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Thursday, 12 July 2007

Right idea, wrong example?

"The solution is to make these governments more accountable in spending their money, but how can that be done?....In his recently published book.....Professor Collier favors an international charter — some widely publicized guidelines that countries can voluntarily adopt — to give transparency in spending wealth from natural resources. A country would pledge to have formal audits of its revenues and their disposition. Imagine Price Waterhouse Coopers auditing the copper revenues of Zambia and issuing a public report.

Professor Collier’s proposal at first glance seems toothless; a truly corrupt country probably wouldn’t follow the provisions of the charter, which, after all, is voluntary. Yet citizens could pressure their government to follow such a charter, and the idea of the charter would create a focus for political opposition and signify international support for concrete reform."

Tyler Cowen is right to praise Collier's proposal that countries should consider adopting charters that encourage transparency (e.g. external audits) as a way of fighting corruption. But Professor Cowen has used the wrong example. Zambia has no revenues from copper to audit. The world thinks now that the Zambian copper industry is booming we are sitting on tonnes of revenues! That is not the case. Considering we get $9m from mineral royalties, a PWC audit would take away half of that given the fees these consultants charge!

What I would say though is that if a proper audit system was in place along the lines proposed by Collier, the case for greater involvement of Government in mining would be easier to accept. In fact perhaps its time Zambians demanded that the renegotiation of the mining contracts should be accompanied by such a charter. Could that be the message Professor Cowen was trying to send to Zambians at this important moment? Coded messages from Tyler or not, its should certainly be on our minds...

6 comments:

  1. Have you seen Cowan's blog at http://www.marginalrevolution.com?

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  2. Yes, I have read it once or twice.
    But thanks for reminding me. I have just a left a comment there, on the same subject :)

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  3. But Professor Cowen has used the wrong example. Zambia has no revenues from copper to audit. The world thinks now that the Zambian copper industry is booming we are sitting on tonnes of revenues! That is not the case. Considering we get $9m from mineral royalties, a PWC audit would take away half of that given the fees these consultants charge!

    Bingo. It are the mining 'development agreements' that need to be looked into, not where the money is going inside the country.

    However, his ideas on having some kind of external auditing process - no necessarily how the money is spent, which is another issue worthy of it's own couple of threads - but on how these deals can come about in the first place.

    Perhaps it should be demanded that before the World Bank, IMF or other international lending institutions would have a code of conduct that actually benefited the countries in question:

    - no more than 12 ministries, instead of the current 30 something
    - 50% of national revenues beings spent directly by local government
    - transparancy in major economic agreements, meaning debate of the details of these deals and it's consequences in parliament and the media

    That would do a lot more good, than the trying to find Mobutu type leaders, who are basically there to facilitate the stealing of Africa's natural resources by Western corporations. Even so, their own finances are by definition only a very small part of that.

    This notion comes from the idea that Africa's resources are being stolen by corrupt leaders. They are, but not in the way Tyler Cowen thinks. But his ideas are interesting.

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  4. Mrk,

    Yes that would be very interesting. A code of conduct that ensure a narrower Government and more resources to the local people.

    The other point Cowen actually underplays from Collier's book is that a lot of corruption emerges from the foreign companies themselves especially in the construction industry.

    A rich mining company can easily go a rural and get a deal that does not benefit the rural people. They can do that just by giving a few dollars to the local chief. Ensuring transparence in those situations is more important than how the revenue is spent.

    In terms of revenue spend....I think the Alaskan model is something worth exploring. See the latest blog...

    http://zambian-economist.blogspot.com/2007/07/promoting-transparency.html

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  5. I'd feel uncomfortable having the IMF specify the number of ministries a government can have...

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  6. - I'd feel uncomfortable having the IMF specify the number of ministries a government can have...

    They can have departments, temporary agencies, etc. The ministries would divest themselves from a lot of the executive tasks they have right now, and have more of an information collecting and policy support function.

    If 50% of collected revenues would go to local government, government would be a lot closer to the people. There would be no more electorates voting for an MP they would barely know, who they would hope would 'somehow' bring development to their constituency. Instead, they would vote for a local council leader, backed with a $1 million per year account, who can be held accountable by them.

    A renewed role for local government would rescue government itself from irrelevance, where ordinary people are concerned.

    There is no reason why most of the state's business should take place at the ministerial level, and why Zambia would have about 29 ministries.

    John Kufuor in 2001 created a 12 ministry government.

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