MMSD & IIED Managing Mineral Wealth NGO PERSPECTIVE: FROM WORDS TO DEEDS Miguel Schloss Executive Director Transparency International
Issues Policy distortions Institutional incentives Governance
Implications More costly public investments Lower government revenues Lower expenditures on operations and maintenance Lower resource surpluses Poorer economic performance
Controlling Bribery and Civil Liberties HIGH BRIBERY Bribery (GCS97+) LOW BRIBERY CHN r=0.67 VNM AGO KEN CMR IDN NGA MOZ EGY TZA UGA UKR CIV JOR ETH MEX TUR BRA ZWE BFA MWI GHA MYS MAR ZMB SVK PER TWN SWZ THA NIC GTM PHL RUS COL IND TUN SGP LSO ZAF HND VEN GRC ARG KOR NAM MUS ISR POL HUN CHL CZE FRA DEU ITA JPN ESP CRI USA GBR DNK PRT BEL NLD NZL IRL SWE ISL CHE AUT AUS CAN LUX FIN NOR LOW Civil Liberties (Freedom House) HIGH Source: Kaufmann and Sachs (1998)
Bribery vs. Civil Service Professionalism HIGH HND GTM VEN GRC COL NIC RUS IDN PHL THA VNM IND Bribery ZWE JOR POL SLV MEX BGR UKR CRI BRA KOR TUR ITA MYS HUN SVK ZAF PER TWN CZE CHN ISL KAZ PRT ESP ISR FRA LOW r=0.86 CHL JPN CZE USA SVK LUX DEUCAN HKG NZL DNK NLD CHE SGP SWE NOR GBR FIN IRL LOW Civil Service Professionalism HIGH
Corruption and Rule of Law HIGH S&P-DRI Corruption Index LOW LOW ZAR r=0.82 IRQ COL PAK AGO BOL BGD PER DZA LKA TZA CMR KEN IRN MMR PAN LBY ZMB ZWE NGA ZAF UGA EGY SYR GHA PHL VNM RUS TUR THA BHR IND BRA ECU HKG CIV IDN JOR CHN MAR BGR VEN ROM OMN BWA SVK MEX ARG SAU TUN URY HUN ARE POL CZE MYS KOR KWT QAT TWN CHL GRC BEL AUS CRI ESP ITA PRT JPN NZL FRACHE AUT ISR FIN IRL SGP USA GBR CAN DEU NLD SWE DNK NOR HIGH Rule of Law (ICRG, average 1990s)
Bribery vs. Civil Service Professionalism HIGH HND GTM VEN GRC COL NIC RUS IDN PHL THA VNM IND Bribery ZWE JOR POL SLV MEX BGR UKR CRI BRA KOR TUR ITA MYS HUN SVK ZAF PER TWN CZE CHN ISL KAZ PRT ESP ISR FRA LOW r=0.86 CHL JPN CZE USA SVK LUX DEUCAN HKG NZL DNK NLD CHE SGP SWE NOR GBR FIN IRL LOW Civil Service Professionalism HIGH
Corruption and Rule of Law HIGH S&P-DRI Corruption Index LOW LOW ZAR r=0.82 IRQ COL PAK AGO BOL BGD PER DZA LKA TZA CMR KEN IRN MMR PAN LBY ZMB ZWE NGA ZAF UGA EGY SYR GHA PHL VNM RUS TUR THA BHR IND BRA ECU HKG CIV IDN JOR CHN MAR BGR VEN ROM OMN BWA SVK MEX ARG SAU TUN URY HUN ARE POL CZE MYS KOR KWT QAT TWN CHL GRC BEL AUS CRI ESP ITA PRT JPN NZL FRACHE AUT ISR FIN IRL SGP USA GBR CAN DEU NLD SWE DNK NOR HIGH Rule of Law (ICRG, average 1990s)
High corruption Even more important (than regulatory interventions) in understanding bribery and corruption is the degree of regulatory discretion. Corruption and Regulatory Discretion NGA MEX CHN ARG VNM IDN IND TUR BRA COL PHL VEN THA RUS Corruption SGP MYS ESP CHL FRA JPN PRT HKG USA AUT GBR DEU ISR IRL CHE LUX NOR NLD AUS FIN CAN SWE NZL DNK KOR ZAF TWN BEL CZE ITA POL HUN GRC CRI Low corruption r=0.76 Low Regulatory discretion (GCS97) High
Unofficial Economy and Corruption Index Unofficial economy as percent of GDP BOL 60% PER PAN GTM UKR HND 40% LVA HUN GRC BGR URY BRA ECU RUS COL VEN MEX 20% DNK SWE NLD CAN GBR NOR DEU IRL CHE USA AUT CRI CHL PRT ESP FRA EST JPN ITA BEL POL CZE SVK ROM ARG BLR r = 0.79 0% Low corruption Corruption High corruption
