Thank you for inviting me to discuss how the international community can support fragile countries reliant on natural resources.
Why this matters and what’s at stake?
- This is a critical issue for fragile countries seeking to escape the ravages of war. As our research, the 2011 World Development Report on Conflict, Security, and Development said: slow-developing, low-income economies largely dependent on natural resources are 10 times more likely than others to experience civil war.
- Natural resources have the potential to finance transformative development in fragile states. Take Guinea. The government recently reviewed mining contracts and identified a license given free in 2008 for Simandou, the country’s huge iron ore mine: two years later, the investor sold 51% of that investment at a price of $2.5 billion. Guinea’s entire government budget in 2010 was just $1.2 billion.
- Managed well, natural resources have the potential to transform countries, and get them out of the cycle violence and fragility. But managed poorly, or unfairly, or secretly they can lead to a “missed opportunity of tragic proportions”. We have just heard former UN Secretary General Kofi Annan referring to the findings of the 2013 Africa Progress Report. The report points that, through transfer pricing and other means, Africa is losing $34 billion annually — much more than the region receives in bilateral aid.
- Fragile states have only one chance to get the resource transformation process right. Success potentially means stability and development. Failure potentially means conflict and aid dependency in perpetuity. Poor choices get locked in and play out for decades, so immediate action is vital.
What we are doing
- The World Bank Group is committed to help fragile countries transparently and sustainably manage natural resources and ensure the benefits are shared equitably. This ambition is in line with our goal to eradicate extreme poverty and promote shared prosperity.
- Through funding, advice, analysis, and action, we have activities in more than 70 resource-rich countries. Many are in Sub-Saharan Africa and many are in fragile and conflict-affected situations – and benefit from assistance from our fund for the poorest countries, IDA.
- Last year, almost US$700 million of our financing, across the World Bank Group, was dedicated to this sector (approximately 2 percent of total financing for the year).
- Importantly, we work with countries through the entire Extractive Industries’ value chain. Why? For the simple reason that there is no point fixing the royalty collection system if contracts are poorly negotiated or revenues are wasted:
- We know the importance of a level playing field to negotiate contract and regulate the industries so countries aren’t at a disadvantage in negotiating with legions of lawyers employed by international companies. We’re helping governments to negotiate contracts through the Extractive Industries Technical Assistance Facility and our new Africa Extractive Industries Facility. We are also helping countries improve their legal and regulatory mining and hydrocarbons sector frameworks, for instance in Afghanistan, Madagascar, and Mauritania.
- We know the importance of proper collection of revenues. We support countries to implement the Extractive Industries Transparency Initiative (EITI) in 40 countries, including Afghanistan, Côte d’Ivoire, Democratic Republic of Congo, Guinea, Iraq, and Timor-Leste. The new EITI standard has raised the bar on transparency, requiring public disclosure of auction results and licenses, and we are committed to supporting countries to meet this new standard. We are also helping improve information on beneficial ownership and transfer pricing rules. To reduce tax avoidance in extractive industries, we are working with the IMF to provide a tool to help countries deal with the challenges linked natural resources tax administration (policies, regulation, procedures, reporting and accounting, capacity building).
- We know the importance of managing expenditures financed through natural resources. We are helping countries to transparently manage the wealth from their natural resources, deal with issues of volatility, set up transparent savings regimes, and strengthen the management of public finances and public contracts.
- We know the importance of paying attention to the environment and to the local communities directly affected by these investments. Our work in mining corridors in Burkina Faso, Guinea, and Mozambique are examples of that.
- This work needs to go beyond governments. Civil social organizations, parliamentarians and the media have a key role to play to enable better policy debates, better contractual negotiations, and better ability to enforce contracts and track contractual obligations. We are working with these groups in such countries as Afghanistan, Liberia, and Democratic Republic of Congo.
