Lack of transparency in the mineral trade

(Originally posted on 23 January 2013)

“Join the transparency pioneers and take leadership or be part of the small group where opacity reigns”. That was the message at a seminar this week to Switzerland from Publish What You Pay an NGO campaigning for greater transparency in the minerals trade.

The seminar organized by Swiss Aid and the Geneva Trading and Shipping Association (GTSA) highlighted the problems that a lack of transparency in the mineral commodities trade can cause for both developing and developed countries.

Surface gold mine in forest

Surface gold mine in forest, Henry Town, Liberia
Image: tlupic, Flickr
The “Resource Curse”

US NGO Revenue Watch described the unequal distribution of power when a developing country is sitting on rich mineral resources. This encourages corruption and as a result the poorest people in the country do not benefit from the wealth.

When natural resource extraction is badly managed, the following issues need to be considered:

  • Weak governance: Mining concessions are awarded according to political criteria, and not to the best companies. Governments are suspected of taking kickbacks from the companies who are awarded concessions.
  • Weak regulation: Regulation of operations is hampered by the imbalance in capacity between a developing country and the multinational company
  • Revenue collection: The country receives a small portion of the value of the mineral resources. Even Europe has a hard time taxing multinationals as seen in the recent case of Starbucks paying what many considered to be very little tax in the UK.
  • Revenue expenditure: There is little political incentive to save. Spending is focused on consumption rather than infrastructure. Expenditures also rise sharply and remain high even when prices fall, thus throwing the country into debt.

How can the situation be improved?

  • Governments need more skills and more capacity to negotiate with multinationals for a greater share of the cake.
  • Multinationals need to make a commitment to act responsibility.
  • A stronger oversight system through the 4th estate i.e. the judiciary and so on.
  • Transparency is one tool and was the subject of the evening’s discussions.

The role of transparency

Transparency in commodity trade entails knowing who pays who for mineral rights, and how much governments (i.e. their people) are getting out of the deal. The Extractive Industry Transparency Initiative (EITI) founded by Tony Blair in 2002 was a first step to improved transparency. NGOs welcome the opportunity to have direct contact with big companies. The seminar however highlighted two limitations of the EITI:

  •  Seeing as it is voluntary, many countries are yet to join.
  •  The level of reporting is highly aggregated so it is not possible to know which individual companies are paying developing countries for resources.

During this period, the US government introduced the Dodd Frank Act requiring greater disclosure of payments by US registered companies. The EU is also changing its accounting directive with a similar objective.

Where next?

The seminar was launched in the context of political initiatives in Switzerland to bring greater transparency to Swiss trading operations. It was mentioned that this process is analogous to the opening up of the Swiss banking sector. A local Swiss politician argued that it was in his country’s interest to have greater transparency. “If we want a stable world, then these revenues should be used properly. We have a responsibility of solidarity that revenues will benefit these countries”.

What is the role of the UN in this process?

The UN’s function as a convener gives it the responsibility to bring together governments to highlight issues and look for solutions. For example, in March 2013, the United Nations Conference on Trade and Development (UNCTAD) will hold its annual Global Commodity Forum meeting where some of these issues will be covered.

The UN, together with NGOs, can also provide capacity building for developing countries. Strong cases exist to help governments negotiate a bigger share of the resource pie, and provide support for improved governance in the use of these revenues. The environmental and social impacts of the commodity trade also need remediation.

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