Beating the ‘Resource Curse’, Where Next for Development Cooperation?

Hannes Hechler, 13th IACC, Workshop report, Natural Resources

Final Workshop report

Workshop 3.4: Beating the ‘Resource Curse’, Where Next for Development Cooperation?
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Date and time: Friday, November 31, 14:00-16:00
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Moderator: Dr. Odd-Helge Fjeldstad, U4 Anti-Corruption Resource Center, Chr. Michelsen Institute
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Rapporteur: Hannes Hechler, U4 Anti-Corruption Resource Center, Chr. Michelsen Institute
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Coordinator: Aled Williams, U4 Anti-Corruption Resource Center, Chr. Michelsen Institute
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Panellists:

Farouk Al-Kasim, Petroteam AS, Norway

Dr Bambang Setiono, Center for International Forestry Research, Bogor, Indonesia. Research Fellow

Dr Andre Standing, Institute for Security Studies, South Africa. Senior Researcher

 

Summary

  1. to provide some limited examples of corruption in natural resource management looking at the three sectors oil, forestry and fisheries,

  2. to discuss what is being done to address corruption and the resource curse in these sectors,

  3. to explore some strategies for donors in addressing challenges.

The three presenters gave insights into the scope and nature of corruption in oil management, illegal logging and fisheries, pointing to similarities across the board (e.g. in licensing). Moreover, they gave food for thought about how to address the problem of corruption and bad governance in resource management through widening the scope of the concept of corruption, addressing all levels of a management processes and actors involved, and adopting a nuanced view of which precise capacities need to be developed.

Enhancing transparency and accountability though strengthening transparency and accountability via strong public oversight and access to information were discussed as necessary antidotes to corruption. In this regard, initiatives like the Extractive Industries Transparency Initiative (EITI) are leading in the right direction, but can be improved in order to cover not only the revenue side, but also the expenditure side. They should focus on whether natural resource funds are actually spent on a country’s development. The potential to apply such initiatives in addressing corruption in the fishery sector was discussed.

 

Summary of presentations

Mitigating Corruption in Oil: Some Issues for Donors – Farouk Al-Kasim

Farouk Al-Kasim identifies corruption as a key element in explaining the resource curse phenomenon, which is characterised by countries experiencing negative growth despite being rich in resources. However, a focus on corruption should not prevent a pro-active approach against the many practices in the political game behind oil production – practices that may not be termed corruption by law. Therefore he presents a more radical definition, using a common standard of social and economic welfare as the benchmark from which deviation would constitute a corrupt practice: “Corruption is the manipulation of frame conditions to attain exclusive benefits to individuals or groups at the cost of social benefits”. Showing the different corruption risks throughout oil operations, Al-Kasim identifies the highest risk in the licensing phase. The long term impact of initiatives (such as Publish What You Pay, the Extractive Industries Transparency Initiative) addressing corruption in resource sectors remains uncertain, although they have probably contributed to increased awareness and improved business practices.

For Al-Kasim, addressing the ‘resource curse’ remains a major challenge for development cooperation and donors must look carefully at where and how their activities can make a tangible impact in relation to corruption in oil. Some issues to be considered include:

  • Stressing formal rules: These are extremely important even if they are violated and irrespective of political will for reform. If not respected they nevertheless set the stage for what practices should have been, and provide a benchmark for evaluation.

  • The ‘right’ kind of capacity building: Donors can play an important role by offering training on governance issues relating to each step of the oil production chain.

  • Enhancing information provision: More could be done by donors to couple revenue transparency initiatives (e.g. EITI, which doesn’t cover use of revenues) to other forms of accountability. Accountability measures that seek to address patronage politics are of particular importance in mitigating corruption in many oil rich contexts.

  • Improving technical support: While much of petroleum-related aid focuses on technical support, institutions that curb patronage and rent-seeking should not be neglected.

  • Potential donor government conflicts of interest: The true motivation of attempts to influence the governance of an oil-producing country must always be considered critically, including when part of an aid strategy, since donor country governments may have own economic interests.

  • Emerging trends in the oil sector: Donors must recognise that the international oil market is continually evolving, and that national oil companies are an increasingly important actor in terms of addressing corruption.

  • Relevance of sector voluntary initiatives: Voluntary initiatives can make important contributions when formal prevention and control mechanisms are not achievable, but should not replace anti-corruption initiatives aimed at the whole of society in an oil rich state.

 

Addressing Corruption, Deforestation and Illegal Logging in Indonesia – An Integrated Law Enforcement Approach – Bambang Setiono

According to Bambang Setiono, despite international and national initiatives to reform a forest sector worth billions of US dollars per year, deforestation continues at an alarming rate in Indonesia, fuelled by widespread corruption. International donor assistance (over one billion US dollars in the past two decades) has not resulted in significant changes to the main forestry policies and practices implemented by the Indonesian forestry community. Incoherent forestry policies and corrupt forestry practices have contributed to illegal logging and land conflicts involving local communities.

Setiono highlighted a new Integrated Law Enforcement Approach (ILEA) as a potential method for the international donor community to help the Indonesian government (and other developing country governments with similar problems) deal with illegal logging, deforestation and corruption. The approach requires international actors working on governance, banking, legal, and judicial reforms to work closely with their colleagues in the forestry and environmental sectors. It involves creating tools and instruments to deal with state revenue losses from the deforestation. These tools and instruments are designed to seize the proceeds of crimes earned by the beneficiaries of forest destruction. Although the forests in question may have been illegally logged and destroyed some time ago, the proceeds of these crimes can potentially still be traced by ILEA instruments. Confiscating these proceeds is intended to reduce the incentives for engaging in forest sector corruption and the illegal clearing of forests.

