Under the Microscope: Corruption, Perception, and the
EITI
By Julian Hamud
IR 550
10/15/2011
Hamud 1
Introduction
The abuse of power by public and private actors is one of the longest standing
phenomenon in civilization, but the last half century has seen increasing steps against it
worldwide. Despite an imperialistic growth during the colonial period, the discussion
has been changing from one of “costs of doing business” to one of pathology.1 India’s
former president recently added her voice to the chorus, claiming it to be a “cancer” for
the nation.2 As such, the practice has been globally treated with ever greater scrutiny,
figuratively placed under the microscope. The financial nature of corruption leads many
investigations through the ledgers of suspects, a detection and enforcement method
with a strong tradition for authorities. Indeed, a great point of irony in modern history is
the fall of Al Capone: he was not arrested and convicted for the acts that made his
organization infamous, but rather for the paper trail of his financial accounts.
In turn, bookkeeping has seen expanded application in corporate and political
oversight. Particularly, transnational extractive corporations have been put under
increased pressure, both normative and legislative, to maintain more transparent
accounts in their dealings with foreign governments. Notably, United States’ Security
and Exchange Commission recently passed a bill requiring limited disclosures from all
extractive companies trading on the New York Stock Exchange.3 In addition to limited
nation-by-nation approaches, there has grown an interesting international push towards
similar ends, most clearly seen in the growth of the Extractive Industries Transparency
Initiative (EITI).
Padideh Ala’i, “The Legacy of Geographical Morality and Colonialism: A Historical Assessment of the
Current Crusade Against Corruption.” Vanderbuilt Journal of Transnational Law 33 (October 1, 2000),
904-905
2 AFP, “Corruption is a ‘Cancer’ in India,” Ahram Online, August 14, 2011.
3 Jeff Colgan, “Regulating the Resource Curse.” Foreign Policy August 27 2012
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The EITI is a voluntary process proposed by Tony Blair in 2002.4 The initiative
was launched on the heels of the Publish What You Pay coalition’s early 2000s
campaign, which in turn followed the groundbreaking work of Global Witness in the
1990s.5 The process involves 21 steps, whereby a state establishes and formalizes a
multi-stakeholder group of businesses, officials, NGOs, and community actors. Next,
governments and all extractive companies in the country are required to submit all
payment information to a third party reconcile, adjust and publically disseminate.6 The
institution built around the EITI is unusual, as it is an NGO that has states as members
and, despite close ties with the British government, is not sponsored by or beholden to
any state.7 The process has garnered much praise, touted by Georg Soros and many
others as having the capacity to alleviate poverty and other social ills.8 It was
additionally endorsed by the World Bank in 2003 and the United States government in
2004.9 At present, 37 countries including Ghana and Mongolia have taken steps in the
process.10
Given all of this enthusiastic support, it invites the question of whether these
transparency measures truly are effective in combatting transnational corruption. A
related, more difficult question is whether these measures, when effective, can create the
supposed cascade of “second-order effects” on economic growth and inequality
reduction.11. These questions require longer time horizons to answer, but the primary
Virigina Haufler, “Disclosure as Governance: The Extractive Industries Transparency Initiative and
Resource Management in the Developing World.” Global Environmental Politics 10, no. 3 (2010), 54
5 Henry Parham, “Publish What You Pay - Extractive Industries Transparency Is in Everyone’s Best
Interests.” In Oil Policy in the Gulf of Guinea. (Bonn, Germany: Friedrich-Ebert Stiftung, 2004), 119
6 EITI. “EITI Fact Sheet,” 2012, 3
7 Parham, “Publish What You Pay,” 124-125
8 George Soros, “Transparency Can Alleviate Poverty.” Financial Times, March 16, 2005.
9 EITI, “EITI Fact Sheet,” 3
10 EITI, “EITI Fact Sheet,” 4
11 Haufler, “Disclosure as Governance,” 59
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effect of combatting corruption is measureable. Finally, given the regime crystallizing
around transparency, it is important to look for factors that affect the efficacy of these
measures in different states.12
The main argument of this study is that full compliance with the EITI can be a
boon to a country’s fight against corruption, a benefit maximized by mutually
reinforcing subnational auditing and heavy NGO/CSO participation, as well as the
presence of an anticorruption movement with extant momentum. There are two
important caveats, however. First, corporate and government actors often have a vested
interest in the rentier system allowed by extensive corruption, and as a result the system
writ large may be especially resistant to reform. Secondly, a successful EITI program
could create the perception of more corruption by exposing it, even if the initiative itself
is successful and concrete indicators of decreased corruption are visible. This seems
especially likely given shock in some nations at the initial findings. Whether subsequent
decreases are a sign of progress or the product of unscrupulous actors better navigating
the system is a subject for debate.
In the Literature
“Poisoned Wells”13 and the Resource Curse
A principal theoretic backdrop for this paper is the “resource curse” that has
seemed to plague developing countries. The term refers primarily to the inverse
Jennifer McCoy and Heather Heckel. “The Emergence of a Global Anti-corruption Norm.” International
Politics 38 (2001), 85-86
13 Nicholas Shaxon Poisoned Wells: The Dirty Politics of African Oil. New York: Palgrave Macmillan,
2007
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relationship between natural resources and growth, especially in developing countries. 14
The concept has been in play since the mid-1980s, but without gaining much traction.15
In the mid-1990s, Sachs and Warner made waves in academic circles by providing
robust empirical support for the resource curse theory.16 Since then, connections have
been made between resource abundance and both violent conflict and
authoritarianism.17 Those claims, however, are on a much more contentious foundation.
Empirically and theoretically, resource rents often have an amelioratory effect on
tensions despite being a potential cause of conflict.18 Furthermore, the directionality of
the link between authoritarianism and resources is not only unclear, but further
muddled by well-articulated alternate models.19 Despite the above, many analyses
support the existence of a resource curse, although the theory is not “bulletproof.”20
Though the particular method adopted by Sachs and Warner has been indicted by some,
the resource curse as an economic theory has largely withstood the test of time.21
While the phenomenon is well documented, efforts at understanding the cause of
the phenomenon are very divergent, and generally fall into three camps: institutional
Jeffrey Sachs and Andrew Warner. “Natural Resource Abundance and Economic Growth.” Center for
International Development (1997), 48.
15 Alan Gelb, Oil Windfalls: Blessing or Curse?. New York: Oxford University Press, 1988
16 Sachs and Warner, “Natural Resource Abundance,” 10
17 Michael Ross, “The Political Economy of the Resource Curse.” World Politics 51, no. 2 (1999), 312 & 321
18 Matthias Basedau and Jann Lay. “Resource Curse or Rentier Peace? The Ambiguous Effects of Oil
Wealth and Oil Dependence on Violent Conflict.” Journal of Peace Research 46, no. 6 (September 23,
2009), 774
19 Anja Franke,, Andrea Gawrich, and Gurban Alakbarov. “Kazakhstan and Azerbaijan as Post-Soviet
Rentier States: Resource Incomes and Autocracy as a Double ‘Curse’ in Post-Soviet Regimes.” EuropeAsia Studies 61, no. 1 (January 2009), 112 & 133-134.
20 Sachs, J. D., and A. M. Warner. “The Curse of Natural Resources.” European Economic Review 45, no.
4 (2001), 828. See also: Gavin Hilson, and Roy Maconachie. “’Good Governance’ and the Extractive
Industries in Sub-Saharan Africa.” Mineral Processing & Extractive Metal Review 30 (2009), 60
21 Gavin Wright and Jesse Czelusta. “The Myth of the Resource Curse.” Challenge 47, no. 2 (April 2004),
6–38.
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models, Dutch Disease models, and rentier/corruption models.22 The first two are
variations of a theme whereby resource discovery leads to conditions that create
negative growth, the former citing deteriorating macroeconomic policy as the cause, and
the latter suggesting a result of market forces organically drawing capital and labor away
from other industries, such as agriculture and manufacturing. Institutional frames also
look towards the form of government, but as was already mentioned, these explanations
are underwhelming. The Dutch Disease hypothesis has gained some support from the
1970s to the 1990s, but there has developed a large body of evidence complicating it
more recently.23 In general, it is becoming apparent that the concept lacks explanatory
power in developing countries (where it is also less common), can be easily treated by
corrective economic measures, and theoretically hinges on the usually false assumption
of near-full employment.24 One specific argument can be found in a Cambridge study
spanning 1970 to 2007 and 118 countries, where the volatility inherent in commodities,
not economic shifts, was found to undercut the economic growth.25
The third explanatory frame, the rentier/corruption model is the one on which
we will focus. While the two terms are not necessarily equivalent, they are mutually
reinforcing and often found together. In general, resource abundance leads to resource
predation,26 rentier states which are not beholden to the people,27 and semi-oligarchic
state structures built around patrimonialism.28 These, in turn are highly conducive to
Stephen S. Everhart, “The Resource Curse and Private Investment: a Theoretical Model of the Impact of
Corruption.” Education, Business and Society: Contemporary Middle Eastern Issues 3, no. 2 (2010), 120
23 Sachs and Warner, “Natural Resource Abundance,” 5-6
24 Ross, “Political Economy,” 305-307
25 Tiago Cavalcanti, Kamiar Mohaddes, and Mehdi Raissi. “Commodity Price Volatility and the Sources of
Growth.” IMF Working Papers, no. 1–45 (2012), 3
26 Michael J. Watts “Righteous Oil? Human Rights, The Oil Complex, and Corporate Social
Responsibility.” Annual Review of Environment and Resources 30, no. 1 (November 21, 2005), 384.
27 Ross, “Political Economy,” 312; Franke et al., “Kazakhstan and Azerbaijan,” 112
28 Basedau and Lay, “Resource Curse, or,” 775-5; Franke et al., “Kazakhstan and Azerbaijan,” 113.
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corruption in governments, which have a myriad of negative impacts on state and
society.29 High levels of corruption in society can create monopolistic business
arrangements, contribute to a lack of public and economic sector reforms,30 decrease
social services, increase poverty,31 hinder market operation, and increase
unemployment. Accordingly, many authors cite this as a direct cause of the resource
curse.32 More specifically, some have traced the specific relationship between
corruption, extractive industries, and second-order effects such as poverty to the same
conclusion.33 This relationship is particularly stark: one notable study found that a
worsening of one standard deviation on the Corruption Perception Index was correlated
by a Gini coefficient increase of 11 points, while one standard deviation increase in the
growth rate of corruption was correlated with a 4.7% per year reduction in income
growth of the poor.34 Taken together, this body of symptoms indicates that the rentier
model of corruption is also the most tenacious and deleterious.
