Politics of Poverty

East Africa Rising? 6 steps to avoid spoiling the oil and gas boom

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Panel at Oil and Gas in East Africa Conference hosted by Oxfam & SAIS (Photo: Oxfam)

Attractive oil and gas prospects in East Africa have not yet generated the economic growth and development it initially promised. Here are six steps needed in order to make sure East Africa gets on the right track.

Over the last decade, discoveries of crude oil in Kenya and Uganda and world-class natural gas in Tanzania and Mozambique have set East Africa on a high speed race to become a major oil and gas producing region. Just a few years ago, oil prices were over $100 per barrel and the international oil and gas sector was buzzing with anticipation of the investment prospects dotting across East Africa.    To many, it seemed like the beginning of a new chapter of rapid development for the long-impoverished region.

In 2014, Oxfam and the Brookings Institution convened a multi-panel discussion to explore the potentials of the boom and to highlight cautionary tales from other African oil-producing nations.   The question on everyone’s mind was, “Will East Africa get it right?” Since then, oil prices have tumbled. Oil and gas mega-projects that were once ‘just around the corner’ have since been delayed and delayed, seemingly into perpetuity.  As many projects await an uncertain future, the changed investment climate warrants a hard look back on the initial promise of a resource boom for East Africa.

In late March, Oxfam and Johns Hopkins University-SAIS hosted a conference to do just that. The event brought together international companies, financial institutions, donors and academics with civil society activists from the region to discuss progress made in the last few years in setting the foundation for responsible and inclusive governance of the sector. The conference, comprising of three panels, focused on the following topics: money and politics, land for livelihoods or investments, and the role of the international community.

Since initial discovery of oil and gas in the region, public discourse has focused largely on how much growth and how quickly, setting unrealistically high expectations — expectations that were ratcheted up largely by international oil companies, media, and the donor community promising an “Africa Rising” moment.  Unfortunately, the reality of the last few years tells a different story.  In Mozambique, for example, where massive offshore natural gas finds are some of the largest on the continent, a drop in commodity exports and slowdown in the oil and gas sector have landed the country in a severe debt crisis.  The IMF (who ironically hosted an “Africa Rising” conference in Mozambique back in 2014) and other international donors have since frozen their support to the country, which is now facing a debt equivalent to 112 percent of its GDP. For Mozambique, at least, it looks like oil and gas has led to something that more closely resembles a fall.

Across the region, a wake-up call is emerging about the false hope of getting rich quick. At our conference a few weeks ago, several participants highlighted that many of the initial commitments to good governance and sector preparedness declared a few years ago have not yet taken hold. While the longer-term industry outlook still looks optimistic, the pathway to getting there in the immediate term is sobering. So, what to do about the challenges that remain?  Experts, practitioners, and advocates weighed in and offered some key recommendations for how East African countries can still get it right.

  1. Don’t believe the hype. The potential is there, but it may be a while before resources are extracted and even longer before governments see any significant revenue. As they say, don’t count your chickens before they hatch – and don’t spend money before you have it.
  2.  Release the contracts, strengthen tax administration and tax audit capabilities. In order for countries to know how much their governments should be receiving and when, resource contracts need to be out in the public domain. The government of Kenya has made public commitment, but has yet to disclose contracts. Contract transparency is a growing and established norm that must be applied in East Africa. In order to maximize their take, governments must have the capacity to administer and collect the taxes owed to them and crack down on tax base erosion and other tax evasion risks.
  3. Close corruption loopholes so benefits from sectorial development don’t accrue to just the rich and powerful. Disclosing beneficial ownership information and upholding anti-corruption measures like the Foreign Corrupt Practices Act (FCPA) can help address corruption risks from poor local content policies and minimize rent-seeking behavior.
  4. Prioritize livelihood restoration and community rights over shortcuts to compulsory land acquisition from the early stages of project development construction. Communities affected by projects have the right to be fully consulted and fairly compensated should they be affected. This means governments and companies should provide land for compensation in resettlement, negotiate fair and inclusive agreements with affected communities, obtain communities’ Free, Prior and Informed Consent, and establish an effective and accessible project-level grievance mechanism.
  5. Protect civil society watchdogs to ensure local-level accountability. Donors, companies and international actors must prioritize protecting civic space to ensure a meaningful domestic system of checks and balances and to monitor the commitments and follow through of governments and companies. This includes pushing back on restrictive NGO legal frameworks and increasing threats and harassment of activists.
  6. Follow through on policy commitments and cultivate political will. Governments and companies operating in East Africa must be held accountable on promises of greater transparency and accountability of the sector. Donors need to leverage the benefits and technical support they offer with concrete trade-offs for implementation of good governance. In some countries, strong laws are in place but not yet enforced.  Donors should reward positive follow through on governance commitments to cultivate genuine political leadership from within East Africa to champion transparent, inclusive development of the oil and gas sector.
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