World Bank Group Engagement in Resource-Rich Developing Countries: The Cases of the Plurinational State of Bolivia, Kazakhstan, Mongolia, and Zambia
The World Bank Independent Evaluation Group (IEG) published an evaluation of World Bank Group Engagement in Resource-Rich Developing Countries: The Cases of Bolivia, Kazakhstan, Mongolia, and Zambia in 2015. All four have rich endowment with and dependence on non-renewable natural resources.
IEG’s report identifies three inter-related areas that resource-rich developing countries consistently grapple with, namely the prudent management of revenues; economic diversification through finding growth and employment in the non-extractive sectors; and ensuring that the benefits of economic growth and revenues are widely shared within the society, contributing to human development, poverty reduction, and environmental sustainability.
Not surprisingly, management of revenues and economic diversification come up high on the list of findings. Resource-rich developing countries need to build up reserves during the upswing phase of commodity prices to counter the inevitable downward cycles. However, this calls for policy consensus across the political spectrum, something that can be difficult to achieve, especially when the commodity prices are high and so are the populist pressures to increase public expenditures, even when not economically justified. At the same time, even at the upswing phase, extractive sectors may not generate much employment. Therefore, resource-rich countries also need to promote policies and create an environment conducive for development of non-extractive sectors.
IEG's evaluation found, however, that the concept of economic diversification has been rather elusive for many governments as well as the Bank Group, particularly as far as precise definition and metrics are concerned. In fact, one of the most successful resource-rich countries, Chile, prefers to use the term “innovation” rather than “diversification” to describe its policies in this area.
In all the four countries studied, the IEG report found that significant progress was registered in poverty reduction. However, all countries continued to grapple with inequality and a growing gap between urban and rural incomes.
The challenge for many of these countries is to design and implement the right human and social development investments. That means supporting better quality education and ensuring that social transfers are fiscally sustainable, for instance.
Some of the most important steps a government can take are focusing on the fundamentals – maintaining macroeconomic stability, investing in infrastructure, improving the business climate, and encouraging private investment.
Many of the report’s findings and recommendations speak to the World Bank Group’s role in working with resource-rich countries. The report notes that the main challenge for the Bank Group, especially when the prices are high, is how to stay relevant and competitive while maintaining honest and frank dialogue about challenges facing Resource-Rich countries.
On the EITI a key conclusion is:
- Bank Group support for the Extractive Industries Transparency Initiative (EITI) process was an effective demand-side instrument, and a visible platform for civil society to discuss and demand more transparency and accountability. Experience with the EITI confirms its usefulness as an effective instrument for promoting transparency and accountability, even beyond the extractives sector.
Here are some more EITI relevant excerpts:
- The EITI process has been quite successful, especially in Kazakhstan and Mongolia, where it has helped to set up new national standards for accountability and disclosure of resource-related revenues, and served as an instrument of empowerment for local civil society groups. In Bolivia the government showed no interest in EITI, despite several overtures from the Bank.
- In Kazakhstan, the Bank’s technical assistance for EITI was seen as a critical input for building local capacity and enhancing the credibility needed to sustain a multi-stakeholder process. It has begun to broaden citizen participation in governance issues at both the national and local levels. The EITI process may have encouraged the Ministry of Finance to improve the disclosure and accessibility of budget information. Indeed, Kazakhstan’s Open Budget Index has improved from 35 (below average) in 2008 to 48 in 2012, which is higher than the average for the 100 countries surveyed. By many accounts, even prior to Kazakhstan’s achievement of EITI compliance, the EITI process enabled more concrete and practical debates between CSOs, government, and industry around various important hot topics.
- Similarly in Mongolia, the EITI program contributed to revenue management by improving the mining industry’s compliance with applicable taxes. It demonstrated the feasibility of the multi-stakeholder approach to promoting a public policy agenda and facilitated opportunities for CSOs to get involved in other priority areas, such as budget monitoring and environmental management.
- In Zambia, Bank support to EITI helped to broaden public access to information on mining revenue flows and strengthened the demand side of reforms by building a local nongovernmental organization (NGO) coalition, but the benefits of this have been less than expected. Although the EITI process in Zambia produced considerable evidence of mining companies being systematically under-taxed, the government was slow to act on these findings.
As part of the management response, the IFC notes: “IFC takes into consideration a country’s engagement in EITI as a proxy for commitment to governance improvements in a country where it considers investments. Management would like to note that in post-conflict countries, IFC attaches particular importance to demonstrated efforts and engagement in EITI as part of IFC’s investment decision”.