Jill Shankleman

Managing Natural 

Resource Wealth

Summary and Recommendations

•	 This report analyzes the particular challenges of stabilization and reconstruction missions

in countries rich in hydrocarbons and minerals and provides lessons learned from the

recent experience of such countries as Iraq, Sudan, Angola, Liberia, and Afghanistan. It

offers recommendations for the U.S. government and others involved in natural resource–

rich countries emerging from conflict and also to the extractive industry companies and

banking sectors–– that play a critical role in these states.

•	 War-torn countries rich in hydrocarbons and minerals face particular problems in the

stabilization and reconstruction of their states despite the apparent promise that

natural resource wealth holds. Unless deliberate efforts are made to avoid the “resource

curses”—corruption, economic instability, conflict over the distribution of resource

wealth and control of resource–rich areas—these curses will undermine peace building.

•	 Elite groups who receive royalties and taxes paid by extractive industry companies have

shown themselves consistently resistant to democratization.

•	 Control over natural resources is fundamental to sovereignty. Ultimately, it is the governments and people of resource–rich countries who must put in place the systems that

enable resource wealth to support stability and development However, through early and

consistent action, the international community can play an important role in helping

resource–rich states emerging from conflict manage the wealth that accrues from these

resources, and can make proper wealth management a condition for donor assistance.

•	 It is essential that international missions and indigenous transitional governments

immediately secure effective control of natural resource wealth (physical and monetary)

and establish the laws, institutions, and capacity to manage that wealth transparently,

accountably, and in ways that support reconstruction.

•	 Achieving these goals requires prior planning by relevant U.S. agencies, a willingness to

confront vested interests, a consistent approach from the international community and

Stabilization and Reconstruction Series N

August 20

About the Repo

This report is based on a series of consultations

under the auspices of the Natural Resources Working

Group, chaired by J. Robinson West, chairman of

the board of the United States Institute of Peace

and PFC Energy, and Dr. Jill Shankleman, former

Institute senior fellow and oil sector consultant.

Harriet Hentges, former executive vice-president

of the Institute, served as a special advisor to this

working group. The working group is part of the

Institute’s Filling the Gaps program, which aims to

systematically address the causes of failure in specific

areas in reconstruction and stabilization operations

and to generate policy options for those in the U.S.

government and elsewhere who lead and staff these

missions. Filling the Gaps is directed by Daniel Serwer

and managed by Beth Cole Degrasse of the Institute.

Dr. Jill Shankleman authored the report.

The views expressed in this report do not necessarily reflect 

those of the United States Institute of Peace, which does not 

advocate specific policy positions.

Conten

Introduction

Lessons Learned

	 Recommendations for U.S. and 

International Intervenors

Action Matrix 

Stabilization and

U n i t e d S t a t e I s t it u e   f  P e a

Reconstruction series

 1200 17th Street NW • Washington,DC 20036 • 202.457.1700 • fax 202.429.6063 • www.usip.


donors, the involvement of civil society, and the deployment of human resources, such

as forensic accountants able to “follow the money,” as part of the mission staff.

•	 To be successful, the extractive industries and their bankers, the international financial institutions, and non-governmental organizations (NGOs) must be brought into

this process.

•	 The key recommendations for U.S. departments and agencies involved in stabilization

and reconstruction missions in countries dependent on hydrocarbons and/or minerals

are as follows:

o	Make an immediate assessment of the extent to which transitional governments

(including subnational entities with resource wealth, such as South Sudan) have

ß	effective control of natural resource–rich areas’ wealth and the associated

facilities (pipelines, oilfields, mines, airstrips used to export minerals, etc.);

ß	transparent and accountable systems for allocating new resource concessions;

ß	transparent and accountable systems for receiving and using government

income from the production of hydrocarbons and minerals; and

ß	macroeconomic plans and programs that take into account the challenges

of a resource-based economy, particularly the unpredictability of government

revenues.

o	If no indigenous government exists or if the mission has a power-sharing arrangement with a government that is in place, develop country-specific natural resource

wealth management plans in collaboration with other international agencies and

bilateral donors to achieve

ß	effective control over resource–rich areas and related facilities;

ß	a legal and institutional framework for transparent and accountable management of resource wealth; and

ß	institutions and capacity for effective macroeconomic management, taking

account of the specific issues of resource wealth.

o	The international mission should

ß	work closely with the international organizations that have expertise and a

focus on reforming management of natural resource wealth;

ß	develop a corps of on-call specialists in hydrocarbon and mineral law, economics, and accounting to take the lead in conducting assessments and providing

expertise and technical assistance;

ß	identify other stakeholders who have an interest in the natural resource sector

and whose engagement should be planned for—industry, NGOs, and local political

leaders; and

ß	establish one or more centers of excellence in natural resource wealth management to build capacity in government, industry, the media, and NGOs in the

United States and in resource–rich countries.

