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47–003 PDF 2009

S. HRG. 110–713 

RESOURCE CURSE OR BLESSING? AFRICA’S 

MANAGEMENT OF ITS EXTRACTIVE INDUSTRIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON AFRICAN AFFAIRS 

OF THE

COMMITTEE ON FOREIGN RELATIONS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 24, 2008 

Printed for the use of the Committee on Foreign Relations 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

COMMITTEE ON FOREIGN RELATIONS 

JOSEPH R. BIDEN, JR., Delaware, Chairman 

CHRISTOPHER J. DODD, Connecticut 

JOHN F. KERRY, Massachusetts 

RUSSELL D. FEINGOLD, Wisconsin 

BARBARA BOXER, California 

BILL NELSON, Florida 

BARACK OBAMA, Illinois 

ROBERT MENENDEZ, New Jersey 

BENJAMIN L. CARDIN, Maryland 

ROBERT P. CASEY, JR., Pennsylvania 

JIM WEBB, Virginia 

RICHARD G. LUGAR, Indiana 

CHUCK HAGEL, Nebraska 

NORM COLEMAN, Minnesota 

BOB CORKER, Tennessee 

GEORGE V. VOINOVICH, Ohio 

LISA MURKOWSKI, Alaska 

JIM DEMINT, South Carolina 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

JOHN BARRASSO, Wyoming 

ANTONY J. BLINKEN, Staff Director 

KENNETH A. MYERS, JR., Republican Staff Director 

SUBCOMMITTEE ON AFRICAN AFFAIRS 

RUSSELL D. FEINGOLD, Wisconsin, Chairman 

BILL NELSON, Florida 

BARACK OBAMA, Illinois 

BENJAMIN L. CARDIN, Maryland 

JIM WEBB, Virginia 

JOHNNY ISAKSON, Georgia 

NORM COLEMAN, Minnesota 

DAVID VITTER, Louisiana 

CHUCK HAGEL, Nebraska 

(II)

C O N T E N T S 

Page 

Collier, Paul, director, Center for the Study of African Economies, University 

of Oxford, Oxford, United Kingdom .................................................................... 40 

Prepared statement .......................................................................................... 41 

Feingold, Hon. Russell D., U.S. Senator from Wisconsin, opening statement ... 1 

Goldwyn, David, president, Goldwyn International Strategies, Washington, 

DC .......................................................................................................................... 30

Prepared statement .......................................................................................... 32 

Isakson, Hon. Johnny, U.S. Senator from Georgia, statement ............................ 4 

Lugar, Hon. Richard G., U.S. Senator from Indiana, statement ......................... 5 

Moss, Todd, Deputy Assistant Secretary for African Affairs, Department of 

State; accompanied by Stephen J. Gallogly, Director, International Energy 

and Commodity Policy, Department of State, Washington, DC ....................... 7 

Prepared statement .......................................................................................... 10 

Taylor, Simon, director, Global Witness, London, United Kingdom ................... 21 

Prepared statement .......................................................................................... 23 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Schumer, Hon. Charles E., U.S. Senator from New York, prepared statement . 59 

‘‘Publish What You Pay’’ United States coalition, statement of .......................... 61 

‘‘Managing the Exploitation of Natural Assets’’ by Paul Collier, University 

of Oxford and Anthony J. Venables, University of Oxford and CEPR ............ 62 

(III)

(1) 

RESOURCE CURSE OR BLESSING? AFRICA’S 

MANAGEMENT OF ITS EXTRACTIVE INDUSTRIES 

WEDNESDAY, SEPTEMBER 24, 2008 

U.S. SENATE, 

SUBCOMMITTEE ON AFRICAN AFFAIRS, 

COMMITTEE ON FOREIGN RELATIONS, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 9:33 a.m., in room 

SD–419, Dirksen Senate Office Building, Hon. Russell Feingold, 

chairman of the subcommittee, presiding. 

Present: Senators Feingold, Lugar, and Isakson. 

OPENING STATEMENT OF HON. RUSSELL D. FEINGOLD, 

U.S. SENATOR FROM WISCONSIN 

Senator FEINGOLD. I call the hearing to order, and I’d like to welcome all of you to this hearing entitled ‘‘Resource Curse Or Blessing? Africa’s Management of Its Extractive Industries.’’ I am of 

course honored to be joined by the ranking member of the subcommittee, Senator Isakson, and of course the ranking member of 

the full committee, Senator Lugar, and I would like each of them 

to deliver some opening remarks in just a moment. 

This is likely the last hearing of the subcommittee in the 110th 

Congress and it closes out a busy 2 years. Prior to today we have 

held 10 hearings on both specific countries in crisis, including 

Kenya, Somalia, Sudan, and Zimbabwe, and also on emerging 

trends, such as the United States-Africa Command, democratization, and China role in Africa. 

Today’s topic cuts across all those areas. Africa’s abundance of 

natural resources holds great economic potential and the promise 

of pulling so many people out of poverty. Yet we have unfortunately seen the opposite, aptly described by some by the phrase 

‘‘resource curse,’’ as competition for control of these resources has 

more often fueled corruption and inequality than growth and development. Even worse, that competition has frequently devolved into 

conflict. 

A decade ago we watched in horror as the trade in diamonds became intertwined with war, destruction, and displacement in places 

like Angola, Liberia, and Sierra Leone. Since that time much 

progress has been made to combat those so-called blood diamonds. 

In 2000 the Kimberley process was launched, leading to the establishment of an international certification scheme to ensure rough 

diamonds do not originate in conflict zones. Kimberley has been a 

2 

tremendous success, even though it is unable to fix the problem 

completely and cannot, unfortunately, ensure that the citizens of 

each country receive the benefits they deserve. It does, however, 

provide a model that can be strengthened and expanded to address 

other natural resource concerns across the continent and do so in 

a way that decreases conflict and corruption, overriding tangible 

benefits to local communities. 

However, to date we have not had a Kimberley-like process for 

cassiterite, coltan, copper, gold, or timber. The mismanagement 

and exploitation of these resources continues to undermine stability 

in places such as Coˆte d’Ivoire, the Democratic Republic of Congo, 

and even Zimbabwe. The lack of mechanisms to regulate or at least 

scrutinize the trade in these resources handicaps diplomatic and 

humanitarian efforts to bring peace to these places. 

One of the goals of today’s hearing is to recognize this gap and 

consider ways to address it. Similar challenges exist with oil and 

gas, output of which has skyrocketed in recent years in Angola, 

Chad, Equatorial Guinea, Nigeria, and Sudan. In fact, few people 

realize it, but more U.S. oil imports now come from Africa than the 

entire Persian Gulf. 

These extractive industries have provided massive revenues, but 

the growing production is not translated into reducing poverty. Despite their considerable wealth, Africa’s leading oil-producing nations remain home to some of the worst poverty in the world and 

are consistently rated as some of the world’s most corrupt places. 

In fact, just yesterday Transparency International released its corruption index, with African countries, many of them oil-producing, 

comprising 6 of the 10 most corrupt: Somalia, Sudan, Chad, Guinea, Equatorial Guinea, and the Democratic Republic of Congo. 

Moreover, oil production has been central to the intense violence 

in Nigeria’s Delta region as well as the conflicts throughout Sudan. 

These are examples of how the corruption that stems from resource 

mismanagement can undercut the rule of law, breeding weak and 

failing states. 

Failure to confront the competition for resources in these places 

undermines ongoing stabilization efforts and puts U.S. interests at 

risk. Examining the underlying dynamics and the risks of the resource curse is especially important when nearly a dozen African 

countries are beginning new oil and gas exploration. There is of 

course real excitement in these countries at the potential for extractive industries to stimulate economic growth. But it is essential 

that they avoid the problems that have plagued many of their resource-rich friends and neighbors across the continent. 

Considerable progress has been made over the last 5 years to 

identify mistakes and come up with the best practices for natural 

resources management. There have also emerged initiatives to support the implementation of those lessons, most notably the Extractive Industries Transparency Initiative, known as EITI. EITI facilitates technical expertise and reporting guidelines for countries to 

promote transparency in their oil, gas, and mining sectors. It is 

worth noting that, of the EITI’s 23 current candidate countries, 16 

are in Africa. 

EITI is a promising start, but it alone has been insufficient to 

ensure transparency and accountability in the extractive indusVerDate Nov 24 2008 20:02 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 H:\DOCS\AFRICA.TXT BETTY
3 

tries. First, targeted assistance is needed to support the capacity 

of governments to implement the EITI guidelines. Second, the 

World Bank has called for a more comprehensive approach that incorporates the range of activities from exploration of resources 

through to the spending of resource revenues by governments. 

Today’s hearing will explore how the United States and international financial institutions are working to address these shortcomings of EITI and how we might do more. At the same time, 

though, we know that it is often a lack of will rather than capacity 

that ultimately hinders transparent and equitable resource management. Therefore we must also consider how the United States 

can leverage actors involved in Africa’s extractive industries. 

One way is the Extractive Industry Transparency Disclosure Act, 

of which I am an original cosponsor. Legislation was introduced by 

my colleague Senator Schumer, who has submitted a statement on 

the bill for this hearing. The bill would require all companies registered with the SEC—and it covers 27 of the 30 largest operating 

international organization companies—to file an annual report of 

all payments made to foreign governments for the extraction of 

natural resources. Requiring companies to provide that information 

can help public institutions here and in Africa to combat corruption. 

If there are no objections from my colleagues, I am pleased to 

submit Senator Schumer’s statement into the record and I look forward to working with him to pass the bill. 

Regulating companies needs to be complemented by direct engagement with foreign governments on good government, respect 

for the environment, and protection of human rights. Sadly, under 

this current administration we have seen U.S. capacity to engage 

and advance these principles shrink in Africa. Certainly the growing role of China in the continent, as well as India, Russia, and 

others, has been a major factor beyond our control. But too often 

we have lacked high-level leadership and necessary interagency coordination to implement coherent and comprehensive strategies in 

Africa. 

As our sights turn to the next administration and a new Congress, this will need to change, not only to help reverse the stubborn resource curse in Africa, but also to build stable long-term 

relationships. I hope today’s hearing will help us assess how we 

might move in that direction. 

Now let me quickly introduce our two distinguished panels so we 

can begin that discussion. First we will hear from Deputy Assistant 

Secretary for African Affairs, Todd Moss, who has an extensive 

background in issues of financial and economic development in 

Africa. I realize that this issue cuts across several Bureaus at the 

State Department, so I really appreciate your willingness to testify 

today on State’s current approach to these issues and the challenges involved. 

We also sent an invitation to the Treasury Department. They 

were unable to send a representative today, which is unfortunate 

given their important role in this discussion. 

Our second panel features an all-star lineup, beginning with Professor Paul Collier, the director of the Center for the Study of African Economies at Oxford University. Dr. Collier is known—widely 

4 

known these days, for his award-winning book entitled ‘‘The Bottom Billion: While the Poorest Countries Are Failing, What Can Be 

Done About It?’’ He was one of the first to identify the intersection 

between the resource curse and civil wars in Africa. Both as an 

academic and World Bank adviser, he’s been a leading voice over 

the last decade on issues of conflict and development. So it is an 

honor to have him joining us today to give us his latest policy recommendations for how African governments, international financial 

institutions, and the United States can help reverse this resource 

curse. 

We also hear from David Goldwyn, president of the energy consulting firm Goldwyn International Strategies. Mr. Goldwyn brings 

a wealth of experience on these issues as well, not only from the 

private sector through his current position, but also as a senior 

associate of the Center for Strategic and International Studies and 

from his previous work and leadership roles within the Departments of Energy and State. So I look forward to Mr. Goldwyn’s 

assessment of what is needed both institutionally and operationally 

to enable the United States to better leverage Africa’s extractive industries to promote good governance and stability. 

Finally, we will hear from Simon Taylor, the cofounder and director of Global Witness. Global Witness has worked for the last 15 

years through hard-hitting investigations and civil society advocacy 

to break the links between natural resources, conflict, and corruption. They and their NGO colleagues have been instrumental to 

many of the successes I described earlier. In fact, the very holding 

of this hearing and Senator Durbin’s Judiciary hearing later this 

morning on corporate responsibility is a testament to the many 

years NGOs have spent trying to raise awareness of these issues. 

I hope Mr. Taylor will give us the perspective of civil society on 

what progress has been made and what gaps still exist in international efforts to combat conflict resources and ensure transparency in Africa’s extractive industries. 

So thank you to all our witnesses for being here and I look forward to your testimony and our subsequent discussion. Thank you 

for your patience, my colleagues. I wanted to set the stage for this. 

But I now turn to my distinguished ranking member, Senator Isakson, for his opening remarks. 

STATEMENT OF HON. JOHNNY ISAKSON, U.S. SENATOR FROM 

GEORGIA 

Senator ISAKSON. Well, thank you, Chairman Feingold. I was 

thinking last night as I prepared for this hearing, 17 years ago my 

oldest son wrote his master’s thesis at University of Georgia on the 

subject of the Dutch disease and its impact of the Middle East. The 

Dutch disease economically is when a country is rich in a natural 

resource, but doesn’t reinvest the proceeds from its extraction into 

its people in terms of education, manufacturing, economic development, health care, and the like. What happens is you end up with 

a region of the world, just like we have in the Middle East now, 

where the countries are wealthy, but the people basically have to 

purchase all of their expertise, medicine, health care, things like 

that, from outside the country because money was never reinvested 

within the country itself. 

5 

Africa is on the doorstep of having the opportunity to take the 

wealth from these extractive industries, invest it in its people and 

education and health care and training and economic development, 

to where it can be a shining star on the world globe and the world 

stage. 

In January I visited Equatorial Guinea and saw both the evidence of the start of that as well as the need for improvement in 

a number of areas. President Obiang and his country discovered 

natural gas a few years ago. Marathon Oil and Hess went in on 

a joint venture with them, built a billion dollar gas liquification 

facility in the Gulf of Guinea, where they now export around the 

world, including occasionally into Elba Island in the State of 

Georgia. 

I went and saw firsthand where they’re building a huge hospital 

in Malabo, one of the finest hospitals, quite frankly, I’ve ever seen. 

They have contracted with Israel to build that hospital. I went and 

saw the development of roads and streets and infrastructure that 

are a significant sign of investment of funds in the country. 

But I also know education is at a low level as are many of the 

other resources that help a country and a people to improve. So, 

Mr. Chairman, I think your desire and wisdom in calling this hearing today on extractive industries and the value of the wealth of 

Africa, but the importance of seeing to it that the proceeds are reinvested in the best interests of the African people and obviously 

democracy is most appropriate at this time. 

I look forward to hearing from our other witnesses and I’m 

pleased to share the minority side with the distinguished ranking 

member, Senator Lugar. 

Senator FEINGOLD. Thank you, Senator Isakson. I want to thank 

you not only for your comments, but for your diligent involvement 

in the subcommittee throughout this Congress as long as you’ve 

been on here. It’s been really appreciated how serious you’ve taken 

this and how you’ve taken a lot of time out of your busy schedule 

to be involved in these hearings. 

I thank you. 

Senator ISAKSON. Thank you. 

Senator FEINGOLD. Senator Lugar. 

STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR 

FROM INDIANA 

Senator LUGAR. Thank you very much, Mr. Chairman. Let me 

just take this opportunity to thank you again for your leadership, 

not only this year with the subcommittee, but for many years. It’s 

really been a passionate interest in Africa, which all the committee 

members appreciate. 

I thank, likewise, Senator Isakson for being such an excellent 

ranking member on our side, because the two of you have conducted the 10 hearings that you’ve mentioned. They’ve been extensive in a year in which in some other areas of the committee activity there has not been the same due diligence perhaps. But it has 

been wonderful to work with you. 

Let me just say I thank the chairman for holding this hearing 

on a topic that is clearly very timely. This summer I commissioned 

the minority staff of our Foreign Relations Committee to assess the 

6 

impact of the so-called resource curse and to evaluate the effectiveness of current United States and international efforts to remedy 

the problem. Staff examined more than 20 resource-rich developing 

countries, including five in Africa—Angola, Chad, Equatorial Guinea, Ghana, and Nigeria. 

The resulting report, entitled ‘‘The Petroleum and Poverty Paradox,’’ has gone to print and will be available in hard copy in the 

next few days. An electronic copy is available now on my Senate 

Web site. 

Observers have long known that finding large deposits of oil and 

gas does not necessarily improve the quality of life for a developing 

country that is unprepared to handle a sudden windfall of resource 

wealth. It can often lead to corruption, setbacks in progress toward 

democracy, enrichment of elites, political instability, and a failure 

to invest in education, agriculture, and industry as they create jobs 

and produce exports. 

Countries as diverse as The Netherlands, which discovered oil 

and gas in the 1960s, and Nigeria, which has been a major oil exporter for a quarter of a century, have suffered this resource curse 

in one way or another. The problem has come into sharp focus 

lately because oil discoveries in developing countries and the soaring price of petroleum and other key commodities have produced 

sudden new riches for many poor countries. 

But the impact of this curse is not limited to the resource-rich 

countries themselves. The United States and other developed countries are also affected. As I noted in the introduction to the forthcoming staff report, it exacerbates global poverty, which can be a 

seedbed for terrorism. It dulls the effect of our foreign assistance. 

It empowers autocrats and dictators and it can crimp world petroleum supplies by breeding instability. The ongoing rebel attacks on 

Nigeria’s oil facilities, for example, are a factor in today’s record 

high crude prices. 

Because the resource curse affects our economic, security, and 

humanitarian interests, it should assume a more prominent place 

in our foreign and development policy. On this score, my staff 

found that, while there have been some positive steps, progress has 

been uneven. Concentrated effort is necessary because once a country discovers oil the United States and other international donors 

quickly lose leverage. In Africa, staff found the United States programs intended to help countries manage their oil money wisely 

could only succeed when there is sufficient political will to fight 

corruption and to make other difficult choices on the part of the 

country. 

In these countries, the international community should work to 

improve the institutional capacity to handle large capital flows and 

to address their pressing development needs. Staff concluded that 

U.S. policy in these African countries should work to build trust in 

long-term relationships and that this requires a strengthened 

United States Embassy presence. 

The report also found that where national leaders are willing to 

face the problem outside experts can help promote stronger 

antigraft and transparency policies to make it harder for government officials to hide corruption and easier for citizens to follow the 

money to make sure it isn’t wasted. 

7 

The Extractive Industries Transparency Initiative is one of several international efforts to fight the resource curse. The report 

urges the administration to give the EITI more vigorous support. 

It also urges the oil, gas, and mining companies, which often express support for transparency, to do more to encourage it in the 

countries where they operate. 

I look forward along with you, Mr. Chairman, to the insights of 

our witnesses. 

Senator FEINGOLD. I thank my colleagues for their comments. 

Now we can turn to Mr. Moss for the first panel. 

STATEMENT OF TODD MOSS, DEPUTY ASSISTANT SECRETARY 

FOR AFRICAN AFFAIRS, DEPARTMENT OF STATE; ACCOMPANIED BY STEPHEN J. GALLOGLY, DIRECTOR, INTERNATIONAL ENERGY AND COMMODITY POLICY, DEPARTMENT 

OF STATE, WASHINGTON, DC 

Mr. MOSS. Mr. Chairman, members of the committee, thank you 

for inviting me here to testify on Africa’s resources. I want to thank 

the committee for their interest in this critical subject. I also want 

to note it’s highly appropriate that we’re here today to have a hearing on corruption in Africa in a room numbered 4-1-9. 

Conflict resolution and the promotion of good governance are 

hallmarks of this administration’s policy in Africa. Since 2000 

we’ve seen seven major conflicts on the continent come to an end. 

U.S. policy in Africa has emphasized helping African countries 

build economies that generate prosperity and create a middle class 

that is the bedrock of democracy. The United States actively works 

to build partnerships with capable governments who can be allies 

in the fight against 21st century transnational threats such as 

crime, drugs, disease, and treatment. 

To do this effectively, we’ve ramped up our cooperation and assistance. With the support of Congress, total U.S. aid to Africa 

reached an all-time high of $5.7 billion in 2007. But we also recognize that for these partnerships to grow and to be sustainable we 

must help countries develop the capacity to use their own resources 

more wisely. Managing the continent’s resource wealth in a way 

that brings broad benefits to populations and reduces poverty is a 

key priority for both the United States and for Africa. 

Unfortunately, too many countries have failed to leverage their 

natural resource wealth into strong economies and strong states. 

The good fortune of having valuable commodities in the ground 

should provide countries with an opportunity to make lives and societies much better, but the opposite often occurs. In too many 

countries oil, gas, and mineral wealth have instead become associated with high poverty rates, weak state institutions, corruption, 

and war. 

Although the resource curse is not a uniquely African problem, 

Africa has many economies that rely on just one or two extractive 

exports. What explains this paradox? Economists tend to point to 

Dutch disease, whereby higher prices for a dominant export commodity crowd out the development of other industries, typically 

through the appreciation of the exchange rate. We see this in Nigeria, where high oil prices drive up the value of the naira and harm 

8 

the competitiveness of Nigerian industry and agriculture and also 

manage to turn the focus of politics to controlling the oil wealth. 

A second concern is the reinforcement of weak and unaccountable 

state institutions. When a government gains its income from the 

activities of a few oil or mining companies, rather than from taxing 

its own population, there are few incentives to be responsive to the 

people’s needs. In Nigeria, more than three-quarters of government 

revenue comes from the oil and gas sector, so there is little incentive, especially at a time of high international energy prices, to 

build a broader tax base or to deliver public services. 

The most devastating effect is the vulnerability to conflict. It’s no 

coincidence that some of the most vicious civil and regional conflicts have been sustained by competition over diamonds and minerals. 

So the question is how to break this downward resource-governance cycle and create a virtuous one? Well, when possible we try 

to get in front of the problem. A recent oil find offshore Ghana is 

still some years away from production. Before the money flows, the 

Government of Ghana is actively seeking mechanisms to manage 

future oil wealth and to ensure that revenues are used in a transparent and productive way that bolsters its democracy. We are collaborating with the government, with oil companies, civil society, 

and relevant international organizations as the Government of 

Ghana develops the best model to achieve these goals. 

In countries where the resource curse has already set in, we 

must encourage transparency and find other ways to create 

accountability. The Extractive Industries Transparency Initiative is 

one important part of this effort. EITI establishes accounting and 

reporting norms for revenues from natural resources. As the chairman noted, of the 23 candidate countries 16 are from sub-Saharan 

Africa. The United States fully supports EITI and has committed 

$3 million for fiscal year 2008 to a multidonor EITI trust fund. 

We’ve also supported through USAID specific EITI implementation 

projects in Nigeria and the Democratic Republic of the Congo. 

But it is worth keeping in mind that EITI focuses on only one 

link of the chain that can turn oil and gold into roads and schools. 

The Kimberley process monitors and controls the rough diamond 

trade to prevent the use of so-called blood diamonds to finance 

wars and to enrich warlords. This initiative now encompasses 73 

countries, has tracked $38 billion in international diamond trade, 

and covers virtually the entire international market. 

Special arrangements have been implemented in extreme cases 

to put extra international oversight on key sectors to try to prevent 

revenues from leaking or being misused. In Liberia the Governance 

and Economic Management Assistance Program, or GEMAP, provides intensive external oversight on key ministries. GEMAP has 

been critical in allowing the trade in diamonds and timber to 

resume in Liberia. So far GEMAP has been highly successful in 

building confidence and improving fiscal management in Liberia. 

I’ll just note, the Liberia Forestry Initiative is one component of 

this. This includes a state-of-the-art chain of custody system where 

there are bar codes literally on every log that is cut down, and it’s 

supported by a member of the U.S. Forestry Service, an expert that 

is based in the Embassy in Monrovia. 

