Tuesday, 5 June 2012

'Doom or Prosperity: What does the discovery of oil and gas in East Africa portend for public expenditure, governance?’


The recent discovery of oil and gas deposits in East Africa present new opportunities through access to energy and increased oil revenues that could be instrumental in charting a new sustainable growth path for the region. It presents East African states with strategic leverage to expand on public spending and to better control and determine the developmental trajectories of their economies and the livelihoods of their citizens.
These discoveries no doubt come as a relief not only for government but to citizens alike with rekindled hopes for fairer distribution of economic development and reduction of poverty. Governments perennially bedeviled with headaches of delicate budgeting, deficits, possible resistance and activism related to over-taxation and demands for accountability that comes with both taxation and conditionalities for aid delivery certainly look forward to such discoveries.  Within the psyche of the ordinary citizen, persuaded that such discoveries herald expansion of the state revenue basket, this means better funding for delivery of public goods and releases the burden on taxation. It could also mean increases in individual income and consumption that all translate into optimism for individual well being.  And arguably, this could also be a relief to donors and donor agencies mobilizing resources to deliver development assistance.

However, these discoveries also come amidst controversial discourse amongst policy makers, development partners and academia on their developmental prospects. This draws from disappointing developmental returns that have been generated in the past by emergent natural resource revenues in countries like Yemen, Nigeria and Zambia. These countries failed to leverage their natural resource wealth into strong states. It also draws from evidence indicating that properly managing resource windfalls remains a challenge for many developing countries and indeed portends harmful tendencies to their development. In fact these resources have become synonymous with high levels of inequality and poverty, poor governance, weak institutions, corruption, conflict and over-dependence on singular natural resources presenting barriers to economic diversification commonly referred to by many authors as the ‘resource curse’.  

Take a look at the world's newest nation - South Sudan: on average between 2005 and 2011 oil revenues contributed over 97.8% of government revenues. This is depressing news; it has left the economy vulnerable to external shocks. A case example is the decision to shut down its entire oil production from January 2012 in response to the dispute with Khartoum. This has brought about unprecedented inflation rates (upto 80% in May 2012) that citizens now have got to deal with. The acute dependence on oil revenues has also hamstrung serious investment in an effective and efficient tax system which obviously has had huge ramifications on state accountability besides the myriad of teething problems South Sudan has to attend to.

In sum, countries that depend on such natural resources for their livelihood eventually become among the most economically troubled, the most authoritarian, and the most conflict-ridden in the world. There is need therefore to begin having more open and honest dialogue around the emergence of East Africa’s new natural resource wealth within individual countries and across the states as in the East African Community. 

East Africa must begin to ask and provide answers to these fundamental questions:
  • What implications does this have on government revenues (in terms of tax, development assistance, and other non-tax revenues)?
  • How will this affect the character and psychology of government spending?
  • What impact would this have on donor psychology; trends in commitments and aid disbursements?
  • How will this change the attitudes of citizens in terms of taxation, initiative, and civil awareness (keeping government accountable?)
  • What does this portend for poverty and poverty reduction in East Africa?

There is need for intensive and extensive conversations not only within the realms of formal public policy making but encompassing informal street-wise discourse as well on the prospects and foreseen challenges for the region. Discussions on expectations and responsibilities of every stakeholder. East Africa must forecast the expectations of government on growth and public finance; expectations of citizens on expansion of public expenditure to reflect developmental needs, lesser taxation, effective delivery of public goods and overall individual/household well-being; expectations from citizen groups and civil society on more transparency, accountability and responsiveness to citizen demands.  

Such discussions inevitably must inform public policy, especially macroeconomic ones that determine expenditure on different sectors of the economy. Equally such discussions must function to dispel myths, manage citizens expectations and optimism and guide government psychology towards sustainable exploitation of such resources and efficient expenditure of revenues generated thereof. 



  1. Why is everyone (WB, AfDB et al) talking about the pitfalls of the resource finds. Are these 'prophets of doom' waiting for the resource curse to unfold in EA? Too many cautions!

  2. quite thought provoking... I think these doom prophecies are good for they will help us plan better than most African countries that have fallen in the pits of oil and gas discovery

  3. @Butunyi i think their too caution is warranted..we dont want a Zambia or Nigeria sort of scenario in East Africa! we can rip the benefits of the revenue genrated from these emerging natural resources only with proper regurlatory and economic policy framework.

  4. The problem with an abundance of resources in Africa has never been the resources themselves but the fact that the market for them is not in Africa. When conflicting market interests arise, the only way for 'strong men' to grab the resources is to create conflict. If East Africa chooses China as the destination for their oil and gas, then the US will be left with no choice than to create a reason for military intervention in the region. AFRICOM is there to make sure of that.