Introduction

This report analyzes the particular challenges of stabilization and reconstruction missions

in countries rich in hydrocarbons and minerals (International Monetary Fund, 2004) and

provides lessons from the recent experience of countries such as Iraq, Sudan, Angola,

Liberia, and Afghanistan. It offers recommendations for the U.S. government and others

involved in natural resource–rich countries emerging from conflict and also to the extractive industry companies and banking sector that play a critical role in these states.

About the Instit

The United States Institute of Peace is an independent, nonpartisan federal institution created by Congress to promote the prevention, management, and

peaceful resolution of international conflicts. Established in 1984, the Institute meets its congressional

mandate through an array of programs, including

research grants, fellowships, professional training, education programs from high school through

graduate school, conferences and workshops, library

services, and publications. The Institute’s Board

of Directors is appointed by the President of the

United States and confirmed by the Senate.

Board of Dir

J. Robinson West (Chair), Chairman, PFC Energy, Washington, D.C. • María Otero (Vice Chair), President, ACCION

International, Boston, Mass. • Betty F. Bumpers, Founder

and former President, Peace Links, Washington, D.C. • Holly 

J. Burkhalter, Director of U.S. Policy, Physicians for Human

Rights, Washington, D.C. • Chester A. Crocker, James R.

Schlesinger Professor of Strategic Studies, School of Foreign

Service, Georgetown University • Laurie S. Fulton, Partner,

Williams and Connolly, Washington, D.C. • Charles Horner,

Senior Fellow, Hudson Institute, Washington, D.C. •

Seymour Martin Lipset, Hazel Professor of Public Policy,

George Mason University • Mora L. McLean, President,

Africa-America Institute, New York, N.Y. • Barbara W. Snelling, former State Senator and former Lieutenant Governor,

Shelburne, Vt.

Members ex offici

Barry F. Lowenkron, Assistant Secretary of State for

Democracy, Human Rights, and Labor • Peter W. Rodman,

Assistant Secretary of Defense for International Security

Affairs • Richard H. Solomon, President, United States

Institute of Peace (nonvoting) • Frances C. Wilson,

Lieutenant General, U.S. Marine Corps; President,

National Defense University


Specific Issues for Societies Emerging from Conflict

In addition to the generic challenges of dependency on natural resource wealth discussed

later in this report, a postwar environment where hydrocarbon and mineral extraction has

been maintained throughout the conflict period presents its own problems and opportunities. Natural resource–rich countries demonstrate a higher than average risk both of experiencing conflict and of returning to conflict in the decade following a peace agreement.

The following problems are often found in these countries:

•	 Powerful and corrupt vested interests, for example in oil ministries, state-owned

companies, the army, and the highest levels of government

•	 Heavy government debt burdens as a result of bilateral and commercial loans taken

out on “war terms” and offset against future resource income

•	 Disputes about subregional control and distribution of resource wealth feeding into

fundamental questions of the type of state (for example, Iraq—the degree of federalism); the existence of a state (for example, southern Sudan—the promised referendum on independence); or the extent of regional autonomy (for example, Aceh,

Indonesia)

•	 Militias/insurgents controlling or influencing resource–rich areas or pipeline routes

•	 Damaged oil fields, pipelines, and mines

•	 Grievances and human rights issues relating to forced expulsion of people from

resource–rich areas by military or rebel forces

•	 Long-term concessions sold on terms that reflect the risk of a war economy but are

unfavorable to the country in times of peace

•	 An unattractive market for international private sector investment (Whereas investor

in place will stay when possible during conflict,  ma�or public companies are unlikel

to make new investments during or immediately after a conflict if a country is not

safe and lacks developed, transparent, and stable regimes for investors, although

state-owned companies, diaspora-owned companies, and, in the extractive sector,

risk-orientated “juniors” may do so.

