During the past decade the forces of political transformation and economic globalization have created a world of new opportunities and hope for some, but increased instability and insecurity for others. As we enter the 21st Century violent conflict continues to affect the lives of millions of people, undermining human progress and economic development. This has important implications for the private sector, which has become an influential player in many conflict-prone or conflict-ridden countries. From Azerbaijan to Zimbabwe, the potential and reality of violent conflict is becoming an unavoidable business issue.
In the last decade of the 20th century private investment in the developing world increased dramatically. During the same period 'the number and magnitude of armed conflicts within and among states have lessened since the early 1990s by nearly half… Democratic governments now outnumber autocratic governments two to one and continue to be more successful than autocracies in resolving violent social conflicts'. Ted Robert Gurr, Monty G. Marshall and Deepa Khosla, Peace and Violent Conflicts 2000, Center for International Development and Conflict Management, University of Maryland, 2000
There are many reasons for this remarkable, albeit very uneven, improvement in global security, not least the end of the Cold War, but globalization has also played an important role. Even during the Cold War era, global integration, trade and financial openness – the core elements of globalization - were positively associated with increased respect for core human rights. Wesley T. Milner, 'The Effects of Globalization and Liberalization', unpublished mss, 2000. And one of the very few studies looking at the relationship between American corporate presence and respect for human rights in some fifty developing countries found that the relationship was consistently positive. William H. Meyer, 'Human Rights and MNCs', Human Rights Quarterly, 1996, p.368. A subsequently published critique of Meyer's paper in the same journal using different data sets found virtually no relationship. For an upbeat view of MNCs' contribution to human rights see, Deborah L. Spar, 'The Spotlight and the Bottom Line: How Multinationals Export Human Rights', Foreign Affairs, Vol. 77 No.2, p.1.
Yet the same decade of greatly increased investment by multinational corporations (MNCs) in the developing world and significant decreases in the overall level of global violence, also saw mounting criticism of MNC operations in zones of conflict. That criticism shows no signs of abating. The operations of Shell in Nigeria, Unocal in Burma, De Beers in Angola, Freeport in West Irian, Talisman in the Sudan and many others – have become the focus of intense, and often hostile, scrutiny.
While the two trends might seem contradictory, they are not.
Foreign direct investment (FDI) may well on balance spur economic and (subsequently) political liberalization, as proponents of globalization argue. This in turn may create propitious conditions for the emergence of democracy and reduced risks of violent conflict. Moreover, if MNC operations were indeed a contributory cause of violent conflict, as some critics of globalization assert, then we might expect those countries that have the highest level of foreign direct investment to have the highest levels of violence and repression – and vice versa. In fact the opposite is true.
The near-complete absence of foreign investment, as in the case of Cambodia under the Khmer Rouge, North Korea and contemporary Afghanistan, tends to be associated with economic decline, violent conflict and/or political repression. Sub-Saharan Africa, the region most seriously afflicted by abuses of human rights and civil war, also has the lowest FDI inflow of any developing country region. The OECD countries on the other hand, have both the highest levels of foreign direct investment in the world and the lowest levels of violent conflict.
It is clear nevertheless that, under certain circumstances, foreign direct investment, particularly in the timber, mineral or oil exploitation industries, may be a contributory cause of violent conflict, regardless of the intentions of the corporations concerned.
In Southeast Asia, the South Pacific and elsewhere, there is a very strong correlation between violent conflict, on the one hand, and disputes over the allocation of logging concessions and the distribution of logging company revenues, on the other. In Africa, as William Reno has pointed out, 'most states that currently experience major internal strife, or suffered such strife in the 1990s, were dependent on exports of oil or another enclave mineral export for revenues.' William Reno, 'The Real (War) Economy of Angola', in Jakkie Cilliers and Christian Dietrich (eds), Angola's War Economy, Institute for Security Studies, Pretoria, 2000, p.223.
Wars have multiple causes and many of them have nothing to do with extractive industries, but the evidence strongly suggests that countries with weak governments that have a high degree of dependence on income from extractive industries are particularly prone to violent conflicts.