Corporate Social Responsibility
The development of the resource curse theory has been somewhat paralleled by
the development of the idea of corporate social responsibility (CSR). The term began
Everhart, “The Resource Curse and Private,” 119; Franke et al., “Kazakhstan and Azerbaijan,” 127
Eleanor O’Higgins. “Corruption, Underdevelopment, and Extractive Resource Industries: Addressing
the Vicious Cycle.” Business Ethics Quarterly 16, no. 2 (April 2006), 239-40
31 Sanjeev Gupta, Hamid Davoodi, and Rosa Alonso-Terme. “Does Corruption Affect Income Inequality
and Poverty.” Economics of Governance 3 (2002), 24
32 Susan Aaronson,“Limited Partnership: Business, Goernment, Civil Society, and the Public in the
Extractive Industries Transparency Initiative.” Public Administration and Development 31, no. 1 (2011),
52
33, Andrea Petermann Juan Ignacio Guzmán, and John E. Tilton. “Mining and Corruption.” Resources
Policy 32, no. 3 (September 2007), 99. See also: Shaxson, Nicholas. “Oil, Corruption, and the Resource
Curse.” International Affairs 83, no. 6 (2007) ; Shaxon, Poisoned Wells; Pegg, Scott. “Mining and Poverty
Reduction: Transforming Rhetoric into Reality.” Journal of Cleaner Production 14, no. 3–4 (January
2006)
34 Gupta, Sanjeev, Hamid Davoodi, and Rosa Alonso-Terme. “Does Corruption Affect Income Inequality
and Poverty.” Economics of Governance 3 (2002), 41
29
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appearing in the 1980s, a striking fact considering the ridicule its basic concepts
received in the decades before.35 Though its rise is still an unexplained phenomenon,36
the backdrop of environmental catastrophes such as the Exxon Valdeez spill and the
Bhopal leak meant that it was timely, if nothing else.37 Despite the years of development,
there is also no consensus on what the term means, or how it should translate into
praxis, with suggestions including individual company or industry codes of conduct,
national regulation, and supranational bodies of law.38 Through all interpretations, the
central idea seems to be providing benefits to stakeholders as well as shareholders, with
common themes including contributions to sustainable societal and environmental
development, anti-corruption, and community advancement.39 As such, they are most
often framed as a neoliberal tool for improving market efficiency, fulfilling the same role
as the structures of governance that other economic models demand of states. 40
Discussions of CSR in general and anti-corruption in particular tend to take
either normative or rationalist perspectives in their analyses. More constructivismoriented works have traced a normative regime around CSR, with anti-corruption as a
specific pillar thereof.41 The earliest substantive international instance of this
development was the Earth Summit’s specific endorsement of voluntary self- regulation
for transnational corporations (TNCs), further spurred by other environmental
Gavin Hilson, “Corporate Social Responsibility in the Extractive Industries: Experiences from
Developing Countries.” Resources Policy 37, no. 2 (June 2012), 131–132
36 Michael Blowfield and Jedrzej Frynas. “Setting New Agendas: Critical Perspectives on Corporate Social
Responsibility in the Developing World.” International Affairs 81, no. 3 (2005), 501
37 Rieth, Lothar, and Melanie Zimmer. Transnational Corporations and Conflict Prevention: The Impact
of Norms on Private Actors. Center for International Relations / Peace and Conflict Studies, 2004, 12
38 Blowfield and Frynas, “Setting New Agendas,” 502
39 Matthew Genasci and Sarah Pray. “Extracting Accountability: The Implications of the Resource Curse
for CSR Theory and Practice.” Yale Human Rights & Development Law Journal 11 (2008), 39
40 Genasci and Pray, “Extracting Accountability,” 40
41 Jennifer McCoy and Heather Heckel. “The Emergence of a Global Anti-corruption Norm.” International
Politics 38 (2001), 66
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catastrophes of the decade. 42 Subsequently, CSR played more prominently in
intergovernmental organization (IGO) agendas, as reflected regionally in the binding
Organization of Inter-American States Convention Against Corruption of 1996, the
Council of Europe’s Civil and Criminal Law Conventions,43 and the anti-corruption
principles adopted by the General Coalition for Africa in 1999.44 At the global level, the
1997 OECD Convention Against Bribery of Foreign Public Officials in International
Transaction, the accompanying UN resolution, and the weak but binding UN
Convention against Corruption of 2003 lent further support to the movement.45
The normative trend is especially notable in that it has been shying away from
“geographic morality” that allowed rampant bribery and other forms of corruption as far
back as the colonial period,46 as well as rejecting earlier arguments in favor of various
forms of corruption.47 As a result, some have attributed the success of the regime to
greater internal consistency of the campaign’s global nature.48 This foundation is
noteworthy because the entire project is on surface a direct challenge to Friedman’s
maxim on corporate responsibility being limited to the creation of profits for
shareholders.49
Rationalist evaluations of CSR, however, prove that this view is superficial. Many
authors have described numerous benefits to corporations of the approach.50 Decreasing
Watts, “Righteous Oil,” 9.22
Phillip Webb, “The United Nations Convention Against Corruption: Global Achievement or Missed
Opportunity?” Journal of International Economic Law 8, no. 1 (2005), 192
44 Alhaji Marong, “Towards a Normative Consensus Against Corruption: Legal Effects of the Principles for
Combat Corruption in Africa.” Denver Journal of International Law and Policy 30, no. 2 (2003), 101
45 Webb, “The United Nations Convention”
46 Ala’i, “The Legacy of Geographical” , 904-905
47 Marong. “Toward A Normative Consensus”
48 Marong, “Towards a Normative Consensus,” 124-125
49 Genasci and Pray, “Extracting Accountability,” 39
50 Hongying Wang and James Rosenau. “Transparency International and Corruption as an Issue of Global
Governance.” Global Governance 7, no. 1 (2001), 42
42
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corruption in particular is a boon, as bribery functionally comprises an additional cost of
doing business and adds risks in dealing with organizations or actors of ill repute.51
Additionally, CSR measures give companies operating in states with weak institutions a
way to “avoid blame for these state failures and mitigate their impact.”52 Indeed such
measures, when successful, have the capability to minimize potential disruptive conflict
and unrest.53
Another significant avenue of the rationalist camp is the dollarization of the
normative benefit. Critical here is the concept of “reputational risk” as a marketing issue
or even as a legal liability.54 The basic ideas here, as with the accountant’s descriptions
of goodwill, are that consumers and investors prefer companies with favorable
reputations, and litigation or other denigrations to that reputation or pursue endangers
profits. As such, via largely normative explanations, CSR can become a rational choice
for corporate actors.
These advocates aside, CSR agendas have received significant criticism. At the
most basic level, critics see CSR as ineffective in its goals. For example, the case of Shell
in Nigeria, an oft-cited example of the power of CSR, is prototypical in being
pockmarked with general and mission-specific failures.55 Moreover, haphazard
implementation, minimal responsiveness, and a myopic local focus may relegate these
Jonathan Drimmer, “Human Rights and the Extractive Industries: Litigation and Compliance Trends.”
The Journal of World Energy Law & Business 3, no. 2 (March 5, 2010), 122
52 Genasci and Pray, “Extracting Accountability,” 38
53 Jessica Banfield, “Transnational Corporations in Conflict-prone Zones: Public Policy Responses and a
Framework for Action.” Oxford Development Studies 33, no. 1 (2005), 136-138
54 Alexandra Gillies, “Reputational Concerns and the Emergence of Oil Sector Transparency as an
International Norm.” International Studies Quarterly, 54, no. 1 (2010), 104; David B. Spence, “Corporate
Social Responsibility in the Oil and Gas Industry: The Importance of Repuational Risk,” Chicago-Kent
Law Review, 86 (2011), 74
55 Jedrrzej Frynas, “The False Developmental Promise of Corporate Social Responsibility: Evidence from
Multinational Oil Companies,” International Affairs 81, no. 3 (2005), 587. See also: Rieth and Zimmer,
“Transnational Corporations,” 26-27
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programs to being ad-hoc buy-offs.56 The result can be summarized as a “paved with
good intentions” scenario.
Many authors doubt the very intentions behind CSR. Such measures are often
subject to accusations of “greenwashing” (where they meet absolutely minimal
standards for credibility without being effective) and “bluewashing” (whereby they are
tied to UN agendas for legitimacy)57 that simply serves as propaganda that serves as a
company’s buffer from criticism.58 Such cases are very well documented,59 and even by
company admissions in surveys, this connection is not likely to be coincidental.60 This
line of analysis has been especially targeted against voluntary regulation via company
codes of conduct, as, in face of reputational risk, “tick[ing] the box” 61 is an obligatory if
ultimately unhelpful step.62 As such, the discourse may help the emergence and growth
of a norm, but is not ultimately helpful in creating compliance on its own.63
More distressing to critics, however, are the broader effects of CSR’s perceived
failings. The aforementioned compromise in regulation and governance makes
companies into a “de-facto government,” albeit not a public-minded one.64 Instead of
buttressing governance, CSR may come to replace it as a band-aid solution, and in doing
so take the pressure off of central governments to reform in response to criticism.65
Here, the model presented is the simultaneous and cyclical failure of governance and its
Frynas, “The False Developmental Promise,” 593
Watts, “Righteous Oil,” 398
58 Hilson, “Corporate Social Responsibility in,” 133
59 Frynas, “The False Developmental Promise,” 584-585
60 Krista Bondy, Dirk Matten, and Jeremy Moon. “Multinational Corporation Codes of Conduct:
Governance Tools for Corporate Social Responsibility?” Corporate Governance: An International
Review, 16, no.4 (2008), 300
61 Bondy, Matten, and Moon, “Multinational Corporation Codes,” 284
62 O’Higgins, “Corruption, Underdevelopment, and Extractive,” 247
63 Gillies, “Reputational Concerns,” 104 & 115-116
64 Hilson, “Corporate Social Responsibility in,” 132
65 Frynas, “The False Developmental Promise,” 596
56
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replacement, coupled with the abdication of responsibility for addressing such failures
by the state, thus creating a spiraling “lose-lose” situation for all parties.66
Transparency, the Resource Curse, and the EITI
In the greater context of CSR, the tenant of transparency has become a central
focus, touted as the “Swiss Army knife of policy tools,” able to cure all ails in the private
and public sectors.67 It has reached something of a “normative tipping point,” whereby
transparency is by default taken to be a viable solution, or at least a crucial part of one.68
The concentrated push on transparency can be directly attributed to the exposés of the
UK-based NGO Global Witness and George Soros’ turn-of-the-millennium Publish What
You Pay campaign.69 The success of those campaigns was in large part due to a rare
mixture of effective cooptation of the project (thus creating strong state and non-state
backing), large-scale consciousness raising efforts, and a “politics of shame” that became
especially cutting by piggybacking on the evolving CSR discourse.70
Transparency in general and the EITI in particular have been portrayed as the point at
which the CSR agenda and the resource curse converge. Given the preeminence of the
rentier/corruption model of the resource curse, it seems only natural that a solution
affecting the means by which those wheels of power turn could be successful.
