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Financing Development: Tangible Tools to give Meaning to Fine Words

19 Aug 2015

  • Author(s): Eddie Rich

Financing Development: Tangible Tools to give Meaning to Fine Words
This contribution is published as part of the Think Piece Series The Road To Addis and Beyond, launched to coincide with the third and final drafting session of the outcome document of this summer's Third International Conference on Financing for Development. In this Series, global experts discuss a range of topics complementary to the UNRISD research project on the Politics of Domestic Resource Mobilization on how to fund social development and raise provocative or alternative perspectives that can generate further ideas and debates. Please share your thoughts on this article in the comments space below.

How can we move from fine words spoken at global conferences to actual results? For resource-rich countries, the Extractive Industries Transparency Initiative (EITI) process can provide a tangible set of policy actions that countries can take to help maximise the value of their extractive resources. These actions can contribute to strengthening government tax collection systems, making countries more attractive investment prospects, and generating informed public debate. Experiences in EITI countries show that these are the kinds of good practices that forthcoming global conferences should catalyse to help countries use their resources to finance development.

Eddie Rich is the Deputy Head of the Extractive Industries Transparency Initiative (EITI) International Secretariat.

Once in a generation opportunity


Christine Lagarde, Head of the IMF, knows what she is talking about when she describes the three global meetings in the second half of this year—the Financing for Development Conference in Addis in July; the United Nations Summit in September to agree the Sustainable Development Goals; and the UN Climate Change Conference in Paris in December—as a “once in a generation opportunity for global development”. Throw in the Open Government Partnership Summit in Mexico in October, the Trade Summit in Nairobi in December, and the EITI Global Conference in Lima in February 2016, and it makes for an intense push over the next nine months on seeking global agreements on some of the biggest challenges of our generation. If we miss this opportunity, getting global agreement on these issues is likely to become more elusive.

Though interrelated, it is the first of these events, the recently concluded Financing for Development Conference that is of most direct relevance to the EITI. It is welcome that the Conference concluded by echoing our Principles and making direct reference to the EITI:
    "We reaffirm that every State has and shall freely exercise full permanent sovereignty over all its wealth, natural resources and economic activity. We underline the importance of corporate transparency and accountability of all companies, notably in the extractive industries. We encourage countries to implement measures to ensure transparency, and take note of voluntary initiatives such as the Extractive Industries Transparency Initiative."

Even though it stops short of a clear recommendation to implement, this is one of the few references in the Addis Ababa Action Agenda arising from the Conference to a specific activity to undertake.

More than aid: Tax and private finance


Much is made of the need for aid for developing countries to meet the Sustainable Development Goals (USD 148 billion of aid per year will be needed according to the ODI). Yet tax in these countries of over USD 10 trillion per year dwarfs these aid flows. And that is despite them not being very successful at collecting taxes—very poor countries collect just 13 per cent of GDP in tax compared to 34 per cent in the rich world, according to the Economist. It does not take a mathematician to work out that a discussion about Financing for Development that does not have tax at its centre is manifestly missing the point. It is not aid alone that is going to bring schools, health centres, roads and water to most of the world’s poor. It needs taxes. It is not aid alone that is going to bring the 600 million new jobs that are going to be needed in developing countries in the next 15 years. It is private finance and economic growth.

As one African Finance Minister at the Addis Conference said: at last we are talking about the right things. This is a meeting about jobs, investment and growth; not a meeting about aid.

How the EITI is delivering finance for development


More is needed than fine words and conferences. The Extractive Industries Transparency Initiative (EITI) is a global standard to promote the good governance of natural resources. It seeks to strengthen government and company systems, inform public debate and enhance trust. In each of the nearly 50 implementing countries it is supported by a coalition of governments, companies and civil society working together.

The EITI is part of a tangible set of policy actions that countries can take to maximise the value—private and public—from their natural resources. It does this in three ways:
  1. It strengthens government tax collection systems. In countries like Chad where the EITI process has identified how oil revenues should go into the budget or Peru where the EITI shows how payments are made to regional governments, EITI reports highlight what improvements should be made in a tax collection process to ensure that governments get their due value for the country’s natural resources. This does not only mean that countries get what they should, it also removes the leakages of tax avoidance and evasion that inevitably derive from weak systems.
  2. It makes countries more attractive investment prospects—meaning more jobs and more private finance. Coming to an EITI country means that a company is investing in a level playing field: the government of an EITI country has stated its commitment to open licence allocation, publication of its policy on contracts and fiscal regimes, disclosure requirements on taxes and royalties, and explanations of how its state owned companies operate. Furthermore, it is likely that they are encouraging more disclosure of beneficial ownership and contracts. In the DR Congo, barter agreements between the state mining company and a Chinese investor are now public information. In the Philippines, you can find and compare the oil and mining sector contracts online.
  3. It generates informed public debate. Not only does each EITI country have a national multi-stakeholder commission of representatives from government, companies and civil society to discuss the policies, revenues and allocations of the natural resource sector, but many countries are also promoting better public registers and databases for the general public to explore the information. Kazakhstan’s EITI has moved from paper to an online portal improving efficiency and accessibility. Norway’s whole oil and gas sector is searchable through maps and tables on a dedicated website. A better informed debate leads to better policies which lead to more value. Furthermore, informed debate promotes greater trust. Myanmar has emerged from decades of opacity blinking into an era of relatively open debate—only agreed, reliable, hard facts can prevent suspicion and mistrust from overwhelming policy debate.

Fine words and fancy conferences don’t put food in bellies. But if they—like the Addis Financing for Development Conference—acknowledge, encourage and catalyse good practices, then maybe, just maybe, they will lead to tangible results.

NOTE
This think piece has also been published on the EITI website under a modified title.

ABOUT THE AUTHOR
    Eddie Rich is currently the Deputy Head of the EITI International Secretariat and has worked in development for over 20 years. In 1996-98 he was the DFID representative to Angola. In charge of a medium sized-aid programme, it soon became clear to him that the development debate needed to move well beyond aid. He has worked as the Head of DFID's Corporate Social Responsibility and as Deputy Head of DFID Kenya. Since 2007, Eddie has been the Deputy Head of the EITI International Secretariat where he has led on Africa and the Middle East as well as on oversight for finance, human resources, communications and the EITI global conferences.

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This article reflects the views of the author(s) and does not necessarily represent those of the United Nations Research Institute for Social Development.