Extractive Industries (Developing Nations)

Matt Hancock Excerpts

Friday 29th November 2013 Commons Chamber

[The Minister for Skills and Enterprise (Matthew Hancock)]

I congratulate the hon. Member for Falkirk (Eric Joyce) on securing this debate on the extractive industries and their impact on the developing world. During his speech, I was reflecting on the role of trade, alongside aid, in lifting developing countries out of poverty—he made the case for that powerfully. The rise of Africa and Asia is driven, in the first instance, by the free market operating in a strong framework of the rule of law. We are discussing one aspect of that, and how rules on transparency for the operation of extractive industries can strengthen that process and ensure that British companies and companies across the world can contribute to the growth of developing nations. Not only has he prosecuted his argument well over a long period, but it is gaining salience. The proof of that is in the strong growth rates of many of the countries around the world; so I would probably start on a more optimistic note than he finished on.

I also wish to pay tribute to, and put on the record the Government’s thanks for, the work that the hon. Gentleman does as the civil society representative on the UK extractive industries transparency initiative multi-stakeholder group. He has had an interest in this area for some time. He referred to issues relating to the Grangemouth refinery, and we know that such issues can be political hot potatoes at times, but I have noticed that he always seems to be on the side of those supporting the growth of the British economy, and I am grateful for that.

Natural resources such as oil, gas and minerals make a major contribution not only to this country’s economy, but to those of many developing countries. They can deliver transformational change, if managed well, and can be worth billions to developing countries. For instance, Nigerian oil exports were worth almost $100 billion in 2012—that is more than the total net aid to the whole of sub-Saharan Africa. Interestingly, the acronym BRIC—Brazil, Russia, India and China—has been used for some years to represent the fast-developing countries, but countries such as Turkey and Nigeria are quickly coming into their own and challenging the BRIC countries as the next phase of fast-growth countries.

In 2007, Botswana became an upper middle-income country. In 1996, when it gained independence, it was one of the world’s poorest countries, and its success is largely due to well-managed diamond mining. Such examples show that international mining has the potential dramatically to boost economic growth and provide a route out of poverty for resource-rich countries. Listed and unlisted extractives companies are important partners for us in government. We work together with them to ensure that developing countries make the most of their resources to drive growth and tackle poverty, and do so in an open and transparent way. We work through DFID to help resource-rich developing countries derive the maximum possible benefits from oil, gas and mining projects in the region. We also work directly with companies, Governments and communities across the developing world, including in Africa, to improve the development impact of extractive industries. For instance, we are working with the World Bank in the Democratic Republic of Congo, where we are investing in mining sector reform. Our immediate focus is on conflict minerals in the east, where we are partnering with responsible mining companies.

Work is under way with UK-based and other extractive companies to build skills and capacity in east Africa, too, where we are evaluating whether to contribute to the African Legal Support Facility. That organisation plays an important role in procuring world-class legal expertise for Governments who are negotiating complex oil, gas and mining investments, so that the Governments of developing countries have the same access to high-quality legal advice as large companies.

We are also committed to increasing transparency in the extractives sector. I want to dwell on several points that the hon. Gentleman made. As he is well aware, we are committed to encouraging strong, transparent and accountable institutions, which can regulate extractives and promote open markets and open societies. Helping to create that environment is an important part of attracting responsible investment too.

The UK presidency of the G8 was used by the Government to commit to working towards common global standards of transparency. Transparency was one of the goals of the summit. We want to level the playing field for business internationally and provide information for citizens around the world, so that they can hold their own Governments to account in the same way as we are held to account in this Chamber. We have launched eight partnerships, working with companies, Governments and civil society in resource-rich countries to improve transparency and build accountability. It was very encouraging to hear the leaders of UK-listed extractives companies, including Sam Walsh, the chief executive officer of Rio Tinto, join us in calling for other countries to adopt common global standards of extractives transparency.

