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Structure and Transparency in Natural Resource Development

Newswatch Book Review

An important, and often under-appreciated, outcome of the World Summit on Sustainable Development ten years ago, was the launching of the Extractive Industries Transparency Initiative (EITI), aimed at getting national commitment to improving the use of natural resource wealth more transparently for meeting development goals. As the EITI board meet in Lima, Peru next week (June 27-29) after a rather energetic but  somewhat tepid outcome to the RioPlus20 Earth summit, it may be worth reflecting on some recent scholarship on how best to improve the management of natural resource endowments so that mineral wealth benefits the widest spectrum of society.

Doing Well by Doing Good with Natural Resources

I came across an important work on this topic authored by World Bank researchers titled Rents to Riches: The Political Economy of Natural Resource-Led Development. Amidst the cavalcade of books and articles on the “resource curse,” this work is a good mix of theoretical and applied social science — in the tradition of praxis-oriented scholarship.  The book provides a structural critique of natural resource economies at the level of public sector institutions. Organizations such as EITI would be well-advised to consider governmental structures in their quest for transparency.

The authors divide the two key areas for potential intervention by the development community: a) resource rents generation clusters such as resource ministries, state-owned enterprises and private companies, and b) resource rent distribution clusters such as sector agencies, public investment contractors and beneficiaries. They then go on to analyze data globally for indicators on institutional effectiveness such as political inclusiveness and inter-temporal policy coordination. While some of these indicators may appear opaque at first glance, they serve to remind us that merely focusing on easy variables like “transparency” is not likely to solve the “resource curse.”

Two separate chapters on taxing and investing provide a detailed analysis of what kind of policies might assist with managing resource rents, given specific constraints of individual countries. One key overarching policy recommendation made by the authors is that lengthening the time horizon “enhances the ability of governments increases the ability of governments to increase potential rent generation and improving political inclusiveness supports the orientation of rent distribution toward the collective good.”  How such a lengthening of the time horizon may occur is perhaps the next step which these authors and the World Bank needs to take. Figuring ways to manage discount rates, risk analysis frameworks, and extending the life of resource projects through derivative business developments will need to be more actively considered.

In addition to the EITI, a broader toolkit and voluntary compliance initiative has emerged around resource rents management in the form of the Natural Resources Charter. This too is a promising effort but needs to get more clear institutional backing from multilateral development organizations. The time may come when we move towards a global treaty on natural resources management as a planetary trust that should be effectively managed for all of humankind. However, at present the natural resources remain quite literally the bedrock of state sovereignty. In this context, Rents to Riches provides a useful analysis of key limiting factors to overcoming the “resource curse.”

 

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