The resource curse: money and beyond

It’s time to connect the dots and add environmental impacts into the equation.

The resource curse — and how to break it — has been getting some much-needed media attention lately. Unfortunately, however, we’re not getting the whole story.

Economist and Nobel laureate, Joseph Stiglitz, wrote an article last month describing standard extractive industries practices and what it will take to transform the resource curse into a blessing.

He writes, “There is an unavoidable conflict of interest between (usually foreign) natural-resource companies and host countries: the former want to minimize what they pay, while the latter need to maximize it. Well designed, competitive, transparent auctions can generate much more revenue than sweetheart deals. Contracts, too, should be transparent, and should ensure that if prices soar – as they have repeatedly – the windfall gain does not go only to the company.

“Unfortunately, many countries have already signed bad contracts that give a disproportionate share of the resources’ value to private foreign companies. But there is a simple answer: renegotiate; if that is impossible, impose a windfall-profit tax.”

When officials put the interests of their citizens over personal gain, there will likely be a push for better deals and contract renegotiation. Unfortunately corruption plays a big role in bad contracts: why play hard ball with foreign companies if you’re getting yours?

Many see transparency as an important tool for fighting corruption and the resource curse, so when the SEC (finally) voted August 22nd to enact Sections 1502 and 1504 of the 2010 U.S. Dodd-Frank financial reform legislation, transparency campaigners had reason to be happy. SEC-registered extractive companies will soon have to disclose payments they make to governments. In an initial response to the SEC vote, Global Witness stated, “The SEC rule will shed some light on payments made by extractive companies to governments enabling citizens in some of the world’s poorest countries to hold their government to account for how resource revenues are being used.”

Writing in Foreign Policy, scholar Jeff Colgan suggested the SEC regulation may even “reduce the probability of war.”

Kofi Annan wrote a recent opinion piece in the New York Times, Momentum Rises to Lift Africa’s Resource Curse. He writes that implementation of Section 1504 will empower citizens “with the information they need to hold government and companies to account for the money made from natural resources … Putting more information into the public domain makes it harder for those with bad intentions to profit from secrecy.”

European Union legislators are also pushing for payments disclosure and there’s now a momentum building for transparency.

While the money-corruption-politics side of the resource curse has been getting increasing attention, the environmental side of the curse gets barely a mention. Yet this may well be the biggest curse of all.

First, here and now, does anyone honestly believe that a country lacking good governance, plagued by corruption and the resource curse is going to pay attention to the environment? The Niger Delta is the most visible example of the environmental consequences of the resource curse. But Nigeria is not alone. There are numerous reports of ongoing pollution (chronically leaking pipelines, toxic wastewater dumping) and indiscriminate use of dispersants across the Gulf of Guinea region.

When I reported on the lack of environmental oversight of the offshore industry back in January, I did not find a single oil-producing country in the region that had the capacity (legislation, response plans, equipment, personnel) to deal with oil spills. Officials in Ghana have recently acknowledged as much (see Ghana has low capacity clean up oil spillage). This public admission underlines the urgency of passing the Marine Pollution Bill and is an important first step towards addressing the country’s need for capacity building.

But beyond the risks of spills and localized pollution, there’s the relationship between fossil fuel use and climate change. Rarely, if ever, does talk about the resource curse bring up global warming. In the current global drilling frenzy, this is the elephant in the room. When it comes to the costs and benefits of fossil fuel extraction for all citizens, isn’t it time for us to factor in the massive costs of climate change? Arctic sea ice shrinks to smallest extent ever recorded. Vanishing arctic ice is the planet’s white flag of surrender. As sea ice shrinks to record lows, Professor Peter Wadhams warns a ‘global disaster’ is now unfolding in northern latitudes.

Despite the fact that Africans have contributed the least to climate change caused by humans, there are widespread fears that Africa will be the worst hit. And most experts agree that Africa is the most vulnerable continent and the least able to adapt to the effects of climate change. (Voice of America, Climate Change Effects on Africa)

The World Bank has a report out on Climate Change and Africa with details on risks and risk management. It’s unfortunate that the World Bank Group continues to support fossil fuel extraction. If — and that’s a big if — the extractive industries can lead to real domestic growth and poverty reduction (the blessing, rather than the curse), will the short-term benefits be outweighed by increased emissions and accelerated climate change?

Surely, it is time to connect the dots and add environmental impacts into the resource curse equation.