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Elbadawi and Sambanis 2000; Keen 1998).

As one expert summarised the fate of oil-exporting countries:
˜[T]heir reality is sobering: countries that depend on oil for their live-
lihood are among the most economically troubled, the most author-
itarian, and the most conflict-ridden in the world™ (Karl 2005, 21).
136 Beyond Corporate Social Responsibility
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Both developing countries such as Nigeria and Venezuela and
developed countries such as the United Kingdom and the
Netherlands have suffered from the resource curse; indeed, the term
˜Dutch disease™ (relating to the appreciation of a country™s currency
exchange rates) originally referred to the economic problems caused
by natural gas exports in the Netherlands. The potential effects of the
resource curse were greatest in countries with high dependence on oil
and gas revenues, such as Algeria and Nigeria (see Table 6.1).
In most developed economies, the effects of the resource curse
were minimised thanks to the diversification of the economy and
prudent government policy. Furthermore, a small number of resource-
rich developing countries “ in particular Botswana, Chile and
Malaysia “ have not only been able to beat the resource curse but
have achieved high economic growth (Hojman 2002; Sarraf and
Jiwanji 2001; Usui 1996). The biggest difference between successful
and unsuccessful resource-rich countries was the quality of governance.
In successful resource-rich countries, revenues from extractive industries
exports were utilised to stimulate economic growth elsewhere in the
economy, while the economy was insulated from resource-curse effects
through government policies such as the establishment of ˜revenue
stabilisation™ or a ˜savings fund™ (Stevens 2005). The differences between
successful and less successful countries in terms of the local economic
impact of the oil and gas sector are enormous. In Brazil and Malaysia,
about 70 per cent of the goods and services purchased by oil companies is
sourced locally; in Indonesia and Nigeria, the share of local content is
only 25 per cent and 5 per cent, respectively (United Nations
Conference on Trade and Development 2007, 141).
Given that skilful government policies and appropriate societal
institutions can reduce or avoid the effects of the resource curse,
the key challenge for resource-rich countries is how to improve
macro-economic and macro-political conditions. In other words,
the challenge is how to improve wider societal governance, which
is defined here as ˜the various ways through which social life is
The governance challenge 137
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table 6.1: Countries with highest dependence on oil and gas exports
(percentage of total exports, five-year average), 2000 4

Country Percentage of total exports Product description
Algeria Oil and gas
97.8
Nigeria Oil
97.8
Libya Oil
96.9
Yemen Oil and gas
93.3
Kuwait Oil
92.9
Angola Oil
92.2
Qatar Oil, petrochemicals
89.1
Saudi Arabia Oil
88.9
Brunei Oil
88.3
Azerbaijan Oil
86.6
Iran Oil and gas
86.3
Venezuela Oil
83.4
Turkmenistan Gas
81.0
Oman Oil
80.6
Gabon Oil
79.5
Sudan Oil
74.2
Syria Oil
72.8
Bahrain Oil
70.5
Trinidad and Tobago Oil and gas
61.3
Kazakhstan Oil and gas
56.1
Source: United Nations Conference on Trade and Development 2007, 87.


coordinated™ (Heywood 2002, 6). A recent UN study on extractive
industries pointed to the ˜urgent need™ to address societal governance:

Without a well-developed governance framework, there is an
increased risk that benefits from extraction will not materialize, that
138 Beyond Corporate Social Responsibility
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fiscal systems will lead to uneven sharing of revenues, that lack of a
coherent and concerted development strategy will lead to their misuse,
that local populations will be left disappointed, and that environ-
mental damage, health risk and conflicts will occur. (United
Nations Conference on Trade and Development 2007, 96)

Recent research suggests that even the most enlightened and far-
reaching CSR initiatives may face systemic constraints arising from
the existing systems of societal governance. In their research on BP™s
wide-ranging initiatives to contribute to development in Azerbaijan,
Gulbrandsen and Moe (2007) suggest that a shift of focus from
micro-level CSR activities towards macro-level governance issues
is crucial in addressing development issues. Similarly, in her work on
CSR initiatives in the coffee sector, MacDonald (2007, 793) found
that the focus of CSR initiatives on the industry™s supply chains
alone ˜has limited their ability to advance those dimensions of
worker and producer wellbeing that are shaped by a range of state
and non-state actors™ outside the supply chains. A number of other
authors have recently pointed to the importance of linking CSR to
wider societal governance (Blowfield and Frynas 2005; Frynas 2008;
Tallontire 2007).


