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Sunday, May 26, 2013

Africa’s New Resource Rich Countries Can Avoid the Resource Curse

Nigeria and Angola are Africa’s top oil producing countries. In 2011 Nigeria and Angola produced 2.2 million and 1.8 million barrels of oil a day. In 2011, Nigeria’s oil revenues totaled 50.3 billion while Angola’s oil injected $40 billion into the economy.

The Resource Governance Index of the of the Revenue Watch Institute released on May 15, 2013 ranked Nigeria and Angola 40 and 41 respectively out of the 58 countries, which produce 80% of the world’s oil. The index found both countries woefully weak four key governance areas: institutional and legal setting; reporting practices; safeguards and quality controls and enabling environment. 

In both Nigeria and Angola, lack probity, corruption and moribund institutions exclude citizens from benefiting from resource revenues. Nigeria’s rural populations have limited access to water, schools and health care. Moreover, about 70% of Nigerians live on less than $1.25 a day. Angola has a life expectancy of 48.1and an average of school years of 4.4 years

The economies of Angola and Nigeria have followed the trajectory of resources rich economies. Economists have long held that resource rich countries are prone to rent seeking, conflict, corruption, weak public intuitions and policies. Paul Collier, Oxford University Economist, has argued that like aid resource abundance makes other export activities uncompetitive and stifles economic diversification. This phenomenon is known as the Dutch disease, after the effects of the North Sea gas, which left the Dutch economy uncompetitive and dependent on natural gas.

Ethiopia, Kenya, Uganda, Mozambique and Tanzania are just about to enter the exclusive league of resource rich countries. The oil and gas resources in Eastern Africa are phenomenal. Tullow Oil has characterized East Africa’s oil finds as Africa’s most significant. Similarly, US Geological Survey estimates that natural gas reserves off the coast of Mozambique, Tanzania and Kenya are larger than those of their oil-rich West African neighbors.

Africa with its weak and ill-structured investment regulatory regime is the perfect target of potentially exploitative accessions and opaque practices of multinational extractive companies. More often than not the extractive companies are beholden to political class and tend to front the narrow business interests of the political elite. The relentless global quest for new energy sources will make it impossible to stop the exploitation of Africa’s vast unexplored mineral wealth by global multinationals. The challenge will be how to ensure that such exploitation is equitable and humane. But we could learn from Russia and Latin America who have avoided the predacious reach of global multinational corporations.

As Africa mints new resource rich countries we must ask hard questions: Can these new generation of resource rich countries escape the resources-curse? How can resource rich countries use mineral wealth to build diversified economies and ensure equitable economic and social development for its people? Can the new generation of Africa’s resource countries rich learn from countries that have avoided the resource curse?

To avoid the path of a resource curse, Africa’s new resource rich countries must be strategic, pragmatic and anticipatory. Much greater investment in physical, human, and institutional capital is needed to ensure sustained and equitable benefits. While investors may bring foreign technical and skilled personnel, African governments must insist on employment of local labour for tasks that do not require specialized training. Moreover, it should be mandatory for global multinational companies investing in Africa to train local people in managing, operating and maintaining facilities. Over a period of time, this will enable Africa to build highly skilled trained and skilled workforce. There is opportunity to link with local universities to strengthen teaching and research in science, technology, engineering and math.

Strong institutions help prevent rent seeking behavior and ensure transparency in contracting, hence holding governments and investors accountable. All contracts must be awarded through a transparent international competitive bidding process buyers must disclose the price quoted by the successful bidder. Strong institutions will also ensure that regulatory agencies publish timely, comprehensive reports on their operations, including detailed revenue and project information.

Contracts for resource exploitation should be bundled with associated infrastructure development, including refineries, petrochemical industries, fertilizer plants and power plants. This will liberate African economies from the morally reprehensible practice of exporting raw materials. Contracts could also be bundled with social investments such as roads, airports, schools and hospitals.

This resource bonanza can and must catalyze socio-economic and institutional change necessary to break the yoke of poverty,which has held back Africa’s progress for more than half a century. 

Sunday, May 19, 2013

Building a sustainable urban food system

About a year ago, in this column, I told the story of a little girl who lives in Nairobi’s Mathare slum. It is a story worth telling again, albeit to make a slightly different point. It was the story of five-year-old Anita who was being treated with Plumpynut, which is a high-energy therapeutic food for starving children.  Anita’s father makes Ksh. 200 a day (about $2.40).

A food security, vulnerability and nutrition assessment conducted by the government of Kenya in 2010 revealed that more than 25% of urban children were stunted while 13% of urban households had unacceptably low levels of food consumption. The report also reveals that child morbidity among urban households was about 30%, mainly owing to acute respiratory infections, malaria and diarrhea.

A study on the prevalence and depth of hunger in Nairobi conducted in 2011 by Egerton University’s Tegemeo Institute of Agricultural Policy and Development showed that 44% of households in Nairobi were under nourished with 20% being ultra-hungry, consuming less than 1600 kilo calories per day, which is less than the minimum dietary energy requirement of 2,133 Kilo calories per adult per day. In May 2012, the Ministry of Special Programmes, distributed 4,800 bags of rice and soya and another 400 tins of cooking oil to poor households Nairobi, where it was estimated that 65% were food insecure.