While major apparel and footwear companies like Gap and Nike have been targets of high-profile NGO campaigns, mostly regarding their labor practices, their operations have not been associated with widespread violent conflict, nor are they likely to be.
Mining and oil corporations have been less frequently targeted for their labor policies, primarily because their operations are highly capital-intensive. Their workforces are small and labor is a relatively small cost of the overall operation. Workers can therefore be paid considerably more than their equivalents in the apparel and footwear manufacturing industries at relatively little cost to the corporations concerned. Despite this the operations of companies in extractive industries in developing countries are more likely to be associated with violence than are those of service and manufacturing industries. There are several reasons for this.
In many poor countries where public servants, and sometimes politicians, are badly paid and transparency, oversight and accountability are minimal, the risk of corruption is very real. Where there is a prospect of tens, or even hundreds, of millions of dollars of government income being generated from extractive industry operations, the temptation to allocate mining licenses or logging concessions corruptly are correspondingly higher. As the World Bank's Paul Collier has noted, 'It is the feasibility of predation which determines the risk of conflict.' Cited in Reno, p.221.
If access to resources is allocated on the basis ethnic or other identity group criteria, creating or exacerbating 'horizontal inequality' in the process, the probability of protest and the risks of violence will increase. 'Horizontal inequality' is the consequence of unequal allocation of a variety of resources between groups. It is highly correlated with political violence in weak states. See Frances Stewart, 'The Root Causes of Humanitarian Emergencies' in E. Wayne Nafziger, Frances Stewart and Raimo Vayrynen (eds), War, Hunger and Displacement: the Origins of Humanitarian Emergencies, Oxford University Press, 2000. In many - not all – cases, protest is met with repression, which frequently leads to counter-violence – and an upward spiral of death and destruction.
The logging industry in much of the developing world appears particularly prone to corruption and violence. The corrupt allocation of logging concessions and the inequitable distribution of resource rents, on the one hand, and conflicts between governments and criminal or rebel groups over control over resource exploitation, on the other, have been major contributory causes of the violent conflicts in Burma, Cambodia, Acheh, West Irian, Kalimantan, the Solomons, Fiji and Liberia.
The relationship between logging operations and violent conflict in many parts of the developing world has received relatively little attention in the North, in part because major Western corporations have not been involved, and in part because there have been relatively few high-profile NGO campaigns directed against them. An important exception has been the high-profile campaign waged by Global Witness against illegal logging in Cambodia.
The oil and mining industries have been also associated with violent protest in many parts of the world. With respect to oil, one analyst recently claimed that: 'From Nigeria and Venezuela to Indonesia and Algeria, riots, conflict and outright civil war threaten the populations of OPEC countries.' Terry Lynn Karl, 'The Perils of the Petro-State', International Journal, Fall 1999. In the case of mining, a dispute over how revenues from Rio Tinto's giant Panguna copper mine in Bougaineville should have been distributed between the Papua New Guinea government and the people Bougaineville, led in 1989 to a bitter civil war that lasted through much of the 1990s and claimed an estimated 10,000 lives. While the Bougaineville case is perhaps the most extreme example of a dispute over mining operations causing violent conflict, it is by no means the only one.
In conflicts between the state and local communities over mining operations – like that in Bougaineville - the state and corporations are usually at an advantage. As a 1995 US State Department report noted:
Where indigenous people clash with development projects, the developers almost always win... Tensions with indigenous people in Irian Jaya, including the vicinity of the Freeport McMoRan mining concession near Timika, led to a crackdown by government security forces, resulting in the deaths of civilians and other violent human rights abuses.
This pattern – of government security forces using force to repress local protests against the operations of extractive industry corporations – is the commonest form of violence associated with the presence of these corporations in developing countries today.
Where there are pre-existing conflicts, as in Angola, Cambodia and elsewhere, revenue from oil, mining, or logging operations can sustain and exacerbate the violence. As a Global Witness report on Cambodia pointed out in 1997:
With the end of the Cold War, timber revenue began to replace foreign support for the warring factions in Cambodia's long running civil war. The timber trade funded the war and the war created more demand for timber, a vicious circle. Very quickly personal fortunes were being made by political and military leaders on both sides and the exploitation of timber became a cause for armed conflict in its own right.