9 

In Chad, on the other hand, a high-profile effort to sequester oil 

revenues offshore now appears to be failing. The different outcomes 

between Chad and Liberia and other cases highlight that donorsupported activities to strengthen revenue management are likely 

only to succeed where there is strong country ownership. 

While these efforts are helpful, much of what is necessary to beat 

the resource curse are not necessarily new, high profile initiatives, 

but rather the solid footings of sound economic management. Publishing detailed budgets, independent auditing, expenditure tracking, and other practices that are the norm in the United States are 

still not prevalent in many countries. Technical assistance from 

AID and the U.S. Treasury in these practices have been helpful in 

Nigeria, Guinea, Liberia, Zambia, and elsewhere. In other countries, the U.S. works with the World Bank and other partners to 

promote budget management. 

In spite of some progress thus far, we face continued challenges. 

There are severe limits to the influence of the international community when powerful or corrupt local politicians thrive by defending opacity instead of transparency. The emergence of new investors and donors who are less concerned about transparency and 

accountability can undermine voluntary schemes like EITI. High 

commodity prices similarly can reduce government incentives to 

seek reform. 

One approach is to support reform from within by aiding those 

who are confronting entrenched interests. A more challenging avenue is to convince governments that the gains of transparency are 

greater in a political sense than the threat to rent-seeking. One key 

to this effort is to generate public awareness and demand for transparency, which is one reason that the EITI is such a valuable 

effort. 

Stronger anticorruption efforts are also vital by both developing 

and developed countries. The United States is aggressively enforcing our own laws against foreign bribery. Other countries must do 

so as well. This year, at U.S. urging, the G–8 prepared for the first 

time an accountability report on actions taken by each G–8 country 

to implement anticorruption commitments. 

Let me end on a positive note about how current global trends 

can be helpful in beating the resource curse. More and more African countries genuinely want to attract private investment outside 

of the extractive sectors and, fortunately, there is now greater 

investor appetite for Africa. As governments shift strategy from 

squeezing mining and oil to try to attract new companies in new 

sectors, they recognize that they need to make the business environment more attractive. This means better and more open economic policies and compliance with international business norms. 

This shift also has political and governance benefits. By creating 

an independent business class, countries broaden the tax base and 

create a constituency for even more reform. The line between the 

future winners and losers in Africa will be drawn between the governments that recognize and seize upon this shift and those that 

cling stubbornly to the past. The policy of the United States is to 

help more countries make the right choice. 

I’m happy to take your questions. Thank you. 

[The prepared statement of Mr. Moss follows:] 

10 

PREPARED STATEMENT OF TODD MOSS, DEPUTY ASSISTANT SECRETARY, BUREAU OF

AFRICAN AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC 

Mr. Chairman and members of the committee, thank you for inviting me here 

today to testify on Africa’s resources. Conflict resolution and the promotion of good 

governance are hallmarks of this administration’s policy in Africa. Since 2000, seven 

major conflicts on the continent have ended. 

U.S. policy in Africa has emphasized helping African countries build economies 

that generate prosperity and create a middle class that is the bedrock of democracy. 

The United States actively works to build partnerships with capable governments 

who can be allies in the fight against the 21st century transnational threats of 

crime, drugs, disease, and terrorism. To do this effectively, we have ramped up our 

cooperation and assistance. With the support of Congress, total U.S. aid to Africa 

reached an all time high of $5.7 billion in 2007—$4.5 billion in bilateral assistance 

and $1.2 billion in multilateral. But, we also recognize that for these partnerships 

to grow and be sustainable, we must help countries develop the capacity to use their 

own resources more wisely. 

Managing the continent’s resource wealth in a way that brings broad benefits to 

populations and reduces poverty is a key priority for Africa and the United States. 

Unfortunately, too many countries have failed to leverage their natural resource 

wealth into strong economies and strong states. The luck of having valuable commodities in the ground should provide countries with the opportunity to make lives 

and societies better, but the opposite often occurs. In too many countries, oil, gas, 

and mineral wealth have instead become associated with high poverty rates, weak 

state institutions, corruption, and war. Although the ‘‘resource curse’’ is not a 

uniquely African problem, Africa has many economies that rely on one or two extractive exports. 

What explains this paradox? Economists point to ‘‘Dutch disease,’’ whereby higher 

prices for a dominant export commodity crowd out the development of other industries, typically through appreciation of the exchange rate. We see this in Nigeria 

where high oil prices drive up the value of the naira, harm the competitiveness of 

Nigerian industry and agriculture, and turn the focus of politics to controlling oil 

wealth. 

A second concern is the reinforcement of weak and unaccountable state institutions. When a government gains its income from the activities of a few oil or mining companies rather than taxing its population, there are few incentives to be responsive to the people’s needs or wishes. In Nigeria, more than three-quarters of 

government revenue comes from the oil and gas sector, so there is little incentive— 

especially in a time of high energy prices—to build a broader tax base or to deliver 

public services. 

The most devastating effect is the vulnerability to conflict. It is no coincidence 

that some of the most vicious civil and regional wars have been sustained by competition over diamonds and minerals. 

How to break the downward resource-governance cycle, and create a virtuous one? 

When possible, get in front of the problem. A recent oil find offshore Ghana is still 

some years away from production. Before the money flows, the Government of 

Ghana is actively seeking mechanisms to manage future oil wealth and to ensure 

revenues are used in a transparent and productive way that bolsters its democracy. 

We are collaborating with the government, oil companies, civil society, and international organizations as they develop the best model to achieve these goals. 

In countries where the resource curse has already set in, we must encourage 

transparency and find other ways to create accountability. 

The Extractive Industries Transparency Initiative (EITI) is one important part of 

this effort. EITI establishes accounting and reporting norms for revenues from 

natural resources. EITI now has 23 candidate countries, 16 of which are in subSaharan Africa. The United States supports EITI as part of larger efforts to enhance transparency and accountability, and has committed $3 million for FY08 to 

a multidonor EITI trust fund. We have also supported through USAID specific EITI 

implementation projects in Nigeria and the Democratic Republic of the Congo. But 

it is worth keeping in mind that EITI focuses on only one link of the chain that 

can turn oil and gold into roads and schools. 

The Kimberley Process monitors and controls the rough diamond trade to prevent 

the use of so-called blood diamonds to finance wars and to enrich warlords. This initiative now encompasses 73 countries, has tracked $38 billion in the diamond trade, 

and covers virtually the entire international market. 

Special arrangements have been implemented in extreme cases to put extra international oversight on key sectors to try to prevent revenues from leaking or being 

misused. In Liberia, the Governance and Economic Management Assistance ProVerDate Nov 24 2008 20:02 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 H:\DOCS\AFRICA.TXT BETTY
11 

gram (GEMAP) provides intensive external oversight on key ministries, allowing the 

trade in diamonds and timber to resume. So far this has been highly successful in 

building confidence and improving fiscal management. In Chad, on the other hand, 

an effort to sequester oil revenues offshore appears to be failing. The different outcomes in these cases highlight that the donor-supported activities to strengthen 

extractive industries revenue management are likely only to succeed where there is 

strong country ownership. 

While these efforts are helpful, much of what is necessary to beat the resource 

curse are not necessarily new high-profile initiatives, but rather the solid footings 

of sound economic management. Publishing detailed budgets, independent auditing, 

expenditure tracking, and other practices that are the norm in the United States 

are still not prevalent in many countries. Technical assistance from USAID and the 

U.S. Treasury in these practices has been helpful in Nigeria, Guinea, Liberia, and 

Zambia. In other countries, the U.S. works with the World Bank and other partners 

to promote budget management. 

In spite of some progress thus far, we face continued challenges. There are severe 

limits to the influence of the international community when powerful, corrupt, or 

greedy local politicians thrive by defending opacity instead of transparency. The 

emergence of new investors and donors who are less concerned about transparency 

and accountability can undermine voluntary schemes like EITI. High commodity 

prices similarly can often reduce government incentives for reform. 

One approach is to support reform from within by aiding those who are confronting entrenched interests. A more challenging avenue is to convince governments that the gains of transparency are greater, in a political sense, than the 

threat to rent-seeking. One key to this effort is to generate public awareness and 

demand for transparency, which is one reason the EITI is a valuable effort. 

Stronger anticorruption efforts are also vital. Developing countries must take sustained efforts to investigate, prosecute, and punish corrupt officials and those who 

corrupt them. Our G–8 partners and other developed and emerging countries need 

to do more to go after businesses and individuals from their countries who bribe 

public and political party officials. The United States is aggressively enforcing our 

laws against foreign bribery; others must do so, too. Commitments to deny safe 

havens to corrupt officials and their assets need to be implemented. 

Ultimately, there must be greater accountability by both developed countries and 

partner governments to follow through on commitments undertaken in this area. 

This year, at U.S. urging, the G–8 prepared for the first time an accountability 

report on actions taken by each G–8 country to implement anticorruption commitments. At their summit in July, G–8 leaders pledged to update this report annually. 

This effort complements peer review work done in the Organization for Economic 

Cooperation and Development and emerging efforts under the United Nations Convention Against Corruption. 

Let me end on a positive note about how current global trends can be helpful in 

beating the resource curse. More and more African countries genuinely want to 

attract private investment outside of the extractive sectors. And fortunately, there 

is now greater investor appetite for Africa. As governments shift strategy from 

squeezing mining and oil to trying to attract new companies in new sectors, they 

recognize that they need to make the business environment more attractive. This 

means better and more open economic policies and compliance with international 

business norms. This shift also has political and governance benefits. By building 

an independent business class, countries broaden the tax base and create a constituency for more reform. 

The line between the future winners and losers in Africa will be drawn between 

the governments that recognize and seize upon this shift and those that cling stubbornly to the past. The policy of the United States is to help more countries make 

the right choice. 

Senator FEINGOLD. Thank you very much, Mr. Moss, and I will 

begin—we’ll begin with 7-minute rounds for questions. 

As you know, the EITI is approaching a critical stage with its 

first tranche of candidate countries soon to reach the deadline at 

which their progress toward implementation will be evaluated. 

This will be a major test for this program’s credibility. What specifically is the United States doing to support African candidate 

countries in EITI implementation, as well as to provide high-level 

support for the broader initiative? 

12 

Mr. MOSS. As I mentioned, we have made a—we have committed 

to make a contribution for the trust fund. Then at the country 

level, the candidate countries, several of them have made proposals, mostly through USAID, for implementation technical assistance. The biggest programs there are in Nigeria and DRC. 

I have Steve Gallogly, who is the State Department’s point person on EITI. I’ll invite him to add any additional details. 

Senator FEINGOLD. If you could give me a sense of how much 

we’re giving to the EITI and what kind of help we’re giving to these 

countries that are doing these applications. 

Mr. GALLOGLY. We’re committing $3 million to the multidonor 

trust fund in fiscal year 2008. That will be transferred shortly, in 

the next week or two. And we’ve committed in the last 2 fiscal 

years $2 million helping, as you mentioned, DRC and Nigeria, as 

well as Peru. 

In addition to that—that’s specific programs—all embassies are 

involved. We have contacts all the time with the EITI secretariat. 

They reach out to us. We reach out to our embassies and engage 

when little issues come up involving civil society or the government 

or providing assistance. So we’re there around the world in all 

these countries, and not just, of course, in the countries involved 

in EITI. Good governance and transparency are important everywhere. 

Senator FEINGOLD. Mr. Moss, how has the State Department 

integrated support for EITI and its principles into its own aid program? Has there been any consideration of making U.S. nonessential assistance contingent on EITI principles, especially for 

countries such as Angola that are not even members of EITI? 

Mr. MOSS. I think that when we’re looking at country strategies 

transparency, promoting transparency and accountability, is absolutely a central focus. I’m not sure that’s always reflected in the 

budget, partly because, as you know, a lot of our resources are 

directed to health and education sectors, but also because this kind 

of activity is not necessarily very capital-intensive. A lot of it is 

through encouraging governments to try to see the management 

and economic benefits of pursuing certain policies. These technical 

assistance programs tend to be just a very small number of people 

that are involved, and when you compare that to, say, a very large 

ARV delivery program, which is very costly, with lots of large budgets, it may look like it’s very disproportionate. But that’s partly the 

nature of the problem and the nature of the cost of trying to engage 

on these issues. 

Senator FEINGOLD. But what about the contingency on EITI for 

countries like Angola? 

Mr. MOSS. Well, with Angola, the Angolans have actually made 

some progress in transparency in their accounts. They are starting 

to publish a lot of their financial figures. The Angolans have expressed that they have political sensitivities to formally joining the 

EITI and they’ve opted not to do so at this time, but they’re continuing to make the argument to us, to the IMF, and to the international community that they’re still committed to those principles, 

even if they remain outside. 

I think one thing I’ve noticed in my interactions with the Government of Angola is that it’s actually looking to improve manageVerDate Nov 24 2008 20:02 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 H:\DOCS\AFRICA.TXT BETTY
13 

ment, and when it’s presented in a manner of this is a way to help 

you manage your own resources better, they’re very open to that. 

However, for historical reasons they’re very sensitive to any idea 

that outside forces are coming in and forcing them to do anything. 

Senator FEINGOLD. Where natural resources are intertwined with 

ongoing violence, how does the State Department seek to address 

that and integrate economic regulatory measures into conflict resolution, prevention, stabilization efforts? For example, it’s widely 

known that the plundering of resources such as gold underpins the 

continued violence in the eastern Democratic Republic of Congo. 

What efforts are being made or could be made by the United States 

to regulate that trade? 

Mr. MOSS. I think the violence that we’re seeing, that we have 

seen, in eastern Congo is, of course, extremely worrying, and making sure that the peace in eastern DRC sticks is a very high priority of the State Department. The presence of so many lootable 

items in that region—mines, coltan, and different things that can 

be lifted out that are quite high value—have clearly been a factor 

in sustaining those conflicts and have allowed a proliferation of 

fragmented militias that can self-finance. 

I think that we have tried to put a huge effort on political dialog 

in the east and on bolstering the peacekeeping forces that are there 

now and helping to build capacity of the Congolese forces to repel 

some of the insurgent forces operating there. I think it’s important 

to recognize that the conflicts that we saw flare up this week in 

eastern DRC is really a continuation of some of the unfinished 

business from the Rwanda genocide of 1994, in this extremely complex problem that’s going to, unfortunately, be with us for some 

time. Trying to find ways of squeezing those warlords so that they 

don’t have the finances to continue is obviously an area that we 

take very, very seriously. 

Senator FEINGOLD. In this discussion, of course, it’s impossible to 

overlook the oil-rich Niger Delta, which is home to continuing unrest and insurgency, increasingly attacking oil installations. The 

United States obviously has a role in this situation, with Nigeria 

being the fifth biggest source of U.S. oil imports. What steps has 

the administration taken to address this growing unrest and what 

points of leverage do we actually have with the Government of 

Nigeria? 

Mr. MOSS. Thank you for that question. I was actually in the 

Niger Delta earlier this year. I was able to go to Scravos and Kwaibo to see the issues firsthand. It is a very, very complicated situation down there. We have now, because the problem of the Delta 

has festered for so long, we’ve now seen what had been legitimate 

political grievances evolve into mostly criminal activity, and those 

criminal links have gone right into the government and into the 

military, making resolution of that difficult. 

The new government that’s been in place in Nigeria about 18 

months came to power saying that the Niger Delta was one of their 

top priorities, resolving that issue. We took their word on that and 

we have had repeated dialog with them in a number of areas where 

the United States can help the Government of Nigeria deal with 

that problem. We’ve actually worked quite closely with the British 

Government in formulating these offers and the strategy. It looks 

14 

at helping to promote political dialog, helping to promote budget 

management, looking at what kinds of development projects could 

get started quite quickly so that there’s visible progress, so that 

people feel that they’re starting to gain some benefits, and last, to 

help deal with the security situation, to help promote responsible 

anticriminal and antimilitant security activity. 

As you probably have seen, the Nigerian Government has gone 

through a period of uncertainty. The responsibility for Delta strategy has passed from different ministries. There is now supposed to 

be a Niger Delta ministry created. We don’t yet know who will lead 

that. But several previous efforts to come up with a strategy have 

fallen by the wayside. 

So we have continued, and we’re doing so this week with the 

Nigerians at UNA in New York, continuing to dialog with them on 

the need to push the political dialog, to get projects started, and 

to work on transparency and budget management in the region. 

Two things I’ll note. One is that in Nigeria a lot of the power 

rests with the Governors, so we are actively reaching out to deal 

with some of the key states, because dealing with the revenue 

streams at those levels is now important. Many of the budget 

issues in Nigeria have seen great improvements from the previous 

Nigerian administration and now the problem is at the state level. 

Senator FEINGOLD. Mr. Moss, I’m going to cut you off here because I’m way over my time. But I will return to this in the next 

round. But we want to give Senator Isakson a chance. 

Senator ISAKSON. Is the United States the sponsor of EITI? Is 

that our initiative or is that a World Bank initiative? 

Mr. MOSS. Well, it was started, if I remember correctly, it was 

started as a United Kingdom initiative, but the United States has 

been a firm supporter from the beginning. 

Senator ISAKSON. I think you said 16 sub-Saharan countries are 

participating in EITI; is that correct? 

Mr. MOSS. There are 16 African countries that are currently candidate countries, which gives them a window of several years to 

meet full compliance. There are no countries of the 23 that have 

been rated fully compliant yet. 

Senator ISAKSON. But to help me understand it, is Equatorial 

Guinea one of those 16? 

Mr. MOSS. Yes, it is. 

Senator ISAKSON. When they were fully compliant, what would 

they be doing in terms of transparency and disclosure under EITI 

with regard to their natural gas liquification production? 

Mr. MOSS. I’m going to ask Steve if he could detail the exact criteria for full compliance. 

Mr. GALLOGLY. Full compliance would be they would be reporting 

their revenues that they receive from companies, including for natural gas and oil production and from the LNG facility, and companies would be reporting to the validators system that the EITI secretariat is setting up, independent validators. They would be 

reporting the same set of revenues that they paid to the government. The validators will look at reconciling that these match up, 

that they total up and they match up with what the government 

reported they received and the companies said they paid. Then 

there’s a long procedure to make sure that this is done, that civil 

15 

society is involved and other elements of the society are involved. 

Then they would be considered compliant based on the finding from 

the validators, the independent validators. 

Senator ISAKSON. I would hope that the end result is that transparency and sunshine is the best cure for corruption. 

Mr. GALLOGLY. The idea is that this would be public, how much 

revenues that they have received from this, and so this would bring 

pressure on the governments from the people to say—the governments could say, well, a lot went to costs and this. So they have 

a number, what they received, and then people—the strong theory, 

I believe the people would say, What are we getting from these revenues? And the government would have to answer for these revenues. That’s the fundamental basis. 

Senator ISAKSON. In something like this, the carrot-and-stick approach always seems to work. What’s the carrot for these 16 countries that are trying to become compliant? 

Mr. GALLOGLY. The carrot is their image for investment. Foreign 

companies would be more interested in investing there because it 

tends to be more stable. There’s a certain benefit in status among 

their competing countries. It’s something the U.S. raises in meetings with all of these countries as an ask, something that we press 

for them to be involved actively in EITI. We press other countries 

that would be investing countries to support the process. 

So it is a sense of developing a better reputation in terms of politically, geopolitically, but also as a place to invest. 

Senator ISAKSON. And I presume the stick would be the absence 

of that investment because they weren’t. 

Mr. GALLOGLY. The main stick is the absence, and also it would 

affect the assessment, the U.S. assessment of that country’s efforts. 

When they’re saying, well, they ask us for certain things, we say, 

well, we’re asking you to make progress. So it affects our assessment of that country, their engagement, their positive engagement. 

It’s a plus in terms of dealing with the U.S. and other countries 

like the United States. 

Mr. MOSS. If I may, the additional carrot—and quite frankly, the 

larger carrot—is and should be legitimacy with their own population, that then feels—many countries, the average person on the 

street feels that the government steals almost all the money. Nobody has any idea what’s coming in or what’s going out. But just 

this, even this small amount of disclosure, can actually have quite 

a big impact in helping to legitimize a government in the eyes of 

their own people. 

Senator ISAKSON. Does China recognize EITI or in any way encourage countries to be compliant with EITI? 

Mr. GALLOGLY. Well, when China invests in a country that is implementing EITI they’re covered by the EITI voluntary rules just 

like anybody else. When we engage with China, we encourage them 

to encourage their companies to be as cooperative as possible, and 

we point out that it’s in their interest because countries that use 

their revenues wisely are more reliable producers. We’re all in this 

together. China needs oil as much as we do and they need reliable 

suppliers. So it’s not in their interest to have unstable oil producers 

around the world. More stability in oil-producing states is better for 

China as well as for the United States. 

16 

Senator ISAKSON. I just wanted to echo what Secretary Moss said 

about the increased emphasis or interest in investment in Africa. 

Former Ambassador Andrew Young, who’s a good friend of mine, 

a native of Georgia, runs Good Works, which is a major company 

in promoting African investment by United States companies into 

Africa. We’ve now started direct flights to South Africa from 

Atlanta because of the commerce that’s increasing there. 

So I think this program is a tremendous program that lets sunshine in as a kind of deterrent to corruption and as a positive reward to the people of Africa to ultimately get some of those revenues going into their economic and educational infrastructure within the country. So I commend you on what you’re doing, and that’s 

all the questions I have. 

Senator FEINGOLD. Thank you, Senator Isakson. 

Senator Lugar. 

Senator LUGAR. Thank you very much, Mr. Chairman. 

Mr. Moss, the chairman mentioned in his opening statement that 

there currently is legislation before the House and the Senate that 

would require United States listed companies to provide significant 

information regarding their financial contracts with natural resource-rich countries. Let me ask, what is the view of the administration on this legislation that would require this listing on the 

stock exchanges, and do you have a further comment as to the efficacy of that legislation, how it would work, and what the implications might be in the countries involved? 

Mr. MOSS. We are aware of this legislation and we’re supportive 

of additional efforts to put pressure on all the actors for greater 

disclosure. I think, however, comment on pending legislation, I 

think we probably wouldn’t do that at this time. 

Senator LUGAR. Well, why not? In other words, we are having a 

hearing today on this general subject and I’m just curious as to 

where we all stand on this. 

Mr. MOSS. I think this would take—quite frankly, I think this 

would take a larger interagency discussion, and I certainly 

wouldn’t want to speak for my Treasury and other interagency colleagues about where they stood on this. 

Senator LUGAR. Well, let me then pursue a subject that you’ve 

just touched upon in response to my colleagues. In Nigeria, for example, for the moment our U.S. assistance level, I am advised, is 

about $490 million this year. Of that, $10.6 million comes for the 

program called U.S. Governing Justly and Democratically. Now, 

whether the $490 million covers much in terms of health and education—at least that is where much of it is aimed—what kind of 

dialog do we have with the Government of Nigeria with regard to 

our joint efforts, let’s say budgetwise? 

If Nigeria is receiving considerable resources from extractive industries and thus much better able to provide health, education, 

and welfare benefits for the citizens, conceivably our aid ought to 

go somewhere else, or be coordinated in a way in which we are not 

simply doing the work that Nigeria might do if it were in fact 

having this transparency, this dialog with all citizens, as to their 

welfare. 

So describe in a sophisticated way really the intermeshing of 

these funds, the $490 million or whatever may be our contribution 

17 

this year—it may be more in the future—with this business of the 

new wealth, huge wealth, the ability to do very different levels of 

service, things that could not have been done before? 

Mr. MOSS. Well, you’re absolutely right that Nigeria has a lot of its own resources. Their foreign reserves now are north of $70 billion at the central bank. So the problem in Nigeria is not now nor 

really has it ever been a shortage of cash. The vast majority of— 

the vast, vast bulk of U.S. assistance program is PEPFAR-related. 