Transparency for transnational corporations in particular is placed at a premium, as the
Genasci and Pray, “Extracting Accountability,” 48
Haufler. “Disclosure as Governance,” 56
68 Haufler, “Disclosure as Governance,” 56
69 Henry Parham, “Publish What You Pay - Extractive Industries Transparency Is in Everyone’s Best
Interests.” In Oil Policy in the Gulf of Guinea. Bonn, Germany: Friedrich-Ebert Stiftung, 2004, 119
70 Wang and Rosenau, “Transparency International and Corruption,” 31-36
66
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“supply side” (the transnational corporations) usually sees significantly more liability
from home states.71
The EITI specifically has been the subject of no small debate. Some have
described it as the best way to avoid the resource curse, or even as a general “panacea”
for poverty.72 Others, however, cite numerous flaws with the system as it is developing,
such as limited civil society participation, the limited efficacy of awareness, 73 the limits
of a criminal (as opposed to preventive) approach,74 a lack of enforcement
O’Higgins, “Corruption, Underdevelopment, and Extractive,” 245-246
Hilson and Maconachie, “’Good Governance,’” 53-54. See also: Georg Caspary. “Practical Steps to Help
Countries Overcome the Resource Curse: The Extractive Industries Transparency Initiative.” Global
Governance 18 (2012), 171 ; McFerson, Hazel. “Extractive Industries and African Democracy: Can the
‘Resource Curse’ Be Exorcised?” International Studies Perspectives 11 (2010), 347.
73 Aaronson, “Limited Partnership,” 51. See also: Klaus Dingwerth and Margot Eichinger. “Tamed
Transparency: How Information Disclosure Under the Global Reporting Initiative Fails to Empower.”
Global Environmental Politics 10, no. 3 (August 2010)
74 Gerasimov Ksenia,“Can Corruption and Economic Crime Be Controlled in Developing Countries and If
So, Is It Cost-Effective?” Journal of Financial Crime 15, no. 2 (2008), 233
71
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mechanisms,75 and the potential persistence of an uneven playing field on account of
sovereign wealth funds.76 Moreover, some see the process as contributing directly to the
“lose-lose” situation described by directly putting the responsibility for using the
disclosed information onto citizens and NGOs.77
Despite this specific debate, very few works have looked qualitatively and
empirically at the EITI’s record in first and second order effects on corruption. The few
studies that do, however, paint a fairly pessimistic picture. Haufler’s 2010 work
indicated that “EITI member states do not perform any better on corruption rankings
than non-member states,"78 but as of the beginning of that year, only two countries were
named as compliant states, and a handful more achieved compliance later in 2010. 79
Furthermore, despite the aforementioned qualitative criticisms of the EITI, none of
those authors base their conclusions on empiric analysis, international corruption
indices (ICIs), or even the effects on reported discrepancies for the countries analyzed.
By looking at these datasets, this study will gain insight into whether the EITI really
does achieve its goals of reducing corruption in the extractive sector in spite of the
aforementioned theoretical criticisms.
Methodology
As implied, this study will examine the performance of several EITI countries in
terms of the discrepancies reported and the actual prevalence of corruption. To this end,
Hilson and Maconachie, “’Good Governance’ and,” 57
Theodore Moran, “How Multinational Investors Evade Developed Country Laws.” Center for Global
Development Working Paper, no. 79 (2007), 11. See also: O’Higgins, “Corruption, Underdevelopment, and
Extractive,” 247
77 Bede Nwete “Corporate Social Responsibility and Transparency in the Development of Energy and
Mining Projects in Emerging Markets: Is Soft Law the Answer?” German Law Journal 8, no. 4 (2007),
313
78 Haufler. “Disclosure as Governance,” 69
79 EITI County Data, Web. 2012
75
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this paper will investigate two states – Ghana and Mongolia – that were selected based
on significant investment and progress EITI over at least 5 years. The candidate list was
further narrowed to exclude countries that had suffered significant conflict around the
time of EITI involvement, and to include only those for whom extractive industries form
a “critical” (15-50%) or dominant (more than 50%) portion of exports, greater than a
relevant portion (6-15%).80 Selected countries also must garner a significant portion of
government revenue from these industries in tax and royalty. While these selection
criteria at first glance may seem to be a product of selection bias, without them the study
would be markedly distorted. For example, the impact of conflict on a country’s
economic and social markers or the prevalence of industries not affected by EITI
measures could moot empirical evaluation.
The principle factors we shall be examining are, as mentioned, the degree of civil
society and public engagement with the program, the degree of subnational
implementation, full compliance with the program, and the relative strength and
momentum of extant anticorruption campaigns. Ghana has a large degree of civil society
participation, while Mongolia has limited participation.81 On the other hand, Ghana has
a more thorough subnational disclosure structure than Mongolia’s narrower but more
formal system.82 While subnational implementation and civil society organization
(CSO)/public participation are mutually reinforcing in that the former creates data more
conducive for local implementation, this does not negatively affect the study. The
momentum and strength of campaigns is largely qualitative, tied to the practical
Pegg 376
Aaronson, “Limited Partnership,” 51-54
82 Javier Aguila, Georg Caspary, and Verena Seiler. Implementing EITI at the Subnational Level.
Extractive Industries for Development. World Bank, October 2011
80
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effectiveness and of current regulatory efforts and the strength of the framework in
which they operate.
To measure first-order effects, we look to the states’ ICI ratings from the period
immediately before their adoption of EITI measures (or as early as available) through
2011 (that is, up to 2012). The primary measurement shall be Transparency
International’s Corruption Perception Index (CPI), the Control of Corruption Index of
the World Bank (WBCC), and the Global Integrity Index. The Global Integrity Index, as
a detailed aggregated score, will be looked at in two perspectives. First, the overall
scores for framework and integration scores will be compared. Secondly, the specific
score areas that directly tie in to the EITI process will be considered. These specifically
include the categories of Budget Oversight and Transparency, Procurement, the
Supreme Audit Institution, Business Licensing and Regulation (as excessive regulation
is often tied to corruption and missing revenue), Anticorruption Law, and
Anticorruption Agencies.
While the CPI has been attacked for methodological shortcomings such as the
value of perception and longitudinal accuracy, the most thorough evidence indicates
that these claims are somewhat overblown and the CPI is sufficiently accurate. 83 The
particular structure follows the recommendations of Ko and Samajadar, who argue for a
focus on the CPI with reference to other indices in light of the CPI’s longitudinal worth
and the simple lack of better metrics to use.84 These statistics will be used not for a deep
statistical analysis, but rather will be charted against the EITI process to look for a
possible observer effect and to gauge whether there has been any specific progress. As a
Staffan Andersson and Paul Heywood, “The Politics of Perception: Use and Abuse of Transparency
International’s Approach to Measuring Corruption.” Political Studies 57 (2009), 752-754
84 Kilkon Ko and Ananya Samajdar, “Evaluation of International Corruption Indexes: Should We Believe
Them or Not?” The Social Science Journal 47, no. 3 (2010)
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final note, the 2012 CPI’s methodology has been amended in such a way as to nullify
these criticisms by presenting a more raw score. However, this methodological change
means that the most recent data is not at all comparable to prior years.
Case Study: Ghana
Although many of the countries in which a resources curse exists belong in Africa,
Ghana will be the only case studied on the continent. Ghana is a particularly interesting
case for several reasons. For one, Ghana, unlike many other African states suffering the
effects of a resource curse and other EITI countries, has a relatively strong governance
structure backing what has largely been a comfortable adjustment to democracy.85
Secondly, Ghana is preparing for an expansion of its EITI to match the expansion of its
oil industry.86 This is crucial in the context of our research question because its shows
an increasing reliance on EITI mechanisms coupled with what, for many countries, has
been the most perilous sector of development. Finally, as will be explained in more
detail, Ghana is the state with the most thorough development of all key factors involved
in this study’s considerations
While Ghana has seen relatively strong economic performance in recent decades,
it is far from an affluent state. Good economic policy combined with favorable export
commodity pricing contributed to growth and poverty reduction, but the country still
ranks low in many quality of life indicators.87
Peter Arthur. “Avoiding the Resource Curse in Ghana: Assessing the Options.” In Natural Resources
and Social Conflict: Towards Critical Environmental Security. New York: Palgrave Macmillan, 2012, 123
86 Revenue Watch. “Ghana Country Page.” Revenue Watch, 2012.
http://www.revenuewatch.org/countries/africa/ghana/overview.
87 Denise Youngblood-Coleman. “Country Review: Ghana.” Country Watch, July 2012. http://0www.countrywatch.com.opac.sfsu.edu/cw_topic.aspx?type=text&vcountry=66&topic=PCPRF.
85
Hamud 17
Extractive Background: Two Types of Gold
While the idea of a resource curse itself is a somewhat new idea, the exploitation
of regions for their natural resources is an obviously longstanding one. The area that is
now Ghana has been a longstanding producer of gold, before and since the earliest of
colonial times. Since the modern nation of Ghana’s independence from England in 1957,
gold has significant portion of the state’s exports.88 The 1980s brought overhaul and
expansions to the country’s extractive industries as part of larger Economic Recovery
Program (ERP), beginning in 1983.89 That same year, the Ghana National Petroleum
Corporation was established to search for solutions to the nation’s oil dependence, and
quickly found a very limited supply of offshore oil.90 Three years later, the more
sweeping Minerals and Mining Law of 1986 was enacted, creating a regulatory body and
liberalizing the mining sector.91 Like many liberalization measures, the bill is considered
a qualified success, accused of disproportionately benefitting foreign interests and local
elites a largely while credited with Ghana’s 1995 classification as a top-10 emerging
market for mining.92 The liberalization campaign was not entirely smooth, of course,
and Ghana saw first-hand examples of CSR’s dubious promises by foreign companies,
most notoriously the 2006 attack on protesters who accused Newmont Mining of
shirking on promises.93 At the same time, Ghana has seen some of the benefits
Joseph Ayee, Tina Soreide, G.P. Shukla, and J. S. Minh Le. “Political Economy of the Mining Sector in
Ghana”. Policy Research Working Paper. International Bank for Reconstruction and Development, 2011.
Retrieved from Statistical Insight, 9
89 Revenue Watch. “Ghana Country Page”
90 Arthur, “Avoiding the Resource Curse,” 110-111
91 Ayee et al., “The Political Economy,” 9
92 Ayee et al., “The Political Economy,” 10
93 Roger Moody, Rocks and Hard Places: The Globalization of Mining. New: Zed Books, 2007, 39
88
Hamud 18
described by CSR proponents in its mining communities.94 While gold is still by and
large the centerpiece (making up 90% of mining sector revenue and 47% of exports),95
the expansion of mining diversified the country’s export profile to include bauxite,
manganese, aluminum, and diamonds.96 The most significant diversification came in
2007, when after three years of searching the American Kosmos Energy discovered the
Jubilee Field and its estimated 1.8-3 billion barrels of recoverable oil.97 Production
began in December, 2010 at around 68,000 barrels per day, about half of the projected
peak.98
Corruption and the Executive Legacy
Ghana as a modern nation has also had more than its fair share of issues with
corruption and patrimonialism. After independence in 1957, an executive-heavy
republican state was created, but soon changed to a one-party system.99 During this
period, corruption was a very significant, most notoriously in the case of the water crisis
of 1979, where glaring lacks oversight lead to misused revenue and ill-equipped public
utility companies, nearly causing a national emergency.100 Ghana’s 1992 constitution
reflected lessons learned, drastically changing the nation into a power-sharing
republican democracy.101 However, the legacy of the disproportionately strong executive
persists and brings with it neo-patrimonial structures in spite of the radical
94Theresa
Garvin, Tara K. McGee, Karen E. Smoyer-Tomic, and Emmanuel Ato Aubynn. “Community–
Company Relations in Gold Mining in Ghana.” Journal of Environmental Management 90, no. 1 (2009),
571–586.
