Auditing natural resource revenues

When my editor and I were exchanging drafts of this piece, my spam blocker wouldn't let them through.  There is too much talk of Nigeria and diamonds!  Here is one excerpt:

Paul Collier, an economics professor at Oxford University, has a new and potentially powerful idea.  In his recently published book, “The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It” (Oxford University Press), 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 PricewaterhouseCoopers auditing the copper revenues of Zambia and issuing a public report.

It's not as futile as it might sound:

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.

Foreign corporations would bring further pressures to heed the charter.  Multinational companies that are active in corrupt countries might receive bad domestic publicity. Eventually the companies might push for adherence to the charter, even if the charter limited their ability to bribe.  In another context, De Beers has been stung by bad publicity about “blood diamonds,” and the company is now a force for positive change where it operates.

In the optimistic case, a few poor countries start abiding by the charter. Those countries prosper and attract more investment and status in the international community.  The pressure to adopt the charter would then spread.  Of course, promoting the charter costs relatively little and the potential benefits are significant.  International pressures did eventually force a change in South African apartheid.  So maybe they can improve other countries as well.

Did you know that Tony Blair was already promoting such a charter?  And the Nigerian government (really) already commissioned a private sector audit and now has enacted a version of this idea into law?  We'll see how that goes, but Nigerian flirtation with rule of law ideas is one of the underreported stories of this year.

Paul Collier's The Bottom Billion is a very exciting and important book.  It is rare to read something on economic development that is true, non-trivial, and potentially useful.  I recommend this book highly, it is also short and easy to read.  Here is a good review of the book by Niall Ferguson.

Here is the whole column.