That is because Nigeria is such a critical country in the region and 

dealing with AIDS and other communicable disease there is of critical nature of making sure that it doesn’t spread. 

So again, this gets back to my point that it appears there’s this 

large budget imbalance there, but that’s because the transparency 

issues are not big ticket money items. 

Our discussions with the Nigerians on budget issues, I think at 

the Federal level—the Government in Nigeria is different from 

other countries in Africa in that the states really have a very, very 

large portion of the budget and a lot of financial autonomy there. 

So I think our discussions at the Federal level have been quite 

good. The government, certainly in their reform period of roughly 

2003 to 2005, put in place some quite good measures, including 

publishing details of the budget in the newspaper, which sounds 

small but actually had quite a big impact in Nigeria. 

I think that that dialog is still ongoing, goes quite well. Those 

discussions will continue at the bank-fund annual meetings in a 

couple weeks time. Where we’ve tried to ramp that up is looking 

again at the state level. That’s where the transparency is the least 

obviously, and quite frankly that’s where the big problem is on the 

budget side. That is especially true in the Niger Delta, where 13 

percent of total national revenue is spent in those core oil-producing states. 

Again, this is a relatively slow process, helping to build capacity 

there and getting politicians to understand and to start to see that 

better management of these revenues can be in their benefit, 

rather than just seen as attacking a slush fund that they may be 

using for political purposes. 

Senator LUGAR. Let me just ask, you mentioned there’s maybe $70 billion of reserves now that have come largely from these extractive industries. This is at the central government level, presumably. Does each of the Governors have a different budget for 

health or welfare or what have you? Does not the government, the 

central government holding all these reserves, have something to 

say about the quality of care? 

What I’m trying to get to is there clearly must be a budgetary implication of holding $70 billion in the bank in what you can do 

out on the hustings. 

Mr. MOSS. Sure, sure. Well, we’ve certainly taken the view that 

their ability to spend—to save, excuse me—to save during an oil 

boom, which has really never happened before in Nigeria, is a positive sign of prudent management. One thing that the government 

has done that I think has been very positive is this year—in the 

past they had these fiscal responsibility bills at the Federal level— 

this year the government said, in exchange for getting additional 

cash out of a different account, not the reserves but the excess 

18 

crude account, you at the states have to pass your own fiscal responsibility bills. This year all states will do that. We’ll see how it 

goes. It’s the very first year and for many of these states it’s the 

first time that they will publish a budget, that they will have really 

any level of open scrutiny. So I don’t think it will be a pretty process, but it’s the beginning of what will be a long-term road. 

Senator LUGAR. It’s a step forward. Congratulations to you if 

you’ve helped to induce that. 

I yield the floor, Mr. Chairman. 

Senator FEINGOLD. Thank you, Senator Lugar. 

Back to the legislation that’s been introduced. It would be extremely helpful if we could get the administration’s view on this, 

either support or neutral or negative, some time in the near future, 

certainly before the end of the administration. I understand there’s 

going to be a new administration, but we’d like the view of this administration, because I’d like to be able to argue, as I think others 

would, that there is a bipartisan interest in this and that it’s a useful piece of legislation. 

So please, as soon as possible if you could get us a more definite 

answer than we got. We do understand this bill was only introduced in July, but I think all of us would like to know the view. 

I would like to clarify, since it was noted that the United States 

supports EITI, but we’re not a member, are we, of EITI? And why 

is that? 

Mr. GALLOGLY. We’re not an implementing country in the sense 

that we implement the rules of EITI. We’re a supporting country 

of the EITI and we’re on the board of EITI. So it’s not a legal international organization, but we’re referred to as a member, and I 

think legitimately so since we’re—other supporting countries are 

not implementing. The only supporting country that is implementing the EITI rules is Norway, and the other investor countries 

are not, that are perceived as not having the problem. 

I think with this process it would complicate it much too much 

early if it was just focused on a global issue rather than some of 

the countries that face unique challenges separate from the challenges faced in Canada and the United States or Australia. 

Senator FEINGOLD. Mr. Moss, back to the situation in Nigeria 

and the Niger Delta. Isn’t it true that the United States is severely 

handicapped by our lack of presence in the Delta region and our 

inconsistent diplomatic approach? I have been to this region and 

that area in particular in the river and I recognize the insecurity 

in the Delta makes it very hard for U.S. Embassy officials, who are 

doing great work in an already tough posting, to travel there. But 

how do we collect information and develop our analysis of the 

situation? 

Mr. MOSS. Sure. First, we do travel down to the Delta when it’s 

possible for security reasons. As I mentioned, I was down there. 

Under Secretary Jeffrey was just down there about 2 months ago. 

Ambassador Sanders has been down a couple of times and she’s 

continuing to try to work with diplomatic security to allow her 

greater freedom to go down there. 

I think for the most part, the vast majority of the interaction 

with people in the Delta is done elsewhere in Nigeria, in Lagos. A 

lot of the political leaders and influential power brokers from the 

19 

Delta actually spend most of their time in Lagos. So it’s actually 

quite easy to have access to them. So it’s not as difficult as it 

seems, although we agree that we would like to get down there a 

lot more than we are able. 

I know that it’s not just the United States. All the diplomatic 

missions have problems getting their security people to allow them 

to go down there. But it’s certainly something that I know that the 

current Ambassador is trying to push very strongly. 

Senator FEINGOLD. We’ve already talked a good bit about this, 

but despite launching its own national version of the EITI and saying all the right things, reports suggest that the Nigerian Government is complicit in the illegal trade of oil and corruption, which 

as you’ve certainly suggested, remains rampant. How are we addressing these serious allegations and what impact do they have on 

our bilateral relationship with the Nigerian Government? 

Mr. MOSS. It is clear that illegal oil bunkering—there are people 

complicit in different levels of government, starting at the very 

local level and working its way up. It does, quite frankly, affect our 

bilateral relationship quite seriously. I think that we have—we’ve 

been disappointed with the lack of movement, particularly with the 

economic and financial crimes commission, which had been built 

under the previous administration as a credible agency tackling 

probably Nigeria’s No. 1 issue—corruption—and we haven’t seen 

that momentum sustained and it has affected our bilateral relationship. 

I think that what we’ve tried to do is to maintain an open dialog 

with the government wherever possible and try to find windows of 

opportunity where we can engage with them. But a critical part of 

that is getting the Nigerian Government to recognize that the 

Niger Delta is not just a domestic problem, that it is an international problem. For about the first year of the administration of 

the new Yar’adua administration, they were insisting it was a domestic issue and they did not want to internationalize it. I think 

we’ve successfully convinced them that that’s no longer the case, 

particularly working with the British and other governments. 

One point I would make on this, and this is partly sparked by 

some of the comments of Prime Minister Brown recently, is that 

there have been proposals, because Nigeria is important to U.S. energy security, that we should have increased U.S. military engagement in Nigeria. I think that further militarizing the Niger Delta 

would be highly unlikely to be constructive to enhancing our energy security. 

It’s something that we often hear proposed and it’s something 

that I know the Nigerians are very sensitive about, and certainly 

we’ve taken the view that that would be counterproductive. 

Senator FEINGOLD. In August 2006 President Bush launched an 

antikleptocracy initiative to hold foreign government officials accountable for high-level corruption. Following on this, Congress 

passed legislation in 2007 requiring the Secretary of State to investigate and ban foreign government officials involved in natural resource corruption from entering the United States. 

What specific actions is the State Department carrying out to 

support the President’s initiative and fulfill this requirement? 

20 

Mr. MOSS. Yes. Proclamation 7750 I think is a very welcome 

change that allows us to deny visas to the United States by folks 

that are involved in corruption. I think that it’s something that we 

need to probably wield more liberally than we do now. I know that 

there’s a hesitancy to become—to be used in what may be political 

tit for tat in a local country, where corruption allegations are quite 

easy to make and quite difficult to prove, and that we don’t want 

to get drawn into that. 

But I think that, especially officials that seek to be international 

influence peddlers or international statesmen certainly like to come 

to the United States, and I think that more aggressive use of the 

visa ban is something that we should certainly be looking at using 

more aggressively. 

Senator FEINGOLD. Thank you. 

Senator Isakson, do you have further questions? 

Senator ISAKSON. No further questions, Mr. Chairman. 

Senator FEINGOLD. Senator Lugar. 

Senator LUGAR. Thank you, Mr. Chairman. 

I just want to follow up for a moment on my questioning about 

the legislation that Senator Feingold had offered, and which, in 

fact, was offered in the House of Representatives, I understand it, 

the year before last. So it’s been around for a while. 

Without getting you into difficulty with your brothers over in the 

Department of the Treasury, who are unhappily absent today, apparently there have been some questions raised over in that area 

with regard to this legislation. I have no idea where the State 

Department may be. I just simply ask this as a matter of curiosity. 

How within the administration are questions of this sort resolved, 

or is there any attempt to do so? Because very clearly we’re asking 

for transparency from African countries, and others for that matter—it doesn’t necessarily apply just to Africa—but at the same 

time there seems to be some reticence on the part of our own officialdom and our own business community to come forward with 

this sort of information. 

Do you have any further comment on this predicament? 

Mr. MOSS. Well, I think that there are always concerns about 

U.S. competitiveness. But I do think that the U.S., because of the 

Foreign Corrupt Practices Act, quite frankly, has been at the forefront of the international community, well ahead of almost all other 

countries in terms of making sure that our own companies comply 

and don’t contribute to these kinds of problems. 

I will absolutely take your questions back to our colleagues and 

we’ll have that discussion. I think that the possibility that this will 

be passed will help to galvanize minds and get them in the room 

to think a little bit harder about that. 

Senator LUGAR. Let me also inquire, sort of, in the fine points of 

the EITI situation. Now, here we, the United States, as your colleague, Mr. Gallogly, has pointed out, has not become a member of 

EITI. Yet we are participating and helping out other countries. But 

what’s the hangup here? In other words, why aren’t we across the 

finish line, as a member? Is this once again a Treasury-State 

Department or a problem within State? What is the dilemma? 

Mr. MOSS. I think that we are members. I think what Mr. 

Gallogly was trying to say is that we’re not implementing the EITI 

21 

because the United States does not—is, first of all, not a resource— 

it wouldn’t fall under the category that we have extractive exports 

above a certain threshold. So I think that in that sense, that’s why 

Norway is the only OECD country that’s implementing it, because 

of its significant oil exports. 

Senator LUGAR. In other words, you have to have exports as a 

part of your GNP that are more significant than whatever ours are 

as a part of ours? 

Mr. MOSS. I think the normal threshold is 25 percent of exports, 

is that right? 

Mr. GALLOGLY. I’m not sure there’s a technical number. I’ll check 

that. 

Mr. MOSS. I think it’s more of a question of whether exports of 

extractive industries are so dominant to your economy that it’s 

having a potentially harmful effect. Whether the U.S. would qualify 

in that manner, I think probably not. But I’ll leave that to others 

to decide. 

Senator LUGAR. I just raise the issue because clearly a good part 

of our questioning of you today has been about this issue of transparency and advocacy to other countries to adopt all sorts of reports and so forth that are alien perhaps to their cultures, but not 

unknown to ours. 

Now, if, in fact, our problem is simply reticence on the part of 

those in government, business, or whatever, that they don’t want 

to be troubled with all of this, or as a matter of fact they’re all 

above it—these other countries though are now sort of developing 

themselves, as opposed to our institutions—this doesn’t really set 

the right tone. I appreciate your candidness in addressing this, but 

also this forum for raising these issues that at least some of us are 

concerned about and will continue to raise questions about it with 

whichever administration happens to come along. 

Thank you very much, Mr. Chairman. 

Senator FEINGOLD. Thank you so much, Senator Lugar. 

Mr. Moss, thank you for your testimony, your patience in answering our questions. 

We’ll now turn to the second panel. 

Thank you, gentlemen. We’ll ask that you limit your remarks to 

5 minutes each and we’ll certainly put your full statements in the 

record, and we’ll begin with Mr. Taylor. 

STATEMENT OF SIMON TAYLOR, DIRECTOR, GLOBAL WITNESS, 

LONDON, UNITED KINGDOM 

Mr. TAYLOR. Thank you, Mr. Chairman. Thank you, members of 

the subcommittee. I’m very honored to be able to give you our opinions on these matters. Thank you very much for including our 

statement in the record. I’ll briefly refer to a number of bits as we 

go through. 

I want to focus a little bit on Angola because I quite categorically, I think, disagree with the description of Angola in terms of 

its performance that was given earlier. Angola sold roughly $43 billion worth of oil last year. We’re now 6 years after the end of the 

fourth civil war. It still has the highest infant mortality rate in the 

world and one in four children don’t make their fifth birthday, 

which I think really by anyone’s description is a travesty. 

22 

We have to ask where the money has gone. This is one of the 

key reasons why we launched the ‘‘Publish What You Pay’’ campaign, of which EITI was a response to that initiative. Unfortunately, we can trace the story of Angola across the rest of the Gulf 

of Guinea to a greater or lesser extent for different reasons in different countries. The situation is pretty dire in Equatorial Guinea, 

in Congo-Brazzaville. We refer to a number of examples to illustrate that in our testimony. 

What do we have to do with this? I think just to summarize, 

what we need to address these problems is actually a cocktail of 

mechanisms, of which EITI we’ve heard lots of very good things 

about it today and we continue to support it. We’re also a member 

of the board and will continue to do so. We think that EITI is an 

excellent initiative. We want to see it progress further. 

With that in mind, I also want to particularly thank Senators 

Leahy and Lugar for providing the additional funding for the EITI 

process coming from the United States. I think that’s excellent. 

We’d like to see that continue. 

I think a key thing for the new administration is that the next 

big EITI meeting is taking place in February, so we need to see the 

new administration very early on getting its act together, pardon 

the expression. But we need to see the new administration landing 

on its feet at that meeting, able to ramp up the U.S.’s participation 

in the process. 

What could that be? I think more outreach. A question was asked 

earlier about China. Let’s see China take part in the process. 

With regard to the comments just now about U.S. participation, 

I think one of the key aspects of the EITI is that it’s not a corruption club. It’s a process of best performance. I think one of the best 

ways to bring that out would be to have participation by all the 

participants, and I include the United States. I include my country, 

the United Kingdom. Norway has shown a lead by doing so. But 

let’s see the rest. Let’s make this the good governance way to be, 

the global standard club. Really, I think we would like to see participation on that basis from the U.S. 

Just one sort of correction fact. I don’t think EITI is about participation on the basis of the amount of exports you have. It’s about 

the governance associated with revenue streams. I’d just like to 

separate that out. 

So what’s missing? A couple of things on a positive note I think 

are an increased use of FCPA. We’ve seen an increased number of 

prosecutions. There’s a glaring absence from the followup from the 

Riggs Bank scandal. We’d like to see that carried forward because 

there are serious questions to be asked there. 

That brings the issue that this issue’s not just about despotic 

leaders. It’s also about company accountability, company performance in these matters. We’ve seen lots of examples. I won’t cite 

them now because we’ve referred to some of them in the testimony. 

But I think it’s very important to stress that. EITI deals with this 

from the government participation process and it rides over the 

way in which companies have to a greater or lesser extent been 

also complicit in the process. 

With that in mind, what can we do about the countries for which 

the people in those countries simply don’t have time to hold their 

23 

breath? I’m particularly thinking again of Angola here. How long 

do we have to wait with those circumstances in Angola before 

Angola might just volunteer? 

With that in mind, I absolutely commend the EITD bill. We from 

our point of view do not accept some of the criticisms that have 

been levied by the industry side in terms of the addressing competitiveness aspect. Of the 15 world’s biggest oil and gas companies, 14 would be included, most of which are not American companies. So the issue of competitiveness between U.S. and foreign 

companies, I just simply don’t accept that. There are further statistics we cite in here. 

But I think one of the beauties of the act is in one fell swoop in 

a country like Angola you would force disclosure on 30 of the 33 

participants in country. That’s not happened. The excuse that 

Angola has to sit there, as it sat in the first EITI meeting, oh, we’re 

just going to sit on the fence, is just not acceptable with those kind 

of standards and conditions in-country. 

So we really commend you, Mr. Chairman, for supporting that 

bill and we’d really like to see that go forward in the next process. 

The last thing I wanted to talk about is the followup to the 

kleptocracy provision from last year. Thanks to Senator Leahy, 

through an amendment in the consolidated appropriations act, 

we’ve had a focus on the visa ban, which is clearly technically an 

issue that’s caused difficulty, I should say, within the administration. It’s mostly about resources. It’s very hard if you’ve got hardly 

any staff available and not much in the way of financial resources 

to do this work, to really follow through. 

So we think it’s very necessary as time goes forward and we see 

a continuance of this process to add serious resources to look at 

this. If you look at the case of Angola, a country which is really, 

I would describe, as Dos Santos Inc., how can we create the disincentives from asset stripping? I think the real answer to that is 

to exclude nice places to go shopping. You know, if you want to 

steal tens of billions of dollars, as these people have, you don’t 

want to spend it in Malabo or in Luanda. You want to go to Fifth 

Avenue or the Champs-Elysees, you want to go to nice places 

where you can buy luxury goods, as we found through the credit 

card statements of Dennis Chrystal and Sasu Engessu last year. 

Nice shopping in Spain and so on. 

We need to seriously disincentivize that. 

Senator FEINGOLD. Mr. Taylor, I’m going to ask you to conclude 

your remarks if you would. 

Mr. TAYLOR. Just my concluding remark is I think we need to 

look at a mechanism that works, which needs resources to focus 

around the issue of asset freezing. I know that’s complicated, but 

it needs to be seriously thought through, and we’d really like to 

work with members and also the administration when it comes in 

to address this problem. 

[The prepared statement of Mr. Taylor follows:] 

PREPARED STATEMENT OF SIMON TAYLOR, DIRECTOR AND COFOUNDER, GLOBAL

WITNESS, LONDON, UNITED KINGDOM

Thank you, Mr. Chairman and members of this esteemed subcommittee, for the 

opportunity to share my views on the critical issue of Africa’s extractive industries 

24 

and how we can help make those resources benefit the people in Africa rather than 

fuel corruption and conflict. 

To be succinct, we are currently very far from a situation where the majority of 

Africa’s oil and minerals are benefiting African people. Moreover, some natural 

resources continue to fuel armed conflict in Africa, as our recent research on the 

Democratic Republic of Congo and tin and coltan has revealed. However, the two 

most potentially far-reaching policies that I have witnessed in 10 years of working 

on this issue are currently under debate. If they go forward, these U.S.-led initiatives on natural resource transparency and accountability would have a very tangible impact in transforming incentives for corruption in Africa’s natural resources. 

These initiatives would also be important for U.S. national interests in promoting 

stable business environments and strengthening U.S. energy security. I strongly 

commend you for holding this hearing today, Mr. Chairman, so we can discuss these 

important policy options. 

1. AFRICAN OIL—LOTS IN OUR GAS TANKS, BUT WHERE ARE THE REVENUES GOING?

To illustrate both the problems and the solutions, let’s start right at the gas 

pump. I would like to trace the supply chain from the gas pump backward through 

each step, highlighting exactly where the problems lie and how we can address each 

of those through concrete policy solutions. 

Although few people realize it, more oil from Africa now goes into gasoline in the 

U.S. than from the Persian Gulf. According to the U.S. Energy Information Administration, 23 percent of U.S. oil imports currently come from Africa—more than the 

combined U.S. imports from the Persian Gulf, which are 18 percent.1 The largest 

oil producing nation in Africa is now Angola, which now ranks as the seventh largest oil exporter to the U.S.—ahead of Kuwait, Russia, and Colombia combined.2 So 

nearly one-quarter of American gasoline comes from Africa, and Angola is Africa’s 

largest oil producing country. All told, Africa exported $249 billion in oil and minerals in 2006, nearly six times the value of international aid to the continent.3

Yet the enormous wealth generated from the oil and minerals has not trickled 

down to Africans, and in some areas these resources continue to fuel armed conflict. 

Global Witness field research in July and August 2008 uncovered substantial 

evidence of the involvement of armed groups, such as Rwandan Hutu Forces 

De ́mocratiques pour la Libe ́ration du Rwanda (FDLR), as well as units and commanders of the Congolese national army, in the exploitation and trade of minerals 

and metals in North and South Kivu. These economic activities are perpetuating instability in the region. 

To continue with the Angolan example on oil, Angola exported an enormous $43 

billion in oil last year, and its economy grew 21 percent.4 Yet U.N. figures show that 

over two-thirds of Angolans still live on less than $2 a day, despite skyrocketing 

costs in the country: Rent for a modest apartment in the capital, for example, costs 

$1,500 a month.5 Try affording that on $2 a day. Oil wealth has also not improved 

the horrific health care system in the country: Angola still has the highest infant 

mortality rate in the world.6 Not surprisingly, our research and IMF figures uncovered that Angola could not account for an average of US$1.7 billion per year from 

1997–2001, which is more money than the government spent on health and education during that period.7 A lack of transparency has meant that billions of dollars 

cannot be accounted for, from Angola to Equatorial Guinea. 

2. THE SUPPLY CHAIN AND HOW WE CAN INFLUENCE IT

So what exactly is the supply chain for African oil coming to the U.S., and how 

can we influence it to help reverse the resource curse? 

Step 1: Awarding of concessions 

Much of the corruption associated with oil and minerals happens at the beginning 

of the process—right when contracts are awarded to oil companies, or the oil services companies that increasingly construct and run oil infrastructure in Africa. 

As former Halliburton executive Albert Jack Stanley admitted just 3 weeks ago 

in a guilty plea to a Houston federal court, Halliburton’s engineering subsidiary Kellogg, Brown, and Root paid over $180 million in bribes to the Nigerian Government 

to win a natural gas plant contract.8 Sadly, this is only the tip of the iceberg. Oil 

services company Baker Hughes plead guilty to violating the Foreign Corrupt Practices Act in Angola, Nigeria, Kazakhstan, Russia, Indonesia, and Uzbekistan; the 

Angolagate scandal is about to go to trial in France, in which the French Government lined up the French oil company Elf to gain oil concessions in Angola and involved illegal arms shipments; the list goes on. 

25 

So transparency has to start with the award of rights to explore for oil and minerals, and with the award of contracts to build oil infrastructure. The U.S. has an 

exemplary record amongst major oil-consuming countries for prosecuting corrupt 

acts by its own companies, and of course the FCPA was groundbreaking in its time. 

Still, there are a couple of big unresolved FCPA cases where we are rather surprised 

at the lack of progress—notably the SEC investigation into the Riggs Bank affair, 

which I will talk about shortly. 

Aside from this question of law enforcement, the U.S. should lead other donor governments to encourage resource-rich countries to ensure that oil and mining concessions are awarded in a transparent way, with independent oversight to ensure 

there’s no corruption. U.S. companies would clearly gain from such a policy: Since 

their technical expertise is superior to companies from many other countries, they 

have most to gain from licensing processes which are free from corruption. 

That said, of course there is a risk that people will say that the U.S. is simply 

lobbying for its own companies to get preferential access to the oil. But that’s easily 

avoided if these reforms to licensing are presented as a global standard which 

should apply to all companies, including the Chinese and the Russians and the Indians, as well as the Europeans and the United States. 

So how to enact such reforms? Well, the U.S. has influence in some countries via 

its aid programs. In others, the governments themselves may be supportive if they 

feel that transparency will enable them to get a better long-term deal for the country. There are also such initiatives as the World Bank’s new project, launched earlier this year by Bank President Robert Zoellick, to provide resource-rich countries 

in Africa with more technical support to resource governance across the value chain. 

We feel that the U.S. should support that process as far as it can. 

