SA is torn between secrecy and transparency

SA is capable of sustaining two narratives. One, which provoked a Financial Times editorial suggesting the Protection of Information Bill represents the path to Zimbabwe, is cloaked in secrecy. The competing narrative — the one of transparency — was enhanced with the unveiling of the 2010 Open Budget Index, an international survey that measures countries’ transparency and openness in budget information and access. Second last year, SA has now made it to the top of the pile — something that should be earmarked as the standard to be followed in all areas of public and corporate life.

See the full story here.

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ANSA-Africa hosts series of public dialogues on Extractive Industries and Natural Resource Management

ANSA-Africa hosts series of public dialogues on Extractive Industries and Natural Resource Management as the starting point for targeted in-country action as well as building the foundation for networking across borders towards an Africa-wide movement. The talks are intended to create a platform for sharing of experiences on extractive industries and natural resource management, as well as investigating their effects on the economy, the environment and communities. Read more here.

Corruption fight comes under global spotlight

Corruption in Zambia was under the spotlight as the head of Idasa’s Economic Governance Programme, Richard Calland, recently spoke about corruption in the construction sector. Read full article here.

Zuma should play by the rules

“We should not have to be dragooned into setting high standards in public life. We should willingly seek maximum openness about what our public representatives do, and receive.” These words are as true today as they were in 1996, when senior African National Congress member Kader Asmal said them.
Intrinsically connected with the advent of a democratically elected Parliament was an attempt to build a culture of integrity among elected representatives. A code of ethics was drawn up for MPs and members of the executive to declare their assets. In Parliament, an ethics committee was set up to further increase accountability. The watchwords were transparency, accountability and openness.
The codes of ethics for both MPs and the executive clearly envisage that elected representatives not “expose themselves to any situation involving the risk of a conflict between their official responsibilities and their private interests” or use their public positions for private gain.
In addition, the codes clearly state that interests that must be disclosed include shares, sponsorships, gifts, benefits, foreign travel and land. The code governing the executive clearly states that even liabilities must be disclosed, as well as the interests of spouses and dependent children.
When the codes were put in place, the emphasis was on building a culture of accountability and ensuring elected representatives and officials “did the right thing”. The central aim was never really punitive, but preventative.
In 2003, Idasa released a report titled Ethics in Post-apartheid SA, outlining the difficulties in the ethics regime and its often patchy implementation. Scrutinising the records of cabinet disclosures at the Union Buildings proved difficult and it was never clear how extensive executive declarations actually were. Again in 2006 the auditor-general reported that “declarations of interest by ministers, deputy ministers and government employees” was cause for concern. Also, the Public Service Commission found that, on the face of it, 14 out of 20 ministers and most deputy ministers had not disclosed their financial interests, as required in terms of the Executive Members’ Ethics Act and pursuant codes.
It is therefore cause for concern that it appears that President Jacob Zuma has not yet disclosed his financial interests as required by law. The usual practice is that the secretary to cabinet monitors disclosure. In terms of the Executive Members Ethics Act as well as the related Executive Ethics Code, members of the cabinet must disclose all financial interests and liabilities as well as those of their spouses and dependent children, within 60 days of assuming office. Zuma is therefore in breach of the law.
The main aim of the legislation is to prevent blatant conflicts of interests which result in personal gain trumping the interests of the country. That the Presidency does not seem concerned about this breach of the rules is not only undesirable but sets an unhealthy precedent. Why should ordinary MPs or ministers disclose their assets if the president has failed to do so?
Despite what appears to be obfuscation by Zuma’s advisers, there is no ambiguity about the law — he must disclose. During the trial of Schabir Shaik, the president’s former financial adviser, information about Zuma’s then chaotic financial affairs came to light. Recently there have been reports of one of Zuma’s wives benefiting from a catering contract in KwaZulu-Natal and questions were raised regarding the allocation of the contract . It thus becomes a source of discomfort when the president appears casual about disclosure, when the rules state clearly that this ought to have happened .
If elected representatives do not follow the rules of disclosure of financial interests, the public’s right to know is blunted. Zuma has made much about the need for a “moral code” and a discussion about morality. It is probably undesirable for him to try to initiate this type of discussion. All citizens really expect of their elected representatives is to provide leadership and to adhere to the rules of the game. If Zuma wants to provide more leadership, the ethics disclosure forms would be a place to start.

