PREVENTING THE OIL AND GAS RESOURCE CURSE IN EAST AFRICA

By Namakula Evelyn Mayanja

OCTOBER 14, 2014 

Emerging oil and gas countries in East Africa. Source EIA. 

East African countries (Kenya, Tanzania and Uganda) have joined the list of oil and gas producing nations in Africa. The region is brought into spotlight with International Companies, such as Tullow, that explore the resources and many more companies are making all possible efforts to ensure that they become part of the oil and gas boom. It is the ‘new scramble’ for Africa’s resources, with China and the United States taking the upper hand in competing for Africa’s gas and oil. China is offering aid and has constructed the African Union Chinese funded headquarters in Ethiopia, worth $200 million The United States is intensifying its diplomatic, military and economic attention leading to the first ever African leaders’ summit at the White House in August 2014. Frequent summits on the exploration of oil and gas in East Africa draw international representation, and the summit of June 10-12, 2014 in UK drew delegates from 200 regional and international companies from 30 countries. The third summit is scheduled for October 15-17, 2014 in Nairobi and the fourth for February 9-10, 2015 in Dar es Salaam.

Precedents of African nations that own oil and gas resources allude to the ‘resource curse’ phenomenon where resource abundance is characterized by political and economic setbacks that undermine progress and development. Whereas abundance could be advantageous, in reality it inhibits good governance and democracy, empowers dictatorial regimes to entrench their power and reinforces political repression. The more the regime is able to finance its budget from the quick oil and gas money, the less accountable it becomes, and the greater the incentive to stay in power illegitimately, and the more the population resorts to violence to demand economic and political rights. Civil armed conflicts and wars based on resource mismanagement characterize African nations with abundant resources. Rebel groups engage in civil wars to benefit from the resources especially where the benefits outweigh the rebellion costs and will prolong the wars to maintain their earnings. According to Alao (2007, p.20) resource conflicts are fought at five levels: 1) between and among groups within a state; 2) between communities across national borders; 3) between citizens and the central governments; 4) between communities and multinational corporations and 5) between governments. Corruption is engraved in institutions, coupled with lack of transparency and accountability.

Resource dependence is also associated with revenue volatility and the ‘Dutch disease’, an economic pathology whereby with the booming oil sector, growth of other industries is neglected. Capital and revenues are allocated to the oil industry that shifts the labour force away from other industries (including agriculture) to oil and gas alone, a phenomenon that leads to a devaluation of locally produced goods and foodstuff. Resource dependency and failure to invest in other industries and human capital poses a bleak future. Oil-rentier economies also suffer from the shock of price surges in the global market, causing a decline in manufacturing and overvaluation of the local currency. Considering the examples of other African nations where oil, gas and mineral resources are causing havoc, what is needed to avoid the oil and gas curses in East Africa? What is required to ensure that oil and gas resources foster national and regional development? Do the East African nations have structures and institutions capable of managing their resources, especially in relation to providing opportunities, fiscal management, transparent revenue collection and allocation, protection of human rights and social justice, ensuring land rights, and environmental protection? To what extent are the resource wars associated with Africa’s leadership crisis and governance struggles going to be avoided in East Africa? How will the citizens of East Africa benefit from the exploration of their resources?

The main objective of this article is to stress that no stone should be left unturned to prevent the oil curse. Political leadership and governance, economic growth, ecological protection, and international relations theories must guide praxis. The expertise of economists, environmentalists, geologists, political analysts, journalists, researchers and academicians must be brought into play. Women should not be excluded from decisions pertaining to oil and gas, given that political decisions are a male prerogative. Think tanks, civil society and faith-based organizations starting from the domestic or local level to the regional levels are fundamental to ensure that resources benefit all citizens who are the sole owners and that revenues do not end up only in the pockets of the political elites. All strategies are subject to the quality of the man or woman at the helm of society. It is therefore crucial to strengthen ethical, stewardship leadership and natural resource governance in order to turn the resources into opportunity for all people in the region.

The article is structured as follows. The next section explores the predicament of African oil rich nations as a mirror to East Africa, and Botswana as a model for good economic growth and resource governance. This is followed by an exposé on the exploration of oil and gas in East Africa. Suggestions for transforming the resources into opportunities are highlighted, followed by the conclusion.