Step 2: Revenue payments for oil, gas, and minerals 

The next step in the supply chain is equally critical: Revenue payments by extractive industry companies to governments. When ExxonMobil or BP pays Angola for 

its oil, it does so in the form of taxes, royalties, and signature bonuses. Oil companies typically operate under production-sharing agreements which means that they 

are also providing the government with a share of oil from the field: This is often 

a huge source of earnings for the country. 

But in the majority of resource-rich countries in Africa and around the world, 

these payments are still kept secret. Citizens who demand for better services from 

their governments in Africa are often met with the response, ‘‘Well, the oil companies didn’t pay us enough, they are exploiting us.’’ These citizens have no way of 

verifying how much the companies do actually pay, because it is not made a matter 

of public record. Oil companies do not disclose the payments in their annual reports, 

and governments do not disclose receipt of the payments in their budget reports. 

And so the cycle continues—no transparency about the billions of dollars exchanged 

for oil and minerals, and no accountability for these revenues because no one knows 

how much actually exchanged hands. 

The secrecy that results from this opacity is bad for American consumers and bad 

for Africans, and it makes it much easier for corruption to take place. Equatorial 

Guinea, for example—one of the top 20 oil exporting countries to the U.S.—keeps 

over $2 billion of its government revenues in private offshore banks, according to 

the IMF.9 When it deposited $700 million of this money into Riggs Bank here in 

Washington, DC, the Senate Permanent Subcommittee on Investigations found dozens of irregular payments, multiple individual signatories to the accounts, and little 

due diligence paid to the accounts. Riggs shut down as a result in 2004, but the 

corruption in Equatorial Guinea continued. Two years later in 2006, the son of the 

President of Equatorial Guinea bought a mansion in Malibu, California, worth $35 

million, which includes an 8-bedroom house, a 9-hole golf course, swimming pool, 

and 15-acre beach-view property, despite his official salary of just over $60,000 a 

year as a government minister.10

This story is not confined to Equatorial Guinea alone. Whilst acting as an Angolan Government official, arms dealer Pierre Falcone reportedly bought the most 

expensive home ever purchased at the time in Arizona for $10.6 million, becoming 

a neighbor to Chicago Bulls owner Jerry Reinsdorf in Paradise Valley.11 The list 

goes on. 

In order to help address the revenue payments issue, an international initiative 

was launched in 2002 by the British Government, the Extractive Industries Transparency Initiative (EITI). Global Witness sits on the board of EITI, strongly supports the initiative, and has made every effort to strengthen it since its launch. Last 

year, Congress voted to finally give the U.S. an important voice on EITI implementation by upping its contribution to the EITI Trust Fund to $3 million, thanks to 

efforts in the Senate by Senators Lugar and Leahy. 

26 

The reality is that EITI is an impressive effort, particularly in the way that it 

brings together different stakeholders: Governments, companies, and civil society 

groups. Where else would you find a representatives from ExxonMobil and Chevron 

sitting at the same table as civil society activists from some of the poorest countries 

in Africa? To buttress current efforts on EITI, the U.S. Government should elevate 

EITI to a higher priority and do more outreach at a high diplomatic level to ensure 

proper implementation and integrate EITI as a requirement through AGOA and the 

MCC. EITI will be at a critical juncture for implementation over the next year, and 

so State Department engagement will be important. 

But EITI is not a golden key, so to speak, mainly because it is voluntary for countries to join. As a result, the world’s biggest oil producers are simply not joining. 

Only one of the world’s top ten oil-producing countries—Norway—has committed to 

implement the EITI. Only one OPEC member country, Nigeria, is a member. Most 

of the other members are small to mid-ranking producers. These countries deserve 

credit for their reform efforts, but the fact is that they account for a small fraction 

of world oil supply. The country which gave rise to the whole oil transparency movement, Angola, is not a member of EITI and shows little appetite for joining the 

initiative. 

The problem of transparency is urgent because a number of countries already 

having hit or soon hitting their peak of oil production, meaning that the windfall 

of oil revenues will start to diminish and eventually come to an end. For example, 

Gabon’s production peaked over 10 years ago in 1997. So these countries don’t have 

that much time to ensure that the revenues are really used to develop their economies for the time when they can no longer rely on oil. EITI is an excellent tool, but 

it is not sufficient. 

3. A HISTORIC OPPORTUNITY: THE EITD ACT

Thankfully, today we have a historic opportunity to be a part of that solution, 

starting right here in Congress. Introduced in the Senate by Senator Chuck Schumer and cosponsored by Senators Feingold, Leahy, Lieberman, Durbin, and Cantwell, and introduced in the House by Financial Services Committee Chairman Barney Frank, the Extractive Industries Transparency Disclosure Act, the EITD Act, 

provides exactly that opportunity. The bill, S. 3389, provides for a low-cost, high impact SEC rule change requiring the disclosure of payments to foreign governments 

by oil, gas, and mining companies. Under the bill, all extractive industry companies 

that are listed on U.S. capital markets—including foreign corporations—would publish their revenue payments to all foreign governments on a country-by-country 

basis through their regular annual filing reports to the SEC. 

The EITD Act is critical for establishing freedom of information and a global 

standard for transparency in the oil sector, at a time when oil company profits are 

reaching record levels. It would promote U.S. interests by combating corruption and 

improving the stability of U.S. investments abroad through improved governance in 

oil-producing countries. Importantly, the bill is a powerful tool for poverty reduction, 

as the transparency will enable oil revenues to be managed in a more accountable 

manner. 

The importance of this bill lies in its global coverage; with one swoop, 14 out of 

the world’s 15 largest oil and gas companies that are publicly traded would be covered by the bill, and 27 of the top 30 companies if the list is expanded. The overwhelming majority of these corporations are non-U.S. companies, with the bill 

requiring disclosure from foreign corporations including the three major Chinese oil 

companies, Russia’s Lukoil, and Brazil’s Petrobras. 

WORLD’S TOP 14 PUBLICLY TRADED OIL CORPORATIONS COVERED BY THE BILL 

Petrochina (China) Lukoil (Russia) 

China Petroleum (China) ENI (Italy) 

BP (U.K.) Repsol (Spain) 

Petrobras (Brazil) ExxonMobil (U.S.) 

Royal Dutch Shell (Netherlands) Chevron (U.S.) 

Total (France) ConocoPhillips (U.S.) 

StatoilHydro (Norway) 3Marathon Oil (U.S.) 

U.S. companies would not be put at a competitive disadvantage to foreign corporations because of the bill. While the EITD Act would not cover all National Oil Companies (NOCs)—state-owned companies that predominately operate solely within 

their home countries and do not compete internationally with U.S. oil companies— 

the vast majority of the internationally competitive companies (including NOCs that 

27 

operate internationally, such as Petrochina, Petrobras, and StatoilHydro) would 

have to report payments, and so a level playing field would ensue for all extractive 

industry companies. Back to our example of Angola, 30 out of the 33 operating oil 

companies in Angola would be subject to disclosure under the bill. Armed with real 

numbers from real oil companies, civil society groups in Angola could finally put 

some muscle in their fight for social services and accountability for the country’s oil 

wealth. 

Transparency is not the silver bullet to solving the resource curse, but it creates 

a critical underlying business environment that makes it more difficult to engage 

in corruption. If all payments are transparent, opaque money transfers will be 

harder to hide, secret bank accounts will be harder to open, and company and government finances will be more open to public scrutiny. 

4. ACCOUNTABILITY: THE FCPA

If transparency creates an important enabling environment for improved resource 

governance, then accountability is the critical next step to make it happen. Going 

back to the supply chain for our gasoline, if revenues for the oil to produce the gasoline went astray, what accountability is there for those funds and the individuals, 

officials, and/or companies involved in those transactions? For example, now that 

Halliburton’s subsidiary has plead guilty of paying $180 million in bribes, what 

accountability is there for Halliburton, what accountability is there for the Nigerian 

officials who took the bribes, and what mechanisms are there to return the stolen 

moneys? What about future such cases elsewhere in Africa and more globally? 

For the first question, Congress created a very important first step in accountability 31 years ago with the passage of the Foreign Corrupt Practices Act (FCPA). 

This law, which makes it illegal for U.S. companies to pay bribes to foreign government officials, is far-reaching. The law affects American and foreign corporations 

alike, as Norwegian oil company Statoil and the British firm Vetco have been found 

guilty of making illegal payments under the law to Iran and Nigeria, respectively. 

FCPA enforcement has stepped up dramatically in recent years, thanks to much 

more rigorous scrutiny by the U.S. Department of Justice and the SEC. The two 

agencies prosecuted a record 38 cases last year, more than double the number of 

prosecutions in 2006 (15 cases).12 This has resulted in a high percentage of convictions, including prison sentences for several former senior executives. An overwhelming 91 percent of the individuals to resolve their charges have plead guilty 

or been convicted.13 This thorough FCPA enforcement amounts to serious corporate 

accountability, and we welcome Congress’s foresight with the FCPA, as well as the 

DOJ and SEC’s skyrocketing efforts in applying the law. However, the FCPA investigation on Equatorial Guinea that was reported on following the Riggs Bank Senate 

investigation has never been followed up, and we urge the enforcement agencies to 

follow up this case. In addition, other countries—particularly our European allies— 

must follow suit and take more robust action to strengthen their corporate accountability frameworks. The OECD Anti-Bribery Convention remains very poorly enforced, particularly in the wake of the multimillion dollar BAE bribery scandal in 

the U.K.14 We urge Congress to work with the new administration to work with the 

U.K. and other European countries to clean up their acts. 

5. ACCOUNTABILITY II: A CRITICAL NEW OPPORTUNITY FOR CONGRESS AND THE

ADMINISTRATION THROUGH ANTI-KLEPTOCRACY POLICIES

But what about the other key element of accountability—holding government officials to account for stolen funds? Unless these two tools work in tandem, there will 

still be enormous incentives for continued corruption relating to natural resources 

in Africa and elsewhere. 

Unfortunately, accountability of government officials still needs to go further. Officials from Equatorial Guinea to Kazakhstan to Angola who have been named in 

prosecutions relating to the siphoning off of funds from their country’s oil wealth 

remain in office today. 

The good news is that some groundwork has been laid to begin changing this culture of impunity, and that the U.S. Congress and the administration can be at the 

forefront of this global fight. The bad news is that there is a very long way to go. 

Last year for the first time ever, Congress passed an Anti-Kleptocracy provision in 

the Consolidated Appropriations Act (section 699L), thanks to an amendment by 

Senator Leahy. This provision denies entry to the U.S. to all foreign government 

officials whom the Secretary of State believes there to be credible evidence that they 

were involved in corruption relating to natural resources. 

28 

This builds on President Bush’s announcement of a ‘‘National Strategy to Internationalize Efforts against Kleptocracy’’ in August 2006, and Presidential Proclamation 7750 before that. The President stated in 2006 that: 

High-level corruption by senior government officials, or kleptocracy, is a 

grave and corrosive abuse of power and represents the most invidious type 

of public corruption. It impedes our efforts to promote freedom and democracy, end poverty, and combat international crime and terrorism. Promoting 

transparent, accountable governance is a critical component of our freedom 

agenda. Today, I am announcing a new element in my administration’s plan 

to fight kleptocracy . . . which sets forth a framework to deter, prevent, 

and address high-level, public corruption. It identifies critical tools to detect 

and prosecute corrupt officials around the world, so that the promise of economic assistance and growth reaches the people.15

Despite worthy efforts of some dedicated bureaus, overall enforcement of this 

agenda has been very limited. A small number of cases were brought under Proclamation 7750, and while some dozen cases reportedly are in the pipeline, it is our 

understanding that no cases for the Anti-Kleptocracy provision have been brought 

forward to date since the provision’s passage 9 months ago. Funding and staffing 

constraints for the enforcement agencies are a serious consideration here. But more 

is at stake. According to numerous informed sources, some U.S. ambassadors are 

still shocked at the idea that corruption and kleptocracy should be raised with foreign governments. This was not on the U.S. foreign policy agenda for years, and 

these ambassadors do not understand why it should be. We would urge Congress 

to work with the administration to change this culture as a matter of priority. 

Congress currently has an important window of opportunity to strengthen the 

accountability agenda on natural resources. A new Anti-Kleptocracy provision in the 

draft Senate version of the State and Foreign Operations bill, section 744, adds to 

the visa ban with an asset freeze on foreign officials found to be engaging in corruption. 

From my many years of working on this issue, this provision, if implemented 

properly, has the potential to have a very wide-ranging impact on resource-related 

corruption in Africa and elsewhere. Leaders involved in corruption do not want to 

spend their money in Kinshasa or Luanda, they want to come to Fifth Avenue, put 

their money in U.S. or European banks, and buy luxury cars to drive up the California coast. 

For example, the President of the Republic of Congo-Brazzaville and his 50-person 

entourage that included several members of his family and his wife’s hairdresser, 

spent $295,000 during an 8-night stay in New York’s Waldorf-Astoria Hotel, including $13,000 in room service and bottles of Cristal champagne.16 Interestingly, this 

spending spree took place exactly 1 month after the World Bank and IMF granted 

the country debt relief under the Highly Indebted Poor Countries Initiative (HIPC) 

for being too poor to pay off its international debts, and the hotel bill totaled more 

than the U.K.’s total humanitarian aid to the Republic of Congo for the same year.17

The Republic of Congo is another important African oil exporting country to the 

U.S., producing 247,000 barrels of oil per day.18 Last year, Global Witness published 

documents that showed that the President’s son, Denis Christel Sassou-Nguesso, 

paid off personal credit card bills for Louis Vuitton and Christian Dior luxury items 

totaling several hundred thousand dollars with funds from his own shell companies. 

These funds appear to have derived from the proceeds of the state oil marketing 

company, Cotrade, which Mr. Christel heads.19

In other words, if an Anti-Kleptocracy provision with a travel ban and asset freeze 

becomes law and is as rigorously enforced as the FCPA, it will create a serious disincentive for corruption among African and other foreign government officials. Just 

as we use all the financial and diplomatic tools available to us for antiterrorism 

efforts, we must equally use all foreign policy instruments in the fight against corruption. I urge Congress to pass section 744 of the Appropriations bill and to provide additional funding to operationalize the visa ban and asset provisions to the 

enforcement agencies. 

Furthermore, the Regional Bureaus of the State Department should thoroughly 

sensitize U.S. ambassadors on the Anti-Kleptocracy strategy and Appropriations 

provisions. 

6. CONCLUSION

As I conclude, Mr. Chairman, let me go back to the gas pump here in the U.S. 

We now know that nearly a quarter of the imported oil that goes into the gasoline 

that goes into our cars comes from Africa, and the road that that oil travels takes 

29 

us through secret financial payments, financing of ill-gotten mansions in Malibu and 

luxurious hotel bills in New York, bribes paid by American and foreign companies, 

and very little improvement in the day-to-day lives of most Africans. 

In sum, we are still far from eradicating the disease known as the ‘‘resource 

curse’’ in Africa. But there is now growing attention to this issue, from your holding 

this hearing today and a related hearing chaired by Senator Durbin down the hall 

to Bob Zoellick’s new initiatives at the World Bank. 

But more importantly, Mr. Chairman, Congress now has two critical legislative 

opportunities—one on transparency and the other on accountability—to make a real 

impact on reducing incentives for natural resource corruption. The EITD Act and 

the Anti-Kleptocracy provision are the most serious pieces of legislation I have seen 

on this issue in over a decade. These initiatives will not only help Africans but will 

benefit U.S. energy security through better governance in oil-rich countries. The 

next time we stand at the gas pump, let us not forget where that gas comes from 

and what we can do to change the corruption that accompanies it. 

———————— 1 Energy Information Administration statistics on U.S. oil imports from 2007. Available at 

http://tonto.eia.doe.gov/dnav/pet/petlmovelnetilalep00lIMNlmbblpdla.htm. 2 Angola produced 1.9 million barrels of crude oil per day in June 2008, ahead of Nigeria’s 

1.74 million. In terms of U.S. imports of crude oil, Angola totaled 636,000 barrels, while Kuwait 

stood at 179,000 barrels, Russia was at 228,000 barrels, and Colombia exported 177,000 barrels. 

‘‘Angolan Oil Exports Expected To Rise 14% in October,’’ African Oil Journal, August 25, 2008. 

Available at http://www.africanoiljournal.com/08-25-2008langola.htm. For U.S. oil import statistics, see U.S. Energy Information Administration, http://www.eia.doe.gov/pub/oillgas/petroleum/datalpublications/companyllevellimports/current/import.html. 3Total international aid was $43 billion. OECD Statistical Data, available at www.oecd.org. 

4OPEC Revenues Fact Sheet, U.S. Energy Information Administration, 2008. Available at 

http://www.eia.doe.gov/emeu/cabs/OPEClRevenues/Factsheet.html; the IMF estimates that the 

Angola’s GDP grew 21.130 percent in 2007. IMF World Economic Outlook Database. Available 

at www.imf.org. 5 ‘‘Angola’s Poor Left Out of Oil Bonanza,’’ AFP. September 3, 2008. Available at http:// 

afp.google.com/article/ALeqM5hA8pYy2PEMsj5tOj4lpuR7BgWVuQ. 6This is 184 out of 1,000. CIA World Factbook, June 2007: https://www.cia.gov/library/publications/the-world-factbook/index.html. 7That spending totaled $4.27 bn. ‘‘Time for Transparency,’’ Global Witness, March 25, 2004: 

http://www.globalwitness.org/mediallibraryldetail.php/115/en/timelforltransparency. 8 ‘‘Halliburton Ex-Official Pleads Guilty in Bribe Case,’’ Wall Street Journal, September 4, 

2008. 9 In 2006, Equatorial Guinea kept $2.099 billion of its government revenues in private banks 

abroad, and in 2007 the IMF estimates that this figure jumped to $2.893 billion. IMF Article 

IV Consultation Staff report, May 2008. Available at https://www.imf.org/external/pubs/ft/scr/ 

2008/cr08156.pdf, p. 33. 10Global Witness, ‘‘African Minister Buys Multi-Million Dollar California Mansion,’’ 8 November 2006, available at http://www.globalwitness.org/mediallibraryldetail.php/468/en/africanl 

ministerlbuyslmultilmillionldollarlcalifor. 11Ken Silverstein, ‘‘The Arms Dealer Next Door,’’ In These Times, December 2001. Available 

at http://www.inthesetimes.com/issue/26/04/feature4.shtml. 12Gibson, Dunn, and Crutcher LLP, ‘‘2008 Mid-Year FCPA Update.’’ Available at http:// 

www.gibsondunn.com/Publications/Pages/2008Mid-YearFCPAUpdate.aspx. 13 Ibid. 14http://www.iht.com/articles/2008/07/30/business/30bae.php. 15 ‘‘President’s Statement on Kleptocracy,’’ August 10, 2006. Available at http:// 

www.whitehouse.gov/news/releases/2006/08/20060810.html. 16http://www.timesonline.co.uk/tol/news/world/article729928.ece. 17 Ibid. 18This was in 2006. Energy Information Administration data for Congo (Brazzaville), available at http://tonto.eia.doe.gov/country/countrylenergyldata.cfm?fips=CF. 19Global Witness, ‘‘Congo: Is President’s Son Paying for Designer Shopping Sprees With 

Country’s Oil Money?’’ Available at www.globalwitness.org. 

Senator FEINGOLD. Thank you, Mr. Taylor, and I appreciate your 

highlighting Angola. I was first basically exposed to Africa in 

Angola in 1994, and in particular this issue, and returned again in 

1999. We have this tendency, because we have so many difficulties 

with our situation domestically and internationally, to say, well, 

Angola’s getting better, and then you don’t apply the kinds of tests 

and strength that you have to. 

I want to assure you that I as chairman of this committee will 

continue to focus in particular on Angola because of my longstanding concern about the resource problems there. 

30 

Thank you. 

Mr. Goldwyn. 

STATEMENT OF DAVID GOLDWYN, PRESIDENT, GOLDWYN 

INTERNATIONAL STRATEGIES, WASHINGTON, DC 

Mr. GOLDWYN. Thank you, Mr. Chairman, members of the committee, for holding this hearing. 

In my view there has been some real important progress on the 

resource curse over the last 5 years, but there have been major 

changes in Africa as well in the energy sector and our policy hasn’t 

kept up with it. The reality is that, despite this progress, we really 

haven’t made much of a dent in this problem, and the United 

States in particular has not been a player in this issue, not a material player, and I think we need to get ourselves organized and 

deploy resources in a different way, because we can make a 

difference. 

It’s worth noting the progress because when you work this long 

on something and there’s been progress you want to note it. EITI 

has gone from being a British initiative to being internationalized. 

Twenty-three countries have stood up to be graded—some may 

pass and some may fail. That’s real progress. 

On the IMF side, they have now mainstreamed fiscal responsibility, fiscal monitoring, into their doctrine. They’re giving a lot of 

countries help by helping the finance ministries learn how to manage the sector. They’re trying to spy on their own national oil companies so they can figure out where the money is. That’s progress. 

The World Bank is giving technical assistance in this area and 

EITI Plus Plus—I think they’re coming up with a different name— 

is going to help countries look at how the sector is managed. That’s 

very important. 

International oil companies have figured out that transparency is 

a way they can have a level playing field and they can enhance 

their reputations by showing they’re not the ones with the hand in 

the till. For some national oil companies, they’ve learned that 

transparency pays. Particularly in North Africa, they’re using 

tenders and things like that. They find out they can make an incredible amount of money by being transparent. 

That’s all great, but in terms of poverty reduction we really 

haven’t made much of a dent, and there are a lot of new challenges. The first one is political will, and that is really critical. 

Even in Nigeria, where I helped lead a very extensive effort to 

monitor physical and financial and the process of the business, 

without government buy-in, without government leadership, you 

really can’t solve problems, you can’t make progress. That’s the biggest challenge. 

Capacity. A lot of governments that are now doing exploration 

don’t have the ability to negotiate the deals, much less manage the 

money. The number of countries has skyrocketed. Every country in 

Africa with a coastline has exploration going on right now. 

The focus really should be on business operations. I’m an EITI 

validator and I hope to validate some countries soon. EITI is important, but the real corruption is not hands in the till for the most 

part. The real corruption in the industry is how the business is 

done, who gets the acreage, how do you trade oil for product. It’s 

31 

how it’s operated. So a reconciliation of dollars and cents is important for spreading sunshine and you need to do it, but it doesn’t 

get at the heart of the problem. So we need to have a much more 

expansive view of what’s going on. 

Certainly in terms of social investment, the expenditure side, 

we’re really not doing enough as a U.S. Government, as others, to 

figure out once you know how much money is there, how is it being 

spent; is it being spent in the right sector. 

For the U.S., we have not kept up with the changes in the market in a lot of different ways. Part of this—Senator Feingold, in 

your Georgetown speech you looked at this—there are crises in 

other areas. Diplomats get drawn away. Iraq, things like that. The 

Africa Bureau is a crisis bureau. They have five crises on their 

hands and that’s what they do. They don’t build relationships. 

But the United States has lost influence in Africa in a dramatic 

way. We have first disengaged diplomatically. Eight years ago we 

had a United States-Nigeria working group, we had a United 

States-Africa energy ministers partnership, we had a dialog with 

Angola. We used to have a relationship with these people to talk 

about the things we disagreed on. Those were all dismantled. There 

are governments there we hardly even talk to except to scold them. 

So we only have a modest diplomatic presence in northern Nigeria and places like that, so we’re not really on the ground. And we 

spend a lot of money in Africa, mostly on health, but a minuscule 

amount in governance, and particularly on transparency. In our 

system it’s up to the regional or the country manager in every 

country to decide how they want to spend the money. It’s not driven from the center. So there’s no coordination, no focus. Security 

is a problem now. And the Niger Delta. The Niger Delta is important for strategic reasons, but primarily if we don’t deal with Nigeria, which is the biggest case there, then we’re not making a material difference on transparency. 