Moreover, far from providing an economic bonanza, high-value extractive industries, frequently generate massive economic - and political - problems. This in turn can increase the risk of violent conflict. Corrupt politicians and officials may benefit; but society as a whole suffers. The phenomena is known as 'the Dutch Disease' – a reference to the disastrous impact that reliance on North Sea oil had on the economy of the Netherlands:
"Dutch disease" is the diagnosis development economists give to an all too familiar set of symptoms: rapid capital inflows appreciate the exchange rate, erode the competitiveness of [non-resource] industries subject to international competition, promote current-account deficits, accelerate inflation, distort investment and link the economy to volatile commodity markets.
In politics, the corrupting effects of rentier economics perverts governance ...
'Dutch Disease' gives rise to the 'paradox of plenty'. As Terry Lynn Karl has recently noted:
The pernicious access to easy money weakens traditional work ethics and reduces incentives for entrepreneurship, lowering financial discipline within bureaucracies and leading to reckless budgetary practices. Most importantly, it preempts efforts to mobilize domestic resources through taxation, reduces tolerance for austerity and produces a dangerous reliance upon the state for the resolution of all problems.
Angola is one of the most oil-dependent states in the world with around 80% of government revenue being derived from oil exports. Here 'Dutch Disease' has been particularly damaging. During the 1990s the well-being of citizens (as measured by the United Nations' Human Development Index) declined sharply as oil imports rose.
In 1997, the British oil giant BP commissioned a social impact assessment of its operations in Angola from Environmental Resource Management (ERM). The report noted that there was a '… widespread perception amongst non-experts and experts that little oil revenue is used for social and economic development. Various reasons are cited for this, predominantly military/security spending and corruption.' Cited in Global Witness, A Crude Awakening: The Role of the Oil and Banking Industries in Angola's Civil War and the Plunder of State Assets. .
In his survey of the 'paradox of plenty' in the OPEC states Karl found that:
….it is not surprising that approximately 65 to 75 percent of the post-1974 GDP went toward public and private consumption--aimed first and foremost toward the key constituencies supporting the rulers of oil states. Much of this took place through subsidies to social groups, friends, family and political supporters of the government, and much through the awarding of contracts on what were most often non-market criteria.
It is precisely this sort of behavior that has generated such bitter popular resentment against governments that have succumbed to the 'Dutch Disease'.
The 'Dutch Disease' thesis places primary responsibility for the problems generated by reliance on extractive industries on governments, though it is important to note that there would be no 'Dutch Disease' without the rents that the corporations provide. Corporations certainly agree that governments are responsible for security and some corporate spokepersons make the case that, far from contributing to insecurity, their operations have security and human rights benefits. Thus Unocal argues that:
Our energy development operations have clear human rights implications. We generate economic growth that gives political confidence and influence to a rising middle class. We hire, train and provide advancement opportunities for the citizens of our host countries. We introduce modern values and concepts, such as equal employment opportunity regardless of sex, race, ethnic background or religious preference. We provide a supportive working environment in which all employees may freely contribute. We introduce safety training and environmental programs into the workplace, and offer health care and educational opportunities that further empower communities. And, in keeping with our commitment to improve people's lives wherever we work, we support a wide variety of humanitarian and philanthropic initiatives.
It is, of course, possible for all of these benefits to be created while at the same time corporate revenues, irrespective of the wishes of the corporation, sustain a regime's corrupt and repressive practices.
Mining and logging operations, unlike manufacturing and services, frequently displace people physically and threaten indigenous cultures, sacred sites and livelihoods. This too can be a cause of grievance and conflict. Extractive industries can also cause serious environmental damage that can have major economic, and sometimes political, consequences. Inappropriate logging operations can cause massive soil erosion, siltation of aquatic ecosystems and coral reefs and greatly increase the risk – and cost - of flooding. Mining operations can pollute, and in some cases poison rivers, causing serious damage to the livelihoods of local communities and stirring deep resentments.