Addressing these issues is particularly difficult for external agencies because control

of natural resources is widely associated with sovereignty and national pride. Thus, the

motives for external interventions, especially those of the U.S. government, are viewed

with suspicion as opportunism. A senior U.S. advisor to the former Coalition Provisional

Authority (CPA) in Iraq, interviewed for this report, said, “I got around a lot and talked

to many Iraqis—I can’t tell you how many times people I did not expect thought that

Bremer was keeping the good gasoline for the U.S. and giving Iraqis second quality—and

believed that the U.S. was stealing crude oil.”

However, this type of environment may also offer opportunities for intervenors, specifically leverage where new governments and institutions are being formed and new

constitutions are being written. Transitional governments need external assistance, and

international organizations, foreign governments, and donors can develop new engagement strategies to reflect the changed environment. The opportunity is to use this leverage to try to set the rules for long-term revenue management.

Successes, Failures, and Future Challenges

Few developing or transitional countries have successfully managed both the political and

economic challenges of natural resource dependency. But there are some cases of successful natural resource wealth management that offer lessons for reconstruction and stabilization missions. Botswana has leveraged its diamond wealth to bring most of its population

out of poverty—although this achievement is now jeopardized by the country’s HIV/AI

The motives for external 

interventions, especially 

those of the U.S. government, 

are viewed with suspicion as 

opportunism.


epidemic. Chile has been relatively successful on the economic aspects, as has Azerbaija

to date, by establishing an oil fund in the period running up to the major expansion no

underway in its oil industry. East Timor, with assistance from the World Bank, is setting

up a fully transparent and audited oil fund to spread the benefits of resource wealth over

a longer period and is an active participant in the Extractive Industries Transparency

Initiative (EITI) (a voluntary program launched in 2002 among governments, resource

companies, and NGOs) (Center for Strategic and International Studies, 2004).

Natural resource wealth continues to be a destabilizing factor in Liberia, the Democratic Republic of the Congo, and Iraq. There are early signs that this might also be the case

in Sudan, as officials from South Sudan are negotiating concessions apparently outside the

arrangements provided for in the Comprehensive Peace Agreement and demarkation of the

north/south border is delayed because of the oil that lies beneath the border zone.

Control and management of natural resource wealth is a factor in ongoing conflicts

such as those in Cabinda (Angola), Mindanao (Philippines), and the Niger Delta (Nigeria),

as well as international territorial disputes, for example, between the several countries

claiming all or part of the Spratly Islands and Nigeria and Cameroon over the Bokassa

Peninsula.

Structure of the Report

•	 Part I addresses lessons learned from past external interventions.

• Part II addresses recommendations for U.S. and international intervenors to develo

and apply policies for managing natural resource wealth that are tailored to the needs

of specific countries

• Part III  sets out a generic set of tasks related to the management of natural resourc

wealth in relation to security, justice and reconciliation, social and economic wellbeing, and governance and participation, as well as in relation to the initial respons

transformation, and fostering of sustainability in stabilization and reconstruction.

The report concludes with suggestions for further reading.

Lessons Learned

Limited Success of External Interventions 

Neither the United States nor the wider international community has a record of success

in mitigating the economic and political risks that natural resource wealth presents to

the stabilization and reconstruction of war-torn countries. Once the immediate window of

opportunity presented by a peace agreement closes as revenues flow to postwar governments, the governments become more resistant to external interventions.

Causes of Failure

The primary cause of failure is that the systematic and predictable risks to stabilization

and reconstruction that follow from natural resource dependency are not recognized

and acted upon with sufficient speed. The false assumption is too commonly made that

the principal impact of natural resource wealth is to provide the resources necessary to

achieve stability and postwar reconstruction. As a result, steps aimed at establishing

economic control over natural resource wealth and undertaking political and economic

reforms are not prioritized. (See Box on page 5.)

