Africa is largely endowed with vast environments rich in natural resources.
These resources are a primary source of public revenue and national wealth. Crude oil and natural gas, in particular, contribute significantly to the economies of resource-rich African countries.
African countries are classified as either resource-rich (including both oil and mineral exporters); petroleum-rich (oil and gas); rich in minerals (other minerals, such as metals); or scarce resources.
Of Africa’s 54 countries, 22 are resource-rich, meaning that fuel and mineral exports contribute over 20% of GDP. These countries represent just over two-thirds of Africa’s GDP and half of its population. Half of these countries are oil exporters (fossil fuels), while the other half are mineral exporters (metals and other minerals).
In contrast, there are 31 resource-poor countries, which account for 30% and 48% of the region’s GDP and population, respectively. For example, oil revenues represent more than half of all revenues in Angola, Congo, Equatorial Guinea, Gabon and Nigeria.
As the world transitions to clean energy, African oil and gas producing countries are feeling the pressure of this transition. Indeed, while these African governments – whose economies depend on oil and gas revenues – hold the key to accelerating this process, oil itself is a non-renewable resource. If mismanaged, it could do more harm to the economy than good. Additionally, an analysis by Mckinsey on The Future of African Oil and Gas: Positioning for the Energy Transition showed that economies dependent on oil and gas revenues have oil reserves that both cost more to produce and are, on average, more carbon intensive than oil and gas in other regions.
This, coupled with the history of African governments with astronomical levels of corruption, mismanagement of revenues, inadequate capacities, lack of local participation and opaque contracts, makes it difficult to make the right strategic choices and synchronize their implemented in a context that promotes fiscal prudence and minimizes macroeconomic distortions.
Moreover, even when the resource is exploited, more often than not the wealth of the natural resource fails to generate the expected economic growth. This was attributed to several factors by the Africa Oil and Gas report, including: Dutch disease – the syndrome of rising real exchange rates and wages driving out pre-existing industries competing with exports and imports ; rent-seeking by elites and others who might otherwise devote their energies to lucrative pursuits; price volatility and “adjustment asymmetry” (it is easier to increase public spending than to reduce it again); the rigidity of labour, product and asset markets; and tensions between oil producing and non-oil producing regions within countries.
Despite all the challenges, there are a few things that can be done to help negotiate better deals with oil exporters to protect themselves.
The first is regional cooperation. Regional cooperation is an important element in meeting the development challenges resulting from the evolution of international oil markets. Such cooperation can cover many areas, for example infrastructure development, but efforts to channel oil revenues so that they can be used to meet the continent’s development needs are particularly important.
Establish an African Petroleum Fund
Once the African Petroleum Fund (APF) within the African Union is established, it would help to mitigate, if not neutralize, the balance of payments effects of rising oil prices on poor African countries dependent on oil imports.
The APF will achieve this by smoothing fluctuations in domestic (African) oil and oil-derived fuel prices caused by unpredictable changes in international market dynamics. The expected immediate outcome is the reduction of the effects of unforeseen natural and geopolitical factors that determine international oil prices.
In a broader perspective, the APF also aims to become a platform for the regional integration of African countries by promoting the intra-regional import and export of petroleum products and by becoming a forum for discussion to mitigate the high economic and social costs of external shocks that accompany changes in oil and gas market prices.
In addition, petroleum price stabilization funds have been used in some countries to manage revenue shortfalls in times of rising oil prices. However, a fund that did not accumulate significant funds before the recent rise in oil prices would be unable to smooth prices without an initial transfer from the government.
Have a fund for future generations
Putting some of the revenue generated from oil and gas exports for future generations is one way to prevent oil-rich countries from sliding into poverty once oil supplies dry up.
For example, when Chad built a US$3.5 billion Chad-Cameroon oil development and pipeline project that was completed in 2004, Chad had to deposit 10% in a fund for “future generations”. to provide income to Chad after the oil runs out. reservations. However, in December 2005, Chad’s National Assembly abolished the fund for future generations and diverted money from poverty alleviation efforts to the purchase of arms. The World Bank responded by suspending $124 million in loans. In July 2006, the two parties reached a compromise, which specified that the Chadian government would devote 70% of revenues to development programs and 30% to public expenditure. Some have called the Chadian experience a prima facie failure; others argue that after only a few years it is still too early to judge.
Introduce a mineral taxation system
One of the main concerns is that African governments that are major producers of oil and other minerals do not receive sufficiently large rents or revenues from the production of these extractives.
This has been attributed to a number of reasons, including contracts and schemes that are not designed to extract maximum rents due to inherent government corruption; and mining policies designed primarily to promote and attract investment and which have not evolved with changing global dynamics and national interests.
If these governments implement appropriate and modern tax regimes for the extraction of mineral resources, such as a mining tax system, different from the general tax system, they will be able to explore and invest while ensuring a fair share of income for public use.
However, care must be taken to ensure that the fiscal regime adopted is symbiotic in the sense that it always promotes interest in exploration and investment while benefiting the nation.
Have sustainable resource development
Another way for African governments to protect themselves is to ensure more sustainable development. According to an AfDB report, most African countries lack sustainable resource development strategies and policies that would facilitate the sustainable extraction of oil and other minerals.
These sustainable policies include: preserving strategic minerals of importance for future development (and generations); apply production quotas or caps; limit the number of exploration licenses used, the areas available for exploration or the number of extraction sites; ensure a longer lifespan by limiting the annual capacity; establishment of a benefits trust framework; and instituting incentives to promote potential alternatives.
One of the characteristics of many countries endowed with abundant natural resources is that they save less than what is expected given the rents derived from the extraction and sale of natural resources.
If countries saved more, they would grow at a sustainable and faster rate. To better understand sustainable development, it is helpful to examine the concept of genuine savings.
Genuine saving is defined as public and private saving at home and abroad, net of depreciation, plus current expenditure on education to account for changes in intangible human capital, minus depletion exhaustible and renewable natural resources, minus the damage caused by the stocks of pollutants (CO2 and particles).
Genuine savings correspond to an increase in the wealth of a nation. According to Hartwick’s rule, any depletion of natural resources or damage caused by pollutant stocks must be compensated by an increase in non-human and human capital. This rule of zero genuine savings can be seen as a rule of thumb or motivated by max-min egalitarianism.
According to the World Bank, this requires that resource-rich countries adopt a strategy to transform their natural resource wealth into other forms of productive capital. Resource-rich African countries therefore need credible and transparent rules on sustainable consumption and investment to ensure that exhaustible natural resources are gradually transformed into productive assets at home or abroad.
Furthermore, countries with high population growth rates need positive rather than zero real savings rates to maintain constant per capita consumption. They must therefore save more than their exhaustible resource rents, but rarely succeed.
The analysis suggests that resource-rich countries with negative genuine savings, such as Nigeria, would experience increases in productive capital by a factor of five or four if Hartwick’s rule were applied.
Indeed, for countries with negative real savings, the erosion of their natural resource wealth exceeds their accumulation of other assets. They waste their natural resources at the expense of future generations without investing in other forms of immaterial or productive wealth. This is an unfortunate feature of many resource-rich African economies.