We noted in Part 1 that as the Eastern African region emerges as a major gas and oil producer, investors and developers have started to flock to the area to exploit the natural resources and build infrastructure projects.
But the East Africa boom that includes Kenya, Uganda, Rwanda, Tanzania, Ethiopia and Mozambique is in a region that has traditionally struggled with poverty and varying levels of governance and economic policies.
“The advent of these major resources creates big new incentives and resources for corruption,” Jennifer Cooke, director of the Africa program at the Center for Strategic and International Studies told AFKInsider. “And these are not places that have good governance records.”
“Some countries will use their revenues wisely and hopefully for long-term development, other countries probably will not,” Monde Muyangwa,Director of the Woodrow Wilson International Center’sAfrica Program told AFKInsider.
While the current natural resource and infrastructure boom in Eastern Africa will contribute to different degrees of economic growth for individual governments, its impact on leveling out economic opportunities will depend on mature natural resource revenue governance that ensures accountability and transparency.
“I think the reality of the situation is that it’s going to differ from country to country and a big part of it has to do with government systems and the mechanism that different governments put into place for ensuring that resources are used wisely and for long-term development,” Woodrow Wilson International Center’s Muyangwa told AFKInsider.
For example, two neighbors, Kenya and Uganda, are following different economic development paths.
Center for Strategic and International Studies’ Jennifer Cooke thinks Kenya is a “little further ahead” with using their natural resources to generate investments and economic growth.
Apparently the World Bank feels the same way.
In late July, the Bank approved $50 million for the Kenyan government to strengthen its ability to manage and distribute its resource revenues to create long-term sustainable growth.
The Kenya Petroleum Technical Assistance Project (KEPTAP) will focus on how to boost production efficiency, allocate oil and gas revenues for development priorities, and increase collaboration between the extractive industry and the domestic economy.
This includes drafting key planning policies and clarification of the responsibilities of existing government institutions.
Next door to Kenya, Uganda’s known oil reserves are estimated at about 3.5 billion barrels with revenues estimated at $2.5 billion a year when the oil starts flowing in 2017, easily accounting for 50 percent of the government’s current budget.
“But Uganda is run by President Yoweri Museveni who’s one of the longest sitting Heads of State now in all of Africa and the decision making around oil is pretty centralized within the Cabinet and maybe even within the office of the President,” Peter Veit, acting director of World Resources Institute’s Governance Center and Project Manager of the Land and Resources Rights initiative told AFKInsider.
According to the watchdog group Global Witness, Uganda’s oil sector is plagued by allegations of corruption and lack of transparency, partly because the nation’s law places power to issue and revoke oil contracts in the hands of the presidential appointed energy minister.
Global Witness says this has undermined the development of a planned national oil company and raises questions about how revenues will be managed since contracts and deals have been done behind closed doors, making it impossible to track where the revenue goes.
Center for Strategic and International Studies’ Cooke adds that Mozambique is also “not known for transparency or particularly good, inclusive government.”
“And you throw a lot of big new oil resources or gas resources into that, and it would be very plausible that that becomes kind of a conclave for the political elite,” Cooke told AFKInsider.
Yet, just to the north, the Tanzanian government plans to present new natural gas rules to parliament in November aimed at helping that country manage its natural resources.
The “Resource Curse”
The oil and gas boom in one of the world’s poorest regions of the world promises to free East African governments from their dependence on foreign aid once the natural resource revenues start to flow.
But natural resources have been literally a “resource curse” for many countries in the past, resulting is little if any economic growth and development.
In some cases, this “curse” has actually hindered the promised economic transformation while these countries themselves have become even more dependent on resource extraction.
This, in turn, has tended to promote government corruption and conflict in the poorest countries already experiencing large income inequalities. And the biggest risk of corruption is in countries where there is one dominant political party and a economic elite.
Experts at a Brookings Institute forum in February warned the new energy producing countries were running out of time to face the critical policy decisions required to best manage their resources and avoid the pressure to simply earn quick cash for the entrenched political and business interests.
Western aid agencies and foundation donors also fear they will gradually lose influence over government policies once the oil and gas money starts pouring in.
“When these countries have the opportunity of these big new resources, I think our assistance needs to shift to ‘how do we help them maximize and use them to drive real national development,’” Center for Strategic and International Studies’ Cooke told AFKInsider. “I think that’s where U.S. assistance in these countries needs to go.”
The U.S. government has targeted the East Africa region specifically through its Trade Africa and Power Africa initiatives. And the U.S. State Department’s Energy Governance and Capacity Initiative (EGCI) has made Uganda and Mozambique a priority to “establish the capacity to manage their oil and gas sector resources responsibly” with technical and capacity building assistance, according to the State Department’s website.
The State Department program is also meant to complement other international efforts, such as the Extractive Industries Transparency Initiative (EITI).
“The Energy Governance and Capacity Initiative, I think, is a good model,” Cooke told AFKInsider. “That kind of technical assistance to governments, that’s going to be increasingly important.”
“There is a component there that deals with strengthening the capacity of institutions to deal with issues of managing natural resources,” Brookings Institute’s Kimenyi told AFKInsider. “And that has a lot to do with the signing of contracts, and negotiations, and so on.”
In fact, even countries with good intentions for managing their resources have been out-negotiated and exploited by foreign companies.
But even with the State Department’s backing, the U.S. is a relatively small player, according to World Resources Institute’s Veit who notes that the Norwegian Agency for Development Cooperation (NORAD) has been the real force involved due to their history of oil development.
“They’ve been trying to help [countries] do everything from the build-up of public oil institutions to helping them think through new legislation and revenue management of oil,” Veit told AFKInsider.
Other U.S initiatives with the potential to stem resource corruption have stalled.
Oxfam America is taking the U.S. Securities and Exchange Commission to task for foot-dragging on the 2010 Dodd-Frank regulations that would force U.S. oil, gas, and mining companies to disclose the common practice of direct payments to foreign governments for natural resource access.
In a July 14 letter to the Commission, Oxfam – an international confederation of 17 organizations combating poverty in more than 90 countries – threatens to sue unless the Commission agrees to finalize the delayed “pay-to-play” regulations by the end of this year.
Though passed in 2010, a federal judge sided with oil industry groups and tossed out a draft version of the disclosure rule last summer. The Securities and Exchange Commission now estimates it will be March 2015 before the revised draft proposal will be ready, which critic call a questionable and illegal delay.
Meanwhile, the East African oil and gas boom isn’t waiting.
“I think the good thing is that we are seeing African countries actively having this discourse about how they invest some of these monies for the long-term development and human security in their countries,” Woodrow Wilson International Center’s Muyangwa told AFKInsider.
The consensus seems to be that no mater how it is accomplished, transparency and good governance in oil contracts and revenue use will require stronger collaboration between these newly resource-rich governments and the civil society organizations, private sector and local communities they serve.
“I think all of these countries are very vulnerable,” Cooke told AFKInsider. “The question is can you build a constituency within those countries that are powerful enough and knowledgeable enough to hold their governments to account.”
Mwangi Kimenyi, senior fellow and director of the Brookings Institute Africa Growth Initiative, says “it’s a different time” and Africa’s civil society has grown more assertive about holding their governments accountable for the resource deals they cut.
“I don’t think that we are going to see the same problems as in Nigeria, in Angola and Equatorial Guinea,” Kimenyitold AFKInsider. “I don’t think many leaders will be able to get away with it as they used to do before. So I would say that before we see a real exploitation of these resources, there will be safeguards to make sure there is transparency.”