Natural Resources and Violent Conflict

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Natural Resources and Violent Conflict Natural Resources and Violent Conflict iolent conflict can spell catastrophe for developing countries and their neighbors, stunting and even Natural V reversing the course of economic growth. Recent World Bank research on the Resources causes of conflict and civil war finds that the countries most likely to be blighted by conflict are those whose economies depend heavily and Violent on natural resources. Natural Resources and Violent Conflict: Options and Actions Conflict first explains the links between resource dependence and conflict and then considers what can be done to help reduce the risk of civil war in these nations. Options and Actions In this collection of previously unpublished essays by experts in the field, contributors consider the risks of corruption, secessionist movements, and rebel financing. They also consider the roles played by government, the development community, and the country’s population and propose an agenda for global action. Focusing on what we can do collectively to diminish the likelihood of civil war, contributors to this volume suggest practical approaches and policies that could be adopted by the international community— Bannon and Collier from financial and resource reporting procedures to commodity tracking systems and enforcement techniques, including sanctions, certification requirements, and aid conditionality. A fascinating look at the results of important new World Bank research, this book represents an important addition to the dialogue on development. Ian Bannon and Paul Collier EDITORS ISBN 0-8213-5503-1 Natural Resources and Violent Conflict Natural Resources and Violent Conflict options and actions Ian Bannon Paul Collier editors THE WORLD BANK Washington, D.C. © 2003 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved. 123406050403 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978- 750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street, NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. ISBN 0-8213-5503-1 Cover photos: Inset—© Peter Turnley/CORBIS Background—© Adalberto Rios Szalay/Sexto Sol Library of Congress Cataloging-in-Publication Data has been applied for. Contents Preface ix Contributors xiii Acronyms and Abbreviations xvii 1. Natural Resources and Conflict: What We Can Do 1 Ian Bannon and Paul Collier 2. The Natural Resource Curse: How Wealth Can Make You Poor 17 Michael Ross 3. Who Gets the Money? Reporting Resource Revenues 43 Philip Swanson, Mai Oldgard, and Leiv Lunde 4. Where Did It Come From? Commodity Tracking Systems 97 Corene Crossin, Gavin Hayman, and Simon Taylor 5. Follow the Money: The Finance of Illicit Resource Extraction 161 Jonathan M. Winer and Trifin J. Roule 6. Getting It Done: Instruments of Enforcement 215 Philippe Le Billon v vi contents 7. Attracting Reputable Companies to Risky Environments: Petroleum and Mining Companies 287 John Bray 8. Dampening Price Shocks 353 Patrick Guillaumont and Sylviane Guillaumont Jeanneney boxes 3.1 The Azerbaijan ROSC 61 3.2 Highlights of the East Asia FLEG Ministerial Declaration 63 3.3 MMSD Suggestions Relevant to Revenue Transparency 74 3.4 Recommendations of Global Witness 77 3.5 Constitutional Basis for the Role of the Auditor General in Botswana 83 3.6 Control and Monitoring Institutions in Chad 89 4.1 Independent Validation of Legal Timber 116 6.1 Defining Conflict Resources 216 6.2 NEPAD and the G-8 Africa Action Plan 252 6.3 Mandatory Conflict Impact Assessment and Code of Conduct 259 figures 1.1 Natural Resources and Conflict Risk in Low-Income Countries 3 1.2 Risks from Natural Resources 5 3.1 Lines of Accountability in the State Oil Fund of Azerbaijan 85 4.1 Measures to Build Bridges between Related Tracking Systems 109 4.2 Common Elements of Effective Certification Tracking Systems 113 4.3 Forest Stewardship Council Chain-of-Custody Certification 115 contents vii 4.4 Coltan Extraction Chain from Eastern Democratic Republic of Congo 135 6.1 Economic Supervision Scheme during Peace Processes 253 tables 2.1 Civil Wars Linked to Resource Wealth, 1990–2002 18 2.2 Armed Conflicts in Africa and the Rest of the World, 1989–2001 18 2.3 Civil Violence in Africa by Decade, 1970–99 19 2.4 Resource Dependency: Nonfuel Mineral–Dependent States and Oil-Dependent States 21 2.5 Mean OECD Tariffs on Processed and Unprocessed Extractive Products 23 2.6 Mineral Resources and Secessionist Movements, 1949–Present 27 4.1 Major Commodity