Resource-Induced Conflicts, Part V: Valuable Natural Resources and Transparency

By: Päivi Lujala

hand-and-leaves

Managing oil, gold, and other valuable natural resources and their revenues is challenging even under ordinary circumstances and is particularly so in post-conflict situations. This piece discusses the challenges related to natural resource management in post-conflict, resource-rich countries through the widely supported governance approach to remedy mismanagement, namely transparency.

 

A blessing or a curse? Valuable natural resources in post-conflict countries

Many post-conflict countries possess high-value natural resources, such as oil, gas, timber, gemstones, and other valuable minerals. All can play decisive roles in economic recovery and peace building. In many of these countries, primary commodity exports account for the lion’s share of total exports, often providing more than 30% of GDP and over 50% of the national budget.[1] For example, Angola’s crude oil and diamonds accounted for over 90% of all exports, over 70 % government revenues and almost 60% of the nation’s GDP in the years following the end of conflict in 2002.[2] Other examples of post-conflict countries rich in – and dependent on – natural resources include Iraq, Sierra Leone, Liberia, Sudan, South Sudan, Democratic Republic of Congo (DRC), Timor-Leste, and Algeria.

In the peace building process, extractive industries can play an important role in realizing revenues from highly valuable natural resources and bringing direct foreign investment into the country.[3] Valuable resources can help to jump-start economic development, secure sustained economic growth, raise living standards, and increase economic equality. They are also an important source of foreign currency for cash-strapped governments. They are also an important source of foreign currency for cash-strapped governments and can reduce dependence on international aid and support compensations and post-conflict relief for war-affected populations. In addition, the presence of extractive industries can indirectly support peace processes at the local level by providing residents with tangible peace dividends, for example, in the form of new income sources, jobs, improved infrastructure, and even helping to meet their basic needs.

The natural riches, however, have proved to be a double-edged sword in post-conflict countries. The promise of a brighter and more peaceful future has too often been spoiled by deep-rooted corruption and patronage, which confer benefits on small groups rather than on the population as whole, as well as short-sighted management of the resources and revenues they generate. In addition, the mere presence of high-value resources can jeopardize peace, if these become the focus of violent disputes or provide financing for groups that seek to ignite (or resume) armed conflict.  In fact, there is evidence that those conflicts in which natural resource played a role are more likely to relapse than other conflicts.[4] A quote from Ellen Johnson Sirleaf, the President of Liberia and 2011 Nobel Peace Prize Laureate, illustrates this:

 

[After the war] once again we faced a paradox: our timber, minerals, and other natural resources promised a way out of poverty and conflict, but they also threatened to pull our country back to the destructive path of patronage, corruption, and violence[5]

 

There are various grounds for the dismissal performance of resource-rich, post-conflict countries – some of them being pointed out above by Sirleaf. Peace brings with it both expectations and demand for development and prosperity, and thus places great pressure on post-conflict governments to get mining and exploitation underway. At the same time, natural resources and extractive industries provide a promise of lucrative profits to well-positioned individuals, groups, and companies while contracts and concessions dating from the pre-war and conflict years may open doors for revenue capture, corruption and patronage.[6] Interim and transitional governments may be tempted to grant exploration and exploitation rights – often at cut-rate prices – to either reap rents before more accountable governments are established by elections, or to build financial reserves and political power for the upcoming elections.

The fact that so many resource-rich countries are unable to achieve long-term peace raises some difficult questions about how high-value resources should be managed in post-conflict settings. How can post-conflict governments or the international community curb corruption and patronage and promote reform in the extractive sector? How can individuals who are more interested in personal benefit than in improving the lives of their citizens be reined in? How can one ensure that revenues are used to advance long-term development objectives? This article will discuss how transparency is, and can be, used as a means to deal with some of these issues in post-conflict settings.