Neither manufacturing nor service industries are associated with 'Dutch Disease' phenomena, nor do they normally generate the sort of environmental degradation associated with large-scale mining or inappropriate logging operations. These businesses rarely have a role in causing conflict, but they can play an important role in building prosperity, which in turn can be an important antidote to conflict.
Extractive industry corporations have a particular interest in reducing the risk of violent conflict. Their investments tend to be large, their time horizons long and their plant and equipment susceptible to sabotage.
In our discussions with multinational corporations, we have found that most
companies have common goals: they want to invest in countries which respect the
rule of law, which guarantee equality before law, which have transparent laws,
which believe in good governance, which seek to improve the lot of their people,
and which respect the human rights of the population. Yet, that collective goal
disintegrates at individual levels in some cases. When we ask why, the companies
say this is because all companies will not act in concert. A French company will
say, if we don't do it somebody else will. An American company will say if we
don't play along the Europeans will.
Pierre Sane, Secretary-General, Amnesty International Pierre Sane, 'Why Human Rights Should Matter to the Business World', Earth Times News, January 8, 2001.
Even the sternest critics of MNC operations in zones of conflict accept that the corporations concerned confront a number of extremely difficult dilemmas:
Where they are mined responsibly, as in Botswana, South Africa or Namibia,
diamonds can contribute to development and stability. But where governments
corrupt, rebels are pitiless and borders are porous, as in Angola, Congo or Sierra Leone, the glittering stones have become agents of slave labor, murder and wholesale economic collapse. 'To Some Countries, Gems Bring Only Misery, The International Herald Tribune, April 7, 2000.
The Carnegie Commission on Preventing Deadly Conflict noted in 1997 that, 'It cannot be emphasized enough that governments bear the greatest responsibility to prevent deadly conflict'. Few would dispute this – including those human rights NGOs most critical of the activities of corporations operating in zones of conflict. Moreover the fact that the operations of extractive industry corporations are often associated with violent conflicts is not to say that they cause them.
But while corporate spokespersons have traditionally argued that they cannot be held responsible for the actions of sovereign foreign governments, this view is increasingly being challenged, as is the frequently expressed view that the private sector lacks the ability to influence host governments. As British Petroleum's CEO, John Browne argued in 1997, '… to say that companies have no power would be as much of a caricature as saying they are all powerful'. Speech to Council on Foreign Relations, 1997. Governments bear primary responsibility for security, but this does not mean that corporations bear none.
Critics argue that where corporate taxes and royalties play a critical role in sustaining repressive governments they cannot avoid charges of complicity with the abuses of human rights that such governments perpetrate. Avoidance of complicity with human rights violations is, of course, one of the core principles of the Global Compact. There is however little consensus on how complicity should be defined.
The extent to which the private sector has a vital commercial interest in the contested issue of human rights was made clear in a recent survey carried out by the Ashbridge Centre for Business and Society. The survey found that:
… human rights issues have caused 36% of the biggest 500 companies to abandon
a proposed investment project and 19% to disinvest from a country.
Cited in 'Business and Human Rights: an Update', United Nations High Commissioner for Human Rights, July 2000.
Many corporations have adopted codes of conduct or social responsibility policies in response to growing criticism, but as the United Nations Development Programme's 2000 Human Development Report noted, many of these 'fail to meet human rights standards, or lack implementation measures and independent audits.' Cited in Ibid. The Ashbridge Centre report found that only 44% of corporate codes of conduct made explicit reference to human rights.
International institutions have been pursuing the issue of human rights and the private sector in a number of ways:
The Office of the High Commissioner for Human Rights has expanded its
dialogue with the private sector and the UN Sub-Commission on the Promotion and
Protection of Human Rights has been reviewing a report on 'draft principles
relating to human rights conduct of companies'. Ibid.