The study also showed that per capita expenditure on food was decreasing, indicating increased food insecurity among urban households. The retail prices for staple foods have increased by over 150% in Nairobi slum markets in 2012.  Urban slums have become veritable “food deserts”, without access to affordable food and saddled with the double whammy of hunger and malnutrition.

Today, over 30% of Kenya’s 41.6 million people live in urban areas. While Kenya’s total population will double by 2045, the urban population will grow from the current 13 million to about 53 million. It is projected that Kenya will reach a spatial tipping point, when half of the population lives in urban areas, three years after the expiry of Vision 2030. Moreover, recent World Bank estimates suggest that the urban poor will constitute 50% of Kenya’s poor.

Rapid urbanization, including urban sprawl, declining land and labor productivity, low participation by youth in agriculture, inequitable economic growth and a warming planet could exacerbate food and nutritional insecurity among urban households. In the Bill of Rights, under Kenya’s constitution, every person, including urban residents have a right to be free from hunger, and to have adequate food of acceptable quality. Food is therefore a critical national issue, which holds the key to population health, social stability, economic growth and environmental sustainability.

Cities like Nairobi and must lead the way in providing solutions to the urban food crisis. Under the constitution, the powers and functions of the County Government include Agriculture; crop, animal husbandry and fisheries. Counties therefore have the powers to design food policy that integrates food and nutrition with social, economic, health, safety and environmental goals. Urban agriculture, the production of food within or on the fringe of cities, is not new and will endure.

Sustainable urban agriculture is possible. In 1990 Havana, Cuba’s capital, did not have any land dedicated to food production. In 2002, more than 86,450 acres of urban land was allocated to intensive farming, producing more than 3.2 million tons of food. The urban gardens have also become profitable enterprises provide employment for many Cubans. 

Nairobi City County must implement policies and programs that allow residents, especially the urban poor, to grow, sell, buy and eat affordable locally grown foods. Such policies will benefit population health, the local economy and the urban environment. Here are some ideas to consider:

1.     The County should conduct a comprehensive assessment of public land and nominate suitable sites for urban agriculture, hence integrating urban agriculture in urban planning;
2.     The County should establish a countywide urban agriculture initiative to support the establishment of urban crop, poultry, fisheries and dairy production spaces. The initiative should provide extension support including support and financial credit for hundreds of informal settlement residents who are using sacks and permaculture techniques to grow vegetables.
3.     The County should invest in a sustainable and resilient food system. This should include working with contiguous counties, which supply most of Nairobi’s food and working with them to strengthen food production, including providing a range of incentives to farmers not to convert farmland to other uses.

Sunday, May 12, 2013

Africa unlikely to reap full benefit of its resources

Africa’s commodity boom of the 1970s is singularly remarkable because it failed to deliver economic and social transformation. In a majority of resource rich countries, a tight clique of  corrupt politicians and their acolytes controlled natural resources revenues. Is Africa’s new resource boom on course to produce a boon or a curse? 

A report just released by Kofi Annan’s Africa Progress Panel reveals that five deals closed between 2010 and 2012 cost the DR Congo an estimated $1.4 billion in lost revenue, equivalent to national budget allocations to education in 2012. These colossal revenue losses are attributed to fraudulent undervaluation of mineral assets. According to the Africa Progress Panel, a businessman with connections at the highest levels of the DR Congo ruling elite made returns on five deals worth $1.63 billion on assets purchased at $275.5 million if independent valuations were used to determine their true value.

On his first Africa tour, China’s Xi Jinping signed a massive resources-for infrastructure deal with the DR Congo. China will provide $9 billion to finance construction of roads, railways, hospitals, schools, dams and development of mines. On their part, the Congolese government will provide the China with up to 10 million tonnes of copper and hundreds of thousands of tonnes of cobalt. Two questions beg: Upon was pricing basis was the $9 billion value established? Was any independent valuation undertaken to validate the declared value of the mineral assets ?

The DR Congo’s land resources have not spared. In 2011 Feronia Inc., a Canadian company, sought to acquire nearly 90,000 hectares of farmland land in the DR Congo for its farming division to grow rice, oil palm and soybeans for export. At the time of negotiating this deal, the DR Congo’s Ambassador to the UK was a sitting member of Feronia’s board of directors.

What Africa Progress Panel has revealed is not unique to the DR Congo. Africa is white hot with mineral and land deals in what could be the second scramble for Africa. Here are other  equally scandalous examples.

Angola is Africa's second largest oil producer, behind Nigeria. The country is ranked 148 out of 187 in the U.N.'s Human Development Index, with life expectancy at 51.1 years. Child and maternal mortality rates are among the highest in the world. Millions of Angola’s oil dollars are stashed abroad or sequestered in a secret “parallel budget” with no public accountability. Angola was ranked 168 out of 183 countries in Transparency International's Corruption Perception Index for 2011.

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 2007 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.

