The Extractive Industries Transparency Initiative: A Critique and Proposed Reforms

The natural resources sector–particularly extractive industries like mining and petroleum–is famously beset by corruption. In many countries, natural resource extraction is controlled by the wealthy, politically-connected elite, leading to a form of “resource curse” in which the majority of the population does not benefit from natural resource wealth and economic development outside the extractive sector stagnates. One of the most prominent strategies that has emerged in recent years to combat corruption in the extractive sector is a push for greater transparency. While many advocates of this strategy have pushed–with some qualified success–for laws that require greater disclosure by companies and governments, one of the most important pro-transparency initiatives is voluntary: the so-called Extractive Industries Transparency Initiative (EITI).

EITI members include states, companies, civil society groups, and institutional investors. Though membership is voluntary, members must comply with the principles established by the EITI board. Member companies are obligated to disclose the amount they pay for extractive contracts in member countries; EITI also also requires members to disclose revenues generated from the extractive industry and indicate how the revenues contribute to the national budget. Since its inception in 2002, EITI has claimed a number of successes. For example, EITI reports revealed a company owed US $8.3 billion in tax payments to the Nigerian government–more than what the Nigerian federal government spent on education over a period of 3 years.

Nonetheless,while greater transparency in the extractive industry is desirable, and success stories like the one noted above illustrate the potential benefits of multi-stakeholder self-regulation, nonetheless the EITI has three significant shortcomings that compromise its effectiveness:

  1. EITI’s transparency standards are not strict enough. While EITI’s transparency standards require member states to disclose how much revenue they generate from the extractive industry, states are not required to report information on the allocation of this revenue. Instead, states are only encouraged to describe how extractive revenues are earmarked for specific programs or geographic regions. Given EITI’s goals, mere “encouragement” of this type of transparency is not sufficient. EITI cannot achieve its goal of “ensur[ing] that [natural] resources can benefit all of its citizens” if  states are not required to disclose how the money is being spent.
  2. EITI’s membership is too limited. Because EITI is a voluntary initiative, extractive companies are only obligated to disclose their payments to countries that are members of EITI. But EITI membership remains thin in many regions. This is perhaps most notable in South America–a region where the extractive industry plays a large economic role, but Peru is currently the only EITI member.
  3. Transparency is necessary but not sufficient alone.  An article by Ivar Kolstad and Arne Wiig argued that extractive sector transparency is only an effective anticorruption measure when there is an educated electorate, when a free media can effectively publicize information, and key stakeholders have the power to hold the government accountable. Kolstad and Wiig note that EITI does not take these factors into account and, as a result, its emphasis on transparency alone is likely to fall short. For this reason, EITI needs to create more robust obligations for member states. For example, members could be required to invest extractive revenue towards education and freedom of the media. In addition, EITI principles should encourage members to embrace a more democratic political structure to ensure that corrupt government officials can be held accountable.

One thought on “The Extractive Industries Transparency Initiative: A Critique and Proposed Reforms

  1. Pingback: Corruption Currents: From Ex-US Diplomat Probed to Alstom Allegations | Guess Who Leads the Bribery World?

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