OVERVIEW OF AFRICA’S OIL AND GAS

African oil-rich nations based on 2013 data of barrel production every day include: Nigeria which produces 2.2 million barrels, Algeria (2.1 million barrels), Angola (1.9 million barrels), Libya (1.7 million barrels), Egypt (680,000 barrels), Southern Sudan (487,000 barrels), Equatorial Guinea (346,000 barrels), the Democratic Republic of Congo (274,000 barrels), Gabon (241,700 barrels) and South Africa (90,000 barrels). These nations with few exceptions such as South Africa have not escaped the ‘oil curse’ which denotes political, economic, governmental and security dysfunctionality. Oil dependent nations fail to diversify the economy, they neglect industrialization and agriculture, are vulnerable to global economic shocks, poor policies and development of human capital because they are blinded by oil wealth which benefits the political elites, while the majority of the population languish in poverty. The youth who form the greatest percentage of Africa’s populations are denied opportunities for prosperity due to crippled education systems and high levels of unemployment. These nations continue to beg for foreign aid as the lifeblood of their economies.

Politically, African oil states are fragile and poorly governed which gives way to former colonial interferences and meddling from international organizations (the International Monetary Fund and World Bank). Leaders of these nations oscillate between being presidents, profiteers, kleptocrats or patrons (Van Wyk, 2007). They use oil revenues to entrench their power, suppress any political opposition and “their civilian regimes transformed into brutal police states, and aggravating a regional tendency of military rule, their armed forces turned into praetorian cliques, personal despotisms and veritable reigns of terror”(Yates, 2012, p. 1).

Oil rich nations like those rich in mineral resources are caught in conflict traps – civil wars and silent genocides. Once a country “stumbles into civil war” (Collier et al., 2003, p. 4) the risk of further wars and conflicts is exacerbated with the legacy of insurmountable atrocities, socio-economic and socio-political pathologies. It is philosophically challenging that there is always more than one narrative about the causes of Africa’s wars and armed conflicts. Equally, it is difficult to establish an all-encompassing theory regarding the causes and solutions. It is very difficult to speak of any post-conflict society in Africa because when the guns are silenced, structural violence prevails with potential for further deadly wars. Complex causes include: colonialism, postcolonial culture of ‘bigmanity’ and poor governance that gives way to endemic corruption and the denial of basic human needs and rights, resource abundance which could be an opportunity is demonized, grievance from warlords, religious and ethnic polarization (Laremont, 2002; Williams, 2011). Subsequently, millions of lives are lost; millions orphaned; women, girls and even men and boys are raped and infected with HIV /AIDS. Communities are displaced and many become refugees. Children are recruited into rebel groups, their childhood disfigured and when they survive, their lives are shattered with war experiences. Entire societies are traumatized and destroyed. Soldiers and rebel fighters suffer from post-traumatic stress disorder (PSTD). Poverty and underdevelopment is the lot of the majority. Some of these nations are failed states, although their leaders claim to be governing functional states.

Additionally, ecological disintegration characterizes the exploration of gas and oil, given that hazardous wastes are not well managed and land, wild and aquatic life are endangered. Environmental degradation exposes nations to ‘acute conflict probability’ and irreparable damage (Schnurr & Swatuk, 2012, p. 2). Greed for quick money tempts policy makers to overlook environmental sustainability, coupled with “asset stripping” which curtails the capacity for future production (Brauer & Dunne, 2012, p. 13).

In contrast, Botswana is exhibiting spectacular economic growth and development from natural resource rents without succumbing to deadly violence and war. Resource revenues contribute to economic growth and development, improve people’s livelihood and security, guarantee employment and social services. What accounts for Botswana’s success story? When Ian Khama took over from the British, he united the different ethnic groups and transformed Botswana into a democratic and prosperous nation. He was honest without any trait of corruption and gradually established strong institutions and the rule of law, which holds leaders in check. Botswana has a perennial history of good governance, is not beset with the ‘Dutch disease’ and provides social services (health and education), human security and opportunities for all citizens. In 2013, Botswana was “the wealthiest country per capita in Africa and has been for several decades” (Rotberg, 2013, p. 10). It is not surprising that Botswana’s former leader Festus Moghae won the Mo Ibrahim Prize for Leadership. Botswana has been enjoying smooth transition from one president to the next.

Oil, gas and mineral exploration without good governance and responsible ethical leadership continues the scramble for Africa and the entrenchment of imperialism and neo-colonialism, which never benefit the African people. In Africa, the quality of the man or woman at the helm of society is very important, more so than in developed nations which have checks and balances. African leaders use resource revenues to entrench their power. The extraction of the resources calls for stewardship, ethical and responsible leadership and governance that transcend the personal interests of the ‘man’ at the top. This will ensure that the process fosters peace and human security. Negative peace is the absence of war or reduction of violence, which is important given that resource control is a major cause of Africa’s wars. However, it is crucial that oil or resource governance leads to positive peace which guarantees human security, structural transformation and ecological protection.

