A new report says most of the world’s top oil, gas, and mineral producers are not managing their resources well. The Resource Governance Index
was issued by the Washington-based Revenue Watch Institute. It says its findings are significant because deficits are largest in the countries that depend most on these resources for revenue – countries with billions of the world’s poor. Those 58 countries also produce well over 80 percent of the world’s oil, diamonds, and copper.
No African countries received a satisfactory rating, although five were rated “partially” satisfactory -- Ghana, Liberia, Zambia, South Africa, and Morocco.
The study says only 11 of the 58 countries manage their natural resources with enough accountability and openness to be labeled “satisfactory.”
At the top are Norway, followed by the United States, the United Kingdom, Australia, Brazil, Mexico, Canada, Chile, Columbia, Trinidad and Tobago, and Peru.
Fifteen countries received a grade of “partially” successful: (OPT) India (12), Ghana (15), Liberia (16), Zambia (17), South Africa (21), Russia (22), and Morocco.
Sixteen countries received were rated as “weak” in their resource management. Among them were: Tanzania (27), Botswana (30), Gabon (32), Guinea (33), China (36), Sierra Leone (35), Nigeria (40), and Angola (41).
The remaining countries were rated as “failing.” Among those with a failing grade are Vietnam (43), Democratic Republic of the Congo (44), Cameroon (47), Saudi Arabia (48), South Sudan (50), Zimbabwe (51), Qatar (54), Libya (55), and Equatorial Guinea (56).
As a basis for the Resource Governance Index, Revenue Watch used four criteria instrumental in guaranteeing good resource management: a country’s legal framework; the degree to which governments and businesses disclose public information about their operations; the presence of checks and balances to limit corruption; and last, the enabling environment -- that is, transparent budgets, democratic institutions and the effectiveness of governance.
Institutional and legal environment
Juan Carlos Quiroz, a senior policy analyst with Revenue Watch, explained the importance of the first requirement to transparency -- the institutional and legal setting.
"The practices we look for are whether a government has approved a freedom of information law that requires disclosure from the agencies, ministries and companies operating in the extractive sector," he says. "It’s also about an independent licensing process because when the state owned companies get involved in these, there is the risk of conflict of interest also. So we think an independent licensing process is more open and favors competition."
Seventeen countries scored a satisfactory rating, including Ghana, Liberia, and Zambia. Many of those with top rankings also have legal frameworks that encourage competition in their resource sectors, disclosure policies to curb corruption, and competitive bidding for mining licenses.
That’s not the case with Nigeria, which failed to get a satisfactory score
. Dauda Garuba of Revenue Watch in Abuja, explains why:
"The independent licensing process started in 2005 when Nigeria had open bids for oil and gas blocksl," he says. "The last one we had was in 2007, which was rushed before the administration of President Olusegun Obasanjo came to an end. But since then everything seems to have gone into what is popularly referred to in Nigeria as “voice mail.”
"So, we made progress with opening the licensing process from 2005 to 2007. [Since then] what we hear and read in the media is that discretion has become the order of the day in the issuance and award of oil block licenses, [so] we have regressed [especially against the transparency principles on which the Extractive Industries Transparency Initiative is based]."
Quiroz says 13 countries gained top marks [“satisfactory”] in the second measurement of good resource governance – reporting practices by government ministries or regulatory agencies. No African countries rated “fully satisfactory” and many received failing marks -- including Nigeria, Mozambique, Equatorial Guinea, and Zimbabwe.
Something you find in a majority of countries in Africa is that the ministries of mines or petroleum tend to not publish information. The best reports that you find from Africa tend to come from the ministry of finance or in some cases some reports from the central banks.
Ghana received a passing score, rated “partial” for its failure to provide information on contracts and many other keys aspects of the mining industry. But Dauda Garuba says it was found to provide adequate information in other sectors, including oil contracts, which are published online.
"About two months ago," he says, "I read the one-year report from Ghana’s Ministry of Finance with a detailed account on how many barrels of oil have been produced, how much money was generated from oil resources, how much [the government] has plowed into the country’s budget and investment. In Nigeria, we need this kind of information.
"But Nigeria, Angola, Equatorial Guinea do not publish in detail the revenues and where they go. Resource governance is not just about transparency in revenue collection, but also about how the money is spent."
In contrast to Ghana, Garuba says Nigeria received a failing grade in this category. The index found that its Petroleum Resources Ministry published little information on licenses, contracts or operational data, and no reports on revenues.
