Developmental Relevance of EITI EITI Implementation Workshop Paris, February 2-3, 2005 Charles McPherson World Bank Group
Outline of Remarks • Paradox of Plenty • Causal Factors • Relevance of Transparency (EITI) • Challenges Ahead • Closing Observations
Paradox of Plenty • Widespread EI resource wealth in developing countries: • 35 Petroleum-rich countries • 20 Minerals-rich countries • EI resource revenues account for high shares of GDP, export earnings and government revenues in these countries • Enormous potential for positive developmental impact…
Paradox of Plenty • Unfortunately, this potential has not been realized…. • Resource-rich developing countries have experienced: • Low per capita growth rates • Slow progress measured against human development indicators • Social and political instability and violence
The Record in Oil-Rich Africa • Oil-rich countries include: Nigeria, Angola, Equatorial Guinea, Cameroon,Gabon, ROC, Sudan, Chad. • Significant resources: 4MMBD or 5% of world production • High oil dependency: 70% of government revenues • Below average per capita Africa income • Below average scores on infant mortality, life expectancy and literacy • Instability and violence: Nigeria, Angola, Chad, Sudan, ROC…
Causal Factors • Technical factors: • “Dutch Disease”: rapid exchange rate appreciation; escalation of costs of non-tradeables;dramatic decline in competitiveness of non-oil exports • Revenue volatility: boom-bust cycles; pro-cyclical expenditures; wasteful investments; rapid expansion of public sector.
Causal Factors • Political Factors: • Diminished accountability: easy oil or mineral revenues undermine incentives for political elites to be responsive to a larger public • Underinvestment in capacity: easy revenues also reduce the incentive to invest in institutional capacity
Good Governance • Good governance is critical to reform… • Features of good governance include: • Fiscal, monetary and budgetary discipline • Open dialogue between government and civil society • Balance between public and private sectors • High level of capacity and skills in government • Clear and stable laws and regulations • Rule of law, and….. • Transparency in public finances and administration
Governance Scores • EI resource-richdeveloping countries do not score well on governance: • Most are found in the bottom one-third of the World Bank’s composite governance indicator rankings • ….and in the bottom one-third of Transparency International’s annual ranking of countries by perceptions of corruption
Relevance of Transparency • Why transparency matters: • Key to good governance • Increases accountability and reduces the risk of waste and corruption • Fosters democratic debate • Improves macroeconomic management • Enhances access to finance
Dimensions of Transparency • Revenue transparency • Other dimensions of transparency: • Expenditures • Policies • Laws and regulations • Administration • Other non-EI sectors…. • EITI focuses on EI revenue transparency as a manageable, meaningful starting point
Complementary Reform Initiatives • Ideally, EITI should be pursued in the context of a broader range of complementary reform initiatives: • Revenue management • Anti-corruption legislation • Judicial reform • Freedom of information and press • Civil liberties • EITI itself is supportive of these other initiatives
Challenges • EITI will face serious political challenges: • Different country contexts: EITI will have to adapt to widely differing country contexts defined in terms of political and social cultures, commitment to democracy, institutional capacity, development of civil society, etc. • Competing priorities: governments have priorities other than transparency, many of which may have greater urgency….
Challenges • And equally demanding technical challenges: • Identifying implementation criteria: selecting the key criteria for implementation of EITI. • Establishing credibility: defining and implementing credible revenue and payment audit schemes • Outreach: agreeing the extent and nature of information disclosure and dissemination • Building and sustaining capacity: identifying needs and personnel; engaging civil society
EITI as a Process • Up to now implementation of EITI has emphasized learning by doing…. • Perhaps best to see EITI as more of a process than an absolute.. • At this stage, attention has focused as much or more on putting a process and state of mind in place than on the numbers themselves..
EITI as a Partnership • A partnership approach has been and will continue to be central to the success of EITI: • Governments (donor and developing) • Industry • Civil society • Financial institutions • Development agencies
Developmental Relevance of EITI Thank You.