Oil and gas producers transfer considerable funds to host governments – in the form of license fees, royalties, dividends, taxes and support for local communities. These large financial inflows should contribute substantially to social and economic development, yet many resource-rich countries have been unable to transform resource wealth into wellbeing.
When revenues from the extractive sector are not managed with transparency and accountability, mineral and petroleum wealth can fuel large-scale corruption, as well as poverty, injustice and conflict. One of the explanations for this phenomenon is that large revenue inflows lead to excessive rent-seeking.
The question is how to make oil and gas revenues work for societies and not against them. The relevance of this question is strengthened by the fact that resource dependency is mostly a problem in poorer regions.
Exploitation of natural resources and the related foreign direct investment also have an impact on local communities. There are both opportunities and risks related to such investments, which engage the labour market, the environment and local social structures.This is another important reason why information transparency should be a basic principle in the extractive sector.
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