Prominent development theorists of the 1960s
believed that abundance of natural resources would lead inevitably to
industrial “takeoff” in developing countries, just as they had done for countries
like Australia, Botswana and Canada.
However, the co-occurrence of deplorable
human development outcomes and poor governance among resource rich countries
has undermined the earlier conclusions about the positive association between
resource abundance and economic growth. The experience from countries like
Nigeria, South Sudan and DR Congo suggest that natural wealth increases the
likelihood of negative economic, social and political performance.
Africa’s experience with extractive
resources, hydrocarbons, timber and mineral ore is mixed. Abundant resource
wealth has existed side by side with grotesque poverty and squalor in countries
like Angola, DR Congo, Nigeria, Sierra Leone, Sudan and Zambia. It is estimated
that about 70 percent of people living in extreme poverty are in
resource-driven economies, with a significant number in Africa. Furthermore,
almost 80 percent of countries whose economies driven by extractive resources
have per capita income levels below the global average and nearly half of these
countries are not catching up.
The co-existence of odious poverty and
immense natural resource wealth, also known as the “resource curse”, is well
documented by leading economists. For example Jeffery Sachs and colleagues
examined a diverse set of resource rich economies between 1970 and 1989 and
showed that there was a negative correlation between resource abundance and
economic growth. Other studies have also shown that per capita incomes of
resource-poor countries grew three times faster than resource rich countries.
Today, Africa’s fastest growing economies e.g., Rwanda and Ethiopia are not
resource dependent.
Several explanations have been advanced to
explain the resource curse. Receipts from resources often cause significant
rise in the value of local currency, crowding out other export activities or
making them uncompetitive. Moreover, volatile revenues from the extractive
resources are difficult to manage. Public spending is often increased on a
whim, and rational fiscal policies and public investment thrown out the window.
Invariably, in periods of resource booms,
governments borrow with abandon, spending money on obscenely wasteful projects,
often drenched with corruption. This was the story of Nigeria until the gravy
train crashed to a halt at the end of the oil boom of 1986. Moreover, resource
wealth creates political incentives by raising the value of acquiring and
retaining power.
With the exception of Botswana and South
Africa Africa’s has not reaped the full benefits of its vast resources.
Africa’s dismal record with extractives is especially disconcerting when you
consider that vast resources, especially oil and gas have been discovered in
Ghana, Kenya, Mozambique, Uganda and Tanzania.
According to McKinsey Global Institute, a
cumulative investment flow between $1.2 trillion and $3 trillion in the
extractive sector is possible in low-income and lower-middle-income countries
by 2030. This is equivalent to about $170 billion a year, more than three times
development aid flows to these countries in 2011. Such levels of investment
flows could potentially lift 540 million people out of poverty as well as
financing the delivery of a host of SDGs by 2030.
There is credible evidence to show that countries
with institutions that promote good governance and accountability tend to draw
equitable economic dividends. It is certainly not the case that politicians and
their constituencies don’t know that resource wealth can be harnessed to drive
equitable and durable economic prosperity.
Can the hydrocarbon bonanza in Kenya, Uganda
and Tanzania yield a curse or generate socio-economic bliss? In their book, Why Nations Fail: The Origins of Power and
Prosperity, Daron Acemoglu and James Robinson demonstrate that political
institutions and incentives they create determine whether nations prosper or remain
poverty traps.
We are still a long way from pulling oil or
gas out of the ground here in East Africa. However, the policy, legal and
institutional mechanisms that have been created or are under discussion inspire
little confidence that we will escape the resource curse.
Africa is on the cusp of what must be a new
and prosperous age of extractives. Africa must turn the page on the resource
curse and open a new chapter, defined by an era of resource-driven equitable economic
prosperity.
Without downplaying the contribution of resource
booms and bursts, political institutions contribute hugely to the resource
curse phenomenon. Hence, whether extractive resources drive equitable
socio-economic development depends entirely on Africa’s people and the quality
of institutions they build.
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