Daniel Kaufmann, Revenue Watch Institute Presentation at Extractive Industry Roundtable sponsored by EITI & Norway, Oslo, February 25th, 2013

1. The Development Challenge of the Decade:
Natural Resource Governance
Reflections and Peering ahead, Evidence-based
Daniel Kaufmann, Revenue Watch Institute
http://www.revenuewatch.org/
Presentation at Extractive Industry Roundtable
sponsored by EITI & Norway,
Oslo, February 25th, 2013
.
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2. Reflecting on 4 ‘Powers’
1. Power of Data, Research & of Evidence-Based
Policy-Making
2. Power of Smart Transparency
3. Power of Incentives
4. Implications for Debate, including: Power of
Partnerships

3. 1. Power of Data & Research
Power of Data, Research & of Evidence-Based Policy-
Making:
• Better outreach of existing data/evidence and analysis on
governance in natural resource governance
• Building a major Databank; making sense of the existing &
upcoming data; enabling multitude of users around the
world (in-country) to use it effectively
• Guarding against: i) ‘Zombie Data’; ii) Confusing the
Macro with the Micro in charting data work ahead; iii)
viewing Data & technical analysis as substitute to civil
society advocacy (not so); iv) misalignment with
international statistical norms (thus IMF needs to be
further involved, etc)

4. Basic Data, 1: What are the Poverty figures since 1990?...
Basic Data, 2: Trends in Control of Corruption, Extractive
vs. Non-Extractive Intensive Countries, 2002-2011
1.0 Control of
0.8
Extractive
WGI Control of Corruption, 2011
0.6 Countries with
satisfactory
0.4 Governance
0.2
Non-Extractive
0.0 Intensive Countries
-0.2
-0.4 Extractive-
Intensive Countries
-0.6 (All)
-0.8
-1.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Worldwide Governance Indicators, 2012. The extractive countries with satisfactory control of corruption
trend line (atop) includes a dozen countries.

5. 2. Power of Smart Transparency
• Transparency Matters
• But guarding against:
1. “Zombie” Transparency (de jure, opaque
transparency, overly aggregate);
2. Partial Transparency: only on monetized
revenues, but not on: contracts; in-kind;
expenditures; sovereign funds; in-kind,
NOCs; commodity traders; ownership, etc.
3. Lonely Transparency (without key
complementary measures)
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6. Governance & Transparency Matters:
Some Empirics in brief
• Governance Matters for Development:
Empirical Analysis shows that.
• The ‘payoff’ or development dividend of good
governance is at least as large (if not larger)
for resource-rich countries
• Controlling corruption is key to development
outcomes, and transparency is associated
with controlling corruption
• But ‘lonely transparancy’ has less impact:
transparency with sanction has more power
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7. The 300% Development Dividend From Improving Governance &
Controlling Corruption
$30,000
$3,000
$300
High Corruption Medium Corruption Low Corruption
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Data Source for calculations: KK 2004. Y-axis measures predicted GDP per capita on the basis of Instrumental Variable (IV) results for each of
the 3 categories. Estimations based on various authors’ studies, including Kaufmann and Kraay.

8. GDP per Capita in Extractive-Intensive & Other Countries,
by Control of Corruption Tercile Groups, WGI 2011
EXTRACTIVE OTHER
45,222
GDP per capita (PPP), 2011
30,820
12,712
10,272
10,000
6,851
5,000 3,941
55.6% 25.6% 33.3% 33.5% 11.1% 40.5%
0
Poor Corruption Control Average Corruption Control Good Corruption Control
Note: The percentages inserted in each dark blue column represent the % of all extractives that belong to each control of corruption
tercile (poor, average, good). Similarly, for light blue columns, the % of all other countries in each control of corruption category.
Sources: Corruption Control data from Worldwide Governance Indicators (WGI), 2012. IMF 2010 Report on Resource-Intensive
Countries. GDP p.c. from World Bank World Development Indicators, 2012. Countries were grouped into terciles based on the WGI
control of corruption score for the sample of all countries in the world.

9. Control of Corruption and WEF GCR
High Competitiveness, 2010
100
r = 0.79
Global Competitiveness Index, 2011
CHL
80
BRA
CRI
60
40 SLV
DOM JAM
20
Low 0
0 20 40 60 80 100
Low Control of Corruption, 2010 High
Source: EOS firm survey, WEF Global Competitiveness Survey 2011 & '“Worldwide Governance Indicators,” by D. Kaufmann, A.Kraay and M. Mastruzzi,
October 2011 – www.govindicators.org

10. Improved Transparency is Associated with Corruption Control
(Emerging Economy sample-- 135 countries)
Good
1
0.5
Control of Corruption
0
-0.5
-1
-1.5
No Transparency Limited Transparency Satisfactory Transparency
Extent of Transparency
Source for Control of Corruption: : 'Governance Matters IV: Governance Indicators for 1996-2004’, Kaufmann, D., A. Kraay and M. Mastruzzi,
(http://www.worldbank.org/wbi/governance/govdata/); Source for Press Freedom: Freedom House. Source for Gender Equality: CPIA 2004. Source for Transparency:
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Transparenting Transparency”, A. Bellver and D. Kaufmann. Satisfactory Freedom/Rights reflect higher ratings from Press Freedom, women’s rights, gender equality and
transparency ratings.

