Two thirds of the world’s poorest people live in countries rich in natural resources. But in many of these countries there is an inverse relationship between the wealth of such resources and public welfare. Too often the links between resource wealth, poverty, conflict and corruption serve to fuel the so called “resource curse”.
It does not have to be this way.
Studies have shown that with effective and responsible governance, natural resources can generate revenues that foster economic growth and reduce poverty. Public information and public accountability are the best guarantees that a country’s resource wealth will translate into lasting benefits for its citizens.
Revenue transparency is also fundamentally about fairness and better governance. It levels the playing field—as much for the citizens of resource rich countries, as for the extractive companies (often foreign owned) operating in them. Revenue transparency increases the likelihood that resource revenues will support the public treasury and the public good, but it also lessens corruption and conflict and makes for a more stable and predictable investment climate for western companies and their investors.
PAC works to promote revenue transparency by hosting Publish What You Pay (PWYP)-Canada, a network of eight Canadian civil society groups. PWYP-Canada is part of a global coalition of organizations that believe transparency of payments made by extractive companies to governments within which they operate, and of government revenues earned from the extractive sector, is a necessary first step towards a more accountable system of natural resource management.
The reasoning is simple: Oil, gas and mining companies make payments directly to governments in the form of royalties, bonus payments and taxes, providing the state a flow of funds that is independent of its citizens. These windfalls reduce the need for taxation and thereby eliminate a key motivator for citizens’ scrutiny of public finances. Extractive income gives governments ample resources to buy political support through patronage, and legislatures often have little or no budget oversight. Thus the connection between citizens and the public purse is weakest in resource-rich countries, where the need for well-informed, vocal and active public oversight of government funds is greatest.
If citizens are to know whether payments and receipts from extractive companies reflect a fair deal for the country, the contracts on which they are based must be made transparent as well. Unfortunately, the widespread use of confidentiality clauses, alongside a persistent desire to keep contracts confidential, prohibits this much-needed disclosure. Companies typically claim that payment information is proprietary and would either cause commercial harm if made public or would lead citizens who lack an understanding of industry dynamics and investment risks to demand overly generous terms for their countries. Likewise, policymakers, who commit their countries to bad deals based on poor information, advice or outright corruption, fear a political backlash if they make these contracts public.
While it is impossible to ensure proper management of natural resource wealth by looking exclusively at revenues, transparent and accountable management and expenditure of public funds is essential to addressing the poverty, corruption and autocracy that too often plague resource rich countries.
The adoption of revenue transparency standards in many countries has resulted in more data being produced and disclosed, and more demand for attention to government spending and development outcomes. Thus PWYP members promote not only transparency in resource revenue payments and government receipts, but also the accountable and transparent management and expenditure of those revenues.
To learn more about the issues and PAC’s work on revenue transparency, please visit the PWYP-Canada website, www.pwyp.ca.