The World Bank's three-member Inspection Panel has been described as a 'precedent-setting public accountability mechanism'. It adjudicates complaints from individuals regarding harms allegedly done to them by Bank-funded projects. The Bank is the only international institution that permits such direct representations by individual citizens. Many complaints have related to human rights violations associated with major infrastructure projects. While the Bank has no mandate to address conflict issues, many of its activities are intended to create the conditions under which the risk of armed conflict diminishes.
The OECD adopted its 'Revised Guidelines for Multinational Enterprises' in June last year. The Guidelines are voluntary and, among other things, call on enterprises to respect 'the human rights of those affected by their activities consistent with the host government's international obligations and commitments'.
… the question of investment disinvestments in countries with repressive
regimes is one of the most contentious of all questions of social
Peter Schwartz and Blair Gibb, When Good Companies Do Bad Things, cited in Nelson, The Business of Peace Op. Cit.
Some NGO campaigns call for corporations to withdraw investments from countries whose regimes have odious human rights records – the disinvestment campaign against South Africa, is the best-known example.
The Interfaith Center for Corporate Responsibility, for example, calls on companies to 'withdraw from a country in instances where there are gross and systematic violations of human rights and where there is a recognized movement from within the country calling for withdrawal.'
Disinvestment strategies are predicated on the assumption that the threat or reality of corporate withdrawal will pressure the target regime into improving its human rights regime. The current NGO campaign to pressure corporations operating in Burma to withdraw has had a considerable impact with four major US oil companies deciding to withdraw, but whether corporate withdrawal will generate the desired political changes in Burma remains to be seen. What is clear is that withdrawal will cost the jobs of many ordinary citizens.
Disinvestment campaigns will clearly not succeed if other less scrupulous corporations simply move in to replace those that withdraw. Indeed such a result could well worsen the very conditions the led to demands for disinvestment in the first place. But if a target regime believes that a disinvestment campaign will succeed – i.e. that there will be a major withdrawal of foreign investment and the consequent loss of the income such investment generates – then this may be useful instrument of suasion. Many analysts believe that the disinvestment campaign directed against the apartheid regime in South Africa was an important element in its subsequent demise.
An important caveat is necessary here. Disinvestment campaigns are a form of private economic sanction and the track record of sanctions as a coercive instrument for changing state behavior is poor – and is poorest against authoritarian states. Andrew Mack, 'The Efficacy of UN Sanctions', Security Dialogue, 31(2), September, 2000, with Asif Khan. IMF and World Bank 'conditionality' strategies – which also seek to use economic leverage to change the behavior of target states - do not have a very impressive track record either. Devesh Kapur and Richard Webb, 'Governance-Related Conditionalities of the International Financial Institutions, G-24 Discussion Paper, No. 6 August 2000. The World Bank's Paul Collier has argued that, not only are conditionality policies relatively ineffective, but that they imply a deeply resented transfer of sovereignty '… which is not only unprecedented but is often dysfunctional.' Cited in Ibid. p.8.
Concern about the effectiveness of the coercive use of economic instruments has led Collier and others to argue in favor of 'positive conditionality' i.e. a policy of rewarding good behaviour rather than punishing bad. Cited in Ibid. p.15. Global Witness also champions positive conditionality. The sanctions literature provides some support for this approach, but suggests that a careful mix of positive and negative incentives is more effective than either approach on its own. See Gitty M. Armani, 'A Larger Role for Positive Sanctions in Cases of Compellence?', Working Paper No. 12, Center for International Relations, University of California, Santa Barbara, May 1997. The most complete recent study on positive inducements is, David Cortright, ed., The Price of Peace: Incentives and International Conflict Prevention, Rowan and Littlefield, Lanham, 1997.
Disinvestment is eschewed by mainstream NGOs like Amnesty International, Human Rights Watch and International Alert in favor a strategy of critical engagement with corporations. The campaign for greater corporate (and governmental) transparency and accountability being waged by Global Witness, International Alert and Human Rights Watch in Angola is a case in point. Some oil companies have been responsive to this campaign; others have not.