As the hon. Gentleman mentioned, in May the Prime Minister announced that the UK would sign up to the extractives industries transparency initiative. As he said, it is a matter of getting the right balance between transparency to support the good use of resources and ensuring that such transparency is not over-burdensome. The EITI is designed to build trust and dialogue and promote public debate by putting information into the public domain. For instance, in countries with very poor governance, the EITI prompted the first time that different stakeholders sat round the same table to discuss the management of the mining sector. The initiative has a direct impact.

Many extractive companies listed or headquartered in the UK are active in supporting the EITI. Shell sits alongside Rio Tinto on the international EITI multi-stakeholder board. By signing up, we want Governments to know that the EITI is not just for developing countries, but should be a truly global standard. The hon. Gentleman put the case very well. It means that we have a stronger argument to encourage emerging and developing countries to adopt similar rules.

The Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for East Dunbartonshire (Jo Swinson), who is the Minister for employment relations and consumer affairs, is the UK’s EITI champion. She has committed to implementing an effective and timely initiative for the UK. Unfortunately she could not be present to respond to the debate today, but across the Department for Business, Innovation and Skills we take an interest in ensuring that the initiative works properly.

While the EITI shines a spotlight on domestic production, chapter 10 of the EU accounting directive requires listed and large extractive companies to report the payments they make to all Governments. We are committed to early implementation and are exploring whether we can put regulations in place in 2014, about a year ahead of the transposition deadline—not least because bribery and corruption are barriers to trade and growth, including in the extractives industry. They hinder development, distort competition and ultimately perpetuate poverty. Those problems can have a profound impact on developing economies, and the evidence is widespread. That is why the UK is a signatory to the UN convention against corruption and the OECD bribery convention. Under the Bribery Act 2010, which came into force in July 2011, a company that carries out business in the UK can be prosecuted for bribery anywhere in the world. Those companies can also trade on the honesty and integrity that the Bribery Act implies. It includes an innovative “failure to prevent” offence, and an “adequate procedures” defence to encourage companies to put in place measures to prevent people associated with them from bribing.

The Bribery Act is an important part of the agenda, but another barrier to growth is weak corporate governance. London is the world’s leading international financial centre, and a wide range of companies choose to list on our markets. That includes many extractive industries companies, whose operations are largely overseas. One of the reasons for that is our strong legal and regulatory framework, which includes corporate law and good corporate governance, giving shareholders clear rights on voting and information, and holding companies to account. That flexibility and confidence helps London as a listing location, and making sure that we keep that strength and confidence is important. We continue to enhance the listing rules to ensure that they are strong and well recognised internationally. The rights of independent shareholders in premium listed companies with controlling shareholders will be strengthened. There is new guidance on independence requirements for companies with a premium listing in some sectors, including mineral and extractive industries.

Ultimately, those and other measures that we are putting in place are there to ensure that we have a strong and well recognised system that has the right balance of transparency. As with the trust that is built up through the EITI, the trust and transparency within the UK corporate law and governance framework is vital to achieve long-term sustainable economic growth, including in extractives. I hope that the hon. Gentleman will agree with that.

We consulted on these issues during the summer, following the Prime Minister’s announcement in May that we were joining the EITI. We will publish our official response in early 2014. I am sure that the comments made by the hon. Gentleman today will be taken into account in that. Last month, the Prime Minister announced the outcome of an important part of the trust and transparency agenda. The Government obtained information on the individuals who really own and control UK companies. The hon. Gentleman referred to some of the difficulties that a non-transparent process can lead to. We will implement a central register of this information, which will be maintained by Companies House, and the register will be publicly accessible.

I hope that I have assured the hon. Gentleman that the Government take seriously the role of extractive industries, not least in promoting development in the fast-growing parts of the world, and that we strongly support greater transparency, an agenda on which the Prime Minister has led. It is important to grow economies and empower citizens, to encourage the development of strong and flexible corporate governance and to make sure that UK listed mining companies can lead the way. I am grateful to the hon. Gentleman—