Auditing natural resource revenues

When my editor and I were exchanging drafts of this piece, my spam blocker wouldn’t let them through.  There is too much talk of Nigeria and diamonds!  Here is one excerpt:

Paul Collier, an economics professor at Oxford University,
has a new and potentially powerful idea.  In his recently published
book, “The Bottom Billion: Why the Poorest Countries Are Failing and
What Can Be Done About It” (Oxford University Press), Professor Collier
favors an international charter – some widely publicized guidelines
that countries can voluntarily adopt – to give transparency in spending
wealth from natural resources.  A country would pledge to have formal
audits of its revenues and their disposition.  Imagine
PricewaterhouseCoopers auditing the copper revenues of Zambia and
issuing a public report.

It’s not as futile as it might sound:

Professor Collier’s proposal at first glance seems toothless; a
truly corrupt country probably wouldn’t follow the provisions of the
charter, which, after all, is voluntary.  Yet citizens could pressure
their government to follow such a charter, and the idea of the charter
would create a focus for political opposition and signify international
support for concrete reform.

Foreign corporations would bring
further pressures to heed the charter.  Multinational companies that are
active in corrupt countries might receive bad domestic publicity.
Eventually the companies might push for adherence to the charter, even
if the charter limited their ability to bribe.  In another context, De
Beers has been stung by bad publicity about “blood diamonds,” and the
company is now a force for positive change where it operates.

In
the optimistic case, a few poor countries start abiding by the charter.
Those countries prosper and attract more investment and status in the
international community.  The pressure to adopt the charter would then
spread.  Of course, promoting the charter costs relatively little and
the potential benefits are significant.  International pressures did
eventually force a change in South African apartheid.  So maybe they can
improve other countries as well.

Did you know that Tony Blair was already promoting such a charter?  And the Nigerian government (really) already commissioned a private sector audit and now has enacted a version of this idea into law?  We’ll see how that goes, but Nigerian flirtation with rule of law ideas is one of the underreported stories of this year.

Paul Collier’s The Bottom Billion is a very exciting and important book.  It is rare to read something on economic development that is true, non-trivial, and potentially useful.  I recommend this book highly, it is also short and easy to read.  Here is a good review of the book by Niall Ferguson.

Here is the whole column.

Comments

"International pressures did eventually force a change in South African apartheid."

Hmmm... that’s misleading. I wouldn’t say that it was useless, but very far from the whole story.

It is the French government that should be accountable for its actions in many African countries. It is only because of the support of the French government that French companies and the governments of those African countries can continue plundering their natural resources. Then you can urge other European governments to do the same.

I'd like to make sure the aid-giving countries are the ones hiring the auditors.

To what degree do foreign remittances of citizens working abroad create the same problems that oil and/or natural resources do for poor countries.

A good idea of course, but Zambia is the wrong example. We only get $9m from mineral royalties so getting PWC in would wipe half of that :)

Incidentally I read Collier's book. It has some good bits, some questionable things (e.g. a pointless rant at Easterly at the end), but his ideas generally warrants further investigation especially on security. We need to urgently consider that for Zimbabwe in a post Mugabe phase.

The elephant in the room is IQ. Africa -- unlike, say, East Asia -- is held back by low IQ. That's the upstream variable. Corruption and endless war are downstream effects.

See for example the math scores on page 34 of the TIMSS 2003. The 90th percentile Africans (e.g in Ghana) have scores below the 10th percentile East Asians (e.g. in Singapore)

http://timss.bc.edu/timss2003i/mathD.html
http://timss.bc.edu/PDF/t03_download/T03_M_Chap1.pdf

Live 8, and Jeff Sachs' ideas, and these fantasies of having PriceWaterHouse Coopers *audit* a Zambian mine...they all spring from an inability to wrestle with human reality. If you sent PWC auditors there, they would likely end up being shot by child soldiers of the local warlord.

And by the way Mr Blah, you need to widen your knowledge a bit. Zambia has never experienced war and there are certainly no child soldiers there. How ignorant can you be?

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