Breaking the links between the exploitation of natural resources, conflict and corruption

Transcription

1 UNCTAD Expert Meeting on FDI IN NATURAL RESOURCES November 2006 Breaking the links between the exploitation of natural resources, conflict and corruption by Global Witness The views expressed are those of the author and do not necessarily reflect the views of the United Nations

2 Breaking the links between the exploitation of natural resources, conflict and corruption UNCTAD Expert Meeting on FDI in Natural Resources November global witness Global Witness investigates the role of natural resources in funding conflict and corruption Timber Cambodia, Liberia, Burma Diamonds Sierra Leone, Angola, Liberia, DRC. Oil Africa (Gulf of Guinea), Caspian region, South East Asia DRC natural resource governance (cobalt, copper, cassiterite, gold, diamonds) Unaccountable & untransparent resource extraction leads to poverty, human rights violations, conflict & political and economic instability. 1

3 Cost of Corruption to Africa World Bank has estimated $500bn to $1 trillion is lost annually to corruption. African Union puts the figure at around $150bn, or one quarter of the region s GDP. Whatever the precise figure, the scale dwarfs that of aid payments to Africa estimated at around $25 billion per year and tackling the issue is critical to mobilizing public revenues for poverty reduction and development. Corruption is a key obstacle to Africa s development, and is very often linked to the exploitation of the continent s rich natural resources. Natural resources and conflict/poverty Dependence Oil Minerals Low HDI Drop in HDI Poverty High corruption Authoritarianism Likelihood of civil war Lack of effectiveness (i.e. rank HDI<<rank GNP) High military spending Low economic growth High <5 mortality Child malnutrition Low life expectancy Low health spending Low primary schooling Low adult literacy Income inequality Economic shocks 2

4 Work of Global Witness in failed or shadow states Government absent Deliberate use of political and economic disorder to enable collective and highly-organised economic abuses State not rational manager but protection racket Institutional services as private property than public duty Abuses sustained by blaming conflict for social problems Business as war/war as business e.g. DRC The problem of the Paradox of Plenty or resource curse Angola: the Paradox of Plenty Angolan Civil War: French and Angolan elites benefiting from military procurement deals by siphoning off state funds. GW estimate of $1.5 billion per year = 20-25% annual budget. Angola has not moved forward significantly on transparency & good governance. Currently conservative estimate of $10.6 billion annual revenues yet child mortality still 1 in 4; 166/177 HDI. According to MDGs Progress Report 2005, about 70% budget for 'special use with no clarity where it goes. Global problem in resource-rich-but-poor countries. Billions of dollars in revenues unaccounted-for. Secrecy about revenues paid to governments by oil and mining companies allows this to happen. Time for Transparency (March 2004). 5 case studies: Kazhakstan, Congo Brazzaville, Angola, Equatorial Guinea, Nauru. 3

5 Bringing Transparency to the Extractive Sector EI companies should disclose basic payments to state. Also clauses in contracts relating to fiscal arrangements and transparent access to natural resource (for instance, in bidding processes beneficial ownership of companies should be disclosed. Voluntary company disclosure can be problematic due to risk of retaliation by elites with a vested interest in maintaining opacity (BP in Angola 2001). Issue of confidentiality clauses in contracts. Need to create a level playing field for companies using a variety of mandatory mechanisms such as listing requirements of securities regulators, international accounting standards etc. to oblige disclosure Publish What you Pay campaign (June 2002). Need to capture government receipts: Publish What You Earn. Mainstreaming of revenue transparency to make progress on introducing minimum standards of fiscal transparency ( fiduciary responsibility towards citizens) as a condition for non-humanitarian aid and debt relief to resourcerich-but-poor countries from multi/bilateral donors (e.g. recent transparency conditions on debt relief to Congo-Brazzaville). IMF Guide to RRT Extractive Industries Transparency Initiative (EITI) Voluntary initiative launched by Tony Blair in 2002 in response to the Publish What You Pay Campaign. Multi-stakeholder forum involving governments, extractive companies, NGOs, IFIs, investors. International framework for disclosure of payments by companies and revenues received by governments. Now 20+ producer countries signed up. Minimum criteria (March 05) to deal with free riding : example of Riggs Bank case involving $700 million of Equatorial Guinea s oil money being parked offshore. Criteria include disclosure all material payments to government & receipts, auditing of payments & receipts by independent auditor & publication of discrepancies; civil society participation. Oslo plenary in Oct 05 adopted independent validation system to ensure real implementation on the ground. Major challenges remain. 4

6 Energy security and transparency Corruption and misgovernment in energy-supplying countries not only lead to deeper poverty and make instability and violence more likely. Corruption can also reinforce local resentment of the energy industry and lead to threats against energy installations which could reduce supplies to world markets (Nigeria, Bolivia). World energy markets are likely to tighten further in the next few years, amplifying the impact of supply disruptions caused by political instability. GW report It s a Gas (April 06). Gas trade to Europe from corrupt regime of Turkmenistan goes through mysterious intermediary companies in Ukraine. No clarity over who really benefits from this billion dollar trade G8 communiqué on Energy Security recognises relationship between good governance in countries that supply the developed world s energy and the long-term security of those supplies. Calls for more transparent management of public revenues from energy exports.; also need to engage with China & other energy hungry industrializing countries. But lacks concrete measures and specific commitments. Impact of FDI from Southern EI companies Asian SOCs are already significant investors in Africa. China is Africa s 3rd largest trading partner with around $1.6 billion of direct investment up to the end of 2005 in projects ranging from energy to mining to infrastructure and telecommunications. China has granted zero tariff treatment to 30 least developed African countries covering 190 commodities and imported $380 million worth of commodities from those countries. To date, Chinese direct investment into Africa at just under $40 million & currently more than 800 Chinese enterprises in Africa. Recent Africa Summit in Beijing attended by almost 50 African heads of state and ministers: annual trade with Africa to total $100bn by 2010 plus $5bn in immediate loans & credit, $1.9bn of trade and investment deals promised. Top 10 African recipients FDI from China have large oil/mineral reserves; Chinese SOCs present in all oil producing African with aggressive policy for acquisition of acreage & billions to spend (CNOOC, CNPC & Sinopec). July 06 Sino-Angolan JV Sonangol-Sinopec International bid record US$1.1 billion signature bonus in Angola's licensing round for blocks 17 & 18 ($2.2 billion). 5

