back to 2003 to publish who pays how much to whom in the business of exploiting natural resources. Of those 35, only one (Norway) can be considered “developed” and 25 are African–respect to them.
You would think that, by now, citizens and markets would have forced more countries and more companies to open their books. After all, commodity extraction is a five trillion dollar a year industry that is projected to grow even bigger, as China and other newly-developed countries compete for access to wells and mines. And that’s only for the portion of the resources that we know about. To give you an idea, it is estimated that only a tenth of Africa’s natural riches have been found (it would take a billion dollars to produce a full geo-data map of the continent). So, with prices bound to stay high and plenty of potential for new discoveries, you would expect breathing-down-their-necks public scrutiny of the whole thing. Nope. It hasn’t happened. Why? Read more.
The value of Africa’s natural resources – valued in the trillions of dollars – dwarf other sources of capital such as remittances and aid. High commodity prices (despite some variation) ensure that they will remain a valuable asset to African countries. However, these natural resources are substantially unknown (relative to OECD countries.)
The history of resource extraction is however substantially a history of plunder. Plunder has been directed by powerful forces both internal to African economies, and externally from foreign companies, which have largely been the beneficiaries of these resources. The task is to counter this model of plunder.
Collier used the example of Germany – the best run economy in Europe – to demonstrate that the most effective motivation for economic renaissance is to have experienced a period of absolute economic failure. For Germany, this was the crisis of the early 1930s, and for Africa this is the present day.
Collier sought to answer the question: What will it take for Africa to do a Germany? – this was covered in the following four areas.
The discovery process – Africa needs geological information to be made public before it goes to auction with private companies seeking to invest in resource extraction. This will enable it to better the financial returns it gets from what are at present poorly negotiated deals.
Capturing value – Africa needs to institute a more effective tax system. Put simply, African countries must ‘tax what they can observe’ and tax systems must be built with the notion that this is a volatile world. Contracts should be designed that allow for contingent events and contract stability, and must be founded on a well designed tax system…Read more.
This climaxed in the two-day heated oil debate where Parliament resolved that government desists from signing agreements with confidentiality clauses. Attempts were made by the executive to argue the case for confidentiality, citing commercial sensitivity of certain information in the contracts and confidentiality being the norm all over the world, as well as security reasons.
The MP for Ruhaama Janet Museveni even reasoned that Uganda could have her oil fields bombed if there was no confidentiality! The one million dollar question is: are oil contracts really that sacred that they can’t be shared?
While treaties, laws, regulations, and other legal documents defining the relationship between governments and private companies are public documents, oil, gas and mining contracts between governments and the extractive industries are usually shrouded in secrecy. In Uganda, these have been unavailable to citizens and it took frantic efforts for the signed production sharing agreements to be availed to Parliament and even then the content of these contracts was not to be shared outside Parliament.
There is a growing international call to make the terms of extractive industry contracts available to the public, and to establish new norms for what information is and is not disclosed in deals between government and industry. Proponents of transparency argue that the secrecy surrounding oil transactions in Uganda and government’s reluctance to share the oil contracts might be a precursor to the ‘oil curse.’
The oil curse is a popular reference to a situation of poverty, low economic growth, corruption and civil strife that has come to characterize natural resource rich countries in Africa like Liberia, Nigeria, DRC, Angola, etc. Contract transparency is essential for the responsible management of natural resources and the potential for growth and economic development that those resources can provide.
The government, citizens and investors, all have to gain from contract transparency. Citizens’ suspicions of the hidden clauses will decrease, creating a more stable contract that is less likely to be subject to calls for renegotiation and better relationships with communities. It also allows citizens to monitor contracts in areas where they may be better placed than the government to do so, such as environmental compliance and the fulfillment of social commitments.
Contract transparency provides incentives to improve on the quality of contracting because government officials will be deterred from seeking their own interests above the population’s, and with time, government’s bargaining power would increase. There are already claims that the contract terms between the government and the oil companies were not consistent with international norms.
Secrecy only helps to fuel such speculation and hides incompetence, mismanagement and corruption.Ugandans have a right to know how their government is selling their resources. In Uganda, sub-soil resources such as minerals, oil, and gas are the property of the nation, not the individual owner of the surface rights.
Accordingly, contracts involving oil, gas and other mineral resources may cover a range of information to which citizens should rightly have access to, as owners of such resources. Contracts typically contain information about fiscal terms and the allocation of risk that are essential to understanding the benefits and risks – the real value of the deal.
Public contracts are essentially the law of a public resource, and the basic tenet of the rule of law requires that laws are publicly available. The size and scope of many extractive projects is so large that they directly affect the livelihoods of large populations for decades.
Where contracts create their own laws – because they modify existing laws, freeze their application or elaborate on outdated or incomplete laws – it’s all the more important to disclose their contents for democratic accountability.
Following several high-profile reports on contracts, national debates in a number of countries and campaigns by international organizations, Ugandans are increasingly aware of the critical role of contracts and some of their worst excesses.
Ugandans are also aware of the infrastructural development and benefits that transparency in managing diamonds has brought in Botswana.
So, in the face of mounting calls for transparency, those who fail to disclose, or to provide a plausible explanation for non-disclosure, are seen to have something to hide. The author is coordinator, Publish What You Pay Uganda. email@example.com