Shaping the right narrative on East Africa’s Extractives Industries

More harm than good

The discovery of commercially recoverable reserves of oil in East Africa has brought with it a lot of euphoria. Expectations were and still are that resultant petrodollars will trigger inclusive economic growth, in no small part also fuelled by governments and the private sector.

And why wouldn’t they? There is growing evidence from the vast Alaskan landscape to the Kalahari in Botswana that oil revenues can result in windfall revenues when managed well. In 2017, Norway’s oil fund topped $1trillion in assets for a population of just over 5 million.

However, the difficulties in putting in place the right legal, policy and political framework for bringing oil and gas to market have demonstrated that the transformative impact of oil revenue is not always a certainty.

It is therefore important to temper the discourse around extractives with some level of ‘realism’. Extractives alone will not solve all the development problems of the region but can and should make a useful contribution. Sub-surface oil resources can be transformed into positive outcomes only when they are judiciously managed, and their output directed to sectors that matter most to the citizens, the people.

The world is fraught with many examples of countries that have suffered more than gained from natural resources. At the extreme, these resources announced are feeding to a misleading narrative that they are a countries’ saving grace. This also potentially means that other critical economic and social sectors can be ignored such as agriculture, one of the biggest contributors to national and regional growth.

Infrastructure development such as the East Africa Crude Oil Pipeline has been fast-tracked, posing the risk of circumventing legalities and international standards; and disregarding communities’ rights. Natural environments have been altered, degrading farming that 7 out of 10 East Africans rely upon for food and income.

There is also often a misleading impression that the extractive sector will create more jobs than others despite direct employment creation being relatively low. For example, Total’s exploration and production global workforce in over 50 countries in 2017 were just over 13,000 employees while Tullow’s total global workforce in 2017 was just over 1,000 employees.

Getting it right

Treating the extractive sector as a solely export enclave will result in few multiplier benefits accruing to the national economy. There must be a deliberate and purposeful link to important aspects of the economy as agriculture, health, and human resources.

Countries in the region should not only develop local content policies but should commission studies, develop strategies for value addition for each mineral or extractive resource. The Africa Mining Vision is an important template in this regard and provides a good foundation for harnessing the potential of not just mining, but the petroleum sector.

Lessons from across the continent also demonstrate that it is easier to default towards poorly managing extractive resources although it is possible to manage these resources prudently.

For example, extractives contracts set out the terms and conditions under which the resources will be exploited. Contracting can be too technical and particularly where the sector is new, limiting governments’ abilities to set out optimal terms on issues like taxation and local content compromising accrued benefits.

Publicly negotiating and disclosing contracts gives little incentive for corruption. Citizen expectations are also managed and there is a better understanding of what’s in it for them.

It could also contribute to minimizing the ‘race to the bottom’ as countries will not feel the need to unreasonably lower tax rates in order to attract investment due to the availability of comparable data.

Illicit financial flows (IFFs) can also compromise government revenue through wrong pricing and under-invoicing. Multi-national companies leverage low tax jurisdictions or tax havens to minimise their tax obligations.

Relevant institutions should be adequately capacitated and resourced to ensure that contracts are well negotiated and prevent potential leakages. Transparency and accountability over rent receipts and establishing well thought out spending, investment and saving rules could go a long way in ring-fencing revenue.

Regional strategies or protocols on extractives could also help lay out a shared vision for sectoral development in the region. ECOWAS has a Mining Policy and Directive while SADC has a Mining Protocol. A shared vision averts a race to the bottom by clearly setting out minimum conditions for resource exploitation and ensures that there is a consideration for spatial linkages and infrastructure sharing in the region.

Most importantly, people relate with what they understand. An informed and engaged citizenry is a critical watchdog in transparency and accountability and leads to more inclusive development pathways of the sector. We could learn from Ghana, for instance, that has the Public Interest and Accountability Committee - an independent statutory body mandated to promote transparency and accountability in the management of petroleum revenues.

East Africa’s extractives industry is still nascent. There is an opportunity to get things right. But we must learn from others in the continent and beyond on how best to manage these potentially transformative resources. The E.I.s must not translate into yet another ‘lost’ opportunity for the region.

Our Work

In Uganda, Kenya, and Tanzania, we work to ensure that governments, local citizens and host communities optimally benefit from mining activities. We are currently focused on promoting the application of Free Prior Informed Consent (FPIC) and ensuring that cross-border petroleum and mining infrastructure such as the East Africa Crude Oil Pipeline is developed in compliance with national and international laws and corporate best practice.

For more information on our work in extractives industries in the region, visit our What We Do page.