The perennial paradox of international development is that countries with the most plentiful natural resources - whether oil, gas or diamonds - often tend to be relatively poor, undemocratic and economically stagnant. The starkest example of all must be the Democratic Republic of Congo. Possessing $24trillion in untapped deposits of minerals, diamonds and gold, the DRC is the world's richest country when judged by the value of its natural resources, yet the scourge of war, humanitarian disaster and the long-lasting effects of colonial conquest have put the country in last place for levels of GDP per capita.
The Business, Innovation and Skills committee today launches its inquiry into the UK's role at the heart of the global trade in natural resources. Mining companies from all over the world seek highly-coveted London Stock Exchange listings. AIM, the LSE's alternative investment market, is dominated by mining and other extractive firms, with Africa representing the second most common region of operation for companies listed on the index after the UK. But recent scandals involving Bumi plc (operating substantially in Indonesia) and ENRC (Eurasian Natural Resources Corporation, a recent FTSE 100 member soon to be taken private after fraud and corruption allegations saw its share price fall steeply) have shown that even London's regulatory rigour cannot screen out the bad practices which seem to be all too common to this sector.
The inquiry will cover lots of bases (see our terms of reference), but I am most interested in how the UK can improve development conditions for countries reliant on the revenues of companies in the extractive industry. Key to this is greater transparency; if we do not shine a light on the intersection of foreign capital and the governments of resource-rich countries, we have no chance of improving the lives of citizens in the developing world. For example, a global mining company currently produces a single balance sheet with a single annual revenue figure. Citizens have no way of knowing how much money that company makes from its operations on a country-by-country basis, meaning that the amount of tax payable by the firm is also unknowable. In turn, public spending by the government of that country is veiled in secrecy; if ordinary people do not know how much money goes in, they cannot easily challenge what comes out in the budgets for their schools, education and transport systems.
The Extractive Industries Transparency Initiative (EITI) is at the forefront of efforts to demand full transparency from the governments of resource-rich countries; specifically, the disclosure of all extractive industry revenues in detailed annual reports. It provides citizens with the information needed to hold their government to account, and makes it far more difficult for corrupt officials to siphon-off natural resource revenues into their own pockets. In the year of our presidency of the G8, it is excellent that the UK has signed-up to the EITI, showing that rich and poor countries alike can benefit from the transparency that the initiative brings.
The UK can use its position at the centre of the global trade in natural resources to do far more. Although discussed at this year's G8 summit, full country-by-country reporting has still not been implemented. This information must be made public. Citizens of resource-rich states must be able to judge the true value that foreign corporations bring to their countries.
A major grey area concerns company ownership. In their submission to the Committee, Christian Aid cited the example of five mining contracts issued by the Democratic Republic of Congo which were awarded to anonymous companies in the British Virgin Islands and then sold on at prices far below market rates to major extractive companies listed in London. The ownership of the company in the British Virgin Islands remains unknown, and the estimated cost to the DRC was $1.35billion, or twice the value of their health and education budget. The Prime Minister's recent announcement that his Government plans to create a public registry of company ownership is a welcome step in the right direction. It is not acceptable for shadowy companies in tax havens to play such a key role in the economies of the world's poorest countries without proper scrutiny.
One part of this debate which affects us all is the role of our pension funds in the extractives industry. Almost all of us, directly or indirectly, will invest in companies listed on the stock exchange through our pension pots, but even investments in the blue-chip FTSE 100 can raise serious questions. World Development Movement, for example, recently flagged-up the case of BHP Billiton, a FTSE 100 constituent, and its operations in the village of Maruwei in the Indonesian rainforest. Having already had their water supply polluted, villagers are worried that the company will simply dump waste from its emerging mining operation nearby, cutting down the rainforest and removing the community's valuable rubber trees. We should all be deeply concerned that a company listed in London is alleged to have such little regard for the rights of those in its countries of operation (see the London Mining Network's useful work on the accountability of UK-listed mining companies). UK banks, by financing the overseas expansion of extractive companies, are a vital part of the industry, yet they also remain largely unaccountable to those in the countries in which they operate.
Natural resource revenues could transform the developing world and lift millions out of poverty. It is crucial that the UK uses its position of influence to push for the greatest possible transparency in the governance, ownership and practices of London-listed extractive companies. The human rights and future prosperity of millions depend on it.