A second cause of failure is the absence of explicit standards for transparency and

management of natural resource wealth with an accompanying system to provide rapid

Natural resource wealth continues 

to be a destabilizing factor in 

Liberia, the Democratic Republic 

of the Congo, and Iraq.


rewards to administrations that implement reform. Standards need to be agreed to by the

U.S. government as well as the key international organizations and donors and systematically communicated to transitional governments. Additionally, a mix of carrots and sticks

must be used to arrive at a locally appropriate road map for implementation. The lack of

an agreed template enables governments to play off different international institutions

and bilateral donors against one another; the lack of a clear road map with staged rewards

weakens the hands of reformers in government, who need to show some rapid benefits

from reforms. The difficulty of combating corruption and vested interests, and the need

for support through external recognition and a positive response to reforms, has been

a consistent theme, for example, in speeches to international audiences by Mrs. Ngozi

Okonjo-Iweala, foreign minister and former finance minister of Nigeria

A third cause of failure is the inability to secure the cooperation of commercial banks

and emerging state-owned and small private natural resource companies in international

efforts to limit business with governments when there is no transparency, accountability,

or likelihood of revenues being used appropriately. This is important because of fast growing investment by Chinese and Indian state oil companies throughout Africa and Asia,

including in Sudan and Myanmar, where U.S. companies are prohibited from operating.

A fourth cause is underestimating the strength and resilience of local political and

economic elites intent on maintaining or acquiring control of natural resource wealth.

A fifth cause—highlighted in Iraq but also increasingly understood by extractive

industry companies operating in many unstable locations—is that security of onshore

oilfields, mines, and pipelines is inseparable from the security of the nearby indigenous

population. These facilities cannot be protected in the absence of community support, and community support will not be forthcoming unless people feel that they are

protected too.

Options for Influencing the Management of Resource Wealth 

In the past few years, several international efforts have started to focus on addressing the

destabilizing and antidemocratic impacts of natural resource wealth. The tools deployed

include incentives and sanctions targeted at government behavior, civil society capacity

building to encourage domestic pressure for change, and technical assistance to deliver

effective revenue management. Some efforts focus on the general problems, others on

specific countries or resources. The EITI provides incentives and technical assistance for

revenue transparency; the Kimberley Process targets the use of resource wealth to finance

rebels through restrictions on sale of conflict diamonds. UN and U.S. sanctions seek to

limit funds available to governments and/or rebels in specific countries such as Sudan and

Myanmar. The Oil for Food Programme in Iraq aimed to reduce the oil revenues available

to Saddam’s regime and control how they were used. International Monetary Fund (IMF)

and World Bank conditionality requiring revenue transparency and appropriate economic

management policies is being applied to the provision of assistance in a number of countries, notably Angola, and NGOs and donor programs are building civil society advocacy

capacity.

All of these approaches have weaknesses; none is a quick fix solution. All require support from across the international community because the key barriers to change are a

lack of political will among the elites of resource–rich postwar countries or, where there is

a will to change, a lack of capacity to specify and implement appropriate measures.

•	 Sanctions systems (including the Kimberley Process) are difficult to enforce even

where all the potential players sign on to sanctions regimes and largely ineffective if

major players stay outside. Many of the producer country members of the Kimberle

Process require assistance to fully implement the system, especially in relation to

Security of onshore oilfields, mines, 

and pipelines is inseparable from 

the security of the nearby indigenous population.

Priorities for Control 

and Reform of 

Revenue Management

•	 Recognize the importance of securing control of oil, gas, and mining

sites, infrastructure, and resource-rich

areas.

•	 Act fast to secure information on,

and control of, revenues from natural

resources.

•	 Recognize that a central issue in

peace agreements, constitution making, and political settlement is how

natural resource wealth is controlled

and shared.

•	 Deploy people with the right skills,

such as auditors and natural resource

lawyers.

•	 Prevent illicit use of natural resource

wealth or facilitate the recovery of

looted wealth—for example, through

the use of tools similar to those used

to control terrorist funds.

•	 Seize opportunities for exercising

leverage, such as making better management of natural resource wealth a

condition for international assistance

(debt relief for oil-producing countries remains a complex issue for the

U.S. government).

•	 Recognize the power of resource revenue transparency relating to the letting of concessions and government

revenues (how much, how used) as an

agent of democratic change.