Time Management Spent with Bureaucrats and Frequency of Bribery % Management Time with bureaucrats 30% TZA UZB 20% 10% 0 CHE IRL Low GBR HKG SGP CAN DEU ZAF AUT ESP EST FJI JOR ZWE USA FRA MYS MEX JAM COL ZMB HUN MWI CRI MUS PRT CZE ITA KOR GNB POL NGA MKD UKR TUR LTU BOL MLI TGO KEN THA RUS SEN MOZ UGA GHA VEN MAR ARM IND LVA ECU TCD BLR GIN GEO KAZ BEN COG CIV MDA KGZ MDG SVK CMR Frequency of bribery (WDR 1997) Source: Kaufmann and Wei (1998) Data analysis based on survey conducted under the World Bank s World Development Report 1997. AZE BGR R =.77 High 11
Corruption Perception By Regions OECD East Asia Central/Eastern Europe and Baltics Middle East and North Africa Latin America and Caribbean South Asia Sub-Saharan Africa Former Soviet Union 0 10 20 30 40 50 60 70 80 90 100 %
Multipronged Strategy for Combating Corruption
Multipronged Strategy for Combating Corruption Economic Policy: Deregulation Tax Simplification Civil Service: Pay Meritocracy Corruption Financial Controls: Audit Procurement Legal-Judicial: Independence Judicial Strengthening ADR Mechanisms Public Oversight: Parliamentary Oversight Civil society and media Power of data /Surveys Independent agency/ngo
The Response titutional and Civil Service form: ansparent Privatization Ecuador alary Reform in Bolivia isclosure of Assets in olivia and Georgia Corruption Economic Policy: Deregulation and Delicensing in Bolivia Revamping Customs in Ecuador and Latvia Tax Administration in Latvia and Ecuador Tax/Customs Code Reform in Albania Financial Controls: Procurement Reform in Bolivia, Ecuador and Georgia gal-judicial: vamp of Supreme Court in Bolivia ompetency test of judges in Albania ediation in Albania Public Oversight and Civil Society: Ombudsman in Albania and Bolivia Private Sector Coalition in Bolivia Diagnostic Surveys and NGO
www.transparency.org/activiti es/lac_tool-kit/intro.html
The Response Price Comparisons Professional Coordination Homogenous products Primary data (invoices, contracts) Information analysis (price ranges, averages) Bulletin, Publications, Dissemination Monitoring Results
The Response Public Hearings Meeting with Stakeholders, including media Levelling Playing Field; Technical Experts Agenda, Trade-Offs Assessment, Discussion, Minutes Explicit Resolution of Issues
Integrity Pacts The Response No-bribery commitment by bidders Commitment of government to prevent extortion and acceptance of bribes Disclosure of payments Sanctions against bidders who violate their nobribery commitment Involvement of civil society in monitoring bid evaluation, award decision process and implementation of the contract
Ominous Correlations: Source: World Bank Institute Governance Norway Kuwait Russia Mexico United Kingdom Venezuela Gabon Ecuador Algeria Malaysia Nigeria Indonesia Azerbaijan Iran Angola Cameroon Chad Colombia Saudi Arabia Weak 155 Countries Strong governance
Mining Sector: Issues Sudden wealth, easy money Location limitations Conflicting interests between mine finders, mine builders and operators, local community, governments, civil society. Government regulations, taxation regime, incentive structures.
