The EITI: Transparency as an Institutional Response to Tackle the Resource

The institutional manifestation of transparency in world politics relates to the challenges stemming from the globalisation processes. Florini (2007, p. 53) writes that in the era of globalisation the shift from state-centric to a more complex form of governance led to the rise of new multilateral configurations of institutions, actors and instruments, in which transparency and disclosure is the guiding means to enforce those mechanisms. As further pointed out by Gupta (2010) and Haufler (2010), the notion of transparency is closely associated with moral and political imperatives as solutions to contemporary global issues, such as market failure, democratic deficiency and environmental degradation. In this sense, transparency is increasingly viewed as converging with interests of multiple and diverse actors leading to ‘procedural global turn’ (see Gupta, 2010). Hence, in the context of increasing multilateralism and globalisation among institutions and actors, the importance of access and the free flow of information is of primary importantance (see Gupta, 2010; Florini, 2007; Rosendorff and Vreeland, 2006). At the same time, global economic integration and financial crises highlighted the need for an open information policy of corporations, governments and international institutions (see Kaufmann and Bellver, 2005). By the end of the 1990s, anti-corruption regimes and discourse came to

be a dominant part of the global political agenda. The need to promote greater transparency was promoted by transnational advocacy actors and platforms, such as the Berlin based Transparency International (founded in 1993) fighting corruption, led to the development of an anti-bribery agenda. In parallel to these developments, a number of international anti-bribery and anti-corruption regulations emerged in world politics. The OECD’s Anti-Bribery Convention signed in 1997 was the first and only international anti- corruption instrument that focused on the ‘supply side’ of corruption. It also mirrored the global consensus on the fight against corruption13_{. Such developments further facilitated}

the emergence of transparency as a global norm.

The EITI is a global governance transparency initiative which has the objective to combat corruption and to promote transparency and accountability standards in the sector of extractive industries.

EITI Principles (1) and (2) respectively state:

1. “We share a belief that the prudent use of natural resource wealth should be an important engine for sustainable economic growth that contributes to sustainable development and poverty reduction, but if not managed properly, can create negative economic and social impacts” (The EITI Standard 2016, p. 10)

2. “We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development”. (The EITI Standard 2016, p. 10) In this sense, through the notion of transparency the EITI was a response to global societal challenges and in particular to those concerning human developments. Bellver and Kaufmann (2005, p. 2) note “beyond the human rights and the market efficiency arguments, transparency is also critical for human development because it provides incentives for redistribution and inclusiveness”. The concept of redistribution is particularly important within resource curse countries. As the political economy research observes, in many resource-rich countries, natural endowments failed to generate sustainable economic growth and prosperity as regimes distribute and utilise resources to keep themselves in power (Karl, 1997, p. 26). This phenomenon has been much attributed

13_{A full list of anti-corruption conventions is provided by OECD website. OECD Convention on}

Combating Bribery of Foreign Public Officials in International Business Transactions. [Online]. Available at https://www.oecd.org/cleangovbiz/internationalconventions.htm [Accessed 8December, 2016].

to the resource curse syndrome. Therefore, before jumping into the analysis of the EITI, it is first important to understand the resource curse syndrome and the role of the EITI within it.

The resource curse literature describes the ‘curse’ as a negative relation in which the abundance of natural resources produces a negative impact on socio-economic development (see Le Billon 2001; Karl, 1997; Rosser 2006b; Ross, 2003; Sachs and Warner, 1999). For example, the influential cross country study by Sachs and Warner (1999) shows statistically significant evidence that greater economic dependence on mineral and fuel resources is negatively associated with economic growth.

Theories of the resource curse imply that procured revenues from natural resources accrue directly to the government, which later redistributes it to the population as a form of social and political control (Jones Luong, 2001, p. 368; Karl, 1997). Rents are controlled by few actors, among which the government is the principal recipient of revenues in the economy (Belawi and Luciani, 1987; Isham et al., 2003). Such economies are further characterised by patron-client systems of governance, in which political elites alter institutions to get better access to resource rents (Ross, 2001; Karl, 1997).

Hammond (2011, p. 352) and Shaxson (2007, p. 1132) respectively point out how corruption within resource-rich countries with weak institutional structures legitimates state actors’ behaviour and creates opportunities for illegal enrichment. Karl (1997, p.15) further argues that resource rents produce a distinct type of institutional setting which expand state’s jurisdictions while simultaneously weakening its authority by multiplying the opportunities for public and private actors to engage in rent-seeking activities. Legislatures have limited capacity to exercise power over authorities and quasi-state agencies (Moore, 2004, p. 308). As a result, corruption increases as state officials become reliant on these rents as a substitute for public spending on state activity (Karl, 1997, p. 16), the political elites further allocate natural resource wealth to reinforce their supports and allies (Boschini et al., 2007; Deacon and Mueller, 2006, p. 145; Jones Luong, 2001; Robinson and Torvik, 2005). Additionally, the study of Keefer and Knack (1999) also indicates that weak rule of law, the absence of government responsibility for keeping contracts and arbitrary action by the authorities undermine property rights, independent of the level of redistribution in a society (Ibid, p. 16). Paul Collier (2010, p. 1106) also states that without the notion of accountability, both property rights and the supply of public goods depend upon the will of the ruling power. Collier and Hoeffler (2005) as

well as other authors (see also Le Billion, 2001; Basedau and Lay, 2009; De Soysa, 2002) point to the linkages between natural resource dependency and civil conflict. Their findings gauge the importance of the institutional environment as an important and instrumental determinant factor in the likelihood of civil war conflicts. Moore (2004, p. 307) shares similar views; he writes that when public revenues stem from a small number of concentrated sources, it is relatively easy for revenues and expenditures to be hidden from view.

