Most African countries have experienced a lot of growth over the years. Much of this growth has come from natural resources such as oil, gas, fisheries and minerals.
A lot of investment, often outside the continent has been pumped into these natural resource industries. Nonetheless, poverty is still rampant and growth has not been inclusive. This has been sometimes been known to be a resource curse. It is rooted in governance failures and remains a key challenge.
There are many ways to highlight this challenge. In simple terms, the resource industry has been awash with lack of transparency. Most mining deals are done in secret and this has fuelled corruption. Most African citizens have not known what deals are being signed and their implications. Communities have not been consulted especially when such extractive investments destroy their water systems, farming lands and the environment. It is for this reason that there have been resource wars in the Niger Delta as communities feel short changed. It could also be that since shady deals fuel resentment, powerful corrupt rent seeking interests intervene for their benefits.
While transparency is a key issue, the resource industry in Africa has lacked a consistent policy framework that gives equal opportunity to all. Countries have been obsessed with immediate revenue needs through royalties to balance budgets. In this regard, African countries have not coordinated with one another but have been fighting to offer the lowest tax rates to attract investors in the sectors. The tax regimes when it comes to natural resources have tended to be discretionary, often at the decision of a finance minister.
Despite these governance issues there are a lot of policy interventions to improve governance of natural resources.
Firstly, specific regulations should be put in place that promotes transparency in how African countries sign deals to extract resources. Transparency will be critical to economic transformation in the sense that it will lay bare accountability for all players. The public will be in a position to see whether such deals are benefiting them.
Secondly, African countries should enact specific legislation that promotes access to information with respect to monitoring natural resource concessions and subsequent benefits. Because this will promote transparency, extractive industries can be easily monitored whether they really benefit the country.
Furthermore, African countries will need to develop strategic dialogues with major emerging countries and destination of natural resources and integrate this into national resource policy. Specifically, this dialogue should be seen in the context of both value adding on the continent as well as ownership structures that give equal share to African countries. For example, diamonds should be polished right in Africa and not the United Kingdom or Hongkong. This will add extra jobs that are critical for economic transformation. They basically add value to the natural resource.
Lastly, African needs to strengthen its institutions and regulatory framework to deal with corruption in the natural resource industry as well legal systems that punish environmental degradation. With transparency as the underlining principle it can become easier that Ministries of Industry, Environment, Justice, Finance, Labour including Tax authorities work together in a way that promotes inclusive development, a key factor for economic transformation. Most of these institutions work in isolation which has provided a fertile ground for corruption and unfavourable resource based foreign direct investment.
With these policy interventions Africa resource governance might improve. Nonetheless, for economic transformation and inclusive growth to happen, African countries need to ensure that all sectors are growing and productive employment is being generated. Over reliance on natural resources has the risk of shrinking other industries. n