The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

Helping poor countries “rich” in natural resources: A 12-step program for donors

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Young people examine oil pollution on their farmland in Rumuekpe Rivers State in Niger Delta area of Nigeria in June 2015.

The global push by donors to help countries overcome the “resource curse” is facing a mid-life crisis.

Twenty years ago, the economic, social, and environmental problems faced by poor but “resource rich” countries were hardly visible on the international aid agenda. Over the last 15 years, international donor efforts from agencies such as the World Bank and IMF; bilateral donors such as the UK and Norway; and private foundations have poured hundreds of millions of dollars into governments, consultants, and civil society organizations in a bid to stem the “resource curse” and help average citizens benefit from natural resource booms.

As a result, important gains have been made in many countries and in the global, normative agenda. We’ve moved beyond secrecy as a norm in the oil, gas, and mining industries to new global norms of transparency of payments to host governments from companies, with data being used by citizens around the world. Many more countries have publicly disclosed their contractual arrangements. The World Bank’s International Finance Corporation now requires Free, Prior and Informed Consent (FPIC) for projects affecting indigenous peoples.

That said, there’s a sense that the field of donors seeking to improve development outcomes in resource-rich countries is facing a “mid-life crisis” or at least a need for more reflection about what has worked and what hasn’t, and to develop more innovative approaches. At the end of March, I spoke on a panel at the Oxfam / Johns Hopkins SAIS sponsored event on the East Africa oil boom and presented a quick and dirty “12-step program” to help kick-start the discussion about how donors could improve their contributions to the field. Beyond admitting there is a problem, here are 12 steps donors could take.

  1. Donors need to use their lending, technical assistance, and policy advice as leverage for better governance. Many of the remaining problems in resource-rich countries are political, rather than technical in nature. Donors are more comfortable dealing with “technical” problems by providing “capacity building.” Governments will be happy to get assistance to increase oil revenues, for example, without strings attached. Donors need to use their leverage to get more transparency and better governance. Don’t assist a country with corruption issues in negotiating contracts if they aren’t going to disclose the deal to the public. As an example, the IMF required disclosure of oil contracts in Congo-Brazzaville as a condition for debt relief. Other donors can similarly and carefully use their leverage to promote reforms.
  2. Donors need to think beyond technical capacity building to look at the politics of technical and capacity issues. Even where there are real technical capacity gaps in governments – and this is almost always the case in resource-rich developing countries – capacity building efforts may be stymied by politics. For example, efforts to properly assess mineral production or to audit companies may come up against vested interests in the form of politicians or politically-exposed persons owning stakes in companies.
  3. Donor interventions need to be more tailored to context. It goes without saying, but the political economy of each resource-rich country – as well as the capacity needs of governments – is different and thus boiler-plate approaches are doomed to failure. Donors need to do – or support – more and better political economic analyses and ensure that they are applied to program support, design, and execution.
  4. Donor interventions need to be more transparent. Donors often tout the need for developing country governments to be transparent, but donors need to do a better job of modeling transparency. For example, the IMF may conduct a review of the fiscal regime of a country, but the results and recommendations may never be made public, limiting the ability of accountability actors to spur action. The IMF could move from client government sign off to a policy of disclosure of technical assistance products on a non-objection basis.
  5. Donors should be more coordinated. Admittedly, I fall asleep when I hear this, but it needs saying. I’ve been in too many countries where governments have asked three or four donors for support for exactly the same thing. Without coordination, governments can play donors off each other, resources are squandered, and politically useful intelligence is not leveraged. Rather than jockeying for “most favored donor” status, donors need to set explicit coordination goals.
  6. More support for civil society groups and other watchdog actors in the “accountability ecosystem”. Oxfam and other civil society groups have argued for years that transparency in the sector is a necessary but insufficient condition for extractive industries reform. With more progress on transparency – a relatively “safe” issue for donors – it is ever clearer that donors need to invest more in aspects of the “accountability ecosystem,” including civil society groups, investigative journalists, parliamentary oversight committees, and supreme audit institutions.
  7. Donors need to move beyond support for the design of fiscal regimes and tax systems. It’s one thing to design a good fiscal regime for developing your natural resources, and quite another thing to execute it well. While not glamorous, getting tax administration right could be the “low hanging fruit” that saves governments millions of dollars in lost revenue. In the context of the Addis Tax Initiative and increased donor support on natural resource taxation, donor support tailored to country specific tax administration needs will be key.
  8. Donors need to end siloed efforts to improve natural resource governance and broader public financial management reforms. Better natural resource revenue collection in countries with weak public financial management is likely to lead only to more corruption and “leakages” in the value chain. Donors often ghettoize natural resource governance reforms and don’t link them strongly to public financial management reforms. Worse still, in some countries donors pour money into the “hot” issue in the context of a resource boom while neglecting “bread and butter” reforms to public financial management.
  9. Don’t neglect the people. Extracting oil, gas, and minerals has real impacts on real people. Many poor people in developing countries living close to extraction sites are worse off after the arrival of extractive projects. Donor support has focused too much on the potential upside of extractive industries and not enough on the downsides. Donor support for environmental regulation, human rights protection, and support for community consent processes are just as important as the fiscal side. In the end, revenue flows aren’t sustainable if they are derived from communities in resistance who could delay projects or block production.
  10. Bilateral donors should combine political engagement with development assistance. Bilateral donors should ensure coherence between their aid programs and political engagement with governments. Well-meaning donor programs may be undermined by issues of closing civic space and attacks on human rights defenders. Donor governments should strategically combine aid programs and political leverage to promote reforms.
  11. Fix your own house first. Donor governments who aren’t contributing to solutions for tax avoidance by multinational companies – or worse, are tax havens themselves – can undermine the very reforms they are purporting to promote. Countries that let corrupt leaders into their countries for shopping sprees, allow ill-gotten gains to be plowed into real estate, etc., are undermining their programs and moral standing.
  12. Choose effectiveness over “relevance”. Donors are constantly trying to remain “relevant” and “in the game” in the eyes of governments, even to the extent that they agree to support expensive programs that are likely doomed to failure. Choose effectiveness over relevance. Step away if you can’t make a difference. It’s better for everyone in the long run.

This 12-step program is not exhaustive, but if adopted could put donors on the road to recovery.

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