So I think what the United States needs to do is get organized 

in a different way. First we need a policy, in which security, stability, and energy stability are all part of one whole. We need 

resources. We need somebody on the seventh floor of the State 

Department whose job it is to lead this policy. We need to have diplomats and we need to have untied technical assistance for things 

like EITI. 

We need respectful engagement with these countries. Our people 

need to go to those countries and talk to them, not only about what 

we’re interested in, but what they’re interested in, because if we 

talk to them about development, about power generation, about 

water, then they have a stake in the relationship. We’re not just 

going over there to tell them how we think they ought to do their 

business, which requires diplomatic resources. 

We need to integrate security into the political calculus, because 

security is what a lot of these countries are interested in. Not giving weapons without any conditions about human rights, but if we 

talk to them about their security, improving Coast Guards, protecting assets, we’re having a conversation about something in 

which they have a stake. 

In the Niger Delta, we have not been materially engaged, not 

effectively engaged. We have to be humble. It is incredibly complex. 

32 

1GIS calculation based on EIA Prices for Cushing, OK, WTI Spot Prices FOB. (Dollars per 

Barrel) 

But the fact is if we don’t help quietly on how they can do the development, and at a high level on doing the diplomacy, we’re not 

making much of a difference. We need to play well with others on 

assistance. The U.K. spends a lot of money. We need to work together. And we need to engage China and the EU on their issues. 

We can only do so much with policy papers and State Department wiring diagrams. The main thing we need is leadership, people in positions who are willing to make a difference. In this case 

I thank the committee for your leadership on this. Your oversight 

makes a difference to the executive branch and hopefully with your 

continued interest in this we’ll have a policy which can get some 

results. 

Thank you. 

[The prepared statement of Mr. Goldwyn follows:] 

PREPARED STATEMENT OF DAVID L. GOLDWYN, PRESIDENT, GOLDWYN INTERNATIONAL

STRATEGIES, WASHINGTON, DC 

THE CHALLENGE TO U.S. INFLUENCE

Chairman and members of the committee, it is an honor to speak with you today 

about Arica’s extractive industries in a time of record commodity prices. My testimony derives from the energy chapter of an upcoming book, to be titled ‘‘Africa Policy in the George W. Bush Years: Critical Choices for the Next Administration.’’ The 

book will be published by the Center for Strategic and International Studies (CSIS) 

in January 2009. My own perspective derives from my experience serving the U.S. 

Government in the State and Energy Departments, as a leader in the extractive industry transparency movement, and as a senior associate in the CSIS energy program. Today, I will discuss the implications of the changes in the global energy market for Africa and the U.S., Africa’s role in U.S. energy security, current trends on 

the continent, challenges for the new administration, and recommendations for U.S. 

policy. 

Changes in the Global Energy Market 

There have been major changes in the global energy market since 2001—a spike 

in global demand, led by developing Asia; a 340 percent 1 increase in nominal prices, 

a vast increase in the number of African countries undergoing exploration and development, and an increase in competition for access from China and India, with 

help in many cases from their governments. High prices have led to resource nationalism in some countries with reduced access and harsher terms for the access that 

remains. Exploration has moved offshore, which has moved investment away from 

land-based risk but left thinly protected offshore platforms exposed to maritime risk. 

Angola has grown dramatically as a producer and joined OPEC. Nigeria’s production 

has risen, but it has also produced one of the global economy’s greatest supply 

shocks: As of fall 2008 between 500,000 and 800,000 barrels per day of oil have been 

shut in at times due to violence in the Niger Delta. Equatorial Guinea has become 

a major oil and methanol producer and is a significant LNG provider to the Atlantic 

Basin market. Despite conflict and sanctions, Sudan’s production has grown since 

2001. Chad has grown as well. 

These dramatic changes in the global energy market have been associated with 

the diminution of U.S. influence in the region, and with that loss, an erosion in the 

ability of the U.S. to promote good governance, conflict resolution, environmental 

standards and reduced corruption. While U.S. influence has diminished, there is 

now acceptance in principle by companies and host governments that good governance, respect for human rights and transparency are the cornerstones of political 

stability, a level playing field for commercial competition and long-term security of 

investment and energy supply. The World Bank has begun to engage countries systematically on reforming the process of energy production—how acreage is allocated, 

how products are sold, how refineries are supplied—both to help them preserve 

value and reduce corruption. The United States which at one time led the promotion 

of voluntary standards on environmental protection and respect for human rights 

in security protection, has become in recent years a marginal player in this interVerDate Nov 24 2008 20:02 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 H:\DOCS\AFRICA.TXT BETTY
33 

2 EIA World Production of Crude Oil, NGPL, and Other Liquids and Refinery Processing 

Gains, Most Recent Annual Estimates 1980–2007, Posted August 22, 2008. 3PFC Energy estimation. 

4PFC Energy estimation. 

national promotion of good governance and transparency in the extractive industries. 

On critical energy sector issues, U.S. engagement with the continent has been 

drastically reduced over the past 8 years. A continental U.S.-Africa Energy Ministers Partnership has languished. Binational commissions and policy dialogues with 

Angola and Nigeria lapsed. Engagement on the Niger Delta has been episodic and 

ineffectual. Engagement of China and Europe—the other two largest investors in 

and consumers of energy in Africa—on the impact of instability and insecurity on 

global energy markets has been negligible. The U.S. did not contribute to the international Extractive Industry Transparency Initiative (EITI) until forced to do so by 

a 2007 congressional earmark. 

As a result, the risks of instability, which were foreseen in 2001 and foreseeable 

for new energy producers, have not been adequately addressed. The conflict in the 

Niger Delta has grown in intensity and lethality. Angola does not engage with the 

U.S. on governance and transparency. Contact with Algeria, Libya, Chad, and Equatorial Guinea, which was negligible or nonexistent in early 2001, has advanced significantly, but serious engagement on bilateral or energy issues is still very modest 

for countries which comprise four of the top five suppliers of energy on the African 

Continent. The potential risk to Africa’s growing list of new energy producers of 

managing potentially enormous revenue flows has not yet been considered. There 

is at present no policy mechanism structure for the United States to engage Africa’s 

leading or emerging energy producers in a systematic way. 

If the U.S. sees stability in Africa as a national security priority for multiple reasons—reduction of conflict, counterterrorism, combating grand crime, eradicating 

disease, and promoting economic prosperity in Africa and at home—then it must 

recognize the need for a strategic energy security policy in Africa. The challenge for 

a new administration is to draw together the many agencies of the U.S. Government 

that engage on energy-related issues (State, Energy, Commerce, TDA, USAID, 

Defense, Treasury) behind a coherent, cohesive, and strategic policy and create a 

central bureaucratic locus of responsibility capable of identifying the connection between mismanaged oil and gas revenues and instability. This policy must identify 

U.S. energy security interests in Africa, take account of the emerging trends in the 

region and the role of other actors, consider what policies have and have not worked 

over the past 8 years and earlier, acknowledge the serious challenges to U.S. interests that loom ahead, and deploy the human and financial resources to meet this 

challenge. 

II. Africa’s Role in U.S. Energy Security 

Africa plays a strategic role in meeting global and U.S. energy security. African 

producers supply light sweet crude to U.S., European, and Asian markets. Africa’s 

role in energy security has risen dramatically since 2001. Sub-Saharan Africa’s 

share of global oil production has risen from 5 percent in 2001 to 7 percent 2 in 

2007, while production in the North Sea and other OECD areas has declined. This 

growth has come from the dramatic increase in offshore, especially deepwater, oil 

production. In sub-Saharan Africa today, the key oil producers are Nigeria, Angola, 

Equatorial Guinea, Gabon and Congo Brazzaville. Sub-Saharan Africa holds 6 percent of global reserves and 3 percent 3 of global gas reserves. By 2020, 95 percent 

of regional oil production will be offshore, and 85 percent of this production will 

come from Angola and Nigeria.4 Of the 12 top producers of oil on the African Continent, four are members of OPEC (Algeria, Angola, Libya, and Nigeria), but all welcome foreign investment. 

34 

5 EIA Petroleum Navigator, Cushing, OK, WTI Spot Price (FOB) http://tonto.eia.doe.gov/dnav/ 

pet/hist/rwtcm.htm. 

Africa’s share of U.S. imports of oil has risen from 15 percent in 2001 to 24 percent in 2007, providing a key source of diversification of U.S. imports. Nineteen percent of U.S. oil imports from Africa came from sub-Saharan countries. U.S. imports 

of natural gas from Africa have increased nine fold since 2000, from 13 tcf to 113 

tcf. The vast majority of U.S. LNG shipments from Sub-Saharan Africa are from 

Nigeria, while most imports from North Africa originate from Egypt and Algeria. 

III. Emergent Trends on the Continent 

The global oil market has undergone dramatic changes in the past 8 years, and 

the impact in Africa has been significant. The rise in oil prices from an average of 

$26 per barrel WTI in 2001 to an average of $114 a barrel for the first 7 months 

of 2008 5 has changed the terms of producing oil. There has been a reduction in the 

willingness of many global producers to expand production. Governments of producing countries have increased demand for majority control of operations or a 

larger share of profits and have come to expect higher earnings from resource rents. 

Escalated prices have also led to a rush of new market entrants competing for access as well as a dramatic increase in the cost of production as demand for steel 

rigs and skilled workers has risen steeply. 

Africa has been impacted positively and negatively by the changes in the market. 

The amount of investment and profile of investors has expanded, revenue has increased, the number of producers has grown, and the continent’s infrastructure for 

transporting energy has expanded. New international voluntary standards for addressing revenue management, security, and environmental protection have evolved. 

But there has also been a rise in expectations of the transformation oil wealth 

should bring that has not been met, a failure to address the security implications 

of increasingly offshore oil and gas production, and a real challenge for host governVerDate Nov 24 2008 20:02 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 H:\DOCS\AFRICA.TXT BETTY

gold1.eps gold2.eps
35 

6 UNCTAD 2007 Report/Olsen. 

7 IEA World Energy Outlook 2006, p. 77. 

ments and competitors in assessing how to view the nonmarket competition of new 

entrants to the market like China and India. 

Rising Investment. In a global market where access is increasingly restricted, 

Africa is a uniquely open market: Nearly 50 percent of African production came 

from international companies 6 (UNCTAD 2007 Report/Olsen). Nearly every country 

in Africa with a coast has licensed some acreage for exploration. While Nigeria and 

Angola, traditional large producers, have grown, new major players have emerged: 

Equatorial Guinea, which produced just 168,000 bpd in 2000, is now the third largest producer in sub-Saharan Africa. Exploration has moved from West Africa to 

East Africa, with new discoveries in Uganda and Tanzania. Exploration is under 

way in Madagascar, and licensing or exploration is being conducted in Mali, Coˆte 

D’Ivoire, Gambia, Guinea, Liberia, Niger, Rwanda, Gambia, and the Puntland region of Somalia. 

Investment levels are rising and moving offshore. According to PFC Energy, 95 

percent of all regional production will be offshore, with 85 percent of total production coming from Nigeria and Angola. Over the next decade firms may invest as 

much as $485 billion in regional exploration and production between 2005 and 

2030.7 Forty-five percent of the gross amount of capital expenditures for deepwater 

oil development worldwide is likely to be spent in West Africa. Gross Deepwater 

Capex expenditure in West Africa between 2008–2015 will exceed that spent in 

Latin America, Gulf of Mexico, North Atlantic and Asia-Pacific. 

Africa’s natural gas sector is positioned to expand in the coming years, particularly through the expansion of liquefied natural gas (LNG) capabilities and facilities. 

Africa has 211 trillion cubic feet (tcf) of natural gas reserves. Investments in LNG 

have been made in Algeria, Libya, Egypt, Equatorial Guinea, Angola, and Nigeria. 

Advancements in LNG will enable the continent to serve as a welcomed alternative 

supplier of gas to Europe, the U.S., and the Asia-Pacific region; as well as to meet 

gas flaring reduction objectives. However, proposed projects are expected to face 

multiple delays due to cost increases; security, social and environmental concerns; 

feedstock uncertainty; rising domestic demand and negotiations over project terms. 

New Investors. As global demand for oil and gas have grown, competition in Africa’s energy sector has expanded from U.S. and European firms to new competitors. 

Africa is no longer the province of major international oil companies; literally hundreds of smaller companies, mostly private, are exploring the new energy frontier 

nations and taking over mature properties. 

The Asian Presence. The presence of Asian. investors and energy companies on the 

continent has risen dramatically, in tandem with rapidly growing demand for oil 

and gas in developing Asia. The major Chinese national oil companies (CNOOC, 

CNPC and Sinopec), Malaysia’s Petronas, and India’s ONGC have all purchased equity shares and bid for new licenses in Africa. On an economic level, fear of Asia’s 

domination of the African energy sector is highly premature. The real concern over 

the rise of Asian NOCs therefore stems from anxiety over a number of their business practices that negatively impact competition and the long-term stability of producing countries. So far, Asian NOCs have placed commercial concerns over humanitarian concerns and have failed to incorporate into the norms of their overseas 

operation the long-term risks of disregarding governance, environmental and human 

rights concerns. These investments have enabled Sudan to grow its production, 

enjoy substantial oil revenues, and withstand robust international pressure to end 

the genocide in Darfur and fulfill its obligations under the North-South peace accords. Western companies are growing distressed at the way Chinese NOCs compete. Their ability to draw on nonmarket tools such as government funds to finance 

acquisitions, and to offer package deals involving construction of roads, soccer stadiums, or railways as a sweetener make competition for acreage unfair from a Western point of view. (From an African point of view, these projects address their own 

lack of administrative capacity.) When companies are able to acquire acreage without a tender that meets international standards, the nascent trend toward enforcing 

these standards in countries like Nigeria and Congo Brazzaville is undermined. 

No Asian NOC yet participates in any of the voluntary standards created by 

Western governments to foster improved governance, consideration of environmental 

impacts, and respect for human rights in oil and gas investments. Moreover, the 

ability of other nations, such as Angola, to decline to participate in those standards 

and maintain opaque financial practices is reinforced. From the perspective of U.S. 

interests, the need for these standards is fundamental to the long-term security of 

these nations, and also to energy security. These concerns should be of much interest to China as they are to the U.S. 

36 

Emergent Risks. With the prospects of enormous investment, production, and revenue come major risks. In oil resource rich countries in Africa, the emerging and 

largely unaddressed risks originate from: Unattainable expectations, rent seeking, 

corruption, the erosion of nascent good governance efforts, the lack of capacity to 

manage such large revenues effectively, security threats to operations, rising resource nationalism and political instability. 

With the promise of high oil and gas revenues comes rising expectations of poverty reduction and prosperity. In frontier countries these expectations are almost 

always unfulfilled, as 8 years or more can elapse between the first exploration 

agreement and a profit return to the overnment when hydrocarbon production commences. In cases like Sao Tome and Principe, where prospects for production 

attracted enormous press attention, one major coup attempt, and robust program of 

bilateral advice on revenue management; actual exploration produced disappointing 

results. The recurrent issues of whether the field will deliver and whether the government will put revenue management measures in place before the revenue comes 

in will evitably surface in Ghana and as well as other frontier states unless these 

issues are properly addressed. 

For established players like Nigeria and Angola, Equatorial Guinea, Gabon and 

Congo Brazzaville, the question is whether the flood of revenues will be put to good 

use, or whether rent-seeking by members of the government will foster corruption 

and kill even nascent efforts to prove governance. In Nigeria, trends are rapidly on 

the downslide. Even in the waning days of the reformist Obasanjo administration, 

which introduced landmark reforms in revenue transparency, procurement, and civil 

service reform, questionable licensing rounds were offered here technically unqualified bidders won access to acreage. Blatant defects in sector management, from the 

failure to meter oil to the failure to measure the match between refinery inputs and 

outputs, were left unaddressed. The Yar’adua government did not constitute the 

NEITI Board, as required by the country’s NEITI law, until January 2008 and it 

has already failed to comply with the legal requirements to audit 2006 and 2007 

extractive industry revenues. The country is in a deep political crisis and the prospects for implementing procurement, transparency, or energy sector reforms are 

negligible. The Niger Delta crisis has become an international crisis, and efforts 

within Nigeria to even strategize a solution are nearly paralyzed. 

Equatorial Guinea is making nascent efforts to constitute an EITI program and 

to obtain outside help for identifying social investment projects. It has also been cooperating with the IMF and publishing results of its annual IMF article IV reports. 

Time will tell whether Equatorial Guinea will move from candidate to compliant 

status under EITI, whether social investment projects will be implemented, and if 

efforts to foster a civil society in Equatorial Guinea capable of participating in governance efforts will evolve. U.S. industry, NGOs, and the World Bank are all 

engaged. 

Angola is a mixed case. While Angola does not participate in voluntary initiatives, 

driven by its motivation to soon access international capital markets, Sonangol publishes its production with regularity. The Angolan Finance Ministry has accepted a 

program with the IMF to monitor and manage oil revenues, and Angola’s tender 

system is viewed as transparent and fair. But the Angolan model raises concerns 

for future caution. As Angola grows its own private sector with companies who will 

create value in Angola by providing oil sector services and other related enterprises, 

there are reports that the companies themselves are owned by current members of 

the Angolan Government or Sonangol, raising concerns for U.S. companies under 

the Foreign Corrupt Practices Act. 

Security risks are on the rise as well. The most acute and obvious is Nigeria. The 

continued failure of Nigerian governments to effectively address the Niger Delta crisis has led to an unprecedented level of lethality and disruption. Attacks on offshore 

facilities, thought to be beyond the range of the Niger Delta militants, took place 

in June 2008. Kidnappings and murder continue. Cameroon and Equatorial Guinea 

both suffered bank heists liked to Niger Delta crime organizations and EG faced at 

least three coup attempts in 5 years, including one major foiled attempt led by 

Simon Mann and Mark Thatcher. While investment is moving offshore, none of the 

littoral states have effective navies or coast guards with which they can even identify, much less deter or repel pirates or attackers. 

Rising resource nationalism also raises risks that investment levels will be below 

expectations and revenues will fall as a result. While the nation’s motives are understandable, they can produce unwelcome results. In Nigeria attempts to define 

local content by who owns a local service company, rather than how much value is 

created locally, have simply led to shell companies of mysterious ownership who 

transfer their service obligations to other companies or simply do not perform the 

work. 

37 

The broader risk is the instability that the confluence of the above factors can 

produce. Unprecedented oil and gas revenues across the continent have not yet produced the investments in physical capital—roads, power stations, schools and hospitals—or human capital—primary and secondary education, vocational training, 

enterprise management, and development of civil society—that will be required for 

social peace. Some countries, like Libya, Equatorial Guinea, and Ghana, are at the 

beginning of major investment programs. Their progress will be measured soon. But 

more mature producers, like Nigeria, Algeria, Angola, Congo, Gabon and Chad, face 

impatient populations with expectations of better results. This opens the door to 

external adventurism, as we now see with al-Qaeda in the Maghreb in Algeria, and 

internal conflict as we have seen in Chad, Mauritania, and Nigeria. 

IV. Challenges for a New Administration 

A new administration will face several challenges in the Africa energy space: The 

crisis of corruption in Nigeria, diminished U.S. influence on the development path 

of current and emerging producing countries, the need to secure offshore investments and the competition over investment values and standards. 

Nigeria. The most critical challenge to U.S. policy will be how to engage Nigeria. 

Nigeria’s size, its role as an energy producer of global stature, its cultural ties and 

its potential to be the economic engine of West Africa should put it at the top tier 

of U.S. foreign policy priorities. Multiple issues must be addressed. The Niger Delta 

conflict poses physical risk to U.S. and Nigerian citizens in the Delta. The militants 

are well armed and are reportedly exporting weapons and crime to neighboring 

countries including Coˆte D’Ivoire, Cameroon, and Equatorial Guinea. If Nigeria’s 

shut-in oil production were restored, it could add up to 650,000 barrels per day of 

oil to the global market, dropping prices nearly $17 on its own. Nigeria could be 

a major source of LNG supply to Europe, Asia, and the U.S. But unaddressed, the 

Niger Delta conflict will lead to sustained shut-in of onshore production. The deep 

corruption in Nigeria overall must be addressed as well. Investment will fall in 

Nigeria as it appears that every aspect of the energy procurement process, from the 

leasing of acreage, to local content mandates, to the sale of crude for product risks 

engagement with Nigerian Government officials. 

Declining U.S. Influence. If the U.S. is to influence the development path of current producers like Angola, Chad, Nigeria, Equatorial Guinea, and emerging producers such as Ghana and Madagascar, we must have a respected voice in those 

countries. The U.S. has left the field in many of these countries entirely, and in 

countries where we do engage, we do not engage them on their own economic 

agenda. We will not be heard on the issues of investing resource revenues in physical and human capital or avoiding the management of overinflating economies if 

we do not have relationships of respect with the countries we wish to influence. U.S. 

advocacy for access to acreage, conducted at the head-of-state level by most U.S. 

competitors but rarely a priority for U.S. administrations, is best affected not by a 

demand for access, but by a relationship of mutuality between the U.S. and the host 

country. Traditionally, the U.S. and international institutions have effectively used 

their financial clout as leverage to compel developing countries to implement policies 

aimed at sustainability and stability. But new centers of wealth in Asia and the 

Middle East combined with unprecedented windfall profits in producing countries 

have diminished the influence of loans and foreign aid. The U.S. will need a more 

nuanced approach to engagement since resource rich countries now have ample 

funding on their own or through unconditional loans from China. 

Security of the Offshore. If 95 percent of all energy production in West Africa will 

be offshore by 2010, there will be a need both for the U.S. to monitor international 

waters, and for countries to have the wherewithal to see who is in their water, 

interdict pirates and criminals, and deter attacks on facilities to protect the lives 

of workers. An investment both of time and revenues will be required to attract 

those countries that will create security forces with respect for human rights. 

The Competition for Values. The U.S. will compete with China, and possibly Russia, for influence in Africa. U.S. companies will come with a package of values 

attached to their operations: Compliance with anticorruption laws, participation in 

voluntary standards on human rights security and transparency, and investment in 

health, safety, and environmental practice. Their competition may not have these 

values or these conditions attached to their investment. Indeed, the great challenge 

that China poses to U.S. and European investment in Africa is not domination of 

acreage (their share remains minimal) but the refusal so far to participate in international standards, which erodes the incorporation of these standards into host 

country practice. Russia has now made its bid for access to Nigeria’s gas to further 

increase its dominance of Europe’s gas supply. Protection of these values will 

require engaging China, Malaysia, Russia, and others on both the need for these 

38 

standards and their contribution to global energy security. The U.S. will need to 

also engage Africa on these issues and make it clear that it is a priority of the U.S. 

Government to advocate these values and, where it is welcome, to provide assistance 

to countries adopting and implementing these standards. 

V. Recommendations 

Our preliminary recommendations for addressing these challenges are: 

1. Promulgate a Policy Decision Directive on African energy security. There must 

be a policy directive from the President that explicates U.S. interests and priorities 

and directs agencies to coordinate and support it. This policy must include the role 

of diplomacy, security assistance, governance and transparency promotion, human 

rights, and development assistance. 

2. Provide White House leadership. The coordination of energy security policy 

must come from the White House to muster the disparate agencies behind a policy. 

While this person might usefully coordinate energy security policy in other regions 

as well, there must be a person with the rank, status, and mission to ensure the 

implementation of the President’s policy. In addition, most African energy producers 

either manage or reform energy policy at the head-of-state level. There must be a 

counterpart level of engagement from the U.S. 

3. Apply State Department diplomatic resources to energy security. The State 

Department must play a key role in engaging countries both on access and reform. 