•	 Ensure the equitable distribution

of oil revenues for the benefit of

citizens.


artisanal mining. In Sudan, for example, unilateral sanctions by the U.S. government

preventing U.S. companies from investing in particular countries enable overseas

state-owned companies to move in while publicly held international oil companies

cannot, thus exacerbating some of the issues in war-torn states.

•	 A relatively new approach being tested by the IMF and World Bank is making aid

conditional on revenue transparency while also offering technical assistance to build

skills and locally appropriate institutions and mechanisms for revenue management.

To date, this approach shows mixed results. The example of Angola, where negotiations between the government and the IMF have been unsuccessful and the government has instead taken out bilateral loans from China, shows how conditionality can

be undermined where other donors, governments, or commercial entities step in to fill

government’s financing gaps and where the government considers the international

community unable to respond with sufficient speed to any steps the government

takes.

•	 Voluntary approaches such as EITI rely on governments responding to domestic and

international political pressures to join. It is too early to say how attractive t

reputational benefits are compared to the burden of compliance. There are signs, for

example from Nigeria, that involvement in EITI is a powerful mechanism for building collaboration between reformers in government, donors, and indigenous civil

society.

•	 Because achieving revenue transparency and accountability and effective economic

management of resource wealth is technically complex and requires a much wider skill

base within governments and civil society than is readily available, capacity building

in the legal, accounting, and economic areas is critically important.

The Need to Build International Weight for the Emerging Consensus Solutions

Despite the weaknesses of the consensus approaches, the more radical approaches such

as direct distribution of revenues to citizens or international control of resource revenues

present even greater problems. For example, how can vested interests be compelled to

relinquish control of revenues, and how could those revenues be distributed to citizens in

countries where there is no reliable census or banking system? What international body

could effectively manage revenues in place of government, and how would its control be

legitimized and enforced?

Given the wide range of players able to influence—for good or ill—how resource

wealth is managed and the suspicions about the motives of the U.S. government, it is

important that the U.S. government pursue collaborative rather than independent action.

This includes collaboration with the IMF and EITI with respect to natural resource wealth

management in general. Substantially greater political, financial, and technical backing from the U.S. government could increase their effectiveness, as could developing

specific strategies for individual resource–rich postwar countries with partners such as

the IMF (revenue management), the G8 (revenue transparency), and the United Nations

(security).

The Importance of Host Country Political Leadership and Civil Society Pressure

The success stories in resource revenue management have occurred where there is visionary political leadership that understands the need for explicit policies for economic

management and accountability (for example, Botswana, increasingly Nigeria, potentially

East Timor) and where civil society and the media have the capacity to press for good

governance of resource wealth.


Recommendations for U.S. and International Intervenors 

The issues posed by natural resource wealth are now well understood, as are the broad

policies needed to increase the prospect that such wealth will assist, not hinder, development, democracy, stabilization, and reconstruction. The challenge is to develop policies

tailored to the needs of specific countries, and to apply them. U.S. government agencies

(and NGOs and companies) can contribute in two principal ways:

•	 By actively promoting the effective management of natural resource wealth through

the systematic international application of standards for revenue transparency and

management—both in countries currently at peace and those in postconflict transformation from war to peace.

•	 By ensuring that resource wealth management strategies are at the heart of postwar

stabilization and reconstruction work in countries where hydrocarbon and/or minerals

form the core of the economy.

The key steps are to increase U.S. political, financial, and technical support for existing

international initiatives (such as EITI, the Kimberley Process, and IMF and World Bank

programs) that apply to natural resource–dependent countries and extractive industry

companies and to use U.S. leverage and influence to raise awareness of and capacity to

manage resource revenues. For example:

•	 Encourage key resource–rich countries important to the United States to join the

systems and then provide mentoring to support them in implementing the EITI/Kimberley Process. Countries where this step is relevant include Sudan, Angola, Democratic Republic of the Congo, and Iraq.

•	 Encourage other countries and companies to join EITI, especially China and Indi

whose governments and extractive industry companies are now major players in th

natural resources sectors.

•	 Promote collaboration among the international financial institutions, voluntary

schemes, and bilateral agencies on a shared template and road map for reform of

resource wealth management that could be used as a common basis for interventions

and technical assistance in developing resource–rich countries.

•	 Launch “name, shame, and reward” initiatives. For example, the State Department’s

Bureau of Democracy, Human Rights, and Labor could prepare annual country reports

measuring natural resource wealth management practices against explicit standards

and templates.