OVERVIEW OF OIL AND GAS IN EAST AFRICA

Gas deposits have been found in Tanzania, remarkable oil deposits found in Uganda and Kenya, and there is oil prospecting along the shores of the Indian Ocean. In all three nations, oil and gas exploration are underway with numerous conundrums. In Kenya and Uganda, policy incongruence and Uganda revenue authority setbacks are raising questions on government commitment to sharing agreements. Companies that were tax exempted were de-registered which implies a halt in the exploration process. To encourage investment, favourable conditions including tax exemption and production sharing agreements between international oil companies and East African governments are signed. East Africa loses $2.8 billion annually from tax exemption to foreign investors, while the majority of the citizens languish in poverty, unemployment and insecurity. In the book ‘Africa Emerges’, Roteberg (2013) observes that Africa is “no longer the fabled, deeply troubled, dark continent…faced with myriads of challenges and opportunities” (p.1). Rich fields of oil and gas in East Africa would be opportunities for the region and the entire continent to emerge from poverty and underdevelopment, with potential to halt the dependency on foreign aid as Africa’s lifeblood. The logic is that proper utilization of Africa’s resources and rents outweigh aid. The scramble for Africa’s resources benefit the political elites while the majority of citizens continue to languish. East Africa presents the region with astronomical opportunities and challenges to determine whether they are a blessing or a curse.

TURNING OIL AND GAS INTO OPPORTUNITIES

“The natural resource curse is not destiny” (Bannon & Collier, 2003, p. 11), although it is a common phenomenon in Africa. Where it does happen, it reflects failures in leadership and governance, weak institutions, weak rule of law, greed and corruption, lack of transparency and accountability, and inhibited political participation. It is a choice for poor economic growth and underdevelopment. Oil and gas opportunities lie in considering seriously the political, economic, environmental, security and international relations theories around resources and utilizing them for good praxis. I hereby suggest the frameworks that can lead to praxis in terms of regional benefits from the resources.

Strengthening political leadership and governance is vital. The deficit of leadership is a critical impediment to Africa’s progress. “What has held Africa back, and continues to do so, has its origins in a lack of principled, ethical leadership” (Maathai, 2009, p. 25). This mayhem is at times blamed on colonial failure to prepare leaders to lead independent African states. This is history, which cannot be erased but can be transformed. The colonial blame argument loses ground if we consider that nations in East Africa have been independent for over fifty years. Leaders promise to change the status quo when they are campaigning for leadership positions and once in power, they maintain the status quo of structural violence and political oppression. Since politics is about who gets what, when and how, African politics is crippled with the winner takes all approach, thus serving personal interests. To prevent the oil curse, it is crucial to strengthen stewardship, principled and ethical leadership as the first step. In Africa, the quality of the man or woman at the helm of society is fundamental to the entire state machinery.

Leadership is key to ensure that oil and gas exploration do not destabilize nations or make citizens insecure. People’s interests and ecological protection must be prioritized over personal and investor interests. Environmental sustainability, preservation of wild and aquatic life, land rights and proper disposal of residues need to be prioritized.

The rule of law must be applied indiscriminately to leaders who corrupt the resource revenues. Equally, there should be checks and balances on how leaders invite foreign investors and the deals they sign with them. Oil and gas will be opportunities with leaders who practice exceptional zero tolerance to corruption. Citizens of every nation need to know and claim their rights to benefit from the revenues, demand information, accountability and prosecution of corrupt officials.

East African leaders need to be united in striking deals for the exploration of resources for national and regional benefits. Squabbles existing among the leaders need to be resolved for the East African Community to engender regional development.

Good resource governance is required throughout the entire process – from the discovery of oil and gas to revenue allocation. In the political systems of East Africa, the head of state is like the engine of the political machine. The onus is with the leaders to be honest in governing and prioritizing peoples’ needs above personal interests. Ethical and principled leadership could start with heads of state stepping forward and acknowledging the failures in governance and the need to change so as to benefit from the opportunities that oil and gas potentially offer. Leadership would for example, ensure that the resources are not sold off for personal gain, that international companies exploring the resources pay taxes that would be invested in other industries to accelerate economic growth and improvement of human capital, especially in the areas of education and employment for the youth. A leader who amasses wealth when citizens are languishing in poverty does not qualify for the position. It is unfortunate that the African politics is used to accumulate wealth and not to serve the common good. Equally, the revenues need to improve local livelihoods. Futurist planning and discernment are crucial to ensure that short-term benefits do not curtail long-term progress and peaceful co-existence.

