Despite the plunge in commodities prices—especially for oil and gas—over the past year, having reserves of natural resources is still an advantage for many developing countries. Indeed, recent discoveries of oil and gas in East Africa are widely considered to be positive developments, since these stores—if managed well—could be a boon to these countries’ economic growth. For example, Kenya anticipates it will earn $10 billion in government revenue due to oil from 2010-2040. Uganda expects government revenues of $3.2 billion per year for that same time period. Similarly, in Tanzania natural resources have the potential to create $2.5 billion in yearly government revenues. In Mozambique resource revenues could reach $9 billion by 2032.
A new Africa Growth Initiative report, “Managing natural resources for development in East Africa: Examining key issues with the region’s oil and natural gas discoveries,” surveys the status of these countries’ natural resource management strategies, examines current and potential policies for successful resource governance, and lays out a roadmap for East African governments to effectively—and transparently—harness these resources for inclusive growth. Based on a 2014 in-depth event on natural resource management in East Africa and through seven interrelated topics, Mwangi S. Kimenyi and Zenia Lewis identify obstacles to successful management as well as good practices to avoid some of the past mistakes and missed opportunities of natural resource-rich countries.
Land rights issues and the link to oil and natural gas exploration. When it comes to land rights and tenure systems, policies vary from country to country: For example, Mozambique, Tanzania, and Uganda are three of the seven sub-Saharan African countries that fully recognize customary tenure arrangements without formal registration—but even then protection of land rights is limited, as Kimenyi and Lewis explain. In the paper, they examine how restrictions in natural resource-rich areas hamper the livelihoods of residents through under-compensation for displaced peoples or new rules for managing residents’ own land.
Free, prior, and informed consent, and oil and natural gas exploration. In this section, the authors continue the conversation on displacement through the concept of free, prior, and informed consent. Though respect for this principle is increasingly becoming the norm in oil and natural gas exploration, the authors emphasize that its implementation is both inconsistent and limited.
Government management, transparency, and capacity in revenue collection. Since the ability of governments to effectively collect and manage revenues from oil and natural gas has large effects on the way that money is used for development, the authors consider policies—both successful and inadequate—from other countries to inform recommendations for these East African countries. According to the authors, among other points, coordination of tax administrators, customs agencies, and regulatory agencies, in addition to the vital aspect of transparency, are key to effective revenue management.
Balancing local and national development priorities in resource revenue use. These revenue windfalls similarly raise questions over priorities of revenue use, such as health, education, infrastructure, and many others. In this section, Kimenyi and Lewis discuss the trade-offs on how resources are apportioned between local and national priorities as well as to longer-term savings.
Achieving economic growth and stability through the fiscal management of natural resource revenues. In this section, the authors offer recommendations for avoiding the major problems that new natural resource-rich countries encounter, such as Dutch disease, and note the pros, cons, and potential for sovereign wealth funds as tools for successful fiscal management.
The role of civil society organizations in oil and natural gas transparency. Civil society organizations (CSOs) play a vital role in maintaining transparency and encouraging the enforcement of laws around oil and natural gas exploration and production. Kimenyi and Lewis overview and analyze the varying efforts of CSOs in East Africa. Among others, they highlight Mozambique as an example of the necessity of CSOs in encouraging government compliance with agreed-upon international transparency standards, and note the “vibrant” and robust efforts of Kenyan CSOs in encouraging transparency.
International standards of transparency: EITI, PWYP, and Dodd-Frank. Large-scale, international efforts for transparency are also important tools for effective natural resource management. Three of the most prominent initiatives are the Extractive Industries Transparency Initiative (EITI), Publish What You Pay (PWYP), and Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In this section, Kimenyi and Lewis focus on EITI, a coalition of governments, companies, and CSOs around the world that work to promote transparency in the management of revenues from the extractive sectors, as well as the East African countries’ attempts to adhere to the EITI Standard, which indicates disclosure requirements for taxes and payments to governments made by oil, natural gas, and mining companies.
In the end, as the authors note, “On one hand, proper fiscal management, transparency, well-balanced prioritization, the engagement of stakeholders, and effective revenue collection tools can create an environment for the effective use of the revenues from natural resources. On the other hand, without strong management and oversight institutions, the use of natural resources can easily undermine development.” To really capitalize on the potential of these resources, Kenya, Mozambique, Tanzania, and Uganda, among other resource-rich countries, must not only craft the right policies for effective management and inclusive growth, but truly implement them.
Commentary
Mapping the way to successful natural resource management in East Africa
June 1, 2016