More on Transparency

Both Owen Barder and Matt have posted about aid transparency recently. It’s a field I know well, as I work on aid management and transparency for recipient country Governments, and have spent a lot of time creating access to data, working on how best to categorize and store it in different places and how to use all of this information usefully. Owen and Matt have both made a number of good points about why transparency can be important, and why it needs to be approached from a perspective that builds upwards from the recipient country’s information needs. These posts and the discussions therein are high quality, and mean I’m going to limit my observations to a few points which I think have escaped the discussion somewhat.

I’m resolutely in favour of increased transparency of aid operations from beginning to end of each aid process: commitments made by donors, disbursements and predictability thereof, expenditures made by project implementers and physical implementation. All of this is great. However, it is subject to a few conditions.

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The hidden obligations of transparency

Could you please fill out a few forms for us?

About two weeks ago the International Aid Transparency Initiative (IATI) managed a significant breakthrough when a group of supporting donors finally agreed to a common standard for aid information reporting.

For those of you that are unfamiliar with IATI, it is a revolutionary attempt to increase the quality, quantity, frequency and comparability of data on international aid commitments and disbursements. A common standard means that data from multiple countries donors can be aggregated with ease. Some day, it could just take a few clicks to learn how much aid is being spent on infrastructure in all of sub-Saharan Africa or which donors operate in a very specific geographic region.

No recipient governments have officially signed up to IATI. This has little to do with official support: IATI is solely an initiative aimed at donor behaviour, and its proponents are quick to point out that there are little to no obligations for recipient governments (a handful of recipient governments have declared their support for the initiative).

Yet the adoption of a single IATI standard will have major implications for how recipient governments trade information with donors, and some of them will not be immediately beneficial:

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New rules for Africa’s resource scramble

by Jim Cust

Natural resource extraction in Africa is a big deal. Particularly when it comes to sub-soil assets such as oil, gas and minerals. Between 2000 and 2008, ODA flows to sub-Saharan Africa increased from $12bn to $36bn per year. In contrast the value of natural resource rents rose from $39.2bn to $240bn. And this is just the beginning. Paul Collier and Anke Hoeffler’s much-touted estimates (based on the World Bank’s 2006 Wealth of Nations research) put the value of known sub-soil assets in SSA at only one-fifth of those of the OECD ($25,000 per sq. kilometre versus $125,000 per sq. kilometre in the OECD). It seems likely then that much of Africa’s wealth is yet to be discovered. This is consistent with what we know- that many countries remain only partially explored. For example, the Zambian government’s most up-to-date geological survey reportedly date from the 1950s!

Getting better public geological information and incentivising exploration are just the first in a chain of complex decisions facing many of these countries. Even once you know what you have, and it’s coming out of the ground, opportunities for abuse and mismanagement are rife. Securing the full value of resource rents for government remains challenging. Gold exports from the Eastern DRC have been estimated to be around $1bn per year. In contrast treasury receipts from these exports reached only around $20,000 in 2008. This is an extreme example, but this story is all too familiar.

Money, evidently, goes missing. One part of the problem is a lack of scrutiny; governments need to be held to account by their citizens and companies by their shareholders. For this kind of scrutiny to take place, transparency in operations and disclosure of payments is important. It is for this reason we should all welcome the UK government’s recent announcement.

The Observer newspaper reported yesterday that George Osborne and Vince Cable are working together towards EU legislation requiring all extractive industry companies to disclose any payments made to resource rich governments. It is hoped this legislation will cover all companies, European or otherwise, listed on European markets. Osborne made this case for decisive legislative action before a meeting of G20 finance ministers in Paris on Saturday.

The movement to strengthen governance in extractive industries has seen a succession of victories in recent months. The inclusion of disclosure provisions in the Dodd-Frank financial reform legislation, passed in July 2010, requires all extractive companies to report all payments made to governments in each country they operate in. Furthermore this extends not just to U.S. companies but to any company publicly listed in the States (for example BP). More recently in December it was announced the EU will seek to implement equivalent legislation by the end of 2011. At the end of January this year Nicholas Sarkozy, in response to an open letter from Bono of the ONE Campaign, pledged French leadership and support for this process. Furthermore, Sarkozy has put the future of Africa at the heart of his aims for France’s chairmanship of the G20 this year.

These breakthroughs come on the back of work by initiatives such as the Extractive Industries Transparency Initiative (EITI), which has led the implementation of voluntary country-by-country disclosure, and the Publish What You Pay coalition, a network of civil society organisations, who have lobbied G20 governments to take action.

However there is work yet to do. Many companies operating in Africa will remain uncovered by these reforms. Canada’s parliament recently rejected by a narrow margin a Bill that would have extended similar provisions to the many important (and many smaller) mining companies listed in Toronto. Furthermore an important minority of the new players in the extractives sector, particularly those operating in Africa, originate from outside the OECD. Other G20 nations such as Brazil (home to Vale, the world’s second largest mining company) plus China and India should be encouraged to take similar steps (Hong Kong already has a form of these rules in place).

The international community has a vital role to play, to establish global governance around extraction companies and flows of funds out of resource-rich countries. Such actions can also bolster the efforts for reform from within these resource-rich countries.

The recent announcements create real momentum to level the global playing field in transparency and can galvanise the G20 nations around a clear development agenda. This agenda may not be built on aid flows or debt relief, but may prove to be more important for the future of Africa. Transparency is a good place to start but would be the wrong place to stop.

Jim Cust is a PhD student in Economics at the University of Oxford. He works on the Natural Resource Charter: naturalresourcecharter.org

The More Things Change…

A paragon of transparency

A paragon of transparency.

Today’s Guardian runs an eye-opening piece on expenditures made in the last year of the Labour administration. The Tories are, in their drive for transparency, publishing expenditures made by various Government departments online. The documents relating to the Department of Communities and Local Government show:

Among the expenses revealed was ÂŁ1,673 to a company called Stress Angels, which offers massages, acupressure, Indian head massage and reflexology…

Then there was £626 on a trip to a nature reserve in Nottingham and £539 on an awayday to Blackpool Pleasure Beach. Accommodation at a hotel – the Rubens, opposite Buckingham Palace – cost £17,000. Another £3,670 went to Halfords cycle shop.

The litmus test for the Tories will, of course, be whether they maintain their drive for transparency when it is going to expose even their own Government.  We see this kind of thing happening all the time in Africa, relating to corruption. A new Government comes in promising change and a war against graft. For the first year they push hard to identify and punish culprits, making high profile arrests and prosecutions. These arrests and prosecutions damage the previous administration, normally the opposition party in Parliament.

Then as time goes on, the anti-corruption agency exhausts its ability to prosecute the opposition. It’s eyes turn towards current or recent corruption scandals – those that implicate the current regime. Suddenly, the political will dissipates – they’ve ‘done enough to show that corruption will not be tolerated’. Quietly, the support and direction of senior officials is withdrawn. The old bad habits reassert themselves and the Government continues to make merry with public funds.

Eventually they get voted out, and the whole cycle starts again. This happened in Kenya (though it all went a bit pear shaped when John Githongo showed the tenacity of a bull-terrier); it happened in Malawi and in almost identical circumstances, in Zambia.

It’s easy right now for the Tories to attack the culture of expenditure in Government, because the punches are landing on their opponents. The real win will be when they let the expenditures be published on a monthly or quarterly basis, and let the whip fall on themselves. After all, this is what we demand of developing country administrations. Why should the standards we hold for ourselves be different?