95 Revenue Watch. “Ghana Country Page”
96 “Ghana: A Supplement to Mining Journal.” Mining Journal (March 2010), 5
97 Arthur, “Avoiding the Resource Curse,” 111
98 Revenue Watch. “Ghana Country Page.”
99 Youngblood-Coleman. “Country Review: Ghana.”
100 Ksenia,“Can Corruption and Economic Crime,” 224
101 Youngblood-Coleman. “Country Review: Ghana.”
Hamud 19
constitutional reform. 102 As a result, administrative discretion is the rule, creating room
for abuses of power.103
Despite the imbalance created by Ghana’s constitution, the document is notable
for having stringent anti-corruption provisions for public servants. Different sections
provide a code of conduct and require declarations of assets and liabilities, periodic
auditing, and “steps to eradicate corrupt practices.” 104 Such measures have not been
entirely effective, but certainly reflect serious efforts that created momentum. The
continued public focus on corruption has been visible since the 2000 election, where
John Kufour’s New Patriotic Party won a majority on an integrally anti-corruption
platform. 105 Since 2000, the issue has formed a significant plank of campaigns for all
parties.
As the constitutional framework for Ghana’s anti-corruption efforts has distinct
strengths and weaknesses, the supplemental and implemented framework has marked
highs and lows. Indeed, Ghana’s anti-corruption law has seen drastic improvement,
given a Global Integrity rating of 57 in 2004 (very weak), 89 in 2006 (strong) and a
perfect 100 (very strong) in every year since.106 Furthermore, Ghana’s supreme auditing
institution, the Audit Service, was established in 2000 and has provided generally
strong, publically accessible work.107 The state’s specific anti-corruption agency was
established by an additional mandate to their Commission on Human Rights and
Justice (CHRAJ), and is responsive to citizen complaints and well insulated from
Ayee et al., “The Political Economy,” 14
Marong. “Toward A Normative Consensus,” 103
104 Marong. “Toward A Normative Consensus,” 118
105 Barrie Hofmann, and Shari Bryan. Transparency and Accountability in Africa’s Extractive Industries:
The Role of the Legislature. National Democratic Institute for International Affairs, 2011, 68
106 Global Integrity, “Ghana Country Report”
107 Global Integrity, “Ghana Country Report”
102
103
Hamud 20
political pressure.108 In addition to these distinct strengths, the level of CSO and citizen
participation in the anticorruption struggle is remarkably high, despite numerous
obstacles. Grassroots movements have found unusual and effective watchdog positions,
such as the prominent Ghana Anti-corruption Coalition, which functions as a CSO with
government ties so strong that it has become a de facto citizen ombudsman.109
At the same time, a number of factors actively undermine the effectiveness of the
law and its guardians. Both of the aforementioned organization act under glaring
deficiencies and practical shortcomings. The Audit Service is able to but rarely does
perform more than routine work, and has no prosecutorial powers of its own, a
shortcoming compounded by the lack of implementation committees and any
ministerial action on the findings. The CHRAJ lacks any independent investigative or
prosecutorial power, also relying on the office of the Attorney General, which has
ignored the vast majority of CHRAJ requests.110 Both of these are undermined further
by the aforementioned weakness of anti-whistleblower protections. 2006 marked the
enactment of the Whistleblowers Act, a fairly broad bill that allowed individuals to
report corruption or other illegal conduct with impunity, but the practical
implementation is very limited, ineffective, and does not protect private-sector
employees.111 At the same time, a 9 year lack of Parliamentary progress on a Freedom of
Information Act, which would supplement Ghana’s already robust public involvement,
has kept the agencies from their full potential.112 This unfortunately only serves to
Ibid
Ayee et al., “The Political Economy,” 21
110 Ayee et al., “The Political Economy,” 20-21
111 Global Integrity, “Ghana Timeline”
112 Global Integrity, “ Ghana Country Report”
108
109
Hamud 21
compound the delays and difficulties citizens groups encounter in accessing budget,
audit, and other oversight documentation.113
Anecdotally, corruption is still a cause of somewhat frequent scandal. One
prominent example was the 2008 pardoning of the former Chief Executive of the Ghana
National Petroleum Corporation, Tsatsu Tsikata, for misappropriating state funds.114
Similarly, in 2009, President Mills’ newly appointed Foreign Affairs Minister was
indicted for corruption by a state audit, despite the president’s affirmation of the anticorruption struggle.115 More recent scandals have raised even greater questions about
the depth of corruption in Ghana, despite the frameworks that continuously develop. In
2011, two magistrates were fired for corruption among widespread allegations of bribes
to the judiciary.116 That same year, it was revealed that the Audit Service’s Public
Accounts Committee (PAC) found $2.38 billion in unaccounted government funds for
the 2008-2009 fiscal year, the very disclosure of which caused waves and showed the
political clout of the PAC.117 An unfolding scandal involving a $25 million fraudulent
payment is currently highlighting the drawbacks of reliance on the Attorney General,
who is crippling the investigation by refusing to provide relevant documents or appear
before the involved sub-committee.118 The largest legal scandal came this year, when
Global Integrity, “Ghana Country Report”
Global Integrity, “Ghana Timeline”
115 Dawn Ganu, “Ghana President Mills Under Pressure as Corruption Charges Surface,” Huffington Post,
March 2, 2009.
116 Global Integrity, “Ghana Timeline”
117 Masahudu Kunateh, “Ghana: Corruption is Eating Up Nation’s Economy,” The Chronicle August 24,
2011.
Note: Official figure is 2.7 billion GHS (Ghanaian Cedis), converted using LikeForex historical exchange
rates from October 2008.
118 Daily Guide, “PAC Wants Attorney General Arrested,” October 24, 2012. Conversion based on rate on
October 28, 2012.
113
114
Hamud 22
four members of Ghana’s political elite, including the Chief Attorney and the Finance
Ministry’s legal director, were formally charged with corruption.119
Ghana’s EITI
The voluntary EITI process can be seen in part as a capitalization on this popular
momentum. Ghana declared its intention to implement the EITI for the mining sector
only in June, 2003.120 Later in that same year, the Ghanaian Parliament passed the
Procurement Act of 2003 and the Financial Management Act, both dealing with the
assets of public servants.121 The stakeholder group was established early in 2005, which
contributed to the drafting of the Mineral and Mining Act 703 in 2006.122 The country
disclosed its first EITI report for 2005 in 2008, followed by disclosures from 2004 and
2006-2008 in 2010 as an immediate precursor to its certification as EITI-compliant.123
The Mining EITI was not the only anti-corruption measure undertaken in the
new millennium. The burgeoning oil industry has also seen specific anti-corruption and
transparency pushes. Ghana raised hackles in 2009 by asking the US Department of
Justice to domestically investigate whether Kosmos violated the Foreign Corrupt
Practices Act, leading to a dispute over Kosmos’ right to sell their stake in the Jubilee
Field.124 The government further raised industry concerns in 2011 by making several
mining contracts available for public reading, as while the release was agreed upon and
not legally required, it was still contrary to common industry practice.125 At the same
time, there is a disconnect between the EITI stakeholder group and the rest of the
Reuters, “Four of Ghana's Ruling Elite Charged with Corruption,” February 7, 2012
EITI County Data, Web. 2012
121 Revenue Watch. “Ghana Country Page.”
122 EITI County Data, Web. 2012
123 EITI County Data, Web. 2012
124 Arthur, “Avoiding the Resource Curse,” 121.
125 Revenue Watch. “Ghana Country Page.”
119
120
Hamud 23
government, as the committee has no legislative representative, leaving policymakers
distinctly out of the loop.126
As was earlier mentioned, Ghana is one of the only countries to provide full data
collected at the level of subnational payments and receipts, though we will be focusing
on the national level statistics. While subnational data certainly is more actionable by
advocacy groups in Ghana, the subnational implementation cannot be expected to
provide significant improvements on the national data from an analytic standpoint. The
data, however, is very telling.
Ghana’s first year of EITI disclosure revealed that the government reportedly
received approximately 13% more money from companies operating in the state than
those companies reported disbursing (See Figure 1). There are a litany of potential
explanations for this, but a discrepancy of $3,000,000 is significant, to say the least
(See Figure 4a). The dollar amount was almost matched in2007, but that discrepancy is
one-third the relative size, complemented by a large increase in total revenue and
payments reported. 2009 marked the first year that there was no reported discrepancy,
indicating that government revenue matched company payments as reported. Again,
while this could in fact indicate that there were no illicit payments for the industry over
that time period, this is by no means absolute proof that no illicit payments were made.
Corruption Data
In spite of the dire anecdotal and survey-based evidence of anticorruption
failings, the EITI’s progress has accompanied a general improvement in anti-corruption,
although the general trend seems to be an increasingly strong legal framework with a
126
Hofmann and Bryan, Transparency and Accountability, 70
Hamud 24
growing implementation gap between the framework and its actual implementation (See
Figure 5).127 Ghana is not alone in its historical problems of corruption, as such issues
are very common in Gulf of Guinea countries. At the same time, it is also uniquely
positioned to fight corruption within its borders compared to both neighbor states and
other EITI countries because of the strength of its anticorruption law and the healthy
development of its democratic process.128 As early as 2002, only 10 years into Ghana’s
current constitutional regime, it ranked in the 47th percentile of all states by the World
Bank in 2002, and has since climbed to the 62nd percentile.129
Indeed, World Bank Governance Indicators and the Corruption Perception Index
differ on year-to-year performance, but the trend line is distinctly positive in both cases
(See Figures 1 & 2). There is very little correlation between indices performance and the
dates of EITI report releases. The only exception, however, can be found in the
Corruption Perception Index’s 2011 score, which notes a decrease to the level seen in
2008 (See Fig. 1). This correlates with the release of four different years’ EITI reports,
each showing discrepancies of several hundred thousand to several million dollars, but
also with the aforementioned disclosure of $2.38 billion in missing funds from 20082009.130 It is unclear but also proportionally unsubstantial whether the nearly $4
million noted by the EITI for that date is included in the PAC report.
More tellingly, Global Integrity scores on specific areas that would be directly
affected by the implementation and development of EITI protocols and measures have
been somewhat positive in framework and practice. Slight improvements in Budget
Global Integrity. “Ghana Country Report”, 2004, 2006, 2008, 2009, 2011.
http://www.globalintegrity.org/report.
128 Arthur, “Avoiding the Resource Curse,” 123
129 World Bank. Worldwide Governance Indicators 2012 Update, 2012.
http://info.worldbank.org/governance/wgi/mc_countries.asp.
130 Kunateh, “Ghana: Corruption”
127
Hamud 25
Oversight and Procurement Transparency, Fairness, and Protections are clearly visible,
while a recovery from a small dip can be seen in Business Licensing. At the same time,
decreases in the score for the Supreme Audit Institution’s efficacy and the anticorruption agencies themselves are also apparent (See Fig. 7a). When averaged for the
2009 to 2011 period, the results are on the whole slightly positive, at approximately 2
points on the 100 point scale.
