The EITI is the global standard to promote the open and accountable management of extractive resources. Allan & Associates reviews its Progress Report 2018.
The newest EITI members are Mexico, Guyana and Suriname, which joined in 2017. However, Azerbaijan, Niger, and the U.S. partially or entirely withdrew from the coalition.
Azerbaijan left the coalition after EITI suspended its membership in March over concerns regarding the authorities’ crackdown on civil-society groups. Meanwhile, EITI suspended Niger in October over its failure to make substantial progress in implementing its standards. For the U.S., it decided to withdraw as an implementing country in November on grounds that ‘the domestic implementation of EITI does not fully account for the U.S. legal framework’.
Other resource-rich countries notably absent from EITI are Australia, Brazil, China, and Russia, while only two members of the Organization of the Petroleum Exporting Countries (Opec) – Nigeria and Iraq – are EITI signatories.
Satisfactory progress indicates that a member state has implemented all aspects of EITI’s requirements, while meaningful progress indicates that significant, but not all, aspects of EITI’s requirements have been implemented.
In 2017, Kyrgyzstan made notable improvements to its legal system by requiring companies to disclose the beneficial owners of companies which have obtained extractive licences in the country. Such a move helps improve accountability and reduces the likelihood of Politically Exposed Persons disguising their ownership stakes with offshore shell companies. Kyrgyzstan amended its law on subsoil, which governs mining relations, and enacted harsher penalties for non-compliant behaviour. There are also plans to establish a register to improve data accessibility.
More than 60 per cent of EITI’s members reported their taxes and payments on a per-project basis in their 2017 annual reports. Per-project accounts shed light on how much each licence or contract generates in government revenue, contributing towards a fairer revenue-sharing system. For instance, since 2011 communities in mining-affected areas of Madagascar have used EITI’s data to ensure that the central government transfers the appropriate revenues to their local and regional governments.
Apart from monetary transactions, EITI also updated its guidelines on payments made in kind in exchange for rights to extract resources. These transactions are typically conducted between private and state-owned entities. In December 2017, Chad, an EITI member state, revealed details about a USD2 billion oil-backed loan traded with Anglo-Swiss commodity company Glencore. They included the monetary value of the crude oil allocation and the repayment sum.
The EITI has validated about half of its member states, including Philippines, Peru, and Zambia. The validation process involves auditing by internal stakeholders, the EITI International Secretariat, and a third party to identify areas of improvement.
The full report can be accessed here.
Allan & Associates’ comments and forecasts
EITI membership is intended to demonstrate to domestic voters and foreign investors that a country will not tolerate irregularities in the corruption-prone extractives sector.
The absence of major resource-rich countries suggests that EITI’s guidelines are not yet globally accepted. A majority of its members are in Sub-Saharan Africa (22 out of 51 member-states), but South Africa, which has the most mature extractive industry in Africa, is not one of them.
Another major drawback of this report is the low rate of disclosure by state-owned enterprises, which dominate the extractives industry in many member states. The organisation also noted it needs to better engage such companies, although it provides no specifics about how it intends to do so.
Countries which the EITI acknowledges have made satisfactory progress in implementing EITI standards are the Philippines and Mongolia. Despite this, their political and regulatory environments remain difficult for foreign investors. Allan & Associates rates Mongolia with an elevated political risk, due to the government’s recurring waves of resource nationalism. It has on several occasions threatened to directly or indirectly expropriate property in the extractive industries.
In the Philippines, Allan & Associates assesses the corruption risk as elevated, reflecting several international enforcement actions against alleged misconduct in the country. Corruption remains endemic at all levels of society due to the country’s complex and overlapping systems of local, provincial, and national government, coupled with a vague legislative environment.
Across Sub-Saharan Africa, Allan & Associates has noted that several mineral-rich countries, including the Democratic Republic of the Congo, Tanzania, and Zambia, are seeking to use their extractives industries to boost public coffers. Amid shifts in the domestic regulatory climate, this could potentially come at the expense of resource governance, as the governments’ priorities shift.
In the medium to long term, the influence of China, a non-EITI member, on the global mining industry should not be understated. Many of its overseas investments in the extractive industries tend to lack transparency and accountability, as many of its firms in this sector are state-owned entities.