Fostering economic growth: One of the causes of the oil curse is failure to invest in other industries and in human capital. Oil and gas should not blind the region to investing in other industries. Human capital improvement especially through educating the youth and empowering them with employment is crucial for regional progress. Corruption kills economic progress, cripples development and must be resolutely controlled. A report by Transparency International (2004, p.1) notes that “Corruption in large-scale public projects is a daunting obstacle to sustainable development, and results in a major loss of public funds needed for education, healthcare and poverty alleviation, both in developed and developing countries”.

Leadership requires zero tolerance for corruption with no fear of subjecting to the legal hand political party members and business cronies when they are involved in corruption. To this effect, the judiciary must be free from the interferences and control of the executive. Effective anti-corruption agents are fundamental in tackling corruption. Government officials who deal with oil and gas projects must be selected because of their honesty and expertise. Yates (2012, p.57) observes that corruption derives from “bad institutional design” and flourishes where government leaders have exclusive power with no checks and balances to hold them accountable for their actions. The World Bank considers corruption as a subset of governance in the Worldwide Governance Indicators(WGI) which include voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law and control of corruption.

The practice of offshore banking must be legally discouraged and declared punishable. Controlling the illicit flow of funds from developing nations necessitates the intervention of the international community. The 21st century saw wealthy nations pledging to eradicate poverty and increasing aid to Africa especially through the Millennium Development Goals (MDG). Africa’s resources and offshore funds are far greater than foreign aid. International efforts need to be invested in curtailing the practice of corruption and controlling illicit funds networks from African nations in order to fill the development finance gaps. The questions that arise are: What should be done to stop the outflow of funds? Are the foreign banks ready to lose this source? It is important to realize that foreign banks benefit greatly from the funds of African dictators. For example, when Mobutu died, was the money that he was investing in foreign banks ever returned to the Democratic Republic of Congo? Republican Congressman Dana Rohrabacher was quoted (in Global witness, 2009, p. 23) that “one of the things we need to do is make sure that financial institutions, world, global financial institutions… are called to task and held accountable for their role in this criminality … These people, with their striped suits and their high incomes… are accomplices to criminals… the financial institutions taking that money are accomplices to crime.” It is also important that foreign investors are not exempt from taxes.

Given that policy makers who deliberate on oil and gas exploration and revenue usage do not have all the expertise needed, a multi-track approach and soliciting for people participation would be beneficial. A multi-track network of ethical experts who care for the progress of the region and wellbeing of its citizens is irreplaceable. This would include government officials, development specialists, economists, researchers, lawyers, academicians, environmentalists, economists and journalists. Women must be invited to the negotiation table to deliberate on oil and gas. More than men, women suffer from the oil curse and the repercussions of environmental injustices and insecurities. When water wells are contaminated, the ecosystem destroyed, and when wars and conflict related to resources occur, it is the women who bear the burdens.

Oil and gas can advance peaceful and secure economies. Economic security is inextricably linked to stewardship leadership and governance. Instead of relying on meagre hydro power sources that makes the economies function for less than ten hours daily due to dependence on solar light, local oil and gas should be utilized to build the economies. If economic growth is not improved, how could the African nations dream about competing with giant economies that produce 24x7x365? Additionally, major energy sources namely the sun and wind that are abundant throughout the region should be tapped. Geothermal and biogas are also alternative energy sources in Africa that need to be explored.

CONCLUSION

I firmly believe that unless the people of East Africa recognize the endowments of oil and gas and demand ethical leadership and governance, the region is liable to experience the ‘resource curse.’ I am convinced that there is no individual in East Africa who prefers to live in a society where the mineral resources benefit only the political elites, where corruption denies the provision of basic services, where their participation in decision making is not valued, and where insecurity and dysfunctional institutions prevail. Poor governance and the deficit of leadership are major factors in under-developing the region. The exercise of good leadership would ensure that exploration of the resources follows appropriate standards that include environmental protection, taxation and utilization of the revenues to ensure service delivery and improvement in people’s livelihood.

The suggestions I have given are inconclusive. Research is key to long-term benefits. The East African Community should be a force that generates regional development based on the opportunities of possessing oil and gas. Leadership, regulatory frameworks, oil and gas governance, multifaceted economic growth, investment in human capital, corporate social cohesion, responsibility for improving local livelihood, transparency and accountability will each play a role in annulling the oil curse.

* Evelyn Mayanja Namakula is a PhD student at the University of Manitoba, Canada.

REFERENCES

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Brauer, J., & Dunne, P. (2012). Peace economics : a macroeconomic primer for violence-afflicted states. Washington, DC: United States Institute of Peace.

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12. Yates, D. A. (2012). The scramble for African oil: oppression, corruption and war for control of Africa’s natural resources. London, New York: Pluto Press.

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