WASHINGTON, D.C., October 21, 2005—Gas prices are going up at the pump… The World Bank and the International Finance Corporation (IFC) are pushing energy companies and resource-rich countries to disclose payments and revenues from oil, gas, and mining to help reduce poverty.
With prices for natural resources – such as oil, gas, and minerals – at record highs, companies and governments in the extractive sectors around the world are under ever more pressure to disclose payments and revenues to help break the cycle of poverty.
Peter Eigen, chairman of Transparency International, the Berlin-based non-governmental organization that tracks global corruption, says that current high energy prices raise potential benefits for people in resource-rich developing countries, but also increase governments’ temptation to steal and embezzle.
More than fifty developing countries depend on oil, gas, and mining for much of their income. When governance is good, these industries can generate large revenues to foster economic growth and reduce poverty. But when governance is weak, natural resources are often linked to low growth, corruption, poverty, and conflict – the so called “resource curse.”
Charles McPherson, a World Bank expert on extractive industries, says that transparency can help to reduce poverty and end the resource curse with the disclosure of payments and revenues. If the public knows how much money governments receive from oil, gas, and mining companies, it can hold politicians accountable and ensure that funds are spent on health care, education, housing for the poor, and badly needed roads. “That way the poor will be having a voice,” McPherson says.
Local communities, indigenous peoples, and civil society organizations have been demanding more of a say in these industries. In response, the World Bank and the International Finance Corporation are working through an international effort, the Extractive Industries Transparency Initiative (EITI), to encourage nations from Nigeria to Azerbaijan to Peru to subject their income from oil, gas, and minerals to public scrutiny. Some 20 nations have signed up to this initiative, and the number is growing.
Leaders from local communities and non-governmental organizations, industry representatives, government officials, and global bankers are meeting in Washington to discuss how reported payments and revenues can be verified. Not only do international accounting firms need to audit and double check such numbers; it is also critical that representatives of local societies are part of the process.
Nigeria is among those countries most advanced in subscribing to the principles of transparency initiative. “Nigeria is taking a reversal from the past when the application of the yields from natural resources was squandered,” says Obiagdi Ezekwesili, the country’s Minister of Solid Minerals Development. She adds that her country is now seeking to use the proceeds from its natural resources to improve education, health, water resources, and rural development.
The Extractive Industries Transparency Initiative still has a long way to go, but now that the world has recognized that eliminating corruption can lead to huge gains in poverty reduction, an important first step has been taken.
Community Benefits
Local communities are benefiting from oil, gas, and mining industries through employment opportunities and working as contractors and suppliers. One example is the Yanacocha gold mine in Cajamarca, Peru, where the indigenous and local populations receive a significant share of taxes and royalties from the mine. Yanacocha is the primary employer in the region employing more than 25 percent of Cajamarca’s workforce. The mine provides services in healthcare and education as well as training to develop microcredit enterprises. One successful microenterprise is the manufacturing of safety jackets for miners (see visual). From 1993 to 2002, about US$80 million in revenues has been paid to local government in Cajamarca for community services. The International Finance Corporation’s investment in Yanacocha was a stimulus to mining sector reforms in Peru, which helped elevate standards of industry, environmental management, and social responsibility.
Advisory:
Countries that have endorsed EITI:
Azerbaijan
Bolivia
Cameroon
Chad
Congo Republic
DR of Congo
Equatorial Guinea
Gabon
Ghana
Guinea
Kazakhstan
Kyrgyz Republic
Mauritania
Niger
Nigeria
Peru
Sao Tome Principe
Sierra Leone
Timor-Leste
Trinidad and Tobago
