Is Oil & Gas Discovery Changing East African Politics?

By D.A. Barber AFKI Original Published: August 29, 2014, 6:36 am
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We noted in Part 1 that as the Eastern African region emerges as a major gas and oil producer, investors and developers have started to flock to the area to exploit the natural resources and build infrastructure projects.

But the East Africa boom that includes Kenya, Uganda, Rwanda, Tanzania, Ethiopia and Mozambique is in a region that has traditionally struggled with poverty and varying levels of governance and economic policies.

“The advent of these major resources creates big new incentives and resources for corruption,” Jennifer Cooke, director of the Africa program at the Center for Strategic and International Studies told AFKInsider. “And these are not places that have good governance records.”

“Some countries will use their revenues wisely and hopefully for long-term development, other countries probably will not,” Monde Muyangwa,Director of the Woodrow Wilson International Center’sAfrica Program told AFKInsider.

While the current natural resource and infrastructure boom in Eastern Africa will contribute to different degrees of economic growth for individual governments, its impact on leveling out economic opportunities will depend on mature natural resource revenue governance that ensures accountability and transparency.

“I think the reality of the situation is that it’s going to differ from country to country and a big part of it has to do with government systems and the mechanism that different governments put into place for ensuring that resources are used wisely and for long-term development,” Woodrow Wilson International Center’s Muyangwa told AFKInsider.

For example, two neighbors, Kenya and Uganda, are following different economic development paths.

Center for Strategic and International Studies’ Jennifer Cooke thinks Kenya is a “little further ahead” with using their natural resources to generate investments and economic growth.

Apparently the World Bank feels the same way.

In late July, the Bank approved $50 million for the Kenyan government to strengthen its ability to manage and distribute its resource revenues to create long-term sustainable growth.

The Kenya Petroleum Technical Assistance Project (KEPTAP) will focus on how to boost production efficiency, allocate oil and gas revenues for development priorities, and increase collaboration between the extractive industry and the domestic economy.

This includes drafting key planning policies and clarification of the responsibilities of existing government institutions.

Next door to Kenya, Uganda’s known oil reserves are estimated at about 3.5 billion barrels with revenues estimated at $2.5 billion a year when the oil starts flowing in 2017, easily accounting for 50 percent of the government’s current budget.

“But Uganda is run by President Yoweri Museveni who’s one of the longest sitting Heads of State now in all of Africa and the decision making around oil is pretty centralized within the Cabinet and maybe even within the office of the President,” Peter Veit, acting director of World Resources Institute’s Governance Center and Project Manager of the Land and Resources Rights initiative told AFKInsider.

According to the watchdog group Global Witness, Uganda’s oil sector is plagued by allegations of corruption and lack of transparency, partly because the nation’s law places power to issue and revoke oil contracts in the hands of the presidential appointed energy minister.

Global Witness says this has undermined the development of a planned national oil company and raises questions about how revenues will be managed since contracts and deals have been done behind closed doors, making it impossible to track where the revenue goes.

Center for Strategic and International Studies’ Cooke adds that Mozambique is also “not known for transparency or particularly good, inclusive government.”

“And you throw a lot of big new oil resources or gas resources into that, and it would be very plausible that that becomes kind of a conclave for the political elite,” Cooke told AFKInsider.

Yet, just to the north, the Tanzanian government plans to present new natural gas rules to parliament in November aimed at helping that country manage its natural resources.

The “Resource Curse”

The oil and gas boom in one of the world’s poorest regions of the world promises to free East African governments from their dependence on foreign aid once the natural resource revenues start to flow.

But natural resources have been literally a “resource curse” for many countries in the past, resulting is little if any economic growth and development.

In some cases, this “curse” has actually hindered the promised economic transformation while these countries themselves have become even more dependent on resource extraction.

This, in turn, has tended to promote government corruption and conflict in the poorest countries already experiencing large income inequalities. And the biggest risk of corruption is in countries where there is one dominant political party and a economic elite.

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