First published in Business Day

Mining – how civil society sees it

– By Martine Roberts –

While the global elite of mining professionals gathered for their annual Mining Indaba at the Cape Town International Convention Centre (CTICC) from the  1st – 4th of Feb 2010, a network of civil society organisations, including Idasa, hosted an Alternative Mining Indaba (AMI) of their own.

The Mining Indaba attracts mining analysts and investors as well as government actors from around the world to discuss the newest developments in the industry. Attendance is limited to professional investors and the industry, effectively excluding the communities in which mining takes place.
The Alternative Mining Indaba, which took place just a stone’s throw from the CTICC, was hosted by a number of civil society organisations including: Economic Justice Network (EJN), Benchmarks Foundation, ESSET, Afrodad, Norwegian Church Aid (NCA) and Idasa, supported by religious leaders from Southern Africa. Reverend Malcolm Damon, executive director of EJN, made opening remarks, which captured the objectives of the event; “We want to create a platform for the communities and share stories of the atrocities perpetrated by the mining industry. We want to say that we are watching you.” The reverend did however also emphasise that constructive engagement with government and companies is absolutely necessary to strengthen policies and improve conditions for communities affected by mining activities.
Guest speaker, Archbishop Ndungane, highlighted the dilemmas of natural resource extraction by emphasising that “the only point of integration of SADC economies into the global economy has been, and remains, through the export of natural resources. Despite all the abundance of natural resources, citizens of SADC are among the poorest in the world, meaning that the management of resources has not been beneficial to the ordinary people.” He continued highlighting the fact that governments had failed to protect their citizens as “…human rights is the baseline expectation. Companies cannot compensate for human rights harm by performing good deeds elsewhere. These gross human rights atrocities that are a result of irresponsible mining practices should not be allowed to continue, not on our watch.”
Testimonies were given by community members from the Moroke and Mokopane communities in Limpopo and Luka in Rustenburg. These areas hold some of the richest reserves of platinum in the world and attract major mining companies like Anglo Platinum and Implats. The stories from the communities painted a very different picture to what the mining industry likes to portray. Evidence was given of unethical mining practices including, but not limited to: serious ecological damage, relocation, disruption of heritage sites, lack of economic benefits, and destruction of livelihoods.
The Royal Bafokeng case in Rustenburg is seen as a shining example of corporate accountability with the Traditional Authorities owning shares in the mining companies. However, no significant wealth distribution is taking place and the community exert little or no control over their resources. “The control of the resources is in the hands of the few. The decision making system is flawed. Decisions are made from the top and trickling down to the bottom. It’s not a bottom up approach. The community has no control on making decisions around their wealth. Consultations are being done with consultants and some elites but when the bigger meetings are held, the decisions are already taken,” explained Eric Mokoua from the Luka Environmental Forum.
The testimonies were supported by Brown Motsau, project manager at Benchmarks Foundation, who pointed to research which reveals the secrecy surrounding mining contracts and government revenues generated from these agreements. The lack of transparency and access to information poses one of the most serious challenges in terms of the ability of civil society and citizens to hold government and mining companies to account.
The Alternative Mining Indaba demanded that the UN Declaration on Free, Prior and Informed Consent is adopted and implemented. Communities should be properly informed about the consequences of mining and be free to decide whether or not they will allow mining activities in their area. If and when the communities welcome mining companies, the principles of transparency, accountability and participation should always guide the interaction between them.

