Transparency: can it work for sustainable development?

The world is finally waking up to the need for transparency in business deals. New EU transparency legislation was announced earlier this month and next month transparency will be a major theme at the G8 summit. This week the Extractive Industries Transparency Initiative has its bi-annual conference, and the UK and France have just announced they will join the initiative. The big question is can greater transparency help sustainable development?

Emma Wilson's picture
Insight by 
Emma Wilson
23 May 2013
An oil flare in Port Harcourt Nigeria.

An oil flare in Port Harcourt Nigeria. Nigeria lost around $US 6.8 billion through corruption and mismanagement involving fuel subsidy transfers between 2010 -2012. Photo: Copyright, Danny McL 

Natural resource companies cost Africa £25 billion each year through tax avoidance and opaque business deals, according to the Africa Progress Report 2013. This is twice as much as Africa receives in aid. The report also states that between 2010 and 2012, the Democratic Republic of Congo lost £850 million in revenues through corrupt mining deals, while Nigeria lost around $US 6.8 billion through corruption and mismanagement involving fuel subsidy transfers.

The story isn’t all bad: about one-third of African economies grew by more than 6 per cent in 2012 thanks to natural resource exports. Kofi Annan, head of the Africa Progress Panel, is calling for greater transparency so that African countries can manage their resource wealth for positive transformation rather than squandering it.

Transparency: major theme at the G8 summit

Transparency is a key theme of the next G8 summit, to be hosted by the UK Government on 17 and 18 June. Writing in the New York Times earlier this month, Annan called for the G8 to empower African governments through capacity building. “The region’s revenue authorities are hopelessly ill-equipped to tackle problems such as transfer pricing or to counter illicit transfers,” he wrote.

Annan is lending his voice to an ongoing call by civil society, notably the Publish What You Pay (PWYP) network of 650 member non-governmental organisations (NGOs), which has been campaigning tirelessly for the past decade for voluntary and legal transparency. These efforts helped to establish the Extractive Industries Transparency Initiative (EITI) in 2002.

The EITI is a voluntary global standard for disclosing company payments and government revenues, overseen in-country by multi-stakeholder groups of government, companies and civil society. EITI has put transparency on the map in some unexpected places — Azerbaijan, Iraq, Liberia and Nigeria are all EITI compliant. One of EITI’s greatest strengths is its voluntary government sign-up and business buy-in, which provides legitimacy and high-profile support. But it is also a weakness, because the need to assure ongoing government and business commitment limits the potential for innovation.

A key achievement has been the empowerment of civil society, especially in countries such as Azerbaijan and Kazakhstan, where civil society voices have been weak.

Extractive Industries Transparency Initiative bi-annual conference

The EITI is holding its bi-annual conference in Sydney, Australia, from 23 to 24 May. On the first day of the conference, David Cameron announced that the UK will be joining EITI, “because every country needs to play by the same rules”. “Open business is good business,” said Cameron.

A new EITI standard is being approved at the conference.

Proposals to simplify the EITI requirements and strengthen EITI as a platform for wider reforms include (among other things):

  • payments from national to local levels
  • transactions between state-owned companies and governments; and
  • disaggregated data by company and revenue stream (but not by project).

Co-author of a recent IIED report on EITI and sustainable development in the Caspian Region, Saule Ospanova, has high hopes for the conference and her native Kazakhstan. “I hope for productive discussions leading to a more advanced EITI agenda with practical applications across the globe, including my country,” she says. “EITI can push the boundaries of best accountability practice in co-ordination with other global initiatives. More localised applications of national and global dialogues should also be discussed.”

Another co-author of the IIED report, professor Ingilab Ahmadov, director of the Eurasia Knowledge Hub at Khazar University in Baku, hopes the new EITI rules will resolve ongoing debates in Azerbaijan over disaggregated reporting. “We hope to see company-by-company reporting in the new EITI rules,” he says. “It will be a clear signal to companies operating in Azerbaijan.”

Azerbaijan was the first country to become EITI compliant in 2009, yet civil society groups are disappointed at the lack of real change in the country in relation to poverty reduction and corruption. A leading transparency activist and opposition leader was recently arrested for “organising mass disorder”, accusations which are believed to be false and politically motivated.

Where next for the Transparency Initiative?

EITI is criticised for failing to achieve sustainable development goals or even any greater accountability. For instance, Azerbaijan and Nigeria remain joint 139th in Transparency International’s Corruption Perceptions Index and Nigeria remains 153rd in the Human Development Index.

While EITI is a relatively young international standard, it is also clear that revenue transparency alone is not enough to ensure good governance and poverty reduction. A new study by transparency expert Diarmid O’Sullivan asks What’s the point of transparency?

The theory is that transparency can help empower people to influence the actions of governments and business in the public interest, but all too often greater transparency fails to reduce corruption or poverty.

Nonetheless, EITI and Publish What You Pay (PWYP) have driven transparency up the global agenda. For instance, amendments to the European Union’s Accounting and Transparency Directives, which were announced in May, require companies listed on EU stock exchanges, as well as larger non-listed companies, to disclose payments to governments — project-by-project and country-by-country.

The EU amendments follow the US Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. The extractive industries disclosure provision (Section 1504) in this Act requires all US-listed companies to disclose payments to governments when reporting annually to the US Securities and Exchange Commission.

Companies need to decide where they stand on transparency. Exxon, Chevron, BP, Statoil and ConocoPhilips, which sit on the Board of EITI, are also members of the American Petroleum Institute, which in October last year mounted a legal challenge to the Dodd-Frank Act. In February this year Statoil distanced itself from this lawsuit, a move approved by international NGO Oxfam.

A decade since EITI and PWYP were founded, the question remains how to make transparency work for sustainable development.

“Just implementing EITI does not guarantee pro-poor societal change,” says Dr James Van Alstine, deputy director of the Sustainability Research Institute at the University of Leeds. “More country-level analysis is needed to assess how we can trigger expansion of the transparency agenda and build synergies with other poverty reduction and sustainable development initiatives.”

The Revenue Watch Institute has just launched the Resource Governance Index, with an online set of data for citizens to analyse their country’s performance against 45 indicators of good governance. Yet ultimately, the people affected by major resource projects need to be able to understand the mass of data being generated by transparency initiatives and use it to hold governments and industry to account.

Read EITI and sustainable development: Lessons and new challenges for the Caspian region