The extractive industries sector: an opportunity for development
The oil, gas and mining sectors contribute significantly to government revenues, GDP and export in resource-rich countries. Despite this opportunity for development, many resource-rich countries fail to use the extractive industries sector for wider economic and social development, resulting in higher poverty rates and, in some instances conflict. This is sometimes referred to as the 'resource curse'.
This page gives an overview of the role parliament can play in the extractive industries sector, and the ways in which it can contribute to the use of the petroleum and/or mining sectors for long-term sustainable development. It also offers a detailed overview of the stages of the extractive industries value chain, including a discussion on the national budget, with suggested action steps and general guidelines for parliamentarians.
Parliaments and the Extractive Industries Sector
The three core functions of parliament–-representing constituent interests, legislating, and overseeing the executive branch–-are crucial to improving the governance and management of resources. This is because legislators are responsible for ensuring that the government allocates revenue appropriately, for scrutinising the government's collection and expenditure of revenue, and for implementing legislation and policies. The legislature is also responsible for ensuring the passage of extractive legal and regulatory frameworks that address citizens' needs and interests, and for making sure the government holds industry accountable in complying with these frameworks.
Additionally, parliament holds the 'power of the purse' (control over public expenditures), giving it the authority to review, amend and authorise national budgets. Given the sizeable impact of extractive profits on the national budget in resource rich countries, both as components of national revenue and expenditure, an understanding of the budget process is crucial for the development of sound natural resource strategies. By exerting its oversight authority during the budget process and in the development of medium and long term economic strategies, parliament can guide economic policy towards countering the resource curse.
Through its oversight function, parliament acts as the national watchdog of the policies and politics governing the extractive industries sector. Parliament should ensure that the implementation of laws, programmes and policies by the government is carried out in an effective and legal manner. It can do so through closely monitoring and evaluating government policies and actions in this field, and by actively engaging with the governmental and non-governmental actors involved. This task can be accomplished through various oversight tools at the disposal of parliament, including question period, committee hearings, interpellation, and the design and presentation of recommendations for reform.
To read more about parliament's oversight function with regards to extractive industries, please click here.
Extractive Industries and the Budget
Budgeting is a process rather than an event, and budget cycles are ongoing and interconnected. In most countries, the ultimate control over the national budget rests with parliament. This 'power of the purse' constrains governments to tax and spend only in specific ways and seeks to ensure sound management of funds, disciplined reporting, and transparency. It also provides a means for parliamentarians to be heard on how money is to be obtained and spent.
Fighting the resource curse effectively and efficiently requires a public financial management system in which budgetary allocations are open and transparent. By getting involved in the budget process, parliamentarians can direct the allocation of revenues in ways that alleviate poverty and promote social and economic development. To read more about extractive industries and the budget, please click here.
Through its legislative function, parliament is responsible for drafting and reviewing bills, and passing the legislation needed for effective natural resource management and reform. The parliament can introduce laws to open up trade, encourage or create incentives for private sector development, and launch regulatory frameworks that provide controls for the operation of private corperations in a country. Additionally, legislatures can introduce legislation that requires extractive companies to disclose the revenue they earn as a condition for being listed on stock exchanges.
Regulatory frameworks regarding the management of natural resources are often spread across different pieces of legislation and government policies. Through their lawmaking function, legislators can support reform processes and improve regulations, thereby creating an enabling environment for the sustainable and accountable management of extractives.
To read more about parliament's legislative function with regards to extractive industries, please click here.
Parliaments are uniquely positioned to understand and monitor how the management of extractive industries impacts citizens, acting as a bridge between the government, the private sector and civil society. Through its representative function parliament can ensure that the voices, preferences and needs of the public are heard and articulated.
By conducting public consultations, communicating with the media, reaching out to constituents and employing a range of other methods at their disposal, legislators can incorporate citizen needs and feedback into the decision-making process, whether that is a law, state budget or oversight investigation.. They are also crucial in building public awareness about the challenges and opportunities associated with natural resource management, and in instilling a sense of 'ownership' of these resources among the population at large. Additionally, Parliaments can serve as a forum for multiparty consensus on extractive industries' policies, as well as (pro)active and sustained engagement with non-governmental actors such as Civil Society Organisations, experts and the media.
To read more about parliament's representative function with regards to extractive industries, please click here.
Converting the potential wealth of natural resources into a tangible improvement in the well-being of citizens requires a series of steps that are generally referred to as the 'resource/extractive value chain'. The objective of maximising benefits for current and future generations, and the goal of arriving at efficient, sustainable development, can be broken down into six stages:
- the decision to extract;
- negotiating the best deal;
- developing the resource and monitoring operations;
- collecting and disbursing revenues;
- tracking and auditing expenditures;
- sustainable practices in extractive industries.
All decisions made throughout this value chain should be executed in a way that provides maximum benefit for the citizens. Policy makers face difficult choices, including deciding the pace at which extraction should occur, how best to minimise environmental damage, and implementing measures to take to avoid social conflict. Inter-generational in nature, these decisions have to be made in a highly volatile and uncertain environment, largely due to the unpredictable nature of the industry.
There are, however, several practical guiding principles that can help boost transparency, accountability and social and economic development in a resource-rich setting. To read more about the value chain, please click here.
A strategic framework for the extractive industries sector
The effective use of revenues gained through the exploration of natural resources requires a strategic framework at the national level (and, in some cases, sub-national), detailing the country's long-term economic and social development goals. If available, links with existing Poverty Reduction Strategy Plans should be explored to the fullest extent possible. The strategic framework should also clarify the role of the extractive sector and establish a clear legal framework to serve it.
Within this framework, all decisions made along the six stages of the value chain should reflect the wider objectives identified. The overall aim must be to maximise benefits for citizens, both of present and future generations.