Corruption and the extractive industries in Africa Can ... · Corruption and the extractive...

Corruption and the extractive industries in Africa • page 1 Paper 153 • October 2007

ISS Paper 153 • October 2007Price: R15.00

Corruption and the extractiveindustries in AfricaCan combatting corruption cure theresource curse?André Standing

Introduction

After reaching a low point in 2002, the extractiveindustries globally have seen a remarkable turnaroundin the past few years. Since 2002 the price of manymined commodities has risen, in some cases to recordheights. The dramatic growth of China seems to beone of the most important factors explaining this boom,1

and as China looks certain to continue on its currenteconomic path, it is widely believed that the price ofmined commodities will remain high for theforeseeable future, as will the cost of crude oil.

We can illustrate this recent growth in global miningby simply considering the immenseprofits being made by companies in thepast two years. A report published in2006 by PricewaterhouseCoopers,entitled “Mine: Let the good times roll”,showed that the mining industry had a‘spectacular’ year in 2005. Public miningcompanies experienced a 72 per centincrease in their total capitalisation from2004, with net profits increasing by 59per cent, representing an increase ofUS$45 billion. This has been good newsfor shareholders, who received US$18billion in 2005, up by 82 per cent fromthe previous year. The increase in profitsbeing made by the major oil and gasproducing companies is alsoextraordinary. America’s five ‘supermajors’ reported record profits of US$342.4 billionbetween 2001 and 2006.

Another indicator of the boom in the extractiveindustries is the amount of money being spent on globalexploration. Analysis provided by the MetalsEconomic Group2 shows that over the past four yearsthe amount invested in exploration by miningcompanies has grown by roughly 250 per cent.Indicators suggest that the amount spent on explorationwill continue to rise in the future. Indeed, it will have

to, for the ever-growing demand will mean that thesupply of mined commodities will becomeincreasingly difficult to sustain. The scale of demandfor mined commodities is predicted to be enormousin the near future. According to some experts, in orderto meet the demand over the next 40 years miningcompanies will need to mine five times more thanthey have ever mined before. Achieving this growthin mining is far from straightforward. Discovery costshave effectively trebled over the past 30 years, theaverage size of mineral discoveries has diminished,and discovery rates have roughly halved.

It is in this climate that some industry analysts feelthat the lack of new mining sites willbecome a serious issue over the next fewyears. Consequently, the mining industrywill need to become more aggressive inexploration, and there is a consensusthat mining will take on increasinglyrisky ventures in areas that werepreviously seen as too precarious byinvestors (International MiningMagazine 2005).

Amid this global search for minedcommodities and oil, numerous Africancountries are experiencing tremendousgrowth in mining and oil production.Over the next five years the main oilexporting countries in Africa areexpected to experience an increase in

oil revenues of up to US$5 billion (see Table 1). TheUS is currently importing 15 per cent of its oil fromAfrica, and this is expected to increase to between 25per cent and 30 per cent in the next decade.Simultaneously, it appears that Africa has beenidentified by China as being one of its main sourcesof fuel.

The mining sectors throughout Africa are also booming,with remarkable growth throughout the continent (seeAnnexure A for statistics on selected countries). Indeed,

NumerousAfrican

countries areexperiencingtremendousgrowth in

mining andoil

production

Paper 153 • October 2007Corruption and the extractive industries in Africa • page 2

New players and the strength of junior mining companies

it is in Africa that many of the good deposits inpreviously risky environments are being discovered.There are numerous countries on the continent thatare considered to have abundant yet under-exploitedminerals and metals. The Democratic Republic ofCongo (DRC) is arguably the most exciting prospectfor mining companies and, depending on increasedpolitical stability, the mining sector is certain tocontinue to grow at a rapid rate in this country. Alreadysince 2000 the value added to the economy of theDRC by mining has effectively doubled.

A key development during this latest boom in miningand oil production is the emergence of new companiesin countries that are not members of the Organisationfor Economic Co-operation and Development (OECD).Most importantly, there has been a significant growthin the size and number of mining companies based inAsia and Russia, with Chinese companies set to becomethe most significant in the future. However, despiteincreasing global competition, the global mining sectorcontinues to be dominated by companies based inCanada, the UK, the USA and Australia, as well asSouth Africa. Indeed, Canada’s dominance in theglobal mining industry is revealed by the following facts:the Toronto Stock Exchange is by far the most importantsource of funds for the mining industry; Canadianmining companies are the most numerous worldwide;and 60 per cent of the world’s mining companies arelisted on the Toronto Stock Exchange.

One of the aspects that distinguishes the recent boomin global mining is the relative strength of junior miningcompanies. In broad terms, the composition of themining industry has shifted, and there are more smallmining companies worldwide than there were before,and their importance in terms of investment flows andoutputs is growing. So, for example, in 1997, the peakyear of the previous boom in global mining, 40 percent of the total amount spent on exploration camefrom junior mining companies. The rapid demise of themining industry thereafter saw this amount fall to only25 per cent in 2001. During our recent boom, juniormining companies have done particularly well. Between2002 and 2006 there has been an amazing 350 percent increase in the amount that junior miningcompanies have spent on exploration. In 2006 totalglobal exploration budgets were roughly the same asthey had been in 1997, yet junior mining companiesaccounted for 63 per cent of total expenditure onexploration in 2006 as opposed to 40 per cent in 1997.

It is not entirely clear why there has been astrengthening of junior mining companies in the pastfew years. One factor appears to be the rise in goldprices, for gold mining represents the most importantactivity for smaller mining companies. A second factorappears to involve changes in the capital markets.During the decline in global mined commodity prices,investors seemed to lose trust in the junior mining sectorand the infamous Bre-X scandal in Indonesia is oftencited as contributing to this. Yet since 2002 the boomin prices has strengthened investor confidence andthere seems to be an intensification of higher-riskinvestments. We can see this vividly in the success ofjunior mining companies on London’s AlternativeInvestment Market (AIM). The amount of capital beinggenerated for mining through AIM has beenexceptional, with an increase of investment fundsbetween 2004 and 2005 of 63 per cent. In return,junior mining companies on AIM reported aremarkable increase in pre-tax profits – in 2004 thiswas roughly US$11 million, and by 2005 the figurehad jumped to US$205 million. In other words, thereappears to be a greater interest in investing in higher-risk mining companies in the hope of making quickand impressive profits. Some fear this will createcommodity price volatility in the mining sector, particularlyas mining by its very nature is a long-term activity.

A final factor explaining the relative importance ofjunior mining companies relates to their relativedynamism and ability to operate in areas that areconsidered too risky by the majors. Indeed, as onecompany active in West Africa claimed: ‘… we gowhere others fear to tread’. To what extent suchcompanies are more willing to operate in riskierenvironments is a matter for further research, andthis is potentially an issue highly relevant to corruptionand unethical business practices in the industry.

This intensification of mining and oil production inAfrica has heightened concern over the impact theseindustries are having on human development. Beforethe 1980s a dominant view was that greaterexploitation of natural resources for export marketswould be a key to economic growth in Africa. It was

Table 1: Potential government oil revenues:Leading African oil producers 2006–2011

Country Total Annual Pop. Per US$ ave. (mil) cap.(mil) US$ US$

Equatorial Guinea 19 024 3 805 0,5 7 610Gabon 17 305 3 461 1,4 2 472Angola 151 125 30 225 15.5 1 950Congo Brazzaville 14 601 2 920 3,9 749Nigeria 266 120 53 224 128 416Mauritania 4 369 874 3,0 291Chad 9 797 1 959 9,4 208Cameroon 5 939 1 188 16,0 74

TOTTOTTOTTOTTOTALALALALAL 488 280488 280488 280488 280488 280 91 65691 65691 65691 65691 656 178178178178178 550550550550550

Source: World Bank GroupManagement Response 2004


Profoundpolitical factors

undermineefforts to fight

corruption andachieve greatertransparency inthe extractive

industries

such thinking that partly inspired structural adjustmentprogrammes and widespread liberalisation of miningin the late 1980s and early 1990s. However, whilethese measures were clearly successful in increasingthe amount of resources being exploited and exported,thereby benefiting the companies and their investorsenormously, the net impact on developing countrieshas been controversial.

Although disputed, numerous studies over the past twodecades have shown that natural resource dependenceis highly correlated with disappointing economicgrowth, inequality and the onset of civil conflict.Moreover, as detailed in a high-profile review of theextractive industries commissioned by the WorldBank, there is growing recognition that the process ofmining and oil production in developing countries ishaving a profound impact on the natural environmentand on the rights of marginalisedindigenous groups (World Bank 2004).These perverse outcomes of resourceexploitation are now widely referred toas the ‘resource curse’ or the ‘paradox ofplenty’.

Aspects of the resource curse remainhighly contested and have given rise toa wide range of competing theories. Weneed not examine the literature in detailhere (see for example Rosser 2006 andRoss 1999). Yet there does appear to be astrong consensus among diversecommentators that much of the problemcan be explained by corruption.

In the past ten years corruption has therefore emergedas one of the leading concerns in policy developmentsin the extractive industries. Perhaps the mostsignificant development came in the late 1990s whena consortium of NGOs formed the Publish What YouPay Coalition. This movement demands that major oiland mining companies make public their paymentsto governments so that illegal deals can be thwarted.A few years after Publish What You Pay was formed,the Extractive Industries Transparency Initiative (EITI)was launched by Tony Blair’s government, and this isnow supported by other northern governments, leadingmultinational corporations (MNCs), NGOs and anincreasing number of resource-rich states in the south.In the past few years loans by the World Bank Group,the International Monetary Fund (IMF) and the AfricanDevelopment Bank, among others, have beenpremised on the need for anti-corruption‘conditionalities’. Mining companies are reporting toshareholders and investors that avoiding corruption iscritical to mitigating their risks, and diverse Africangovernments, from Madagascar to Nigeria, now claimthat fighting corruption is one of their top priorities inbetter managing resource exploitation and attractingforeign investment. In short, fighting corruption hasswiftly become one of the key ideas in the effort to

make resource exploitation contribute to developmentin Africa instead of being a source of potential harm.

The extent to which corruption is a major problem inthe extractive industries remains a moot point, theanalysis depending largely on what one understandscorruption to be. As this paper will argue, corruptionin the extractive industries is open to differingperspectives and isolating its significance is notstraightforward. Moreover, despite a great deal ofrhetoric in fighting corruption and achieving greatertransparency in the extractive industries, there areprofound political factors that undermine these efforts.These may explain why success in combatingcorruption appears to be modest, at best.

With the intensification of mining and oil productionas the background, the first part of this paper broadly

discusses rival views of corruption in theextractive industries, the debate beingsimplified by contrasting an orthodoxstate theory of corruption with asomewhat less orthodox view oncorporate corruption and ‘state capture’.The next section comments on thepotential consequences of corruption,focusing particularly on environmentaldegradation and the rights of localcommunities affected by mining. Thefinal section of the paper discusses thechallenges and pitfalls of anti-corruptioninitiatives. Here the paper first considersthe technical and political limitationsto combating corruption beforecommenting on broader debates about

the problematic consequence of over-prioritising anti-corruption measures as a means to ensure humandevelopment. In effect, this involves asking thequestion: what ends does combating corruption serve?

Conceptualising the problem: corruption andnatural resources

Oil rigs are alighting all along this stretch ofAfrica’s western coastline like giant metalmosquitoes, standing on the skin of the earthon spindly legs and drilling down with steelproboscises to suck out the fluid that is thelifeblood of the world economy. Like thebiting insects, the rigs can cause irritationaround the site of extraction, disrupting localcommunities or polluting farmland. But it isthis resource curse – the stealthier, time-delayed payload that accompanies theextraction, just like the malaria that realmosquitoes transmit – that is the real problem(Shaxson 2007:6).

An orthodox definition of corruption is the ‘abuse ofpublic office for private gain’. This is sometimesreferred to in less prosaic terms as the ‘grabbing hand


Grandcorruption

seems to flourishwhere access toinformation islimited and

revenue flowslack

transparency

of the state’. In the extractive industries myriad formsof this type of corruption may occur. However, themost notorious manifestation of corruption involvespolitical elites and their families or cronies plunderingresources for self-enrichment, or senior officialsdemanding large kick-backs when brokering dealswith private companies. Certain natural resourcesprovide enormous revenues, often paid in lump sums,and are therefore lucrative targets for those seekingillicit wealth. In particular, the process of extractingoil or mined commodities may involve ‘signaturebonuses’ and ‘royalty payments’, and a proportion ofthese may easily find their way into private bankaccounts and not the state treasury. Nigeria is oftencited as one of the worst examples of this; it isestimated that senior officials have stolen at leastUS$50 billion from oil revenues since the mid 1960s.The theft of large sums of money by those in positionsof significant power is often called ‘grandcorruption’. It seems to flourish in thosesocieties where access to information islimited and revenue flows lacktransparency. In situations where civilsociety is unable to know how muchmoney is being earned through resourceextraction, the opportunity forembezzlement is high.

As a general observation, naturalresources appear particularly prone toforms of corruption. However, the linkbetween state corruption and naturalresources may be more profound thanthis. Numerous studies have argued thatthose countries that are highly dependenton natural resources for national wealth creation tendto suffer from high levels of corruption in general andtend to have authoritarian systems of government (seefor example Wantchekon 1999, Leite & Weidmann1999, Jensen and Wantchekon 2004). A collectivefinding of these studies is that the type of naturalresource is important: those classified as ‘point-source’resources – such as oil, gas and certain minerals – aremore problematic than resources that are diffuse, orscattered geographically (see Ross 1999, 2001). Thisrelationship between corruption and resources is a vitalissue to consider, for corruption may not simply bethe cause of problems related to resource extraction:it may also be a symptom.

