Amid the Pandemic, a Perfect Storm Challenges Anticorruption and Natural Resource Governance

Addressing governance in resource-rich countries to unlock their development potential is among the thorniest challenges. On average, the quality of governance in resource-rich countries has not improved over the past two decades and is much lower than for other countries, as we have presented in further detail elsewhere. The woes of corruption and “state capture” figure prominently in weak governance in many settings, posing a major brake to sustainable development and poverty reduction. Yet, as a new report shows, there is nothing deterministic about a so-called “resource curse.” Countries such as Botswana, Colombia, Chile, Ghana and Malaysia illustrate that progress is possible among developing and emerging resource-rich economies.
 
Many experts and practitioners have thought long and hard on the question of what works—and what doesn’t. This is particularly relevant in this quest, at the heart of an inquiry in the social (and not “hard”) sciences, involving the thorny, interdisciplinary and multi-dimensional challenge of subpar governance and development outcomes in resource-rich countries. Further, the nature of the challenge morphs across space and time. Some principles and initiatives may hold promise in one setting at a point in time, yet may prove inapplicable at another moment or place. And then, often left unsaid, there are many uncertainties and unknowns, as well as good or bad luck. A modicum of doubt about existing approaches or a generic new solution should be welcomed—particularly now.

Below: Watch Daniel Kaufmann and experts from The Brookings Institution and Results for Development discuss their new research on this topic.

It is therefore warranted to draw on multiple data sources as well as on research and expertise, embedding uncertainty more deliberately into how we approach our analysis, scenario planning and alternative recommendations. In this context, some years ago I joined a joint applied research effort launched by the Brookings Institution, partnering with Results for Development (R4D) and to which I and other NRGI experts have also contributed. The Leveraging Transparency to Reduce Corruption project (LTRC) distills lessons and aims at developing options for reducing corruption in natural resources. The first concrete output of this initiative was a comprehensive bibliography of the field.
 
Our new report, “The TAP-Plus Approach to Anti-Corruption in the Natural Resource Value Chain,” builds on existing writing by academics and experts as well as on the know-how of practitioners in the transparency and social accountability field, and also presents a journey of sorts. This journey commences early in this century, when opacity by many companies and governments in resource-rich countries was the norm. The conventional wisdom at the time was that the vast majority of resource-rich countries were plagued by the resource curse, requiring action.
 
Then, fifteen years ago, civil society and government leaders started a movement and then a global initiative advocating for the disclosure of extraction-related payments by companies to governments. The transparency focus thereafter expanded to shed light to other important areas, such as contracts, beneficial owners, state companies and commodity traders. Comprehensive transparency has always been regarded as a necessary condition for impact. Yet in more recent times there was increasing recognition that transparency on its own was not sufficient.
 
For further impact, in addition to transparency (the “T” in TAP), the field also embraced the importance of accountability (A) and participation (P). Disclosures by governments and companies in settings where the state censors civil society actors are unlikely to have much impact; social accountability mechanisms cannot function in such conditions. Further, an important lesson from research–informed by the Resource Governance Index—points to an “implementation gap” between law and practice in transparency and accountability in natural resources.
 
We address these issues in the new report. Yet we also go further. We make the case that while the combination of the “TAP troika” is likely to be more effective than transparency measures alone, and that all elements are indeed necessary, even together they are insufficient. It is also important to focus on complementary measures beyond TAP—in fact beyond the entire transparency and social accountability field. We label this broader approach entailing an expanded suite of initiatives “TAP plus.”  Complementing the TAP suite, there are considerations regarding political dynamics between industry and the state, as well as institutional, public finance and legal reforms that would be required for improved governance of natural resources.
 
With partners, at NRGI we have worked on some complementary frontiers in recent years. The persistence of some failing and often corrupt national oil companies, which may require a full revamp (beyond disclosures), is a case in point. Further underlining the case for traversing beyond TAP is the need for reforms in public finance (including extractives taxation), as well as the legal/regulatory reforms needed to foster competition in the sector and to enable governments to obtain fair deals for their citizens.
 
More contextual factors, which vary across countries, should also be taken into account. One such dimension is state capture, a particularly costly and pervasive form of mis-governance and high-level political corruption, where the rules of the game are shaped by and for the political and/or economic elite. Furthermore, in building on the existing know-how and literature, the report also relies on the natural resource value chain from the upstream decision to extract (or not), all the way to decisions pertaining to sustainable development impact. The report also presents an initial framework for country studies to guide further initiatives under the LTRC project, inter alia enabling researchers to test propositions advanced in the report.
 
