What is the Natural Resource Charter?
The Natural Resource Charter is a set of principles to guide governments and societies in their use of natural resources so that these economic opportunities result in maximum and sustained returns for citizens. It is not a political document—it aims to assist decisionmakers, not replace them. The Charter provides the tools and knowledge necessary for governments and civil society groups to avoid the mismanagement of diminishing natural riches and ensure the realization of their benefits now and in the future. The Charter is not a list of prescriptions or conditions designed to provide a checklist of conditions. Nor is it a ‘one-size-fits-all’ list of highly specific ‘musts’. It does not provide a blueprint for the institutions countries need to build to effectively harness their natural resource wealth. Instead it provides the general principles around which such institutions can be designed and measured against.
What are the Precepts?
The Charter is organized around twelve core Precepts that offer guidance on key decisions governments face, beginning with whether to extract resources in the first place, and ending with decisions that determine how generated revenue can produce maximum good for a country’s citizens. Each Precept is explained in three sections or Levels: Level 1) a brief outline; Level 2) a more complete explanation of the issues governments must confront, and recommended solutions; and Level 3) a technical discussion of underlying issues. Level 4 can be found on the website only. This resource library contains an annotated selection of material – reports, academic papers and official documents – related to the Charter and is intended to support the implementation of its recommendations.
Why these Precepts?
The Precepts were chosen to cover the process from discovery, and the decision on whether to extract or not, right up to decisions concerning the use of revenues generated for sustainable development.
They were developed as guidelines for countries seeking to maximize the benefit of diminishing resources. The Precepts are primarily focused on economic management and governance issues but also tackle a wide range of related issues, including the environmental management and sustainability of extraction, the local impacts of resource extraction and opportunities for localized benefits, as well as considerations of whether or not to extract at all.
Some Precepts are clear recommendations based on strong evidence and historical experience. They apply to almost every resource-rich country’s situation. For example, experience has clearly shown that public, competitive auctions are preferable to back-room deals, whether in offshore oil in the United States or copper deposits in Papua New Guinea. Some Precepts lack such clear recommendations; they cover situations where the correct course of action must be determined by local circumstances. Here the Charter offers guiding principles and some supporting recommendations. In these cases, the best choices largely depend on the political, economic or cultural contexts of the specific country. For example, recommendations and decisions on the use of sovereign wealth funds will differ between Norway and Ghana.
Why design a Charter? What is its intent?
The Charter is designed to help governments and citizens harness natural resource wealth by making decisions that will provide the maximum sustained economic benefit. The Charter is not intended as a binding document but as a standard to which countries, rich or poor, can aspire, and a resource for technical and practical guidance. It is needed to help avoid the mistakes made in past efforts to manage natural resource wealth amidst new fears of looted natural assets, conflict and instability. The aim is to transform the resource curse into a resource blessing.
A commodity boom is taking place while there are huge untapped, undiscovered resources in the least developed countries. Per square kilometer subsoil assets in the OECD are calculated to be five times those of Africa. Once these vast, untapped riches have been properly identified and extracted they can provide revenues well beyond those provided by aid, enough to fuel the transformative, broad-based economic development that can meed urgent, unmet consumption needs, and supply the investment that brings sustained benefit to generations long after natural endowments are depleted. But this can only happen if historic patterns are broken. That is the Charter’s goal.
For example, successful emerging economies have typically had investment rates of 30% or more. For resource-rich countries, investment in infrastructure has typically languished at 5-7%. Yet natural resources will be depleted; quality investments must be made to harness their revenues for the generations that follow. Otherwise, improvements in transparency, accountability, exploration and extraction will not bring sustained benefit—in the past it has even left countries worse off. Hence the need for a comprehensive approach from exploration to expenditure and from the mine-head to international capital centers.
Who is the Charter for?
The Charter provides guidelines for governments of all resource-rich countries from the United Kingdom to Côte D’Ivoire. These governments have both the sovereign right and moral responsibility to use their natural wealth for the benefit of their peoples. For civil society in these countries, the Charter principles can serve as a rallying point and advocacy tool for the promotion of natural resource extraction that is conducted ethically and to the benefit of the community at large. Government and civil society in resource-rich countries are not the only important decision-makers involved in maximizing the benefits of natural resources. International companies, international organizations, global civil society groups, and the governments of wealthy states that import significant quantities of resources also have roles to play, and the Charter includes recommendations for these actors. It aims to provide a basis for mutual accountability among all stakeholders in resource-rich countries.
