Let's Break Africa's Resource Curse

By Kofi Annan - International Herald Tribune/Deccan Chronicle

Across Africa, oil, gas and minerals are being discovered more often than ever before. Nowhere is the global commodities boom being felt more acutely. Over the next decade, billions of dollars will flow into countries previously starved of financial capital.

Used wisely, these natural resource revenues could lead to sustainable economic growth, new jobs and investments in health, education and infrastructure. But sadly, history teaches us that a more destructive path is likely — conflict, spiralling inequality, corruption and environmental disasters are far more common consequences of resource bonanzas. The cliché remains true: striking oil is as much a curse as a blessing.

There are no easy answers to this problem. It can only be tackled with global cooperation among private sector leaders in the extractive industries, African leaders in government and civil society. The ultimate goal is a transparent and accountable sector-generating financial firepower that will enable countries that have previously lagged behind to accelerate rapidly towards the Millennium Development Goals.

The good news is that momentum is building behind this objective, and from an unlikely source. Financial regulators in the United States ruled on August 22 that all US-listed oil, gas and mining companies will have to publish all the payments they make to governments, broken down to the level of individual projects.

This historic implementation of the Cardin-Lugar amendment of the Dodd-Frank Act passed by Congress two years ago will open some of the world’s most opaque financial dealings to public scrutiny. The challenge now is to bring similar legislation to other jurisdictions, starting in the European Union, where policymakers will vote on new transparency laws next week. From there, African governments must pass their own reforms. The benefits will be huge.

First, citizens will be empowered with the information they need to hold government and companies to account for the money made from natural resources. This is not an abstract concept, as some have suggested. A former World Bank vice- president for Africa, Dr Oby Ezekwesili, estimates that Nigeria has had at least $400 billion of its oil revenue stolen or misspent since independence in 1960.

It is vital that countries with newly discovered oil reserves, like Ghana, Kenya and Uganda, do not suffer the same fate. Greater transparency will also improve the business climate. The politics around natural resources tends to be fractious and debilitating.

Of course, transparency alone cannot solve complex conflicts, but without it the hope of resolution is dramatically diminished. It is in the interests of companies to support an atmosphere in which political risk is minimised, rumours and innuendo around revenues are replaced with fact, and the most responsible companies are rewarded with the contracts they deserve.

US leadership on this issue should be the start, not the end, of efforts to break the resource curse. Europe’s proposed new transparency legislation would require another swath of companies to publish what they pay — but if it is to be effective, a number of loopholes and exemptions should be tightened up before it makes the statute book.

Most seriously, the proposed European law includes an exemption for autocrats who pass laws to prevent financial disclosure. This logic was explicitly rejected by the US regulator and should be removed in Europe. It is also essential to require disclosure at the level of individual projects, rather than the national level, which some European countries have suggested.

Local communities have the right to know what the mines and oil wells in their neighbourhoods are contributing to the economy.

Beyond Europe, the G20 should step up negotiations to ensure that companies from emerging economies are also required to disclose their payments. Given their rapidly growing presence in Africa, this is important to secure a truly global standard.

In the meantime, African governments should legislate at the national level so that all companies competing for their contracts have similar expectations. It is also necessary to step up support to civil society groups that aim to hold governments accountable, so they can use and interpret the data this transparency boom will release.

Some African countries have successfully used natural-resource revenue for the public good. Botswana now has middle-income status, and among countries with newly discovered oil, Ghana has made encouraging moves towards publishing all present and future oil contracts.

But the resource curse remains hard to shake off. The new global transparency momentum gives African countries a genuine chance to escape it once and for all.

The writer is chairman of the Africa Progress Panel, former Secretary-General of the United Nations and Nobel laureate