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how companies can call off the resource curse

December 2003

Oil and mining companies should exercise leadership to ensure host countries benefit from their operations, argues Daniel Litvin

One senior manager in a western oil giant has described it as potentially equivalent to tobacco litigation – an issue that ultimately could cost firms billions of dollars.

The issue in question is the ‘resource curse’, the theory that oil and mineral extraction, far from aiding the economies of poor countries, contributes to underdevelopment, corruption and even conflict. Although the idea is not new, it has become more prevalent in recent years, and has been taken up by a number of campaigning non-governmental organizations.

While it is arguable that some countries have certainly not been cursed by their resources – and in fact have used them to widespread social and economic benefit – it is undeniable that many others appear to have suffered as a result of their new found ‘wealth’. Whether this is a valid perception or not, business has to face the fact that it is becoming common currency. As many oil fields and mines in the rich world approach the end of their lives, big western firms are increasingly seeking out reserves in poorer countries. Favourite investment destinations for the oil industry currently include West Africa, the Caspian, and (no doubt before long) Iraq: all places with deep social problems. This comes amid a general climate of suspicion regarding the behaviour of transnational companies.

The theory threatens not just the reputation of the big firms, but could undermine the overall political climate in which they operate. If the firms are perceived to be fuelling economic and social problems in developing countries, governments eventually may respond with tougher regulations.

From the companies’ perspective, solving the issue presents major challenges. Better behaviour is called for not only from them but also from the host governments (who need to manage their economies better). Yet firms could be accused of neocolonialism if they tell governments how to behave.

The big western firms are already involved in various diplomatic initiatives (the Extractive Industries Transparency Initiative comes to mind). But these tackle only part of the ‘resource curse’ and could take years to bring significant change. What is needed is a more ambitious, pre-emptive company response: establishing a high-profile world commission of independent experts, for example, to report speedily on ways in which the firms should contribute to solving the problem – and also (importantly) on what governments must do. As well as raising standards of the CSR laggards in the sector, such an initiative would help protect companies from criticism regarding problems for which states are ultimately to blame. Over-ambitious? The scale of the potential problem threatening their own long-term growth demands that companies exercise leadership on this issue.

Daniel Litvin is author of Empires of profit: commerce, conquest and corporate responsibility (Texere), and director of Percept Risk and Strategy Ltd. daniel.litvin@perceptrs.com




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