Analysis
The data on Ghana gathered for the period of EITI development makes some
strong suggestions, but the number of alternate explanations and the lack of certainty in
both the indexes and the process itself vis-à-vis the clandestine nature of corruption
mean that they are only suggestions. The data is somewhat confusing, as the reports
indicate that in every year except 2007 companies reported paying less than the
government took in. The presence of more money than there should be is a very
unspecific indicator. While the 2007 discrepancy suggests (without proving causality)
that money is being lost between the time the proverbial check was written and cashed,
most likely a result of theft by some party in that transfer, a positive discrepancy offers
no such easy answer. Instead, it is simply a clear indicator that the books are not what
they should be. However, that the process’s development was accompanied by a
generally decreasing discrepancy is on the whole a sign that the steps are effective in the
mining industry, though more elaborate and complex forms of corruption cannot be
discounted as possibilities. Additionally, the scope of the mining industry as a part of
Ghanaian corruption should not be overestimated. Compared to the $2.38 billion dollar
reported missing by the PAC for FY 2008-9, the total EITI amounts accounted for over
Hamud 26
the same period represents approximately 3% of the missing amount. The EITI
discrepancy represents less than a tenth of a percent of the $2.38 billion ( < 0.1 % ). This
indicates that mining is only a small piece of the puzzle in the case of Ghana, but the
positive developments show that there is indeed the capability for improvements in even
the most traditionally opaque sector.
The progress also shows that the reports of louder and louder public voices for
corruption reform in the mining sector are concurrent with decreases in the
discrepancy. This relation indicates that such pressure may in fact be a productive,
empowered force in its own right, one not contingent upon the EITI reports unearthing
ever-greater scandal as it did after compliance in 2010. Additionally, since it is likely
that corruption levels are not significantly increasing in the current climate, as per EITI
data and all corruption indicators, the scandals of increasing magnitude occurring
higher and higher up the political ladder could indicate that corrupt practices and actors
of the current system are running out of places to hide. That Ghanaian civil society has
been “strong and vibrant and is pushing for reform” speaks to the fact that the
aforementioned structural factors are not insurmountable, and that full EITI
compliance, as an addition to a broader and more robust anti-corruption regime, can be
effective in decreasing corruption in the extractive sector.131
It can further be said with confidence that the lack of correlation between the
perception indexes, the release dates of reports, and the content thereof undermines the
validity of the potential “observer effect” of the EITI reports on perception index scores
in relation to Ghana. In light of the fact that even not one year of EITI data releases
corresponds with a drop in either perception index’s rating for Ghana and the lack of
131
Ayee et al., “The Political Economy,” 35
Hamud 27
anecdotal evidence of outcry at the reports, it is very unlikely that the indexes
themselves have been affected by the EITI’s unveiling of corruption.
It seems very possible from this information that, if the corruption model of the
resource model holds true and if Ghana does not experience any significant problems in
the process, the beginning of oil extraction in the nation will not herald the negative
impacts on growth and equality that the resource curse is associated with.
Case Study: Mongolia
The nation of Mongolia has seen more drastic changes than many nations of the
world over the last twenty years. While never officially part of the USSR, it was widely
regarded as the de facto 16th Soviet state until its dissolution.132 Mongolia’s economy was
heavily dependent on Soviet aid, supplementing its weak native herding and agricultural
staples.133 Indeed, the largest enterprise based in Mongolia to date was founded with
enormous Soviet aid, and has been faltering since the early 1990s.134
In a full reversal, Mongolia now boasts the fastest growing economy in the
world.135 The country is in the middle of an unprecedented mining boom, seeing a
tripling of the number of licensed mining companies operating in the state from 2009 to
2010 (See Fig. 5b). First quarter growth in 2012 was rated at 16.7% a surge largely
attributed to the extractive industries.136 The nation’s largest trading partner is China,
Michael Morgenstern, “The Mongolian Sandwhich.” The Economist, October 8, 2011.
http://www.economist.com/node/21531521.
133 Denise Youngblood-Coleman, “Country Review: Mongolia”. Country Watch, 2012. http://0www.countrywatch.com.opac.sfsu.edu/cw_country.aspx?vcountry=118.
134 Richard Pomfret, Resource Management and Transition in Central Asia, Azerbaijan, and Mongolia.
Peterson Institute for International Economics Working Paper Series, March 2011.
135 Dan Levin, “In Mongolia’s Boom Town, Hope and Fear.” New York Times, July 15, 2012.
http://www.nytimes.com/2012/07/16/world/asia/in-mongolias-boom-town-hope-and-fear.html?_r=1&.
136 Terry Macalister, “Mongolia’s Mining Boom Could Expose It to the Resource Curse.” The Guardian,
August 20, 2012. http://www.guardian.co.uk/business/2012/aug/20/mongolia-mining-boom-rio-tinto.
132
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who receives approximately 75% of all Mongolian exports, but that does not mean that
the state is still beholden to its Communist legacy.137
While such a Soviet political and cultural heritage has an amplifying effect on all
the cyclical elements of the rentier model of corruption, Mongolia has been maintaining
a steady if slow pace in its democratic transition.138 The EITI can be seen here as an
attempt to facilitate that transition, with its role becoming all the more crucial in light of
the boom that has raised the spectre of the resource curse. At the same time, serious
structural constraints on the effectiveness of the NGO and CSO watchdog groups,
coupled with a lack of both momentum and general political clout in fighting corruption,
are undercutting the struggle against corruption even in spite of clear EITI progress.
Extractive Background: Gold in the Gobi
Unlike Ghana, extractives in Mongolia have only recently become a significant
industry. The aforementioned Soviet company dealt largely with mining for the copper,
gold, coal, and tin, which have only come to national prominence in the last century.139
The Mineral Resources and Petroleum Authority (MRAM) was established in 1997 to
handle surveying and the issuance of permits, and has been noted for its deliberate but
opaque method in the process.140 This deliberateness of method was most clearly seen
following the 2001 discovery of the Oyu Tolgoi copper and gold mine near the MongoliaChina border. Here, Canadian company Ivanhoe uncovered a gargantuan deposit
Youngblood-Coleman, “Country Review: Mongolia”
Franke et al., “Kazakhstan and Azerbaijan,” 127
139 Youngblood-Coleman, “Country Review: Mongolia”
140 Revenue Watch, “Mongolia Country Page” Revenue Watch, 2012.
137
138
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estimated to contain 45 million ounces of gold and 79 billion pounds of copper, but
negotiations did not even begin until 2003 and were delayed repeatedly.141
One factor in the long delay, however, was the country’s debate surrounding the
mining laws. In 2005, Parliament passed the Mining Act to attract more foreign
investment by cutting royalties and taxes.142 The law was perceived as being too
accommodating towards corporations, and as a result the government began planning
to reassert more control over the nation’s natural resources. But when it was revealed
that this meant asserting a 50% stake in all developments, the 50 TNCs in Mongolia
banded together and threatened to abandon their operations.143 In light of this pressure,
the law was amended in 2006, increasing royalties and compromising at the
maintenance of the right to expropriate up to 34% of any given operation.144 This
situation was a textbook example of the threat of capital flight in the face of
expropriation risk (a distinct fear of mining TNC’s) and not an example of corruption in
the state. This situation was exacerbated by the concurrence of the EITI, which
undermines the financial opacity many companies use as a bulwark against
expropriation losses.145
Finally in 2009, the mining boom became a cacophony of industry. In that year,
the Mining Act and related laws were again adjusted in favor of businesses, but not
nearly as drastically as before the 2006 Act.146 Shortly thereafter, negotiations over the
Oyu Tolgoi mine culminated in a $6 billion investment contract between the
Pomfret, “Resource Management,” 24
Revenue Watch, “Mongolia”
143 Moody, “Rocks and Hard Places,” 53
144 Moody, “Rocks and Hard Places,” 23
145 A. Durnev and S. Guriev. “Expropriation Risk, Corporate Transparency, and Growth” (2011).
http://www.sfs.org/Paper%20for%20Cavalcade%20website/Expropriation%20Risk,%20Corporate%20T
ransparency.pdf.
146 Pomfret, “Resource Management,” 23
141
142
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government and a new partnership between Ivanhoe and Rio Tinto.147 The effects of the
concrete policy and the flagship contract were incredible: between 2009 and 2010, the
number of companies reporting on the EITI, a figure representative of the number
operating in the nation, nearly tripled, going from 76 to 264 (See Fig. 5b). 2010 also
marked the partnership’s work on Oyu Tolgoi, with production expected to begin in
2013.148 Since 2007, the nation’s GDP has gone up 30% on account of mining.149
The boon has brought real policy challenges to the nation on top of the
aforementioned whispers of the resource curse. Formal, state-funded analysis has
indicated that the enormous influx of capital provided for all the known causal factors in
Dutch Disease.150 While the initial surge caused a short period of economic havoc, the
government responded quickly and effectively.151 Even though the long-term effects of
the increased growth are highly contingent upon the use of the wealth created, the
state’s economy is in precarious, but not dire straits;152 government expenditures have
tripled, outpacing a doubling in revenue, and while inflation is steadily high,
unemployment is remarkably low.153 A second related phenomenon is the growth of
artisan mining, or mining taken up by small groups unrelated to any large-scale project.
These workers were formerly unheard of in Mongolia but have increased in estimated
number from 30,000 to 100,000 in the last 10 years.154 Moreover, this labor escapes the
EITI process and numerous state regulatory efforts, creating notable gaps in oversight
Pomfret, “Resource Management,” 24
Pomfret, “Resource Management,” 24
149 Youngblood-Coleman, “Country Review: Mongolia”
150 Batsukh Tserendorj and Avralt-Od Purevjav. Risk Assessment of “Dutch Disease” in Mongolia Due to a
Major Resource and Expected Massive Capital Inflow. ERI Discussion Paper, July 27, 2012.
151 Youngblood-Coleman, “Country Review: Mongolia”
152 Tserendorj and Purevjav, Risk Assessment, 44
153 Youngblood-Coleman, “Country Review: Mongolia”
154 Revenue Watch, “Mongolia”
147
148
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and reporting, supporting a grey economy and fuelling a black market for illegal gold
and other metal exports.155
Corruption Background: Transitioning Sovietism
The Soviet connections to Mongolia during the time of the USSR can hardly be
understated; at the dissolution of the Union, Mongolia effectively lost one-third of its
GDP overnight.156 These financial connections were but part of a larger network of
shared political heritage, one subject to a limited number of changes. Some of these
changes occurred fairly quickly. Demands for reform, including glasnost and
perestroika, set to unimpeded peaceful protests and the nation’s first recorded hunger
strikes began in December of 1989 and continued until radical changes in the
government structure came about in 1990.157 That year saw foundational amendments
to the constitution, including the institution of a multiparty system and democratic
elections.158 Presidential election law was refined in 1993, but the office of the president
remains largely a ceremonial figurehead, with a vast majority of power being held by the
prime minister and Parliament.159
While the formal organs of the state had been rearranged, the Soviet heritage left
deeper informal institutions. These institutions include a large structural reliance on
informal arrangements often in line with many definitions of corruption today.160 One
factor increasing the staying power of these institutions is imbedded elites from the old
Revenue Watch, “Mongolia”
Youngblood-Coleman, “Country Review: Mongolia”
157 Morris Rossabi, Modern Mongolia: From Khans to Commissars to Capitalists. Berkeley and Los
Angeles: University of California Press, 2005, 16
158 Youngblood-Coleman, “Country Review: Mongolia”
159 Youngblood-Coleman, “Country Review: Mongolia”
160 Franke et al., “Kazakhstan and Azerbaijan,” 112
155
156
Hamud 32
regime.161 This occurred in Mongolia on account of the incumbent Mongolian People’s
Revolutionary Party (MPRP), a re-branded vanguard of the single party that ruled
Mongolia pre-1990 and maintained majority control until 1996.162
In 1994, the allegations of pandemic exploitation of the education system by the
MPRP brought the party to its knees.163 The large-scale scandal further incensed the
voters, who took the grudge to the ballot boxes in 1996. 164 As a result, the new
Democratic Alliance (DA) defeated the MPRP in that same year. This was significant
because it represented the first change in power in 70 years, but also because it showed
the level of importance at which the Mongolian people hold corruption. In the next
decade’s absence of a dedicated anticorruption body, the issue was dealt with largely as
an electoral one, with both sides looking to blow whistles on the presiding party
(although not at the Parliamentary level).
