Canadian Parliament Discusses Industry and Development

At a Canadian parliamentary hearing last week, members of the mining industry, civil society and parliament expressed strong support for regulations mandating disclosure of company payments to governments. On 27 February, the parliament's Standing Committee on Foreign Affairs and International Development heard testimony for its study on the role that the private sector, particularly the oil, gas and mining industry, can play in furthering Canada's international aid goals.

RWI President Karin Lissakers spoke on the broader need to build institutional capacity in resource-rich countries, so they can fund their own development, and the importance of mandatory disclosure of company payments to governments.

"We are also strongly in favor of mandatory disclosure of company payments," said Lissakers, noting the U.S. "Dodd-Frank" law passed in 2010 that will require all companies listed on the U.S. Securities and Exchange Commission—including many Canadian companies—to disclose their payments on a country-by-country and project-by-project basis. "As a matter of leveling the playing field for companies, we think it's important that major jurisdictions like Canada adopt similar legislation or regulatory requirements through their provincial regulators."

Lissakers was joined in her support for Dodd-Frank style rules by Pierre Gratton, President and CEO of the Mining Association of Canada, who said, "[Dodd-Frank is] not only seen as the right thing to do, but it's starting to be seen as actually good business to have these payments to government published."

In Canada, where 50 percent of the world's mining companies are based, civil society, the mining industry and academia have all expressed strong support for a global standard for extractive sector payments disclosure. To date, despite the enactment or consideration of such rules by the U.S., EU, and Norway, the government of Canada has remained silent.

Karin Lissakers' comments:

Thank you very much.

I'm Karin Lissakers. I'm the director of the Revenue Watch Institute. We're a non-profit organization that works in resource-rich, mineral-rich countries around the world. Our focus is on seeing that the mineral wealth of developing countries is transformed into social and economic benefits for the countries producing those minerals.

I think we're the only organization devoted specifically to the oil, gas, and mining sectors and development. We focus on these sectors because if you look at the numbers and the investment flows, you can see that these mineral resources have the potential to transform positively the many poor countries that have a lot of wealth in the ground.

Sub-Saharan Africa in 2009 exported some $250 billion worth of minerals. Aid inflows to sub-Saharan Africa was about $45 billion. You can see that the numbers would argue that these countries should in fact be able to finance their own development, but they have not. As the previous testimony suggested, in many cases minerals have actually been adverse to economic development and social and economic equity.

While companies are often blamed, we think a partnership and an agreed governance structure that addresses the underlying institutional weaknesses in the resource-rich countries can change the trajectory for the better in a way that benefits both the investors and the resource-producing countries.

If you look at the pathology of the so-called resource curse, you could see a number of underlying issues. One is that you have very weak institutions, overall, in the management of these countries.

Second, you have often a lot of corruption focused on the resource capturing so that individuals can capture a share of the mineral windfall, the money windfall that these industries generate. You get a battle for control over the government, over the state, which can then capture a piece of the revenue not for the public benefit but for the individual gain.

Third, as part of this pathology, many countries have entered into bad deals. They get very little revenue out of their minerals. Cameroon gets maybe 12 cents on the dollar per barrel of oil it produces. Norway, by comparison, gets 78 cents on the dollar. Tanzania, where there are large Canadian mining interests, produces about a billion dollars worth of gold each year but only gets roughly $100 million of tax revenue out of it.

A rebalancing is critical. It is good for the investors, to attract investors, because it's the investors who have the technology and the capital to develop these resources, and it also generates a fair share of the economic grants for the governments. That means these governments must have the technical capacity to negotiate effectively, to oversee the concessions, and to manage the revenues.

However, many governments have been very happy with the kinds of deals they've gotten because individuals have been able to enrich themselves. Transparent and accountable government is the other major component that is going to transform these resources into development. Here, I think that it's not just industries, but governments outside the resource-rich countries that have to contribute, by creating a strong international global standard for transparency, especially concerning money, because that's where the battles and the flaws emerge.

Having strong transparency rules around payment streams, contracting, and social and environmental practices is absolutely critical. If you have a global standard, then countries not meeting that standard will have a very hard time attracting investment. Their own people, who are in the end the enforcers of good policies, their own citizens, will have enough information in hand and the international support to press their own governments and demand proper governance, not only of the investment path itself but also of what the governments do with the money, and of whether the revenues that are generated are actually used for the public good to finance development and positive social outcomes.

There are several international initiatives that are beginning to create such a global standard. One is the extractive industries transparency initiative, EITI, which Canada has recently begun to support, which has governments, companies, and civil society together setting a reporting regime for company payments and government revenues from oil, gas, and mining resources. A second initiative is disclosure by companies of the payments they make to governments. We are strong supporters of both, first, because EITI gives civil society a seat at the table, and that strengthens the accountability mechanisms internally in developing countries, and second, because EITI is a vehicle for governments to disclose their revenues.

We are also strongly in favour of mandatory disclosure of company payments. The U.S. passed such a law in 2010. The Securities Exchange Commission is just completing its rule-making. Under this law in the U.S., all listed companies—and that includes a lot of Canadian companies—will have to disclose their payments to governments country by country and project by project, as well as according to the type of payment. That will shine a light. It will provide information to every affected country on exactly what payment streams are actually coming in to their own government's hands. They are then in a better position to ask what's happening to the money.

The EU is moving ahead to replicate this type of legislation. The commission has just issued draft directives, an accounting directive and a transparency directive, which will be debated in the European Parliament in the next few months. There's strong government and commission support for going ahead. So the EU and the U.S. will have these mandatory disclosure requirements.

As noted, many Canadian companies will already be covered. Many other Canadian oil and mining companies will probably not be covered unless Canada also moves ahead to adopt similar reporting requirements.

As a matter of levelling the playing field for companies, we think it's important that major jurisdictions like Canada adopt similar legislation or regulatory requirements through their provincial regulators. We think Australia should also follow suit. We would like to see Brazil and South Africa do so as well. But Canada is particularly important, because, as you know, more than half the world's mining companies list in Canada. Canada, a major mining and oil country itself, should lead by example. We hope your government will support such legislative requirements.

We're very happy to see that CIDA, in its technical assistance and development policies, is focusing more on extractive resources because of their potential to fund development. I think corporate social responsibility projects are good. The problem is that they have very limited impact. They don't really get at the systemic problems. We think that CIDA, like Norway and Australia, could do more on the broad capacity-building, and that the Canadian government could do more to support a broad transparency and accountability agenda around extractives. Then you would have a package whereby you would really greatly increase the chances that these resource-rich countries would become self-sustaining, self-funding, successful economies.

Thank you.

Kathryn Joyce is RWI web editor.

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