Introduction
The extraction of oil, gas and minerals is one of the most politically, socially and economically complex undertakings in development. It is a business that connects the world and sates much of our hunger for energy and raw materials. It produces inputs to almost every physical product manufactured. It has contributed to one of the most fundamental challenges in human history—climate change. It has produced trillions of dollars in revenues. These vast sums of money contrast cruelly with the poverty of many countries where resources are found—1.8 billion people live in poverty in the scores of countries assessed in this index.1 The empirical evidence is clear: changing this dire situation requires improving governance—the institutions, rules and practices that determine how company executives and government officials make decisions and engage and affect citizens, communities and the environments they inhabit. To improve governance, one has to diagnose in detail what works and what does not, and that requires measurement. The Resource Governance Index assesses the quality of natural resource governance in 81 countries that together produce, among other commodities, 82 percent of the world’s oil, 78 percent of its gas and 72 percent of all copper.2 The index has as its intellectual foundation the Natural Resource Charter; both are the product of the expertise of NRGI staff and a network of external scholars and practitioners. The index is the sum total of 89 country-level assessments (in eight countries we assess both oil and gas and mining sectors), formulated using a framework of 149 critical questions answered by 150 researchers, drawing upon almost 10,000 supporting documents. Researchers’ careful assessments of extractive sector factors are combined with pre-existing data, from other sources, on countries’ broader enabling environments. The findings presented in this report reflect highlights from a much larger set of data and country profiles available online at www.resourcegovernanceindex.org.
So what does the index tell us? The data show that despite substantial efforts from governments, advocates and the international community, in most countries governing resources remains a major challenge. Every country could improve in at least one important area of governance, and most countries have significant room for progress in multiple areas. At the same time, reformers have achieved a great deal. The index shows that many countries— even some in very challenging situations—have taken concrete steps in the form of rules and procedures. Those promoting change need not look far to find inspiration on how to better govern—there are countries pursuing innovative approaches and progressing in every region. The evidence shows that more progress is taking place in the adoption of rules than in their actual practice; often those who seek improved governance should in many places focus on implementing existing legal frameworks. We also learn that better resource governance emerges in countries where civic space is safeguarded and corruption risks are mitigated. Considering the imperative of inclusive growth in resource-rich countries, improvements at the international level are also called for—including by members of the G7, multinational companies and international financial institutions. Work remains for producing countries that seek further economic transformation and diversification, better protection of the environment and assurance that citizens benefit from extraction. The main priorities and preferred pathways to action will vary across countries and actors, which means that informed and inclusive public debate is essential. These dialogues must incorporate political, economic, social and environmental considerations. We trust that the evidence in this index will inform such debates and the resulting decisions.
Daniel Kaufmann
President and CEO Natural Resource Governance Institut
Resource Governance Index country scores and rankings
Creating the 2017
Resource Governance Index
WHAT THE INDEX MEASURES
The Resource Governance Index assesses policies and practices that authorities employ to govern their countries’ oil, gas and mining industries. The index provides a composite score for each assessment. For most countries, the index assesses either the oil and gas sector, or the mining sector. For eight countries, the index assesses both. For each assessment, NRGI has calculated the composite score using the scores of three index components. Two of the components comprise new research based on expert answers to a detailed questionnaire, and directly measure governance of countries’ extractive resources. The first component—value realization—covers the governance of allocating extraction rights, exploration, production, environmental protection, revenue collection and state-owned enterprises. The second—revenue management—covers national budgeting, subnational resource revenue sharing and sovereign wealth funds. The index’s third component assesses a country’s enabling environment. This component draws on pre-existing research to measure the broader governance context.
The score for each of these three components is based on the scores given to its subcomponent policy areas. Each of the subcomponents within value realization and revenue management focuses on distinct areas of governance and relates to a precept in NRGI’s Natural Resource Charter and its benchmarking framework—analytical and diagnostic tools that represent the chain of decisions that governments and societies must make to benefit from their resources. Scores are on a scale of zero to 100 at each level of the index, allowing users to benchmark the quality of resource governance across the composite, components and subcomponents—both within and between countries. As with any exercise of this type, there is some inherent uncertainty around the index scores. In practical terms this means it may not be sensible to make conclusions based on small differences in scores. For this reason, results are grouped into performance bands: good, satisfactory, weak, poor and failing
Index composite Index component Index subcomponent
Resource Governance Index composite and component scores
Findings
Most countries still face daunting governance challenges
Having billions of dollars’ worth of oil, gas or minerals below ground would suggest that citizens in a country should be well off, but the economies of countries rich in resources have grown more slowly than the economies of countries that are resource-poor.4 One reason for this disparity is the quality of governance.5 Of the 81 countries included in the Resource Governance Index, 47 are classified by the International Monetary Fund as resource-rich, with oil, gas or minerals dominating the economy.6 The majority of these countries exhibit weak, poor or failing resource governance in index assessments. But this is not a universal paradox. Countries like Botswana, Indonesia, Mongolia and Norway are all resource-rich, but sit in the good or satisfactory performance bands.
Wealth is not a precondition for good governance
The index shows that rich countries are not immune to resource governance problems. Western Australia scores low in governance of licensing and taxation. The U.S. scores only 50 of 100 points for its policies and practices in protecting the local environment in the Gulf of Mexico. Of the 13 high-income countries in the index, 6—all in the Middle East—fail to achieve either good or satisfactory composite scores. The worst-performing in this group is Saudi Arabia, which scores only 36 points. Conversely, several middle- and low-income economies do comparatively well: Brazil, India and Colombia are in the top ten. Even many of the poorest countries in the index—while failing to achieve good or satisfactory composite scores—do perform well in specific subcomponents.
Resource governance differs significantly within regions
The index shows that countries with similar historical and geographical characteristics govern their extractive resources differently. There is a large variance in governance performance for example in Eurasia; Mongolia achieves a score of 64 of 100 points but Turkmenistan scores only 11. In Latin America, Chile scores 81 points, and Colombia’s oil and gas sector 71, in contrast to its neighbor Venezuela, which scores only 33. Generalizations about the performance of a whole region can be misleading since there is significant variation across countries—but the better performers show others in the vicinity that good governance in extractives is possible.
Resource governance varies significantly within countries
Looking past a country’s composite score to the components and subcomponents of the assessment reveals a great deal of variation. In over half of the assessments there is a difference of more than 20 points between the strongest and weakest components: Sierra Leone’s satisfactory value realization score of 62 is vastly superior to its revenue management score of 35, for example. But this pattern can also be seen in rich countries such as the U.S. and Canada (with weaker scores in their revenue management components), and in oil-rich countries in the Persian Gulf. Furthermore, very few countries achieve a good or satisfactory score across all subcomponents evaluated in the index. These differences matter because effective resource governance (and consequent benefits from extraction) requires a broad-based foundation of strong policies and procedures.7 For instance, in its oil and gas sector Colombia scores 100 points for governance of its sovereign wealth fund, but only 36 for protecting local communities and the environment. The country may have instituted. robust measures to manage its Savings and Stabilization Fund, but without better regulation and protection, communities living near oil extraction sites may be exposed to intolerablerisks, significantly weakening the case that oil extraction has benefited Colombians overall.
