Beyond Transparency in Afghanistan’s Mining Sector
Since becoming a ‘candidate country’ of the Extractive Industries Transparency Initiative (EITI) in February 2010, the government of Afghanistan has published two EITI reports, published details of most mining contracts online and is working towards full EITI compliance. While these steps are laudable, they are necessary but far from sufficient for two reasons. First, international compliance mechanisms are limited in their scope and must be viewed as complementary to much deeper governance reforms. Second, weak management of mining activity extends beyond revenue transparency and accountability to include equity, human rights and environmental protection. Thus, ensuring that Afghanistan’s wealth of mineral resources contribute more effectively to building a more secure, equitable and prosperous nation requires a lot more than measures to improve revenue transparency.
International reporting standards like EITI help create more transparent environments by (a) focusing all stakeholders on established standards to reduce corruption and enforce accountability, (b) laying the foundation for more consistent and equitable regulatory arrangements and (c) engaging civil society in the design, implementation and evaluation of business ethics. Without these, Afghanistan’s mining sector would only benefit a few, corruption would become endemic and incalculable environmental damage could occur. By participating in the EITI process, Afghanistan is seeking to lift the veil of secrecy and promote more responsible allocation and monitoring of mining revenues. EITI requires both the government and mining companies to publicly declare monies paid and funds received. Conceptually, this should deter corrupt practices by making illicit activity much easier to detect. By publishing the results of the audits, the EITI process would empower all Afghan citizens and civil society groups by letting them know how much governments receive from extractive industries and enabling them to demand accountability, equity and justice. This information could also provide the basis of productive dialogue among civil society, the mining companies and the Afghan government.
The EITI process allows for the auditing of fees, royalties, bonuses and taxes paid by mining companies against revenues recorded by the Afghan treasury. The two sets of data will be reconciled by Moore Stephens (an independent, internationally-recognized auditor who reports to the Afghanistan’s Multi-Stakeholder Group). The results are subsequently published as the EITI Country Report – with the consent of the government. This open reporting system is seen as a way of reducing corruption and ensuring transparency. EITI could help ensure that citizens and analysts could reconcile what a country receives from investors (the revenue side) and what gets recorded in government accounts (the expenditure side). It is, however, worth noting that EITI reconciles the amounts but does not verify them. EITI does not have mechanisms to ascertain whether the amounts being reconciled are correct (relative to the contractual obligations).
Some studies indicate that governance indicators for EITI signatories are worse than resource-rich countries not participating in the initiative. Research by Dilan Olcer suggests that Worldwide Governance Indicators for EITI countries actually deteriorated between 2002 and 2007. Participating governments tend to focus on meeting narrow EITI benchmarks at the expense of deeper and broader governance reforms. Furthermore, the EITI process does not capture the activities during the contract award and pre-contract phases. It is clear that EITI alone cannot bring about much-needed change in Afghanistan. Sustainable progress would require a much broader set of reforms (to include anti-corruption initiatives, regulatory reform and a closer focus on contract compliance).
Eventual EITI compliance in Afghanistan would only be meaningful if it is strengthened by domestic judicial and institutional reforms that enforce standards and ensure that violators are punished. This would require significant political will and sustained institution building. In addition, immediate steps should be taken to strengthen civil society organizations so they could play an important role in promoting sound practice in the management of Afghanistan’s natural resources. Unfortunately, most Afghan civil society groups lack the skills, resources, clout and independence to participate in the EITI process effectively. This limits the extent to which they could use information in EITI reports arising to bring about much-needed change.
The EITI process is not a panacea that would resolve resource management issues in Afghanistan’s mining sector. It must be part of a more comprehensive approach that would not only remove the cloak of secrecy, but would also extend oversight beyond revenue accountability to include measures to bolster civil society participation, consider human rights and the environment, and build credible institutions.