While major companies do not always request advocacy from the U.S. Government, 

in today’s market, heads of state of their competitors advocate vigorously. Small and 

mid-size U.S. companies would welcome a restoration of the U.S. Government’s role 

as commercial advocate where appropriate. Engagement on reform must be at high 

levels and with multiple ministries. U.S. diplomatic resources must be applied at 

both a senior level, to engage other ministers, and at the bureau level, to provide 

programmatic support. The U.S. needs more diplomats on the ground in developing 

countries, more eyes and ears in the producing regions, and more high-level diplomats focused on energy issues. Historically the State Department denotes this priority by appointment of a special ambassador, as it has for the Caspian region, or 

by directing an Under Secretary (in this case the Under Secretary of State for Economic Affairs) to place a priority on promotion of a policy. This kind of issue is better addressed by recruitment of officials who have the mission to promote the policy 

than by changes in the State Department’s organizational structure, but with respect to energy security policy one of these options should be considered. In addition, the Department needs to collect more data on energy developments, as well 

as political developments, in producing areas. 

4. Give governance and transparency policy a bureaucratic home. At this time 

there is no office with dedicated responsibility for the promotion of good governance 

and transparency in energy producing countries. The Democracy and Human Rights 

bureau owns some policies, such as the voluntary principles on energy and security. 

The Economics and Business Bureau has at times staffed the EITI at a junior level, 

but so has the Policy Planning Office. In the sprit of integrating economic and governance issues rather than stovepiping them, we should place this responsibility in 

the Economics and Business Bureau. 

5. Engage Africa on its own energy and economic agenda, not just ours. The best 

way to enhance U.S. influence with Africa’s energy producers, and to promote U.S. 

interests in both access and governance, is to engage governments on what interests 

them, not just what interests us. Most producers want to create jobs, promote economic development and enjoy a respectful, mutual relationship with the U.S. Nearly 

every country is trying to find ways to increase power generation and distribution 

in an affordable, sustainable way. Many of them struggle with ways to target subsidies for fuel or power for the poor rather than the entire economy. The U.S. could 

use a range of tools to engage different countries, depending on our interests and 

their needs. These could include reviving the U.S. Africa Energy Ministers Partnership; reviving or creating bilateral multiagency economic working groups with Nigeria, Angola, Algeria, and Libya; and creating an electric power policy partnership— 

‘‘Power for the People’’—to engage countries on power pooling and smart policies. 

The prudent use of development aid to provide technical assistance to those who 

seek help in redesigning their procurement systems, or auditing their national and 

international oil companies, or designing systems for metering production, should be 

helped. 

6. Focus development and technical assistance on governance. U.S. investment in 

governance in general and energy governance in particular is modest. USAID, in coordination with the World Bank and other development agencies, should be directed, 

with a $500 million fund to back its commitments, to support EITI in countries 

which are candidates, to consider assistance to countries interested in reforming the 

39 

governance of their energy sector from procurement to local content to regulation, 

and to support civil society groups in general, in a way that helps these groups and 

their media understand the extractive industries and participate in indigenous 

reform efforts. 

7. Sustain efforts to promote maritime security. Led by NAVEUR, one of the most 

successful efforts of the Bush administration has been the engagement of African 

nations on enhancing their own capacity to identify ships in their waters and police 

them to protect their fisheries, deter crime, and protect investment in their waters. 

This engagement has been tempered by a requirement that countries be willing to 

engage on NAVEUR’s terms, which call for improvement of policy, not unconditioned security assistance. With the advent of Africom, this effort can be the key 

to securing energy investment abroad. If Nigeria reaches a point where it will seriously engage on this issue, it could lead to the containment of oil bunkering as well. 

8. Procure a National Intelligence Estimate on African Energy Security. U.S. policymakers rarely see the linkages between energy production, instability, conflict 

and stability of supply. An NIE of African energy would identify these linkages and 

provide a common understanding of the potential for conflict that rising prices (or 

sharply falling prices) and new exploration might pose for the continent. 

9. Engage Europe and Asia on Africa issues. Europe and Asia have as great a 

stake in African development, stability, and energy security as the U.S. does. We 

need to revive conversations on these issues in general through a transatlantic dialogue and high level U.S.-China and Asia-Pacific cooperation. 

10. Engage on the Niger Delta. The U.S., EU, and China must engage Nigeria on 

the crisis in the Delta. The key to the crisis is the lack of political legitimacy of the 

leadership in Nigeria itself. But as friends and partners the U.S. must make clear 

that the conflict has become an internal as well as an international crisis. Crime 

is spreading. Nigeria’s democracy is under attack. Money is not the core of the problem, as there are ample funds at the federal and state level for a development plan. 

But without a serious political dialogue, perhaps supported quietly by external partners, no progress will be made. No serious political progress is possible unless corruption is addressed. To date, Nigeria has taken greater steps on transparency and 

reform than any other African nation. But if it does not fulfill its nascent commitments, efforts to get smaller countries to adhere to stricter standards are destined 

to fail. 

VI. Conclusion 

Mr. Chairman, as you can see from this lengthy analysis, there is much to be 

done regarding U.S. energy policy toward producing states in Africa and to address 

the problem of the resource curse. It will require new approaches to energy and foreign policy. It will require fresh policy approaches, money, and creative diplomacy. 

But more than anything it will require leadership. As a citizen, I thank the committee for its leadership on this critical issue. 

Senator FEINGOLD. Mr. Goldwyn, thank you for your excellent 

testimony. 

Before I turn to Professor Collier, I try to be careful not to repeat 

old war stories from foreign trips, but when I was in President Dos 

Santos’ office in 1994, I talked to him about his rating on the 

Transparency International index, which of course was abysmal. 

He listened and I thought that would be the end of that. I came 

back 5 years later. He brought up to me—somehow they had done 

the job and kept the notes—that they had gone up 6 points. It’s 

still pretty bad. But think about the power, that that’s the one 

thing he wanted to impress upon me, whether people believe that 

these indexes really work and so on. I was really struck that EITI 

presents a very dramatic opportunity to engage countries in trying 

to get their reputation to improve. So I thank you for that. 

Professor, it’s a delight to have you here. You may proceed. 

40 

STATEMENT OF PAUL COLLIER, DIRECTOR, CENTER FOR THE 

STUDY OF AFRICAN ECONOMIES, UNVERSITY OF OXFORD, 

OXFORD, UNITED KINGDOM 

Mr. COLLIER. Thank you very much for inviting me. 

To state the obvious, the present commodity boom is the biggest 

opportunity for transformative development that parts of Africa 

have ever had. There are also big potential risks. Just to elaborate 

on those two points, the global evidence on the link between sort 

of commodity revenues and economic development is that the normal pattern is in the first few years of higher commodity prices 

countries grow faster. They grow faster whether they’re well governed or badly governed. They grow faster. You can’t help but 

grow. 

But if you come back in 20 years, usually what’s gone up has 

come back down. Not always. It seems to depend statistically upon 

the initial levels of governance. Governance really seems to matter. 

The old concerns of Dutch disease, which were very much 

macrotechnocratic, we now as economists tend to think it’s more of 

a political story. It’s not an inevitable process, as Dutch disease. 

It’s an optional process depending on governance. 

When we focus not on economic development, but on conflict, we 

get a similar pattern. Higher commodity prices do seem to increase 

the risk of violent conflict, unless there’s good governance. If there’s 

good enough governance, you don’t get that effect. 

It’s vital that history does not repeat itself. The commodity 

booms of the 1970s led to little in the way of sustained development and quite a bit extra conflict. So we must do what we can 

to avoid history repeating itself. 

What we can do is quite limited because we don’t have anything 

like hard power in these situations. So conditionality won’t work, 

precisely because these governments have lots of money. So the 

only approach I think is to see what the international community 

can do to strengthen the capacity of the societies within these countries to get what they themselves want. It’s their money ultimately. 

The approach that I think is entirely the right approach is voluntary international standards, which then guide societies into 

what provides information for them and guidance on what matters. 

EITI was exactly the right place to start: Get the basic information 

to the society on what money is coming in. Without that, what can 

society do? So EITI was the right place to start. 

The success of the EITI—and it has been remarkably successful—demonstrates that that approach works, but it will be the 

wrong place to stop. That’s why we’ve got EITI Plus Plus. What are 

the ‘‘plus plusses’’? Well, what is governance here? I said governance matters and the natural tendency is to think that what governance means is corruption. In part that’s right, but there’s much 

more to good economic governance than avoiding corruption. You’ve 

actually got to take sensible economic decisions as well as honest 

ones. 

In harnessing the commodity boom for sustained development, 

there are a lot of difficult economic decisions. There are upstream 

issues, there are downstream issues. 

I’ll just close with one upstream and one downstream. Upstream, 

how do you sell the rights to the discovery process and the extracVerDate Nov 24 2008 20:02 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6602 H:\DOCS\AFRICA.TXT BETTY
41 

tion process? My own belief is that we need to use auctions much 

more than we have done in the past. Auctions address two problems. One is the problem of agency, which is a corruption problem. 

But the other is they address the problem of information. Governments are pretty clueless on what these things are worth. Companies have an informational advantage. The attraction of auctions 

is the government doesn’t need to know. The true value is revealed 

by bidding amongst informed competitors. So the auction solves the 

asymmetric information problem. 

If we go downstream, the key decisions are how much of the revenues should be saved relative to consumed—the answer is a lot 

should be saved, but by no means all of it. So neither the Norwegian model, which is far too high a savings rate for low-income 

countries, nor to throw a consumption party are the right answer. 

Finally, of the savings, what should you do with those savings? 

Definitely not the Norwegian model—give them to your wise New 

York banks—and that is not a comment on the wisdom of the 

banks. It’s that the African governments—unlike African countries, 

unlike Norway, are desperately short of capital in their own societies. So they need a process of domestic investment. The key issue 

in harnessing these booms is to get a good domestic investment 

process going. It’s very easy for that domestic investment process 

to be both corrupt and foolish. So raising the quality of domestic 

investment is the heartland of the issue. 

Thank you very much. 

PREPARED STATEMENT OF PAUL COLLIER, DIRECTOR, CENTER FOR THE STUDY OF

AFRICAN ECONOMIES, UNIVERSITY OF OXFORD, OXFORD, UNITED KINGDOM

LAWS AND CODES FOR THE ‘‘RESOURCE CURSE’’ 

1. INTRODUCTION

The international community assigns a high priority to helping impoverished societies, yet its efforts are currently lopsided. While it spends around $100bn on aid 

and provides over 100,000 U.N. peacekeepers, to date it has largely neglected the 

potential of international codes and laws to raise standards of economic governance. 

This paper analyzes the potential contribution of such codes and laws to increase 

the development impact of natural resource revenues. The current commodity booms 

make this a critical opportunity for assistance. 

Resource-exporting developing countries are currently in the thraws of booms that 

were last seen in the 1970s. Many of these countries have been impoverished and 

economically stagnant for decades and the booms constitute extraordinary opportunities for development. The revenues are often large enough to finance transformation, dwarfing aid flows. However, the last global commodity boom of the 

1970s largely failed to deliver transformational development. On the contrary, on 

the whole its long-term economic consequences were highly adverse. The failure to 

harness the booms of the 1970s was the result of wrong decisions on the part of 

governments. In part, these wrong decisions were mistakes: The decision-takers 

would have arrived at different decisions had they realized their consequences. In 

part, however, they reflected divergences between the interests of the society and 

of the decision-taker: The incentives facing the decision-taker were misaligned with 

the social interest that the decision-taker was empowered to represent. This distinction between mistakes and misaligned incentives is fundamental as a guide to the 

actions that can prevent history repeating itself. Mistakes are to an extent self-correcting through learning, whereas misaligned incentives require changed incentives. 

Even where past decisions were mistakes, international codes can be helpful. The 

typical low-income commodity exporter has remained prone to mistakes in economic 

policy because the cadre of well-trained decision-takers within the society is still 

tiny. Adult populations are small, few people get international graduate education, 

and few of these people return to their country: Globalization is accelerating the 

emigration of the highly skilled. Even among this limited pool, few are in positions 

42 

of influence: The salaries of senior civil servants have been radically eroded. Further, because the adverse consequences of mistakes in managing commodity booms 

occur only long after the decisions, it is easy for a society to misdiagnose its problems. The typical mistake of the 1970s booms was to gear them up by borrowing 

and consume the proceeds. When commodity prices crashed this led to a phase of 

crisis management termed ‘‘structural adjustment.’’ Nigerians, for example, generally see the boom period as the ‘‘good times,’’ and blame their current poverty on 

‘‘structural adjustment.’’ Thus, the process of learning from mistakes can usefully 

be complemented by external guidance. International codes can be helpful: They get 

noticed, and their official status signals that they have been subject to a reasonably 

rigorous process of scrutiny and assessment and so should be taken seriously. Even 

where such codes are entirely voluntary, they can change behaviour. 

Where wrong decisions were the result of misaligned incentives rather than mistakes, the incentives have to be changed. While in principle, incentives can be 

changed both by penalties and rewards, in the case of decisions appertaining to 

resource revenues the key changes are likely to come from new penalties. This is 

because the private rewards for socially costly decisions are usually too high to be 

countered by even higher rewards for good decisions. The terrain of penalties opens 

up a role for the law. Legal process is not the only means by which penalties can 

be introduced, but it is likely to be a critical part of solutions. 

In section 2, I review the evidence on the resource curse and its causes, including 

a prognosis for the long-term consequences of the present commodity booms should 

patterns of behaviour stay unchanged. The key conclusion from this section is that 

were behaviour patterns to stay unaltered the present booms would be a missed opportunity of quite staggering proportions. The issue under discussion is undoubtedly 

the single most important issue for the development of the countries now stuck at 

the bottom of the global economy: The ‘‘bottom billion.’’ In section 3, I anatomize 

the decision process by which valuable natural resources in the territory of the society are harnessed for economic growth that benefits the society. I delineate five key 

decisions. For each I consider whether past failures were predominantly due to mistakes or to misaligned incentives. In section 4, I turn to the scope for new international voluntary codes. Primarily, these address those errors due to mistakes 

although they can also help to realign incentives. In section 5, I turn to the potential 

need for new laws the national promulgation of which would be coordinated across 

the OECD analogous to antibribery legislation. Such laws are difficult to introduce 

and so are a last-resort approach for the realignment of incentives. Section 6 concludes. 

2. THE RESOURCE CURSE AND ITS CAUSES: THE EVIDENCE

The ‘‘resource curse’’ is evident from particular situations, such as Nigeria since 

the discovery of oil, but as a general proposition about those countries that export 

primary commodities it has been more controversial (Auty, 2001). Counter examples 

to Nigeria, such as the rapid growth of Botswana since the discovery of diamonds, 

demonstrate that any resource curse must be contingent. Further, there was an apparent discrepancy between two different types of general (that is, statistical) evidence. The main general evidence came from a study by Sachs and Warner (2001) 

which showed that using cross-section comparisons resource riches were damaging. 

Cross-sections essentially compare the overall experience of one country with another. Economists have, however, come to doubt such evidence where it is used to 

investigate processes that occur over time, because it is easy to misattribute to temporal processes what are in reality underlying differences between countries. Evidently, the resource curse is such a process: Resources are discovered and this 

produces various changes which eventually damage the economy. These ubiquitous 

suspicions of cross-section analysis appeared to be confirmed in the case of the resource curse by time series analyses by Deaton and Miller (1995) and Raddatz 

(2007). Time series analysis relies upon before-and-after situations in each country 

and so is better suited to temporal processes such as the resource curse. They found 

that the consequences of a commodity boom looked on average to be entirely benign 

on various economic criteria. However, an acknowledged limitation of their method 

was that it could only investigate the first few years following a boom. My own recent work with Benedikt Goderis has reconciled this apparently conflicting evidence 

(Collier and Goderis, 2007a, 2007b). Using the statistical technique of cointegration 

we are able to analyze both the short-term and the long-term effects of commodity 

booms using data for virtually every country in the world, and spanning the period 

1970–2003. Our results confirm that in the first few years price booms benefit the 

overall economy. However, after around 20 years the effects are often highly adverse. Simulating the current commodity booms in the 14 major African commodity 

43 

exporters, we find that the long-term effect is to reduce output relative to counterfactual by around 25 percent. The resource curse is a reality. 

The adverse long-term effects are confined to price booms in nonagricultural commodities. A likely explanation for this is that agricultural booms accrue predominantly to farmers who usually use their windfalls sensibly. In contrast, nonagricultural booms usually accrue predominantly as government revenue. The current 

commodity booms are nonagricultural and we investigate whether such booms inevitably lead to the resource curse or are themselves contingent. We find that they are 

contingent upon initial conditions of governance: Above a threshold level there is no 

resource curse. Thus, for example, Norway has been able to benefit from its oil not 

only in the short term but has harnessed the revenues for long-term growth. Our 

measure of governance is taken from the International Country Risk Guide, a commercial rating agency. On this measure, the threshold level below which the 

resource curse sets in is approximately equivalent to the governance standards of 

Portugal in the mid-1980s. Unfortunately, almost all of the current commodity 

booms in low-income countries are occurring in environments where governance is 

below this threshold. This emphasis upon the importance of governance in the management of resource rents is consistent with a recent analytic literature which models the political economy of the resource curse (Arezki and van der Ploeg, 2007; 

Baland and Francois, 2000; Hodler, 2006; Mehlum, Moene and Torvik, 2006; Robinson, Torvik and Verdier, 2006). 

Governance is, however, multifaceted and in one important respect it has manifestly improved in the resource-exporting countries since the 1970s. Following the 

collapse of the Soviet Union there was a waive of democratization and so they are 

now more democratic. With Anke Hoeffler I have investigated whether democracy 

improves the economic performance of resource exporters (Collier and Hoeffler, 

2006). We find that whereas in other economies democracy has such an effect, in 

the resource exporters’ performance is significantly worse. In effect, instead of 

democracy disciplining the decision process, the resource revenues undermine the 

democratic process. We decompose democracy into two facets: Electoral competition 

and checks and balances. The economic damage done by democracy comes from electoral competition and is offset if checks and balances are sufficiently strong. The 

instant democracies of the 1990s have electoral competition without checks and balances because the latter are much more difficult to establish. As Iraq and Afghanistan demonstrate, elections can be introduced rapidly in any society because they 

are events and the incentives for parties to participate are strong. In contrast, effective checks and balances are processes, and since their purpose is to limit power 

the powerful have little incentive to build them. An implication is that the waive 

of democratization has not improved governance to the level at which the incentives 

of decision-takers are now well-aligned. Other approaches to the improvement of 

governance in the low-income resource exporters is thus likely to be critical to 

whether history repeats itself. 

3. MISTAKES AND MISALIGNED INCENTIVES: FIVE KEY DECISION POINTS

The dismal outcome of commodity booms to date reflects either mistakes or misaligned incentives and in principle either of these could predominate in the poorly 

governed countries. To analyze these two possibilities I focus on five decisions that 

are jointly critical in harnessing a commodity boom for broader growth across the 

economy. 

Decision 1: Negotiating the resource extraction contract 

In developing countries resource extraction rights are invariably vested in the 

government. Because governments lack the organization, skills, and capital to undertake extraction themselves, it is appropriate to sell these rights to resource extraction companies. The first critical decision is how these sales should be conducted. 

The government has one major advantage: It is usually the monopoly seller of the 

nation’s resources. The exception is where rebel organizations control some of the 

national territory and in effect compete with the government in selling rights. For 

example, this was for many years the situation in respect of Angolan diamonds. 

When Jonas Savimbi, the head of the Angolan rebel organization, was killed, an 

event which marked the end of divided control of the nation’s resources, the stock 

price of resource extraction companies doing business in Angola fell on the New 

York market by 4 percent. Asset holders recognized that the move to monopoly 

would worsen the bargaining position of companies and that this would more than 

offset any material benefits of peace. 

However, the government has two major disadvantages: It has less information 

that a resource extraction company as to the likely value of extraction rights, and 

44 

it has a more severe ‘‘agency’’ problem. The former generates mistakes, whereas the 

latter generates misaligned incentives. As a first step in reducing the information 

asymmetry the government can invest in a geological survey, so that the uncertainty over the value of the rights is reduced. Where good geological information is 

available, the next and key step is through an auction. An auction reveals value 

through competition among informed companies: The government itself does not 

need to know the value of the asset it is auctioning. The most celebrated instance 

of the benefits of auctioning rights is the sale of the rights to the third generation 

mobile phone network in the U.K. The British Treasury was about to sell the rights 

in a negotiated deal for £2bn when it was persuaded to rely upon an auction instead. The auction revealed a price of £20bn. If the British Treasury can so radically 

misestimate value, it is evident that the typical African Ministry of Finance does 

not have the core competence to negotiate satisfactory deals. The amount of information revealed by an auction depends both upon the details of its design and the 

integrity with which it is conducted. For a discussion of a design appropriate for a 

resource auction see Cramton (2006). The integrity issue is taken up below. 

The agency problem facing governments is that the power to determine deals is 

delegated to some agent of government, typically the Minister of Industry or the 

President. Resource extraction companies thereby have the opportunity to arrive at 

a deal which is personally rewarding for the agent of government, and for the company, at the expense of the society. Again, auctions are potentially the solution to 

this agency problem. However, auctions can easily be gamed. To prevent this, 

auctions would need to meet certain specified standards, and adherence to these 

standards would in turn need to be monitored through a process of international 

certification. 

Currently, many African governments are entering into packaged deals, usually 

with China, that combine resource extraction rights with construction contracts. 

Such packaging has some organizational advantages. It is, however, entirely compatible with an auction process: The auction can specify that the government wants 

the package. Resource extraction companies would then team up with construction 

companies and potentially also with their national aid agencies to submit a joint 

bid. An advantage is that bids would then be comparable. 

Decision 2: Design features of the contract 

The second critical decision concerns the specification of the rights that the government proposes to sell. Extraction rights have three key dimensions, their duration, the tax regime that will be applied, and the credibility of these commitments. 

The third of these dimensions is the core of the matter. 

Because the government is sovereign it can change the terms of any deal that it 

strikes. This gives rise to a ‘‘time-consistency’’ problem: The inability of the government to commit induces extraction companies to discount its offer. The problem is 

far more acute for governments that start with a weak reputation as is normal 

across Africa. In this case, if the government reneges it suffers only a small loss 

of reputation. The problem is particularly severe where no geological survey is available or planned, so that prospecting rights are inevitably highly speculative. The 

government cannot credibly commit to refrain from changing the terms of the deal 

should the company strike lucky. 

The approach usually urged by the international financial agencies in such situations has been to encourage governments nevertheless to offer long-term contracts, 

and then, should companies strike lucky, to advise governments not to renege on 

their terms. The intention is that governments should gradually build their reputations to the point at which their commitments would be credible. Such advice seems 

to me to be seriously mistaken in two respects. 

First, governments with poor reputations that offer long-term contracts for highly 

speculative outcomes will receive only offers that include a heavy discount for the 

likelihood that they will renege. In effect, the company works on the assumption 

that the contract will be changed. If, subsequently, the government fails to change 

the contract it hands the company a windfall over-and-above the expected return. 

Conversely, if the government indeed reneges on the contract, it incurs a loss of reputation which would not have occurred had it not made the commitment. The alternative is for the government to offer for sale only rights that extent over a limited 

time horizon. It can further reduce the need to renege on a contract by designing 

its tax system so as to be heavily geared upon the level of rents. Thus, flat rate 

royalties should be avoided. Taxation should start only above some threshold world 

price at which the firm is making normal profits and rise steeply as the price increases above that threshold. Both features reduce the incentive for the government 

to renege on the contract should the company strike lucky. They thereby increase 

45 

the confidence of the company that the terms of the contract will be respected and 

so reduce the discount that is built into its offer. 