Haiti, debt and IFIs

– By Nancy Dubosse –

This week the scarlet letter is worn by the international financial institutions (IFIs).

Two weeks ago, the IMF scored some kudos in the realm of public opinion, even among staunch IMF critics, for rescinding an emergency loan of $100 million to Haiti and re-offering it as a grant.  But how did Haiti get to the point where taking on another loan could actually put lives in danger?

Haiti’s debt is often in the news, but not enough attention is paid to its debt service.  Given fixed resources, servicing a public debt implies fewer resources for social services and development programmes.  According to Paul Farmer, in Haiti’s case, by the end of the 19th century, 80% of the national revenue was earmarked to repay debt.  The Haitian Platform Lobbying for Alternative Development has also written extensively on the tension between debt service and human rights.  It estimates that by 1999, the country was paying $38 million in debt service; while the health budget the same year was $26 million.  Between 1995 and 1996 in particular, Haiti paid 900 million gourdes in debt service.  During the same period, only 120 million was invested in agriculture.  Please note that half the population lives in rural areas.  According to the Haitian Central Bank, in 2006 alone, total debt service paid was $57 million, with 47% going to IADB, 30% to the World Bank, and 10% to the IMF.  Voila!

Internationally, the ineffectiveness of development assistance became the subject of international discussions in Paris in 2005.  The outcomes of this meeting was a document outlining the way in which aid should be delivered, coordinated, managed and monitored.

The baseline for engagement of international financial institutions (IFIs) with developing countries has been laid by the Paris Declaration for Aid Effectiveness (2005).  All the major IFIs and most developing countries are signatories to the Paris Declaration.  It sets the criteria for ensuring both the effectiveness and efficiency of development under five governing principles:

  1. The principle of ownership dictates that development programmes should be the result of a consultative process within country.
  2. The principle of alignment dictates that donors should direct their assistance to the identified priorities of recipient countries, using the latters’ public financial management systems.
  3. The principle of harmonization dictates that donors must coordinate their assistance so as to minimize transaction costs and duplication of administrative functions for developing countries.
  4. The principle of managing for results dictates that development programmes should be monitored and evaluated according to mutually agreed targets.
  5. The principle of mutual accountability dictates that donors should report to both their peers and their own constituencies regarding the nature, scope and destination of development assistance.

A historical analysis of World Bank development assistance in Haiti cited the use of aid towards the privatization of infrastructure and the delivery essential social services (e.g. education and health) by NGOs, instead of government. Obviously, this practice undermined the capacity of the central government to provide these services and improve its management capabilities.

Marc Bazin, former Minister for Planning and External Cooperation, in a response to the World Bank Country Assistance Evaluation of Haiti (2002), argued for a development assistance programme in two parts. The first would be directed towards immediate relief, as hunger, malnutrition, HIV/AIDs, et al, were endemic and life threatening.  The second would be a programme with the long-term goal of sustainability and good governance, as well as enhancing economic livelihoods.

Even as Bazin’s response to the WB was pre-Paris Declaration, he also spoke directly to the use of conditionalities that have traditionally accompanied development assistance, expressing the view that aid to the first, given its urgency, should be “ad hoc in nature and would be judged mainly on their ability to contribute directly to the success of poverty alleviation efforts instead of needlessly obstructing them”.  Among the suggested conditions that Bazin proposed were close links between external financing and broad participation and integration of the poor, the promotion of decentralized implementation structures, an increase in the contribution of the State to education, health and nutrition, and convening national dialogues on poverty reduction. Wow!

The Inter-American Development Bank (IADB) is the single most important creditor of Haiti. The Bank holds 40% of Haiti’s external debt (US$550 million out of US$1.3 billion), which represents 13% of the country’s GDP.  Presciently, the recommendations in the IADB’s Country Performance Assessment: Haiti (1990-2000) reflected the main grievances of the high-level meeting in Paris.

