Sovereign funds set up to help stabilize national economies going through resource booms could instead fall into the hands of corrupt officials, according to a new report that decries a lack of transparency in the $3.5 trillion sector.
Natural resource funds are government-owned sovereign wealth funds financed by revenues from the extractive industries. The money in these funds is usually set aside to manage volatilities commonly associated with the resources sector, or to manage long-term wealth and development beyond the life of a resource boom.
The Managing the Public Trust report was released on Tuesday by think tanks Revenue Watch and the Vale Columbia Center, and revealed concerning trends regarding transparency and accountability of how 22 such funds are managed.
Of the 22 funds surveyed across 18 countries, Revenue Watch and VCC found that half were too opaque to study, with little to no accountability or oversight by civil society or the media.
Of the funds that could be studied, there was evidence of poor governance, or funds that failed to serve their initial purpose.
“The results of our research are sobering, and we strongly encourage countries that operate these funds to improve how they are governed,” said Daniel Kaufmann, president of the Revenue Watch Institute.
“Countries that don’t yet have such funds but are considering them should also heed the report’s prescriptions. With the staggering sums involved, good fund governance could make the difference between succumbing to or escaping the so-called resource curse.”
About half of the world’s population, including two-thirds of the globe’s poorest people live in resource rich nations, according to Revenue Watch. There are a 54 known natural resource funds worldwide worth a total of about $3.5 trillion.
The report comes at a time of increased pressure on both governments and companies to be more open about revenue and taxes earned and paid in the extractive industries.
Last month London-based Tullow Oil agreed to publish revenues it pays to governments worldwide on a project-by-project basis, the first such company to do so ahead of new laws set to come into effect in Europe and the UK.
On the other side of the corporate-government divide, the United States also recently announced it would begin reporting under the Extractive Industries Transparency Initiative (EITI), a worldwide reporting tool used to identify corruption in the mining, oil and gas sectors. The US became one of just two developed nations to agree to such reporting.
When it comes to natural resources funds, Revenue Watch said there is still a long way to go to ensure governments are using resources revenues to serve the public interest.
The report outlines a six-step process for establishing or reforming natural resource funds, including setting clear objectivities for the fund, rules for deposits, withdrawals, and investments, regular disclosures and oversight, and obtaining broad political consensus on operational rules.
“Even the best rules will not be enforced unless key stakeholders and the broader citizenry have bought in to the need for saving some natural resource revenues—as opposed to spending them all through the budget immediately—or there is constant pressure on the government to follow the rules,” the report said.
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