Oil, gas, and mining corruption: Is it inevitable?
29 Jun 2020

In late January, almost five years after huge oil reserves were discovered off the shore of Guyana, an oil tanker loaded with about 1 million barrels of Liza light sweet crude finally departed the nation. After the three-football-field-long ship docked at Galveston, Texas, the oil went on its way to American refineries. It was the first ever oil shipment from the nation.

With that, the South American nation entered the select club of oil-exporting nations. It was a cause for celebration in one of the continent’s poorest nations, including the creation of a new holiday: National Petroleum Day. “Guyana’s future is brighter with the beginning of first oil,” President David Granger told the nation in a video address. “The good life for everyone beckons.”

Yet our global initiative exploring governance issues in resource-rich countries like Guyana suggests caution may be warranted. Far too often, corruption goes hand-in-hand with oil or other natural resource strikes, while economic booms fail to materialize and social and government institutions develop stress fractures.

The good life or a corruption boom—neither outcome is inevitable. Both are highly dependent on governance issues. The Leveraging Transparency to Reduce Corruption (LTRC) project is an effort to build the evidence base surrounding the links between natural resource wealth, corruption, and poor development outcomes. It goes one step further, however: We are also poised to launch small pilot programs in several resource-rich countries to test our hypotheses.

Today, the LTRC project publishes a new report, “The TAP-Plus Approach to Anti-Corruption in the Natural Resource Value Chain,” where we detail how efforts involving transparency, accountability, and participation (TAP) can help move the needle toward sustainable natural resource prosperity and away from corruption.

The stakes are extraordinarily high. The corruption boom set off by resource wealth is not only morally reprehensible, it is a humanitarian tragedy. Controlling it would yield a good governance dividend to some of the poorest nations in the world. One study estimates that even a shift from low corruption control to mid-level control could result in per-capita income tripling over the long term. Altogether then, if the wealth of the 94 (as of 2013) natural resource-dependent nations were used to pursue anti-poverty goals rather than corrupt or rent-seeking profits, more than half a billion people would be lifted out of extreme poverty by 2030.

Two key findings in our paper are particularly important. First, extractive industries like oil, gas, and mining are particularly prone to the corruption risks that undermine good governance. Second, these risks can be mitigated using well-thought-out governance and anti-corruption reforms.

We take that second finding and push it forward to craft a next-generation governance framework called “TAP-Plus.” It combines the best lessons of several generations of work in the transparency, accountability, and participation field with a robust understanding of key contextual factors, complementary measures, and implementation gaps. A future LTRC blog post will flesh out the details of TAP-Plus.

Studying the select club of resource-rich nations has revealed a paradox: Nations with access to untold wealth from their natural resources are also home to some of the world’s poorest people. In a 2015 report, Daniel Kaufmann notes that “about 20 percent of the world’s poor were living in resource-rich countries” as of 1990; however, “if current trends continue…, by 2030 half the world’s poor will live in resource-rich countries.”

The “natural resource curse” fuels this grim fact. The phrase was first coined by Richard Auty in the early 1990s. Though much debated, the concept is useful for framing the ways natural resource abundance can impact a nation’s economic and governance fortunes. From a macroeconomic standpoint, a country that is disproportionately dependent on one industry or revenue source is highly vulnerable to a variety of economic distortions and shocks. While the full impact of the COVID-19 crisis on extractive industries remains to be seen, it’s clear that corruption risks will persist—and some may even rise—in a time marked by disrupted supply, falling demand, and reduced prices for commodities.

By Victoria Bassetti and Norman Eisen, The Brookings Institute, 28 June 2020

Read more at The Brookings Institute

Photo: Georgia Popplewell [CC-BY-NC-ND-2.0] via Flickr

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