Wouldn’t it be nice if the world’s most exploitative countries started being open about where all the cash from their natural resources is really going?In a world full of angry demands for more openness from multinationals about their tax affairs, it feels like real transparency is an impossible dream. That’s why financial campaigners should take heart from the Extractive Industries Transparency Initiative (EITI). Set up in 2002 it is now making a real difference.
“Forty countries are in it now, and ten more are queueing up to join”, boasts Clare Short – Blair’s former international development secretary, and now the Initiative’s chair.
The evidence that it has led to greater accountability and improvement management of the resources for the benefit of the people is not proven. It’s only been operational for a few years – it takes time to set up an international board, set up rules, get countries in the process, etc. But it has helped to entrench an expectation of transparency in a sector where murky hiddenness was the norm. That’s no small thing.
The EITI was originally a development instrument, mostly targeted at African countries during the commodity price boom of the early noughties. It was a way to solve a big problem across developing countries: widespread public distrust, often justified, over whether ordinary people were really seeing the benefits of their country’s natural resources.
The phenomenon of ‘Dutch disease’ had to be tackled too – the tendency of the manufacturing sector to decline in countries busily exploiting natural resources. So the EITI was set up to bolster weak governance systems and improve accounting from companies.
“It’s growing and growing, this movement”, Short says enthusiastically. She became chair in 2011 and has overseen a shift in the kind of country getting involved. The original big push was in Africa. “But then the Brazils and South Africas said, ‘this is the north telling the south what to do again, when they’re not transparent themselves. If you got Britain and France joining, we might talk’.”
“It was NorwayThe EITI was set up as a way to solve a big problem across developing countries: widespread public distrust, often justified, over whether ordinary people were really seeing the benefits of their country’s natural resources. who first said ‘fair enough, we’ll join’ “, Short explains. Australia announced a pilot approach and then, two years back, the US said it would join too. It took until the G8 summit at Lough Erne earlier this year – which was focusing on transparency and fair taxation issues – to persuade Britain to come on board.
“I said to them, ‘thank you for joining, this makes it a worldwide movement’ “, Short remembers. “But you must make it work for you … as well as showing solidarity with the world, think about how you can use transparency to help Britain manage these resources and these issues.”
On shale gas, and on what’s left of North Sea oil, and on drilling around the Falkland Islands, the UK has some tough decisions to make.
Britain’s involvement is about more than just setting an example, too. Short is passionate about the wasted opportunity of North Sea oil and everything that failure represents. To her, it’s both an explanation for and justification of the need for the EITI’s expansion to developed countries.
We haven’t got desperate governance, but I do think we blew North Sea oil”, Short insists firmly. “We didn’t think quietly about how to use it for sustainable long-term benefit. We didn’t think, ‘this will be gone in 20 years – where will that leave us?’ If at the beginning there had been real transparency about what this resource was, we could have used it to better effect for the permanent benefit of the UK economy. Instead of which we just consumed it.
Whereas Norway has invested in its long-term future with a sovereign wealth fund, the UK chose to prop up its continuing consumption levels. Short says this is nothing less than “a tragedy”. Now the extractive industries are under the microscope in Britain once again. The Conservative MP Robin Walker, who has a background in mining, has persuaded the Commons’ business, innovation and skills select committee to begin an inquiry into the topic.
Its approachShort believes encouraging more openness will lead to a better balance between unthinking exploitation and a longer-term view to the future. “If you make all that open, people can have a much more informed debate about how these resources are managed. is broad, focusing as much on whether Britain will continue to have the skills base to remain a centre for the extractive industries; regulation of the sector; the UK’s role in hosting extractive companies operating abroad; and issues of good governance.It’s a critical moment for those who care about the environment. This isn’t just about how Britain manages its natural resources – it’s about whether our politicians let the multinational companies listed in the City continue their sometimes unethical, brutally exploitative activities.
The EITI can be used as a diplomatic tool to tackle this, Short believes, just as it can be used to pave the way for more transparency on tax issues.
What about climate change? Short evidently cares about the environment in all its dimensions, but for her the way to make a real difference is to focus on transparency.
“All the environmental standards sit alongside these questions of transparency,” she argues.
Some have called for the EITI to cover carbon dioxide emissions, but Short shrugs the suggestion off. There are other movements that are doing that already, she points out – notably the Carbon Disclosure Project. And in any case, she insists, “the finances around it are the core of what goes on.”
Ultimately, Short believes encouraging more openness will lead to a better balance between unthinking exploitation and a longer-term view to the future. “If you make all that open, people can have a much more informed debate about how these resources are managed.”
This matters now more than ever:
We’re in a commodity boom. There are more companies, and more exploration, and more investment, and more listings everywhere.
There are also more scandals. ENRC and Bumi, two mining groups which took advantage of the City of London’s flexible listing rules, are facing damaging fraud investigations.
It all goes to show that the whole of the extractive industries needs scrutiny – not just the companies but the governments they do business with, too. The EITI is helping making this a lot easier.