•	 Apply systems and resources similar to those used to track down and stop terrorist

financing to prevent natural resource wealth being misappropriated and to recover

looted assets for legitimate governments.

•	 Invest in training and capacity building on natural resource wealth management

issues both for the U.S. government (for example, within U.S. embassies in resource–

rich developing counties) and for governments/officials, media, and civil society in

those countries.

•	 Endeavor to share best practices with countries that host large natural resource

investments.

•	 Explore the possibilities of discouraging governments and commercial banks from

financing governments that do not meet agreed standards for natural resource wealth

management. For example, establish legal requirements for disclosure of all commercial bank loans to foreign governments by institutions registered in IMF member

countries.

Endeavor to share best practices 

with countries that host large 

natural resource investments.


Key Strategies

Seven key strategies should be applied by the various U.S. agencies involved in stabilizing

and reconstructing resource–rich postwar countries (Department of State, Department of

Defense [DoD], Department of Commerce, United States Agency for International Development [USAID]) to help address the issues of resource wealth control and ensure the

establishment of transparent, accountable, and effective wealth management.

1.	 Be ready to use leverage in the immediate postwar period. Send a clear U.S. political

message to governments that the price of welcome in the international community is

effective and accountable natural resource wealth management, and that the United

States is fully aligned with the IMF and other international organizations in pressing

for transparency and accountability. This message should be comparable to those the

United States sends about democratization. It is an essential component of democratization in resource–rich countries and needs to be part of the U.S. conversation at

all levels, including bilateral discussion with government leaders, diplomacy, USAID

and DoD programs, and stabilization and reconstruction programs.

2.	 Recognize the need for both rapid action and long-term commitment. Immediate

steps are likely to be necessary to help transitional governments (including the United

States, other lead nations, or United Nations-led missions) secure control of natural

resource wealth and prevent it from undermining peace agreements (for example,

because rebels or corrupt elites maintain access to wealth or because key groups do

not trust that wealth is being shared as agreed). Subsequently, achieving accountable

and transparent resource wealth management is a slow process that requires longterm, sustained commitment to institution and capacity building in government and

civil society.

3. Evaluate in each country what elements of support for stabilization and reconstruction and future assistance (for example, development assistance, debt relief, donor

conference) should be made conditional on progress in putting in place effective and

accountable natural resource wealth management, and what rapid and substantial

rewards can be offered for good performance. Coordinate with other key international

bodies and governments. The objective is to develop a package with achievable bu

effective terms that brings about improvements in resource wealth management and

is not so onerous (or slow to deliver rewards) that countries refuse to engage.

4.	 Include protection of natural resource assets and infrastructure in security plans for

states emerging from conflict. For example, provide financial and material support to

legitimate governments or international forces seeking to drive out rebels and others

financed through natural resource wealth; help secure key natural resource infrastructure, such as pipelines; and help recover looted natural resource wealth.

5.	 Develop natural resource wealth management assessments tailored for individual

countries to guide U.S.-led and other international interventions. Assessments should

be built around the specific issues and sources of leverage in each case, with the

background work done before deployment in the field.

	 Much of the background work for country-specific natural resource management

assessments plans can be completed by drawing on the extensive information that is

available from U.S. government agencies such as the Energy Information Administration, U.S. Geological Service, USAID, State Department; the World Bank and IMF; UN

agencies such as the  United Nations Development Programme; NGOs active in natura

resource wealth management such as Global Witness, Human Rights Watch; resource

companies; and country specialists and experts such as the U.S. National Defense

University’s Africa Center for Strategic Studies.

	 The plans should start from an assessment of what resources exist and how, and

by whom, resource wealth is monetized and controlled. They should include a gap

The objective is to develop a 

package with achievable but 

effective terms that brings 

about improvements in resource 

wealth management.


analysis against good resource revenue management systems (e.g., transparency,

accountability, budget controls to handle volatility); analyze the role that resource

wealth has played in the war economy and the linkages with government and civil

society; determine what is needed in terms of a stable, transparent, and fair system

for letting concessions; and identify actual or potential subnational conflicts over

revenue allocation. They should determine what related work is being undertaken by

other agencies such as the IMF and look for synergies.