 

Transparency in post-conflict natural resource management

Transparency, as an instrument to improve governance, entered the international limelight in the 1990s.[7] Since then it has been promoted by the international community and advocacy groups as a means to remedy the mismanagement of natural resources and their revenues, and to endorse participation and government effectiveness in decision-making processes.[8] In fact, transparency in natural resource management is increasingly seen as a prerequisite for receiving investments, debt relief, loans, and aid from donors, multinational financing institutions, and extractive industry companies.8-11

Post-conflict situations are no exception; the World Bank and other institutions increasingly promote transparency in countries emerging from conflict as both a necessity, and an opportunity in promoting post-conflict state-building, the modernization of institutions and governance practices in general, and in particular, the management of valuable natural resources and their revenues. In many cases, donors require that the receiving countries increase transparency in the management of natural resource revenues, for example, by joining the Extractive Industries Transparency Initiative (EITI). This was the case in resource-rich, post-conflict Liberia which joined EITI in 2007 and adopted the Liberia Extractive Industries Transparency Initiative (LEITI) Act in 2009.

In the context of managing valuable natural resources, transparency is often related to increasing openness about the revenue flows between extraction companies and the government – and indeed, for a long time this was the main focus of the EITI. Transparency, however, is an equally important principle in the whole natural resource value chain, from granting exploration rights to the final clean-up of the extraction site. The following section will examine transparency in contracts, company ownership, and revenue flows and spending.

 

Contracts

In the chaotic post-conflict environment, managing both existing and new contracts and concessions can be difficult and subject to oversight by government agencies, international organizations, and businesses. However, the failure to adequately address processes related to exploration, exploitation rights, and the negotiation of new and renegotiation of existing contracts can deprive the state of a considerable amount of revenues, fuel corruption, cause unnecessary environmental damage, and challenge the state’s legitimacy—all of which can undermine post-war economic recovery and general peace building. Although contracts are often regarded as ‘business secrets’ by both companies and governments, they include stipulations about amounts payable, to whom and on what basis, compensations for affected communities, local content, and other issues that are likely to affect peoples’ lives to a great extent in the short and long-run. Being open about who is sitting at the negotiation table, what issue is to be negotiated and the terms to be included in the contract will give the public an opportunity to monitor and have influence on matters  they deem important, securing perhaps better quality contracts and allowing for more accountability. Openness also builds trust between the government and its people – which is often lacking in post-conflict society – as it allows people to follow negotiations and see that their concerns are acknowledged. What is more, openness about payments to be made may help shape public expectations about the size and timing of revenue flows and what can achieved with them.

 

Beneficial ownership

Related to the contracts, the case has been made that companies should be open about who, on an individual level, will benefit from the extraction – i.e. the person who owns the company or the final company often hidden behind a series of shell companies. The aim of this process is twofold. Firstly, it seeks to help authorities curtail the abuse of anonymous companies for purposes of corruption, money laundering, and tax evasion. Secondly, it intends to inform the public about whom the revenues are accruing to – such as a government official or any other individual that may misuse their position during negotiations – and whether this person has a good reputation in or anything to do with the sector. As such, openness about ownership can build trust and help curb corruption and patronage, as well as encouraging more accountable behaviour on behalf of the involved parties.

 

Revenue flows and spending

Post-conflict, resource-rich countries are especially susceptible to corruption and other forms of rent capture, thereby diverting revenues and attention away from other goals such as securing peoples immediate needs and promoting long-term development.12 Therefore, being unequivocal about revenue flows and how these are spent is extremely important for post-conflict countries as it creates space for debates on revenue management and expenditure. Increased openness can also alleviate social and political tensions, as a more realistic conception of revenue flows among the public can deter false allegations of corruption. A world champion in making this type of information public has been the EITI, which has been adopted by several post-conflict countries, including Liberia, the Democratic Republic of the Congo, Columbia, Sierra Leone, and Mozambique.

 

Not a silver bullet

The nature of peace building, especially in the immediate aftermath of violent conflict, may represent an opportunity to push through transparency reforms; countries are most dependent on aid during these periods and donors thus have the opportunity to exert leverage over relatively weak governments in order to initiate reform programs promoting transparency, accountability, and public participation in the collection and expenditure of natural resource revenues.

Transparency, however, is not a silver bullet. Although it can be important in fighting the mismanagement of natural resources and their revenues in the post-conflict context, transparency alone is unlikely to create decisive peace. One reason for this is the (naive) expectation that there is a ‘public’ that is ready to act on the newly available information, and that the only obstacle previously hindering such action was a lack of information.13-14 Furthermore, making sense of the available information and finding time to voice concerns and actively advocate change may simply be beyond what a war-vary ‘public’ can do. In many cases, people are preoccupied with their daily fight for survival.