The rentier state effect

An influential explanation for the deterioration ofgovernance caused by abundant natural resources isrelated to the notion of a rentier state, first identifiedby Mahdavy (1970) through his studies on the impactof oil production in the Middle East. According to thistheory, problems arise in resource-rich states becausethe rulers are able to generate wealth throughundisclosed resource rents – or sovereign rents, asCollier (2005) refers to them – rather than through

taxation. In simple terms, where governments rely ontaxation as their primary source of revenue, and wherethere are relatively fair elections, supplying publicgoods drives political competition. There is, therefore,dependence in the political process on broad-basedpublic sentiment and a proclivity for those seeking ormaintaining political power to engage in rent-producing activities as a result.

Where rulers are able to rely on natural resourcerevenue as their primary source of income, this mayencourage, or reinforce, a detachment between themand the majority of citizens.3 Political competition isdriven by systems of patronage and conflict, and publicspending is therefore not directed towards the publicgood but towards maintaining political hegemony. Inthis scenario, unproductive rent-seeking behaviour islikely to predominate over rent-producing behaviour.

There is likely to be a concerted effortto weaken or compromise institutionsthat pose checks and balances, such asthe media, the criminal justice system,civil society and academia, and there isan inclination to turn to militaristicmethods of social control. This in turnencourages a noxious relationshipbetween rulers and the military, with thelatter being kept loyal through a sharingof the profits from resource exploitation.In short, it is assumed that in this rentierstate model the wealth derived fromnatural resources may result in a form ofcentralised government that is secretive,aggressive, paranoid and uninterested inpublic welfare. Such governments will

plunder resource wealth for their own ends, and notuse it for the public good.

The consequences of this situation are thought to befar reaching, explaining further dimensions of theresource curse. For instance, being able to generatewealth through natural resource rents also serves toweaken other areas of the economy, which may beless vulnerable or valuable to rent seeking. This appearsas a political or psychological form of what is knownas the Dutch disease syndrome: corrupt rulers focuson their own wealth creation through embezzling orcapturing rents from point-source resource extractionand they show little interest in developing otherpotential sectors of the economy, including agriculture,that may provide far more security and employmentto people than industries such as oil, gas or mining(see Hodges (2001) for a good example in Angola).

Ross (2006) argues that the Dutch disease – whethertriggered by political or purely economic factors –not only accounts for poor economic growth but alsohas a profound impact on inequality and socialstructure. In particular, the over-reliance on resources,such as oil and gas, tends to diminish femaleparticipation in the labour market by crowding out


Despite itsimpressiveresource

base, Angolahas one of thehighest levelsof poverty in

the world

sectors that have a propensity to employ women. Thisin turn reduces the political influence of women,which may account for the fact that major oil andmineral producing states are characterised byatypically strong patriarchal institutions.

Summing up the multiple consequences of resourcedependence in developing countries, a reportpublished by the World Rainforest Movement (2004)claimed:

… the more that southern countries rely onexporting minerals, the worse their standardof living is likely to be. Higher levels ofmineral dependence are strongly correlatedwith higher poverty and child malnutrition andmortality rates. They are also associated withincome inequality, low spending levels onhealth care, low enrolment rates inprimary and secondary schools, andlow rates of adult literacy, as well ashigher vulnerability to economicshocks. Recent academic studiesreveal that overall living standards inmineral dependent states tend tosuffer from high rates of corruption,authoritarian government, govern-ment ineffectiveness, militaryspending, and civil war.

An example of the rentier state effect:Angola

A glance at African countries shows manycontenders for the rentier state effect, withseveral characterised by a poor history of democraticgovernance, relative dependence on natural resourcesfor wealth creation, and worsening levels of corruption.In addition to Equatorial Guinea, the DRC and severalcountries in West Africa, Angola seems to illustratethe rentier effect vividly.

Angola is Africa’s second largest exporter of oil andthe third largest exporter of diamonds. In 2005 thegovernment’s oil revenues rose to US$10 billion, andthis will probably double between 2005 and 2010.According to the IMF, by 2012 Angola’s income fromoil will surpass Norway’s (cited in Amundsen,forthcoming, p 10–12). Yet despite – or perhapsbecause of – this impressive resource base, Angolahas one of the highest levels of poverty in the world.Although statistics are extremely unreliable, Angolais also generally regarded as one of the most unequalcountries in the world.

Corruption and elite plunder seem partly to explainthis disparity. Between 1997 and 2002, ‘unaccountedfor funds’ from Angola’s oil industry amounted toUS$4.22 billion. In the same years, total socialspending in the country – including Angolan govern-ment spending as well as public and private initiatives

funded through the United Nations Consolidated Inter-Agency Appeal – came to US$4.27 billion.

Through grand corruption many of the country’spolitical elite are rumoured to have staggering personalwealth. McMillian (2005) reported that in 2003 nearly50 Angolans in position of public office each hadpersonal wealth of more than US$50 million, while itis estimated that ten had personal wealth in excess ofUS$100 million. The richest seven Angolans were inthe government and President Dos Santos is believedto be the wealthiest of them all.

By all accounts Angola is also a country with direinstitutional arrangements, and it appears that thesituation is becoming progressively worse (seeAmundsen, forthcoming). The President has excessivepower, the judiciary is far from independent, the media

is controlled by the state, and demo-cratic elections have been stubbornlypostponed. Civil society is intimidatedand infiltrated, and as a result is largelyunable to hold government accountable.

Despite signing up to the EITI (seebelow), Angola was ranked as thesecond least transparent country in theworld by the International BudgetProject, with only Vietnam scoringworse. A report provided by HumanRights Watch on Angola summed up therentier effect concisely:

When a government is the directbeneficiary of a centrally controlled

major revenue stream and is therefore notreliant on domestic taxation or a diversifiedeconomy to function, those who rule the statehave unique opportunities for self-enrichmentand corruption, particularly if there is notransparency in the management of revenues.Because achieving political power oftenbecomes the primary avenue for achievingwealth, the incentive to seize power and holdonto it indefinitely is great. This dynamic hasa corrosive effect on governance … Insteadof bringing prosperity, rule of law, and respectfor rights, the existence of a centrally controlledrevenue stream – such as oil revenue – canserve to reinforce or exacerbate anundemocratic or otherwise unaccountableruler’s or governing elite’s worst tendencies byproviding the financial wherewithal to entrenchand enrich itself without any correspondingaccountability (Human Rights Watch 2003:1).

Corporate corruption and state capture

At its simplest, the rentier model encourages the ideathat rent-seeking elites and public officials inunderdeveloped resource-rich states are the primary


Corruption ispart of the riskfor companiesoperating in

the extractiveindustries

source of corruption within the extractive industries.In other words, corruption is caused by domesticconditions and solutions to the resource curse are tobe found at this level. Yet this is only part of theproblem, and state-centred theories of corruptionbecome more complex when we ask whether corruptrelations bring any direct benefits to the companiesinvolved. This appears to be a divisive issue.

It is now well documented that large foreigncorporations active in the extractive industries havepaid enormous bribes to corrupt governments. By wayof example, a senior employee of a consortium of oilcompanies operating in Nigeria, including a subsidiaryof Halliburton, confessed to French investigatingauthorities that a slush fund of $180 million was usedto bribe officials in Nigeria (Open Society JusticeInitiative 2005:24). Although companies paying bribesare open to the accusation of complicityin corruption, there are those whosuggest private companies remainunwilling partners in these criminalexchanges. It is not uncommon to hearthat companies would rather operate inareas of ‘good governance’, definedpartly by transparency and the rule oflaw (see, for example, Bray 2003).Paying bribes is costly and beingimplicated in corruption scandals mayundermine the ‘social licence’ ofcompanies to operate. This was anargument made, for example, by CEOBobby Godsell in response to evidencethat AngloGold Ashanti, one of theworld’s largest gold mining companies,gave cash to a rebel military group in the DRC.Payments were apparently made unwillingly and thiswas a matter on which Godsell claimed the companyhad ‘messed up’ and regretted deeply (Evans 2005).

If we accept this view, then bribe payments can beconsidered burdensome to private operators, raisingthe cost of doing business, and we may thereforeassume that business would prefer not to pay them.According to some sources, corruption is part of therisk for companies operating in the extractive industries.In a report on corruption in Tanzania published by theChristian Michelsen Institute it was argued that:

Efforts to combat corruption are widelyregarded as important for improving businessconditions in developing countries. Corruptionincreases the cost of doing business, andimposes a tax on entrepreneurial activity(Fjeldstad et al 2006:1).

This understanding is also supported by the work ofthe influential Canadian think tank, the Fraser Institute,which conducts industry surveys showing whichcountries have the most favourable conditions formining activities (Fraser Institute 2007). In their

ranking system corruption is listed as a major deterrentto foreign investments, although excessive tax andenvironmental regulation also contribute to theproblem for mining companies. Likewise,PricewaterhouseCoopers (PWC) reported that thethreat of paying bribes is often a decisive matter foroil and mining companies when evaluating a newventure. In fact, according to PWC, 41 per cent of 32leading mining companies in 2001 withdrew from anotherwise profitable venture owing to the threat ofhaving to pay bribes and deal with corrupt officials(PWC 2001). A report by Global Witness (2004:83)described the negative implications of corruption forcompanies by explaining how transparency benefitseveryone except corrupt governments:

Transparency is in the interest of almosteveryone concerned – citizens, companies,

donor governments and the widerinternational community – excepta corrupt elite grown fat from thesystematic misappropriation ofstate assets … Multinationalbusinesses do not benefit fromhaving to compete on the size ofkickbacks rather than technicalmerit, nor do they gain when theirlegitimate payments to govern-ments end up funding socialdivision.

Yet to conceptualise corruption in theextractive industries as being a risk onlyfor private companies seems limiting.Here it is useful to review some recent

work on corruption and governance by a group ofexperts at the World Bank Institute led by DannyKaufmann.

Corporate corruption

Since the mid 1990s the World Bank has been themain driving force in elevating the issue of corruptioninto mainstream policy debates. Initial work by thebank tended to emphasise bureaucratic and publicsector corruption, and it has depicted the private sectoras one of the primary victims. Yet in the past few yearsKaufmann and his colleagues have challenged whatthey call ‘conventional wisdom’ on this subject.Perhaps most importantly they have turned to businesssurveys to show that companies operating in weakstates or in those states undergoing transition, are notsimply passive victims but are active parties tocorruption as it brings several benefits. In essence,what Kaufmann and his colleagues have realised isthat corruption is not only the abuse of public officefor private gain, but also the use of public office forprivate gain by third parties: the grabbing hand of thestate is joined by the grabbing hands of privatecompanies. Discussing evidence of corporatecorruption Kaufmann and his co-authors argued:


State capturedescribes how

companieschange therules of the

game in theirfavour

It is critical to recognise, from a politicaleconomy perspective, that these forms ofcorruption generate substantial gains …thereby challenging the premise that thesefirms are coerced and making it that muchmore difficult to develop effectiveconstraints on such behaviour (Hellman etal 2002:21).

This is an argument that may seem provocative orunexpected coming from the World Bank, but it isone that is familiar to those who are increasinglyconcerned about what they see as the destructivepower of multinational companies. For example, JohnRumbiak, supervisor of the Institute for Human RightsStudy and Advocacy in Papua, Indonesia remarked:

As an activist from the Global South, I havewitnessed, in excruciating detail, thedevastating impacts of multinationalcorporations on the naturalenvironment, on the basic humanrights of people – primarilyindigenous communities – and alsoon the democratic governance ofentire countries (Rumbiak 2003).

In conceptualising corporate corruption,Kaufmann makes several importantdistinctions. Perhaps most significant isthe unbundling of corporate corruptioninto administrative corruption and statecapture. Administrative corruptioninvolves bribe payments to circumventthe implementation of existing laws andregulations, whereas state capture refers to the processwhereby companies illicitly affect policy decisions,legislation and regulatory frameworks for their ownbenefit. In other words, state capture describes howcompanies change the rules of the game in their favour,whereas administrative corruption describes howcompanies get away with breaking the rules.

Based on research on the activities of firms intransitional economies, Hellman et al (2000:3)describe how state capture is often widespread, givingrise to what they call a ‘capture economy’:

In many transitional countries a captureeconomy has emerged, where rent-generatingadvantages in the form of policies, laws andregulations, are sold by public official andpoliticians on an ‘a la carte’ to private firms.

Here the analysis focuses on transitional states, but inother publications by the World Bank on state capturethe authors make it clear that this is also a growingproblem in numerous advanced OECD nations. Byusing this expanded and less conventional definitionof corruption, Kaufmann and Vincente (2005) haveconducted empirical studies that challenge other well-

known corruption indices. Due largely to the influencecorporations have on the political process, countriessuch as the US, Canada, Spain and Italy, are rankedbelow the likes of Chile, Botswana and South Africain terms of their levels of corruption. Indeed, the USscores particularly badly, and although Kaufmann andVincente do not provide detail, we suspect that thepolitical influence of the oil majors contributes toAmerica’s poor governance ranking.

Legal corruption?

In analysing state capture, Kaufmann recognises thatthere are also numerous ways in which companiesmay capture the state without recourse to crudeexchanges of cash, and this influence may be deemedillegal or not depending on the country in which ittakes place. Of particular interest for Kaufmann is the

practice where companies lobbygovernments and donate money topolitical parties. However, we canperhaps take this analysis further andnote how the undue influence ofcompanies is not only achieved byoffering gifts and bribes, but can alsomanifest in threats and ‘bullying’. Inparticular, companies may influencestate policy by threatening thewithdrawal of investments (see “Mining,corruption and environmentaldegradation” below for an example).

