Restricting Graft

Jun 14, 2013 Editorial

One of the indictments against the colonial order was that it “sucked the wealth” out of their colonies such as Guyana. The colonies all had natural resources of one type or another, which, if exploited for the benefit of the colony, so the “freedom fighter” narrative went, could have catapulted them into the same economic league as the “mother country”. However, four and five decades after independence most of these ex-colonies are still mired in grinding poverty even though their natural resources, including petroleum, bauxite, iron and other minerals continue to be extracted and sold.
There have been several “explanations” for this anomalous state of affairs: a rather popular one being the “terms of trade” argument. This line of analysis proposed that the developed countries (usually the departed colonial power) which were the market for the raw materials (since they had established the upstream ‘value added’ processing in their country) had the power to set prices – which was invariably much lower than the manufactured goods that the ex-colony would have to purchase from them.
But while there is (and remains) much truth in this argument, there was an unfortunate development within the primary producing countries that not only accepted from this unequal terms of trade, but worked to facilitate it. Basically, it was plain old graft practiced by the politicians who inherited the mantle of power from the departed colonial power. The economists have a name for the practice – “rent seeking”. What it means in practice is that the politicians or those in authority use their office to accept very low prices for their country’s products from purchasers willing to pay them bribes.
In this fashion, untold billions have been siphoned off from revenue streams that could have been used to build infrastructure or improve social services or foster local businesses to make their countries truly independent. Sese Mobutu of Zaire was an paradigmatic example of the politician steeped in graft, who built up extraordinary fortunes stashed away in Swiss Banks, but his type is common across the third world, not excepting Guyana.
One development that has the potential to reduce the graft has been the activities of the Financial Action Task Force (FATF) with its focus on Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) Act. While the actions of the international body are not specifically to reduce graft, its insistence on money transfers being accounted for will obviously be a deterrent to politicians who have their hands permanently stuck below the table. This might be one of the reasons why there have been delays in the enactment of enabling legislation and the establishment of FATF recommendations in Guyana.
A second, more direct, approach has just received a shot in the arm in Europe. Long proposed by campaigners against graft in extractive industries, the EU parliament has just passed legislation on “Accounting and Transparency Directives”. These demand that EU oil, gas, mining and logging firms must disclose all payments of €100,000 and above for each individual project that they operate.
The new rules mean that for the first time, citizens of resource-rich countries such as Guyana will be able to see where the money generated from their natural resources is going, and therefore ensure it is better used for their benefit. Combined with a similar law implemented in the U.S. in 2012, the Directives will cover around 70% of the value of the global extractive industries, creating the basis for a new global transparency standard.
The Prime Minister of Canada has indicated that his country will soon enact similar legislation. The push will now be to force China and the other BRICS countries that have now become major players in the extractive industries, to follow suit. China, especially, has been accused of securing access to natural resources through less than transparent means.
For Guyana, which is on the verge of major exploitation of its petroleum reserves, the news from Europe has to be very welcome. The “rents” may now be plunged into development rather than the pockets of greedy politicians.

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Restricting Graft

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