'Might the Resource Curse be exorcised?'

From: Natural Resources, Often a Curse, Can Also Serve the Public (via Global Integrity)

Energy addiction is not solely the rich world's affliction. Instead, oil cravings perpetuate undemocratic regimes. Rising demand from an emerging middle class in the developing world – for the people's car in China, the Chery, or India's Nano – will only exacerbate longstanding problems. Policymakers in "petro-states" rarely use energy revenues to alleviate poverty, diversify their economies or enhance access to opportunity. Instead, these governments often become corrupt, authoritarian and unresponsive.

This phenomenon, the "resource curse," afflicts countries that depend on extractive industries, whether oil, minerals or diamonds, to fuel growth. Policymakers in resource-rich countries often become addicted to extractive-industry revenues and ignore the needs of other productive sectors such as agriculture, education and manufacturing. Instead, officials may pad their personal bank accounts and funnel petrodollars to allies or families to stay in power. Corruption can become endemic. Eventually, such countries are at increased risk for conflict and even state failure. Their citizens may face lower life expectancy and greater inequality, illiteracy and child malnutrition.

The citizens of these petro-states can't ensure that regulations and laws are fair and address their needs. Not surprisingly, they often blame foreign investors for their desperate straits. But foreign investors are also at great risk when they collaborate with opaque host governments. In such countries, government officials must approve every decision related to exploration, development, and export of oil or minerals. Opportunities for corruption multiply because of such frequent interaction. Executives find it difficult to manage in such countries. Like citizens, they lack the information they need to respond to market forces, influence government decisions, hold policymakers accountable and ensure that governance is equitable and efficient. Thus, citizens and extractive-industry firms have a common interest in improving the transparency, responsiveness and effectiveness of governance of petro-states.

In 2003, the British government proposed a new strategy – the Extractive Industry Transparency Initiative (EITI), to address these problems. This initiative created a voluntary system to which governments rich with oil or minerals agree to adhere. These states entrust an independent administrator to compare extractive sales and revenues as declared by oil companies and recorded by governments. In addition, "all companies operating in the relevant sectors in countries implementing EITI have to disclose material payments to the government" and then make this information public. Such reporting reduces the ability of policymakers to demand bribes of companies, while increasing the ability of citizens to monitor government.

By September 2007, some 26 resource-rich developing countries claimed to have implemented the initiative. But several countries implemented the initiative in name only, prompting the EITI secretariat to add teeth to the requirements.

In December 2007, the Extractive Industry Transparency Initiative secretariat, based in Norway, announced that no country was fully compliant with the initiative. Compliant countries have a credible independent administrator, disclose and disseminate information on all material revenues from extractives, and have the full engagement of a multi-stakeholder group...