Breaking the resource curse through transparency

EITI visit to the Newmont Mine in Ghana. © The EITI/flickr (CC BY-SA 2.0)

How is it possible for so many countries rich in valuable raw materials to be plagued by instability, poverty and famine? The phenomenon known as the “resource curse” explains why having an abundance of natural resources, such as oil, gas and minerals, may actually be a curse for some developing and emerging countries.

This phenomenon is often due to corruption and mismanagement, which means that revenues from the raw materials sector only enrich a small elite instead of flowing into a sustainable economy and thereby benefiting large sections of the population. The Extractive Industries Transparency Initiative (EITI) is a global multi-stakeholder initiative aiming to break the resource curse by increasing the transparency of cash flows.

The transparent utilisation of revenue from raw materials is an important precondition for the sustainable development of the producer countries, and also for a long-term and stable supply of raw materials to Germany. German industry therefore expressly supports the call to increase transparency in the raw materials sector. Extractive companies operating in countries implementing the EITI standard have to declare their tax payments and royalties to the government, which in turn must disclose its revenue from raw materials business. This information is then assessed and reconciled by an independent administrator and published in an annual report.

© BDI

The objective of recording and disclosing information about company payments and government revenues in connection with raw materials transactions is to promote good governance in the sector. Aside from reconciling cash flows, EITI reports should also facilitate broad public discourse on raw materials extraction.

The EITI standard is currently implemented by 48 countries worldwide and receives funding from 17 governments and the European Commission. The initiative also receives support from more than 90 mining, oil and gas companies and over 90 investment and pension funds, amounting to a total of more than 19 trillion US dollars. Besides developing countries, more and more industrialised countries are also campaigning to implement the EITI at home. Germany has been supporting the EITI politically and financially since it was founded in 2003 and, in July 2014, decided to initiate its candidacy process. In addition, Germany introduced the Accounting Directive Implementation Act (BilRUG) in 2015 to comply with the EU’s amended Transparency Directive, which also lays down disclosure obligations for extractive industries.

In each country implementing the EITI standard, government, businesses and civil society work together in a multi-stakeholder group (MSG). The BDI actively supports the federal government in the national EITI implementation process, and as the coordinator for industry representation is playing a constructive role in the MSG. The main tasks of the MSG include managing and overseeing the implementation of the EITI, as well as providing an important platform for objective dialogue among the various German interest groups on issues surrounding domestic raw materials extraction.