How to ensure resource revenues promote shared prosperity

Resource rich developing countries face challenges in ensuring that revenues from Extractive Industries (EI) are used to foster economic development, reduce poverty and promote shared prosperity.

Effective governance of extractive revenue is a precondition for ensuring that the ‘development dividend’ that is meant to flow from the decision to extract becomes a reality. Good governance of the sector requires sufficient participation, transparency, and accountability across the entire EI value chain.

A wide range of stakeholders can contribute to these governance objectives, whether they be government agencies, private sector, civil society, and formal accountability institutions, such as parliaments.

Parliaments are coming to the fore as key stakeholders in ensuring that extractive revenues are equitably shared. That means making sure that extractive revenues are accurately captured in budget forecasts and estimates, appropriations are focused on delivering services to affected communities, and effective oversight of governments’ management of the sector is provided.

I participated in the recent 2015 Helsinki Parliamentary Seminar, hosted by the Parliament of Finland as part of the World Bank-Finnish Parliamentary Partnership, which brought together parliamentary delegations from Ghana, Iraq, Kenya, Mongolia, Somalia, South Sudan, Tanzania, Timor Leste, and Zambia to explore how parliaments could better contribute to the governance of revenues from extractive industries.

One of the key lessons drawn from the discussion was that different parliamentary institutions are able to contribute to good governance of the sector in different ways, depending on where along the value chain parliament is engaging.

When focusing on the ‘revenue management and allocation’ stage of the value chain, Finance, Budget, and Estimates Committees within parliaments and Parliamentary Budget Offices are usually best placed to ensure extractive revenues are accurately captured in budget forecasts and estimates, and appropriations are focused on delivering services to affected communities.

If the international community hopes to empower parliaments to play a more positive role in the ‘revenue management and allocation’ stage of the value chain, it is important to develop holistic approaches that strengthen existing parliamentary institutions and processes around taxation, budget formulation and supply procedures, so that parliaments can consider extractive industry revenue streams in the context of the whole budget.

A second lesson that surfaced was the need to create the enabling environment that would allow these parliamentary institutions to perform their critical functions.

The two primary strategies for building a strong enabling environment were improving transparency and accuracy of data around extractives revenues and ensuring that parliamentarians and parliamentary staff, as practitioners, could come together at a regional or global level to learn from each other about the challenges faced and solutions developed.

The governance of extractive industries is one of the most pressing governance challenges of our time.

In order for country systems to rise to the challenge of providing effective governance of the sector, which results in development dividends for all citizens, institutions beyond the central government need to play a role. In particular, when seeking to strengthen governance around management and allocation of extractive industries revenue, Parliamentary Finance, Budget, and Estimates Committees and

Parliamentary Budget Offices have a critical role to play. In order to maximize the potential impact these parliamentary institutions can have on the management of extractive revenue, greater emphasis should be placed on integrating extractive industry related data into national estimates and parliamentary supply processes.

The dialogue around the role of parliaments in the governance of revenues from extractive industries will continue at the upcoming World Bank Spring Meetings.

The World Bank Group’s Governance Global Practice and Energy and Extractives Global Practice will host a follow-on panel discussion on “The Role of Parliaments in Ensuring Communities Enjoy the Development Dividend from Extractive Industries” on Tuesday, April 14, 2015 from 10am EDT.

The panel will draw on inputs from parliamentary delegations that participated in the Helsinki Parliamentary Seminar and will include contributions from Satu Leena Santala, the WBG Executive Director for Finland, Sweden, Denmark, and Estonia, and Mario Marcel, Senior Director of the Governance Global Practice.

This article is published in collaboration with The World Bank’s Governance for Development Blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Hassane Cisse is currently Director, Governance and Inclusive Institutions, Governance Global Practice, at the World Bank.

Image: A worker walks past a pump jack. REUTERS/Sergei Karpukhin.