6.	 Build capacity in the United States and in other resource–rich countries. Establish a

roster of experienced natural resource specialists (forensic accountants, economists,

and lawyers) on call internationally for deployment in stabilization and reconstruction teams. This capacity could be drawn from current and recently retired resource

company personnel, from law firms and accountancies with natural resource practices,

and from people with relevant World Bank or IMF experience. It would be similar

in structure to the professional capacities established under the  Organization fo

Security and Cooperation in Europe Rapid Expert Assistance and Cooperation Teams

(REACT) program.

7.	 Match the emphasis on building national institutions and policies for the management of natural resource wealth with investment in local-level programs that engage

people in employment and transparent decision making. (See Box on this page.) This

is essential because natural resource-based industries do not generate the large-scale

employment that helps stabilize countries, and it is important to build up civil society capacity to become involved in, and press for, the democratic and accountable

systems of decision making that resource wealth typically undermines. According to a

senior advisor to the former Coalition Provisional Authority in Iraq, “Oil does not equal

jobs and productive income—you have to carefully think about how you get fro

resources in the ground to jobs.” Industry can also make an important contributio

It is crucial that international oil companies be engaged in the effective governance

of the oil sector to the extent that they can. Otherwise, international companies that

are committed to high standards will be excluded because other companies, including

national oil companies from the developing world, will not hesitate to pay bribes and

subvert the system. One source of leverage available to international oil companies

is the financial sector. The international oil companies could pressure leading global

banks with which they do business to meet international governance, transparency,

and anticorruption standards. Those banks in turn should pressure other banks that

seek to do business with them to meet those international standards as well.

Action Matrix: Managing Natural Resource Wealth

In the Post-Conflict Reconstruction Task Framework (May 2002) CSIS/AUSA identifies four

pillars of reconstruction: security, justice and reconciliation, social and economic wellbeing, and governance and participation. It defines three distinct phases of stabilizati

and reconstruction: initial response, transformation, and fostering sustainability.

Table 1 outlines a generic set of tasks related to the management of natural resource

wealth that provides a checklist for developing country-specific strategies. Not all of

the tasks will be relevant to each country. The natural resource wealth management

assessments proposed in item 5 above will provide the detailed information necessary to

determine and prioritize across these points. Depending on the role of U.S. government

departments and agencies, the tools available to carry out these tasks will range from

direct involvement (e.g., in drafting legislation) to technical assistance, awareness raising, advocacy, and persuasion. Where there are few levers to influence government, then

the priority should be to raise awareness of and capacity for resource revenue management within civil society.

Building Bottom-up 

Capacity and Support

Structural reform takes a long time to

deliver results. Therefore, there is a need

to focusinitially on achieving rapid microlevel changes that bring about immediate

improvements in peoples’ lives, creating

advocates for the new state, and building capacity for working in conditions of

transparency and accountability. Doing

this requires listening to what local

people think works and what are the

obstacles to change, and requires foreign

government agencies, NGOs, and investors to work in partnership with local

organizations. It requires listening to

local people about the security threats

that matter to them and focusing on

eliminating these threats. Practical steps

include requiring contractors involved

in clean-up and rebuilding to recruit

local people; developing micro-enterprise

programs and ensuring that they are run

transparently; and engaging with local

community councils and other similar

entities to help build skills in budgeting,

financial control, and dispute resolution.

Source: Based on interviews with working group

members involved in Iraq under the CPA.
10

Table 1: Action Matrix 

Pillar/Phas

Initial respo

goal: ensure b

security an

stabili

Transformatio

goal: develop legitimate and sustainable indig

capac

Fostering sustainability goal: consol

Security

Identify all natural

resource–rich areas,

infrastructure (production and transport), and export

points (border crossing, airfields, ports).

Deploy troops and

develop the necessary mandates

and strategies (for

example, to include

monitoring natural

resource exploitation)

to ensure effective

control of natural

resource areas and

infrastructure to prevent rebels controlling the resources or

sabotaging legitimate

government control.

Develop a communication plan to explain

to the indigenous

population why forces

are being deployed to

resource–rich areas to

protect and benefit

the population as a

whole. Explain transparency plans.

Implement project

to provide economic

alternatives to illicit

mineral extraction

and trading where

this is a factor in

instability.