Mining Sector: Emerging Supply & Demand Forces Supply-side: OECD Convention Corporate Codes of Conduct Industry Standards Demand-side Local Governance Framework Institutional & Policy Evolution Role of Multilateral Organizations
Mining Sector: Economics c/lb 100.0 Cash Costs: Selected Countries 2000 currency 90.0 Canada 80.0 70.0 Australia 60.0 Others USA 50.0 Chile 40.0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Intensity of Copper Use 1 in Selected Developed Countries (1985=1.00) 2.00 1.50 USA 1.00 EUROPE 0.50 0.00 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 1: Copper Consumption Index to Industrial Production Index Ratio Codelco
Mining Sector: Economics Intensity of Copper Use 1 in Selected Developing Countries (1985=1.00) 2.50 2.00 1.50 1.00 TAIWAN 0.50 0.00 1985 1986 1987 MALAYSIA 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Per Capita Refined Copper Consumption,1998 Consumption (kg/person) Finland 20 1: Copper Consumption Index to Industrial Production Index Ratio Codelco Sweden 15 Germany South Korea 10 Canada Italy Australia USA Francia Japan 5 Malaysia Mexico Chile Spain United Kingdom Austria China South Africa Thailand Brazil Russia Indonesia India Argentina 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 GDP (US$/person)
Mining Sector: Dynamics Order takers Decommoditising Cost cutting Productive focus Enterprise manager Downstream, End-User Strategy Partner-approach (manufacture, regulators, complementors) Structural support (environment, human health, transparency, scrutiny
Mining Sector: Dynamics SEGMENTATION Production Lock-in; proprietary standards Best Product; cost-advantage Customer Solutions; promotion Global Integration; scrutiny GLOBALIZATION
Addressing the Issues Efficient Collection of Revenues Extractive Industries Revenue Management Budgetary Discipline Public Expenditure Management Institutional Strengthening Transparency and Accountability Civil Society Participation & Tracking
Revenue Management Revenues Flow through Off-shore Audited Escrow Accounts X % Royalties and Dividends to Special Accounts (examples): 80% Poverty Reduction 15% Government Expenses 5% Local Region 10% Future Generations Fund
Civil Society Participation & Tracking Information Campaign Surveys / Consultations Poverty Reduction Strategy Integrity Pact, Monitoring Arrangements Public Access; Feedback; Diagnosis
Conclusions Levelling the Playing Field Establish Coalitions Support / Build National Chapters Encourage Research Enhance Networks, Transfer Know-how Experiment Integrity Pacts Support Reforms & Monitor
Conclusions A A Time for Optimism and Commitment Greater focus and attention: irreversible commitment Increasingly open and participatory dialogue Innovation: New ideas and experimentation Need for rigor and concrete actions Empirical and Analytical Rigor: Diagnostics Reforming misgoverned institutions (e.g., judiciary, tax) Political obstacles: powerful losers A A Need for Realistic Expectations Complex challenge: institutionalization Improvement, not perfection
A Role for Everyone Conclusions Competition rest on superior products/services at competitive prices. Businesses establish and implement codes of conducts. Businesses engage governments and civil society (PBEC Charter, need for work with TI). Build-up civil society for sustainable development.
Back-ups
The Future Response: Example Petroleum Import Dependency
Government Involvement and Levels of Inefficiency
Potential Savings
Oil Rents in Selected Countries Country Estimated Annual Rent ($Billion) @ $10/BBL @ $20/BBL @ $30/BBL Nigeria 5.6 13.6 21.7 Norway 2.3 13.6 24.9 Indonesia 2.4 7.1 11.9 Algeria 1.8 6.1 10.5 Venezuela 8.2 19.1 30.1 Mexico 9.8 22.4 35.1
Blessing or Curse? Average Annual GDP Growth (%) Country 1980-90 1990-98 Nigeria 1.6 2.6 Norway 2.8 3.9 Indonesia 6.1 5.8 Algeria 2.7 1.2 Venezuela 1.1 2.2 Mexico 1.1 2.5 World 3.2 2.5 Mid Income 2.8 3.9 Low Income 6.5 7.4