Governing Natural Resources Wisely

The Revenue Watch Institute has just released its 2013 Resource Governance Index and accompanying report, measuring countries’ transparency and accountability in the governance of oil, gas, and mining on four criteria: legal framework, transparency levels, checks and balances, and the broader governance context. The Index assesses fifty-eight countries—which together produce 85 percent of the world’s oil, 90 percent of diamonds, and 80 percent of copper. Of the fifty-eight countries studied, forty-seven were found to fall short on basic standards of openness and accountability.

These findings are especially troubling given that abundant reserves of minerals and petroleum often precipitate a resource curse in countries with weak governance institutions, as I have noted previously. Poor resource governance can foster political corruption, eroding democratic accountability, inciting armed conflict, and undermining inclusive and sustainable economic growth.

However, the resource curse is not inevitable. Countries with good governance, such as Norway, the United States, Great Britain, Australia, and Brazil, benefit significantly from natural resource wealth. Transparency can allow citizens to hold public officials accountable for pursuing policies that lead to widely shared benefits. According to RWI, “The lives of over a billion citizens could be transformed if their governments managed their oil, gas and minerals in a more open, accountable manner.”

Transparency and accountability can play a critical role in overcoming the challenges presented by resource wealth, but global cooperation to provide external support for reforms is essential. Emerging market countries often struggle to improve transparency and accountability on their own, particularly when transnational capital investors are involved. External support is therefore needed to encourage transnational companies to abide by disclosure and anticorruption rules and to reinforce domestic reformers that could otherwise be pushed aside by entrenched interests.

The Index report reveals that several key U.S. allies, such as Saudi Arabia, Afghanistan, and Angola, are among the worst performers in natural resource governance. Daniel Kaufman, president of Revenue Watch, suggests, “Countries like Canada, the U.S. and Australia also need to ensure their multinational companies do not facilitate the opacity found in many countries where they operate.”