11. Effect of Media Freedom/Transparency on
Control of Corruption (when Low Rule of Law)
2.0
1.0
0.0
-1.0
-2.0
Low Press Freedom/Low Rule of High Press Freedom/Low Rule of
Law Law
Sources: Kaufmann D., A. Kraay, M. Mastruzzi (2010), The Worldwide Governance Indicators: Methodology and Analytical Issues ,
September 2010; Freedom House, Freedom of the Press, 2005-2009 editions

12. Impact of Transparency/Free Press on Control
of Corruption (for Low vs. High Rule of Law)
2.0
1.0
High RL
Low RL
0.0
-1.0
-2.0
Low Press High Press Low Press
Freedom/Low Rule of Freedom/Low Rule of Freedom/Hight Rule of
Law Law Law
Sources: Kaufmann D., A. Kraay, M. Mastruzzi (2010), The Worldwide Governance Indicators: Methodology and Analytical Issues ,
September 2010; Freedom House, Freedom of the Press, 2005-2009 editions

13. Effect of Media Freedom and Rule of Law on
Control of Corruption
2.0
1.0
0.0
-1.0
-2.0
Low Press High Press Low Press High Press
Freedom/Low Freedom/Low Freedom/Hight Freedom/High
Rule of Law Rule of Law Rule of Law Rule of Law
Sources: Kaufmann D., A. Kraay, M. Mastruzzi (2010), The Worldwide Governance Indicators: Methodology and Analytical Issues ,
September 2010; Freedom House, Freedom of the Press, 2005-2009 editions

14. A Broader Transparency Framework
• Beyond Transparency in Revenues: the full
value chain
• Beyond Transparency: Complementary
measures – how context specific?
• New Analytical and Empirical Diagnostic
Tools: Natural Resource Charter (NRC); the
Resource Governance Index (RGI), EITI
information translation into standardized data
and performance indicators?
• Subnational Governance in Natural Resources
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15. BEYOND REVENUE TRANSPARENCY: WHICH AREAS
SHOULD BE TRANSPARENT?
Transparency across the Value Chain
The basis for any Contract Financial Disclosure of The disposition
decision to permit terms, information on operations and of extractive
exploitation of a including revenues into financial data revenues should
mineral deposit fiscal terms the public of savings, be fully
should be set out should be domain will stabilization transparent
clearly in made public facilitate and investment
published laws enforcement funds
and regulations and reduce tax
avoidance

16. Managing Volatile Revenues
Norway Venezuela
200.0%
35.0%
30.0%
150.0%
25.0%
20.0%
15.0% 100.0%
10.0%
5.0% 50.0%
0.0%
-5.0% 0.0%
2004
1992
1994
1996
1998
2000
2002
2006
2008
2010
2012
-10.0%
-15.0% -50.0%
Government revenue growth Government revenue growth
(kroners) (bolivares)
Government expenditure
Government expenditure growth
growth (kroners)
(bolivares)

17. Managing Volatile Revenues
Chile Iran
40.0% 80.0%
70.0%
30.0%
60.0%
20.0% 50.0%
10.0% 40.0%
30.0%
0.0% 20.0%
1997
1999
2001
2003
2005
2007
2009
-10.0% 2011 10.0%
0.0%
-20.0%
-10.0%
-30.0% -20.0%
Government revenue growth Government revenue growth (rials)
(pesos)
Government expenditure Government expenditure growth
growth (pesos) (rials)

18. 3. Power of Incentives
• Belonging to a Global Transparency ‘Club’ is a
powerful incentive
• Balancing: i) Inclusivity [in ‘belonging’ to
‘Club’, so country has incentive to improve],
with ii) MMS: Maintaining Minimum Standards
(vs. damaging the brand by low standards)
• Practically, 3-categories (not 2): In or Out, and
if In: potential vs. real performer
• A key is tough implementing criteria on ‘real’
performance
• Performers can be reverted to non-performers,
but stay ‘In the Club’ (unless dramatic deterioration)
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19. Some Conclusions & Implications so far, including
4. The Power of Partnerships
1. Power of Data: Investing in Data gathering, management,
rigorous analysis, training/TA of multiple national users
2. Distinguishing between Zombie vs. Real Transparency
3. Complementary to Transparency: Governance in full value chain
4. Taking Incentives seriously: “Tough Love” (Love: ‘In the Club’,
Tough: Real Performance implementation criteria, w/ metrics)
5. Taking Institutional Partnerships seriously and to the next level:
i) Scan & Mapping of activities & organizations, division of labor;
ii) Joint Country Strategies; iii) Strategic Partnerships & Mergers
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20. Some Perspective on the Power of
Transparency & Data…
‘If it cannot be measured, it cannot be
controlled’
Lord Kelvin
‘Not everything that counts, can be counted,
and,
not everything that can be counted, counts’
Einstein
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