Should We Lament Trump’s Nixing Greater Transparency in Oil and Gas?

President Trump’s February 14 approval of the Joint Resolution repealing the rule that American companies disclose publicly all payments to governments for extracting oil and gas from their lands has provoked much lamenting.  The lamenters see it as a major setback to the fight against corruption, taking it as a given that greater transparency in the oil and gas industry leads to less corruption.

Rather than assuming that this is true, I decided to look at the evidence. The best place I could find to look was the Extractive Industries Transparency Initiative.  The 49 governments who along with their civil society groups and private sectors have committed to EITI regularly publish two things: 1) all significant (“material”) oil, gas, and mining payments made by companies, whether state-owned or privately-held, to the government and 2) all material revenues the government receives from these companies.  EITI requires that this information be widely distributed in an accessible, comprehensive and understandable manner, and indeed EITI requires more than simple transparency.  The total amount companies report paying and the total government says it receives must be reconciled annually by an independent administrator which must then report any discrepancies.  No better a formula for ensuring that transparency leads to less corruption would seem on offer.

So what effect has EITI had in the decade plus it has been in operation?  Does the transparency engendered by the EITI actually result in better governance and development outcomes in EITI compliant countries? How well do EITI countries perform, or improve over time, compared to other countries on selected political and economic indicators?

As luck would have it, these are precisely the questions Professors Benjamin Sovacool, Götz Walter, Thijs Van De Graaf, and Nathan Andrews address in a 2016 article in World Development.  Their answers should bring cheer to those lamenting repeal of the U.S. rule. 

To assay the impact of EITI, the professors examined how well the first 16 countries to join EITI performed on a series of governance and economic indicators, both compared to their performance pre-EITI membership and compared to other countries.  Their finding: “There was not a single governance and economic development metric in which EITI counties performed better during EITI candidacy or EITI compliance than pre-EITI as well as  better than other country classes” (p. 185).  Does this mean Trump’s nixing of the disclosure rule is not a setback after all?

Like any first-class scholar, the authors caution that their findings may not be the last word on EITI’s impact.  The nature of the data did not permit a randomized control-trial, the most rigorous method for testing causal hypotheses such as “more transparency causes less corruption.”  Furthermore, EITI is still relatively new; none of the countries analyzed had been participating for longer than a decade.  So it may be too soon to reach a definitive judgement.  Moreover, the authors might have added that the indicators they use to measure changes in governance are notoriously “soft.” “Regulatory quality,” for example, the one governance indicator where EITI countries seem to do well is a complex notion not easily captured by a simple numeric scale, and the World Governance Indicators, their measure of governance, have been the subject of substantial scholarly criticism (here, here, and here for examples).

Again as top-flight researchers, the authors offer various explanations for their findings. As with other recent analyses of the impact of greater transparency on corruption, they argue that transparency alone is not enough to curb corruption and improve governance.  Conditions and context matter — a lot.  Of the various factors they suggest that may explain why EITI has had no measurable effect to date, the one that struck me as the most likely reason was the level of democracy in the 16 countries.  Of the 16, only Norway has a long-history of vibrant, democratic rule, and several – Azerbaijan, the Kyrgyz Republic, Liberia, Mauritania, and Mozambique – are far from it.  Still others – Ghana, Iraq, Mongolia, Nigeria, Peru, Tanzania, and Zambia – are struggling to consolidate their democracies.  Is it any mystery that where voters have little or no power and legislators, courts, the press and the other accoutrements of democracy are weak transparency would have little effect?

This is not to say that advocates should eschew the promotion of transparency in the oil and gas industry and other extractive industries, and in next week’s post I promise to discuss why, in some countries at some points in time, they should continue to push for more information on what companies pay and what governments receive for exploiting the nation’s oil, gas, and minerals (and timber and other renewable resources too!).  So those lamenting the Trump veto should not, to quote a favorite phrase of the new American president, “Shut Up.”

 

 

3 thoughts on “Should We Lament Trump’s Nixing Greater Transparency in Oil and Gas?

  1. EITI should also be a global human rights wake-up call! Useful, timely and quality research indeed even though we all know well intentioned global initiatives like EITI may become a relic of the anti-corruption reform movement during the Trump era.

    That said, I would hope that the next good research paper on the topic examines what impact EITI has had on the human rights record of most rich natural resource developing countries. From my in-country anti-corruption experience, in countries like Azerbaijan,Timor Leste, Nigeria and Kazakhstan, those on the ground told me that EITI was mainly used as yet another ruse or tool to perpetuate the myth that their President was doing something to address and prevent corruption or to make sure that the President’s network was in a suit of armor or complete and total control of all information related to the sector in question and to related institutions. They also told me that they had only seen EITI exacerbate human rights abuses, one-by-one, as those who obtained and publicized their analysis of EITI information were quickly threatened or summarily jailed.

    Their observations have been paid scant heed by those supporting EITI — without due consideration to country context, conditionality or the safety and rights of whistleblowers, journalists, bloggers and the lawyers who try to help them.

    I think the salient sentence in the report that sums-up the situation in far too many non-democratic countries best for me is: “…transparency is not a magic bullet, it is the one that is unable to penetrate armor.”

    Let’s not give up trying new or reformed less risky initiatives, but let’s not be complicit in making a bad human rights record even worse either. Surely we’ve now all learned that initiatives like EITI must be tailored to country context and that human rights considerations should be given higher priority consideration in all that we try to do.

  2. Thank you for the post. It is certainly important to consider the effectiveness of EITI to understand what the Joint Resolution will mean going forward. As mentioned, given the data, it is hard to prove the causal relationship “more transparency causes less corruption,” not forgetting that corruption in itself is multifaceted. My hope however is that this Resolution will not serve as a signal to other countries who have been making progress in increasing transparency to slow down efforts. I look forward to your upcoming post to continue the discussion.

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