Appreciating the wide range of ways inwhich companies can exert undueinfluence, Kaufmann and Vincente

(2005) advance the notion of ‘legal corruption’. In doingso they lead the debate on conceptualising corruptioninto contentious territory. They write:

It is timely to explore a less traditionaldefinition of corruption, one that accounts morebroadly for the undue benefits derived by theprivate few from their excessive influence inshaping the institutions, policies, laws andregulations of the state to their own ends.Vested interests that remove public policy fromthe realm of democratic – i.e. contestable –decision-making should be an importantcomponent of this new definition. Undueinfluence by private vested interests on thestate sector may, or may not, involve theexchange of a bribe or related form of illegalcorruption. In other words, room is thusprovided, in this more neutral definition ofcorruption, for so-called legal forms ofcorruption, which can by defined simply asthe ‘privatisation of public policy.’ Such analternative definition focuses on the keymediating institution or agent committing theabuse of power, namely the institution of(undue) influence, driven by vested interests.


Is a bribe theresult of a

public officialextorting a

company or ofa company

wanting to buyfavours andinfluence?

It is a moot point whether Kaufmann’s definition oflegal corruption will gain widespread recognition, andwe suspect that corruption will continue to be seen ina narrow legalistic sense. Moreover, it is not clearthat he has fully developed the notion of legalcorruption. Indeed, while it seems clear thatdemocratic decision-making can be undermined byprivate and non-elected interests – and this appearsto be a particular problem in the extractive industries– it would be interesting if the concept of legalcorruption was extended to the level of inter-governmental organisations such as the World Bank.As is well known, the World Bank is frequentlyaccused by critics of being an institution lessconcerned with the plight of the poor in developingcountries than with the interests of powerful MNCsbased in OECD countries. We need not explore towhat extent this accusation has merit, but it seemsreasonable to argue that if legalcorruption is to become a meaningfulconcept it should be extended to coverthe activities of governments and inter-governmental organisations, not onlycompanies.

The political economy of corruption

On one level orthodox ‘state-centred’theories of corruption and the somewhatless orthodox theories of ‘corporatecorruption’ may seem to be in contrastto each other, though we do not believethat the study of corruption must choosebetween these competing theories in anexclusive way. The more obviousquestion is whether in actual case studies it is possibleto detect where the power lies in corruption. In otherwords, when a bribe is paid we may wonder whetherit is the result of a public official extorting a company,or whether it is the result of a company wanting tobuy favours and influence.

We may speculate that in the extractive industriesthe bribe takers have a strong bargaining power, andthis may increase in the future. The intensification ofinternational demand for resources, coupled with thegrowing competition from a host of foreign companies,may mean political elites can play companies offagainst each other and insist on burdensome bribesand favours in return for concessions and licences.Yet in countering this scenario, one group of expertssuggests that a combination of superior technicalexpertise held by companies, as well as the short-term mindset of officials, may tip the balance of powerin favour of companies:

It would be wrong to suggest that foreigninvestors hold all the cards as they negotiatewith host countries; but they often have thebest possible professional support fromadvisers charged with acting in their best

commercial interests. Host states might lackthe resources to do the same and might findthemselves sorely tempted to exchange theirlong-term right to regulate foreign investorsfor short-term gains (Ayine et al 2005:2).

Complicating this line of inquiry is the possibility thatconceptualising corruption between companies andpublic officials as a competitive exchange, with‘winners’ and ‘losers’, is something of a simplification.For one thing, corruption may often be mutuallybeneficial for both parties. Consider, for example, thecase of Equatorial Guinea, Africa’s third largestexporter of oil, with the US being the primary consumer.In 2004 a US Senate special investigation waslaunched amid mounting evidence that ExxonMobileChevronTexaco, Marathon and Hess, among others,had paid several million dollars in bribes for oil drilling

rights, reduced tax burdens andfavourable environmental regulations.The same companies were accused ofassisting President Obiang and otherleading politicians to launder vast sumsof public money out of the country. In2004 it was alleged that US oilcompanies were giving more than US$4million to relatives of President Obiangso that they could live and study in theUS (see McSherry 2006).

According to Lawrence Cockcroft ofTransparency International (TI), suchmutually beneficial deals are widespreadin Africa, and the payment of bribes isoften associated with reduced tax

burdens for companies.

Most African countries operate some formof tax break for new investors, with varyingdegrees of generosity. In fact, such incentiveschemes are frequently deceptive in that thereal deal is being done in spite of them andalongside of them, with a key cabinetminister or official coming to an alternativearrangement which may well guarantee anoffshore payment for the individual inquestion as well as a ‘tax holiday’ for thecompany concerned (Cockcroft cited inBond 2006b:18).

The possibility that corruption in the extractiveindustries may represent a mutually beneficialrelationship between the bribe giver and the bribetaker is made more likely by the fact that that politicalelites and governments have direct economic interestsin private companies. Such conflicts of interest maycreate a complex blurring of private and publicgovernance, rendering the distinction between a statetheory of corruption and a corporate theory ofcorruption untenable in many cases. Thus, for example,the extensive report on the mining sector in the DRC


As thegovernance of

natural resourcestranscendsnational

boundaries, sotoo must ouranalysis of

relatedcorruption

by a UN panel of experts identified an ‘elite network’profiting from the illegal plunder of resources in thatcountry, and contained a long list of Congoleseofficials, military personnel and private businessmen(United Nations 2001). More recently reports haveemerged of systemic corruption involving the rapidprivatisation of the DRC’s largest state miningcompany, Gecamines. Canadian and South Africanjunior mining companies are thought to have formedjoint ventures with Congolese officials that havegained Gecamine’s assets for exceptionally low prices(Hund and Verbruggen 2006:55).

Similarly, in a recent report published by the NationalDemocratic Institute for International Affairs on thepotential role of legislatures in promoting transparencyin Africa’s extractive industries, conflicts of interestwere noted as a serious problem in Ghana, as well asmany other countries.

In countries with weak ethicalstandards, legislators are just aslikely as members of the executivebranch to maintain business orpersonal ties perceived to be conflictsof interest. In Ghana, for instance,elected representatives andgovernment ministers may serve onthe boards of corporations over whichthey have direct or indirect oversight… Extractive industry oversight maybe further undermined by legislators’private business dealings with miningor oil companies (Bryan & Hofmann2007:27).

As alluded to by Kaufmann’s research, we know thatconflicts of interest are also a potential problem thatcan spread to the governments of so-called ‘homecountries’, and it is therefore not only an issue indeveloping countries with weak state capacity. It is amatter of growing concern that many of the key miningand oil companies make substantial contributions topolitical parties in OECD countries. As argued byAmnesty International, the reluctance of the USgovernment to prosecute four major mining and oilcompanies for their catalogue of human rights abusesmay be explained by the fact that in 2002 thesecompanies donated US$2.8 million to the RepublicanParty’s election campaign (Amnesty International2005). To make matters worse, senior politicians anddiplomats frequently move from public office to takeup senior positions in companies. The lists of senior boardmembers of the largest mining companies contain manyformer diplomats, politicians and senior statesmen.

Joseph Stiglitz points out that the revolving doorsyndrome is equally a problem at the level of inter-governmental organisations, although few havescrutinised this. In an article published in the Britishnewspaper The Guardian Stiglitz argues:

… there seems to be no such rule onrevolving doors in place at the IMF; its firstdeputy managing director moved from hissenior public sector job to the vice-chairmanship of one of America’s largestfinancial institutions. The IMF is widelyviewed as reflecting the ideology andinterests of the financial community, ofresponding more to its concerns than thoseof the developing countries it is supposed tobe helping. In Indonesia, there were billionsof dollars to bail out foreign creditors, butpaying out far smaller sums to provide foodand fuel subsidies for those thrown out of theirjob or who saw their wages plummeting wasviewed as a waste of money. Western banksbenefit from such bail-outs (Stiglitz 2002).

This may be regarded as a controversialargument, but it is noted here to raiseawareness that corruption cannot beconceptualised only as a domesticproblem because it also hasinternational and inter-governmentaldimensions. Indeed, in an era whenincreasing power is wielded by non-elected officials in inter-governmentalorganisations, combined with thedramatic rise in power and wealth ofMNCs, it is clear that state-centredtheories of corruption are highly limiting.In other words, as the governance ofnatural resources transcends nationalboundaries, so too must our analysis ofrelated corruption.

The impact of corrupt resource extraction onthe environment and local communities

From the above discussion, we can see how the issueof corruption in the extractive industries is bothmultidimensional and contested. However, the issueof corruption is further complicated when we considerits manifestation in terms of the environment and localcommunities. These are two areas that are increasinglycontroversial in the extractive industries, although theissue of corruption is not often considered.

Mining, corruption and environmentaldegradation

According to industry analysts, there have beenconsiderable improvements among mining companiesover the past ten years to mitigate environmentalimpact, although the same commitment is less clearfrom companies in emerging markets such as China,India and Russia, as well as many of the junior miningcompanies that seem to operate below the radar ofcivil society scrutiny. Most countries require in-depthenvironmental impact assessments that lead toenvironmental management plans, which should


contain details of what precautions companies needto take and how their activities should be monitored.Care needs to be taken not to typecast the entiremining industry as environmentally destructive, andit must be recognised that some environmental impactis unavoidable when supplying commodities that arein demand. However, mounting evidence suggests thatmining has been excessively destructive to our naturalenvironment and there is little reason to believe itwill not continue to be so in the future.

Perhaps the most worrying aspect of mining involvespollution and the contamination of the environmentwith highly toxic substances. The most spectacularpollution occurs when waste, known as tailings, isdumped directly into the environment with littleprocessing, or when tailing dams fail and hugequantities of contaminated water are released into thesurrounding area. According to theUnited States Environmental ProtectionAgency, the contamination of water withmetals and toxic substances from miningrepresents one of the top three ecologicalsecurity threats in the world (WRI 2003).

Mining is also destructive in terms of theexcavation and dumping of soil and rocks.In this regard technological improvementsmay have been counterproductive. Open-pit mining is thought by some to have amore profound impact on the environmentthan deep-shaft mining. It occurs at a morerapid rate and has become moreeconomically viable as a result of thedevelopment of ever more powerfulbulldozers and land clearing machines.

The combined impact of topsoil excavation, toxicwaste and the tendency for mining operations torequire large amounts of water, becomes particularlydamaging when mining occurs in areas of highbiodiversity. Indeed, mining represents an importantthreat to protected areas and natural forests. As a resultof the increasing pressure to find new deposits, miningoperations in many parts of the world are responsiblefor the shrinking of natural habitats and protectedareas. The World Resource Institute (WRI) is one ofthe leading organisations that provides data on theenvironmental hazards of mining. Althoughdeforestation is linked most obviously to logging, theWRI claimed in 1997 that 38 per cent of the world’sremaining pristine forests are threatened by miningactivities and exploration (cited in World RainforestMovement 2004). In 2003 the WRI provided datashowing that more than 25 per cent of the world’smines are situated in or within a 10 km radius of strictlyprotected areas; that roughly 30 per cent of the world’smines and new exploration sites are situated withinareas of intact ecosystems; and that roughly 30 percent of the world’s mines are located in stressedwatersheds (WRI 2003).

It is difficult to know to what extent corrupt activitiescan increase the negative environmental impact ofmining. Environmental organisations and civil societygroups argue that the fundamental fault lies withskewed policy priorities. According to them,governments and key lending organisations seem toplace environmental considerations low down on theirlist of priorities. There is a perceived apathy towardsenvironmental concerns caused by the quest for profits.

However, as a general concern, less developedcountries with weak political institutions may beparticularly vulnerable to excessive environmentaldegradation by mining activities. This is partly becausein the poorer states there will probably be less urgencyin balancing economic considerations withenvironmental concerns. But it is also highly likelythat where there is inadequate state capacity to

regulate mining, unethical and criminalactivities may flourish with impunity. Thiswas the conclusion reached by the WRI:

Many mineral-dependent countriesin the developing world lackimportant safeguards to ensure thatresponsible mining occurs, such asthe ability to enforce laws, controlcorruption, and foster a strong civilsociety. Nearly one quarter of activemines and exploration sites arelocated in countries wheregovernance structures are weakest(WRI 2003:4).

Moreover, through a process of statecapture, mining companies may weakenenvironmental regulations. Reports suggest thatinvestment deals struck between copper miningcompanies and the Zambian authorities mean thatsome of the companies are now exempt from beingprosecuted for environmental degradation (Anon.2005). This is a matter of serious importance, as coppermining in Zambia is thought to have a highly negativeimpact on the environment and people’s health. Inone township situated near a copper mine, it has beenestimated that 90,000 children have been exposed tolead and zinc poisoning, and extremely high levelsof sulphur dioxide emissions have been recorded(Feeney 2001).

A further issue of concern relates to the efforts bymining companies to gain access to formerly protectedareas. Consider the case of Ghana. In the early 1980s,Ghana was one of the first African countries toliberalise mining laws under the guidance and withsupport of the IMF and World Bank. Ghana has in thepast been regarded as a mining success story, beingthe second largest exporter of gold on the continent.Yet the impact on Ghana’s tropical forests of thebourgeoning mining sector has been ruinous. Accordingto a report published by the World Rainforest

Miningrepresents an

importantthreat to

protected areasand natural

forests


Movement (2004), an average of 2 million hectaresof forest is lost to mining every year. In 2003, acoalition of civil society groups began a campaign toreverse the decision made by the government to grantexploration licences to mining companies withinprotected forest areas. It was claimed by the coalitionthat the granting of these licences was demanded byinternational mining companies, who threatened theGhanaian government with the prospect of movingtheir investments to Tanzania. This appears to be aclear example of state capture through aggressivetactics or bullying.

The case of Ghana may be a warning to other Africancountries. Reports already suggest that in the DRCthere have been encroachments into protected forests,including gold mining in the Okapi Wildlife Reserveand the Kahuzi-Biega National Park. As mining ispredicted to grow substantially over thenext few years, it seems likely that thepressure on the government of the DRCto provide mining licences inconservation areas will increase. Theextent to which these decisions will besubject to democratic processes remainsdoubtful.

