The discovery of commercially recoverable reserves of oil in East Africa brought with it a lot of euphoria.
Expectations were and still are that the resultant petro-dollars will trigger inclusive economic growth. These high expectations are in no small part also fuelled by governments and the private sector; and are not entirely misplaced given that oil revenues can result in windfall revenues.
Indeed, the superintendence of Norwegian and Alaskan oil and Botswana’s minerals demonstrates that when managed well, extractive resources can have a beneficial multiplier effect.
In 2017, Norway’s oil fund topped $1 trillion in assets, for a population of just over five million people.
Bringing the oil to market in Uganda and Kenya has taken more than five years while the natural gas project in Tanzania is yet to commence since significant discoveries in 2010.
The difficulties in putting in place the right legal and policy framework have demonstrated that the transformative impact of oil revenue is not a certainty.
It is therefore important to temper the discourse around extractives with some level of realism. Extractives alone will not solve all the development problems of the region but can make a useful contribution.
Sub-surface oil resources can be transformed into positive outcomes only when they are judiciously managed, and their output directed to sectors that matter most to citizens.
This is also the premise of Oxfam’s and African Media Initiative’s multi-stakeholder dialogue in Nairobi in August – for key sector leaders to begin having these conversations and learn from each other.
The world is full of countries that have suffered rather than gained from natural resource endowments. At the extreme, these resource announcements are feeding into a misleading narrative that they can pull countries out of poverty.
This appears to imply that other critical economic and social sectors – such as agriculture, one of the biggest contributors to national and regional growth – can be ignored.
Infrastructure developments such as the East Africa Crude Oil Pipeline have been fast-tracked, posing the risk of circumventing legalities and international standards; as well as of disregarding communities’ rights. Natural environments have been altered, degrading the farming that seven out of 10 East Africans rely upon for food and income.
Then there is the expectation that the extractive sector will create more jobs than others despite direct employment creation being relatively low. For example, Total’s exploration and production global workforce in over 50 countries in 2017 was just over 13,000 employees, while Tullow’s total global workforce in 2017 was just over 1,000 employees.
Treating the extractive sector as a solely export-oriented enclave will result in few multiplier benefits accruing to the national economy. There must be a link to agriculture, health and human resources.
Countries in the region need not only local content policies but strategies for value addition for each mineral or extractive resource.
The Africa Mining Vision is an important template in this regard and provides a good foundation for harnessing the potential of not just mining, but the petroleum sector.
Lessons from across the continent also demonstrate that it is easier to default to poor management of extractive resources. For example, contracts setting out the terms and conditions under which the resources will be exploited can be too technical, particularly where the sector is new, limiting governments’ ability to set optimal terms for taxation, local content and accrued benefits.
Publicly negotiating and disclosing contracts gives little incentive for corruption. Citizens’ expectations are also managed and there is better understanding of what is in it for them.
Availability of comparable data slows the “race to the bottom” as countries cease to lower tax rates to attract investment.
Illicit financial flows can also compromise government revenue through mis-pricing and under-invoicing.
Multinational companies take advantage of low tax jurisdictions or tax havens to minimise their tax obligations. a “leaking bucket“ where full revenue benefits are not captured in the country of operation.
Contracts need to be well negotiated to prevent potential leakages. Transparency and accountability over rent receipts and establishing clear spending, investment and saving rules could go a long way towards ring-fencing revenue.
Regional strategies or protocols on extractives could also help develop a shared vision for sectoral development in the region. Ecowas has a Mining Policy and Directive while SADC has a Mining Protocol.
A shared vision averts a race to the bottom by clearly setting out minimum conditions for resource exploitation and ensuring that there is consideration for spatial linkages and infrastructure sharing in the region.
People relate to what they understand. An informed and engaged citizenry is a critical watchdog in transparency and accountability. We could learn from Ghana for instance, and its Public Interest and Accountability Committee, an independent statutory body.
East Africa’s extractives industry is still nascent. There is still time to get things right. But we must learn from others on the continent and beyond how best to manage these potentially transformative resources.
Peter Kamalingin BL is the deputy regional director of Oxfam in the Horn, East and Central Africa.