Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!
Daniel kaufmann
1. Towards an Evidence-Based Framework for
Addressing Corruption in Natural Resources
Daniel Kaufmann, President, RWI/NRC
Keynote Presentation to the Coalition against
Corruption (CoCo) Summit, sponsored by the
Janaagraha CCDCD, Stanford CDDRL & the Sunlight
Foundation, held in Bangalore, India,
January 13-15th, 2014
This presentation benefitted from inputs of RWI/NRC staff as well as the author’s
collaboration with Brookings and the World Bank.
2. Addressing Corruption in Natural Resources (NR)
within rigorous analytical & empirical framework
1. Sobering Evidence on Control of Corruption worldwide
2. Corruption: costly symptom of institutional failure, so
‘don’t fight corruption by fighting corruption’
3. Anti-Corruption is about governance, politics,
accountability, incl. civil society space, IT and data
4. Distinct corruption vulnerabilities in Natural Resources
(NRs), requiring detailed and rigorous framework
5. Governance in Natural Resources is far more than a
‘sectoral’ challenge. It is about Shared Prosperity,
Stability: The Development Challenge of a generation
3. -1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
WGIControlofCorruption,2011
Non-Extractive
Intensive Countries
Extractive-
Intensive Countries
(All)
Control of
Corruption in:
Trends in Control of Corruption past decade, Extractive vs.
Non-Extractive Intensive Countries, 2002-2011
Source: Worldwide Governance Indicators, 2012. The extractive countries with satisfactory control of corruption
trend line (atop) includes a dozen countries.
Control of Corruption over time: Sobering Trend
4. Control of Corruption 2012 (Worldwide Governance Indicators --WGI)
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues
(September 2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130
5. It Can Be Done: Better Governance and Corruption Control results in
higher incomes per capita in Extractive-Intensive (& Other) Countries
Sources: GDP per capita (atop each column) from World Bank World Development Indicators, 2012.
Corruption Control data from Worldwide Governance Indicators (WGI), 2012. Countries grouped into terciles
based on WGI Control of Corruption scores. Extractive Intensive country classification according to IMF (2010).
Poor Corruption Control Average Corruption Control Good Corruption Control
GDPpercapita(PPP)
EXTRACTIVE INTENSIVE OTHER COUNTRIES
5,000
0
10,000
6,851
3,941
12,712
10,272
45,000
30,820
6. What’s at stake?
• Oil, gas and mining sector governance as a development
challenge
– In resource rich countries, over 1 billion people live on
less than $5 a day, and 640 million live on $2 a day or less.
– In 2011, Nigeria’s oil revenues alone were 60 percent
higher than international aid to all of sub-Saharan Africa.
Rents from oil in the continent are about 8 times higher
than aid.
– Natural resource revenues expected to rise significantly
further over next decade.
• Governance is the challenge, but also the potential solution.
6
7. What is the Resource Governance Index?
• A measure of transparency
and accountability of the
oil, gas and mining sector in
58 countries.
• For each country,
researchers, gathered
primary information in 2012
to answer a standard
questionnaire with 173
questions, vetted by a peer
reviewer.
12
8. How is the Index built?
Resource Governance Index composite
13
9. Index structure
14
Institutional & Legal Setting
(20%)
Reporting Practices
(40%)
Safeguards & Quality Controls
(20%)
Enabling Environment
(20%)
10 Indicators 20 Indicators 15 indicators 5 Indicators
Indicator Indicator Indicator Indicator
1 Freedom of information law 1 Licensing process 1 Checks on licensing process 1
Accountability & democracy (EIU
Democracy Index & WGI voice and
accountability)
2 Comprehensive sector legislation 2 Contracts 2 Checks on budgetary process 2 Open Budget (IBP Index)
3 EITI participation 3
Environmental and social impact
assessments
3 Quality of government reports 3 Government effectiveness (WGI)
4 Independent licensing process 4 Exploration data 4
Government disclosure of conflicts
of interest
4 Rule of law (WGI)
5
Environmental and social impact
assessments required
5 Production volumes 5 Quality of SOC reports 5
Corruption (TI Corruption
Perceptions Index & WGI control of
corruption)
6 Clarity in revenue collection 6 Production value 6 SOC reports audited
7
Comprehensive public sector
balance
7 Primary sources of revenue 7
SOC use of international accounting
standards
8 SOC financial reports required 8 Secondary sources of revenue 8
SOC disclosure of conflicts of
interest
9 Fund rules defined in law 9 Subsidies 9 Quality of Fund reports
10
Subnational transfer rules defined
in law
10 Operating company names 10 Fund reports audited
11 Comprehensive SOC reports 11 Checks on Fund spending
12 SOC production data 12 Government follows Fund rules
13 SOC revenue data 13
Fund disclosure of conflicts of
interest
14 SOC quasi fiscal activities 14
Quality of subnational transfer
reports
15 SOC board of directors 15
Government follows subnational
transfer rules
16 Comprehensive Fund reports
17 Fund rules
18
Comprehensive subnational transfer
reports
19 Subnational transfer rules
20 Subnational reporting of transfers
14. Importance of In-Depth Diagnostic and
Mapping of Corruption Risks
• In-Depth, In-Country Diagnostic
• Rigorous, Empirically-based
• Focus ought to be on Institutions and on corruption risks
at various stages of the chain.