Mining, corruption and theexploitation of local communities

Mining often occurs in rural areasinhabited by people who have lived inthe region for generations. Many of thesepeople are recognised as indigenous andhave a traditional way of live intimatelyconnected to their environment. With the continuingexpansion of the mining industry, an increasingnumber of such communities are coming into contactwith mining companies.

In theory mining represents opportunities for localeconomic development, as it creates jobs andenormous wealth potential. Yet it is clear that miningalso creates immense tensions at the level of localcommunities, and this is a subject that continues toreceive much disapproval and concern. Indeed, inthe 2004 World Bank’s Extractive Industries Review(EIR), the issue of the impact of mining on indigenouscommunities was given considerable attention. It wasnoted by the EIR that the vast majority of human rightsabuses reported to international human rightsorganisations by indigenous groups stem from theexploitation of natural resources on their lands.

Submissions to the EIR by organisations working onbehalf of indigenous groups raised a number ofinterrelated concerns. These can be summarised asfollows:

• Although contested, it is recognised ininternational law that indigenous groups have the

power to withhold their consent to activities thatadversely affect their human rights. Such groupsare expected to have access to information, befully integrated into relevant decision makingprocesses, and to be autonomous – an idealreferred to as ‘free, prior, informed consent’ (FPIC).In many cases of resource exploitation, FPIC isnot adhered to. In extreme cases indigenous groupsare simply ignored, and they only realise that theirlands have been given to companies when workbegins or eviction notices are served. Forcedremovals can follow and the suffering that resultsis tremendous.

• Where financial compensation for relocations isgiven, it is often presented in the form of one-offpayments. In comparison to the enormous wealththat mining companies enjoy, these payments arefrequently seen as miserly and they are quickly spent.

• Where mining companies seekformal consent from affectedcommunities, this is often achievedthrough propaganda, impressivepresentations, and extremelyattractive promises for the future,which are misleading. People areassured of employment opportunitiesand investment in localinfrastructure, including roads,schools and healthcare facilities.Individuals are told they will receivegenerous sums of money whenrelocating. Local people who areeither illiterate or unable to accessmore information seem easily

swayed by such offers, yet communities are rarelyoffered unbiased assessments that include thepotential negative impacts of mining.

• Promises made by companies form part of theirvoluntary corporate social responsibilityprogrammes. They are typically not legally bindingand communities can be presented withambiguous detail on time frames. The situation isripe for broken promises and disappointingoutcomes.

• The environmental degradation that tends toaccompany mining operations can have a severeimpact on local communities through watershortages, air pollution, contamination of naturalwater supplies by toxic waste, and the resultingloss of local biodiversity. Compensation for theimpact of environmental degradation is rarelyforthcoming.

• The local economic development achieved bymining tends to be to the detriment of indigenouspeoples. Although promised access to mining jobs,employment opportunities are in fact limited becauseof a skills shortage. The majority of new jobs aretaken by an influx of specialised labour, and

Miningcreates jobsand wealth

potential butalso creates

immensetensions in

localcommunities


indigenous people tend to occupy a marginal andprecarious position in the resulting new economy.As a result of losing their traditional lands, they aredenied the ability to live in a self-sustainable way,and are expected to find new money-making venturesto survive.

• The impact of resource extraction is typically greaterfor women. Whereas women traditionally occupyan integral position in indigenous communities,resource extraction tends to promote men’sdominance in the local political economy.Companies, almost exclusively run by men, tend tonegotiate with local men and ignore womencompletely. The few jobs available through miningare given to men only, and the influx of mininglabour tends to comprise men without families.Mining communities therefore tend to be excessivelypatriarchal.

• The negative impact on communitiesis exacerbated when miningoperations close, and often this occurssuddenly with no consultation. Theclosure of mines creates an upsurge inlocal unemployment, which results ina myriad of social problems.Infrastructure maintained for the sakeof resource extraction may beneglected and its upkeep becomesburdensome for local authorities.Local communities often complainthat when mining ends there is asignificant deterioration in theirquality of life, and they are facedwith the long-term consequences ofunemployment and an impoverished environment.

Where mining has conformed to this list of negativeoutcomes for local communities, it is tempting to labelthe entire process as corrupt and lacking intransparency and accountability. However, care needsto be taken to distinguish between corruption and badpolicy or unethical business practices. Many of thenegative consequences for communities caused bymining can be attributed to reckless planning andskewed priorities. It should also be realised thatachieving an ideal scenario by mining companies isfar from straightforward. For example, althoughcompensation for communities relocated from miningactivities may often be scandalously low, there areno industry standards in this regard. Calculatingcompensation is therefore arbitrary and miningcompanies complain that any amount given will beseen as too little by their critics.

However, several aspects of the relationship betweenmining companies and local communities are causefor concern. Two of the key aspects we have dealtwith already, namely the potential for corruption tocause environmental degradation, and the potentialthat state capture will allow mining companies to

encroach on protected areas. These issues are clearlyrelated to the plight of indigenous peoples.

Moreover, as a general point, we strongly suspect thatin countries with weak institutions and high levels ofcorruption related to mining and oil production, thestate may have scant regard for the well-being of therural poor. The rentier state syndrome suggests a countryin which public sentiment is not critical to politicalhegemony, and civil society is weak, intimidated, anddenied access to impartial systems of justice. The factthat corrupt elites may have direct financialinvestments in mining ventures also suggests thatcostly interventions and community developmentprogrammes may be less likely to materialise.

If we are to be more specific than this, we can honein on the local dynamics between companies,

authorities and communities. Here weare interested in how mining companiesturn to bribery or engage in corruptrelations with local authorities or othergatekeepers to manage the tensions thatarise within communities.

The capture of local communities?

There are several examples suggestingthat mining companies attempt to buyinfluence in communities, and we canthink of this as a localised dimension ofstate capture. For example, a consortiumof Kenyan mining firms and Tiomin, aCanadian mining giant, has recentlyreceived the go-ahead to begin mining

titanium mineral sands on the East Coast of Kenya.This venture is controversial for several reasons: thereare allegations of elite level corruption; the projectinvolves the relocation of approximately 1 500families; and environmentalists remain highlyconcerned that the process of extracting the mineralsands may have a profound impact on the environmentand the health of local communities (Kithi 2004).

As a response to fears of future environmentaldegradation and concerns about the extremely lowcompensation being offered for the relocations, theaffected communities formed their own committee.This was tasked with collating information andpetitioning the local and national authorities.According to the Kenyan Human Rights Commission,the dynamism of this organisation was severelyundermined by the fact that its leadership tier wassubject to bribes and inducements by representativesof the mining firms.4 Several of the committee leaderswere given motorbikes, while others were actuallyemployed by the mining company.

A similar situation has been reported in South Africain Limpopo Province, where roughly 80 per cent ofthe world’s platinum is located. Some members of the

Care needs tobe taken todistinguishbetween

corruption andbad policy or

unethicalbusinesspractices


communities situated on the site of the largestplatinum mine in the world, near Polokwane, havemounted a well-publicised campaign against AngloPlatinum for what they see as unjust relocations andinsufficient compensation. Anglo Platinum is thoughtto earn as much as US$1 billion a year from this minealone. Many community members are unhappy withthe one-off payment of approximately US$3 000offered to each family for moving, and they claimthat the housing provided for relocated families is sub-standard. Further criticism is levelled at the way thecompensation payments are made – Anglo Platinumhas offered half the money in advance, and theremainder when the last family from the communitieshas moved. It is felt that this is a deliberate ploy toencourage division in the communities and ensure thatthose who agree to the relocation package will putpressure on those who are holding out for greatercompensation.

In its negotiations with the communities,Anglo Platinum is also accused of dividingthe community through direct bribepayments. According to best practice,Anglo Platinum encouraged thecommunities to set up democraticallyelected committees to oversee therelocations and communicate directly withthe company. But Anglo Platinum is payingthe executives of these committees for theirtime, which some believe accounts for thecommittees’ overwhelming support for thecompany. Since they were formed, thecommittees have unanimously decidedthat their executives cannot be re-elected.

In many African countries, mining companies thereforeengage in corrupt practices to gain consent and controlof land. This may involve payments to local authoritiesand also payments and favours to tribal authorities. Inthe troubled Ongoni region of Nigeria, Shell have beenaccused of paying 50,000 naira for the signatures ofvillage chiefs and community developmentcommittees in order to gain consent for mining ontheir lands (Rowell et al 2005:13).

These examples of local communities and theirinteraction with a mining company, if accurate, areindicative of a state of affairs we suspect is commonin regions that are poor and the state is relatively weak.Those who control mining operations can engage incorrupt and illegal means to consolidate their localpower, restrict potential protest, and thereby create afavourable environment for exploitative miningactivities. This may involve the payment of bribes tolocal authorities, traditional leaders, civil societygroups, local media and the police. We do not knowhow widespread this problem is, but it seems to be arecurring story in the available literature. We also findsimilar stories outside Africa. For example, in adamning report on mining in the Philippines, written

in 2006 by a group of NGOs led by then British MPClare Short, it was explained that:

A pattern appears to exist of miningcompanies attempting to capitalize on, orgenerate, division within indigenouscommunities. In cases where the consent ofthe indigenous people has not beenforthcoming, non-representative indigenousleaders have been created and recognizedby the National Commission on IndigenousPeoples and the mining companies. Theindigenous people view the selection of eldersthrough procedures that do not respectcustomary laws as invalid. According to themconsent obtained in this manor should not andcannot be the basis of FPIC (Doyle 2007:28).

It is important to note, however, thatbribes and illegal payments are not theonly mechanism for achieving localpower by mining companies ormanaging the detrimental externalitiesof their operations. Expendituredesigned to smooth social relations mayeasily blur into less obviously corruptpayments and philanthropic gestures,and these may also blur into genuineacts of corporate social responsibility.This is not to suggest that corporatesocial responsibility is a form ofcorruption, but it is open to abuse, and‘gifts’ to communities may be viewedas cynical tactics to win them over.

In other circumstances the social relations of miningcompanies may cause corruption within the broadercommunity to blur into more brutal and noxiousactivities. There are several notable case studies inwhich mining companies seem to be protected by thestate, or by non-state security companies, who dealwith community protests over mining by using outrightintimidation and violence. Activists have noted thisin Nigeria. Woods (2006) describes the situation inone region:

Military and security personnel blanket thearea around Yenagoa to protect oil interests.The communities are under siege. In Odi, acommunity adjacent to a well built in 1958,villagers are demanding basic services likeclean running water, electricity, and schools.The response from security agents has beensevere. Our delegation watched in horror asone young man after another came forward toshow fresh wounds … The young men werebeaten, tortured, and imprisoned, as a warningto others.

A similar situation has been reported in Tanzania, wherecommunities protested about the environmental impact

In many Africancountries,

miningcompaniesengage in

corruptpractices to

gain consentand control of

land


of mining by Barrick Gold. In response, it is allegedthat the local military and police illegally detainedcommunity activists and shot and wounded six people(Glynn 2006).

We can see that localised corruption – whether it is themore extreme form noted in Nigeria and Tanzania, orthe less violent example noted in Kenya – has a profoundimpact on the lives of the poor. It severely weakens theability of communities to organise themselves betterand achieve a political voice. This is not only a directresult of bribe payments, but also of a sense that mininginterests have an overwhelming authority and influence,thereby creating a defeatist mindset that further nullifiescommunity mobilisation. In this regard one report ongold mining argues that ‘Bribery is often difficult to proveand local communities can experience a sense ofpowerlessness – believing even if they follow the correctprocedures they will not be able toinfluence outcomes’ (Catholic Agency forOverseas Development 2006:27).

Discussion: The challenges anddangers of fighting corruption inthe extractive industries

There is little doubt that over the pastdecade the issue of corruption in theextractive industries has been givengreater priority by governments,international organisations and manyNGOs. Drawing on the conceptualisationof corruption presented above, thefollowing pages discuss a number ofcritical issues relating to this effort toreduce corruption. The remainder of the paper isdivided into two broad sections. The first considerssome of the main challenges to combating corruption,which includes litigation and transparency initiatives.The second part involves a broader analysis of whatcombating corruption means in Africa. This involvesconsidering the contested relationship between fightingcorruption, on one hand, and promoting humandevelopment, on the other.

The challenges to reducing corruption inAfrica’s extractive industries

The limitations to litigation

Although not all resource-rich countries have robustlegal frameworks, there are many that have takensteps to strengthen the criminalisation of bribepayments and the laundering of profits derived fromcorrupt activities. In recent years North American andEuropean countries – referred to as ‘home’ by somemultinational companies – have also made advancesin formulating legislation that better targets the corruptactivities of their companies operating abroad. Thesenew criminal law developments are encouraged

through several international agreements, the mostimportant being the UN Convention Against Corruption(2003) and the OECD Convention on CombatingBribery of Foreign Public Officials in InternationalBusiness Transactions (1999). There have also beenregional treaties in southern countries that addressbribe payments, for example the Southern AfricanDevelopment Community Protocol Against Corruption(1999) and the African Union Convention onCombating and Preventing Corruption (2003).

Despite these international agreements and thesometimes real advances in national legislation in‘host’ and ‘home’ countries, the challenges facinglitigation as a means of reducing corrupt practicesare numerous, which is borne out by the scarcity ofsuccessful prosecutions. For example, TI has monitoredthe enforcement of the OECD Convention and its

prognosis, while diplomatically phrased,has not been favourable. Out of 24signatories of the OECD Conventionreviewed in 2005, only three countrieshad managed more than one prosecution.In 13 countries there had not been anyprosecutions, and in 11 there had notbeen a single investigation. It isnoteworthy that Canada, the UK andAustralia, all countries with strong globalmining interests, were shown by the TIreview to be among the weakest inaddressing overseas bribe payments(Heimann et al 2005).

