Beware the resource curse! East Africa is already showing all the classical symptoms

Saturday June 29 2013

Is East Africa prepared to navigate the slippery slope of the hydrocarbons bonanza? Going by history as well as recent events — social and political — the spectre of the resource curse looms large in East Africa. Illustration/John Nyagah

Is East Africa prepared to navigate the slippery slope of the hydrocarbons bonanza? Going by history as well as recent events — social and political — the spectre of the resource curse looms large in East Africa. Illustration/John Nyagah 

By Alex O. Owiti

The discovery of commercially significant quantities of oil in Uganda in 2006 have been followed by discoveries in Kenya in 2012. Tanzania has seen world-class offshore gas discoveries.

Experts believe more hydrocarbons have been discovered in East Africa in the past couple years than anywhere else on the planet. East Africa has entered a veritable hydrocarbon epoch.

Africa’s experience with oil and minerals has not been rosy. In the majority of Africa’s resource-rich countries, exploitation of natural resources is invariably linked to corruption, economic stagnation, conflict, social inequality and widespread poverty.

This apparent paradox is commonly referred to as the resource curse.

Economists have long held that resource-rich countries are prone to rent seeking, conflict, corruption, and weak public institutions. Poor management of large inflows of natural resource revenues makes other export activities uncompetitive and stifles economic diversification, leading to lower economic growth.

Angola and Nigeria are prime examples of the curse natural resource can bring to a country.

In Angola, the archetypal case of the resource curse, millions of dollars in concessionaires’ bonuses are stashed abroad and much of the revenue is sequestered in a secret “parallel budget” with no public accountability. Angola’s poverty rate is estimated at 68 per cent.

Similarly, 50 years of oil production has not produced growth and prosperity in Nigeria. Nigeria’s annual per capita income of $1,400 is less than that of Senegal, which exports mainly fish and nuts.

Armed rebels operating under the name of the Movement for the Emancipation of the Niger Delta (MEND), have intensified attacks on oil platforms and pumping stations.

According to leaked internal financial data obtained by the Guardian, Royal Dutch Shell paid Nigerian security forces tens of millions of dollars a year to guard their installations and staff in the Niger delta. A significant amount of Shell funding is paid through senior military officials, exacerbating corruption and rent seeking.

Is East Africa prepared to navigate the slippery slope of the hydrocarbons bonanza? Going by history as well as recent events — social and political — the spectre of the resource curse looms large in East Africa.

The Albertine Rift is a picturesque expanse of forested mountains and home of the rare Mountain Gorilla. Along with gorillas, the Ugandan stretch of the Albertine Rift is home to breathtaking biodiversity, nine national parks and four game reserves.

The Lake Albert region is therefore ecologically sensitive. It is also politically sensitive because it lies between two countries with a history of conflict. Environmental fragility and conflict is the quintessential witches brew.

Then, in 2006, geologists discovered treasure underneath the Albertine Rift: Oil.

There are growing worries that Uganda’s oil may exacerbate official corruption. In December 2012, the Ugandan parliament passed the Petroleum Bill to regulate the country’s emerging oil sector.

The law grants the oil minister the power to grant and revoke licences, including negotiating production sharing agreements without parliamentary “handing an ATM machine to the government.”

The gas rich region of Mtwara in southern Tanzania carries an inordinate burden of malaria, diarrhoea and respiratory infections, which are the leading causes of morbidity and mortality, among the highest in the country.

Similarly, at 48, life expectancy in Mtwara is among the lowest in the country. Here is how one resident characterised Mtwara: “Since Independence, we have had no roads, schools, hospitals or access to water, and employment is a nightmare. Mtwara is a symbol of poverty in our country.”

As one would imagine, expectations among the communities of Mtwara are very high; everyone expects jobs, better public infrastructure and improved services. More importantly, the local communities expect to retain and control significant proportions of revenues accruing from the sale of resources.

Contestation over revenue from gas resources has been characterised by violence in recent weeks as local communities march in protest against the construction of a pipeline to transport gas from Mtwara to Dar es Salaam.

For the Turkana people of northern Kenya, pastoralism, their main source of livelihood, has become exceptionally untenable in the past two decades.

The drought of 2011 was particularly devastating. More than a quarter of a million people in Turkana county live on food aid and 9 out of 10 live below $1.25 a day. Completion of Ethiopia’s Gibe III Dam on the Omo River could transform Lake Turkana into Africa’s Aral Sea, destroying vital ecosystems and the fragile livelihoods they support.

According to experts, it took 58 wells to find the first commercially viable oil discovery in the North Sea. For Turkana, it took only three. The question on everyone’s mind is: Who will control the country’s oil?

Kenya’s key sectors, from agriculture and power generation to forestry and fuel imports, have all been appropriated by the powerful vested interests always jostling to control the country.

What is clear is that there is a high correlation between the resource curse and unaccountable institutions of governance. Kenya, Uganda and Tanzania are all characterised by weak institutions of private property, a weak bureaucratic capacity, a proclivity for strong presidential systems.

These characteristics make all three countries deeply vulnerable to the resource curse.

Accountable democratic governance buttressed by competitive democratic politics and a vibrant parliamentary system is a sine qua non for effective natural resource governance. Kenya’s devolved governance structures presents a starting point for building strong technical and institutional capacity.

Each country must sign up to the Extractive Industries Transparency Initiative, which requires companies to publish all payments to the government and the government to publish all payments received from extractive companies.

All stakeholders must demand public disclosure of revenue accrued from extractive industries and establishment of a sovereign wealth fund to regulate reckless spending of such revenues, which could undermine competitiveness in non-hydrocarbon sectors.

East Africa can avoid the resource curse. But there is no silver bullet legislation and no right advise, beyond the overriding imperative of political accountability and inclusive competitive parliamentary democratic governance.

Dr Alex O. Awiti is the director of the East African Institute at Aga Khan University

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