The International Monetary Fund (IMF) is in the midst of finalizing the fourth pillar of its new Fiscal Transparency Code (FTC) and public consultation on the draft has just drawn to a close. The pillar focuses entirely on resource revenue transparency for resource-rich countries, in recognition of the importance of the role that transparency plays in effectively harnessing these resources for development.
One important new feature of the FTC is its focus on the “quality of published information,” whereas the previous 2007 Code of Good Practices on Fiscal Transparency emphasized processes. The IMF consciously chose to shift the focus, realizing that evaluation of the actual “quality and adequacy” of published information provides a more objective basis for evaluating the real state of fiscal transparency in a country.
Why is this new emphasis important in resource revenue transparency? Because often emphasis is placed on having the right laws or making the right statements, but actual practice may fall short of stated goals and intentions. Countries that do well in “talking the talk” may not always be “walking the walk” of transparency, with far-reaching consequences for citizens.
The state of contract transparency in the Democratic Republic of Congo (DRC) provides only one example of this shortfall. Contract transparency is an important tool for ensuring that countries benefit from their natural resources. It deters the corruption that secret deals have fostered; provides valuable information to governments to help them negotiate better deals; and facilitates both government and citizen enforcement and monitoring of such contracts. All of these benefits are crucial for a country like the DRC, which enjoys vast natural resource wealth but is still battling crushing poverty. According to the 2013 Africa Progress Panel report Equity in Extractives, the DRC alone is responsible for half of the production of the world's cobalt, one quarter of industrial diamonds, 14 per cent of tantalum, and 3 per cent of copper and tin. Yet the DRC lags behind in the governance of its natural resources, ranking 44th out of 58 countries in the Resource Governance Index. Worse, the DRC ranks second-to-last in the United Nations Human Development Index.
In the wake of criticism, the DRC agreed to publish all mining and oil contracts in 2010 and even passed a law requiring contract transparency in 2011. However, the IMF in 2012 stopped a loan program after the government failed to publish the details of a sale by the state-owned mining company Gécamines of a stake in a major copper concession agreement. The Equity in Extractives report revealed a loss to the DRC of at least $1.36 billion in revenues from the underpricing of mining assets sold between 2010 and 2012—an amount equal to almost twice the country's combined annual budget for health and education in 2012.
Since then, the DRC has made progress in transparency of its extractive industries, becoming EITI compliant in 2014 and even being one of the first countries to pilot a project on disclosure of beneficial ownership of extractive companies under the EITI. Unfortunately, a recent study conducted by three Congolese NGOs in partnership with the Carter Center found that at least 62 contracts, amendments and annexes in relation to 17 mining operations across the country had not been published, despite the existence of the law requiring their disclosure. In other words, comprehensive contract transparency remains elusive, with potentially dire consequences for effective governance of the DRC's resource wealth.
So the question is, can the IMF's new emphasis on the quality of output and not merely process make a difference to contract transparency in the DRC? Possibly, especially if the IMF both strengthens the language of the draft pillar IV and strengthens incentives for adherence to the FTC.
In the Natural Resource Governance Institute's recently submitted comments on the draft pillar IV, we recommend revising the language of the draft to specify disclosure of the full text of contracts, including their annexes and amendments. We also recommend that the term “publish” be defined to better reflect meaningful availability and access to information by the general public, including, where possible, in an open data format. Most importantly, we recommend that the currently voluntary fiscal transparency evaluations carried out by the IMF to assess adherence to the FTC be made regular, mandatory and public for resource-rich countries. This will provide further incentive and international peer pressure to make transparency real.
We recognize the FTC alone is no panacea for ensuring good governance of extractive industries for development. However, we do believe it has an important role to play in continuing to ensure that countries “walk the walk” and make transparency real.
Nicola Woodroffe is a legal analyst at NRGI.