South Africa: mining revenue, transparency and the EITI

Image: Flickr, International Monetary Fund
Image: Flickr, International Monetary Fund

On 2 March 2011, the Extractive Industry Transparency Initiative (EITI) convened its fifth global conference in Paris, France.

South Africa was represented at the conference by Finance Minister Pravin Gordhan, who chaired one of the key panels. Is this perhaps an indication that South Africa is reconsidering its participation in the EITI?

Underlying the calls for nationalisation of the mining industry, is the belief that South Africans are not benefiting sufficiently from the exploitation of our mineral wealth. The response from industry has generally focused on the poor historical record of direct government involvement in mining activities, rather than responding directly to the question of how South Africans are currently benefiting from private sector mining.

Increased transparency on revenue flows between mines and government should play an important part in this debate. However, to date South Africa has not joined the EITI, a global initiative that focuses on increased revenue transparency of mining revenues and dialogue between government, industry and civil society.

Is it time for South Africa to re-evaluate their position on the EITI?

The EITI was launched in Johannesburg at the World Summit for Sustainable Development (WSSD) in 2002. Aimed at increasing the transparency of financial flows between mining companies and governments, as well as fostering dialogue between these role players and civil society, the initiative has grown considerably in the past few years.

South Africa’s involvement in the EITI was discussed in a seminar convened jointly by the South African Institute of International Affairs (SAIIA), the Southern Africa Resource Watch and the EITI board in September 2009.

Representatives from the South African Department of Minerals and Energy attended the seminar. They indicated that while South Africa supported the principles of the EITI, the government did not feel that South Africa needed to join the initiative as the country already had regulations to support transparency and good governance within the sector. Notwithstanding this viewpoint, South Africa could play a valuable leadership role by participating in the initiative and encouraging other African countries with poorer resource governance systems to participate.

South Africa’s potential to show leadership in mining transparency was highlighted at the 2011 EITI global conference. Representatives from one African country indicated during an informal conversation that they would be visiting a number of countries to learn about the EITI and principles of revenue transparency. They were particularly interested in visiting South Africa as an example of a resource rich developing country which had chosen not to participate in the EITI.

Mozambican President Armando Guebuza
Tanzanian President Jakaya Kikwete

Norway joined the EITI despite possessing some of the most advanced mining revenue governance regulations in the world. One can only deduce that Norway’s motivation was not to improve its own resource governance, but rather to serve as an example to other countries and lend legitimacy to the EITI process.

South Africa could have played the same role on the continent but instead its inaction is leading other countries, who desperately need improved resource governance, to question the value of the EITI.

One of the key issues discussed at the 2011 EITI conference was the Dodd-Frank Financial Reform Bill, introduced in the United States in 2010. Certain clauses in the bill relate specifically to publicly-listed mining companies. For example, section 1504 requires all publically listed mining companies to disclose any payment made to foreign governments.

This requirement is similar to the EITI process, except that it uses the country where a company is listed, rather than the country where the mining is actually taking place, to determine disclosure responsibilities. The advantage of Dodd-Frank style legislation is that it potentially has a far greater reach, particularly if such legislation is adopted in countries or regions where many mining companies are headquartered such as Canada, Australia and the European Union. In the EU there are already firm moves to develop similar legislation.

Given the increasing role that South African resource extraction companies are playing on the continent, is it not also time that South Africa develops legislation similar to Dodd-Frank? This would ensure that the activities of South African companies could contribute to growth and transparency in other African countries, rather than the ills of the resource curse.