UN Security Council debate on conflict and natural resources: Remarks by Kofi Annan

Mr President,

Council Members,

AnnanThank you for this opportunity to address you today. The topic of your discussion is extremely important and it is one that is close to my heart. 

I will limit my remarks today to what concerns Africa, although I believe the challenges facing the continent also have relevance for many other parts of the world.

For years, we have seen that natural resources have been a presence in – and at times a driver of – internal or regional conflicts in Africa. Over the past 15 years alone, rivalry for access to natural resources has fuelled wars and rebellions in Sierra Leone, Liberia the Democratic Republic of Congo, Sudan and South Sudan, and elsewhere. Oil has also played an important role in the recurring violence in the Niger delta. 

This close and recurrent association between natural resources and war has led some people to describe the discovery and exploitation of natural resources in Africa as a curse. 

Such a view is far too simplistic. For every conflict, one can find several contrasting examples of African countries where natural resources are now fuelling sustained high growth and are improving their citizens’ daily lives.

Natural resources are neither a curse nor a blessing. They are simply a source of opportunity. They can be used for tremendous good or they can be wasted.

Over the past decade, Africa’s economies have been riding the crest of a global commodity wave. Surging demand for natural resources in China and other emerging markets has pushed export prices to new highs. Africa’s petroleum, gas and natural resources have become a powerful magnet for foreign investment. With new exploration revealing much larger reserves than were previously known, Africa stands to reap a natural resource windfall.

The challenge facing the region’s governments is to convert the temporary windfall into a permanent breakthrough in human development.

Let us remember: natural resources do not cause war. Violent conflict happens when national institutions are too weak to contain political, ethnic or religious tensions within a peaceful national dialogue. But the competition for natural resources can often amplify and accelerate conflict, tearing apart the already weakened fabric of such fragile states, or raise the stakes in latent conflicts between neighbouring countries.

The discussion therefore needs to focus on how natural resources can contribute towards higher human development outcomes and reduce inequality; the actors involved in their extraction; and the rules that govern international commerce can help prevent such centrifugal forces from occurring. Effective and transparent management of a country’s natural resources is a priority for conflict prevention, fighting corruption and promoting sustainable development.
For societies to function and prosper, we need three inter-related conditions: economic and social development; peace and security; and the rule of law and respect for human rights. If exploited well, natural resources, can contribute to strengthening all three.

The responsibility for ensuring this lies primarily with African governments. The starting point is for all countries to develop national strategies that set up the terms under which their natural resources will be developed, including fiscal policies, contractual arrangements and tax regimes. These strategies should replace short-term calculations with the necessary long-term thinking.

Critically, these national strategies must identify extractive projects that can generate more jobs, by linking effectively to the existing, local economy. Africa cannot build dynamic growth and shared prosperity while extractive projects operate within enclaves or countries export natural resources without value added.

Above all, national strategies have to set out how the extractive sector fits with plans for poverty reduction, inclusive growth and social transformation.

Success will require leadership, transparency, and accountability. Transparency is a powerful tool and there is no substitute for public scrutiny in developing effective and equitable policies.

However, African governments cannot resolve all these governance challenges on their own.The international community must also shoulder responsibility. When foreign investors make extensive use of offshore companies, shell companies and tax havens, they weaken disclosure standards and undermine the efforts of reformers in Africa to promote transparency.

Such practices also facilitate tax evasion and, in some countries, corruption, draining Africa of revenues that should be deployed against poverty and vulnerability. This year’s Africa Progress Report found that anonymous shell companies were used in five deals that cost the Democratic Republic of the Congo nearly US$ 1.4 billion between 2010 and 2012. This sum is equivalent to almost double the country’s combined budget in 2012 for health and education. Indeed, Africa loses more money every year through a tax avoidance technique, known as trade mispricing, than it receives in international development assistance.

Conflicts driven by natural resources can and should be prevented long before they start. Once arms are drawn it is too late.

By securing international rules to close down opportunities for tax avoidance, rules that limit the use of shell companies and other tools that contribute to secret, murky and exploitative deals, the international community may help prevent the conditions that lead to armed competition for the spoils of natural wealth.

Once an armed conflict has already started, natural wealth both drives it by increasing the reward for victory, and fuels it by providing revenue to buy arms and ammunition.

The Council can play an important role in ending the plunder of minerals and other natural resources that perpetuate violent conflict. In West Africa, for example, the Council took vigorous action to ban the traffic in diamonds and timber, the proceeds of which was funding armed groups.  Without those measures, UN efforts to end the wars in that region would have been harder.  The Kimberley Process to prevent “blood diamonds” was not ideal, but it showed that the international community is able to work together to cut off illegal revenue streams that fuel wars.

What we need today is a much more ambitious and comprehensive framework for transparency, fair tax practices and asset pricing so that the conditions that contribute to conflict over natural resources can be eliminated.

The Africa Progress Panel, which I chair, looked in detail at how natural resource wealth best can contribute to improved wellbeing and equitable growth for African nations. Our outlook is optimistic.

For the first time in over a generation, the number of people in poverty in Africa has fallen. Child death rates are declining. There has been progress in combating major infectious diseases. More of Africa’s children are in school. All of this is evidence that a combination of stronger economic growth and strengthened policies can deliver results.

Building on a decade of strong growth, economic governance continues to improve in many countries, providing protection against the boom-bust cycle fuelled by earlier commodity booms. Across the region, democracy is sinking deeper roots – and the accountability that comes with democracy strengthens natural resource management.

Some foreign investors show they can make a healthy return from African  investment while also adhering to the highest international standards of social and environmental protection.
Economic collaboration across borders have shown to be a very strong peace-builder, and such cross-border collaboration should be strongly encouraged by governments with private sector partners when it comes to the exploitation and processing of natural resources, whether it is through multi-country pipelines, iron ore smelters, refineries or other down-stream industries based on extraction.

It is encouraging that today, a shared agenda is emerging.  What is striking is that change is happening, and fast, as the demand for greater transparency and fairness extends globally and accelerates.

For example, for citizens everywhere, in Africa, in G8 countries and across the globe, current tax practices are raising questions about fairness, social justice, and citizenship.

In the past year, the US and European Union have introduced new transparency requirements; we have seen the UK and France sign up to the EITI; now Canada has announced its intention to introduce mandatory transparency requirements for its extractives sector; and Switzerland has just voted to draft a payment disclosure law similar to the ones in the US and the EU.

The international community has a major responsibility in putting in place such an environment. The G8 Summit in Lough Erne earlier this week was a [major] step towards creating such an environment. I hope the United Nations can continue to play its role in helping to make this happen.

Thank you.

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