A superficial analysis would emphasisecapacity and skills as the key challenges

facing litigation, particularly in developing countries.Indeed, litigation against political elites andcompanies is immensely complex and thereforecostly. Cases may cross international boundaries, andinvolve a myriad of front companies, secret bankaccounts and middlemen. It will not always be clearwho is the main benefactor and instigator of the crime.Given this complexity, the capacity to investigate andprosecute corrupt officials and corporations is ofteninadequate.

The problem stems from the fact that the victims ofcorrupt activities are often unaware of the crime. Theprocess of beginning litigation invariably relies on aproactive investigation, and this cannot happen if novictims bring cases to the authorities. An exception iswhen corruption leads to the collapse of a financialinstitution and the authorities are approached by thosewho have lost their assets. Because it is normally a‘victimless crime’, we suspect that the vast majorityof cases are obscured from the criminal justice systemas there are too few individuals to give evidence toform a criminal case. This situation is aggravated byinadequate whistleblower protections, whichdiminishes the likelihood that those with critical insideinformation will risk approaching the authorities.

The capacity toinvestigate and

prosecutecorrupt officials

andcorporations is

ofteninadequate


However, although there are straightforward technicalreasons why corruption may go unpunished, politicalfactors create a more profound set of challenges.Efforts to investigate and prosecute political elites andcompanies by private parties, including lawyersrepresenting communities, can be both dangerous andhopeless in countries where rent seeking is endemicat a senior level, where there is a lack of media andcivil society freedom, and where corruption permeatesthe judiciary, the police and civil society. It seemsreasonable to assume that those countries sufferingthe highest levels of corruption will be the leasteffective at responding to investigations andindependent litigations, which means that corruptionbecomes a self-reinforcing syndrome. This, in turn, mayencourage a defeatist mindset among those whodisapprove of the status quo.

A proactive response to corruption in theextractive industries by Africangovernments may also be unlikely tomaterialise. A straightforward dilemmais that senior politicians may be complicitin corruption. However, it is also fact thatmining and oil ventures tend to involveprofit sharing agreements betweencompanies and the government, andpolitically influential citizens can havedirect interests in companies. Sucharrangements make it highly unlikelythat African governments will want costlylitigation to take place, and considerationmay be given to national economicinterests.

At an international level, while some countries haveshown improvements in prosecuting companies forcommitting corrupt acts abroad, we must also recognisethat the extractive industries have increasing geo-political importance, particularly in strategic resourcessuch as oil. The intensification of investments inmining and oil companies, coupled with theextraordinary levels of profits being made by financialinstitutions, must surely compromise the decision asto whether a ‘home government’ acts on evidence ofmalpractice or criminality. Moreover, as was arguedabove, the challenge in investigating and prosecutingmultinational companies may also involve theirpolitical influence back home. It is not only in corruptAfrican countries that investigators face considerablepolitical obstacles and dangers. The UK Departmentof Trade and Industry has been accused of a remarkablelack of ‘political will’, given its tepid investigation ofcorruption reported by the UN panel of experts amongBritish mining companies in the DRC, many of whomalso have strong relations with politicians and politicalparties (see Feeney 2006). Some argue that efforts toinvestigate and prosecute Barrick Gold for its numeroushuman rights abuses in Latin America, the DRC,Tanzania and Indonesia are stifled by its list of directors(see Snow & Barouski 2006), which includes Brian

Mulroney, former Prime Minister of Canada, EdwardsNeyes, former US ambassador to Canada, former USSenator Howard Baker, Trevor Eyton, a member of theCanadian Senate, and Vernon Jordan, one of BillClinton’s lawyers.

Similarly, the investigation led by Eva Joly into thehuge corruption scandal involving French oil companyElf Africaine in West and Central Africa took severalyears and implicated a network of senior Frenchpoliticians, many international banks, several Africanleaders and international oil traders. Not only wasinformation and evidence for this investigationroutinely blocked by the French authorities andinternational banks, but more ominously Eva Jolyreceived death threats, meaning that she eventuallyrequired police protection and an armoured car. It isalso alleged that those implicated in the scandal used

their power in the French media todiscredit the investigations. Because ofthese difficulties, the resultingprosecutions were only partiallysuccessful: Shaxson suggests Eva Jolyand her colleagues only managed toreveal the ‘murky tip’ of the dirtyiceberg (2007:93). The most seniorpoliticians, including two formerpresidents were legally protected fromany prosecutions.

Successful litigation against foreigncompanies in developing countriesbecomes even less likely owing to theperverse contractual agreementsbetween companies and governments,

which may provide legally binding protection againstcriminal or civil charges. These contracts are knownby many names, including Foreign InvestmentContracts, Bilateral Investment Treaties, and HostGovernment Agreements. Such agreements aresupported on the grounds that they provide essentialprotection for foreign investments, reducing thepotential for rent seeking in host countries and suddenchanges in government policy that may undermineinvestment revenues. Those critical of these contractsclaim they are short-term solutions to legal uncertaintyand by circumventing national legislation theyindirectly retard domestic legal reform (see Daniels2004). In addition, as argued by Hildyard (2005:12),such agreements create ‘legal certainty for thecompanies’, but ‘they have been able to do so onlyby causing legal mayhem for ordinary citizens’.

The layer upon layer of agreements, coupledwith the hybrid public/private nature of thecontracts, have severely muddied the watersfor redress for third parties, potentiallydenying citizens access to justice.

An example of such agreements was provided abovein relation to copper mining companies in Zambia. In

Inadequatewhistleblower

protectionsmean thosewith critical

insideinformation areunlikely to riskapproaching

the authorities


this instance it appears that contractual agreementsbetween the Zambian government and somecompanies protected the latter from being prosecutedfor environmental degradation. Another more infamousexample of a foreign investment agreement wasbetween the countries of Azerbaijan, Georgia andTurkey and the consortium of companies that will build,own and operate the oil pipeline crossing theirterritories. This agreement trumps any national laws,replaces ‘hard’ laws with voluntary corporateguidelines, exempts the companies from being liablefor human rights abuses, and binds the threegovernments to compensate the companies for anychanges to national laws, including those aimed atimproving human rights or protecting the environment,if these laws affect the profitability of the oil projectover a 40-year period. In this way, not only does theagreement exempt the companies from litigation, butit also places a strong disincentive forimprovements in governance andstandards of human rights (Hildyard2005:10). Some experts argue that suchcontracts between multinational miningcompanies and governments are one ofthe most restrictive elements forprosecutors (see Ayine et al 2005).However, this issue is missing from muchmainstream literature on corruption andtherefore seems to be overlooked bypolicy makers.

If we need further reason to feeldespondent about the potential successof litigation in combating corruptionbetween multinationals and politicalelites, then we can consider evidence that US firmsoperating in Indonesia have devised ingenious waysof paying bribes that circumvent OECD anti-briberylaws, as well as the US Foreign Corrupt Practices Act.Such strategies not only diminish the potential ofcriminal justice, but also reassure investors that theirinvestments will not be vulnerable to scandal:

What is startling has been the discovery thatsome of these sophisticated paymentmechanisms – as deployed by US investorsto obtain infrastructure concessions – hadbeen vetted by well-respected US law andaccounting firms as part of the investor’s duediligence prior to committing funds, andreported to the US Securities and ExchangeCommission, without objection (Moran2006:3).

Whether caused by political or technical factors, thereis no doubt that only a nominal proportion of corruptactivities in the extractive industries are reported. Wedo not have the necessary data, but it is likely thatfew of these known cases will lead to investigation,and the proportion of the investigations that lead tomeaningful prosecution will in all likelihood be very

small. Most cases where companies expect to be foundguilty will end in a plea bargain, and the guilty partieswill be able to afford these payments with relativeease. As Hawley (2005:6) writes:

It is telling that there have been very fewprosecutions for bribery since the OECDConvention on Combating Bribery came intoeffect in 1999. Even in the US, prosecutionsare few and fines for companiescomparatively low. In the UK, there havebeen over 40 allegations over the past fewyears, not a single prosecution and only ahandful of investigations. Until 2005, thelaws in the UK were essentially not beingenforced in any way, with lack of governmentresources and prioritisation sending themessage to law enforcement agencies that

this was not an issue to be takenvery seriously.

In short, there seems to be limited scopefor litigation and prosecutions to reducecorruption in the extractive industries,given not only technical and capacitychallenges, but also the various politicalforces that hinder investigations. Wemay see a strengthening of the politicalwill of governments to punish thoseinvolved in corruption in the future.However, far more high-profile casesmust end in meaningful punishments ifcorruption is to be deterred.

The fallacy of ‘transparency’

Litigation can be viewed as a reactive response tocorruption as it occurs after the criminal act has takenplace. The recent international efforts to create‘transparency’ in the extractive industries should beconsidered as a more proactive response. In theoryeffective transparency may undermine the possibilityfor corruption and weaken the environment in whichcorruption thrives.

The notion that transparency is critical for combatingcorruption is one that gained momentum during thelate 1990s, partly owing to the work of TI. The UKNGO, Global Witness, is credited with applyingpressure for transparency in the extractive industriesspecifically, and is one of the key NGOs driving thecoalition of more than 190 civil society groupsworldwide who campaign for the mandatorydisclosure of payments made by multinationalcompanies to host governments, known as PublishWhat You Pay (PWYP). Progress at inter-governmentallevel is attributed to British Prime Minister Tony Blair,who established the Extractive EITI. This was latergiven support by the G8 summit at Evian in 2003.Whereas PWYP was aimed at demanding financialinformation from companies, EITI takes a broader

In theoryeffective

transparencymay underminethe possibilityfor corruptionand weaken

theenvironment inwhich it thrives


approach by including the need for host governmentsto disclose information on their revenues – Blairargued that PWYP must be joined with ‘publish whatyou earn’. In those countries that are nowimplementing EITI, this involves a multi-stakeholderapproach, led by the government, but including theactive participation of local civil society groups andprivate companies. It is also important to recognisethat EITI provides guidelines for creating nationallegislation and procedures rather than strict rules. Wetherefore find that countries have responded to EITIdifferently. Nigeria, for instance, is in the process ofpassing legislation governing the Nigerian ExtractiveIndustry Initiative, which is unique.

Although PWYP began before EITI, the latter has nowbecome the dominant channel to effect transparencyin the extractive industries, with the PWYP movementworking closely with both nationalgovernments and the EITI Secretariat.Partly due to its engagement withgovernments and its less confrontationalapproach, EITI has gained a legitimacy andmomentum that PWYP does not have.Indeed, the World Bank and the IMF nowstrongly support EITI, claiming that theyfavour investing in mining venturesoccurring in countries that have joined thisinitiative.

The broad objective of creatingtransparency in the extractive industriesis therefore well supported and is nowone of the most important internationalpolicy developments designed to makethis sector promote pro-poor outcomes. There is littlereason to argue against transparency in principal asthe concept is critical to notions of democraticgovernance – citizens should have the right to knowhow much wealth is being created by the exploitationof their natural resources and they should know howtheir governments are spending the revenues. Yetwhether existing measures to create transparency willbe effective in combating corruption (and ultimatelyimproving human development) is open to doubt. It isbeyond the scope of this essay to provide a detailedcritique of the progress of EITI in all African countries.Moreover, as this initiative is still being developedand improved on it is perhaps too early to be sure ofits success. However, a number of serious challengescan be acknowledged at this stage.A first critical point about transparency initiatives isthe limited range of corrupt practices that they attemptto combat. EITI is aimed at providing citizens withindependently audited information on the amount ofmoney passing from companies to the centralgovernment. In theory the process of generating thisinformation will restrict the opportunity forembezzlement by governments and it is possible itwill limit the potential for large bribe payments to gounnoticed. However, as this essay has shown, there is

much more to corruption than embezzlement and bribepayments. Transparency of revenue flows, no matterhow detailed and accurate they are, will reveal littleabout the political economy of corruption: the way inwhich conflicts of interest affect policy decisions, orthe myriad ways whereby companies may capture thestate, such as through political donations, for instance.

EITI can therefore only be presented as a partialresponse to corruption. Corruption experts at the WorldBank have argued that combating state capturerequires a much broader response to corruption thanis typically considered by policy makers, and in sucha response transparency is but one of the constituents:

In countries with such a capturedenvironment, the focus of efforts to combatcorruption and improve governance needs to

shift from a narrow emphasis onpassing laws and rules, and onprocedures within the publicadministration, to a much broaderagenda of greater politicalaccountability, transparency,independence of the media,monitoring and diagnostic surveys(as checks and balances from civilsociety), as well as the establish-ment of effective mechanismsthrough which the voices of citizensand users of public services can beheard. (Hellman et al 2000:33)

Even if it is acknowledged thattransparency may tackle a limited range

of corrupt activities, it is also important to recognisethat achieving transparency in the extractive industriesis far from being a straightforward technical exercise.Critics of EITI point out that the reality is far morecomplex than is often assumed, and there arenumerous loopholes and inadequacies to the process.For example, Nicholas Shaxson, the author of countryreports on Angola and Gabon for the EconomicIntelligence Unit, points out that in the oil industrythe scope of PWYP or the EITI does not cover certaininvestment costs that are highly conducive to bribepayments (Shaxson 2007:167). He cites one industryexpert who claimed that it is an illusion to think theEITI or PWYP will ‘reveal anything about bribes’.Likewise, it was surprising to some that despite theChad-Cameroon oil project being hailed as a ‘model’of best practice by the World Bank, signature bonuseswere not subject to scrutiny under its guidance (Gary& Reisch 2005). Moreover, while the focus so far hasbeen on tracking the flow of payments from companiesto governments, such information requires access tocorresponding contracts if it is to be renderedmeaningful. However, many of the contracts signedbetween companies and governments remain secret.Indeed, a paper prepared by the International Institutefor Environment and Development points out that

Achievingtransparency

in theextractive

industries isfar from being

astraightforward

technicalexercise


foreign investment contracts remain clandestine andcalls for their public disclosure have been ignored(Ayine et al 2005).

