MADELAINE DROHAN: VALUE ADDED

Making resource-rich countries account for their revenues

Flaherty makes a move in the right direction

Feb. 14, 2007

We in the media are always happy to tell you when the government has slipped up in some fashion. It makes for good copy and shows we are on our toes looking out for your interests. But what about when the government does something right?

If last weekend's announcement by federal Finance Minister Jim Flaherty is anything to go by, we seem happy to hold our tongues. To be fair, the finance department press release went out on a Saturday, had a dull-as-dishwater headline, and dealt with something called the Extractive Industries Transparency Initiative. Perhaps the weekend reporting staff went to sleep before they read any further.

Yet despite all indications to the contrary, what Mr Flaherty was announcing was vitally important, not just to Canada's numerous globe-trotting oil, gas and mining companies — or even to you as investors in those companies — but also to the millions of people living in poverty in resource-rich countries where corrupt leaders pocket rather than share the country's mineral wealth. Surely that's worth a mention?

Let's look at what he did do and then you be the judge. Which means we have to go back — but only for a moment — to the sleep-inducing press release, issued after Flaherty met with his counterparts from other Group of Seven countries in Germany.

In it, Flaherty, backed by a string of other Canadian ministers, said that Canada had decided to support the Extractive Industries Transparency Initiative and would contribute $750,000 now, plus $100,000 a year to this end.

The money, which is put into a fund managed by the World Bank, will be used to help governments put in place systems and train officials to track and account for all the money from oil, gas and mining.

Shining a bright light on corruption

Despite its unwieldy name, the initiative has a simple aim: to reduce corruption by having governments clearly account for all the money they receive from oil, gas, and mining companies in any form — be it taxes, royalties, signing bonuses, or special fees.

The idea is that when this information is made public, it is a lot harder for political leaders or bureaucrats to siphon off funds to spend on luxuries or squirrel away in offshore bank accounts.

Transparent accounting by governments also makes it harder, but not impossible, for companies to pay bribes or special commissions in order to secure lucrative concessions.

Africa, which I know best, has many examples of countries that are fabulously rich in resources, yet where the majority of the population is desperately poor.

Think of Nigeria and Angola, both major oil producers, or Sierra Leone, with its diamonds, or Congo, formerly known as Zaire — so rich in so many minerals that it has been called a "geological scandal."

We in the Western world know these countries more for their conflicts, which often have a direct link to the gross inequality between the rulers and the ruled.

Putting pressure on such governments to account for their country's resource wealth is at least a first step in addressing the problem. And that is what the Extractive Industries Transparency Initiative does.

Canada balked when Britain first moved

It was British Prime Minister Tony Blair who first promoted the initiative back in 2002.

Despite the large number of Canadian oil, gas, and mining companies operating around the world, the federal government — then led by Jean Chrétien and the Liberals — led by refused its support.

It wasn't clear why. There were obvious benefits to the people of these countries. If less money were lost to corruption, there would be more money available for social services, such as education and health, not to mention the reduced risk of conflict.

There were obvious benefits to companies operating in these countries, including Canadian firms. Better governance makes for a more stable environment.

And a government not spending money on luxury villas and expensive cars has more money to spend on beefing up its justice system and ensuring that the rule of law is upheld.

And there were even direct benefits to Canadian investors in these companies. Check your mutual funds, you may be one of them.

The tide is changing

Despite all of this, Ottawa held out until last weekend — apparently undergoing a change of heart after the Conservatives were elected in 2006.

The fact that an imminent report on Canada's oil, gas, and mining sectors may recommend the federal government support the initiative could also have something to do with it. Find out which way the crowd is running and then get out in front is not a bad political maxim.

It helps that all the finance ministers attending the Group of Seven meeting in Germany also voiced their support for the initiative in the statement they issued. Germany and Britain were already on board; perhaps now others will follow.

Press companies to say what they pay

This initiative alone is not a panacea for all that ails resource-rich countries with corrupt leaders.

And while Western countries now seem keen to put pressure on these governments, their desire for cleaning up corruption would be even more convincing if they also pressed their own companies to give a full accounting of what they paid.

Publish What You Pay, another initiative born in Britain, wants such disclosure to be mandatory, rather than voluntary. Comparing what companies said they paid with what governments said they received would shed even more light on how resource revenues are used or abused.

So yes, Flaherty and the Canadian government could have gone further than they did last weekend in trying to clean up corruption. But it must be acknowledged that this government moved while the previous government held back.

Now, isn't that something worth writing about?