14 July 2017

Uganda Should Join the Extractive Industry Transparency Initiative

editorial

Ugandan legislators under the Parliamentary Forum on Oil and Gas have revived their push for the government to sign up for the Extractive Industry Transparency Initiative (EITI). Uganda has in the recent past enacted several pieces of new legislations to reinforce extractive sector governance. Some MPs, however, consider the EITI framework will provide additional safeguards in a sector that has been masked with opacity and marred by corruption, conflict and poor governance in some countries. This article examines whether there are any benefits that can accrue to Uganda by signing up for the EITI.

Launched in 2002 by former UK prime minister Tony Blair, the EITI represents a multi-sectoral public private partnership involving the government, companies and the civil society. It seeks to promote the open and accountable management of the extractive sector by addressing key governance issues. More than 52 countries have signed up for the EITI and are at different stages of implementation. EITI members in Africa include Ghana, Ivory Coast, DR Congo, Ghana, Ethiopia, Malawi, Nigeria, Tanzania and Zambia.

The EITI framework is largely voluntary though some countries like Nigeria and Liberia have enacted their commitment to implement. Countries that sign up for the EITI are expected to take specific actions aimed at enhancing transparency and mitigating the misuse of natural resource revenues.

Extractive companies operating in EITI member states must publish details of their fiscal payments to the government whose responsible agencies must also disclose their earnings from the sector. This information is then entrusted with an independent administrator. A multi-stakeholder group that includes the civil society, interalia, reviews this information which is then given to an outside organisation, usually an audit firm to check or validate the reports in conformity with the EITI implementation. Unreconciled discrepancies between the information provided by the companies and government may point towards rent seeking behaviour that may need to be probed further.

The EITI, therefore, provides a feedback loop between the government and citizens. This increased sector transparency through the EITI disclosure, can discourage corruption and bad governance that has ravaged many resource rich countries. Proceeds from the extractive sector pose specific challenges to host governments. The sheer magnitude of revenues, the complexities of the fiscal arrangements as well as the high volatility of revenue flows can be a substantial burden for public financial management. These revenues without a robust governance framework, can encourage fiscal indiscipline. The disclosure of financial information and dealings between governments and companies, therefore, provides greater scrutiny from the media, civil society actors and the citizens, which helps discourage rent seeking behaviour.

Compliance with the EITI framework is credited with improving the business environment. Investors, development and international financial institutions see the EITI implementation as an important reform signalling an intention to improve the business climate through reduced corruption and improved governance. Given investment attraction is more a function of perception than reality, signing up for the EITI sends a clear signal to all stakeholders and investors of an unequivocal commitment to transparency, improved trust and a more predictable investment environment. The multi-stakeholder group involved with the EITI implementation gains valuable insights on how fiscal payments can be recorded and auditing implemented to conform to international standards and the lessons learnt overtime gradually spillover into policy. Wider issues around extractive governance other than fiscal matters are also addressed by the EITI.

By passing the requisite legislation, especially the Public Finance Management Act, Uganda has made laudable strides in strengthening the governance framework for the revenues projected from the forthcoming petroleum production. Several policy initiatives are also presently being pursued to strengthen further the mining sector. The emergence of transparency as a norm requires governments to be more open to the extent possible about their activities and finances in the extractive sector while the media, civil society and the citizens demand far greater access to such information. The EITI currently provides the best avenue to create the sense of inclusion of the people of Uganda in the management of the country's natural resources through its ingenious multi sectoral feedback loop. In view of the discussion set out above, it is the case that Uganda stands to benefit more by signing up for the EITI initiative.

Mr Kakembo is a senior tax manager at Deloitte.

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