The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

Q&A with NRGI: “Transparency is the best disinfectant”

In a wide-ranging interview, Daniel Kaufmann, president of the Natural Resource Governance Institute (NRGI), an influential policy analysis, capacity building and advocacy group, highlights leaders and laggards among extractive firms, the challenges that resource-rich countries face, and major governance trends.

Even nowadays, some extractive firms wrongly view transparency as a threat

Daniel Kaufmann

Daniel Kaufmann: “The global transparency train has left the station”

“At some level, all serious companies take governance issues into account. There is a lot of talk about the triple bottom line and about corporate social responsibility. But the real bottom line – and what shareholders demand – is still profit.  Many extractive firms are increasingly embracing the voluntary disclosure standards of the global Extractive Industries Transparency Initiative (EITI), which is welcome. But the devil is in the detail: there is still strong resistance to full disclosure by many in the oil industry, as seen by ongoing attempts to undermine transparency laws and regulations in the US and UK.

There are a number of reasons for this resistance.  Some companies have engaged in transfer mis-pricing, tax avoidance or evasion, or corrupt dealings with officials in the countries they operate in.  They fear the legal and reputational implications of detailed disclosures potentially unmasking past ‘skeletons’, even if such practices have stopped, or worse if they continue. They opt to protect opacity.

Some other companies may not engage in illegal activities but may still look for loopholes or simply hold to the anachronistic view that their ability to compete and be cost effective will be jeopardized by detailed disclosures.  There is no compelling evidence that this is the case.  Irrespective of the real motivation of these companies opposing disclosures, the perception is that they have something to hide.”

There is a split in the industry between leaders and laggards

“Companies whose strength is efficiency and competitiveness have a genuine interest in transparency. They know that some of their competitors can only thrive under opacity and through rent-seeking.  Also, for many of them, the potential legal and reputational risks associated with a lack of transparency are too high nowadays. Disclosure can also help to manage expectations in the countries and communities they work in. These forward-looking firms are making the calculus that ‘transparency pays’, that it is a great disinfectant.

Today you can see a split – even if the industry wouldn’t openly admit it.  Some forward-looking companies reckon that the ‘global transparency train’ has left the station and that it is in their longer term interest to embrace and promote transparency. In the mining sector this is happening, for instance among majors like Rio Tinto. In oil and gas, a number of smaller companies like Kosmos, Talisman and Tullow have been transparency leaders, as well as the one oil giant that has now embraced transparency, namely Statoil.  Other big oil companies still need to come aboard the transparency train.  Generally, while there is a welcome trend towards revenue transparency, there is far less agreement about fully disclosing all contracts, which is essential for full accountability.”

Mining companies are generally ahead of oil and gas on governance issues

“While there are exceptions, mining companies tend to perform better on social and governance issues than oil and gas players. This is often due to the length of mining investment horizons and the more embedded nature of their operations.  Much of the world’s oil and gas is extracted offshore; these operations take place with little, if any, interaction with communities or local suppliers. Mining companies need to make lasting commitments to host countries, embedding themselves in the community. They employ locals and need to be mindful of managing expectations and social concerns.

The two sectors also have different corporate cultures. Oil is more insular, concentrated and powerful; to an extent the industry has been afflicted by a mind-set of ‘ruling the world’.  This is reflected in the lobbying by oil industry trade associations, like the API in the US for instance.  By contrast, in the mining sector, the International Council on Mining and Metals (ICMM) has generally been supportive of transparency.

The impact of individual leadership is another key factor. In the past, Mark Moody-Stuart [former chairman of Shell and Anglo American] illustrated how an individual can steer a company in the right direction.  Leadership is key in smaller companies. If Kosmos or Tullow want to change overnight they can do that, and so they did.  In a larger company change is slower, as there are legacy issues to deal with and resistance to change. Even someone like Simon Thompson [chairman of Tullow] could not change a super-major overnight.  But as now shown by Statoil, while it may take longer, it can also happen with the majors.”

We have seen a mini-revolution in economic management but major challenges remain

“Recent years have seen improved performance, particularly on macro-economic management, in many countries. This includes resource-rich nations, many of them in Africa and Latin America.  Some are also making inroads in transparency and natural resource management.  Chile is an example of a leading resource-driven economy, while Colombia, Mexico and Peru are implementing reforms and showing positive signs. In Africa, Botswana has managed its resources effectively, and countries like Liberia are making progress.  Tunisia, even if not overly dependent on natural resources, is also performing well.

In Asia, Indonesia faces significant challenges but overall is moving in the right direction compared to where they were during their autocratic past – and if they soon adopt a progressive oil and gas law, the prospects will be brighter. While it made enormous strides in recent years, and was recently accepted into EITI, there are also some serious questions about progress in Myanmar.

These cases show that ‘yes, it can be done’.  But let’s face it:  in general, most resource-rich countries still face enormous governance challenges – whether in rule of law, regulations, democratic accountability, government effectiveness or corruption.  Overall, the past ‘super-cycle’ decade of high prices was not a period of major governance improvements in oil-rich countries.  The oil price decline has exposed deep-seated governance vulnerabilities in those countries, as illustrated by the cases of Russia, Venezuela and Nigeria.

