Feb 25, 2013 - Basic Data, 2: Trends in Control of Corruption, Extractive vs. Non-Extractive Intensive Countries, 2002-2
The Development Challenge of the Decade: Natural Resource Governance Reflections and Peering ahead, Evidence-based Daniel Kaufmann, Revenue Watch Institute http://www.revenuewatch.org/
Presentation at Extractive Industry Roundtable sponsored by EITI & Norway, Oslo, February 25th, 2013 . 1
Reflecting on 4 ‘Powers’ 1. Power of Data, Research & of Evidence-Based Policy-Making 2. Power of Smart Transparency 3. Power of Incentives 4. Implications for Debate, including: Power of Partnerships
1. Power of Data & Research Power of Data, Research & of Evidence-Based PolicyMaking: • Better outreach of existing data/evidence and analysis on governance in natural resource governance • Building a major Databank; making sense of the existing & upcoming data; enabling multitude of users around the world (in-country) to use it effectively • Guarding against: i) ‘Zombie Data’; ii) Confusing the Macro with the Micro in charting data work ahead; iii) viewing Data & technical analysis as substitute to civil society advocacy (not so); iv) misalignment with international statistical norms (thus IMF needs to be further involved, etc)
Basic Data, 1: What are the Poverty figures since 1990?... Basic Data, 2: Trends in Control of Corruption, Extractive vs. Non-Extractive Intensive Countries, 2002-2011 1.0
Control of
WGI Control of Corruption, 2011
0.8 Extractive Countries with satisfactory Governance
0.6 0.4 0.2
Non-Extractive Intensive Countries
0.0 -0.2 -0.4
ExtractiveIntensive Countries (All)
-0.6 -0.8
-1.0 2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Worldwide Governance Indicators, 2012. The extractive countries with satisfactory control of corruption trend line (atop) includes a dozen countries.
2. Power of Smart Transparency • Transparency Matters • But guarding against: 1. “Zombie” Transparency (de jure, opaque transparency, overly aggregate); 2. Partial Transparency: only on monetized revenues, but not on: contracts; in-kind; expenditures; sovereign funds; in-kind, NOCs; commodity traders; ownership, etc. 3. Lonely Transparency (without key complementary measures) 11
Governance & Transparency Matters: Some Empirics in brief • Governance Matters for Development: Empirical Analysis shows that. • The ‘payoff’ or development dividend of good governance is at least as large (if not larger) for resource-rich countries • Controlling corruption is key to development outcomes, and transparency is associated with controlling corruption • But ‘lonely transparancy’ has less impact: transparency with sanction has more power 12
The 300% Development Dividend From Improving Governance & Controlling Corruption $30,000
$3,000
$300
High Corruption
Medium Corruption
Low Corruption
Data Source for calculations: KK 2004. Y-axis measures predicted GDP per capita on the basis of Instrumental Variable (IV) results for13 each of the 3 categories. Estimations based on various authors’ studies, including Kaufmann and Kraay.
GDP per Capita in Extractive-Intensive & Other Countries, by Control of Corruption Tercile Groups, WGI 2011 EXTRACTIVE
OTHER
GDP per capita (PPP), 2011
45,222
30,820
12,712 10,272 10,000
6,851 5,000 0
3,941 55.6%
25.6%
Poor Corruption Control
33.3%
33.5%
Average Corruption Control
11.1%
40.5%
Good Corruption Control
Note: The percentages inserted in each dark blue column represent the % of all extractives that belong to each control of corruption tercile (poor, average, good). Similarly, for light blue columns, the % of all other countries in each control of corruption category. Sources: Corruption Control data from Worldwide Governance Indicators (WGI), 2012. IMF 2010 Report on Resource-Intensive Countries. GDP p.c. from World Bank World Development Indicators, 2012. Countries were grouped into terciles based on the WGI control of corruption score for the sample of all countries in the world.
Global Competitiveness Index, 2011
High
Low
Control of Corruption and WEF GCR Competitiveness, 2010
100
r = 0.79 CHL
80 BRA CRI
60
SLV
40 DOM
JAM
20
0 0
20 Low
40 60 Control of Corruption, 2010
80
100 High
Source: EOS firm survey, WEF Global Competitiveness Survey 2011 & '“Worldwide Governance Indicators,” by D. Kaufmann, A.Kraay and M. Mastruzzi, October 2011 – www.govindicators.org
Improved Transparency is Associated with Corruption Control (Emerging Economy sample-- 135 countries)
Good
Control of Corruption
1
0.5
0
-0.5
-1
-1.5
No Transparency
Limited Transparency
Satisfactory Transparency
Extent of Transparency Source for Control of Corruption: : 'Governance Matters IV: Governance Indicators for 1996-2004’, Kaufmann, D., A. Kraay and M. Mastruzzi, (http://www.worldbank.org/wbi/governance/govdata/); Source for Press Freedom: Freedom House. Source for Gender Equality: CPIA 2004. Source for Transparency: 16 Transparenting Transparency”, A. Bellver and D. Kaufmann. Satisfactory Freedom/Rights reflect higher ratings from Press Freedom, women’s rights, gender equality and transparency ratings.