What is important to recognise is that although manykey beneficiaries of the extractive industry endorsethe notion of transparency, there are strong reasonswhy companies, investors and national governmentsmay wish to carefully control the flow of informationon oil and mining. To quote Shaxson again:

The prices of crude oil and its refined productsall flicker up and down absolutely, andrelative to each other, minute by minute,responding to weather, geo-political tensions,and many other factors. Traders constantlytry to manipulate the markets in their favour,and to stay ahead of their competitors theygather detailed political andeconomic intelligence about thecountries that sell them oil. Westerngovernments sometimes help them;sometimes it is hard to know wherethe world of spies ends and the worldof oil begins. The job [reporting onoil in Africa] taught me that the oiltrade is, as much as anything, aboutinformation: whoever knows themost makes the most money. Thehuge complexity of energy markets,and the benefits that marketparticipants can derive from theirsecrecy, partly explain why it is sohard to bring about transparency inthe oil industry. Corruption abounds(2007:64).

What Shaxson tells us is that secrecy is an embeddedand strategic characteristic of the global oil industry. Itmay thus be naïve to imagine all players will activelyengage in the sharing of information. In agreement withthis argument, Florini (2000:8) warns that transparencymay not be as benign as it is often assumed:

For those on whom the spotlight shines,transparency can threaten more than merediscomfort. It is not wise to assume thatinternational organisations, governments,firms, financial markets, NGOs, and othersnecessarily want to use information solelyfor the public good or for mutually beneficialeconomic exchange. In arms control, thesame information that reassures others thatyour military forces are not massing for attackcan enable those others to locate and attackyour forces. In economics, misinterpretationor deliberate misuse of information bynational or corporate rivals can sparkunfavourable headlines, plunges in stockprices, and capital flight.

Transparency also relies on third parties being able toprocess and understand data. EITI requires thisinformation to be approved by independent auditors,working on fairly restricted time frames, and EITIstrongly promotes the active engagement of Africancivil society organisations who provide both anoversight function and should sustain pressure ongovernments and companies to remain committed.However, it remains unclear whether independentauditing firms, and civil society groups, have the timeand resources to dig deep enough into revenue flowsof the extractive industry to fully expose malpractices.Again, as Florini (2000:9) explains, the challenge isnot only posed by insufficient data: too much disclosurecan produce a white noise effect, ‘making it difficultto know what is significant or even to have the timeto sort through all the data’. Florini goes on tospeculate, ‘if you really want to hide information, the

best thing to do is to bury it in a flood ofdata’. It is revealing to consider thatinvestigations led by Eva Joly into thecorruption scandal involving ElfAfricaine took several years and werecontinually thwarted by the institutionalsecrecy that exists within the globalbanking industry (see Shaxson2007:82–102). This would suggest gainingaccess to financial information, andmaking sense of it all, is extremelydifficult. Again, because EITI remainsbound by national borders, the truecomplexity of corruption is obscured. Intheir damning study of oil extraction inNigeria, Andy Rowell and his colleaguesargue:

It would take years for accountants to pickthrough the myriad of company structures andcomplicated tax networks to see just howmuch money the international oil companieshave made at the expense of Nigerians. Thenetwork spreads from London to Jersey,Switzerland to Washington, Bermuda toBonny (2005: 169).

We can also raise concern regarding the critical rolethat African civil society should play in the EITIprocess. Although it would be precarious to generalise,one fear is that in a multi-stakeholder process drivenby governments that have historically shownquestionable respect for civil society, non-governmental organisations will continue to strugglefor legitimacy and influence, even though on paperthey seem to have power. Moreover, the role of civilsociety should be to offer a strong independent voice,one that must be able to be critical of governmentsand companies when the need arises. To what extentcritical civil society groups will be sidelined in favourof more conservative ones is a matter that requiresfurther research and monitoring. So too is the

Transparencyrelies on

third partiesbeing ableto process

andunderstand

data


depressing potential for civil society groups to beundermined by corruption and rent seeking themselves.For example, Chad’s President Déby has previouslymanaged to get allies, including his brother-in-law,employed on the joint government-civil societyoversight committee set up by the World Bank tomonitor the spending of oil wealth in Chad (Gary &Leisch 2005).

To make matters more complex, the possibility remainsthat, despite being active members of EITI, companiesand governments engaged in corrupt activities willsimply provide false information. Unless levels ofpolicing rise dramatically and become highly invasive,there may always be methods available to corruptparties to circumvent the rigours of disclosure and anydrive for greater transparency will be matched by novelways of hiding corrupt practices, which others willnot predict. In this respect corruptionappears no different from other forms ofcriminality that have tended to respondto new strategies, legislation andtechnologies by keeping ‘one step aheadof the law’. Transparency therefore doesnot guarantee that information is accurate,nor does it diminish the need for closerscrutiny of facts. What follows is that inthe worst-case scenario, transparency thatclaims to be effective but is not, mayposture as a strong endorsement for thosewho are engaged in corruption. Themistaken stamp of approval becomes adistraction to further investigations or itmay lull others into a false sense ofsecurity.

In summary, although the notion of greatertransparency in the extractive industries is anappealing one, in practice it faces tremendouschallenges. The extractive industries may beimpervious to the scrutiny of outsiders and the way inwhich transparency has been conceived leaves manyaspects hidden, including not only investment costsand contracts, but also the extraordinarily complexinternational flows of money through tax havens andWestern banks that are concealed by banking secrecylaws. As stated above, EITI is in its relative infancy sowe must presume many of the challenges it faces willbe recognised and addressed in the future. Thus, itmay be premature to dismiss it as ineffective.Moreover, the real value of EITI may surface in lessobvious ways, such as the potential for the EITI processto open space for civil society organisations to tacklefurther concerns in the extractive industries. In SierraLeone, for example, the government and civil societycoalition developing their version of EITI haveincluded matters relating to the environment andmining, which is a positive move that may not haveoccurred if it was not for EITI.

Combating corruption for what ends?

Thus far this paper has considered some of the factorsthat undermine efforts to reduce corruption in theextractive industries. We now turn to a morefundamental debate, involving the relationshipbetween combating corruption, on one hand, andachieving human development, on the other.

Let us begin this final part of the paper by acceptingthat an increasing number of influential commentators,including the World Bank, the UN, WesternGovernments and numerous international NGOs,assume that a resource curse is evident in Africa andthat one of the most important explanations for this iscorruption and ‘bad governance’. Thus, what followsis the idea that if African countries can improve theirlevel of governance (achieve ‘good governance’), then

mining and oil production will be morebeneficial to their citizens. Implied inthis is that the resource curse is notinsurmountable and resourceexploitation represents a massivepotential for Africa and that associatedindustries therefore must be pursued. Thisis what we can refer to as an orthodoxview and it has elevated combatingcorruption to the point that it isconsidered the most pressing concernfor both African governments and theinternational community. This orthodoxyis problematic for several reasons.

Combating corruption to eliminatethe ‘resource curse’?

It is not entirely clear what ‘problems’ corruption inthe extractive industries causes and this is a matterthat needs more scrutiny. The tendency in theinternational literature is to blame corruption for a‘resource curse’, but as mentioned in the introduction,the notion of a resource curse is far more complexand contested than many seem to acknowledge. Themost important dimension of the resource curse isassumed to lie with economic growth – those countriesin the developing world that are most dependent onnatural resources for wealth creation grow at a slowerpace than countries that are less dependent on naturalresources. Corruption is blamed for this: at the least,it is presented as one of the most robust explanations,as corrupt governments plunder resources and theycreate an environment that does not attract foreigninvestment.

Corruption is hard to define and measure, making thistheory linking corruption and economic growth difficultto substantiate. We can consider the fact that manycountries with high levels of perceived corruption haveenjoyed periods of economic growth, such as those inAsia and some resource-dependent countries in Africa

It is notentirely clear

what‘problems’

corruption inthe extractive

industriescauses


now, like Angola, whose recent economic growth hasbeen impressive. We should also recognise thatevidence for the poor relationship between theextractive industries and economic growth in generalremains highly disputed (Lederman & Mahoney 2007).Key variables are open to differing measurements, anincreasing literature suggests that correlations betweenresource exploitation and economic growth may bespurious, and there are many studies showing a positiverelationship between extractive industries andeconomic growth (Lederman et al 2007). It is certainlydifficult to know what the true relationship betweenresources and economic growth is, so while corruptionin developing countries that are highly dependent onnatural resources for wealth creation may causedisappointing economic growth, the evidence is farfrom conclusive.

More important, however, is thatalthough economic growth can bepresented as the most important goal fordeveloping countries, there are manyother problems that stem from theextractive industries, which are not‘growth related’. Mining and oilproduction cause profound environmentalconsequences and the long-term costs areextremely difficult to contemplate ormeasure. Likewise, decades of researchhas shown that industrial mining tends tobe highly disruptive for localcommunities, causing insecurity,relocations and marginalisation ofindigenous peoples, particularly women.Despite considerable attention tocorporate social responsibility programmes, there arefew cases showing that mining and oil have the potentialto develop local communities in a sustainable way. Theseother negative impacts of extractive industries may co-exist with a period of economic growth created bymining or oil production, meaning it may be too simpleto imagine the extractive industries are either a blessingor a curse. Such industries may be both ‘good’ and ‘bad’simultaneously, and whether the negatives outweigh thepositives is a question that may require subjectiveconsiderations.

Any policy that is designed to ‘improve’ the impactof resource exploitation may therefore be based oncontradictory outcomes, but this is rarelyacknowledged when fighting corruption is presentedas a cure for the resource curse. We need to ask whatthe priorities are behind combating corruption in theextractive industries – to foster economic growth andsecure the supply of commodities in global demand,or to protect the environment and the well-being ofindigenous people, for example? This is a vital questionto ask for it indicates what measures of success shouldbe used for anti-corruption initiatives. If anti-corruptioninitiatives help to grow the extractive industries, should

we temper any joy with the realisation that theenvironmental consequences will be severe?

Combating corruption to promote corporateinterests?

In discussing the conceptualisation of corruption, thispaper has attempted to sketch its multi-dimensionalaspects. A distinction was made between corruption thatrepresents the ‘grabbing hand of the state’, and corruptionthat represents illicit influence on the state by third parties(so-called ‘state capture’). Although we can imaginedifferent scenarios where one form of corruption maydominate, these two forms of corruption are not mutuallyexclusive and corrupt activities may occur to the mutualbenefit of all parties directly involved. Moreover, owingto conflicts of interest, such as government officialshaving direct stakes in private companies, there can be

a blurring of the divide between the stateand the private sector. We can thereforesee that corruption is not a uniform malaisebut a concept that covers a very widerange of activities. This is one reason whysingle scores given to countries for theirlevels of corruption, such as thosepublished by TI, are misleading and lackvalidity. Such scores give the impressionthat corruption is the same everywhere,albeit existing at different levels ofmagnitude.

From the discussion so far on the natureof corruption, we can also detect howthe interpretation of corruption may beideological. If corruption is narrowly

understood as the abuse of public office for personalgain, then corruption may be associated with thenegative impact of the state on private commerce.From this perspective, a corrupt state is one thatintrudes on private business transactions, extractsburdensome rents and causes uncertainties forcompanies and investors. This view is not uncommon,evident in the fact that some analysts depict levels ofcorruption in a given country as being a risk forcompanies and a strong disincentive for foreigninvestment.

We therefore find that combating corruption can bepresented as a means to increase the globalcompetitiveness of developing countries.However, corruption should be understood morebroadly to include forms of corporate corruption andstate capture, and this includes both localised formsof corruption (such as those occurring betweencompanies and communities living near mining areas)and international forms of corruption (such as thoseoccurring between home governments, hostgovernments and multinational companies). Inadopting this broader view of corruption that salienttheme is how the power of third parties undermines

We need toask what thepriorities are

behindcombating

corruption inthe extractive

industries


democratic governance. In other words, in contrast toseeing corruption primarily as a hindrance to freemarket dynamics, it should also be viewed as integralto the weakening of the nation state and thedomination of policy by those with economic power;a corrupt state is one where there is an excessive fusingof wealth and power, to the determent of democraticrepresentation.

Although presented somewhat simplistically here, suchdiffering views of corruption become critical in relationto policy analysis and formulation. The first view ofcorruption – that it is primarily a hindrance to the freemarket – is complementary to broader policies ofeconomic liberalisation and privatisation. This appearsto be the orthodox understanding, advocated by manyleading international organisations. Thus, as MichaelJohnston writes:

…the consensus worldview [has]converged at a global level toinfluence both corruption and theways we understand it. Corruptionhas come to be seen as both causeand effect of uneven or incompleteeconomic liberalisation, and of anintrusive, inefficient state. Rank-ordering countries from high to lowcorruption effectively defines theproblem as the same everywhere,and its scope and effects are judgedprimarily in economic terms. Reformis seen as moving societies towarda neo-liberal ideal of marketeconomics, and market-like politicalprocesses, facilitated by a lean, technicallycompetent state that is little more than a kindof referee in the economic arena (Johnston2001:17).

However, the second view of corruption – that itdescribes a threat to democratic governance – suggestsdifferent policy ideas, and these may contest neo-liberal economic dogma and the advancement ofcorporate-led globalisation. At least, in explaining thethreat of corruption and its possible rise in importance,policies that have been referred to as the WashingtonConsensus may be considered as one of the criticaldriving forces of the problem as it manifests in manyAfrican countries today.The most important policy initiatives that attempt tocombat this second and more nuanced interpretation ofcorruption should be aimed at restricting the power ofmultinational companies and simultaneously increasingcitizens’ control over decision-making processes. Toachieve this would mean tackling banking secrecy andtax havens, for these provide the environment forcorruption and criminality to exist with impunity.Moreover, a critical policy goal would be to betterregulate the interaction between private companies and

public office, including attention to party-politicalfunding and the dilemma of the ‘revolving door’syndrome and related conflicts of interests.