Bangalore-based Karuturi Global Ltd has negotiated a deal to lease 311,000 hectares of land in Ethiopia’s Oromia and Gambela regions at a cost of $1.2 per hectare per year after 7 years. The land will be used primarily to produce rice and wheat for export. Karuturi. Karuturi has acquired farmlands in Tanzania and Sudan. The Ethiopian government defended these acquisitions saying they were critical to fighting poverty, increasing food supplies and improving livelihoods. Karuturi Global was recently found guilty of using transfer mispricing to avoid paying the government of Kenya nearly $11 million.

Uganda’s oil resources could generate up to $2 billion a year and catapult Uganda into the strata of middle-income countries. But even before oil production begins Uganda’s Parliament voted in October 2011 to freeze all oil contracts and investigate three senior ministers accused of taking money from Tullow Oil. Tullow denied the accusations.

Tullow estimates that Kenya’s oil fields could yield 10 billion barrels, enough to supply Kenya for three centuries at its current consumption. These oil finds will put Kenya at the center of Africa’s oil boom. The country’s key productive sectors, from land, agriculture energy and forestry, are shared among powerful vested interests linked to a handful politicians and civil servants. Kenya was ranked 139 out of 176 countries in Transparency International’s Corruption Perception Index for 2012.

Institutionalized graft means revenues from Africa’s resources could be squandered and misappropriated. Ordinary citizens could see little or no benefits of the resource bonanza. We have work to do.

Sunday, May 5, 2013

Making Better Decisions in an Uncertain World

Planet Earth, the only place we call our home, is confounding, complex and inexplicable, mostly opaque to precise understanding. Our capacity to understand with certainty and intervene precisely in the world has been the quest of the ages. As scientists we are trained to simplify things in order to understand them.. This is our folly.

Science has made progress by narrowly framing a range of allowable questions and having consensus on the rules that permit the inquirer to arrive at precise answers. This philosophical heritage, which has been termed reductionism, denigrates modes of inquiry outside conventional ranges of allowable questions.

Science is the basis of the material culture, which characterizes our world. Science evidence is also the primary paradigm of legitimation for our debates and policy prescriptions. As we have come to understand, especially in the last two centuries, decision-making is not the exclusive territory of an exact science. Problems for which, we often need urgent solutions are characterized by situations where facts are incomplete, knowledge is uncertain, values are culturally and  ideologically contested and decision stakes are high. In such settings, methods that rely on precise, unambiguous scientific assessments are woefully constrained and there is need to accommodate more pluralistic approaches to knowing in constructing our understanding of the world.

Silvio Funtowicz and Jerome Ravetz, authors of the book Uncertainty and Quality in Science Policy, advanced the use the term post-normal science to characterize an approach to inquiry where important facts are uncertain or unknowable, values are contested, stakes are high and decisions are urgent. With its assumption of perfection and an attitude of exactitude, traditional science is inadequate as tool for decision-making and policy processes in the cotemporary world.

In the sense of Funtowicz and Ravetz, inquiry must be an act of collaborative learning and knowledge integration, where the role of the expert is not about giving correct advise but sharing information about options, plausible outcomes and trade-offs. In this frame, reductionism and uncertainty are not marginalized but appended as critical dimensions of a broader decision frame an incorporated into a richer but less predictive understanding of the world.

The notion of a less predictive understanding of the world must make a lot of people uncomfortable. We are so deeply wired in the action mode and the illusion precision, where nuance and uncertainty are deemed as impotence. This is absolutely understandable especially when you consider that precise diagnosis is necessary for treatment and healing. However, the world we live in complex and messy, facts are incomplete or unknowable.

Nationally and globally, decision makers have to grapple with urgent and consequential decisions on public health, poverty reduction, education, economics, energy, urbanization, agriculture and conservation without the capacity to interrogate or integrate multiple perspectives. Free primary education is a perfect example. While the intent of this novel policy prescription was to expand access, which it does, retention and completion are dismal, early childhood education has suffered and learning outcomes are deplorable. Two logical questions beg; are we getting value for money and could we have anticipated the unintended consequences?

Another example is the huge Gibe III hydropower dam on the Omo River investment by the Ethiopian government and the tacit support for it by the Kenya government and the decision by the World Bank fund transport of the power into Kenya’s grid. The obvious benefit here is huge amounts of new power and revenue  to the Ethiopian exchequer as well as new cheap power to Kenya’s grid. However, these benefits must not overshadow the potentially irreversible ecological damage to Lake Turkana and the annihilation of the delicate balance of livelihoods and cultures of the communities of the Lower Omo and Turkana basin. Another example is the introduction of the Nile Perch in Lake Victoria in the 1950s, a decision now wieldy considered as an unmitigated socio-economic and ecological disaster.

While not a panacea, systems thinking offers insights for decision-making in a complex and uncertain world. Systems thinking is about patterns of relationships, their interactions, feedback and how these generate emergent or hitherto unanticipated behavior or outcomes. Along with systems thinking, decision makers must apply scenario analysis, which consist of simulations of best-and-worst-case outcomes. Hence, the outcomes of policy can be understood and anticipated by planning for all possibilities.

Underlying systems thinking is the premise that systems behave as a whole,  and as Aristotle said, the whole is always greater than the sum of the parts. 


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