Extractive governance: the importance of the sub-national

11 September 2016

A seminar was held in London on this topic on Friday 9 September at the Overseas Development Institute (ODI), jointly sponsored by the ODI and the Natural Resource Governance Institute (NRGI). The principal aim was to present significant work carried out over the last eight years by the NRGI on the topic, based on country studies including Peru.

The director of the NRGI, Daniel Kaufman, who led the discussion, emphasised that while an increasing proportion of the revenues generated from natural resources was being passed through to the sub-national level, too little attention is given to local governance and the way such flows are used.

Peru featured in the discussion, but as an exception to the general rule that insufficient resources from the extractives boom had been distributed downwards from the national to the sub-national level. Kaufmann argued that Peru exemplified the damage done by passing resources down to the local level in the context of inadequate institutions and the lack of capacity to manage them.

The question was posed from the floor as to how we decide in governance terms, what should rightly belong to the national level, what to the sub-national? A good point was made from the panel in reply: the issue is not national versus sub-national, but the importance of clarity and certainty in areas such as licensing, cadastral surveys and all matters concerning property rights.

Then the question arose as to what is 'local'? Peru proved highly relevant here. Civil society at the varying levels of ‘local-ness’ is anything but homogenous. The degree to which any local organisation has legitimacy and the ability to represent interests varies, as does its capacity to respond. Some extractive companies, it was argued, are beginning to see they need an understanding of local power dynamics, whereas government tends to be less aware of this, and election cycles affect the building of such an understanding.

It was pointed out, again from the floor, that attention had indeed been given to the sub-national level, but this was mainly from the angle of human rights and community issues. In much macro-economic analysis the distorting effects of extractive booms (the so-called ‘Dutch Disease’) on sub-national governance tended to be neglected, while at the community level there was a plethora of studies from sociologists and anthropologists that document and analyse the impact of resource booms. The challenge is how to integrate these two levels of analysis.

On this, a crucial challenge for Peru was not addressed. How should a country rationally decide how much of its resource revenue should be managed from the centre, and how much should be considered a right to be exercised by the local population, and indeed which local population? Peru's institutional arrangements actually distribute a fairly large percentage of revenues arising. Politically calculated to persuade regional elites to go along with pro-foreign investment policies, this sort of approach is inappropriate since it fails to take into account the development needs of areas that lack extractive industries, or the capacity of the local governments to manage fiscal resources effectively and honestly.

A summary paper of the work by the NRGI is available at: http://www.resourcegovernance.org/sites/default/files/documents/subnational-governance-extractives-fostering.pdf.

For the panel and a summary of the debate see:
https://www.odi.org/events/4398-governing-extractives-local-level

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