Therefore, there is a critical question confronting thosewho champion combating corruption in the extractiveindustries: Are anti-corruption initiatives designed firstand foremost to promote the interests of private capital,or are they to promote the norm of democraticgovernance and perhaps deliver justice to citizens ofAfrican countries who have too often seen their naturalresource wealth plundered by a combination of corruptleaders and callous multinationals? It is perhapsplausible that some existing anti-corruption initiatives,such as the PWYP campaign or EITI, manage toachieve both goals simultaneously. More likelyhowever is that there are fundamental tensionsbetween these two objectives, and policies aimed at

combating corruption will not servedifferent political or ‘developmental’agendas equally.

The significance of corruption

Attempting to isolate the impact ofcorruption in the extractive industriesis tremendously difficult. Perceptionsurveys and ad-hoc evidence provide animpressionistic view of the levels anddynamics of corruption, and the truth ofthe matter is that beyond this ourknowledge is quite poor. This is to beexpected, as the activities, behavioursand transactions subsumed under theheading of corruption are not easily

quantified. However, the recent drive to combatcorruption in the extractive industries is based on aconfidence that corruption is a major cause ofproblems. No doubt underestimating the importanceof corruption will be seen as a threat to some. However,less importance is given to the opposite risk: that theproblem of corruption is exaggerated, and in doing soother factors that explain disappointing outcomes ofresource exploitation are given less scrutiny andpriority. In his book Why governments waste naturalresources, Willem Ascher (1999: iv) argues:

The easiest way for a political scientist toseem penetrating and tough-minded is to“model” the behaviour of political leadersas self-interested people out for power,personal financial gain or both. Thispresumption has arrested the developmentof political analysis of natural resourcepolicy failures, because the “easy”explanation of resource destruction as theresult of pandering for political support orsimple corruption is all too easy. Someonebenefits from virtually every governmentpolicy or action, so it is easy to dismiss

Policies aimedat combating

corruption willnot servedifferent

political or‘developmental’

agendasequally


unsound polices as politically or financiallymotivated payoffs.

This is not to say that corruption does not play a rolein causing negative outcomes of mining and oilproduction. There is considerable evidence showingthat corrupt and criminal activities have flourishedin the extractive industries in Africa and these canbe linked to social and environmental harm. However,without considerable research into the politicaleconomy of resource exploitation, it may be difficultto be certain whether the negative outcomes ofresource extraction are caused by corruption, badpolicy, human error or other non-corrupt reasons. Asnoted above, ‘state capture’ may lead to highlyfavourable policies for private companies, such asreduced tax burdens or lower standards ofenvironmental safety. But equally governments, actingon the advice given to them by inter-governmentalorganisations, may chose similar if not identicalpolices in their bid to attract foreign investment.

Similarly, while we presume that elite level plunder,conflicts of interest and forms of corporate corruptionmust surely increase the inequitable distribution ofresource wealth, it is not certain that under less corruptregimes money from oil and mining would promoteequality and pro-poor wealth creation. Indeed, thosedisapproving of corporate-led globalisation maywonder why so much effort is given to increasing‘transparency’, because the global inequitabledistribution of wealth, which could be viewed as oneof the major scandals of the international extractiveindustry, is not difficult to see.

Here lies one of the uncomfortable problems withexisting efforts to promote ‘good governance’ andcreate greater transparency in the extractiveindustries, for they say little on what companies shouldpay and what proportion of the wealth accrued byexploiting natural resources should be redistributedto citizens. Africa would certainly benefit from moreaccess to information, and for this reason initiativessuch as EITI and PWYP are to be supported. Buttransparency should not be mistaken for social justice.This is an argument put forward by Andy Rowell, JamesMarriott and Lorne Stockman in their book on WestAfrican oil, The next gulf (2005:186–187). They arguethat the tendency to claim that ‘transparency’ is apanacea for the resource curse is highly problematicand distracts attention from more fundamentalproblems of the governance of African resources.According to the authors this was also a view of OrontoDouglas, the then-Commissioner for Information forBayelsa State in Nigeria, who left the EITI movementon the grounds that ‘It is absolutely not right ifsomeone says that if oil is transparent, theneverything is going to be OK.’

Andy Rowell and his co-authors suggest, ‘Just as“greenwashing” is the impression of environmental

responsibility, this “cleanwashing” could be theimpression of financial responsibility and transparency’.

Conclusion

Africa is experiencing tremendous growth in theextractive industries, which is intensifying interest inthe notion of a ‘resource curse’. It would seem that acritical concern shared by a number of stakeholdersrelates to corruption, as this is thought to be a majorfactor in explaining why African countries do not seemto benefit as much as they should from their endowmentof natural resources. This paper has attempted to explainwhat corruption means in the extractive industries andhas argued that it is multi-dimensional, representing acomplex, as well as contested, set of relations betweencompanies, African governments, foreign governmentsand perhaps inter-governmental organisations as well.

While there is strong reason to feel that reducingcorruption should be an important goal in improvingthe governance of Africa’s resource extraction, thereare several critical issues which challenge the ideathat combating corruption will cure the resource curse.Part of the problem is that existing efforts to combatcorruption face profound technical and politicalchallenges. Many important forms of corruption, suchas ‘state capture’, appear to be overlooked entirelyand therefore remain part of the status quo.

It is also unclear what ends combating corruptionserves. The notion of a resource curse is deceptive, forif reducing corruption helps promote economic growthand it helps promote further expansion of the extractiveindustries, other problems, such as environmentaldegradation, may intensify. Extractive industries canbe simultaneously a blessing and a curse for Africancountries, depending on what one considers important.Furthermore, while combating corruption may besupported by a wide range of stakeholders, the conceptcan be interpreted in different ways and thereforecombating it may be used to support rivaldevelopmental agendas. An orthodox view seems tocompliment neo-liberal economic policies, but forothers, combating corruption may mean challengingcore principals of corporate-led globalisation. That acritical discourse on corruption in the extractiveindustries has yet to materialise from those on thepolitical left seems surprising.

Finally, the paper has argued that the danger inelevating corruption as being the most important goalin improving the governance of Africa’s naturalresources lies with ‘crowding out’ other concerns. Ofcourse, to what extent corruption is the cause ofproblems in the extractive industries depends on onesview of the concept. Yet reducing corruption, howeverone defines it, should not be seen as a guarantee thatmining and oil production will promote humandevelopment in Africa. In this respect, claims thatgreater transparency of revenue flows will go a long


way to reversing a resource curse may be superficialand misleading. The accusation of ‘clearwashing’ bygovernments and companies is perhaps one that will

be heard more frequently in the future, particularly ifthe contribution made by oil and mining to Africancountries fails to improve.

Notes

1 Although others suggest that financial speculation isplaying its part in raising commodity prices, and wemay therefore see price volatility in the future.

2 The Metals Economic Group provide annual surveysof exploration trends. These can be sourced atwww.metalseconomics.com.

3 Collier (2005) notes that the influence of resourcewealth in promoting corruption and authoritarian gov-ernment encourages comparison with the impact offoreign aid, but he argues that there are several rea-sons why aid is less corrupting than oil revenue.

4 Interveiw with author, June 2007. The ISS will be pub-lishing a detailed case study on titanium sans mining inKenya in collaboration with the Kenyan Human RightsCommission in December 2007.

References

Acemoglu, D, Johnson, S and Robinson, J 2003. AnAfrican success story: Botswana. In D Rodrik(ed), In search of prosperity: Analytical narra-tives on economic growth. Princeton: PrincetonUniversity Press.

Amnesty International 2005. Ten years on: Injusticeand violence haunt the Niger Delta. New York.Amnesty International (see page 32)

Amundsen, I forthcoming. Rich resources, poor insti-tutions. Angola and the resource curse.

Anon. 2005. We call in on Vedanta at its AGM to findit hoisted by its own petards. London Calling, 7August.

Ascher, W 1999. Why governments waste natural re-sources: Policy failures in developing countries.Baltimore: John Hopkins University Press.

Ayine, D, Blanco, H, Cotula, L, Gonzalez, C, Djire,M, Kotey, N A, Khan, S R, Reyes, B, Ward, Hand Yusuf, M 2005. Lifting the lid on foreigninvestment contracts: The real deal for sustain-able development. Sustainable Markets BriefingPaper No. 1. London: International Institute forEnvironment and Development.

Bannon, I and Collier, P (eds) 2003. Natural resourcesand violent conflict. Washington DC: WorldBank

Bond, P 2006a. Looting Africa: The economics of ex-ploitation. Pietermaritzburg: University ofKwaZulu-Natal Press.

Bond, P 2006b. Multinational capital’s responsibilityfor Africa’s resource extraction crisis.Openspace, 1(4).

Bryan, S and Hofmann, B 2007. Transparency and ac-countability in Africa’s extractive industries: Therole of the legislature. Washington: NationalDemocratic Institute for International Affairs.

Catholic Agency for Overseas Development 2006. Un-earth justice: Counting the cost of gold. London.

Christian Aid 2003. Behind the mask: The real face ofcorporate social responsibility. London.

Collier, P 2005. Is aid oil? An analysis of whether Af-rica can absorb more aid. Centre for the Studyof African Economies, Oxford University.

Daniels, J 2004. Defecting on development: Bilateralinvestment treaties and the subversion of the ruleof law in the developing world. Paper downloadedfrom www.unisi.it/lawandeconomics/stile2004/daniels.pdf.

Davis, G 1995. Learning to love the Dutch disease:Evidence from mineral economies. World De-velopment, 23(10):1765–80.

Doyle, C, Wicks, C and Nally, F 2007. Mining in thePhilipinnes: Concerns and conflicts. Solihull: So-ciety of St. Columban.

Evans, J 2005. Anglo ‘messed up’ in the DRC. Mail &Guardian, 2 June.

Feeney, P 2001. The limitations of corporate social re-sponsibility on the Zambian copper belt. London:Oxfam.

Feeney, P 2006. Globalisation and its challenges forpublic resource management in Southern Africa.Openspace, 1(4).

Ferguson, J 2005. Seeing like an oil company: Space,security, and global capital in neoliberal Africa.American Anthropologist, 107(3):377–382.

Fjeldstad, O, Kolstad, I and Nygaard, K 2006. Bribes,taxes and regulations: Business constraints formicro enterprises in Tanzania. Bergen, Norway:Chr. Michelsen Institute.

Florini, A M 2000. Does the invisible hand need atransparent glove? In Proceedings of the 11thannual World Bank conference on developmenteconomics. Washington, DC: World Bank.

Fraser Institute 2007. Annual survey of mining compa-nies. Vancouver: Fraser Institute.

Galtung, F 1998. Criteria for sustainable corruptioncontrol. in M Robinson, (ed), Corruption anddevelopment. Lodon: Frank Cass.


Gary, I and Reisch, N 2005. Chad’s oil: miracle or mi-rage? Following the money in Africa’s newestPetro-State. Washington DC. Catholic Relief In-stitute and Bank Information Centre.

Global Witness 2002. All the presidents’ men: The dev-astating story of oil and banking in Angola’s pri-vatised war. London.

Global Witness, 2004. Time for transparency, comingclean on oil, mining and gas revenues. London.

Glynn, T 2006. There is death in them thar’ pits! TheDominion, 5 July.

Hartzok, A 2002. The Alaska permanent fund: A modelof resource rents for public investment and citi-zen dividends. Geophilos, spring issue.

Hartzok, A 2004. Citizen dividends and oil resourcerents: A focus on Alaska, Norway and Nigeria.Paper presented at the U.S. Basic Income Guar-antee Network (USBIG) track of the EasternEconomic Association’s 30th Annual Confer-ence, Washington, DC, 20–22 February.

Hawley, S 2003. Underwriting bribery: Export creditagencies and corruption. London: The CornerHouse.

Hawley, S 2005. Redesigning the Northern state tocombat global corruption. London: The CornerHouse.

Heimann, F, Dell, G, Sng-Sachsenroeder, A andWhittier, N 2005. Enforcement of the OECDconvention on combating bribery of foreign publicofficials. London: Transparency International.

Hellman, J S, Jones, G and Kaufmann D 2002. Farfrom home: Do foreign investors import higherstandards of governance in transition economies?Washington, DC: World Bank.

Hellman, Joel, Jones, Geraint and Kaufmann, Danny2000. Seize the state, seize the day: State cap-ture, influence and corruption in transition. NewYork: World Bank.

Hildyard, N 2005. Holding funders and companies toaccount – litigation and standards. Paper pre-sented at the American Anthropological Asso-ciation Annual Meeting, Washington, DC, 3December.

Hodges, T 2001. Angola from Afro-Stalinism to petro-diamond capitalism. Oxford: James Currey andBloomington and Indianapolis: Indiana Univer-sity Press.

Human Rights Watch 2003. Some transparency, noaccountability. New York: Human Rights.

Hund, K and Verbruggen, D 2006. The state versus thepeople: Governance, mining and thetransnational regime in the DRC; the case ofKatanga. Open Space, 1(4).

International Mining Magazine 2005. Industry outlook:2006 prospects, September

Jensen, N and Wantchekon, L 2004. Resource wealthand political regimes in Africa. Comparativepolitical studies, 37(7):816–41.

Johnston, M 2001. The definitions debate: old con-flicts in new guises. In Jain, A. The politicaleconomy of corruption. London: Routledge.

Kaufmann, D and Vincente, P 2005. Legal corruption.World Bank Institute.

Kithi, N 2004. Group opposes ‘eviction’ over miningproject. The Nation (Nairobi), 27 September.

Lederman, L, and Maloney, W 2007. Natural resources:Neither curse nor destiny. Washington, DC:World Bank.

