The importance of transparency
Revenues from extractive industries (oil and gas development and mining) are a source of income for governments of more than 50 developing countries, including many where Oxfam America and our affiliates work, including Peru, Ecuador, Mali, Ghana, Chad, Nigeria, Angola, and Azerbaijan. These roughly 50 countries are home to approximately 3.5 billion people, 1.5 billion of whom live on less than $2 a day.
When properly managed and developed with the participation of affected communities, these extractive industries revenues should serve as a basis for poverty reduction and economic growth. Too often, though, these revenues are squandered, fueling corruption, conflict and social divisiveness.
Revenues from extractive industries investments make their way to governments in the form of royalties, taxes, fees, and other payments. The amount of these payments is dictated by contracts between the government, selling nonrenewable assets on behalf of the country’s citizens, and large oil, gas, and mining companies.
In practice, the state and other institutions that manage these resources are often unaccountable to the parliaments and ordinary citizens of their countries. More often than not, extractive industries contracts and revenues are kept secret. This lack of accountability facilitates embezzlement, corruption, and revenue misappropriation. In extreme cases, access to resources fuels local and regional conflicts.
Mining, gas, and oil companies cannot control how governments spend taxes, royalties, and fees. But they do have a responsibility to disclose the payments they make so citizens can hold their governments accountable. Companies that fail to do so are complicit in the disempowerment of the people of the countries to which the resources belong.
The mismanagement of extractive industries wealth has gained more prominence in the international arena in recent years. Oxfam America is a leading member of the Publish What You Pay campaign (PWYP). PWYP was founded in 2002 and now has over 300 member organizations worldwide, including Oxfam America and many of its partners.
In response to pressure from organizations such as PWYP, the World Bank now requires disclosure of extractive industries revenues for any project it finances. In addition, a voluntary international effort, the Extractive Industries Transparency Initiative (EITI), has gotten off the ground with the support from governments and oil, gas, and mining companies. The EITI, though, is weakened by its voluntary nature and does not require the disclosure of contracts.
Because individual companies might be put at a disadvantage by disclosing information others fail to reveal, voluntary disclosure is not a viable option. All companies and the investment community would benefit from a level playing field created by mandatory government regulation. Furthermore, it would enable them to address the risks to reputation arising from lack of transparency.
On July 15, 2010, the US Congress passed the financial reform bill, which included a provision that requires oil and mining companies to disclose their payments to governments of countries where they operate. With this information, poor communities will be able to advocate for a greater share of the billions of dollars in revenue that are produced annually from their land and resources. The information will be made public over the internet, and for poor communities with no access to computers, it can be easily transmitted over the radio. With this legislation passed, the oil and mining industry will be more transparent and accountable, while corruption, instability, and conflict will decrease.
Follow the links to learn more about the importance of transparency to help ensure that the economic benefits from extractive industries projects reach the poor.