President Mwai Kibaki could
not contain his excitement on March 26th 2012 when he announced the
oil find in Kenya’s northwestern Turkana region. By this announcement, Kenya
became the latest country to join the petroleum bonanza, after discoveries in Ghana,
Democratic Republic of Congo Uganda, Tanzania, and Mozambique.
According to John
Ghazvinian, author of Untapped: The Scramble for Africa's Oil, Africa is the most promising place on earth
for new oil. Africa’s oil is of high quality and hence relatively inexpensive
to refine.
Today, resource-exporting African
countries are in the throes of booms that are reminiscent of 1970s. Many of these countries have been impoverished and economically stagnant
for decades and resource booms present opportunities for growth. Receipts from
natural resources should provide an essential source of financing for
development, dwarfing aid flows. However, Africa’s resource boom presents a veritable
conundrum: will these resources be a boon that stimulates wealth and
prosperity, or a political and economic curse, which undermines governance and
stymie inclusive economic growth?
The last global commodity boom of the 1970s
failed to deliver transformational development for Africa. In a majority of Africa’s
resource-rich countries, exploitation of natural resources is invariably linked
to corruption, economic stagnation, social inequality, weak public services and
widespread poverty. This apparent paradox is commonly referred to as the Resource Curse. Moreover, a casual
glance at the stagnation in resource-rich African countries and the rapid
growth in resource-poor East Asian seems consistent with the notion of a
resource curse.
In 2010, Treasury officials admitted before a
parliamentary committee that the government was losing a third of the national
budget to corruption. The greatest worry about Kenya’s oil is that it might
further blight an already corrupted political and business elite. There is a
real danger that Kenya’s oil could be a curse.
Here are some classical resource curse
examples we could learn from.
Angola is considered the archetypal case of
the resource curse. Angola
has immense mineral wealth. Besides being the largest oil producer in Africa,
it is the world’s fourth largest source of diamonds. The proceeds of this vast wealth
financed two and half decades of civil war, just two years after independence.
Angola’s
poverty rate is estimated at 68%. Angola also ranks among the lowest in the
world on other social indicators. According to a UNDP report of 2007, its
combined school enrollment ratio was 25.6% and life expectancy was about 42
years. Reason for the curse: corruption is rife; 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.
For
years, Konkola Copper Mines operated under a government
contract of fixed royalty payment of 0.6% for the exploitation of Zambia’s
copper reserves. In 2006/07, the Zambian government received only US$6.1million,
while Konkola Copper Mines obtained more than US$301million in profits. In that
same period, Zambia had the one of the poorest human development ratings, with
68% of the population surviving on less than US$1 a day and a life expectancy
of 37 years.
50 years of oil production has not produced
growth and prosperity in Nigeria. The
country relies
on oil revenues for more than 80% of its national budget, yet the government is
unable to determine the amount of oil extracted in the country. 50% of
Nigerians live on less than US$1 a day. Its annual per capita income of US$1,400
is less than that of Senegal, which exports mainly fish and nuts. Armed, hooded 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.
The
business and political elite are the purveyors of the resource curse. I offer
suggestions to curtail their hegemony and hopefully ensure equitable economic
growth from Kenya’s oil resource revenues.
1.
The
government must sign up to Extractive Industry Transparency Initiative (EITI)
and institute transparency in the entire supply
chain of the extractive industry, from specification of the rights for sale to
negotiating resource extraction contracts to extraction rights, including
duration and tax regime;
2.
Active
engagement of civil society organizations to ensure government accountability
with respect to contracts, scrutiny of revenue that accrues to the national
budget, revenue allocation in spending budget and monitoring the behavior of
private sector during exploration, and extraction of resources;
3.
Public
disclosure of spending, including equity criteria, of revenue accrued from
extractive industries within national and county budgets, including priorities
for public investment and saving, reducing the risk of discretionary spending
on populist projects;
4.
Leveraging multiple linkages
through training and skill building for local communities, enterprise development
of small and medium enterprises to provide inputs for extraction and allied operations
and domestic processing to integrate the extractive industry products into the
national economic structure.
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