Introduction

Introduction

The previous record of resource management is poor but some countries have nevertheless performed well. From 1970 to 1998, of 65 resource-rich developing countries only four managed to achieve long-term investment exceeding 25 percent of GDP and an average GDP growth exceeding four per cent, namely Botswana, Indonesia, Malaysia and Thailand.
—Thorvaldur Gylfason, 2001.

Countries with non-renewable resource wealth face both an opportunity and a challenge. When used well, these resources can create greater prosperity for current and future generations; used poorly, or squandered, they can cause economic instability, social conflict, and lasting environmental damage.

The Natural Resource Charter offers policy options and practical advice for governments, societies and the international community on how best to manage resource wealth. Such guidance can ensure that resource-rich countries are not alone in facing these challenges, but rather that they can draw on accumulated experience to learn from history and avoid the mistakes of the past. The charter is not a prescriptive blueprint, but instead identifies key ingredients that successful countries have used, in different contexts and combinations, to realize the development potential of natural resource wealth.

For countries to benefit from resource wealth, citizens and their governments must make a broad range of decisions. Each decision requires governments to consider complex options and trade-offs and devise strategies to implement these policy choices. To help governments make decisions, the charter contains 12 short precepts. The first 10 precepts elaborate guidance on how a country and its government might manage natural resources. The last two precepts speak to international actors—extractive companies and those responsible for international governance.

The charter includes all 12 precepts because transforming extractive wealth into sustained prosperity involves the government making and implementing a chain of good policy decisions with support and oversight from citizens and the international community. All the links in this chain need to be strong if a country is to truly benefit from extracted resource wealth.

Recent discoveries are potentially transformational. The Simandou iron ore project in Guinea and iron ore and petroleum projects in Liberia could generate average annual revenues of US$1.6 billion in each country, respectively representing 31 percent and 147 percent of 2011 GDP.
—Africa Progress Panel, 2013.

The structure of the charter

The precepts of the charter are separated into three groups: domestic foundations for resource governance; the chain of economic decisions required to manage resources for prosperity; and the international foundations for resource governance.

Ensuring that government action in each area is coordinated and effective requires addressing two overarching issues, the subjects of the first two precepts of the charter. First, the charter advocates establishing a strategy and guiding policies that cover all the necessary processes of resource management, along with a comprehensive framework of rules and institutions directed by this strategy. This is the concern of Precept 1. Second, there is no guarantee that rules will be followed or capable institutions will work for the country’s benefit. Therefore strong accountability is required. This is often problematic in resource extraction situations, where actions are easily concealed. Failure to hold those within government to account is too often the missing link in otherwise well-organized systems of resource management. Precept 2 considers this.

Botswana has managed much of the decision chain well. Its GDP per person has increased from US$3,500 in 1980 to US$12,500 in 2010 (in constant 2005 dollars). However Botswana is also one of the most unequal countries in the world and suffers from one of the highest HIV/AIDS prevalence rates, while its economy is still left undiversified. Resource management challenges remain.
—International Monetary Fund, 2012.

After addressing these overarching issues, the charter turns to the question of extraction and use of revenues for sustainable development. Precepts 3 to 10 each address a key decision area for a country. They are organized into the "economic decision chain," a series of decisions that the government must make to ensure value from extractive resource wealth is transformed into sustained prosperity for citizens. They are presented in a linear fashion beginning with exploration and discovery; then getting a good deal for the country from extraction; followed by managing revenues; and ending with sustainable investment of revenue for the long term. However, the issues in each precept should be thought of with respect to all of them, taking account of the challenges of sequencing, trade-offs and other relationships across each of these policy areas. To guide the reader through these linkages, margin boxes serve as a signpost to other relevant parts of the charter document.

The first step in this economic decision chain involves allocating the rights to exploration and production, and promoting exploration. This involves deciding whether extraction is the best course for the country; in some cases it might not be. The government should carefully consider the whole chain of decisions, taking measure of all environmental, social and economic factors, before making a decision on extraction.

The next step is ensuring that extraction truly benefits the country. This entails securing value for the country through tax revenues and other benefits. It also involves mitigating the potentially significant damage to the country’s other forms of natural wealth: its ecosystems, including forests, rivers and land, as well as its social fabric. This challenge is called "getting a good deal" and it is covered by Precepts 4, 5 and 6.

Addressing only extractive sector issues is not enough, however, since sustainable economic development cannot come of merely extracting a resource. Authorities must invest revenues so that current and future generations enjoy the bounty. Further, the government should protect against volatile flows of revenue that can damage the economy and lead to wasteful spending. The charter calls this challenge "managing revenue" and addresses it in Precepts 7 and 8.

Good governance is required across the entire decision chain. Angola has managed the first parts well, capturing substantial revenues from extraction. But these revenues have not been managed effectively or equitably. Between 2007 and 2010, US$32 billion of revenues in Angola had been reported as missing—equivalent to a quarter of Angola’s GDP.
—International Monetary Fund, 2011.

Finally, authorities should invest revenues from extraction in a way that promotes economic growth and prosperity that can be sustained once extractive resources are depleted. The charter calls this final challenge "investing for development" and considers it in Precepts 9 and 10.

A country can take all these steps correctly, but without the cooperation of the international community, sustained, inclusive prosperity from resource extraction may not materialize. The final two precepts of the charter consider how international companies, foreign governments and other actors responsible for international governance should work together to help citizens of resource-rich countries. The best efforts of a resource-rich country may not be enough if the international community does not meet these responsibilities.

The Natural Resource Charter was written by an independent group of practitioners and academics, under the governance of an oversight board composed of distinguished international figures with first-hand experience of the challenges faced by resource-rich countries. The charter does not represent any institution or special interest. It was created in the belief that natural resource wealth can be a powerful tool for social and economic advancement, but only if countries are able to tackle the challenges. It aims to offer advice that is useful and clearly expressed.

Further Precept Details
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