Developing nations with vast natural resources so often fail to provide for the basic needs of their citizens that economists have given the phenomenon a name: “the resource curse.”
While academics debate the reasons why, the nonprofit Revenue Watch Institute is working to do something about it. Revenue Watch, a Hewlett Foundation grantee, has launched projects in more than twenty resource-rich countries in the developing world to improve the transparency and accountability of their governments and encourage the effective management of their oil, gas, and minerals. These projects range from providing citizens with the technical know-how they need to monitor the extraction of resources to supplying the legal expertise to negotiate better contracts with the extraction companies.
When Revenue Watch succeeds, resource-rich nations can use their greater national wealth to improve their citizens’ health and education, which can extend their life expectancy, lift them from poverty, and further enhance the country’s well-being. Making these governments more accountable to their citizens is central to the Hewlett Foundation Global Development Program’s strategy to improve the lives of people who live on less than $2 a day.
“With commodity prices at an all-time high, poor countries in Africa, Latin America, and Asia are experiencing an influx of cash unlike anything they’ve ever experienced, but much of it is wasted or stolen,” says Julie McCarthy, deputy director of Revenue Watch, which is based in New York City. “A large part of our work is helping build social movements in oil-, gas-, and mineral-producing countries to demand better management of their wealth and more responsive use of that wealth to meet citizens’ genuine needs.”
In addition to Hewlett’s contribution, Revenue Watch’s $8.5 million budget is funded by the Bill and Melinda Gates Foundation, the Norwegian Agency for Development Cooperation, and George Soros’s Open Society Institute, from which Revenue Watch was spun off in 2006. It targets its efforts in nations where it believes it can make a difference, while watching for future opportunities in countries that currently show little desire for such reform.
Today, Revenue Watch is working in sub-Saharan Africa, Latin America, and Asia, taking a soup-to-nuts approach to the mission of transferring resource wealth to broad public benefit. Its strategies include training citizens to create local pressure for government accountability; providing technical, legal, and economic expertise to governments that must negotiate with oil, gas, and mineral extraction firms and manage the financial returns; and pressuring companies to disclose the financial terms of their national contracts.
McCarthy says distributing resource wealth more equitably not only lowers internal strife and decreases migration pressures in developing countries, but also creates a boon for the developed world, where a resource nation’s stability means more reliable production and less risk of sudden supply disruptions.
Outside Support Makes a Difference
And local organizers say support from Revenue Watch often is what makes the difference.
In Ghana, for example, organizers had been working since 2004 for increased transparency in the country’s mining sector. However, the campaign had made scant progress because it lacked adequate resources to mobilize the public, says Steve Manteau, a leader of Publish What You Pay-Ghana, part of an international movement that is pressing companies to disclose the terms of their mining contracts.
“Revenue Watch Institute’s support,” which began in late 2006, “has given our campaign a new lease on life,” Manteau says. “It has helped us to go beyond mobilizing popular support to establishing local chapters in Ghana’s four major mining enclaves and building capacity within these chapters to track mining-sector revenue disbursements at the district level.”
Newly discovered oil resources-with production projected at 200,000 barrels per day within five years-make transparency and financial management even more critical in a country in which nearly one in five residents lives on less than $1 a day, he reports.
But among resource-rich countries, success in reforming the use of natural resources can vary widely, and Revenue Watch tries to work where the odds are best.
“If you’ve been around long enough, you know you’re going to have more trouble in a country like Angola,” says McCarthy by way of example.
“It’s not just a nasty picture of corruption,” she explains. “Extractive industries are hugely complicated. If Ghana or Mauritania one day wins the lottery (through a new resource discovery) and suddenly is asked to negotiate contracts with some of the most sophisticated lawyers in the world, they could use help.”
Mongolia Grapples with Newfound Wealth
Mongolia is one recent such “lottery-winning” country. There, a joint venture of Canadian-based Ivanhoe Mines and mining conglomerate Rio Tinto holds rights to the undeveloped Oyu Tolgoi Mine, which has the potential to produce more than 1 billion pounds of copper and 330,000 ounces of gold annually for thirty-five years. In the past three years, the skyrocketing value of those commodities has raised the country’s stakes in achieving a fair deal even higher.
In preparation for the mining, Ivanhoe Mines produced a 2005 development plan that concluded that national employment would increase by more than 10 percent and produce $4.5 billion in earnings for the government.
But Robert Conrad, a Duke University economist and consultant for Revenue Watch, found numerous flaws in this private analysis. His findings were published in a Mongolian newspaper and on the Web site of the local Open Society Forum, creating an uproar when the public learned that it should expect significantly better terms than the company had offered. The government agreed to put the contract on hold until after it had adopted a revised set of mining and tax laws to lay out the framework under which Oyu Tolgoi could be developed.
Conrad and Revenue Watch Advisory Board Chairman Joseph C. Bell (a partner in the law firm Hogan & Hartson in Washington, D.C., and an expert in international energy regulation) consulted frequently with Mongolian government and parliamentary leaders as the laws were being developed and until their adoption in the summer of 2006. Conrad and Bell later worked with government officials on the contract with Ivanhoe Mines, an effort that remains incomplete amid a national political campaign in which the contract terms have become a significant issue.
At the core of the debate is the conflict between a strong national desire to own a significant share of the mining venture and the advice of Revenue Watch experts to expect greater cash payments through taxes and royalties than through an equity stake. Because Mongolia already is dependent on mining, the advisors argue that the country’s leaders would be better served by agreeing to a set cash payment than by tying the country to the fortunes of the mining company.
“There’s work that clearly still needs to be done,” Bell says. “I’m very concerned about this dynamic that has developed, which suggests more education is needed.”
Despite that uncertainty, Revenue Watch’s work has been valuable in raising the issues in a nation that was otherwise unprepared for its new bounty. “They know how to operate a copper mine,” Bell says of country officials. “This has been a matter of inexperience on the contracting side that may have caused them not to appreciate all the alternatives available.
“We started out in a situation in which the government was not really giving itself a fair shake, and we certainly raised public awareness about that. Now it’s swung to the point where expectations may be too high.”