Effect of Media Freedom/Transparency on Control of Corruption (when Low Rule of Law) 2.0
1.0
0.0
-1.0
-2.0 Low Press Freedom/Low Rule of Law
High Press Freedom/Low Rule of Law
Sources: Kaufmann D., A. Kraay, M. Mastruzzi (2010), The Worldwide Governance Indicators: Methodology and Analytical Issues , September 2010; Freedom House, Freedom of the Press, 2005-2009 editions
Impact of Transparency/Free Press on Control of Corruption (for Low vs. High Rule of Law) 2.0
1.0
High RL Low RL 0.0
-1.0
-2.0 Low Press Freedom/Low Rule of Law
High Press Freedom/Low Rule of Law
Low Press Freedom/Hight Rule of Law
Sources: Kaufmann D., A. Kraay, M. Mastruzzi (2010), The Worldwide Governance Indicators: Methodology and Analytical Issues , September 2010; Freedom House, Freedom of the Press, 2005-2009 editions
Effect of Media Freedom and Rule of Law on Control of Corruption 2.0
1.0
0.0
-1.0
-2.0 Low Press Freedom/Low Rule of Law
High Press Freedom/Low Rule of Law
Low Press Freedom/Hight Rule of Law
High Press Freedom/High Rule of Law
Sources: Kaufmann D., A. Kraay, M. Mastruzzi (2010), The Worldwide Governance Indicators: Methodology and Analytical Issues , September 2010; Freedom House, Freedom of the Press, 2005-2009 editions
A Broader Transparency Framework • Beyond Transparency in Revenues: the full value chain • Beyond Transparency: Complementary measures – how context specific? • New Analytical and Empirical Diagnostic Tools: Natural Resource Charter (NRC); the Resource Governance Index (RGI), EITI information translation into standardized data and performance indicators? • Subnational Governance in Natural Resources 21
BEYOND REVENUE TRANSPARENCY: WHICH AREAS SHOULD BE TRANSPARENT?
Transparency across the Value Chain
The basis for any decision to permit exploitation of a mineral deposit should be set out clearly in published laws and regulations
Contract terms, including fiscal terms should be made public
Financial information on revenues into the public domain will facilitate enforcement and reduce tax avoidance
Disclosure of operations and financial data of savings, stabilization and investment funds
The disposition of extractive revenues should be fully transparent
Managing Volatile Revenues Venezuela
Norway
Government revenue growth (kroners) Government expenditure growth (kroners)
200.0% 150.0%
100.0% 50.0%
2012
2010
2008
2006
2004
2002
2000
1998
1996
-50.0%
1994
0.0% 1992
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0%
Government revenue growth (bolivares) Government expenditure growth (bolivares)
Managing Volatile Revenues Iran
Chile 40.0% 30.0% 20.0% 10.0% 2011
2009
2007
2005
2003
2001
1999
-10.0%
1997
0.0%
-20.0% -30.0%
80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0%
Government revenue growth (pesos)
Government revenue growth (rials)
Government expenditure growth (pesos)
Government expenditure growth (rials)
3. Power of Incentives • Belonging to a Global Transparency ‘Club’ is a powerful incentive • Balancing: i) Inclusivity [in ‘belonging’ to ‘Club’, so country has incentive to improve], with ii) MMS: Maintaining Minimum Standards (vs. damaging the brand by low standards) • Practically, 3-categories (not 2): In or Out, and if In: potential vs. real performer • A key is tough implementing criteria on ‘real’ performance • Performers can be reverted to non-performers, but stay ‘In the Club’ (unless dramatic deterioration) 27
Some Conclusions & Implications so far, including 4. The Power of Partnerships 1.
Power of Data: Investing in Data gathering, management, rigorous analysis, training/TA of multiple national users
2.
Distinguishing between Zombie vs. Real Transparency
3.
Complementary to Transparency: Governance in full value chain
4.
Taking Incentives seriously: “Tough Love” (Love: ‘In the Club’, Tough: Real Performance implementation criteria, w/ metrics)
5.
Taking Institutional Partnerships seriously and to the next level:
i) Scan & Mapping of activities & organizations, division of labor; ii) Joint Country Strategies; iii) Strategic Partnerships & Mergers 28
Some Perspective on the Power of Transparency & Data… ‘If it cannot be measured, it cannot be controlled’ Lord Kelvin ‘Not everything that counts, can be counted, and, not everything that can be counted, counts’ Einstein
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