Thus, for transparency to be useful for the public at large, it must be bundled with support structures that actually make it feasible for people to get engaged in resource governance. I would argue that in the majority of post-conflict environments more fundamental aspects of human life need to be in place before one can expect to see such engagement from the ‘masses’, such as education for children, basic health care, and reasonable living standards. In such circumstances, a more useful approach would be to target specific NGOs and CSOs that have the competences, or the ability to acquire them, as well as the means and authority to actually act on the information received. This is not to say, that it is not important to include transparency as a principle in all new and reformed natural resource management institutions and regulations. What is needed, however, is an understanding that increased openness is only the first step in a long process to better natural resource governance in post-conflict countries.

 

Päivi Lujala (MSc Aalto University, PhD NTNU) is a geographer and Associate Professor at the Norwegian University of Science and Technology (NTNU). Her research focuses on socioeconomic vulnerability to natural hazards and climate change, and natural resource management in the context of armed civil conflict and peace building. She currently leads the project ‘From a curse to a blessing? Transparency and accountability in managing high-value natural resource revenues’ (TrAcRevenues) at NTNU. 

Notes:

[1] Lujala, P. and Rustad, S.A. (2012) High-Value Natural Resources: A Blessing or a Curse for Peace? In: Lujala, P. and Rustad, S.A., Eds., High-Value Natural Resources and Peacebuilding, Routledge, London.

[2] IMF (2007) Angola: Selected Issues and Statistical Appendix. IMF Country Report, International Monetary Fund. www.imf.org/external/pubs/ft/scr/2007/cr07355.pdf

[3] Lujala, P., Rustad, S.A. and Kettenmann, S. (2016) Engines for Peace? Extractive Industries, Host Countries, and the International Community in Post-Conflict Peacebuilding. Natural Resources, 7, 239-250.

[4] Rustad, S.A. and Binningsbø, H.M. (2012) A Price Worth Fighting For? Natural Resources and Conflict Recurrence. Journal of Peace Research, 49, 531-546.

[5] Sirleaf, E.J. (2012) Foreword. In: Lujala, P. and Rustad, S.A., Eds., High-Value Natural Resources and Post-Conflict Peacebuilding, Earthscan, London. p. xii.

[6] Le Billon, Philippe. 2012. Contract renegotiation and asset recovery in post-conflict settings. In High-Value Natural Resources and Peacebuilding, ed. P. Lujala and S. A. Rustad. London: Routledge.

[7] Hood, C. (2006) Transparency in Historical Perspective. In: Hood, C. and Heald, D., Eds., Oxford University Press, Oxford, 3-24.

[8] Haufler, V. (2010) Disclosure as Governance: The Extractive Industries Transparency Initiative and Resource Management in the Developing World. Global Environmental Politics, 10, 53-73.

8 David-Barrett, E. and Okamura, K. (2016) Norm Diffusion and Reputation: The Rise of the Extractive Industries Transparency Initiative. Governance, 29, 227–246.

9 IMF (2007) Guide on Resource Revenue Transparency. https://www.imf.org/external/np/pp/2007/eng/051507g.pdf

10 World Bank (2007) Implementation of the Management Response to the Extractive Industries Review. http://siteresources.worldbank.org/INTOGMC/Resources/implementationtomr2.pdf

11 Lujala, P. and Le Billon, P., Interviews of Extractive Industry Transparency Initiative (Eiti) and Extractive Industry Representatives at the Eiti Global Conference 2016, Lima, Peru. Unpublished Interview Transcripts. 2016.

12 Le Billon, P. (2014) Natural Resources and Corruption in Post-War Transitions: Matters of Trust. Third World Quarterly, 35, 770-786.

13 Lujala, P. and Epremian, L. (2016) Transparency and Natural Resource Revenue Management: Empowering the Public with Information? In: Williams, A. and Le Billon, P., Eds., Corruption, Natural Resources and Development, Edward Elgar Publishing.

14 Epremian, L., Lujala, P. and Bruch, C., High-Value Natural Resources and Transparency: Accounting for Revenues and Governance, in Oxford Research Encyclopedia of Politics. 2016: In press.

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