This research demonstrates that the quality of institutions in resource-rich countries matters to counteract the negative effects of resource exploitation. More specifically, Pauline Jones Luong and Erica Weinthal (2010, p. 6) argue that states in Central Asia are “cursed” not by their mineral wealth but rather by the structure of ownership on which state leaders decide to manage their mineral wealth. As the authors further demonstrate, in particular the strategies of ownership structure in particular affect the fiscal regime, which subsequently impacts on institution building and long term economic growth. In sum, an important strand of the resource curse literature stresses institutional quality as an explanatory and important cause of the ‘curse’. For instance, the work of Mehlum and colleagues (2002; 2006) focuses on institutional arrangements to explain trajectories of the resource curse hypotheses. Building upon the work of Sachs and Warner (1999), authors emphasize the allocation of rents from natural resources and develop a model in which the distribution of the resource rents correlates with the quality of institutions. Their main findings demonstrate that depending on the quality of institutions within resource endowed countries, resource rents may be channelled into productive economic activities or captured by the elite for personal gains (Mehlum et al., 2006, p.3). Institutions as such produce ‘grabber’ friendly versus ‘producer’ friendly behaviours. ‘Grabber’ friendly institutions typically feature weak rules, high risks of expropriation and bureaucratic malfunction and high levels of corruption diverting entrepreneurial resources out of production into unproductive activities (Mehlum et al., 2002, p. 4). The extent to which ‘grabbing’ succeeds will depend on the institutional quality of the country. In this respect, authors claim that natural resources abundance hinders economic progress in countries with ‘grabber’ friendly institutions but does not in countries ‘producer’ friendly institutions (Ibid, p. 14). As Mehlum and colleagues, Boschini et al. (2007) advance a similar claim in which the challenges associated with the resource curse syndrome can be countered by good institutions. Similarly, Isham et al. (2003) look at natural resources extracted from narrow geographic or economic bases, and the way they

are associated with weak public institutions and effect economic development. Bhattacharyya and Hodler (2010) also explore the effect of natural resources and institutional regime foundation. Their findings highlight that the quality of democratic institutions constitutes an important factor in the trajectory of the curse and corruption. In this sense, the functional improvement of institutions through transparency initiatives such as the EITI was seen by many as a key instrument to respond to these challenges. In the context of the resource curse syndrome, this means that greater transparency would enable to curb the negative effects of the resource curse, mainly associated with corruption, and provide public accountability to ensure better conduct of extractive industry affairs by holding governments and companies responsible for their resource spending. The overall goal is that the mechanism of transparency enables the population to achieve socio-economic prosperity. As the EITI Article of Association 2(2) explicitly states:

“The objective of the EITI Association is to make the EITI Principles and the EITI Requirements the internationally accepted standard for transparency in the oil, gas and mining sectors, recognising that strengthened transparency of natural resource revenues can reduce corruption, and the revenue from extractive industries can transform economies, reduce poverty, and raise the living standards of entire populations in resource-rich countries” (EITI Standard, 2013, p.46)

Therefore, the main argument for implementing an initiative such as the EITI is that greater transparency in the management of natural resources in extractive industries empowers different stakeholders, in particular citizens and civil society organisations, as it allows them to demand information on how revenues stemming from natural resources are distributed and used to further promote socio-economic development.

Moreover, the motivation to promote transparency, although tacitly stated in the EITI documents, also relates to its indirect capacity to contribute to better governance of domestic institutions and the processes of democratisation. Examining the transmission of the norm transparency in East and Central Europe (2002, p. 469), Alexander Grigorescu writes that in the context of new democracies, transparency is important as it leads to greater public understanding and support for government policy. Such claims are broadly relating to studies of democracy where transparency is seen as an important factor implicitly contributing to democratic consolidation and democratic legitimation (Heritier, 2003). Juan Linz and Alfred Stepan (1996, p. 3) define democratisation as “open

contestation over the right to win control of the government, and this in turn requires free competitive elections, the results of which determine who governs”. Given these notions, transparency determines the procedures and governance of democratic association, as it enables to ask questions on who rules, and how rulers came into power, how the elections are held and how decisions are taken. In doing so, transparency forms the cornerstone of democratic processes.

The EITI documents hint at such notions. For instance, the EITI requires extractive industry operations to work under a fully transparent legal framework and demands the disclosure of information on “how the extractive sector is managed, enabling stakeholders to understand the laws and procedures for the award of exploration and production rights, the legal, regulatory and contractual framework that apply to the extractive sector, and the institutional responsibilities of the state in managing the sector” (The EITI Standard, 2016 p. 17). In addition, the World Bank Group (2013, para.12) further states: “although EITI originated in the extractives industries, the same tools could be used as successfully in other sectors by underscoring citizen participation, institutional strengthening of government agencies and strengthening the rule of law to attract investment”.