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Commodities Campaign 2014

Despite their natural resource wealth, many countries remain poor. In terms of their social development, these countries often lag behind those without large natural resource reserves, and suffer from corruption and conflict. The behaviour of Swiss-based commodity companies contributes to this so-called “resource curse”. As the largest commodity hub in the world, Switzerland has a particular responsibility. Consequently it urgently needs to implement statutory rules and supervision of the commodities sector.

Public Eye

The resource curse – poverty in spite of abundant natural resources

Some 69% of people in extreme poverty live in commodity-rich developing countries. At the same time, half of the known iron, oil and gas reserves are found in these states. If these riches could properly benefit the people of these countries, extreme poverty could be almost halved by 2030, meaning that some 540 million people could find their way out of poverty.

Even the Swiss Federal Council recognizes the resource curse, writing in its transparency report (June 2014):

Commodities are often mined in countries that have poorly functioning state structures. Against this background, there is usually a risk, whether by the extraction or by the trading of commodities, that the payments made to the respective governments - such as taxes, royalties or other significant payments – drain away as a result of mismanagement, corruption and tax evasion, or are used to finance conflict. Consequently, the population barely benefits from their countries’ abundant natural resources and instead remains in poverty, a phenomenon which is referred to as the ‘resource curse’.

The significance of commodity production for developing countries has increased dramatically in the last couple of decades and with it the extent of the resource curse. In 2011, 81 countries were driven by resources, compared with only 58 in 1995.

Switzerland’s role in commodity trading

The Swiss share of the global commodity trade is at least 20 percent, making Switzerland the world's most important trading hub. The entire Swiss commodities sector comprises around 500 companies, the majority of which are mainly active in trading. However, the major actors are a handful of very highly profitable companies including Vitol, Glencore, Trafigura, Gunvor and Mercuria. In addition to trading, these companies are increasingly becoming active in production.

Around one quarter of the oil sold by African state oil companies between 2011 and 2013 went to Swiss commodity traders, who bought more than 500 million barrels worth about US$ 55 billion. This represents 12 percent of government revenue  and twice the total development assistance to these countries.

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The commodity trade is particularly vulnerable to the following problematic practices:

  • Lack of contract transparency
  • Corruption
  • Illegal commission payments
  • Trade with politically exposed persons (PEPs)
  • Commodity laundering
  • Aggressive tax evasion
  • Involvement in subsidy fraud

Recent case studies show how Swiss companies contribute to the resource curse through such business practices.

Swiss government: recognized problems, but failed to take action

In spring 2013, the Swiss government in its “Background Report: Commodities” acknowledged for the first time the problems with the commodity sector and set out the need for action. At the same time, it stated: “The physical commodity traders are not, in principle, subjected in Switzerland to any market supervision.”

Voluntary measures are however not enough, particularly given the dimensions and the problems in the commodity sector. That individual sectors, such as the financial market, can be regulated has been demonstrated by the Swiss financial regulator, FINMA. The commodity sector now also needs rules and supervision: Swiss Commodity Market Supervisory Authority (“ROHMA”, from the German “Rohstoffmarktaufsicht Schweiz”). Since the politicians do not yet dare to regulate this sector, we have developed a proposal to do so.

ROHMA, the commodities market supervisory authority: Public Eye’s visionary proposal

Public Eye’s proposal for an independent supervisory authority is the first time such an extensive proposal has been made for regulation of the commodity sector in Switzerland.

As an independent authority, ROHMA could contribute to reducing the problem of the resource curse and to mobilizing resources for development and poverty reduction in commodity-rich developing countries through the supervision and regulation of commodity production and trading companies, as well as of gold refineries and importers.

You can find out more details on how ROHMA would combat the resource curse at www.rohma.ch.