22 April 2009
Trends in the relationship between World Bank and IFC technical assistance policies and the IFC’s investment portfolio raise questions over possible conflicts of interest. Disclosure at the IFC remains opaque, making details of projects and policies hard to come by.
original Source:
Bretton Woods Update No.65, March/April 2009
By Nadia Daar, Bank Information Center, April 17, 2009
Over the last couple of years, the International Finance Corporation’s (IFC) regional advisory service agency, the Private Enterprise Partnership Middle East/North Africa (PEP-MENA) has provided assistance to the Yemeni government in the drafting of the country’s mining law, which is expected to pass through parliament within a few months. This policy is supposed to reflect best practices, yield increased transparency, efficiency, and regulatory accountability, as well as streamline administrative procedures faced by investors.
Meanwhile, in March 2008, the IFC took the lead in Yemen’s tax reform, and pushed a reduction of corporate taxes to attract greater foreign investment. The Bank also pushed for this change through Yemen’s development policy loan, a direct budget support instrument that disburses funds based on policy and institutional reforms. The Bank maintained that to make up for lost tax revenues, the government would have to double the sales tax to 10 per cent in 2009. An increase in sales tax to make up for the corporate tax reduction, would compound the harsh conditions faced by the population, 42 per cent of whom live in poverty and 20 per cent of whom are malnourished, according to the Bank.
While the IFC is encouraging the reduction of corporate taxes, PEP-MENA is helping to draft the mining code. It is very likely that the IFC will expand its investments in Yemen’s mining, oil and gas sectors. The legal and tax reforms make it cheaper and easier for the IFC to invest. This trend is clear in Egypt, where the IFC helped draft the country’s new mining laws, and also has substantial investments in the mining industry.
This conflict of interest is clearly no accident; in a MENA report for 2008, IFC advisory services stated that “by the end of [fiscal year] 2008, about 50 per cent of PEP-MENA’s advisory work, based on project value, was linked to the IFC’s current and potential investments”.
Similar trends are seen beyond the MENA region: while the Bank has been supervising the DRC’s mining policy since 2001, the IFC maintains investments in DRC copper mines. These trends are seen in other sectors, with the Bank providing substantial technical assistance in India’s power sector reforms, while the IFC has invested in the country’s power industry, reflecting the overall strategic plan for each region established under the umbrella of the World Bank Group.
Coherence lacking
The mining industry is particularly sensitive because of the vast damage to the environment and surrounding communities from poorly regulated mining projects. A World Resources Institute report encourages greater community engagement in extractive projects, to “mitigate risks, to improve the lives of communities and strengthen a project’s viability.” Nonetheless, nobody representing potentially affected communities was invited to participate in the drafting of Yemen’s mining policy. The mining industry is also vulnerable due to a high level of corruption, not only in infamous cases such as the DRC or Guinea, but also in Yemen.
In September 2007, Yemen became the first MENA country to be accepted as an Extractives Industry Transparency Initiative (EITI) candidate. This initiative aims to strengthen transparency and accountability in the extractives sector, by setting standards for companies to publish what they pay and for governments to disclose what they receive. Yemeni work has been slow even though they only have until March 2010 to implement the initiative. The Yemeni ministry of oil and minerals, designated to coordinate the implementation of EITI, has also worked with the IFC on the new mining code, yet there was no mention of EITI in the draft code.
Not surprisingly, the IFC’s record of transparency is mixed, at best, with weak disclosure policies and irregular adherence. Information on IFC advisory service projects approved during fiscal year 2007 can be found, with some difficulty, on the IFC’s website. However, details of the Yemen policy reform are limited to location, a brief description and total estimated funding. The limited information combined with the complexity of IFC’s investments in the mining sector, which could take place through several layers of subsidiary companies, make understanding the extent of these schemes almost impossible.