Tackling the governance challenge

Oil companies have, until recently, rejected the notion that they
should actively address macro-level governance issues. Governance
in a society is ultimately related to the role of the government, and
companies have been reluctant to become drawn into the sphere of
politics. As one example, a senior USAID official recounted in a
private conversation how American corporations have been keen on
getting involved in various development initiatives in education and
health, but ˜for instance, we couldn™t get companies involved in
party-building activities in Zambia.™ In the words of one oil company
manager interviewed: ˜we cannot be government™.
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While the notion of non-involvement in government affairs has
not radically changed, a number of multinational oil companies
including Shell, BP and Statoil now recognise that they can play a
positive role in strengthening governance. BP in Azerbaijan is argu-
ably by far the most wide-ranging attempt by a single company to
address governance shortcomings. The company has publicly stated
that it is prepared to ˜engage in policymaking processes and offer
assistance, as appropriate, on the development and implementation
of policy agendas, which include for consideration addressing poverty
alleviation, revenue management, and domestic energy™ (quoted in
Gulbrandsen and Moe 2007, 819). BP has co-operated with the
government of Azerbaijan to facilitate expert advice on the manage-
ment of the country™s state oil fund and oil revenues. Furthermore,
the company operates a regional development initiative to initiate
large-scale and cross-regional development interventions in Georgia,
Turkey and Azerbaijan, with the European Bank for Reconstruction
and Development and the World Bank as partners. Governance is to
be improved through ˜civil society capacity building, strengthening
the rule of law, and proffering expert advice and assistance™
(Gulbrandsen and Moe 2007).
The initiatives by BP in Azerbaijan are exceptional in a number of
ways, but other multinational companies also profess to contribute to
better governance. Out of twenty oil and gas companies analysed for
this chapter, eleven explicitly state that they address governance
issues. However, the scope of governance initiatives is very narrow.
All of the eleven companies have largely focused on a single gover-
nance issue: revenue transparency, which refers to openness and
access to information with regard to company payments and govern-
ment revenues from oil, gas and mining. Nine of these companies are
based in developed countries. Only two out of eleven companies “
Brazil™s Petrobras and South Africa™s Sasol “ are based in emerging
markets, which reflects the relative sophistication of these two com-
panies in addressing CSR challenges (see Table 6.2).
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table 6.2: Support for revenue transparency by selected oil companies in 2006

Support for revenue Formal EITI
Company Country transparency supporter
BP UK + +
Shell UK + +
Chevron USA + +
Exxon USA + +
Statoil Norway + +
Norsk Norway + +
Hydro
Total France + +
ENI Italy + +
Repsol Spain + +
OMV Austria
CNOOC China
Sinopec China
Lukoil Russia
Gazprom Russia
MOL Hungary
Petrobras Brazil + +
Petronas Malaysia
PKN Orlen Poland
PTT Thailand
Sasol South Africa +



Revenue transparency is now regarded as the priority initiative to
address governance in resource-rich countries by policy makers, the
major oil companies and non-governmental organisations. It is
assumed that transparency can contribute towards minimising the
The governance challenge 141
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effects of the resource curse through beneficial political, economic
and social effects (see next section). The main expected benefit of
transparency is the reduction of corruption. Indeed, one expert on
transparency stated: ˜The word “transparency” is often used as a
synonym for the absence of corruption. Transparency is also thought
of as a solution or vaccine against corruption™ (Henriques 2007, 137).
BP was a pioneering oil company in terms of revenue transparency.
In 2001, BP announced that it would publish the following information
annually on their operations in Angola: total net production by oil
block; aggregate payments by the company to the state oil corporation
Sonangol in respect of production-sharing contracts; and total taxes
and levies paid by BP to the Angolan Government as a result of their
operations. In the same year, BP disclosed some payments that the
company made to the government of Azerbaijan. In a further unpre-
cedented move, the company published various documents “ including
production-sharing agreements signed with the government of
Azerbaijan “ on a website in 2002. BP™s actions on transparency were
hailed as a major step by some non-governmental organisations, most
notably Global Witness, a London-based NGO which has campaigned
for the disclosure of such information by oil companies.
However, none of the other major oil companies followed BP™s lead
in offering to publish their payments to governments. According to
interviews, the Angolan Government was highly displeased by BP™s
unilateral decision to publish payments to the government, and
Angolan Government officials even threatened to expel BP from
the country as a consequence. BP™s experience in Angola demonstra-
ted the collective action problem with regard to governance initia-
tives: most companies would benefit from improved governance in
host countries, but companies may be reluctant to pursue governance
initiatives because they may potentially suffer individually as a result.
BP™s lesson in Angola partly informed the birth of the Extractive
Industry™s Transparency Initiative (EITI) (see Box 6.1). The EITI was
launched in 2003 to improve the transparency of revenues paid by oil,
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Box 6.1: Extractive Industry™s Transparency Initiative
The Extractive Industry™s Transparency Initiative (EITI) was launched
at the suggestion of the UK Government in June 2003. The EITI describes
itself as ˜a coalition of governments, companies, civil society groups,

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