Tracking Regimes 99 4.2 Forest Product Monitoring Technologies 120 6.1 Overview of International Instruments of Enforcement 225 6.2 UN Security Council Sanctions against Natural Resource Exports 232 7.1 Companies Deterred from an Otherwise Attractive Investment by a Country’s Reputation for Corruption, by Sector 295 7.2 Companies Deterred from an Otherwise Attractive Investment by a Country’s Reputation for a Poor Human Rights Record, by Sector 296 7.3 Standards of Compliance among Companies from Top-10 OECD Exporters, 1999 and 2002 308 7.4 Standards of Compliance among Companies from Select Non-OECD Countries, 1999 and 2002 309 7.5 How Often Do International Companies Use Political Pressure from Their Home Governments to Gain Business Advantage? 319 7.6 How Often Do International Companies Use Tied Aid to Gain Business Advantage? 320 Preface RECENT RESEARCH UNDERTAKEN BY THE World Bank and others suggests that developing countries face substantially higher risks of violent con- flict and poor governance if they are highly dependent on primary commodities. Revenues from the legal or illegal exploitation of natural resources have financed devastating conflicts in a large number of coun- tries across regions. When a conflict erupts, it not only sweeps away decades of painstaking development efforts but also creates costs and consequences—economic, social, political, regional—that live on for decades. The outbreak of violent domestic conflict amounts to a spec- tacular failure of development—in essence, development in reverse. Even where countries initially manage to avoid violent conflict, large rents from natural resources can weaken state structures and make governments less accountable, often leading to the emergence of seces- sionist rebellions and all-out civil war. Natural resources are never the sole source of conflict, and they do not make conflict inevitable. But the presence of abundant primary com- modities, especially in low-income countries, exacerbates the risks of conflict and, if conflict does break out, tends to prolong it and makes it harder to resolve. Reflecting a growing interest in the links between natural resources and conflict and the World Bank’s evolving conflict agenda—which is placing greater emphasis on preventing conflicts—in 2002, the World Bank’s Conflict Prevention and Reconstruction Unit and the Develop- ment Research Group began to define a research project to address this link. As the Governance of Natural Resources Project took shape, the discussion moved toward practical approaches and policies that could be adopted by the international community. While there is much that ix x preface individual developing countries can do to reduce the risk of conflict—by addressing genuine grievances in their societies, adopting economic and social policies that are more inclusive, and improving transparency and accountability—there is also a need to articulate a convincing and prac- tical agenda for global action. As members of the international commu- nity working to build a world that is safer and free of poverty, we share a global responsibility in assisting developing countries to ensure that revenues from the exploitation of natural resources do not exacerbate the risk of conflict. This book presents the papers commissioned under the Governance of Natural Resources Project. When we commissioned this work, we asked the researchers to focus on the practical aspects from a global governance perspective—to focus on “what we can do collectively.” The papers offer a rich array of approaches and suggestions that are feeding into the international policy debate and that we hope will lead over time to concerted international action to help developing countries better manage their resource wealth and turn this wealth into a driver of development rather than of conflict. The Governance of Natural Resources Project and the publication of this book have been made possible through the generous support of the government of Norway, which is funding the project through the Norwegian Trust Fund for Environmentally and Socially Sustainable Development. We are very grateful for this support and encouragement. We also wish to thank the Agence Française de Développement (AFD), especially Pierre Jacquet (AFD executive director and chief economist), Serge Perrin, and the rest of the staff of AFD, not only for hosting the workshop that launched the project in Paris in December 2002 but also for their continued interest, support, and encouragement.
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