However, the key reason why the advice is mistaken is that the incentives for governments already tempt them to offer contracts with horizons that are too long and 

tax regimes that are too generous. By designing contracts in this way governments 

increase current revenues at the expense of revenues in the future when the current 

group of ministers may not be in power. This misalignment of incentives is at its 

most acute in transitional governments which are common in post-conflict situations. For example, the transitional government of the Democratic Republic of the 

Congo knew that many of its members would be out of government after the postconflict elections, scheduled for 2006. In the preceding 3 years long-term rights to 

mineral extraction were sold off under a very generous tax regime. For example, 

during 2006 mineral exports are estimated to have been around $200m whereas royalty payments received into the government budget were a mere $86,000. The prices 

at which these rights were sold were inevitably heavily discounted by the lack of 

credibility of the regime’s commitments. Similarly, while it was still a rebel organization, the current government of Congo Brazzaville is believed to have sold ELF 

the long-term right to oil at a heavily discounted price in return for financial 

support in its subsequently successful military struggle. Analytically, these sales of 

extraction rights were equivalent to incurring international debt at very high interest rates, something that would not have been permitted by the international 

community. 

The appropriate specification of the rights to be sold thus depends upon political 

as well as geological considerations. While a mine might have a natural life of 30 

years it will often be economically disadvantageous for the society to sell extraction 

rights over such a long horizon. It may be preferable to incur the extra transaction 

costs implied by rights that are shorter than the natural life of the investment. 

Decision 3: Transparency in revenues 

The third critical decision is the degree of scrutiny of revenues. Until the Extractive Industry Transparency Initiative (EITI) which started in 2002, revenues paid 

to governments by resource extraction companies were usually confidential. This 

lack of disclosure gave rise to two abuses: One by companies; the other by government officials. Most revenue-receiving governments have little capacity to scrutinize 

whether payments by companies are fully compliant with tax regimes. However, 

once payments are made public companies are potentially exposed to a greater 

degree of scrutiny and are more likely to be voluntarily compliant. The abuse by 

government officials is that payments that should properly accrue to the budget instead are improperly diverted. Indeed, the key impetus for the EITI was the evidence from the IMF that some $2bn of oil revenues that should have accrued to the 

Angolan budget were missing. The scrutiny of government by citizens depends upon 

information. This is exemplified by the decision of the Nigerian Federal Government 

to implement the EITI at the level of the 36 states within the federation which between them receive half of the oil revenue. The Federal Ministry of Finance decided 

to publish in the newspapers the monthly oil revenues sent to states and handled 

by state governors. On the day of first publication, newspaper circulation in Nigeria 

spiked: Citizens wanted to hold their officials to account. The benefits of the EITI 

already extend beyond Africa: It has substantially improved the management of resource revenues in Russia and central Asia. [Here I rely upon the opinion of Eric 

Bergof, Chief Economist of the European Bank for Reconstruction and Development.] 

An even more fundamental abuse of resource revenues is when they do not accrue 

to the government in any form but are instead paid to rebels who control part of 

the national territory. This was, for example, the case for many years with diamonds sold by Savimbi’s rebel organization UNITA. The international community 

faced up to this problem at around the same time as EITI through a voluntary system of certification of the provenance of diamonds, the Kimberley Process. This has 

already proved highly successful in curtailing rebel access to the world diamonds 

market and the effectiveness of scrutiny is steadily being increased. The system is 

also being considered for a few other high-value commodities such as coltan. 

The opacity of resource revenues and their theft by rebel groups are not mistakes. 

Evidently, they are the result of misaligned incentives: Opacity and theft benefit 

those who misappropriate resource revenues. 

Decision 4: The aggregate savings decision 

By far the most important decision point concerns the proportion of resource revenues that should be saved. There are two distinct timeframes that need to be taken 

into account in reaching this decision, one long term, and the other medium term. 

46 

The long-term timeframe concerns depletion. The extraction of nonagricultural 

natural resources depletes the stock of the asset. To maintain the overall value of 

assets some of the resource depletion should be offset by an accumulation of other 

assets. The proportion that should be saved depends upon the likely length of life 

of the resource and upon the likely rate of return on investment relative to the rate 

of return earned by leaving the resources in the ground, but in general a significant 

proportion of revenues from resource extraction will need to be saved in order to 

avoid overall depletion of assets. 

The medium-term timeframe concerns the price cycle of the commodity. The world 

prices of commodities have a long record of substantial fluctuation. While there is 

nothing so predictable as a genuine ‘‘cycle,’’ manifestly there are periods when prices 

are sufficiently out of line with their long-term average level that it is reasonable 

to expect a degree of reversion towards the long-term mean. There are good reasons 

why a government might try to smooth its expenditures rather than simply let expenditure track these extreme fluctuations in revenue. Volatility in expenditures 

gives rise to inefficiencies: For example, during periods of high expenditure commitments are made to rather low-return items which then can only be financed during 

periods of low expenditure by deep cuts in items which should have been prioritized. 

Offsetting depletion and smoothing the price cycle both require the government 

to save part of the revenue from resource extraction. This decision to save is subject 

to further ‘‘time-consistency’’ problem. Consider the decision of a prudent finance 

minister whether to save revenue. The saving necessarily defers the spending decision to the future, a time when the minister responsible is likely to be different. 

If this future finance minister is also prudent then no issue arises. However, if the 

future finance minister is ‘‘populist’’ then the revenues saved by the prudent finance 

minister are simply handed to the populist finance minister to spend. Let us suppose that not only do prudent finance ministers prioritize savings more highly than 

populist ministers, but that the quality of their spending is higher. Thus, the prudent finance minister faces a dilemma. If there is a significant risk that there will 

be a future populist finance minister then the current prudent finance minister may 

reasonably decide that the best course of action is not to save the revenue even 

though savings would otherwise be warranted. This is a form of time-consistency 

problem because future governments would be better off if only they could tie their 

hands, renouncing the freedom of a future populist minister to mis-spend the savings of the current prudent minister. If they renounced this freedom the prudent 

minister would save and this would make a future government better off, whether 

or not the minister was populist, whereas while ever the future government retains 

this freedom then it cannot benefit from it. Evidently, a future government cannot 

itself renounce its freedom because it does not yet exist. However, the present 

government can act on behalf of the future government by establishing a fiscal constitution. By this I mean a constitutional provision which enshrines some basic principles of the savings decision which curtails the freedom of a future populist minister of finance to deplete assets. 

In the absence of a fiscal constitution the decision of a prudent finance minister 

not to save windfall resource revenues need not be a mistake. Rather, it is the 

consequence of misaligned incentives. Several resource-rich governments have now 

recognized the need to realign incentives by introducing a fiscal constitution. For example, the governments of Chile and Nigeria have both recently enacted such provisions to handle the depletion and price swings of their commodity exports, copper 

and oil respectively. Constitutions can always be overturned. However, the process 

of overturning them is both public and slow. These obstacles might well be sufficient 

to deter a populist minister from even attempting to deplete assets: by definition, 

a populist finance minister is in a hurry (in economic terminology he has a high 

discount rate). In making the populist option more difficult, the fiscal constitution 

also reduces the returns to becoming a populist minister of finance and thereby 

makes populism less likely. 

Decision 5: The public investment decision 

Having determined the proportion of resource revenues to be saved, the government must then decide which assets to acquire. Specifically, it must decide how 

much of the savings should be held abroad and, for the savings invested domestically, which investments should be chosen. There are two distinct reasons for saving 

abroad. One is that those savings intended to smooth consumption over the price 

cycle need to be held in liquid form so that they can be depleted during the unpredictable periods of low prices. Hence, they have to be held in foreign financial 

assets. Domestic financial assets, though liquid at the level of an individual holding, 

are merely claims on illiquid investments within the society and so cannot in aggregate be liquidated. The other reason is that at some point the return on domestic 

47 

investment is liable to drop below that available on world markets and at this point 

it is better to hold savings temporarily abroad until conditions within the economy 

permit them to be switched into domestic investment. This is termed ‘‘absorptive 

capacity.’’ The rate of return on domestic investment is influenced by many factors, 

but a particularly pertinent one is that during savings-driven investment booms 

returns are driven down due to both the congestion at the planning stage and rising 

construction costs at the implementation stage. It is usually more efficient to stretch 

the domestic investment of the savings generated by a commodity boom over a 

longer period than the commodity boom itself. 

Complementing these macroeconomic considerations about absorptive capacity, 

are microeconomic concerns about the selection of public investment projects. For 

a project to be satisfactory it should meet two criteria: Honesty and efficiency; and 

so these aspects of the project need to be assessed prior to approval. An effective 

public investment process should thus subject all proposed projects to two tests. Dishonesty in public investment procurement is a massive problem in resource-rich 

countries. The minimal defence against it is to require all projects to go to competitive tendering. Since it is easy to subvert competitive tendering, as with auctions 

there needs to be some scrutiny of the process backed by certification that the tendering process meets reasonable standards. For example, a common way in which 

competitive tendering is subverted is for public officials in charge of procurement 

to agree in advance with a particular firm that once it has been awarded the contract the government will change the specification in such a way as to warrant repricing. A contract to build schools might be recalled in order to change the design 

of the buildings and the alterations accepted at a price higher than is warranted. 

While there is indeed a genuine need to be able to adjust contracts, since the adjustments are not retendered there is scope for abuse and so the process needs to be 

policed. Honesty is not enough. Some of the most egregious public investments of 

resource revenues would have been disastrous even if their implementation had 

been completely honest because they were foolishly conceived. The defence against 

this process has to be technocratic: The likely rate of return on projects has to be 

estimated in an impartial manner, with only those projects that offer returns over 

some threshold set around the rate of return on assets held abroad being approved. 

This was in essence the decision process that enabled Botswana to convert diamond 

revenues into world-beating growth. The evaluation of public investment projects is 

standard in developed countries, but it is also a process that is readily gamed. Because future returns are inevitably hypothetical, it is invariably feasible to manipulate estimates to suit political demands. Hence, again there is a need for scrutiny 

and certification of the process. 

The tendency to use the revenues accruing during commodity booms for surges 

in public investment projects which are poorly selected is, to an extent, a mistake. 

However, it also reflects misaligned incentives. Where ever public procurement processes and the scrutiny of rates of return are weak there are large personal gains 

to be had from maximizing the current flow of public investment projects. Indeed, 

since many of the kickbacks accrue upon commissioning the project, there is an incentive to commission far more projects than can be implemented, resulting in the 

common spectacle of projects that stand uncompleted for many years while new ones 

start up around them. Thus, the core problem is less a matter of mistakes than of 

misaligned incentives. 

4. THE ROLE OF VOLUNTARY CODES

Recall that our starting point is the current commodity boom against the backdrop of the dismal history of the resource curse. History must not be repeated, but 

it will be repeated unless there is an appropriate combination of learning to correct 

past mistakes, and institutional innovation to correct misaligned incentives. I now 

consider to what extent voluntary codes can be useful in facilitating both learning 

and the realignment of incentives. 

Manifestly, voluntary codes can be powerful instruments. The EITI and the Kimberley Process are both important examples of how voluntary codes can improve 

resource extraction. To what extent can this approach usefully be extended? 

Voluntary codes have power for four core reasons. Their basic rationale is informational. The code simply codifies good practice and thereby informs governments 

as to what is generally considered sensible. The codification helps to distinguish this 

particular advice from the babble of advice, often contradictory, to which governments are subjected. Governments can respect codified advice because they infer 

that it has been subject to thorough and impartial analysis. 

However, the informational role is probably not the most potent aspect of codes. 

In all the badly governed resource-rich societies there are reformers anxious to criVerDate Nov 24 2008 20:02 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 H:\DOCS\AFRICA.TXT BETTY
48 

tique poor policies. However, the reformers themselves face a coordination problem: 

Each voice for reform is also, often inadvertently, a voice for self-promotion. Thus, 

for the normal human reasons of personal rivalries it is often difficult for reformers 

to coordinate around an agreed set of objectives. Recognizing this, the opponents of 

reform often play a game of ‘‘divide and rule.’’ A code has the advantage of providing 

a neutral goal around which reformers can rally. By being depersonalized, it is both 

easier to get pressure for adoption, and easier to defend once adopted than any personalized reform. 

Voluntary codes also provide a norm for the coordination of external pressure. 

Adherence to the EITI rapidly became a condition for some donor assistance, and 

adoption of the Kimberley Process became a benchmark for NGO pressure. 

Perhaps most importantly, codes separate the sheep from the goats. By revealing 

those governments that are willing to comply with a particular set of standards, 

they also reveal those that are not. There is a strong incentive for governments not 

to reveal themselves as being in the latter category. A dramatic instance of this phenomenon was the creation of the Euro, something initially intended so that France 

could have a common currency with Germany. Once Spain announced that it intended to meet the criteria for membership, Italy and Portugal felt compelled to do 

the same. Similarly, the Kimberley Process, though voluntary, has rapidly attracted 

every diamond producing country in the world. 

Where is there currently scope for codes concerning the revenues for resource extraction? Of the five critical decision points, only the third is currently covered. All 

of the other four have potential for being codified. One new code could cover the design and conduct of auctions. A second could cover the specification of the time horizon and tax regime, for example, setting limits on the horizon of rights sold by transitional governments. A third could cover the savings rate out of resource revenues 

likely to be appropriate. A fourth could cover the procedures for public investment. 

If these codes are to be promulgated some entity needs to be responsible for them. 

The precedents for the promulgation of voluntary codes suggest that various approaches can be effective. Many codes of economic behaviour have been promulgated 

by the IMF and are part of its annual Article IV consultation process in which all 

its member governments are required to participate. The Kimberley Process is run 

by public-private partnership between the diamonds industry, NGOs, and diamondproducing governments. The EITI started as an NGO campaign, was then adopted 

by the British Government, was then tentatively and temporarily lodged with the 

international financial institutions and has now become an official international 

organization headquartered in Oslo. Which agencies would be most appropriate as 

the codifier of the four proposed new codes? 

It would clearly be both more effective and more practical to lodge the new codes 

with existing agencies rather than attempt to create new ones. The four codes naturally cluster into two pairs. The first two, on auctions and the specification of mineral rights, are both concerned with transparency in resource revenues. The other 

two, on the savings decision and the processes of public investment, both concern 

the conduct of budgets. The first pair is close to the existing mandate of the EITI 

and would most naturally be lodged there. They would require the organization to 

acquire some expertise in the conduct of auctions and the design of rights but this 

would surely be feasible and complement the expertise that as a new organization 

it already needs to build. The second pair, concerning budgets, belongs most naturally with the IMF and the World Bank. The Fund is indeed already advising governments on savings out of resource windfalls and codification would be a sensible 

development of this work. Similarly, the World Bank routinely undertakes Public 

Expenditure Reviews, and specific guidelines on processes of public investment for 

resource-rich low-income countries would be again be a natural extension of this 

work. 

Independent international verification and certification are now standard in many 

areas of economic activity. The new codes would require two distinct systems of 

verification, one concerning the conduct of auctions and the other the conduct of 

public investment. The core rationale for each of them is that a government needs 

to be able to demonstrate to its citizens that it is in compliance with its own stated 

commitments. The governments that are most in need of this capacity to enhance 

their credibility are those with poor reputations that are attempting to reform. 

Hence, the provision of verification and certification is not a quasi-police operation 

intended to force compliance upon an otherwise recalcitrant government. Rather, it 

would enable those governments that were genuinely committed to reform to reveal 

their type. As such governments revealed their type, corrupt governments would be 

revealed by default and this would facilitate pressure for change within their societies. Reforming elements would be able to ask why their governments had chosen 

not to comply with international norms that other governments had adopted. 

49 

5. THE ROLE FOR INTERNATIONAL LAW

International law is so difficult to get enacted that it must be used very sparingly. 

Is there a real need for the promulgation of new international law regarding 

resource extraction? The one area where new law might be pertinent is to reinforce 

the voluntary code on auctions by requiring those resource extraction companies 

based in the OECD to enter into new contracts only through certified auctions of 

extraction rights. Would this be desirable and is it feasible? The close analogy to 

such a law is the antibribery laws which were adopted across the OECD in a coordinated process orchestrated by that body. It was important for these laws to be coordinated since no single country was prepared to disadvantage its own businesses 

vis-a-vis those of other countries by enacting a law individually. 

What would be the consequences of such a pan-OECD law? One possible consequence would be that the governments of resource-exporting countries would not 

adopt certified auctions and as a result China would scoop the pool of resource extraction contracts. However, this is not a likely outcome. Once the law was adopted, 

a government that decided to sell extraction rights through a nonauction process 

would know that a key group of potential purchases was thereby excluded. In effect, 

the decision would hand monopsony power to China and thereby manifestly disadvantage the country. It is one thing doing deals with China when China knows 

that the government with which it is dealing has many alternatives, and quite another to choose to put oneself in such a disadvantageous position. Obviously, by 

holding an auction a government would not in any way preclude selling the extraction rights to the Chinese. Hence, within resource-rich countries there would be 

strong pressure to preserve competition for the purchase of resources by adopting 

auctions. 

If as a result of the legislation auctions became standard then the OECD countries would benefit. At present sales are often conducted in an opaque manner. This 

is sometimes tantamount to a competition in the degree of corruption that the bidder can countenance, and sometimes a competition in which China can supplement 

its offer by aid but OECD companies cannot. 

Laws involve penalties for breaches. However, the court-inflicted penalties need 

not be severe because the power of deterrence in this case is likely to come predominantly from citizens, both as consumers and as employees. No significant OECDbased resource extraction company could afford to acquire concessions for resource 

extraction through processes which clearly breached of the law. In effect, much of 

the power of the law here comes from the information signal conveyed by the detection of a breach. Consumers and employees know to penalize companies that act 

illegally. 

6. CONCLUSION

The current commodity booms constitute the most important opportunity for 

development that low-income commodity exporters have ever had. Yet if history repeats itself this opportunity will be missed. In these countries aid has limited potency: Their governments are sometimes already awash with revenue. A neglected 

type of assistance, which might be more helpful, is the promulgation of voluntary 

codes and laws specifically designed to improve the economic governance of resource 

rents. For the resource-rich countries improving economic governance is of the essence. In this paper I have suggested how new codes and laws could address both 

the mistakes and the misaligned incentives that lead inexorably to the resource 

curse. Difficult as these new codes and laws would be to promulgate, the costs are 

trivial both relative to the scale of existing development assistance and to the likely 

beneficial effects. 

Senator FEINGOLD. Thank you, sir. 

We’ll begin with 7-minute rounds. 

Professor, I’ll begin with you. Thank you again for your testimony. Given your long career of working on these issues, I’m curious where you’ve seen progress in reversing the resource curse. Are 

there particular success stories that you’d turn to in Africa that we 

can use as examples for efficient and transparent resource management? 

Mr. COLLIER. Yes. I’m moderately optimistic. I think there’s quite 

a lot of learning from failure been going on. We see that most remarkably in Nigeria, where the reform team that came in in 2003 

50 

really had learned from failure. It was just determined not to repeat history, got this whole—two things going. One was the fiscal 

responsibility act, which was fundamentally about the savings decision. But the other was introducing competitive tendering in public 

procurement, which was fundamentally about the investment 

decision. 

So they managed to set up institutional processes on both those 

two critical downstream decisions. So it was very impressive. 

I was recently in Uganda, where the Ministry of Finance and the 

central bank are very concerned to handle these things right, very 

aware of the pitfalls. Last week I was in Zambia, where the Governor of the Central Bank is deeply concerned. And with the sad 

death of President Mwanawasa, that’s a real turning point in that 

society. It could go right or wrong. 

So across the continent there’s a lot of awareness. Ghana, which 

has got, like you say, all these discoveries, it’s fragile. It could go 

populist. They’ve got an election coming up. It’s an easy issue for 

the three candidates to promise to throw a consumption party. 

That’s the downside danger. So it’s trying to—the only way to 

counter that is to build a more informed society on the custodial 

role of depleting these assets and pointing to the neighbors, the sad 

history of the neighbors who have already been there. 

Senator FEINGOLD. Let me ask you about Chad and Cameroon. 

As you know, controversy has long surrounded the 650-mile oil 

pipeline between Chad and Cameroon that the World Bank helped 

to construct. Earlier this month the Bank finally canceled that 

agreement because the government has failed to translate revenues 

into poverty reduction. 

What can be learned from the bank’s experience with this 

project? 

Mr. COLLIER. I think, to be honest, I think the bank was foolish 

to go into the agreement from the start. 

Senator FEINGOLD. Foolish for going into it in the first place? 

Mr. COLLIER. Yes. I think the proper analysis of the Chad deal 

would have said this is what economists call time inconsistent. 

That is to say the government had no incentive to keep its promise. 

It had every incentive to make a promise, because by making the 

promise—the promise was the government will pass legislation, the 

World Bank will take the reputational risk, and the oil companies 

will sink investments of $4.2 billion. 

Then you ask yourself, which of these actions is easier to reverse? And it’s not easy to take the $4.2 billion investment out of 

the ground, but it’s very easy to change the legislation. And the oil 

companies, once that’s done, have very little incentive to put any 

spine into the defenses because it’s the World Bank which is carrying the reputational risk. 

So the whole structure of that deal was to my mind doomed, and 

so it shouldn’t have been set up. Twenty minutes of decent economic analysis at the start would have said this is doomed. 

Senator FEINGOLD. Thank you, Professor. 

Mr. Goldwyn, thank you also for your testimony and for your 

previous service to the United States. I want to first follow up on 

your assessment of the bureaucratic obstacles within the U.S. Government to effective interagency strategy and implementation with 

51 

regard to promoting good governance and transparency in energyproducing countries. Could you elaborate a little bit on those 

obstacles? 

Mr. GOLDWYN. Yes, thank you. In the United States right now 

we have a very disaggregated system of responsibility in terms of 

energy. Energy advocacy—production, the Commerce Department 

is interested in that. Energy security itself, no one is really responsible because energy security means in some senses stability of 

supply. Well, that’s a political question, how stable are your suppliers. So it means that the Africa Bureau would worry about Nigeria if they had time to focus on Nigeria, but the people in the economics and business office, which might worry about supply, don’t 

have a relationship with Nigeria and they’re not going to go in and 

talk to the President. At the very senior level, there’s no one really 

on the national security staff which is responsible for looking at 

both the relationship of the countries and the impact of the economics and the impact of governance, transparency, the underlying 

problems. Human rights people have one piece and economic people 

have another piece and the bilateral have another piece. 

Nobody on the seventh floor of the State Department is really responsible for doing this. The Under Secretary for Economics, Energy and Agriculture is in there too, sort of has that job, but not 

the focus. So as a result, we don’t have an integrated look at this. 

Even on transparency, EITI is the Economics, Energy and Agriculture Bureau. Voluntary Principles on Security is in the Democracy Bureau. If you’re going to make change within a country, it’s 

going to be at the head-of-state level, especially in Africa and developing countries. It’s where all the policy is made. And there’s nobody in the economics and business office that’s going to get a 

meeting with a head of state of any of these countries. 

The issue is this: When our President or when our Secretary of 

State talks to these countries, is this on their agenda or not? Right 

now it’s not. So it’s a failure of organization, but it’s also a failure 

of policy focus. Right now we don’t see the problem as an integrated whole. There is foreign policy and there’s energy and we 

don’t mix them together. 

That part you can’t fix with a wiring diagram. That’s got to be 

a change in consciousness and strategy and policy. Actually, one of 

the recommendations I didn’t talk about in my oral testimony is we 

might commission a national intelligence estimate on energy security in Africa or worldwide, because it’s a way that people will see 

the risks of governance and transparency and supply. By having an 

estimate, you can put that on their table and it will get the attention of all the policymakers. That’s something that the Congress 

might be able to motivate. 

Senator FEINGOLD. Thank you for that suggestion, Mr. Goldwyn. 

Senator Isakson. 

Senator ISAKSON. Following up on that point, before you asked 

that question and he answered, I was getting ready to address the 

question about lost influence. But let me go to this disaggregated 

responsibility. I think that’s a correct statement, that there is not 

as much coordination as we need between agencies dealing with 

Africa. 