Though the Charter can be applied to all resource-rich countries, those which stand to benefit the most from improvements in resource governance are developing countries, particularly since they have relatively larger unexplored and untapped endowments. In these countries, well-managed resource revenues have the potential to kick-start broad-based, transformative economic development. It is also such countries that have the strongest desire, based on past or peer experience, to exert proper control over their resources—control that leads to maximum and sustained benefits beyond the lifetime of the resource.
The Growth Commission showed that there is no recipe for growth, but many ingredients. As a key to transformative growth, the harnessing of natural resource wealth faces the same challenges; there is no one-size-fits-all policy.
How does the Charter fit with similar efforts?
The Charter is not intended to supplant existing initiatives or guides on best practice. Quite the contrary. The Charter draws on such internationally accepted guidelines as the Extractive Industries Transparency Initiative (EITI), the International Monetary Fund Guide on Resource Revenue Transparency, the Equator Principles, the International Council on Mining and Metals Principles for Sustainable Mining, and UN conventions on human rights and corruption. It is intended to complement such guidelines and bodies of knowledge. The Charter is not a binding agreement or protocol. It is a rallying point for existing efforts and good practices in natural resource management. It seeks to add to such efforts by bringing them together, building upon them and also covering new areas, thus helping to inform the entire chain of decision-making concerning natural resources. We hope countries and companies choose to use the Charter as a common framework and strive to meet its recommendations.
The Charter aims to assist the dissemination of existing tools by eventually providing a clearing house for extractives-related checklists and benchmarking provided by other entities, from NGOs focusing exclusively on budget transparency, to international financial institutions examining local contracting and regional peer-review mechanisms in governance.
Even with recent progress, existing tools are not enough. Without a comprehensive approach embracing the entire value chain misallocation or outright corruption will free the daylight and concentrate elsewhere. This will eventually undermine the foundations of existing instruments, the success of which the Charter seeks to entrench locally and universalize globally. This does not mean that incremental progress is not necessary or that, for instance, transparency in payments is not the right place to start; it emphatically is, not least for its ethical significance. But the big payoffs in terms of maximum sustained benefit to citizens lie upstream and downstream.
Many resource-rich countries face a singular opportunity, a generational window providing a ‘one-shot’ chance to escape persistent poverty and achieve broad-based economic growth. Others are facing dwindling opportunities to diversify and invest for the post-depletion future. The commodity boom and the prospect of a secular increase in demand from emerging markets comes at a time of increasing donor austerity—but also at a time of exciting progress in the global governance of extractives and substantial recent discoveries, e.g. Ghana and Brazil. This progress is fledgling. It must be secured and built upon. But it demonstrates what is possible and creates the momentum for improving decision making about natural resources across the value chain.
Why might the Charter succeed, given past failures?
Precisely because of past failures—and successes. These have produced research and experience, as well as great demand from policymakers seeking to find out how to avoid the resource curse and follow in the footsteps of emerging economies. Past success stories, from Malaysia to Norway, need to be disseminated and adapted to new circumstances, with new constituencies built to support best practice. In addition, there has been startling progress in global governance of the extractive industries that provides grounds for optimism. EITI, Cardin-Lugar and similar requirements forthcoming or already in place in Europe and China have created fresh momentum. Finally, new technology has reduced the cost of disseminating information and building broader civil society groups.
Who is behind the Charter?
The Charter has no political heritage or sponsorship.
The drafters of the Charter are an independent group of the world’s foremost experts in economically sustainable resource extraction. This group of experts, chaired by Nobel Laureate Michael Spence, comprise the Charter’s Technical Advisory Group, which will continue to incorporate views, feedback, and other inputs into the Charter on an annual basis. The Charter is governed by an Oversight Board chaired by Ernesto Zedillo, former President of Mexico. Other members of the Oversight Board include Luisa Diogo, Abdulatif Al-Hamad, Mo Ibrahim and Shengman Zhang.
What is the future of the Charter?
The Charter is a living document that will continue to be refined in consultation with civil society organizations, policy makers, experts and other stakeholders involved in meeting the challenges associated with harnessing natural resource wealth. This process involves soliciting inputs from a wide range of sources: regional dialogues, formal consultation submissions and participation from users on the web. These will all inform the recommendations in the Charter. The ongoing dialogue on the Charter text also provides an opportunity to build support, advocacy and grassroots activity around the Charter.
The Charter could eventually be the basis for a more formal agreement among governments and, possibly, companies. Such an agreement would represent a new kind of international compact – one that is not dictated from above, but is instead built upon a critical mass of informed opinion from citizens and civil society groups in resource-rich countries which have demonstrated success by adopting the Charter’s principles.