On general ineffectiveness:

“The Bank did not follow through and did not generate a relevant body of knowledge on the development challenges that Haiti faces. …. when the presence and engagement of the IDB should have been capitalized in terms of generating a solid body of knowledge on the Haitian challenges… Key studies are missing, for example regarding the investment gap needed to attain desirable levels of infrastructure and services in key areas such as health, education and transportation that could inform policy making, or the long terms prospects of a sustainable fiscal system in Haiti.”

On the absence of ownership:

“Based on the accumulated experience in Haiti over the last twenty years –that shows that donors do not know how to work to tackle the country’s development challenges in face of the implementation challenges— operations should be meticulously drafted with a demonstrative design in mind. However, the current portfolio was not designed with these considerations.”

On non-alignment:

“[The IADB] has continued to work through project executing units that are in part justified by the lack of confidence on the public management system, to which the reform efforts supported by the policy-based loans are directed. Besides this contradiction, the technical assistance and analytical work required to tackle the root causes of the problems faced in terms of public finance and fiscal management have not been sufficient.”

Back to the IMF.

In 1996, it launched the Highly Indebted Poor Countries Initiative, which was meant to alleviate the debt burden of poor countries provided they met certain criteria and fulfilled certain conditions. The lure of HIPC, after graduating, is that poor countries would have more fiscal space for development financing and a sustainable level of debt.

Haiti is also a good example of the arbitrariness of the IMF’s HIPC criteria.  Haiti could not qualify for HIPC until 2006, when its debt to exports ratio rose to 189%, though the IMF threshold is 150%.  Yet all along, the IADB, which held 40% of Haiti’s external debt stock, represented 13% of the country’s GDP.  The failure to evaluate a country’s potential to repay as an indicator is one of the main concerns with the IMF’s debt sustainability framework.  Until very recently, Haiti had been a haven for export processing activity, yet the government’s ability to raise revenue internally was impaired.  This was somehow not perceived as a source of potential instability.

An additional disparity is yet to be acknowledged.  The volume and value of total exports does not necessarily reflect the revenue from exports.  This is because Haiti, like other countries engaged in export processing and assembly activities, allows repatriation of profits. Further, income distribution effects are minimal, since the main lure of export processing is the lower-than- average labour costs.

Further, loans undertaken after 2006 have not been factored into the fiscal space assumed to be created by the debt relief. As of end 2006, outstanding external debt amounted to $1418.6 million.  In spite of the risks and the $32.4 million, as of 2006, that Haiti already owes the IMF, the former’s debt to the IMF is projected to rise to 4.2 billion gourdes by 2009, 86% of debt service in 2007, and 6% of net international reserves.

The IFIs cannot be absolved of the questionable lending practices to dictators and military juntas.  The World Bank has admitted as much in its evaluation of the historical performance of its development assistance.

“The efficacy of the Bank’s programme has been negligible and it efficiency, low…..lending has had little impact.  Based on both its impacts and the ratings of its individual components, the outcome of the assistance programme is rated unsatisfactory (if not highly so), the institutional development impact, negligible, and the sustainability of the few benefits that have accrued, unlikely.  The Bank and other donors erred by offering traditional assistance programmes without identifying the fundamental governance and political barriers to development.”

Ironically in 2002, the World Bank identified its own comparative advantage, among a field of crowded donors, as working with government and civil society to build institutional capacity and improved governance.

From an economic rights perspective, any fiscal space created by debt relief should be directed toward essential social services and decreasing the dependency on aid and not on new loans.  Further, the international financial community had 206 years (Haiti won its independence in 1804) to assist with strengthening the capacity of the State and didn’t do so.  Why do we need them now?

How did Haiti get here?

