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Smart Lesson: Combatting the Resource Curse in Fragile and Conflict-Affected Countries


  

Control over natural resources often plays an important role in armed conflicts, either because warring factions fight over access to natural resources or because natural resources help finance one or several of the factions. Recent examples include the several wars fought, in part, over access to oil in the Middle East and wars fueled by “blood diamonds” in West Africa. The Extractive Industries Transparency Initiative (EITI) facilitates public control over the wealth generated by these natural resources and limits corruption.

The EITI, launched in 2002 and endorsed by the World Bank in 2003, has provided tangible governance improvements in resource-rich conflict-affected countries. It works with multiple stakeholders—a coalition of governments, companies, investors, international organizations, and civil society organizations — to manage a process of publication and verification of company payments and government revenues from oil, gas, and mining.

 The World Bank Group administers a Multi-Donor Trust Fund and supports EITI-implementing countries by making EITI advisers and consultants available to the governments; sharing international best practice; and providing grants to governments to help support EITI implementation.

The EITI has proven highly successful in reducing the risk of resource-rich post-conflict countries’ relapsing into conflict. The Bank has overcome numerous challenges and learned important lessons from EITI implementation in fragile and conflict-affected countries, which may inform implementers of other World Bank programs in similar contexts.

A first challenge has been that in post-conflict situations, it is often difficult to bring on board all the stakeholders necessary for the implementation of the project. There might be, for example deep mistrust between stakeholders, especially if the extractive industries played an important role in the conflict.

Consequently, EITI implementation has focused on enabling stakeholders, via the EITI, to send a positive signal of their contribution to the country’s development: for instance, that governments can use EITI implementation to demonstrate to their own people the benefits derived from large and sometimes controversial EI projects; or that companies can prove via the EITI that they are contributing financially to the development of the country. For instance, EITI implementation allowed Arcelor Mittal Liberia to show publicly that it contributes 75 percent of the total tax and royalties from the oil, gas, mining, and forestry sectors and is meeting all tax and royalty requirements.

Second, in post-conflict situations—in particular where the conflict was about “who gets what” of the natural resources—reliable, official data concerning the extractive industries sector are rarely available in the public domain. Without having the data verified by an independent body, it is difficult, if not impossible, for the different parties to have a constructive dialogue.

Thus, credible and verified data (in the EITI context, on financial flows from natural resources) are crucial, as they allow stakeholders to negotiate peacefully. This reduces the potential for recriminations and mistrust.

As a third challenge, corruption often is a huge problem in resource-rich conflict-affected countries, but traditional anticorruption measures rely on commissions or courts, which carry great potential for conflict by “cornering” perpetrators, who may respond with bribery—or, worse, recourse to arms.

A key lesson learned from the EITI in this respect is that a preemptive approach to curbing corruption, which avoids granting involved parties the opportunity for wrongdoing, is preferable to pursuing rule breakers after the fact.

Once established, a successful initiative in post-conflict countries may successfully serve as a springboard for related ones. In the case of the EITI, its institutionalized implementation framework — a capacitated multistakeholder group, and reliable data on revenue flows — could frequently be used to subsequently intervene at other levels of the extractive industries value chain. Examples include better monitoring of EI firms’ activities, or (as e.g. in Timor Leste) the establishment of a national oil fund to fund the country’s long-term sustainable development.

In this way, EITI can not only contribute to stakeholder reconciliation and transparency of data crucial for the country, but its structures can ultimately be used to address a host of related problems in the country concerned.

 

Photo Source: Wikipedia Commons

 

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