Indeed, the changing of the guard did not bring about the reform that people
hoped for. The government was rocked by more scandals in the late 1990s, this time
dealing with misuses of foreign aid and privatization programs by many upper-level
Ministry of Finance employees.165 At the same time, the Democratic Alliance’s former
Prime Minister Amarjargal charged his own party with systemic corrupt practices. 166
Adding to the turmoil was the 1998 murder of a cabinet minister amid rumours of his
involvement with the plots.167
Franke et al., “Kazakhstan and Azerbaijan,” 126
Youngblood-Coleman, “Country Review: Mongolia”
163 Youngblood-Coleman, “Country Review: Mongolia”
164 Morris, Modern Mongolia, 163
165 Morris, Modern Mongolia, 107
166 Morris, Modern Mongolia, 108
167 Youngblood-Coleman, “Country Review: Mongolia”
161
162
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After a turn of the millennium marked by turbulent elections and uneasy
transitions, 2006 marked the return of corruption to the public eye, this time not by
scandal but by Parliamentary action. Citing a sluggish growth even in face of massive
Russian debt relief and corruption, 10 ministers of the reinvigorated majority MPRP
resigned, causing massive violent protests the next day.168 This was a clear sign of the
public’s growing irritation at corruption, and that action was needed. The anger here, as
in 1996 and in Ghana, was again responsible for a 2009 change in the political guard in
favor of a party running on a platform of anticorruption.169
In immediate response to the 2006 resignations, the Independent Authority
Against Corruption (IACC) was established, but its development was rocky, to say the
least.170 The organization’s mandate is distinctly stunted, including only two of the eight
types of corruption described by the national law.171 Additionally, then as now, it has
been lampooned in the media for being the best staffed, best funded, and least effective
government agency.172 The Authority has made few arrests and fewer convictions, none
of which were based in the anticorruption law before 2011.173 In the first half of that
year, the IACC performed of 84 investigations and 117 court cases, but only saw 5
convictions, the first of which over an $80 bribe to a police officer.174
Early problems extended beyond their arrest record though: in 2007, the first
chief commissar was found dead under mysterious circumstances in Australia during an
Youngblood-Coleman, “Country Review: Mongolia”
Global Integrity. Mongolia Country Report, 2011.
http://www.globalintegrity.org/report/Mongolia/2011/scorecard.
170 Ch. Sumiyabazar, Mongolia Notebook. Global Integrity, 2011.
http://www.globalintegrity.org/report/Mongolia/2011/notebook.
171 Global Integrity. Mongolia
172 Youngblood-Coleman, “Country Review: Mongolia”
173 Sumiyabazar, Mongolia Notebook
174 Sumiyabazar, Mongolia Notebook
168
169
Hamud 34
international corruption conference.175 In 2011, the second commissar and two other
officials were arrested on charges of corruption and wiretapping, leaving the IACC with
a besmirched name and a lack of leadership continuing to this day.176 As a result of these
factors, the general climate is and has been that the IACC does not have the will or clout
to deal with the “big fish.”177
In 2012, corruption charges once again dominated the Mongolian media, as
former president Nambaryn Enkhbayar was arrested on public television on charges
dealing with illegal nationalization of a media outlet.178 Enkhbayar himself was fairly
involved in anticorruption efforts during his time in office, and was considered by many
diplomats to be relatively “clean,” but not unimpeachable in behavior.179 While
Enkhbayar maintains his innocence and insists that the trial was a politically motivated
farce, the greater threat is to the coalition government and companies’ perception of the
stability of the nation.180
The conflicting statements of the former president and the prosecution are a
perfect example of the confusing mix that defines the anti-corruption climate in
Mongolia today. Parliament in particular is a unique entity here, as despite their $800 a
month salary, analysis of elections and connections indicates that it costs approximately
$2 million to obtain a seat in the legislative body.181 Parliament is furthermore protected
by a 2009 decision that, while contentious, legally upheld the extension of amnesty laws
Sumiyabazar, Mongolia Notebook
Global Integrity, Mongolia
177 Sumiyabazar, Mongolia Notebook
178 Jonathan Kaiman,. “Mongolia’s New Wealth and Rising Corruption Is Tearing the Nation Apart.” The
Guardian, June 27, 2012. http://www.guardian.co.uk/world/2012/jun/27/mongolia-new-wealth-risingcorruption.
179 Leslie Hook, “Corruption Case Looms Over Mongolia Poll.” Financial Times, May 6, 2012.
http://www.ft.com/intl/cms/s/0/dfb8828e-9795-11e1-9b05-00144feabdc0.html#axzz2By4I64ir.
180 Terrence Edwards. “Former Mongolian President Jailed, Raising Fears for Mine Programme.” Reuters,
August 3, 2012. http://af.reuters.com/article/energyOilNews/idAFL4E8J340O20120803.
181 Kaiman, “Mongolia’s New Wealth”
175
176
Hamud 35
originally aimed at protecting underage teens to members of Parliament. These
protections were augmented in 201 by an expansion of the almost impenetrable
Parliamentary immunity over members’ bank and property records.182 This combination
of laws, insufficient judicial checks, and a “Parliament protects its own” mentality
function as extremely strong barriers to investigating lawmakers.183 It is likely that this
combination is also one of the factors for the general weakness of the IACC in its task of
rooting out the highest level of corruption, while actors with less influence, such as
presidents and department heads, are taken to trial.
Other issues permeating the Mongolian political scene further complicate the
anticorruption equation. While the audit agency is fairly strong, its methods and
findings are entirely opaque, a general theme for citizen engagement. Indeed, while
there are laws supporting the public procurement of information (including new 2012
conflict of interest legislation), a broad freedom of information act, and a number of
2010 decrees allowing greater public participation, each of these is subject to a litany of
de facto obstacles, delays, a lack of compliance and enforcement mechanisms in the laws
themselves, as well as a noted lethargy in implementation.184 At the same time, while the
country is listed as “free” by Freedom House, there is still a legacy of state control in
now ostensibly public broadcasting and media agencies.185 As a result of these problems,
the role of NGOs and CSOs is relatively underdeveloped despite their vocality, and as a
result they are largely relegated to the use of informal mechanisms to influence policy. 186
Sumiyabazar, Mongolia Notebook
Sumiyabazar, Mongolia Notebook
184 Global Integrity, Mongolia.
185 Revenue Watch, “Mongolia”
186 Global Integrity, Mongolia
182
183
Hamud 36
Mongolia’s EITI
The EITI process in Mongolia (MEITI) was first publicly endorsed in 2005 by
then-Prime Minister Tsakhiagiin Elbegdorj.187 Originally, the mandate was only for the
mining sector, but in 2008 Mongolia’s limited oil sector was added, though without an
increase in the number of companies covered.188 Based on its timing, it can be
understood as part of the debate in Parliament as to how the country should treat their
natural resource deposits, and it was used in turn to further inform those debates.
Indeed, the findings of the reports and the general process was used to create public
debate on proposals leading up to the 2009 adjustments of the Mining Act’s taxation
and equity clauses, and was even applies to the ongoing negotiations with Ivanhoe and
Rio Tinto.189
Some aspects of the MEITI can be seen as a direct result of CSO involvement in
the stakeholder process and public outcry at what was uncovered. In 2007, Mongolia
developed an extensive, highly formal subnational structure for its EITI reporting on
account of demands by CSOs concerned with the regulatory blind spots at the local
level.190 This is especially important considering the logistical and infrastructural
problems of a centralized approach for Mongolia, but also because subnational
governments receive more revenue in direct tax than as disbursements from the central
government, where the EITI implementation usually occurs.191 The system, however, is
Revenue Watch, “Mongolia”
EITI Country Data: Mongolia
189 Aaronson, “Limited Partnership,” 55
190 Aguila et al., “Implementing EITI,” 33
191 Revenu Watch, “Mongolia”
187
188
Hamud 37
not as deep as Ghana’s, as it only accounts for direct extractive revenues and not the
distribution or the cash flows thereof.192
Hand in hand with the greater CSO participation in the EITI development
process, there has been a greater public consciousness about the initiative in Mongolia.
Whereas in Ghana, when in 2007 “none of the members of the Mines and Energy
Committee had heard of EITI, and were unaware that Ghana was participating,” the
reactions in Mongolia were much more marked.193 The 2007 publication of the 2006
MEITI reports found huge discrepancies at the federal level (see Figs. 4b and 5b) and
even more striking discrepancies at the subnational level, both internally and in relation
to federal receipts.194 Moreover, the direction of the discrepancy is negative, indicating
that companies paid out more money than was received by government coffers by an
astonishing 20%. Again, while being circumstantial at best, the most likely scenario here
is that actors involved in the handling of the funds absconded with some $83,000,000
of revenue intended for public agencies, a potentially catastrophic loss in terms of cash
flow. This revelation caused an uproar and drew attention to corruption in the nation’s
greatest growth industry, with a tenacious focus on the missing revenue.195 After a one
year gap in the aftermath of the 2006 information, the MEITI has regularly published
reports two years after year end.
Despite the initial shock, Mongolia’s EITI has been stubbornly consistent in
reducing the discrepancy in spite of the expansion of the mining boom. In terms of net
discrepancy (see Fig. 4b), proportion of total to unaccounted revenue (see Fig. 3), and
the ratio of discrepancy to number of companies reporting (see Fig. 5b), there is a clear
Aguila et al., “Implementing EITI,” 39-40
Hofmann and Bryan, Transparency and Accountability, 70
194 Aguila et al., “Implementing EITI,” 30
195 Aguila et al., “Implementing EITI,” 30-31
192
193
Hamud 38
decrease every year. This is astounding in terms of the latest 2010 report, where even
though the number of companies tripled (see Fib. 5b), the total discrepancy was a mere
$740 USD, less than one hundredth of a percent ( > 0.01%) of the total revenue reported
(see Fig. 3) after adjustments for projects that were publically announced but not
formally reported and a discrepancy between government and company reporting
templates were accounted for.196
Corruption Data
Unlike in Ghana, where the anecdotal evidence is countered by positive overall
trends, the picture is bleaker in Mongolia. Despite scandals of similar magnitude and no
evidence of increasing frequency, the indexes largely show negative development in the
levels of corruption in Mongolia and not the static mediocrity inconsistent with the
results of the EITI.