In fact, the decline in oil prices, and thus leaner (and even crisis-prone) years for many of these countries offers the opportunity for broad-based governance reforms that were ignored during the boom years. In addition to rule of law and anti-corruption reforms, specific progress on contract transparency and disclosure of beneficial ownership is needed.   NRGI research shows that most resource-rich countries do not perform well on resource governance. Improving this is in fact the development challenge of the generation.”

RGI map final

Source: Natural Resource Governance Institute, available at


Governments and private firms can improve the governance of state-owned enterprises

“Significant focus is placed on governance improvements by private companies.  These days, insufficient emphasis is given to the dire need to improve the performance of state-owned companies in oil, gas and mining.  We are focusing on this huge challenge; national companies play a major role in the economies of many resource-rich countries.

There is some variation. Chile’s Codelco for instance is one of the best state-run companies in the world, even if further improvements are still needed. Generally however, these firms are plagued by organizational, efficiency and integrity problems.  This is evident in the likes of the Democratic Republic of Congo’s mining company Gécamines, or the national oil companies of Venezuela, Equatorial Guinea or Nigeria.  The major corruption scandal currently plaguing Petrobras (and the political elite) in Brazil exemplifies the governance vulnerabilities in the sector. These challenges can be encountered even in powerful countries that had been generally progressing in the right direction for many years.

Governments need to address the governance challenges of these state firms, including by corporatization, subjecting them to the competitive market and transparency, clarifying their remit, and by meritocratic selection of their leadership.

The private sector can also help improve the governance of these firms, often indirectly, whether via their own example, technical assistance, joint ventures, and steering them towards becoming more market-oriented and competitive. Industry can also be supportive of the role that civil society and academics play in promoting reforms, not only for state enterprises but in extractive governance more generally. And industry can provide specialized training; in fact we have collaborated with industry on training activities in some countries already.”

Will the upcoming ‘data tsunami’ in extractives become a game changer?

“The new EU transparency directive on project-by-project reporting, which the UK is the first to implement, has the potential to become a game changer for reformists in government and for civil society to advocate improved resource governance.  At present, the UK extractive industry lobby is trying to water down industry guidance, which risks undermining the progressive intent of the law.

If this ongoing obstacle is properly addressed by the UK government – by insisting on robust requirements for full and detailed disclosures – a game changer would be in the offing, and we, together with partners, would be ready to analyse this disclosed data once it comes in.  Granular, disaggregated data will allow for greater scrutiny of the resource sector. It will be vital not only for research and analysis but also accountability and thus to promote further reforms that ensure all citizens benefit from their own natural resources.

This disaggregated data will help countries analyse the kinds of deals they are getting and will be a powerful tool for anti-corruption. It will also benefit shareholders and investors who should be scrutinizing the evidence-based details of the operations of companies they invest in.  Once disclosures as a result of the EU directive start in earnest, we will also see further progress within EITI, which now has 48 country members.”

NRGI will continue to speak truth to power

“We pride ourselves on being a ‘think and do tank’, integrating research and analysis into our assistance and policy advocacy at the global and country level.  At NRGI we will continue to address sensitive issues in a rigorous and evidence-based manner, and speak truth to power. In countries with endemic opacity, tackling high-level corruption is vital.  We cannot be politically correct and underplay the major challenge of corruption that still prevails in a number of countries and companies.  If we do not make inroads in addressing the challenge of corruption in the most difficult environments, any technocratic economic policy advice we give will come to naught.

Indeed, our advice needs to be integrated into a broader understanding of the political economy and governance in each country.  That is the reason why we are developing various benchmarking tools and sets of governance indicators, such as the Natural Resource Charter (NRC), the Resource Governance Index (RGI) and the Worldwide Governance Indicators (WGI).

A key principle of NRGI’s new strategy is to be as useful as we can be in a very concrete fashion at the country level. We have decided to engage more in-depth in a select number of priority countries, such as Ghana, Tanzania, DRC, Indonesia, Myanmar, Mongolia, Nigeria, Colombia, Mexico and Tunisia, for instance, while also working in a more circumscribed fashion in other important countries such as Guinea and Peru.

In our growing organization, which is the result of a merger between two organizations (Revenue Watch Institute and Natural Resource Charter), we are scaling up our global and country-level analytical work, capacity building, and evidence-based policy advocacy. We work with many global and national partners, and engage in multi-stakeholder initiatives – with governments, civil society and NGOs, parliaments, private sector, the media, and global initiatives like EITI.

Underlying this is the power of data – many of us are proud data geeks and will continue to innovate in terms of data collection and analysis techniques. Ultimately however, a central aim of all this data is to underpin policy advocacy for change, which is direly needed at the country and industry level.  And due to the drop in commodity prices, there is a genuine opportunity for change right now.”