The underpinnings of both a profitable business environment and a salutary human rights environment rest on the same core foundations: rule of law and good governance. Harold Honju Koh, Assistant Secretary for Democracy, Human Rights and Labor, U.S Department of State, Briefing December 20, 2000
Traditionally corporations recognized obligations to their shareholders, to their employees and to obey the law of the countries in which they operated. Over the past decade, a much broader conception of stakeholders has evolved, one that includes all constituencies that are affected (favorably or otherwise) by corporate operations. It includes consumers, members of the communities in which corporations operate, NGOs, company suppliers and competitors, governments and oppositions. In the case of Global Compact companies it also includes the United Nations.
The emergence of multi-stakeholders has complicated life for corporations, often in challenging and frustrating ways. On the positive side multi-stakeholders can sometimes cooperate to create voluntary agreements to resolve issues that no single actor, certainly not a corporation, could resolve on its own. As a recent Fund for Peace publication puts it:
Creative partnerships that promote human rights, support civil society, and address corporate needs create a win-win-win situation for governments, civil society and the private sector.
Proponents of voluntary agreements also argue that they produce outcomes with a greater sense of ownership and commitment than does regulation, while also providing sources of expertise and innovation. But such agreements are also criticized as being little more than exercises in corporate public relations and a diversion from the real task of creating verifiable and legally enforceable regulatory frameworks.
Major NGOs like Human Rights Watch argue that regulation is in the interest of the private sector since requiring all companies to meet the same standards of corporate responsibility will create a level playing field that will impose costs equally and eliminate both the advantages that unscrupulous corporations currently enjoy, and the free rider problem. However, effectively monitoring and enforcing regulatory frameworks in weak states may be difficult, if not impossible.
This does not mean that regulation is irrelevant – it already operates at a number of different levels. States have long been under legally binding obligations to respect international human rights and humanitarian law. Moreover there have been an increasing number of instances where companies have been taken to court in their countries of origin for alleged violations of international law that have taken place in their operations abroad. While the right to bring such cases remains legally contentious, '…the idea that claims can be litigated away from the country where the harm occurred is certain to open up new challenges for businesses operating on the world stage.' 'Business and Human Rights' Op. Cit.
In November 1997, OECD member states adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The convention is legally binding and is an example of how regulation can enhance the interests of the private sector as a whole by helping create a level playing field. As World Bank President Jim Wolfensohn has put it, 'To meet the challenge [of corruption] we must set the policy environment right and create an environment of transparency and accountability. www.worldbank.org
Eventually what are now voluntary codes may become part of national legislation or international treaties. In the meantime, at least with respect to codes of conduct, corporations can go beyond self-monitoring and agree to independent monitoring of their corporate responsibility commitments by independent non-governmental institutions including commercial auditing companies. Some companies already do this.
The UN's Office of the High Commissioner for Human Rights has gone further and suggested that the a task force comprising businesses, trade unions and national and international NGOs be created to explore ways of creating a credible independent monitoring mechanism to ensure that the commitments of the private sector are being met. Ibid.
Cambodia's recent history provides an unprecedented example of an independent NGO being tasked by donor states and international institutions to monitor an agreement directly relevant to conflict prevention. Conflict over logging had fueled violence in Cambodia for over a decade, yet the issue was not really understood by the donor community until Global Witness's extraordinary revelations about illegal logging achieved widespread international concern. 70% of Cambodia's forests have been logged out using unsustainable logging practices and, according to some estimates, the remaining stands of timber will have gone by 2003.
A meeting of major donors in February 1999 determined that independent monitoring was essential to ensure corporate and Cambodian government's compliance with the promised forestry reforms. Global Witness was appointed to this official independent monitoring role and its work has been funded by donor states.
While independent monitoring has made many improvements, illegal logging still continues on a large scale. Moreover there has been relatively little engagement with the Asian logging companies that operate in Cambodia and most other Southeast Asian and South Pacific forests – certainly nothing approaching the sort of dialogue that has taken place between major Northern MNCs and leading human rights NGOs.