- The role of the private sector is critical. Our private sector arm, IFC and our risk insurance arm, MIGA, are supporting investment, engendering best practices in environmental and social standards, and the transparency of payments to host governments. These investments have led to jobs. During the 2012 financial year, IFC client companies in oil, gas, and mining contributed to about $6.2 billion in government revenues, created or sustained about 102,000 direct jobs and supported local communities with $100 million of dedicated community related spending. Total spending by these companies on goods and services from local and national suppliers approached $5.4 billion, demonstrating the advantage to local economies.
Transparency as an accelerator of development
So we know much more needs to be done to ensure resources are a blessing, not a curse.
- The G8 just concluded yesterday. As I emphasized on Saturday at the Trade, Tax and Transparency conference hosted by the British Government in London, sunlight is not only the best disinfectant – as U.S. Supreme Court Justice Louis Brandeis once said. Sunlight can also be a critical accelerator for development.
- Transparency enables a level playing field that’s good for private sector led growth. Transparency gives citizens the tools to hold their governments to account. Transparency enables investigators to track flow of funds. Transparency offers us a way to accelerate the transformation of underground and secret wealth into poverty eradication and shared prosperity done in the full sunlight of results and accountability.
- I want to commend the UK and the countries of the G8 for putting tax and transparency at the center of their agenda this week. And for the commitments made to increase transparency, address tax evasion and tackle illicit financial transfers. In particular to the UK and the US for joining EITI. And to the US, Europe and Canada for passing legislation that requires private investors in extractive industries to disclose payments made to Governments. More can and should be done by all partners and we will be looking to all forums available to support progress in this area.
WBG new initiatives
Let me briefly outline where we at the World Bank, will do more. . At the G8 Conference in London we announced three new initiatives:
- First, much progress has been made on revenue transparency and the next challenge is to ensure transparency around contracts, licenses and concessions and their beneficial owners. That’s why we have launched the “Open Contracting Partnership” to ensure effective disclosure and participation in all public contracting. This is particularly relevant for the extractive industries sectors – and in fact for the past couple of years, IFC has required contract disclosure in the private sector transactions where it partners. .
- Second, we are working to create a "trillion dollar map" in Africa to put these resources literally on the map. This will address the lack of modern geological data and overall knowledge of mineral potential that is one of the key barriers to improving the quality of resource deals in Africa (officially titled the Africa Mineral Geoscience Initiative). Already we’ve helped Ghana develop an on-line map showing all publicly available extractive industries data in one place – mining and oil field locations, contracts, production and revenue data, corporate social responsibility projects, and underlying socio-economic indicators.
- Finally, we have just announced the ‘Open and Collaborative Private Sector Initiative’. There is a range of tools in this initiative, but let me focus on just one. With our partners, we have launched the pilot of the Open Company Data Index at http://registries.opencorporates.com. This new data index looks at the state of play of how countries enable transparency of information about registered corporations. But it goes further, by aggregating open registry information, this tool generates open-source, transnational datasets. For instance, if you search for a particular company on this website, you can not only see corporate registration information for that company, but also, and this is revolutionary, generate a visual representation of the corporate network to which that company belongs and the registry information of all the companies in the network. This is not yet available for all jurisdictions, and that’s why the index will help. As registries become more transparent, our partners will be able to roll this out to any company. For extractive industries, this tool could be transformational.
- Finally, a word on the importance of partnerships. We should not shy away from the fact that translating natural resource wealth into investments that create jobs and lift people out of poverty is complex, with critical political dimensions. This requires close collaboration across partners, and in particular with the UN system.
- Our commitment to enhance this partnership, particularly in fragile and conflict affected countries, was shown in the recent historic visit to the Great Lakes region by the UN Secretary General, Ban Ki-moon, World Bank Group President, Jim Yong Kim, and UN Special Envoy Mary Robinson. There, they saw first-hand how the drive for control over resource wealth can bring instability to an entire region.
- Their visit highlighted an idea we know well, but still have a long way to go to put into practice: that peace and development are inextricably intertwined.
- We are committed to further deepening our partnership with the UN system to support fragile countries in their quest for peace and sustainable development. Thank you.