Clarity of vision can keep corruption at bay in oil nations
Improving the use of oil revenues in Equatorial Guinea, and countries like it, is the aim of a new initiative by Revenue Watch Institute and Transparency International, two non-government organisations campaigning against corruption and for better governance. I was privileged to contribute to their inaugural Revenue Watch Index, published last month and available at www.revenuewatch.org.
In countries with solid legal systems and efficient governments, mineral wealth has often been a catalyst for further development. Norway used North Sea petroleum as a springboard to develop a broad-based, high-tech economy, to accumulate more than $500bn in a fund for future generations, and to be consistently ranked as one of the world's best countries in which to live.
Some countries such as the UAE, Oman and Chile that were very poor at the time of the discovery of oil (or, in Chile's case, copper) nevertheless managed to use it to drive wider economic growth.
But in other places, such as Equatorial Guinea, Nigeria, Venezuela and Iraq, mineral wealth has become associated with a host of ills: corruption; poor economic performance; a lack of progress in human development issues such as education and health; autocracy; and militarisation and wars.
The reasons why one country benefits from minerals while another squanders them are complex and still under debate. But there is growing consensus that it is crucial for citizens and civil society to be able to hold their government to account for the way it manages its natural resources and spends the proceeds.
Studies show that countries with better access to information have better governance scores, higher economic growth, superior fiscal discipline and better credit scores.
To this end, the Revenue Watch Index ranks leading natural resources producers according to availability of key data, including: the amount of mineral production and consequent earnings; the details of contracts signed with private companies for extraction; how state-owned oil and mining companies and sovereign wealth funds are governed; what controls exist to prevent corruption; and how revenues are shared with local authorities.
The need for such an index is only growing more acute. Over the next 20 years, governments of the top producers in sub-Saharan Africa will receive $4 trillion in oil and gas revenues, far outstripping probable amounts of foreign aid. If well-directed, this money could be crucial in helping Africa make the leap into sustained economic growth and poverty alleviation that has occurred in recent years in China, India, Brazil, Vietnam and other economic tigers.
New petroleum producers have recently emerged or will soon start output: Chad, Mauritania, Ghana, Uganda and Timor-Leste, among others. Chad and Mauritania have already suffered from political instability and misappropriation of revenues. But for the last three countries, the international community has made intense efforts to help them build their capabilities before the arrival of substantial mineral earnings.
In the MENA region, the picture is mixed. The UAE was not included in Revenue Watch's first report. Iraq was in 13th place out of 41, a surprisingly good performance given its issues with security and political conflict. It was at the top of the countries considered "partly transparent", and only two places behind the US. Iran, on the other hand, placed 32nd, almost bottom of the partly transparent group.
Most worrying, though, is that MENA contains three countries rated as having "scant transparency": Saudi Arabia at 34, Kuwait at 36 and Algeria at 38, barely ahead of Equatorial Guinea.
For a wealthy region with capable governments, this lack of transparency is disturbing. It makes it easier for corruption to flourish, as demonstrated in the recent scandal at Algeria's national oil company Sonatrach. It is all very well to lock up crooked officials, but much better to have an open environment in which graft is almost impossible to conceal.
For Kuwait, with its elected parliament, information about the country's dominant industry is essential for voters to be able to make well-informed choices, and for National Assembly members to hold the government to account.
And most of all, the MENA region, centre of the world's petroleum business, needs to be setting a good example. With instances such as the Saudi accession to the Group of 20 leading and emerging economies, and the UAE's hosting of the International Renewable Energy Agency, Middle East countries are increasingly gaining a voice and legitimacy in global affairs.
This role will be much strengthened by greater openness and accountability. The world is growing increasingly sophisticated at separating the genuine reformers from the impostors. UNESCO recently suspended a monstrously inappropriate quality-of-life award named after Mr Obiang.
Initiatives such as the Revenue Watch ranking are not a panacea. But the key is to see them as one component of sharing best practices and building competent, transparent and honest government institutions.
Instead of peering into the murky puddle of oil states such as Equatorial Guinea, people need to see clearly that their natural resources are being used for their benefit.
Robin Mills is an energy economist based in Dubai, and author of The Myth of the Oil Crisis
Updated: November 16, 2010 04:00 AM