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Resource Revenue Collection Remains Weak

[Editor’s note: VOA Khmer recently spoke with specialists in the field of natural resource management in developing countries and learned that Cambodia is not alone in struggling to use natural resources to benefit its citizens. The resource curse, where natural riches fail to help the poor, is a worldwide scourge, the global experts told VOA Khmer in numerous interviews. Below is Part 14 of the original VOA Khmer weekly series, airing Sundays in Cambodia.]

Regardless of its bountiful resources, Cambodia cannot effectively collect revenue due to a lack of adequate state agencies, leaving revenue out of the hands of ordinary citizens but lining the pockets of a handful of elites, experts warn.

“Natural resources are big opportunities for any countries that have them, and they could transform the economy from poverty into prosperity,” said Paul Collier, an Oxford University economist and author of “The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It.”

It is important that the government have adequate laws, effective law implementation, and transparency to manage the revenues, which are important to a country’s socio-economic development, Collier told VOA Khmer in a recent interview.

In “The Bottom Billion,” an award-winning book, Collier points out that natural resource revenue to world’s billion-most poor is greater than international aid, but it is poorly utilized. Managed as effectively and efficiently as aid presently is, resources would have an enormous impact for development.

Collier proposes five steps to effectively recover resource revenue.

Step one is to carefully award contracts to get the resources out of the ground. This step can be disastrous when companies try to bribe their way into contracts beneficial to them and political elites, but not the nation.

Step two is to ensure the proper wording in contracts, where price risk is typically borne by governments, not companies.

Step three is to create transparency in all payments of natural resource revenues. If the average citizen does not know what money is coming in, he will have no hope of scrutinizing how it is used.

Step four is to build transparency in public expenditure, a vital route to development.

And step five is to make a set of rules for smoothing public spending.

“It’s important to focus on just the critical steps, which really means getting the revenues in, [through] transparent arrangement with the private sector,” Collier said. “And we’re particularly keen on processes like auction, which is more likely to ensure good revenue for the government. With the auction, the government does not really need to know a lot because the values of the resources are revealed by the bidding process of companies bidding against each other.”

William Ascher, a professor of government and economics at Claremont Mckenna College, in California, is the author of “Why Governments Waste Natural Resources: Policy Failures in Developing Countries” and “Bringing in the Future: Strategies for Farsightedness and Sustainability in Developing Countries.”

Ascher told VOA Khmer by phone that it is imperative for the government to make sure that both private and state enterprises in natural resource exploitation are required to hand over the intrinsic value of the resources to the government from the very beginning. And that often has to do with the contracting procedures.

“The most important aspect of that is making sure that they pay for their access to the resources from the very beginning, so that they are not left in the situation where everything that they get, in terms of revenues, is at their disposal to spend later on,” Ascher said.

“If the government is the agent acting on behalf of the people of the country, the government should collect what is called a natural-resource rent, which means the basic value of the natural resources as they’re being extracted, and that should go into the central budget,” he said. “And the central budget authorities in the Finance Ministry and planning agency and so on should be in the position to decide how that money should be spent best on behalf of people.”

However, Ascher added, the government should also not get greedy about revenue. Too much revenue coming into the country can create macroeconomic problems, particularly in inflation.

“So the government has to be far sighted in thinking about the rate of natural resource exploitation and to ensure that they don’t look aside if the private or state enterprise is engaging in too much exploitation to bring in revenues,” he said. “There’s no aspect of natural resources that has not been challenged by some inappropriate policies in an appropriate action. So I would imagine that for Cambodia, there are a lot of issues ranging from fishery to timber to oil to minerals.”

Ascher concern rings true for Cambodia, where natural resources have been almost exhaustively exploited in the absence of proper rules of law and inadequacy of state apparatuses, experts said.

Cheam Yiep, a lawmaker for the ruling Cambodian People’s Party and chairman of the National Assembly’s finance committee, told VOA Khmer the government follows the law on taxation, adopted in 1994. He acknowledged, however, the 1994 law does not provide for taxation of natural resource revenue.

“Oil and other minerals, such as bauxite, gold, and others, have not been illustrated in that law,” he said.

Without specific and proper guidelines, laws, and mechanisms, natural resource revenues cannot be brought effectively into national coffers, said Antoine Heuty, deputy director of the New York-based Revenue Watch Institute.

“The law is going to have to be developed to address specific challenges and develop saving and spending mechanisms that will address all activities, which is the major challenge for the country,” Heuty said.

Cheam Yiep said the National Assembly is receiving resources and assistance to enact a law for effective collection of resource revenue.

“As for natural mines in Cambodia, the government is preparing a separate law so that private extractive companies take responsibility to pay based on what is listed in tariffs of fiscal law on natural resources in Cambodia,” he said.

According to government figures, revenue from fisheries, forests and mining concessions rose from about $5.8 million, in 2008, to $6.85 million, in 2009.

Cambodia’s governance remains fragile, Heuty said, making it difficult to get resource revenue to the people. An accountable structure must be put in place to avoid problems of management, he said.

Specific guidelines are needed. These revenues are different from typical tax revenues, because they are finite. Cambodia will one day run out of resource revenue.

“If there is absolutely no structure to ensure that the money will be spent and collected and will benefit the citizens, then it may be better to leave the resources in the ground,” he said. “That’s a very extreme proposal, but some are advocating for.”

Another problem, he said, is corruption within the tax collection administration. If tax and customs departments are underpaid, they will not effectively bring revenue into national coffers.

“If you have civil servants that are paid almost nothing, and they are supposed to collect millions from a company, it’s not going to work,” he said. “I mean, it’s difficult to have a system that is functional if you have this type of situation, where the state is not looking forward to fulfilling its role. I think that is another challenge for the country; how to develop a capable state that’s ready to collect the money and then deploy it effectively.”