Setiono emphasises that efforts to stop deforestation must deal directly with the drivers of forest crime and the exact typology of criminal activity embedded in each driver. ILEA does so through five units (law enforcement, internal control, auditing, financial service provider, accountability) working together in a seven-stage-process:

  1. analysing deforestation size and rate in a particular forest area,

  2. collecting evidence of deforestation and estimating the size of losses to the state,

  3. conducting fraud investigations in deforestation areas,

  4. identifying and reporting suspicious financial transactions,

  5. tracing and freezing proceeds of crimes,

  6. building the case for corruption and money laundering offences,

  7. confiscating the proceeds of forest crimes and returning it to the state treasury.

To Bambang Setiono development assistance to Indonesia has yet to address key challenges in the forestry sector. As an example for support he points out a gap in implementing the ILEA model by government agencies and by NGOs, and a need to develop capacity to conduct the seven stages of the ILEA model and promote a culture of cooperation. Moreover, the donor community could potentially help Indonesian law enforcement agencies use the ILEA model to address corruption in other natural resource management sectors.

Addressing Corruption and Commercial Fisheries in Africa – Andre Standing

As Andre Standing points out, throughout the African continent unsustainable fishing practices are threatening the long-term viability of marine ecosystems. To maximize the developmental potential of fisheries, democratic governance is a critical requirement. Yet the governance of commercial fisheries, particularly relating to industrial fishing by foreign boats supplying markets in Europe and Asia, is frequently undermined by a lack of transparency and accountability. Heightened competition for African fish, as well as considerable illegal fishing by commercial boats, suggests incentives for corruption are high in the fisheries sector. It is not surprising that due to these pressures, incentives for a range of illegal activities is raised, such as fishing in protected parts of the sea, using proscribed fishing gear, under-reporting catches and disregarding various conservation measures. The estimated value of illegal fishing in Africa might be as much as US$ 1 Billion each year. Many developing countries have very weak capacity to respond to unlawful fishing. Yet a failure to deal with illegalities places marine resources under further strain, meaning illegal fishing has become both cause and effect of decreasing fish stocks throughout the African continent.

Andre Standing gave an overview of the different ways in which corruption can manifest itself in fisheries and what the outcomes may be. He pleads to place corruption on the international agenda as a first step in reforming the governance of fisheries and reducing the opportunities for corrupt activities. In comparison to other resource sectors, corruption in fisheries has yet to gain a high level of scrutiny from researchers, civil society organizations and the international donor community. However, experience from these other sectors may help inspire necessary reforms in fisheries.

As is the case in other resource sectors, the most effective and realistic way of combating corruption appears to be through strengthening transparency and accountability via strong public oversight and access to information. Areas for reform in fisheries therefore relate to the issuing of licenses, the negotiation of access agreements, independent auditing and the strengthening of civil society initiatives. Standing also promotes a regional approach in which African states could benefit from negotiating access agreements with foreign fishing nations collectively and sees good reasons why the Extractive Industries Transparency Initiative could be replicated or extended to marine fisheries.

Main Outputs

There is great potential for applying lessons learned from one natural resource sector to another, not least because corruption shows similarities in the different sectors. Across the board it was acknowledged that addressing corruption in different resource sectors requires more than just sector specific approaches - it is also about getting broader governance systems to work. At the same time one should not look only at a limited concept of corruption, but also take into account and address underlying (bad) governance issues. Using concepts of illegal fishing and logging allows for that broader approach. Building alliances is important for addressing corruption in resource management – among civil society it creates motivation to demand reform; within governments it can facilitate agreement on the way resource revenues should be used. When addressing corruption and bad governance in natural resource management, the most effective and realistic way appears to be through strengthening transparency and accountability via strong public oversight and access to information. Transparency enhancing approaches like EITI are a good start (and might be applied to other resource sectors), but they must be seen as addressing only one side of the equation (revenues), additional focus also needs to be placed on the expenditure side as well as building regulatory capacity. However, there is also need to make those who work in resource management aware of the whole management process – it is important to build the right form of competence and capacity in a timely way.

Specific outputs of the workshop are three background papers on:

- Mitigating Corruption in Oil – Some Issues for Donors,

- Addressing Corruption, Deforestation and Illegal Logging in Indonesia, and

- Addressing Corruption and Commercial Fisheries in Africa,

all of which are available on the 13th IACC conference website.

Farouk Al-Kasim suggested a more radical definition of corruption in oil management, one that is not likely to be applicable in a court of law, but underscores the importance of linking the debate around corruption in oil to a broader set of issues: “Corruption is the manipulation of frame conditions to attain exclusive benefits to individuals or groups at the cost of social benefits”

Andre Standing sees good potential that the Extractive Industries Transparency Initiative could be replicated or extended to marine fisheries. He noted, however, that representatives of EITI had stated during the 13th IACC that the initiative will continue to focus primarily on oil, gas and minerals.

Signed

Odd-Helge Fjeldstad
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docBeating the ‘Resource Curse’, Where Next for Development Cooperation?

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