Leite, C and Weidmann, J 1999. Does mother naturecorrupt? Natural resources, corruption, and eco-nomic growth. Working Paper of the Interna-tional Monetary Fund. Washington, DC: IMF.

Leith, D 2006. The politics of power: Freeport inSuharto’s Indonesia, Hawaii: Hawaii UniversityPress.

Mahdavy, H 1970 The patterns and problems of eco-nomic development in rentier states. In M Cook(ed), Studies in the economic history of the mid-dle east. Oxford: Oxford University Press.

McMillian, J 2005. Promoting transparency in Angola.Journal of Democracy, 16 (3).

McSherry, B 2006. The political economy of oil inEquatorial Guinea. Africa Studies Quarterly, 8(3).

Mehlum, H, Moene, K and Torvik, R 2005. Cursed byresources or institutions? Paper available fromthe Department of Economics, Norwegian Uni-versity of Science and Technology, Oslo.

Moran, H 2006. How multinational investors evadedeveloped country laws. Working Paper No. 79.New York: Centre for Global Development.

Open Society Justice Initiative 2005. Legal remediesfor the resource curse: A digest of experience inusing law to combat natural resource corruption.Open Society Institute: New York.

Perlez, J and Bonner, R 2005. Mountain of gold leavesa river of waste. New York Times, 29 Decem-ber.

PWC 2001. Mining, minerals and sustainability survey2001. London: PricewaterhouseCoopers.

PWC 2006. Mine: Let the good times roll. Review ofglobal trends in the mining industry June 2006.London: London: PricewaterhouseCoopers.

Range, J 2006. Vendanta harmed environment in In-dia. Dow Jones Newswires, 2 August.

Ross, M. 1999. The political economy of the resourcecurse. World Politics, January, 297–322.

Ross, M 2001. Does oil hinder democracy? World Poli-tics, 53:297–322.

Ross, M 2003. The natural resource curse: How wealth


can make you poor. In I Bannon and P Collier(eds), Natural resources and violent conflict.Washington, DC: World Bank.

Ross, M 2006. Oil and patriarchy. Paper available fromthe Department of Political Studies,UCLA.

Rosser, A 2006. The political economy of the resourcecurse: A literature survey. IDS Working Paper268. Institute of Development Studies, Univer-sity of Sussex, U.K.

Rostow, W 1961. The stages of economic growth: Anon-communist manifesto. Cambridge: Cam-bridge University Press.

Rowell, A, Marriott, J and Stockman, L 2005. The nextgulf: London, Washington and oil conflict in Ni-geria. London: Constable.

Rumbiak, J 2003. Globalization, rights and poverty.Speech presented at Columbia University’s Centerfor the Study of Human Rights on 23 October.

Sandbu, E 2005. Natural wealth accounts: A proposalfor alleviating the natural resource curse. Paperavailable from the Wharton School of Business,University of Pennsylvania.

Shaxson, N 2007. Poisoned Wells: The dirty politics ofAfrican oil. New York: Palgrave Macmillan

Shultz, J 2005. Follow the money: A guide to monitor-ing budgets and oil and gas revenues. New York:Open Society Foundation.

Snow, K H and Barouski, D 2006. Behind the num-bers: Untold suffering in the Congo. New York:Global Policy Forum.

Stiglitz, J 2002. Corporate corruption: The conflicts ofinterest driving US financial scandals are beingreplicated on a global scale. The Guardian, July 4.

United Nations 2001. Report of the panel of exportson the illegal exploitation of natural resourcesand other forms of wealth of the DemocraticRepublic of the Congo (S/2001/357). Submittedto the UN Security Council by Kofi A Anan, 12april 2001. Accessible at <www.unhchr.ch/Huridocda/Huridoca.nsf/0/5e423385c10ae294c1256b1100505218?>

Valente, M 2006. Gold mine in suspense. Inter PressService News Agency, 25 October.

Van Vuuren, H 2006. Time to listen to Lesotho! The WorldBank and its new anti-corruption agenda. BrettonWoods Update, No. 52, September/ October.

Vicente, P 2005. Does oil corrupt? Evidence from anatural experiment in West Africa. Available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=829865 [accessed 1 July 2007].

Woods, E 2006. Record profits for Exxon,deprivation for Africa. Oil trip: Nigeria,Chad, Liberia, Counterpunch, 29 Sep-tember. Available at http://w w w . c o u n t e r p u n c h . o r g /woods09292006.html [accessed 1 July2007].Wantchekon, L 1999. Why do resourcedependent countries have authoritariangovernments? New Haven: Yale Univer-sity.World Bank 2004. Striking a better bal-ance – The World Bank Group and ex-tractive industries: The final report of theextractive industries review. Washington,DC: World Bank.World Rainforest Movement 2004. Min-

ing: Social and environmental impacts. Monte-video, Uraguay.

WRI 2003. Mining and critical ecosystems. Washing-ton: World Resources Institute.


ANNEXURE AData supplied by Client Services Team, Development Data Group, The World Bank (February 2007)

Mining and quarrying, value added (current US$) GDP (current US$)

2000 2001 2002 2003 2004 2005

Angola 6 068 509 184 5 125 369 344 6 282 994 176 7 310 910 976 10 439 510 016 16 408 266 752

9 129 180 160 8 936 023 040 10 834 756 608 13 825 039 360 19 564 185 600 28 037 875 712

Benin 5 196 776 5 456 728 6 025 912 8 430 833 9 843 175 10 427 173

2 254 838 784 2 371 785 984 2 807 357 440 3 557 983 488 4 047 438 080 4 287 463 936

Botswana 1 810 564 480 1 825 372 416 1 886 374 528 2 643 339 520 3 045 260 032 3 173 059 328

5 250 845 696 5 183 948 800 5 423 318 016 7 736 972 800 8 973 846 528 9 350 449 152

Chad 0 0 0 290 328 256 1 584 452 352 2 393 720 320

1 382 908 160 1 702 299 392 1 982 261 120 2 670 500 352 4 306 308 608 5 468 700 672

DRC 442 275 360 344 510 016 479 515 712 490 163 744 659 517 376 817 061 248

4 305 797 120 4 690 000 384 5 547 137 536 5 671 041 024 6 507 524 096 6 973 684 224

Côte d’Ivoire 33 849 264 31 103 350 59 972 320 129 215 416 185 127 424 275 087 776

10 425 292 800 10 553 994 240 11 482 073 088 13 734 139 904 15 474 742 272 16 054 736 896

Ethiopia 35 068 240 53 999 728 61 130 752 65 057 076 76 498 944 87 450 800

7 845 271 552 7 887 815 168 7 335 507 456 7 941 708 800 9 732 585 472 11 174 291 456

Madagascar 3 063 856 3 710 210 6 179 603 7 742 574 6 206 860 7 135 343

3 877 533 440 4 529 454 592 4 397 127 168 5 473 940 480 4 363 847 680 5 039 950 848

Malawi 22 442 678 24 990 128 16 772 543 17 098 900 25 412 188 41 054 648

1 743 506 560 1 716 502 784 1 934 575 616 1 764 480 896 1 902 833 280 2 072 071 168

Mali 161 719 024 296 866 880 385 603 232 388 480 256 353 306 752 401 623 520

2 422 469 632 2 629 733 632 3 342 815 744 4 362 442 240 4 882 133 504 5 097 662 464

Mauritania 153 566 704 123 913 952 121 929 496 137 554 656 179 403 776 185 621 440

1 080 830 464 1 098 028 800 1 116 391 040 1 340 219 776 1 533 913 216 1 887 947 520

Mozambique 11 775 803 10 413 020 11 889 518 15 975 487 50 584 860 90 012 672

3 777 704 960 3 697 175 808 4 091 708 416 4 785 520 128 5 912 421 888 6 629 973 504

Namibia 376 080 704 425 484 960 433 070 880 393 258 432 593 962 880 637 005 952

3 413 544 704 3 215 936 768 3 121 904 896 4 473 231 872 5 712 228 864 6 126 180 864

Nigeria 15 774 486 528 20 045 445 120 17 376 649 216 25 373 132 800 34 026 059 776 48 579 510 272

42 078 142 464 47 999 774 720 46 710 833 152 58 294 370 304 72 053 448 704 98 950 504 448

South Africa 9 134 375 936 8 968 797 184 8 738 751 488 11 138 239 488 13 544 453 120 15 152 681 984

132 877 647 872 118 478 979 072 110 881 800 192 166 168 788 992 214 663 151 616 240 151 642 112

Sudan 952 992 000 800 802 624 1 067 490 688 1 591 357 056 2 740 819 712 4 782 497 792

12 366 140 416 13 351 198 720 15 108 610 048 17 679 949 824 21 609 275 392 27 699 433 472

Swaziland 6 080 692 4 019 050 4 487 241 6 662 261 8 823 529 9 570 514

1 388 703 232 1 259 856 000 1 191 537 792 1 906 464 000 2 517 383 936 2 730 501 376

Tanzania 124 335 032 137 440 240 158 266 256 202 783 072 255 442 128 257 556 240

9 079 262 208 9 440 939 008 9 772 041 216 10 290 950 144 11 310 740 480 12 111 044 608

Togo 47 754 152 36 287 244 50 216 060 105 127 320 136 479 408 146 359 584

1 329 110 400 1 328 031 232 1 476 122 496 1 758 946 944 2 061 009 536 2 202 787 584

Uganda 40 343 360 41 805 540 45 766 432 46 511 344 47 185 560 67 978 200

5 926 373 888 5 681 242 624 5 848 215 040 6 254 794 752 6 822 182 400 8 711 725 056


Subscription to ISS Papers

If you would like to subscribe to ISS Paper series, please complete the form below and return it tothe ISS with a cheque, or a postal/money order for the correct amount, made payable to the

Institute for Security Studies (marked not transferable).

Please note that credit card payments are also welcome. You can also deposit your payment into the followingbank account, quoting the invoice number and the following reference: PUBSPAY.

ISS bank details: ABSA, Brooklyn Court, Branch Code: 634156, Account number: 405 749 8921

Please mail or fax:ISS Publication Subscriptions, PO Box 1787, Brooklyn Square, 0075, Pretoria, South Africa

ISS contact details: (Tel) +27 12 346 9500, (Fax) +27 12 460 0998; Email: [email protected]: www.issafrica.org

Title Surname Initials

Postal Code

Organisation

Position

Postaladdress

Country

Tel Fax E-mail

ISS PAPERS SUBSCRIPTION 2007 – MIN 8 PER YEAR

South Africa African countries* International

R150.00 US$ 30.00 US$ 40.00

* Angola, Botswana, Burundi, Comores, Congo-Brazzaville, Democratic Republic of the Congo, Gabon, Kenya, Lesotho, Madagas-car, Malawi, Mauritius, Mozambique, Namibia, Reunion, Rwanda, Seychelles, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe(formerly African Postal Union countries)

Details of subscription rates for the African Security Review, ISS Monographs, SA Crime Quarterlyor other ISS publications are available from:

ISS Publication Subscriptions, PO Box 1787, Brooklyn Square, 0075, Pretoria, South AfricaTel: +27-12-346-9500/2 • Fax: +27-12-460-0998 • Email: [email protected] • www.issafrica.org

The vision of the Institute for Security Studies is one of a stable and peaceful Africa characterised byhuman rights, the rule of law, democracy and collaborative security. As an applied policy research institutewith a mission to conceptualise, inform and enhance the security debate in Africa, the Institute supportsthis vision statement by undertaking independent applied research and analysis, facilitating and supportingpolicy formulation; raising the awareness of decision makers and the public; monitoring trends and policyimplementation; collecting, interpreting and disseminating information; networking on national, regionaland international levels; and capacity-building.

© 2007, Institute for Security Studies • ISSN: 1026-0404The opinions expressed in this paper do not necessarilyreflect those of the Institute, its Trustees, members of the

Advisory Board or donors. Authors contribute to ISSpublications in their personal capacity.

Published by the Institute for Security Studies • P O Box 1787 •Brooklyn Square • 0075 • Pretoria • SOUTH AFRICA

Tel: +27-12-346-9500/2 • Fax: +27-12-460-0998Email: [email protected] • http://www.issafrica.org

67 Roeland Square • Drury Lane • Gardens •Cape Town • 8001 • SOUTH AFRICA

Tel: +27-21-461-7211 • Fax: +27-21-461-7213Email: [email protected]

The ISS mission

Corruption and the extractive industries in Africa • page 28 Paper 153 • October 2007

About this paperIt is now well accepted that the extractive industries in many African countries fail to promote human development.An increasingly influential explanation is that poor governance and corruption in Africa are both cause andeffect of this so-called ‘resource curse’. Combating corruption in the extractive industries in Africa has thereforebeen elevated as a priority by a range of stakeholders, including Western governments, corporations and civilsociety coalitions. This paper critically considers this development. It not only suggests that existing anti-corruptionmeasures and transparency initiatives may well have limited impact, but also argues that corruption is a contestedconcept, one that can be used to advance different political and economic agendas.

About the authorAndre Standing has been working at the Institute for Security Studies since November 2006, where he is currentlyleading the project on the governance of Africa’s natural resources. Prior to this time he was conducting fieldworkresearch for his PhD on organised crime in South Africa. He has authored a recent book published by the ISS ongangs and organised crime in Cape Town.

FunderIn 2007, the ISS Corruption and Governance Programme began a project entitled ‘The governance of Africa’snatural resources’. Existing work includes research into mining and human development and the over-exploitationof marine resources in Africa. The project, and this paper, has been greatly assisted by seed-funding from the OpenSociety Initiative for Southern Africa. Further generous support has been received for this work by the RoyalDanish Embassy (Pretoria) and the Royal Norwegian Embassy (Pretoria).

Corruption and the extractive industries in Africa Can ... · Corruption and the extractive...

Documents

Transcript of Corruption and the extractive industries in Africa Can ... · Corruption and the extractive...