Research suggests that to achieve greater accountability for revenue generated through industries like mining in developing countries, we need to get much more political.
James Morrissey is a Researcher on Extractive Industries and Governance at Oxfam America.
Extractive industries present potentially large opportunities for developing countries. In 2012, for example the total rents from extractive industries in developing countries were estimated to be worth just under five times the total value of global aid flows for the same year. However, translating these resources into revenues, and then translating those revenues into development outcomes is not straightforward. At Oxfam, our Extractive Industries Global Program has been working for more than 15 years to better understand how to positively influence this process.
Translating resource wealth into development outcomes is a three-step process. First you have to make sure that most of the value from the resource stays in the country as government revenue; instead of leaving as profits to the oil or mining company. Then you need to make sure that a good chunk of those revenues are spent on initiatives that improve human development. Finally, you need to make sure that money allocated for development actually translates into improvements in human well-being among the country’s poorest individuals.
While the pros and cons of the different policy options for achieving these outcomes are reasonably well known, advocates for responsible natural resource management are often frustrated by the fact that best-practice policy prescriptions are ignored by governments in developing counties. As a result there has been a growing effort to understand how policy decisions are made, and how political and economic incentives shape development outcomes. My colleague and Oxfam extractive industries global program manager Keith Slack has written about how political dynamics affect the management of extractive industries.
In this vein, with support from the Bill & Melinda Gates Foundation, Oxfam recently undertook a detailed study of the political economy of decision making, looking specifically at how countries determine revenue sharing agreements, as well as how those revenues that are captured and get allocated within the country. The research placed a specific focus on understanding:
- What are the rules regulating decision-making?
- How did those rules come to exist?
- Are the rules followed?
- If the rules are not followed, by what mechanisms could they be ignored?
The research was conducted in four countries: Peru, Senegal, Ghana and Tanzania. These four countries present very different contexts in terms of both their macro-economic indicators and their specific extractive contexts. They also differ significantly in terms of their systems of oversight and ways of managing extractive industry revenues. Despite these differences, however, the research found that two stubborn political economy challenges persist across the countries.
The first is that each country’s ability to collect revenues from their extractive sectors is heavily shaped by global political and economic factors, such as commodity prices, debt levels and the risks inherent to the industry. The second is that accountability and decisions over revenue allocation are determined by the concentration of decision-making power within the executive branch of government.
Although accountability was frustrated in all countries by a strong executive, the processes which drive this were found to be distinct between the African cases and Peru. In the former, executive control is maintained through a disciplined party structure and the capacity to control parliamentary primaries, which undermines the oversight function of the legislative branch of government. In Peru, on the other hand, the parliament is fractured and dysfunctional, and is largely out of the control of the executive. However the status quo is maintained by a popular fear of an economic meltdown and the ideological dominance of neo-liberalism.
In all the countries the judiciary’s independence is compromised. At the same time oversight institutions are constrained by their lack of resources, limited jurisdiction, lack of prosecutorial authority and compromised autonomy.
Within this context established civil society efforts to analyze budgets and ‘follow the money’ have had mixed impacts on improving revenue management. While budget analysis is relatively effective efforts to follow the money were often frustrated by a lack of budget data at the local level as well as unresponsive local and reginal officials.
Looking at cases from the four countries, where revenue management had been effectively improved the research highlighted the following successful strategies:
- Strengthen the state’s oversight function: In Tanzania civil society has effectively publicized the findings of the national auditor, which has driven improvements in expenditure control.
- Push for change during elections or other times of crisis: In Peru the contracts with extractive companies were reformed so the state’s take of the value was improved after public outcry created an electoral platform based on this reform.
- Link campaigning with legitimacy: In Senegal, civil society was able to drive improvements in budget transparency by linking improved transparency to foreign direct investment – which was an explicit focus for the government.
- Coordinate local civil society, with national and international efforts: In Ghana the creation of a new oversight body for managing oil revenues was made possible through the coordinated efforts of local, national and global civil society actors and pressure from donors.
Taken together these findings are provocative. They ask tough questions about whether civil society is best off focusing activities that effectively seek to replace the state’s oversight function (through efforts such as budget analysis and ‘following the money’), or whether it is better to try and strengthen the states existing oversight institutions (by popularizing, and therefor politicizing, their important role; and advocating for their resourcing, autonomy, and authority).
Overall this broad understanding of how power is maintained in society suggests that in order to improve the stubborn problems of accountability in Peru, Senegal, Ghana and Tanzania, we need to go beyond simply creating new laws, new processes or new institutions. Instead we have to find ways to undermine the extent to which power is concentrated in the executive. Advocacy to do this could take many creative forms. In Peru it likely means challenging the dominant economic model that concentrates power in the executive and certain technical ministries. In the African cases, it likely requires focusing on the broken relationship between parliamentarians and their constituents. It’s clear from our research that in order to fundamentally reform how oil and mining revenue gets divided up will require engaging on these difficult institutional accountability issues. This will be an important focus of Oxfam’s Extractive Industries Global Program going forward.