Safeguards and quality control
The third criteria in the Resource Governance Index are safeguards and oversight mechanisms. They guard against mismanagement, conflicts of interest, and discretionary powers that allow the president or other officials to influence public contracts with no public scrutiny.
The Index finds that 16 countries do just that, including South Africa, Ghana, Zambia, and Liberia. Zimbabwe, Botswana, Nigeria, and Angola were judged to have weak controls, while Congo-Kinshasa, Mozambique, Cameroon and Equatorial Guinea failed.
The Index says Mozambique’s legislature
does not review contracts and does not provide oversight over extractive industries. Government officials are not required to disclose potential conflicts of interest, and audit reports are not made public. The report criticized Angola for inadequate oversight of the budget and the country’s natural resource fund, but it recognized the government for introducing new policies requiring disclosure of conflict-of-interest and improvements in licensing.
"The safeguards and quality controls," he explains, "are the existence of audits by the supreme auditing institution of revenue and on parastatals and also requirements to disclose conflicts of interest or investments in the extractive sector for officials who are in charge of regulating the sector. [Safeguards also include] checks and balances from [the parliament] whether the legislature has power and acts to be the overseer of the extractive sector."
Silas Olang, Revenue Watch’s regional associate for Africa in Dar Es Salaam, says Tanzania
nearly made the “partially successful list” in the category of safeguards and control. He says enough progress is being made that the country will likely be rated “satisfactory” in the future.
He says Tanzania is the only country in East or Southern Africa so far with a minerals audit agency to monitor the operational costs and tax revenues from mining, and a national audit office which examines government spending. He says the legislature is also strong:
"Tanzania through parliamentary committees has a very strong kind of financial or budget oversight. So the committees are headed by the opposition parties and therefore they are very robust in terms of following government spending and the budget."
He says Tanzania may need to reform mining laws which he says give excessive powers to the ministry of energy and minerals and which impede disclosure of information to the public.
In the fourth category -- enabling environment for investment -- the Index ranked countries according to overall good governance, such as rule of law and a government’s ability to enforce its policies. Only seven of the 58 countries surveyed score a satisfactory rating, including South Africa and Botswana – with Ghana ranked as “partially successful.” Most African countries, including Nigeria, failed.
"It’s troubling," he says, "to see the majority of countries are doing poorly, and it has to do with different things. In some cases, it’s coming out of long civil war or have gone through civil unrest, corruption or a lack of technical capacity in the government. But it depends country by country."
Dauda Garuba of Revenue Watch in Abuja says Nigeria appears slow to introduce and implement laws guaranteeing transparency and curbing corruption. For example, the index says despite a policy of open bidding, the minister of petroleum resources has little oversight -- including by the legislature -- in awarding licenses.
As a result, he says some Western companies are reluctant to invest in Nigeria because they can now be punished in their home countries for any act of corruption committed there.
"In Nigeria," he says, "you have the sense the government is dragging its feet to act. So you find companies that would be willing to go to Nigeria to do business but if they find [there’s no enabling environment], they will withhold investments in this country. South Africa and Botswana have moved well in these areas. We need to clean up the environment and make it a conducive one for business investment."
Silas Olang says Angola’s failure to create an enabling environment
is due to a weak civil society and opposition, as well as a strong presidency with few checks and balances.
"There’s both a weak political opposition and weak civil society; and there’s little space for civil society to act more effectively in addressing those challenge," he says. "That’s because it depends on how much space civil society has to engage in these issues. [Civil society] is given powers to function legally but there are some controls on their actions, especially those advocacy organizations that try to challenge the status quo when it comes to social policy. The government always tends to be aggressive against them.
"It’s not like in Tanzania and Zambia where civil society has the freedom to criticize, challenge and engage in dialogue with government."
Olang says Zimbabwe also has a strong executive influence over licensing.
The Index says bids are often made in the “national interest” and are largely awarded to critics of Western sanctions, like China, Russia, the United Arab Emirates, South Africa and India. Government audit reports are not published. Still, he says, there has been some oversight, though he is not sure it will continue.
"Zimbabwe has had a lot of challenges," he explains, "but there is a hope with the new constitution that governance might improve. However, the other challenge is that during the [current] coalition government, there were checks and balances by the opposition especially with regard to government revenues. So, after the next election we are not so sure those checks and balances will still be there. If the coalition government is not there, I doubt that things will improve."
Revenue Watch officials say an updated report will be released in two years. In the meantime, they say the current Resource Governance Index gives investors a snapshot of prospective business environments – both benefits and risks.
It also provides a diagnostic tool that can help policymakers identify and improve weaknesses.