52 

But I would take issue with the statement you made about we’ve 

lost influence in Africa. I’m not an expert. I’ve only been on this 

subcommittee for a year and a half. But it seems like I can’t remember a time when the United States has invested more or spent 

more, or had more of an emphasis in Africa, in my lifetime than 

we have over the past 8 to 10 years, from PEPFAR to engagement 

with the African Continent to AFRICOM and stuff like that. 

So I just wanted you to elaborate a little further on this recent 

lost influence in Africa that we have. 

Mr. GOLDWYN. Thank you for the question, Senator. There’s no 

question the United States has a lot of engagement in Africa, and 

our engagement in the health sector is really dramatic, and our engagement in counterterrorism and the Pan-Sahel Initiative, or now 

the Trans-Saharan Counterterrorism Initiative (TSCTI), is impressive also. 

But we have a lot of competition now that we didn’t have a decade ago. We not only have competition from the Europeans, but 

China and Africa. There are now hundreds of companies in the upstream in Africa. The wealth has changed the calculus also. There 

was a time a decade ago when an offer of trade or an offer of aid 

or debt relief would give the United States traction with these governments. They needed to listen to us because their political survival was dependent on their relationship with the United States. 

But with these incredible revenues right now, they can borrow in 

the capital markets or they can get a loan from China, and they 

don’t need our debt relief and they don’t need our aid, and the 

areas where we want to give aid, like civil society, is not an area 

that’s top of their agenda anyway. 

So our ability to basically use pressure and influence to change 

their behavior has evaporated with the competition and the wealth, 

but also with the disengagement. Take Angola for example: One 

school is they’re bad, don’t talk to them. But the problem when you 

don’t talk to them, when the Assistant Secretary of State for Africa 

goes there once every 4 years, is they don’t really care a whole lot 

about what we think. They have no stake in the relationship. 

That’s why I think we can recover that by more engagement. On 

the key countries—Angola, Nigeria, Equatorial Guinea—we now 

engage and we have shown some results for that. But a lot of these 

countries, we don’t really talk to, and it’s hard to have influence 

without that relationship. 

Senator ISAKSON. On that point, Equatorial Guinea, Obiang just 

released those 34 political prisoners that he’d had, that we’ve been 

insisting on for some time, which was a move in the right direction 

on the human rights side. I think the State Department, at least 

in the engagement I’ve had with them, has worked very hard on 

promoting exactly that type of behavior, and finally raised enough 

pressure to where he did it. So that was a good move by them. 

Mr. Taylor, what is Public Witness? Is that the name? 

Mr. TAYLOR. I’m sorry? Could you repeat that? 

Senator ISAKSON. What is Global Witness? 

Mr. TAYLOR. Global Witness. 

Senator ISAKSON. Tell me a little bit about what Global Witness 

does. 

53 

Mr. TAYLOR. Global Witness is a nongovernmental organization. 

We have a base in London, we have an office here. Some of my colleagues are here with me. We’re an organization that has spent 

since its inception in the early 1990s its time looking at the link 

between natural resources and conflict and all the various facilitating factors around that. So our interest has been the role of 

middlepeople, the key actors, companies associated or not, the various resources and so on, the trade mechanisms and pathways. 

Part of what we do is investigative, so we do also undercover investigation work. Some of it’s normal, everyday type of research 

that anyone else might do. We compile our information together in 

reports where we present our findings, which are the findings of 

people on the ground, and then we basically visit wherever appropriate, whichever countries are appropriate, to seek positive 

change. Hence our involvement in processes like EITI, like the 

Kimberley process, and so on. 

Senator ISAKSON. Well, I read your testimony, which I found to 

be very informative, I might point out. You made a comment in 

your verbal comments about this needing to be a process of best 

performance, not only by the African country but also by the company participants. I read in your printed statement that recent testimony by Mr. Stanley pleading guilty to a $180 million payment 

to one of the governments. I’ve forgot which one it was. That I 

guess is the type of company participation you’re talking about. 

Is that the exception or is that the rule in Africa right now with 

American companies? 

Mr. TAYLOR. I suppose I’ve looked at this more from an international perspective. 

Senator ISAKSON. Well then, international. 

Mr. TAYLOR. But that of course involves American companies. So 

I think that the truth of the matter is that we’ve looked in lots of 

countries outside of Africa as well, Central Asian, former Soviet 

Union Republics as well, and the pattern seems to be that it really 

depends on the players on the ground and the extent to which 

there is or isn’t governance and who the key players are in the 

country. 

So you will find in some countries some companies have done all 

sorts of questionable things, and yet you will also find the same 

companies being almost champions of the good in neighboring 

countries. So really, it’s not a clearcut, homogeneous type of effect. 

So we know of companies, for example, in Angola that were shipping arms to the government side through invisible subsidiaries 

that didn’t exist on any formal books, based in tax havens, during 

the last stage of the fourth stage of the Angolan civil war. What 

on Earth is an oil company shipping arms for? 

Again, that’s not uniform and it didn’t just apply to a certain 

company from Western Europe who doesn’t exist any more. I can 

elaborate a bit more if you’d like. But there were more than just 

the obvious ones, the worst players involved in this type of practice. 

Senator ISAKSON. So from that answer I take it it’s more what 

the countries proposed, rather than a culture of doing business of 

just offering bribes going in; is that correct? 

Mr. TAYLOR. I think the context of the country concerned influences the type of behavior that happens. But I think, just as within 

54 

governments you meet people who are very effective and you also 

meet people who aren’t very effective, I think the same applies in 

companies. So it really depends who’s on the ground in the company. Perhaps had a different executive been involved in that particular country, they might have chosen a different pathway. Who 

knows? 

What we see is what we’ve pulled up and found in the course of 

digging around, sometimes for a long time. And you get a very 

clear picture of who’s been doing what and how they’ve been doing 

it. 

It’s for that reason I think that, whilst the EITI addresses this 

kind of bringing governments in and I’m very keen to stress that 

I think it needs to be a good club, a club of the good, rather than 

a club of the bad who’ve been forced to join—hence I think the 

United States and Britain and so on should also participate—it’s 

not enough, because there are some countries that will never join, 

like Angola we think—why would Dos Santos Inc. want to make 

itself accountable? The answer is it doesn’t. And at the same time, 

different companies have been involved. So it’s necessary to bring 

in elements of rigor around the accountability for the way in which 

the companies themselves have behaved. 

Senator ISAKSON. Thank you very much. 

Senator Lugar. 

Senator LUGAR. Thank you very much, Mr. Chairman. 

Let me once again just take up the point that you made, Senator 

Isakson. That is that the three witnesses we have before us now 

have written outstanding papers and offered insights I believe that 

are very, very helpful, and we appreciate that. I want to pick up 

particularly one of these insights about the organization of our own 

government. You dwelt on that, Mr. Goldwyn, in pointing out the 

dilemmas of who in our government has some responsibility for 

some facet of the energy problem we’re discussing this morning. 

But the central point that some of us have tried to make in the 

committee, even offered legislation—and Chairman Biden has been 

very active in this area, in addition to Chairman Feingold, and I’ve 

tried to participate in making the point to Secretary Rice and to 

others that we really have to have an Energy Secretary or a coordinator, someone of stature, who is able from the security standpoint 

to make a difference. 

Now, there have been some modest attempts made in the 

Department in that direction, which we appreciate, and I pay full 

tribute to those who have those responsibilities. But as you say, 

they do not appear to be able to get items onto the President’s 

agenda or maybe even the Secretary’s agenda, as there are face to 

face meetings with other persons at the highest levels, and that is 

of the essence right now. There may come a time in which the fabric of diplomacy of the countries that we’re discussing in Africa permits assistant secretaries or others on down to have these sorts of 

dialogue and make a difference, but not at the present time, which 

requires higher level actors. 

So I am hopeful that our persistence and yours from the outside 

will be helpful, because this is an essential point for our government right now in discussing Africa or, for that matter, in conversations with people in Russia, for the same reason. 

55 

Well, let me just follow through by saying that in Angola, and 

we spent I think quality time on that today, the chairman has 

mentioned his meeting President Dos Santos many years ago. After 

several years, then-Secretary Reuben Jeffrey visited Angola last 

summer, which was in fact the first high-level contact by an American official in the country. Our staff members who are behind me 

today visited this summer, and I think since the chairman’s visit 

were the first persons representing Congress in any way. 

It may be that our officials feel Angola is inhospitable, but nevertheless it is a very important country. We often talk about the need 

for diplomacy with countries with whom our relations either need 

repair, strengthening, or are virtually nonexistent, and this would 

appear to be a good example. It arises in part because it’s an important country strategically in Africa, but also because of the energy focus that we have this morning and the implications for others, not only in Angola but outside of the country in this respect. 

So I appreciate your pinpointing the lack of contact and observation. Even if we got right our organization, whoever the Secretary 

of Energy was and the State Department would need to go to Angola, or someone representing him or her at that level, at some 

point. 

Let me just pick up a third point. You’ve mentioned the Norwegian model, perhaps inappropriate for many of the African 

states, and I accept that point. But I can remember a trip to 

Azerbaijan and a visit with President Aleyev in 2005, at the very 

beginning of the first trickling of oil from the Baku platform of BP 

starting its headway through Georgia on to Chehan, Turkey. The 

question before that country at that point was just the one we’re 

discussing today, What degree of transparency? Really, not that 

Baku had not had an oil history for decades, but this was a new 

beginning, and obviously the predictions of the change of the GNP 

for Azerbaijan were at the order of 50 to 100 percent a year for the 

better part of the next 5 as projected. 

When I asked President Aleyev the question, he cited the Norwegian model. Without your knowledge about this, I said: That’s a 

good model; I appreciate that; I’m going to report that to everybody 

in the United States. 

Now, in fairness, I’ve seen President Aleyev in each subsequent 

year, 2006, 2007, 2008, just this summer. He’s followed through. 

Now, it’s not exactly the Norwegian model, but still there are some 

very bright young Azeris, economists, who do make transparent the 

amount of money coming into the country and the various levels 

that are going into the government now, because the next point 

then was, what about the rural roads in Azerbaijan or the schools 

for the people that are not in Baku, or the cleanup of the mess of 

the oil business, say for 7 decades, or so forth. And each time the 

President has pledged that they’re doing it, and he’s begun to 

produce figures that are doing this. 

Now, I cite this simply because conversations and visitations of 

this sort are I believe helpful. Not that I was that persuasive, but 

somebody at least kept asking, kept reporting. He knew that it was 

being reported. He was proud really of the reports. We reported to 

the people of Azerbaijan in press conferences within the country 

56 

what was occurring, with the full knowledge of the President, not 

as a covert agent. 

It’s a very small country, but a huge amount of money, and it 

continues to grow and will, with 1 percent of all the oil in the world 

going through that pipeline today. And it all starts there, with 

huge royalties coming in, plus the whole strategic problem of the 

NABUCO pipeline situation. 

Now, this is an interesting model for African countries to take a 

look at. They have many more people, much more diverse population and governance situations, but it’s not unique in the world 

today to do it right and at least to make some headway, and to pay 

credit internationally to people who do this sort of thing. Our senior officials visiting can do that. 

So I take advantage of this hearing and your presence to make 

these points because I think they may be important for our diplomacy, and I congratulate you again on your scholarship which informs all of us. 

Thank you, Mr. Chairman. 

Senator FEINGOLD. Thank you, Senator Lugar. 

I’ll just have a few more questions as we get near the end of the 

hearing. Back to Nigeria again, Mr. Goldwyn, Nigeria is so critical 

in terms of our energy policy, as Senator Lugar was just talking 

about. Yet our engagement in the Niger Delta under this administration has been minimal. How specifically can the next administration reengage and what are the first steps, and what would be 

the role for Congress in this? 

Mr. GOLDWYN. Thank you for the question. Just one word for 

Senator Lugar, I just have to say: Thanks to you for your leadership on this. Clearly we wouldn’t have a Caspian ambassador-atlarge if it wasn’t for your legislation. The Western Hemisphere. 

You’ve advocated this issue in all regions of the world, and it is an 

example of how it can work. So thank you and your staff for your 

leadership. 

On Nigeria, we have to be humble about Nigeria because the core 

of the problem there is a lack of political legitimacy. You have a 

President whose candidacy is still not certain because it’s under 

appeal. He doesn’t have control over the Governors. A lot of the 

Governors may have control over him. You have a Federal system 

with limited powers over the regions. 

But I think there are a number of ways in which the United 

States can help and I think we need to work first with the European countries and perhaps even with China on it. First is to use 

the power of the Presidency, our President and Secretary of State, 

to communicate to Nigeria, as we have not significantly done over 

the last 6 years, that this is an international problem. Crime is 

spreading to neighboring countries. Destabilization is happening to 

neighboring countries. Nigeria’s own democracy is at risk. So part 

of that is to keep the pressure on to deal with this problem. 

Deal with this problem has two aspects. One aspect of that is 

development and the other aspect of it is political engagement. On 

development, I think if we are willing to be quiet about it and to 

talk to this Niger Delta ministry, to talk to others, about how they 

can spend the significant sums available for development to make 

a difference in the Delta I think that can be helpful, because 

57 

there’s been a lot of money washing around, as has been said here. 

It’s absolutely true. But whether that’s roads, job creation, they’ve 

got to have change on the ground. 

I think we do have expertise, we this community here, the development community, but that has to be quiet and not in the newspapers and not public, because if it looks like external pressure 

they’re going to push back on it. 

The second thing is I think we do have to have a quiet conversation with the Nigerians that it isn’t just their problem diplomatically. There’s strong resistance, especially to the former colonial 

powers, to go in and tell them how to do their business. But the 

fact is that by having a contact group—United States, European 

Union, the Chinese, if they’re willing to be part of it—that you can 

give the groups in the Niger Delta, the militants in the Niger 

Delta, the sense that there is an external watch going on over 

whatever political concord is going on. We’re not going to be guarantors per se in terms of military, but we can be helpful. 

I think the third thing we have to do is keep shining a light on 

the transparency side and on the crime side. I think we, through 

a previous CSIS study, we figured out that for $100 million you 

could put basically a ship with radar capability into the river delta 

and some fast boats and you could basically shut off bunkering 

from the Niger Delta through two river streams. 

The Nigerians didn’t want to take us up on that offer, but I think 

we’ve got to keep putting that in their face because it’s a way to 

say, we can show you how it’s done and then you can buy this yourself. So I think there’s a security strategy as well. 

But I think the last thing I would say is something we didn’t do 

and we need to do in the future is to acknowledge progress where 

it has been made. We never complimented, at the Presidential or 

Secretary of State level, the Nigerians for doing Nigeria EITI, for 

doing the greatest, most intrusive audit ever done under EITI principles, for publishing what was paid in the States and everyplace 

else. We’ve just sort of hit them when they’re down, but we never 

said this is great. And they need that for the political return for 

doing this kind of work, to give them a political incentive to do it. 

So I think we need to find a way to say ‘‘good job’’ where we can. 

Senator FEINGOLD. I think that’s a really good point. I remember 

when President Obisanjo wanted to think about going for another 

term and Parliament said no. I went out of my way to say, this was 

a great thing that you stood firm on this. It’s very important that 

you acknowledge the positive. I appreciate that comment. 

Mr. Taylor, it looks like you wanted to comment on that point, 

and then after you do that I’d like you to go into a little bit more 

detail about the importance of civil society in African countries, the 

critical role they play in ensuring accountability within extractive 

industries. In your experience, how can civil society in Africa be 

further supported to play a more active watchdog role? 

Mr. TAYLOR. Thank you, Mr. Chairman. It’s just a small point. 

I don’t disagree with what David was just saying in terms of the 

Niger Delta and bunkering, but this might be of interest and I 

think it requires a bit further checking because I would sort of solidly support such an approach. But a number of years ago we were 

informed that Shell had a technological capacity to essentially— 

58 

this might be the wrong terminology, but essentially fingerprint oil 

from certain locations. Obviously, you need a reliable database 

from the various places. 

The reason I want to raise this is we’re talking a lot of oil goes 

disappearing net. You hear the figures 300,000 to 1⁄2 million barrels 

per day can just go; a vast quantity anyway. My point really is you 

can’t hide that stuff. Somebody in some refineries are getting it. 

At the time of the conversation I’m referring to, there was reference to a refinery—I don’t know which one—in Texas and another one in Rotterdam. So wouldn’t it be interesting from the enforcement point of view to check whether certain supplies of oil into 

various refineries that maybe one could sequence are actually receiving this stuff, because it’s basically stolen goods. 

At the time there was a refinery down the coast, I think operated 

by TOTAL, in Coˆte d’Ivoire that took only 30,000 barrels and they 

discovered that it was taking bunkered oil. What the government 

did I understand was to short out the bunkerers by basically formulating a proper contract so the money went to the state instead 

of the bunkerers. It seems to me that would be a very cost effective, 

very nonviolent way of dealing with what is otherwise a difficult 

thing when it comes to enforcement with lots of people with guns. 

It just seems I’d just like to commend that as something worth 

looking into. 

In terms of civil society itself, it’s something I really wanted to 

emphasize. We’ve encountered a number of problems in different 

countries, ranging from Congo-Brazzaville, where our colleagues 

there were judicially harassed for nearly a year, to Gabon, where 

civil society organizations were effectively closed down whilst 

Gabon was a board member of EITI. 

One aspect I think of a heightened effort by the U.S. Government, but also other participants, is to jump on this stuff, think to 

create the culture where a country like Gabon wouldn’t even consider closing down civil society whilst a board member. I find it 

quite unconscionable that they even thought that was a goer. So 

I think to do something to address that. 

We desperately need to have civil society empowered, because 

this is not an audit process where you put the file on the shelf; this 

is about civil society holding government accountable. If, as we referred to EG earlier, 34 political prisoners released, well, great. But 

they still win 99 percent of the vote, there’s no opposition press, 

there isn’t really a civil society. We need to do something about 

that. Otherwise, frankly, it becomes a bland auditing process and 

won’t deliver. 

Senator FEINGOLD. Thank you, Mr. Taylor. 

I thank the whole panel. It’s an excellent panel. I know all three 

Senators involved feel that way. I particularly want to thank my 

colleagues for their very serious participation in this entire 

hearing. 

I’m going to close the hearing. We’re going to leave the record 

open until Friday, without objection. With that, the hearing is 

concluded. 

[Whereupon, at 11:27 a.m., the hearing was adjourned.] 

59 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT HON. CHARLES E. SCHUMER, U.S. SENATOR FROM NEW YORK

Chairman Feingold, Ranking Member Isakson, and the other members of the subcommittee, thank you for holding this hearing on this important subject. I am 

pleased that the committee is looking for ways to address the resource curse and 

to promote policies that will help countries with abundant natural resources develop 

economic development and political stability. I strongly believe that utilized properly, natural resources can play a positive role for economic and political development in host countries. However, declining economic growth, social inequality, political repression, domestic violence, and pervasive corruption are more often than not 

the outcome when developing nations tap into their natural resources. 

One of the most serious problems with the operation of extractive industries in 

developing countries is the lack of transparency in the accounting of revenue and 

profit from extractive industry. This lack of transparency often gives way to endemic 

corruption, creating ‘‘rentier states,’’ with weak government institutions that use 

these revenues to keep themselves in power, and often fall prey to powerful outside 

interests. As a result, citizens of these countries see little, if any benefit, from their 

own natural resources. More often than not, they do experience all the negative consequences from the extraction of natural resources. And corruption within host governments increases the potential for global economic and political instability in the 

form of civil unrest, state failure, terrorism, and economic and humanitarian crises. 

As a result, resource-rich developing nations rank at the bottom of development 

indices, especially with regard to economic growth, transparency, and stability. 

Countries such as Nigeria and Angola are clear examples of this; their governments 

have consistently been bad stewards of their countries’ natural resources. Instead 

of generating wealth and political stability, the income generated by naturalresource extraction creates incentives and opportunities for corruption, and finances 

extra-legal activities, such as militias used for domestic oppression. 

Currently, there are no rules in place that explicitly require any disclosure of the 

payments that host governments receive from international oil or mining companies 

that operate in their country. All too often, the international companies who engage 

in natural-resource extraction in these countries pay significant fees to the host governments, as a prerequisite of even being able to operate within their borders. As 

a result, it is difficult, if not impossible, to calculate the revenue streams to a government from crude oil, mining, and/or natural gas extraction, with any accuracy. 

This lack of accountability allows the host government to abscond with the revenues 

that should be shared equally by all citizens. Often, government officials will use 

this wealth for their own personal enrichment and to secure their hold on power, 

allowing them continued access to the wealth of the state. 

It is clear that without a financial accountability on the part of the host government, the extraction of natural resources will continue to perpetuate poverty and 

hinder economic growth and political stability in developing countries. In an effort 

to ensure that these payments to host governments are not being channeled to corrupt officials or being used to fund political violence, I have introduced the Extractive Industries Transparency Disclosure Act of 2008. 

This bill would require all companies registered with the Securities and Exchange 

Commission (SEC) to annually publish any payment made to foreign governments 

for the extraction of natural resources, including oil, gas, metal ores, coal, industrial 

materials, and minerals. The legislation also directs the SEC to make the information it receives publicly available on its Web site so that the information is available 

to citizens of the host countries, nonprofit organizations and other groups working 

in the host countries, and to corporate shareholders. 

The cost to the SEC of implementing and maintaining this information would be 

minimal. According to Global Witness, 14 of the world’s 15 largest publicly traded 

oil and gas companies would be covered by this legislation. This will help to ensure 

that a level playing field for all companies is maintained. My legislation would also 

protect foreign companies from giving bribes or other types of illicit payments to 

host governments, as any and all payments made would have to be publicly 

disclosed. 

According to the Publish What You Pay Coalition, 25 of the world’s 33 oil rich 

countries have ‘‘low’’ or ‘‘medium’’ UNDP human development ratings; this bill will 

help ensure that the benefits provided by natural resources in these nations are directed to those most in need. Public disclosure of these payments will allow ordinary 

citizens and government accountability groups to hold governments liable for money 

stolen, misspent, or squandered. The transparency provided by this legislation is a 

60 

critical step in fighting corruption and the instability it fosters in resource rich 

developing nations around the world. 

Instability in resource-rich is more than a development problem—it directly impacts our national security, as well. In addition to its current instability due to political and ethnic fighting, Iraq is also at risk of the resource curse. Much of the current fighting is centered over the shift of power between the Sunni Arabs and the 

Shia Arabs. This fighting will be exacerbated once Iraq’s oil and gas industry resumes its previous production levels, given the historically high price of crude oil. 

Even without returning to their preinvasion production levels, Iraq is on pace to 

generate roughly $100 billion in profit from its oil production in 2007 and 2008. 

Unfortunately, the Iraqi Government has yet to pass a revenue-sharing law to 

ensure that Iraq’s oil resources are shared in an equitable and transparent manner 

and that all current and future revenues equally benefit Sunni Arabs, Shia Arabs, 

Kurds, and other Iraqi citizens. Failure to pass such a law will make Iraq even more 

dangerous and unstable, a disastrous outcome for Iraq, the region, our servicemembers fighting in Iraq, and our national security. 

I believe that the State Department needs to enumerate a clear policy that encourages the Iraqi Government to develop quickly an effective framework for national hydrocarbon legislation that includes all interested parties. I also believe that 

the State Department should be working to ensure that any contracts signed for 

both technical service and oil field development do not circumvent this process and 

thusly undermine it. 

Chairman Feingold and Ranking Member Isakson, thank you again for holding 

a hearing on this important topic that not only affects economic growth, but our 

national security. I look forward to future opportunities to advance my legislation 

and to make progress on this issue in Iraq and other developing countries. 

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