Justice and 

Reconciliation

Prevent people credibly implicated in

looting resource

wealth from acquiring

positions of power in

transitional governments.

Establish national

processes to redress

any forcible expropriation or expulsion

of indigenous peoples

from resource–rich

areas under the previous regime.

Develop transparent

and fair processes for

letting new resource

concessions.

Find ways to recover

looted assets from

deposed rulers and

others.
11

Pillar/Phas

Initial respo

goal: ensure b

security an

stabili

Transformatio

goal: develop legitimate and sustainable indig

capac

Fostering sustainability goal: consol

Social and Economic 

Well-being

Identify and audit

state management of

concession contracts

and the operations of

relevant state bodies

to determine what

resource revenues are

payable and to ensure

that all payments due

are received and controlled properly.

Provide the central

bank (or other relevant body) with the

capacity to manage

resource revenues to

required standards

of transparency and

accountability.

Identify “quick result”

opportunities for

large-scale employment (for example,

through clean-up and

reconstruction work).

Fill gaps in indigenous capacity to

manage revenue

flows and negotiate

resource concessions.

Assist postwar governments to develop

economic policies

to limit economic

risks associated with

resource dependency.

Develop policies and

systems of accountability and oversight

to ensure that

resource revenues

are spent on poverty

reduction and development, for example,

through explicit links

with World Bank–

mandated Poverty

Reduction Strategy

Papers (PRSPs).

Assist postwar governments to review

the terms of resource

concessions and

seek revisions where

they do not allow

for transparency or

social/environmental

safeguards.

Implement a transparent and accountable system for new

resource concessions—no new concessions should be

let other than by due

process.

Identify obstacles to

foreign investment

in general and in

the natural resources

sector and seek to

increase investment.

Governance and 

Participation

Prevent transitional

governments from

letting resource

concessions. Allow

transitional governments only to sign

service and technical

contracts.

Identify where

regional allocation of

resource revenues is a

critical political issue

and start developing

a process to address

this issue.
Key References and Resources

•	 Collier, P., et al. Breaking the Conflict Trap: Civil War and Development Policy. Washington, DC: World Bank, 200

•	 Center for Strategic and International Studies. Promoting Transparency in the Africa

Oil Sector. Washington, DC. March 2004

•	 Extractive Industries Transparency Initiative Website: www.eitransparency.org.

•	 The Extractive Industries Reporting Initiative Sourcebook. London. March 

•	 Global Witness Website: www.globalwitness.org.

•	 Dangerous Liaisons: The continued relationship between Liberia’s natural resource industries, arms trafficking and regional insecurity. London. December 2

•	 Rush and Ruin: The devastating mineral trade in southern Katanga. London. Septem

2004.

•	 International Monetary Fund. Draft Guide on Resource Revenue Transparency. De

2004. pp. 64–65. www.imf.org.

•	 Kimberley Process Website: www.kimberleyprocess.com.

•	 Open Society Institute Revenue Watch Website: www.revenuewatch.org/index.

shtml.

•	 Follow the Money A Guide to Monitoring Budgets and Oil and Gas Revenues. N

2004.

•	 Publish What You Pay Website: www.publishwhatyoupay.org.

•	 Shankleman, J., Oil, Politics and Peace: Does Business Have a Role in Peacemaki

forthcoming, United States Institute of Peace, 2006.

•	 U.S. Agency for International Development. Minerals and Conflict:A toolkit for intervention. Washington, DC. 200

Of Related Interest

This report is part of a series of special reports that will be issued by the United States

Institute of Peace’s Filling the Gaps series of working groups. The special reports will

address the causes of failure in specific areas in reconstruction and stabilization as well

as generate policy options. The other reports in the series (all to be published in 2006)

are:

•	 Measuring Progress in Stabilization and Reconstruction, Craig Coh

•	 Transitional Governance: From Bullets to Ballots, Beth Cole DeGrasse and Christ

Caan

•	 The Role of Women in Stabilization and Reconstruction, Camille Pampell Cona

Please visit www.usip.org to download this and related reports.

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Institute of Peace

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Washington, DC 20036

www.usip.org

An online edition of this report can be

found at our website (www.usip.org),

together with additional information

on the subject