15 Dec 2009: ISS Today: Managing Oil and Mining Wealth in Africa: How About Giving the Profits Directly to Citizens?

15 December 2009: Managing Oil and Mining Wealth in Africa: How About Giving the Profits Directly to Citizens?

 

Andre Standing, senior researcher, Corruption and Governance Programme, ISS Cape Town

 

Reversing the resource curse has been a longstanding developmental priority in Africa. A dominant policy idea, promoted by the donor community and international financial institutions, lies with increasing transparency among African governments. The idea is that elite level corruption is at the root of the trouble. Yet improving transparency remains illusive and the underlying problems of human insecurity, poverty and environmental degradation caused by natural resource sectors continue on the continent. It is therefore time for alternative policy ideas to be given more consideration. One of the most interesting lies with distributing the profits from oil and mining directly to African citizens. This idea is not a popular one, but as a recent experiment in Namibia shows, it could prove an effective and just way of managing these sectors; not only in terms of poverty reduction, but also in promoting democratic governance and sustainable resource management.  

 

It is now common knowledge that revenue from oil and mining sectors has failed to enrich African citizens. This is partly due to a small number of elites who have captured the lion’s share of the revenue for themselves. Maintaining this situation means elites in resource dependent countries take a dim view towards democracy and civil liberties. Numerous studies show that countries dependent on oil and mining tend to be characterized by low respect for human rights, income inequality, high levels of corruption and higher than normal gender inequality. In addition, while there is no straightforward relationship between resources and conflict, these industries provide a noxious context to many of the continent’s wars. Further problems are found at a local level, as oil and mining operations so often cause environmental degradation and ruin for indigenous communities.

 

Reversing these problems in Africa has long been a priority of the international donor community, the UN and international financial institutions, although the same organizations promote the expansion of the extractive sectors in Africa on the premise that they are critical for the attainment of the Millennium Development Goals. Among policy debates the need for improved transparency has gained impressive support and momentum and is now considered the most significant solution. The most important development has been the Extractive Industry Transparency Initiative (EITI), now in existence for a decade. EITI, launched by former British Prime Minister Tony Blair and now with its secretariat in Norway, provides a framework for an independent audit of state revenue from resource sectors and for multi-stakeholder oversight of this audit. The number of African countries signed up to EITI has grown over the years, although not one has managed to fully meet the criteria of EITI so far.

 

The energy and funds put into EITI have showed limited results. Proponents of EITI argue it has changed attitudes within Africa towards accountability, but evidence for this is difficult to find. For a few years the Nigerian EITI was held up as a model of success, but a recent review by oil expert Nicholas Shaxson suggest improvements in accountability have been short-lived and largely insignificant. There are many problems with EITI that limits it impact. As an essentially voluntary initiative, it lacks teeth. However even if it was implemented fully it is unclear whether it has the potential to limit corruption meaningfully. Many experts believe it can not and it may provide false credibility to both companies and governments, hence the accusation of  ‘clearwashing’ leveled by some at the international donor community and oil and mining companies involved in the initiative. 

 

Criticisms of EITI can go too far. It is impossible to think of a positive future scenario for African resource sectors where a lack of transparency prevails. Therefore something like EITI must be part of the solution. Nevertheless, it seems important that policy debates on the resource curse move beyond repeating the need for transparency.

 

Notwithstanding the persuasive argument ‘leave it in the ground’, one idea that should be carefully considered is that a substantial amount of the profits from a country’s natural resources should be given directly to the country’s citizens. The idea is not a new one. In Alaska citizens have received an annual check for years from the oil sector. However, in Africa the idea of a similar initiative becomes remarkable given levels of poverty and the significance of resource revenue. To take just one example, Equatorial Guinea has a population of just 600,000, with over half living on less than USD1 a day. The country generates an estimated USD3 billion in profits every year from its oil reserves, which has enabled the governing elite to be some of the wealthiest people in the world. Oil profits divided equally among the citizens of Equatorial Guinea would represent a significant redistribution of wealth that could lift all citizens out of extreme poverty.

 

In thinking about these cash payments, the most desirable approach is for them to be unconditional, given to all citizens of all ages. This contrasts to means tested grants that are reserved for certain sections of society, such as the poor, elderly or unemployed. Unconditional grants represent a universal right, they are not paternalistic, likely to stigmatize the recipient or be viewed as a charitable handout. In a world of staggering income inequality and skewed opportunities, giving all citizens a modest monthly cash income could also be considered a moral imperative.

 

This type of grant, whether it is linked to resource wealth or not, is championed by a growing minority. Most important international organizations reject unconditional cash transfers on the assumption that they encourage dependency and idleness among the poor. The other worry is that these schemes would be excessively expensive and messy to oversee. Recent experience suggests neither of these assumptions is correct. Indeed, there is growing evidence that unconditional cash transfers improve human security more effectively than food aid, public work schemes and other forms of conditional, means tested social grants. They can also be straightforward and relatively inexpensive to administer.

 

One example that shows this well comes from Namibia. Here a two-year project, which is coming to an end, has involved giving monthly cash payments of approximately $14 to all people, including children, in two communities. The reported outcome has been impressive. Within a relatively short space of time, economic activity increased, particularly among women, new business opened, including a post office, school attendance increased, prostitution decreased. Most impressively, personal income increased by some 200% within six months.

 

Such cases suggest people are not prone to laziness and dependency, but are motivated to improve their lives and communities. Even a small amount of cash can be an effective way of improving human security and dignity. The case of Namibia also shows that it is not a costly policy option. Extending the scheme to the entire country would cost roughly 3% of GDP—an amount potentially offset by increased economic activity.

 

Investing oil and mining wealth in some sort of ‘citizen resource grant’ could therefore be an efficient and progressive way of tackling economic insecurity and underdevelopment in Africa—quite different from the current situation where large amounts of the profits are enjoyed by an elite. But it also could have a strong impact on accountability and transparency. Such a grant indicates clearly that citizens own their natural resources, which is not the case in most African countries now. This sense of ownership may encourage broad based interest in how resources are managed and therefore stimulate demand for good governance and accountability in ways that other externally funded and paternalistic initiatives fail to do.

 

There are of course many practical and ideological obstacles to the creation of a citizen resource dividend in Africa, so it is a matter requiring further debate. It certainly wouldn’t be a popular idea among those who benefit so enormously from the status quo and for whom an empowered, interested citizenship represents a threat to their hegemony. But it is worth contemplating what countries such as Equatorial Guinea, Gabon, Angola, Chad and Nigeria would be like if profits from oil and mining had been distributed in equal monthly installments to all their citizens.