In addition to the nine principles of the Global Compact itself, there have been a number of other multi-actor efforts to produce broad principles that could guide corporate conduct in zones of conflict. Each stresses the importance of multi-stakeholder dialogue. They include:
These provide detailed guidelines for corporations operating in zones of conflict. The guidelines include:
strategic commitment - CEO and board level leadership on corporate
risk and impact analysis - which might involve the creation of conflict impact statements;
dialogue and consultation – encompassing a broad range of stakeholders;
partnership and collective action - including multi-stakeholder cooperation to achieve what corporations cannot achieve acting alone;
evaluation and accountability of the implementation of the principles, which may include independent verification and public dissemination.
The Business of Peace was produced by three NGOs, International Alert, the Council on Economic Priorities and the Prince of Wales Business Leaders Forum.
The US-based Human Rights and Business Roundtable, established by the Fund for Peace in January 1998, seeks to engage members of the corporate and human rights communities in constructive dialogue to find common ground on issues that divide them.
The aims of the Roundtable are:
To emphasize cooperation over confrontation;
To promote dialogue, relationship-building and conflict resolution among the corporate and human rights community representatives;
To encourage consultation between the corporate and human rights communities on ways to advance the rule of law and promote open societies.
The ICCR describes its Global Principles as 'an accountability tool that is useful for socially responsible investors, grass-roots activists, nongovernmental organizations and for corporations to apply the comprehensive set of principles, criteria and bench marks to their global operations.'
This agreement, signed in December 2000, is unique in that it deals with highly specific principles intended to enhance the security of the operations of extractive industries in the developing world. It is also unique in that its signatories include some of the mainstream NGOs that have been most critical of extractive industry corporations and some of the major corporations that had been the target of the NGO critiques and two major donor states, Britain and the United States.
The principles are limited to issues relating to the safety and security of corporate operations in risk-prone areas, but are detailed and highly specific.
What differentiates OECD guidelines from other voluntary guidelines for corporate behavior is that they have been adopted by governments, not simply by NGOs and companies. The 30 Member countries of the OECD plus Argentina, Brazil and Chile signed the guidelines in June 2000. They contain detailed recommendations on appropriate corporate responses to the issues of corruption and human rights.
The Chad-Cameroon Petroleum Development and Pipeline Project [is] an
unprecedented framework to transform oil wealth into direct benefits for the
poor, the vulnerable and the environment. In addition to the financing, the
package of support includes a first-of-its-kind program to direct new revenues
to support economic and social development programs in Chad, which is one of the
world's poorest countries.
World Bank Press Release June 6
At the beginning of this paper it was argued that the corrupt and inequitable disbursement of corporate taxes and royalties was a major driver of violence in the conflicts that have wracked so many resource-rich developing countries. The combination of very large resource rents and lack of transparency, militates against accountability and creates tempting opportunities for illicit personal gain. The extraordinary Chad-Cameroun pipeline agreement signed in June last year is based on an ingenious model that provides an in-principle solution to this persistent problem.
NGOs had long opposed to the exploitation of Chad's huge oil reserves and the transportation of the oil via pipeline through Cameroun to the coast. They were concerned that the flood of oil revenues would increase official corruption and sustain and strengthen a government with a much-criticized human rights record, while also causing considerable harm to a fragile environment.
A coalition of NGOs raised these issues persistently and effectively with the World Bank whose participation was a necessary condition for the $3.7 billion project to go ahead. The consortium of oil corporations was anxious to exploit Chad's oil reserves, but the companies were not willing invest without Bank participation. The Bank, however, was sympathetic to many of the NGOs concerns. Over several years of intense negotiation a deal was evolved that should in principle provide a win-win solution for all parties.
Under the terms of the agreement the government of Chad has agreed that most of the oil revenues should be targeted to poverty reduction and that there should be independent public oversight of the use of these resources - both unprecedented moves in a major resource project of this type.
Under the terms of the agreement, 10% of the oil royalties and revenues will be held in trust for future generations (following a precedent set by Norway), 80% of the remaining funds will be devoted to education, health and social services, rural development, infrastructure, and environmental and water resource management. 5% will be earmarked for regional development in the oil-producing area. The latter provision should prevent the sort of resentments over revenue-sharing that were a major cause of the war in Bougaineville.