• Nigeria case study specifically focused on the following
manifestations of corruption:
i) licensing awards; ii) contract negotiations;
iii) subcontracting; iv) State-Owned Enterprises in
extractives; v) public procurement; vi) revenue leakages and
public expenditures; vii) bunkering, & viii) export/trading.
• Input to Reform formulation 23
15. What to do about corruption in Natural Resources?
32
16. Economic decisions determine the strength of each link…
Managing
the
revenues
Getting a
good
deal
Discovering
the wealth
Investing for
development
…governance quality (both in country & internationally) determines
the effectiveness, integrity & sustainability of these decisions
Overarching
issues of
governance
Enabling
international
governance
The Natural Resource Charter (NRC): Transformation of sub-
surface wealth to prosperity requires good governance –
accountable & effective institutions + economic decision-making
Sub-surface
wealth
Prosperity
35
17. Need to map Corruption risks at each
stage: Charter guidance
Managing
revenues
Getting a
good deal
Discovering
the wealth
Investing for
development
Licences to
inappropriate
individuals
Environmental
& human rights
abuses
Government
officials
personal gains
Investment in
crony projects
Illicit flight of
revenues
Savings fund
malpractice
Preferential
contract terms
Tax evasion
Crude mis-
selling by NOC
37
18. TRANSPARENCY IS PART OF THE SOLUTION – YET IT
HAS TO BE COMPREHENSIVE AND DETAILED
Transparency across the value chain
The basis for any
decision to permit
exploitation of a
mineral deposit
should be set out
clearly in
published laws
and regulations
Contract
terms,
including
fiscal terms
should be
made public
Financial
information on
revenues into
the public
domain will
facilitate
enforcement
and reduce tax
avoidance
Disclosure of
operations and
financial data
of savings,
stabilization
and investment
funds
The disposition
of extractive
revenues should
be fully
transparent
19. ‘Extra-budgetary expenditures’ and disappearing oil revenues
(2007-2010): The Case of the Angola National Oil Company
The Missing
$32 Billion
(source: IMF)
20. Civil Society Participation Matters: Voice &
Accountability WGI vs. Resource Governance Index (RGI)
Norway
United States
Brazil United KingdomMexico
colombia AustraliaTrinidad and TobagoTimor-LestePeru
IndonesiaLiberia India Chile Canada
Zambia GhanaEcuadorKazakhstanVenezuela Bolivia
Russia South AfricaGuineaIraq Mongolia
The PhilippinesMoroccoAzerbaijan Tanzania
Sierra LeoneNigeriaYemen AngolaGabon
Papual New GuineaCongo, Dem. Rep. BotswanaBahrainChina
VietnamSouth Sudan Egypt
AfghanistanZimbabwe
Algeria Malaysia
Mozambique
Cameroon
CambodiaKuwait
Saudi Arabia
Iran
Libya
QatarEquatorial Guinea
Turkmenistan Myanmar
0
20
40
60
80
100
120
-2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2
AverageScoreofResourceGovernanceIndex
(RGI)Components(ExcludingEE)
Voice & Accountability WGI Score
r = 0.76
Source: 2012 Worldwide Governance Indicators and 2013 Resource Governance Index
1. Resource Governance Index Components excludes “Enabling Environment”
21. 44
Technology in Natural Resource Governance
Technology as a major tool to enhance transparency and
accountability in natural resource governance by:
– Leveraging the collection, analysis and dissemination of
Data (Open Data, Budget, etc)
– Access and Sharing of Information, including on Contracts
and operations – key for monitoring
– Mapping of Resources: Satellite imaging technology
transforming the monitoring of resource use. Geographic
Information Systems (GIS) is a combination of mapping,
statistical analysis, and database technology. (In Ghana:
http://maps.worldbank.org/extractives/afr/ghana; in Tanzania:
http://www.flexicadastre.com/tanzania/ )
– Mobilizing participatory civil society, collective action
22. In sum: to address Corruption in Natural Resources…
1. A comprehensive governance framework: The Charter, +
2. In-depth country diagnostic: Charter benchmarking, RGI,
understanding of the political economy (incl. capture)
3. Transparency is key, but not alone: Rule of Law, Sanction
4. Accountability & Collective Action: Civil Society Space
5. Leverage the enormous Power of Technology & Data
6. Effective Policy-Making (e.g. Budget, Institutional innovations)
7. Focus on identified vulnerable institutions: SOEs, MNCs
8. Adoption of International Standards & Global Initiatives,
such as the Extractive Industry Transparency Initiative
(EITI) and Open Government Partnership (OGP)
45