7 Impact of Chinese FDI Chinese thirst for natural resources: by 2003 China bought 20% of aluminium, copper, iron ore, nickel and zinc, double the figure in Oil: China accounted for 40% of the growth in world demand between 2001 & 2005, and Chinese demand is projected to reach 14 million bpd by 2025, with net imports of some 10 million bpd. In 2005, 28% of China s oil imports from Africa. Angola has now replaced Saudi Arabia as the biggest oil exporter to China, supplying more than 20% of its domestic needs. What are the conditions of access to resources and impact on governance agenda? According to African commentators, African governments should not be taken in by short-term benefits of China s trade & low-interest credit lines because of economic dangers such as the growing unfavourable trade balance, possibility oil price hike may end etc. Senegalese political scientist Adama Gaye s The dragon and the ostrich argues that African governments must develop a more serious long-term strategy for relations with China, and how to balance those with relations with Europe and North America. What is impact of such FDI on sustainable development, transparency, good governance and HRs agenda? Availability of finance to kleptocratic & authoritarian governments through export credit deals backed by natural resources is problematic. China s African policy explicitly states that economic assistance will be given no political strings attached. Gabonese dictator Omar Bongo recently praised the spirit of mutual respect & concern for diversity that characterise Chinese trade and cooperation. In reality, how has this non-interference in domestic affairs played out in Sudan or Chad or Angola? Angola: $3 billion credit line for reconstruction, reported additional $2 billion (June 06). Commentators concerned about lack of public oversight over reconstruction programme, how big capital projects fit with poverty reduction strategy, lack of local job creation, corruption issues in new joint ventures supplying Chinese construction companies etc. Provision of arms. 60 % Sudan s oil exports flow to China. Sudan has purchased about $100 million in arms from China & has used these weapons against civilians in Darfur. Also artillery & military training to EG, military communications, helicopters & weapons to Angola. 6

8 This FDI may be helping African countries to grow, but does it lead to poverty reduction and improvements in governance? First, in terms of conditions of access to natural resources, while publicly listed Northern TNCs may not themselves always be shining champions of either corporate best behaviour/global minimum governance standards, it is clear SOCs, including Asian SOCs, do not have the same corporate governance regulations as TNCs. African CSOs are calling for more accountable and transparent governance of natural resources, including more oversight on conditions under which governments receive foreign assistance & EI companies access resources. Need to promote a global level playing field for access to resources for all EI companies based on minimum standards of transparency. Proactive diplomacy is needed to engage BRIC in global transparency initiatives. Northern governments & companies also need to genuinely buy into these initiatives. FDI policies of NICs may be fuelled by perceptions of being locked out of reserves controlled by Western companies & foreign and energy policies of already industrialized countries. Role of Northern financial institutions How do banks through their lending and asset management functions contribute to financing conflict and corruption? Asset Management: laundering the proceeds of foreign corruption or managing dictators loot. For instance Nigeria, Equatorial Guinea, Angola, Congo Brazzaville, DRC. Lending : financing of predatory projects ; e.g. contracts for natural resource exploitation in Liberia, DRC. Lending : opaque resource-backed loans to corrupt governments; e.g. Angola, Congo Brazzaville. 7

9 Conflict Resources UK government should use its forthcoming presidency of UNSC to show leadership in tackling the issue of conflict resources and to address systematically the role that natural resource extraction has played in funding conflict across Africa and elsewhere. 3 Main Asks International agreement on a definition of conflict resources ; Comprehensive implementation and monitoring of Security Council sanctions on CRs; Inclusion of governance of natural resource exploitation in the Peacebuilding Commission s mandate. These ideas already raised in the Africa Commission report & fit UN emerging UN conflict prevention strategy recently agreed in the 2005 World Summit. ANTI-CORRUPTION EFFORTS IN THE NORTH North and South should ratify and implement the UN Convention Against Corruption Deal with banking secrecy jurisdictions and beneficial ownership of shell companies in North (e.g. in Spain $26.5 million transferred from EG govt oil account to Banco Santander account believed to belong to President Obiang) Fast track the implementation of the Third EU Directive on Money Laundering and introduce better guidance and a more forward-looking money laundering compliance regimes. Clarify (a) the definition of serious crime (a predicate offence for money laundering) so it also includes misappropriation public assets by any public official and; (b) the definition of politically exposed persons. Spearhead international efforts to address spoliation and state looting by corrupt and unaccountable ruling elites including enhanced support for international initiatives like EITI and also making the depredation of state assets for private ends by constitutionally responsible rulers, public officials or private individuals (i.e. state looting or patrimonicide) an international crime. 8