Despite the apparent success of the MEITI in decreasing corruption in what is by
far the country’s largest industry, appraisals of corruption in the state have been
decidedly negative. The CPI for Mongolia shows a small, notable decrease in the rating
for Mongolia over the 5 years it was appraised, including a brief dip in 2007 and a larger
and longer decrease from 2009 to the most recent review (see Fig. 1). At the same time,
9 years of World Bank Governance Indicator data shows a much steeper decrease from
2002 to 2005, with another pitch downwards in 2007 and a small rebound in 2009 (see
Fig. 2). The Global Integrity picture is also discouraging. While comparison of specific
scores related to the EITI shows a very slight increase from 2009 to 2011, averaged at
MEITI. Mongolia Fifth EITI Reconciliation Report 2010. Ulaanbaatar: Ulaanbaatar Audit Corporation
and the Hart Group, January 2012, 6-7
196
Hamud 39
1.67 points on a 100 point scale (see Fig. 7b), the bigger picture shows an enormous
fissure between the legal framework and the implementation in Mongolia, where the
former score is almost double that of the latter and growing (see Fig. 6b). This empirical
evaluation is corroborated by the qualitative and anecdotal descriptions of the lack of
political will and clout in moving the anti-corruption agenda forwards Mongolia, but
there is certainly more to the story.
Analysis
Mongolia is an interesting case because while it is more effective than Ghana at
the EITI process even with less CSO participation and subnational implementation, it is
also beset by an overall deterioration in its anticorruption efforts and perceptions. As
with Ghana, while there can be no definite conclusions on the prevalence of corruption
based on the numbers alone, it seems that Mongolia has at least made some progress in
transparency and accountability in the mining sector. The fact that, anecdotally, all
major recent corruption allegations have dealt with non-extractive industries supports
this notion. At the same time, the general stagnancy of progress in the overall campaign
shows the limitations of the EITI process in the greater scheme of (trans)national
politics, even when it appears to be largely successful.
As to the question of whether the MEITI has been effective and whether the
discrepancy can be used as an indicator of industry corruption, Mongolia’s data is also
uniquely more robust than other datasets because it is subject to one less variable that
undermining its credibility: a learning effect. An influx of new companies who have
never had to work with (or around) the MEITI process means that it is much less likely
that the result is a product of companies’ abilities to learn and better circumvent EITI
Hamud 40
measures. There is certainly the potential for such an effect at the governmental level,
but at the same time, no other country experienced such a rapid or enormous rate of
new TNCs reporting. Since it will at least sometimes be in a company’s interest to be
more reputable than another company (that is, that the dollarization of the perception of
CSR can be considered an aspect of competition between businesses for investors,
consumers, and stakeholders), it is not likely that older companies would teach the
newer ones how to elude the system. Such advice would cut into that competitive
advantage, and there are few if any gains to be found for individual companies in
lowering the EITI discrepancy as a whole, especially when perception indexes that are
often acted on are decreasing seemingly exogenous of EITI results. As a result, while the
potential for public officials learning to hide corruption cannot be avoided, the newness
of companies to the MEITI indicates that the results here are at least somewhat more
robust than those of other reporting countries because there is less chance of a learning
effect by companies artificially decreasing the discrepancy. This is not to say that the
numbers from Mongolia are more accurate or above scrutiny, but rather that one of
many theoretical issues has already been addressed.
As for the observer effect, there is a distinct correlation in the dates of the first
MEITI publications with drops in the nations’ corruption index ratings. Mongolia saw a
drop in their rating in both indexes after the 2007 publishing of the first report.
Specifically, the CPI reflects a drop in 2007 (see Fig 1) and the World Bank Governance
rating shows a drop between 2006 and 2007. While the report came out in December
2007, the lag between the dates covered and the publication of reports creates the
strong possibility of a correlation in terms of survey metrics and the exposure to the
report. This is qualitatively supported by the long-smouldering public anger at the
Hamud 41
unaccounted revenue revealed in the first report, and as such constitutes strong
evidence for the presence of an observer effect on the perception-based indices.197
In general, there is the appearance of a tug-of-war in Mongolian politics with
regards to corruption, more so than in Ghana or other nations. It is not simply an issue
that the ruling and minority party take turns criticizing and advocating, but rather there
are signs of a usually clandestine extralegal conflict that is much closer to the surface.
Between 2006 and 2012, the chronology appears decidedly agonistic. 2006’s push
against the corrupt institutions by the resigning ministers and the newly established
IACC was met with the unexplained death of the IACC’s first commissioner, which even
if completely natural holds symbolic power. Similarly, after the expansion of amnesty
and immunity laws in 2009-2010, 2011-2012 saw the applications of corruption law
increasing and a general expansion of IACC investigations. As if in response, they also
witnessed charges against the officials in charge of those investigations and against
former anti-corruption proponent and president Enkhbayar, with a timing that is again
at best convenient and at worst suspicious, even punitive. While these are correlational
and by no means causal, Enkhbayar’s assertions and the mystery surrounding the
deaths of the aforementioned officials lend at least plausibility to this explanation.
The effect of this tug-of-war (or at least of the fluctuations of power) is that there
is simply not enough political will or clout by oversight agencies or the public that they
act for to “reach that tipping point […] ‘turning corruption from a low-risk, high-profit
business into a high-risk, low-profit one.’”198 At very least, it can be said that even if
197
198
Aguila et al., “Implementing the EITI,” 39
Sumiyabazar, Mongolia Notebook. Internal quote from
Hamud 42
these developments were not orchestrated or a form of political backlash, the push
against corruption has been bruised and bloodied every time it gains some traction.
Compounding this general climate, while the MEITI may be somewhat effective
in the nation on its own grounds, the lack of a strong anticorruption push in general and
the obstructed power of CSO groups have undercut the initiative’s efficacy, and it is thus
unlikely to break the rentier model of corruption. As a result, it is very possible that the
EITI will be too little too late in attempting to avoid the resource curse that would follow
the mining boom. As mentioned, the precariousness of the economic situation in
Mongolia vis-à-vis Dutch Disease and the resource curse is significant, and if the MEITI
takes reform pressure off the already recalcitrant government, as its detractors opine,
then even this progress may spell more trouble in the long run for the nation.
Comparative Analysis
The Brighter Side
In juxtaposing the two cases, a number of ideas regarding the EITI become
readily apparent. First and foremost, the EITI may achieve its immediate goals and
seems to be better designed than many critics give it credit for, but this does not
necessarily tell the entire story, a story that lacks the rosiness of its more ardent
proponents.
Before any further discussions on the EITI, it is key to mention that both case
studies provide strong evidence that the Initiative can be effective in its goal of bringing
greater transparency and accountability to its covered industries. The consistently
decreasing discrepancies after a much higher first report for both countries indicates at
very least that some extant channels for illicit payments have closed, and may or may
Hamud 43
not have been replaced. This is especially noteworthy given the aforementioned
unlikelihood of a learning effect in the case of Mongolia that could well have been
mirrored in Ghana.
More strikingly on this note, however, is the effect of the lag in the publishing of
the reports. In Mongolia, the 2006 report was published after the 2007 data was
collected, and Ghana’s information had been collected from 2004-2007 before the first
report, that for FY 2005 came out in early 2008. Yet both periods saw substantial
decreases in the discrepancy. This indicates that the decrease occurred even before the
reports were published and therefore independent of public pressure was brought upon
the situation. This in turn indicates that the very process of the EITI is correlated with a
change in the behavior of companies and officials, though whether this is truly away
from corruption or simply away from its more established structures in a state is
uncertain. The sheer size of the change in discrepancy as a total and as a per-company
average, however, lends credence to the idea that the real amount of illicit payments has
decreased (See Figs 4a & b, 5a & b).
At the level of the optimizing factors, anecdotal evidence shows that more
engaged, empowered NGO/CSO groups and a greater degree of subnational
implementation further contribute to this end. Ghana saw a smoother process and a
greater effect on the overall anticorruption struggle in part as a result of these factors
existing in a greater capacity than in Mongolia. At the same time, both cases saw
evidence of NGOs looking to subnational EITI reports for more detailed area
information, supporting the synergy these two factors enjoy. That Ghanaian groups
were able to do more with the information than their Mongolian counterparts is to some
extent because of the different laws and influence the groups have in their respective
Hamud 44
countries, but is also directly related to the more comprehensive nature of Ghana’s
subnational structure.199
While the EITI may show progress and promise in both cases, the difference in
big-picture results between Mongolia and Ghana shows the importance of the anticorruption movement as a whole. Indeed, Ghana’s greater holistic success represents
the success of a synergy similar to that between the NGOs and the subnational
implementation. The EITI integrates itself as part of a greater framework of means
available to NGOs and other reformers. In this framework, networks of connections
between means and actors expand exponentially as new tools create new avenues for
change and increase the movement’s efficacy against a notoriously resistant
phenomenon in a particularly resistant industry. Mongolia’s framework has not reached
the point of critical mass where it may overcome such resistance, but the EITI, it seems,
has certainly contributed.
The unfortunate other side of the relationship between the EITI and the
movement as a whole is that the Initiative does not tell the whole story. This is
abundantly clear in the case of Ghana, where EITI payments accounted for only 3% of
the PAC’s reported missing funds. In Mongolia, even though the numbers are more
congruent, the anecdotal evidence implying high-level intrigue verging on cloak-anddagger affairs speaks to the same disjoint. Progress within the EITI, as a result, cannot
be considered concrete evidence of a holistic improvement in the country regardless of
the proportion of the state’s GDP or government budget that is directly tied to covered
industries.
199
Aguila, Caspary, and Seiler, Implementing EITI at the Subnational Level
Hamud 45
Two Cases versus the Critics
In relation to the broader body of literature on the EITI, these two case studies
have indicated confirmed some of the premises of the Initiative’s naysayers, but they do
not necessarily support those opponents’ conclusions. In other words, while many
theoretical limitations and objections are visible on examining the cases of Ghana and
Mongolia, they do not form the basis of a reason to dismiss the process. Three specific
objections merit specific discussion: the lack of specified enforcement, the inability to
deal with funds reported received, and the potential “lose-lose” created when
governments abdicate responsibility for problems in favor of a NGO/CSO groups and
companies.200 In general, these cases suggest that in many instances, these “problems”
simply do not create a problem.
The lack of enforcement in the EITI is a perfect example of a non-issue for many
countries. The aforementioned prevalence of corruption as an electoral issue can create
a simple and effective self-policing mechanism based on EITI results. This mechanism
can be seen extensively in the power shifts in Mongolia even before the development of
the EITI or an anticorruption agency. In the context of countries such as Equatorial
Guinea where there is little risk of such an electoral impact from EITI reports, this lack
of enforcement is a much more serious issue.201 As a result, naysayers are correct in that
the EITI’s promise in part hinges upon the integrity of democratic or other public
accountability mechanisms.