– By Nancy Dubosse –

I appreciate Pat Robertson’s historical analysis on the causes of the earthquake in Haiti.   By all accounts, the Haitian Revolution has everything a great story should have.  It starts off with the search for and struggle over gold, then sugar, then coffee.  There are fascinating military manoeuvres, which occurred in and around the country’s exceptionally mountainous terrain. It has more than enough drama (e.g. the rage demonstrated by Jean Jacques Dessalines, the Commander in Chief, when he ripped out the white part of the French flag to form the Haitian flag).  It has memorable speeches.  It has vodou ceremonies, sex, and yellow fever.  It has revenge, incidents of both black and white genocide; it even has some instances of mercy.

But that is the story up to 1804, and Robertson forgot to point out what has transpired in the country since then.  So, in order to remind everyone of what Haitians have experienced, I’ll be writing a series of blog entries on how Haiti arrived at this point (and it wasn’t because of a vodou ceremony).

In case you were wondering why a city with a capacity to accommodate only about 400,000 had a population of an estimated 4,000,000 people, a short story of the rice industry might help in understanding why there was a mass migration to the capital of Port-au-Prince.

Rice is the Haitian staple food.  Rice has been grown in Haiti for centuries, and until thirty years ago, Haitian farmers produced about 170,000 tonnes of rice a year, enough to cover 95% of domestic consumption. Rice farmers received no government subsidies, but, as in every other rice-producing country at the time, their local markets were protected by import tariffs.

The number of families engaged in rice production in the early 1990s was 93,000 (cultivation and processing).  Other groups included supplemental agricultural workers (22,000), local traders (8,000), and millers (400). But that all disappeared and two culprits are trade liberalization and bad governance.

Under pressure from donors, import tariffs were cut from 35% to 3%.  In comparison, the CARICOM, the Caribbean economic community, tariff is around 25%.  Haiti eventually became the fourth largest market for US rice in the world.  Rice imports increased by more than 150% between 1992 and 2003, with 95% of imports coming from the USA.  According to Oxfam, the price of rice in urban areas fell by 25%, which raised the perpetual conflict between urban and rural populations.  The lowering of tariffs made rice more affordable in urban areas and caused the decline of rural incomes, as rice farmers were now unable to compete.  This is one of the reasons that they migrated to the city.

In 2002, a scandal was unveiled concerning senators and deputies from Fanmi Lavalas, who imported 70,000 metric tons of rice, duty-free, under a cooperative arrangement associated with the Aristide Foundation for Democracy.  It has been estimated that the duty exemption translated into a 117 million gourdes loss ($4.68 million) for the Haitian treasury.

Here is where governance plays a key role in assuring the livelihoods of its citizens, ensuring compliance with customs laws, and stemming corruption.

Parliamentarians were each given a card by the Aristide Foundation to claim 400 sacks of rice to be distributed among their constituencies.  The rice, which normally sold for $32 per 110lb sack, was not freely distributed but sold by the parliamentarians for 250 gourdes ($10) a sack.

Aside from the scandalous arbitrage, there are systemic issues fueling the decline of the rice industry.  It has been reported that it was the de facto Prime Minister Marc Bazin, who granted the U.S.-based Rice Corporation the monopoly for importing rice, which continues to destroy national production. In short, Haiti was forced to abandon government protection of domestic agriculture – and the U.S. then used its government protection schemes to take over the market.

If you were thinking that the US is just a more efficient rice producer, you would be wrong.  The global rice regime notwithstanding, the dumping of rice by the US has been tolerated by Haitian authorities.  The marginal cost of producing one tonne of milled rice in the US was $415 between 2000-2003.  However, with government subsidies it was able to dump rice on international markets at $274 per tonne, a margin of 34%.  Now having put the Haitian rice industry out of business and that of other developing countries, global food price began to rise, with a bag of rice in Haiti going for $51 for 110lb bag just before the riots against food prices in April 2008.

Why hadn’t the Haitian government banned US rice imports?  Why hadn’t it filed a case at the WTO against the US for dumping?  Dumping is defined as a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.  Why hadn’t it created other opportunities in the countryside to sustain rural livelihoods?