To discuss the new report and the LTRC initiative, Brookings will held a virtual event. Of course, the world has significantly changed since the report’s text was finalized. At the event, as well as in upcoming writings, colleagues and I discussed the LTRC and also touched upon some of the considerations and possible implications ahead stemming from our changed reality (some of which featured in this presentation last month). Recent events have arguably subjected natural resource-rich countries to the largest overall shock among any group of countries—on top of their already weakened “pre-existing conditions.” The confluence of a “quartet” of factors has created a perfect storm posing a major threat to resource-rich countries and forcing a strategic rethink and a reconsideration of priorities.  
 
This quartet of challenges refer to the pandemic itself; major governance obstacles; stranded resources and nations; and the socio-economic contraction. Specifically:

• the health crisis brought about by the coronavirus pandemic – with particularly dire consequences in resource-rich developing countries (see figure below on subpar testing in resource-relevant emerging countries, which recently have also been experiencing a very high and rapidly increasing rate of infection)  
• weak (and often worsening) governance standards, including leadership failures; a retreat in “voice,” civic space and democratic accountability; and growing incidence of state capture and corruption
• drop in demand for and prices of hydrocarbons and minerals, against the backdrop of the imperative to address climate change and environmental damage—pointing to further prospects of “stranded resource-rich nations,” and potentially huge reversal of fortunes for new and high-cost producers
• the sharp socioeconomic shock, unlikely to be wholly temporary, including a major economic contraction and loss of jobs, afflicting the vulnerable in particular, with scores of millions falling back into poverty, a shrinking middle class and growing social tensions

What are the salient implications of this dire scenario for the “TAP plus” framework we have been working on, and for the LTRC initiative and the natural resource governance and anticorruption field more broadly? For now, let me offer some initial pointers, focused on reframing transparency; implications of state capture and closure of civic space; pandemic response; and on doubling down on governance data and diagnostics:
 

• A major rethink regarding transparency ahead may be warranted, both because a case can be made for more radical transparency (more timely, granular and comprehensive) than in the past, and also because transparency gains only recently attained are under threat. This would entail a bolder approach by initiatives such as EITI not only in averting backsliding and opacity by some international industry players and governments, but also in traversing to another level of disclosure, including related to bailouts, contracts (including subcontracts), climate and environmental impacts.   
• There is a need to identify, expose and address the growing forces of state capture and closure of civic space. These threaten the hard-won transparency gains of the past, reducing accountability and participation, and risk increasing corruption. There are major new governance and corruption risks in resource-rich countries associated with the vested interests conspiring against the needed restructuring of the sector (including by state extractive companies) and the energy transition, economic diversification and sound macro-economic rescue packages (often favoring powerful industry interests at the expense of worker relief and assistance to low-income families). Budgetary and off-budgetary allocation of resources require detailed, timely and participatory oversight and disclosures, guarding against leakages and elite capture. 
• A more deliberate strategic pivot in transparency and accountability in natural resources may also include an enhanced response to the pandemic. Until a few months ago, the links between a “TAP plus” approach to address corruption in natural resources and the health sector were tenuous. Evidence suggests that countries with subpar transparency, accountability and related governance standards are handling the pandemic in particularly poor manner. In addition to leveraging transparency and accountability toward more effective and equitable macro-economic policies that would strengthen the health sector and the pandemic response, specific natural resource governance initiatives could contribute to addressing the health challenge via judicious utilization of sovereign wealth funds. And beyond enhancing accountability in domestic resource use for the health sector and social dimensions, there is the imperative of doubling down on transparency and oversight in the use of international assistance, and in leveraging the infusion of much-needed international funding (and debt relief), including by the IMF and the World Bank, by ensuring that recipient countries subscribe to “TAP plus”-style reforms.   
• An elevation of evidence-based diagnostics and analysis, integrating the sobering coronvirus-related governance picture and reality of more restricted mobility, is needed. The disastrous coronavirus response in many powerful and prosperous countries, often associated with leadership, transparency and data failures, has starkly underscored the vital necessity of granular, timely and reliable data for fact-based policy-making. To address the evolving challenges, investing significantly in detailed empirical diagnostic and data efforts is warranted. In an era of more limited human mobility, there is an opportunity to implement such initiatives thanks to innovative tools (including open data and AI) and the increasing adoption of virtual, online and remote tools. 

In such a perfect storm, this time the implications may be long-lasting for the oil and gas sector and for natural resource-rich countries. While there are uncertainties and differences across countries, the post-coronavirus world will be different. It is imperative that governments, industry, international organizations, NGOs and think tanks consider strategic options that entail major shifts.

Daniel Kaufmann is the chief advisor and president emeritus at the Natural Resource Governance Institute (NRGI) and is a non-resident senior fellow at the Brookings Institution.