December 18, 2017

Mineral discoveries in Africa: A blessing hindered by poor governance

The recent news of Tullow Oil, a British multinational firm, making an additional new oil discovery at Etuko-1, a well in Northern Kenya came as good news to many Kenyans considering that the firm first struck oil in Kenya in March last year raising hopes that the country could be headed for a new era of mineral wealth.

In addition, the latest testing data from the Twiga South-1 and the Ngamia-1 has seen Tullow upgrade its estimates for the oil production potential for both discoveries. The company now estimates a flow potential of about 5,000 barrels of oil per day (bopd) per well. Further, the potential for both discoveries is now estimated at 250 million barrels of oil but could shoot up upon further appraisal.

Kenya is not an isolated case there has been other recent discoveries of oil struck in Uganda and gas finds offshore of Tanzania and Mozambique. Across Africa new oil fields are being discovered. Chad, Côte d’Ivoire, Liberia and Mauritania have all discovered oil in commercial quantities. In the last couple of years new discoveries have also been made in Sudan, Angola, Cameroon, Gabon, Niger and Sierra Leone, while extensive exploration is ongoing in a number of others.

Moreover, trillions of dollars in resources lie buried in the backyards of most African countries.

This underlines Africa’s potential of becoming a major oil and gas producing region in the next few years. However,the big question is;are African governments capabale of effectively managing these resources for the common good of their citizens?

The discoveries of oil, gas and other minerals can, if managed effectively and accountably, stimulate economic development. Too often, however, secrecy, corruption and weak institutions obstruct this path.

Most people argue that the continent’s countries have huge populations that hinder equitable distribution of resources received from the mineral sales. If this is the case, what about Norway with its 5 million people or US with over 300 million people? Some countries like Brazil, India, China, Russia, Japan, UK, France and many others have more population than most African countries yet they are using their mineral as a resource instead of demonising it.

People are not a problem to oil discovery; how you manage the resource is the problem. Population is a resource and not a liability. African governments often lack the capacity to effectively monitor resource production.

Yusupha Crookes, the World Bank’s country director in Ghana, says mining fiscal regime is only as effective as the combined administrative capacity of the government institutions charged with enforcing it. He adds that it is important to have systems and processes in place to effectively address oil, gas and mining tax payments administration, since the general tax system may not be efficient enough for the extractives sector.

In Africa, citizens are rarely given a chance to oversee how natural resource revenue is managed. However, experts have hailed the creation of Ghana’s Public Interest and Accountability Committee (PIAC) which serves as a platform for public debate on how petroleum revenues are spent. African oil producers should follow Ghana’s example as this will help the ordinary citizen to have a say in the management of the mineral resources revenue.

A new governance index released recently shows Ghana ranking 15 out of 58 countries, earning the highest score in sub-Saharan Africa, reflecting major reforms to improve competition and transparency in the mining sector. At 15th position, Ghana emerges as the best country in sub-Saharan Africa to have undertaken major reforms to enthrone transparency in the mining industry but the government still grapples to give citizens the information they need to assess whether they get a good deal from mining companies.

When the oil rigs started pumping crude off the coast of Ghana’s Western Region in December 2009, many people hoped for better living standards and development. They wondered whether Ghana would be able to break the “curse” that has often marked Africa’s oil and mining industries decades of extraction that often saw only a few getting richer but the majority getting poorer.

Nigeria, one of the continent’s largest crude producers depleted an estimated US$400 billion earned from crude oil sales since the 1970s. After decades of oil production and billions of dollars in revenue unaccounted for, Nigerians are hoping that the country’s new Sovereign Wealth Fund will improve living standards if managed well. Angola, Africa’s second largest oil producer, is also considering setting up such a fund.

Steve Manteaw of the Civil Society Platform on Oil and Gas, a coalition of civil society groups that promotes transparent and accountable management of oil and mineral wealth, says Ghana is on the right path because it has in place a law that governs how the oil revenue is collected and managed. He says where countries have effectively used natural resources to transform their economies and the lives of their people, the countries themselves have been active participants in the sector and work towards ownership by buying shares in the producer firms or reinvesting the revenue and living off the dividends, like Botswana.

Experts have described Ghana’s Revenue Management Act, passed more than a year after the first oil was pumped from the country’s Jubilee Field, as an “innovation.” The law outlines clear mechanisms for collecting and distributing petroleum revenue.

During his recent visit to Liberia, Professor Paul Collier, director of the International Growth Centre, a UK research institute, said that the discovery of oil can either end poverty or increase it adding that if you find yourself at the crossroads, it’s your determination that can lead you to the case of Botswana or Ghana and not other worse oil scenarios in the world.

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