The EITI’S inability to deal with what happens to the funds once they are
collected is another issue that undermines both the promise of the Initiative and the
200
Nwete “Corporate Social Responsibility,” 313
201
Hilson and Maconachie, ”’Good Governance’ and the,”57
Hamud 46
reliability of its reports in examining larger issues of corruption. While it has spurred
public debate in Mongolia and Ghana,202 both states continue to have issues with the
proceeds from the extractive industries.203 Even if the EITI does foreclose the most
direct and established methods of corruption that comprise one part of the resource
curse’s vicious cycle, it does not have a means to directly affect neo-patrimonial and
rentier structures. But many cycles rely on all parts functioning fully to continue, and
thus this shortcoming is by no means fatal. Moreover, by publicizing the amount of
money a government receives from the extractive industry, it can help shape the
people’s expectations about the distribution revenue, be it directly or in services. Even in
an undemocratic environment, this puts pressure on the government to at very least
create the impression that the money is being used for the public good and could
conceivably increase standards for living in turn.
Finally, the idea that the EITI may take pressure off the government as many
other CSR projects have done is simply incorrect. These objections principally hinge
upon CSR’s occasional habit of being used as a tool to buy support, but the reports
themselves do not directly provide any good to the people of a state; new knowledge
enables action and does not inherently provide a benefit in the same way that a donation
may. Even if its most outspoken critics are right in their assessment that CSR is a
terminally flawed approach on the above grounds, this line of criticism cannot be
applied to the EITI. Furthermore, the activity of watchdog NGOs and CSOs in both cases
shows that the reports help keep pressure on governments and companies to reform,
rather than encouraging complacency. The small discrepancies are still addressed and
202
203
Aaronson, “Limited Partnership,” 55
Arthur, “Avoiding the Resource Curse,” 114; Levin, “In Mongolia’s Boom Town”
Hamud 47
may even continuously raise the proverbial bar. Especially in the case of Mongolia, the
perception indexes prove that even drastic decreases in mining corruption have not
appeased the public, and furthermore appear unlikely to do so.
All three of these objections, however, deal in large part with the way the EITI is
domestically implemented and the status of the movement of a whole. In some ways,
these objections apply the worst-case scenarios to the EITI writ large, and even
occasional commit a straw-man fallacy in appraisals.
A Silver Lining
While some of the aspects of the EITI are approached in terms of their potential
negative impact on the process and the movement, these same issues may very likely
provide some benefits for the initiative.
For one, factors like the lack of enforcement and monitoring provisions may
contribute to the appreciable number of countries participating. This structure makes
the EITI functionally a tool of soft law, which, compared to hard law, is noted improve
the likelihood of adoption and the effectiveness in environments with higher
corruption.204 It is not clear on purely rationalist grounds, for instance, whether
Mongolia would have pursued the EITI if it included such stipulations given the level of
corruption legislative body deciding on it. It is possible, then, that any drawbacks from
not having such provisions could hypothetically balance out compared to the effects of a
complete lack. Indeed, even in the case of insincere commitment to the process, the
certification process and its deadlines create a negative incentive for failure: that of
suspension. Given both the impact of electoral politics and the value of corruption
204
Nwete “Corporate Social Responsibility,” 334
Hamud 48
perception in foreign direct investment, failure in the EITI process could indirectly
cause negative ramifications for a state.205
Even in the weakest form in the most restricting environment, the nature of
transnationalism is a boon here for another reason. In the same way that Ghana
requested an American investigation of Kosmos under the Foreign Corrupt Practices
Act, evidence of discrepancies abroad can stimulate action and even reform in TNCs’
home states. This “supply side” action may even be more effective at cutting off illicit
payments than pressure in the recipient nation.206 Again, this possibility hinges on the
adoption of the EITI and represents another reason that implementing the Initiative is
preferable to not.
At worst, it can be said that the EITI will create progress at a crawl. Given the
efficacy of the certification board, the third party mechanic, and the penalties for failure,
there seems to be little risk of backsliding in a country, especially one with even a low
level of public accountability and NGO/CSO watchdog groups. However, The EITI is by
no means a silver-bullet solution to breaking a resource curse, especially in more
embattled states. The impact on poverty and inequality is harder to assess, however.
Despite this, the decreases in discrepancy in both cases at least means there is more
money in government coffers, so misuse in the same proportion is still a net gain for a
state’s denizens. In Mongolia and Ghana, the difference between the first and second
years’ reports is greater than 10 percentage points, representing in both cases more
money under government purview. It is likely then that the EITI will contribute at least
a slight increase in standards of living, especially given the possible influence on a
Kimberly Gleason, Charles Malgwi, Ike Mathur, and Vincent Owhoso, “Impact of Perceived National
Corruption on the Returns to US Multinationals in Transactions with Foreign Governments.” Review of
Accounting and Finance 4, no. 2 (2005), 27
206 O’Higgins, “Corruption, Underdevelopment, and Extractive,” 245-246
205
Hamud 49
people’s demand to see results from expanded extraction, but will by no means easily
achieve its loftiest prophecies.
Conclusion
The microscope is an interesting, almost paradoxical tool on a number of levels.
While they can show things invisible to the naked eye, this focus obscures the bigpicture interactions of the individual parts. While they can bring light to elsewise
inscrutable locations, the observer usually loses an entire dimension of perception to the
2D images produced. In the same way that a microscope may distort as it unveils, the
EITI process and its reports can show the undercurrents in a society and change the
surface perception thereof.
Supported by the cases of Ghana and Mongolia, the main argument of this paper
has been that the EITI can be as effective as the host states allow it to be, caught though
it is in the tug of war between elites with a vested interest in the system and forces for
change. As both cases show to varying degrees, the presence and depth of subnational
auditing, the extent of NGO/CSO participation, and the momentum of the
anticorruption movement have a direct relationship to the efficacy of the movement in
face of stiff resistance. There is also evidence supporting the theory that revelations of
corruption in EITI reports can increase the perception thereof and skew the results of
perception-based corruption indices. Further analysis based on these cases indicates
that the EITI has a positive effect on real corruption even before the reports can bring
public pressure on companies and officials. For this and other reasons, it seems that
much of the criticism leveraged against it is somewhat unfounded or overblown, and
while the Initiative is not perfect, more credit should be given to its designers.
Hamud 50
In light of all this, the EITI should be given conscientious, wary support by states
and populations engaged in or preparing to develop the extractive industry. If the EITI
is not treated as a silver bullet solution, but rather is implemented with caution given to
its shortcomings or supplements made for them, corruption in the industry and perhaps
the country as a whole will be greatly undermined. More research is needed to
understand the full effects of the process’s impact on national poverty and the
distribution of resource revenue to a people, but the worst case scenario seems to be
stasis. Even if it does not justify the high praise of its most vocal proponents, the
Initiative has the potential to make a significant positive change in global development.
Whether levels of compliance will rise to meet that burden remains to be seen.
Hamud 51
Appendix
Corruption Perception Index Ratings
5
4.5
4
Rating
1-10
Low to High
3.5
3
Ghana
Mongolia
2.5
Linear ( Ghana)
2
Linear ( Mongolia)
1.5
1
0.5
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Figure 1
Source: Transparency International
World Bank Corruption Ratings
0.40
Rating
-2.5 to 2.5
Weak to Strong)
0.20
0.00
-0.20
-0.40
-0.60
-0.80
GHANA
MONGOLIA
Linear
(GHANA)
Linear
(MONGOLIA)
-1.00
Figure 2
Source: World Bank Worldwide Governance Indicators, 2012 Publication
Hamud 52
EITI Report Ratio of Government Income
to Company Payments
Payments Recieved/ Payments Made
1.1500
1.1000
1.0500
1.0000
0.9500
Ghana
Mongolia
0.9000
0.8500
0.8000
2004
Ghana
Mongolia
2004
1.1254
2005
2005
1.0117
2006
2006
1.0083
0.8072
2007
2008
2009
2010
2007
0.9570
0.9696
2008
1.0038
0.9984
2009
1.0000
0.9999
2010
1.0000
Figure 3: N>1.00 Indicates government surplus, N<1.00 indicates payments made
and not received by the state. For example, Ghana’s first data point indicates that the
government reported receipt of some 13% more than companies reported paying
Source: EITI Country Reports
(Government Revenue) - (Company
Payments)
US$
Ghana Mining EITI Total Discrepancies
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
$0.00
-$1,000,000.00
2004
-$2,000,000.00
-$3,000,000.00
-$4,000,000.00
Figure 4a: Note the scale
Source: EITI Country Report
2005
2006
2007
2008
2009
Hamud 53
Mongolia EITI Total Discrepancies
(Government Revenue) - (Company Payments)
US$
$10,000,000.00
-$940,000.00
$740.00
$0.00
-$10,000,000.00
2006
-$20,000,000.00
-$30,000,000.00
-$40,000,000.00
-$50,000,000.00
-$60,000,000.00
-$70,000,000.00
-$80,000,000.00
-$90,000,000.00
Figure 4b: Note the scale
Source: EITI Country Report
2007
2008
2009
-$40,000.00
2010
Hamud 54
Ghana - Ratio of Discrepancy to
Number of Reporting Companies
Figure 5a
Year Companies
Reporting
2004
8
2005
8
2006
11
2007
11
2008
11
2009
10
Average Discrepancy per Comany
Source: EITI Country
Report
*Excludes unregulated
artisan mining
$376,250.00
$300,000.00
$269,090.91
$250,000.00
$200,000.00
$150,000.00
$100,000.00
$64,682.00 $50,000.00
$50,000.00
$30,909.09
$0.00
2005
2006
2007
2008
$0.00
2009
Mongolia - Ratio of Discrepancy to
Number of Reporting Companies
Average Discrepancy per Comany
Year Companies
Reporting*
2006
35
2007
38
2008
36
2009
76
2010
264
$350,000.00
2004
Figure 5b
Source: EITI
Country Report
$400,000.00
$2,500,000.00
$2,373,714.29
$2,000,000.00
$1,500,000.00
$1,000,000.00
$527,105.26
$500,000.00
$0.00
2006
2007
$26,111.11
$526.32
$2.80
2008
2009
2010
Hamud 55
Mongolia -Global Integrity
Implementation Gap
Global Integrity Rating
(0-100)
85
80
75
70
65
60
55
50
2008
2009
Framework
2011
Implementation
90
80
70
60
50
40
30
2009
2011
Legal Framework
*
Figure 6a
Source: Global Integrity
Implementation
Figure 6b
Source: Global Integrity
Ghana - Global Integrity Specific Scores
100
95
Global Integrity Rating (1-100)
Global Integrity Rating
(0-100)
Ghana - Global Integrity
Implementation Gap
Budget Oversight and
Transparency
90
Procurement
85
Supreme Audit Institution
80
Business Licensing and
Regulation
75
Anticorruption Law
70
Anticorruption Agencies
65
60
2008
Figure 7a
Source: Global Integrity
2009
2011
Hamud 56
Mongolia - Global Integrity Specific Scores
100
Global Integrity Rating (1-100)
90
Budget Oversight and
Transparency
80
Procurement
70
Supreme Audit Institution
60
Business Licensing and
Regulation
50
Anticorruption Law
40
Anticorruption Agencies
30
20
2009
Figure 7b
Source: Global Integrity
2011
Hamud 57
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