There will be annual published audits of the petroleum accounts, regular public expenditure reviews by the Government and the Bank, and special arrangements for channeling and accounting for the funds. For details of the project see: www.worldbank.org. This too is unique.
Perhaps most important, and indicative of the extraordinary lengths that the Bank, the government of Chad and its partners have gone to prevent an emergence of the 'Dutch Disease' pathologies that have blighted so many other resource-dependent economies in the developing world, is the creation of a distinguished six-person independent International Advisory Group (IAG). The IAG will play a critical role in monitoring compliance with the agreement.
It remains to be seen whether this radical and creative agreement will work as planned – the fact that the Chad government recently spent $4.5 million of its oil revenues to buy arms has angered Bank officials and raised questions about its commitment to the agreement.
But with literally hundreds of oil and other mineral projects being contemplated in the developing world the Chad-Cameroun pipeline model offers the prospect of reducing, if not eliminating, the problems arising from lack of transparency, accountability, corruption, inequitable distribution of extractive industry revenues and violent conflict that have beset so many resource projects in the past.
The model does not, of course, offer a solution to countries already in the grip of 'Dutch Disease'. In these cases NGOs, the Bank and the IMF are pressing governments to be more transparent about the disbursement of oil and other mineral revenues. Transparency is a necessary condition for accountability and an important check against corruption. In Angola, a number of oil corporations are now providing details of their payments to the government – a move long demanded by NGOs.
As Devesh Kapur and Richard Webb argued in a recent paper:
Transparency is one area in which the [World Bank and IMF] could bring about a major reform with powerful democratizing potential. Information is empowerment… Kapur and Webb, Op. Cit., p.18
The international insurance industry has a potentially useful, but largely unrealized, role to play in conflict prevention. Taking out Political Risk Insurance is a standard policy for corporations operating in risk-prone countries. Corporations also seek the involvement the multilateral development organizations, such as the World Bank, the IMF and the regional development banks, which is seen as a form of informal insurance. The World Bank's Multilateral Investment Guarantee Agency (MIGA) also provides political risk insurance – particularly for the least-developed countries. MIGA requires that the projects it insures be financially, economically, and environmentally sound. There seems to be little reason in principle why the financial and economic soundness of a project should not include stringent transparency and accountability provisions that would help reduce opportunities for corruption and the political instability risks that corruption so often generates.
In December last year, the OECD announced that an action program to deter bribery in government-supported export credit transactions had been agreed to. The export credit and export credit insurance agencies of OECD countries will now demand written statements from all companies applying for coverage, stating they have not, and will not, engage in bribery. If bribery is established, the agency will deny coverage or reject claims for indemnification and will refer the case to the judicial authorities.
NGOs are already bringing pressure to bear on financial institutions that are perceived to be supporting corporations accused of human rights violations, or of propping up repressive regimes. 'Ethical' mutual funds are highly vulnerable to this sort of pressure. This is essentially an indirect disinvestment strategy and confronts the same problems as other disinvestment strategies.
But financial institutions, particularly banks, could also play a potentially valuable role in reducing corruption, illicit gem mining and illicit small arms transfers, and other activities directly related to conflict, if they were to collaborate with authorities and to track the money flows that associated these illicit activities. Until recently neither banks nor governments had shown much enthusiasm for going down this track. In October last year, however, a group of the world's largest banks agreed to a set of global anti-money laundering guidelines for international private banks. The signatories included 11 major international banks and Transparency International (TI), the global anti-corruption organization.
While there are inevitably major areas of disagreement with respect to human
rights and conflict prevention issues between the NGO and corporate members of
the Global Compact, there is also a rich menu of choices for cooperation and
even collaboration. The emergence of multi-stakeholders, particularly in the
poorest countries where governance capacity is least and the risk of conflict
greatest, creates many possibilities for collective action solutions to problems
that neither corporations, nor governments, nor NGOs can resolve on their own.