Delivering on the promise: Leveraging natural resources to accelerate human development in Africa
ABOUT THE REPORT
Despite impressive economic growth in recent years, many African countries have seen uneven progress in improving health, education, and other social outcomes for their citizens. As domestic resources become more critical to financing these needs, new natural resource discoveries – oil, minerals, and gas – offer a new source of revenue for advancing human development and supporting countries on the path to self-sufficiency.
Most African governments have expressed a commitment to directing new revenues from natural resources toward improving social outcomes as well as creating more and better jobs and business opportunities. But several countries in the region are finding it challenging to scale up investments to the right level, and the contribution from extractives to socioeconomic development will remain unfulfilled unless their commitments become a significant part of their national development agendas.
Policymakers in these countries are aware that they face tough and often complex policy choices along the way: balancing social investments with needs in other sectors of the economy, being transparent and carefully managing citizen expectations, and ensuring benefits for both extractives and non-extractives communities and for current as well as future generations.
In light of these challenges, the African Development Bank and the Bill & Melinda Gates Foundation have produced a joint report to examine how revenues from extractives can be managed for greater social impact. The report makes three fresh contributions to the discussion:
- It provides a broad estimate of the magnitude and timing of new extractives revenues in Ghana, Liberia, Mozambique, Sierra Leone, Tanzania, and Uganda – six countries that have recently discovered significant oil, gas, or mineral reserves. The report shows that despite recent drops in commodity prices, these reserves could boost government revenues by 9% to 31%.
- It offers a policy framework for funding social sectors, absorbing and managing the revenues while maintaining economic stability, and creating appropriate fiscal rules. The report also provides an overview of different types of spending programs and their relative strengths.
- It highlights ways to leverage extractives companies’ direct spending – as well as procurement, skills transfer, and social investment – throughout the lifecycle of extractives projects to ensure that the benefits to businesses and individuals ultimately advance human development.
The following key policy priorities emerged from the research, conversations, and consultations that shaped the report:
- Define and commit to clear, achievable human development goals that will be linked to natural resource revenues.
- Use multiple channels to direct extractives resources toward human development outcomes.
- Be realistic about the timing and amount of new revenues, and communicate those expectations appropriately.
- Identify human development priorities and the best and most feasible interventions, given the revenue projections.
- Manage macroeconomic risks, and resist spending revenues before they arrive.
- Leverage private-sector investments at project sites.
- Engage with companies in the broader economy.
This paper discusses the channels through which extractive industries projects can contribute to human development. They include public spending channels, either directly from the government (through spending on health, education, or social protection) or indirectly (through spending on infrastructure or economic development). They also include important but sometimes overlooked industry activity channels. Two kinds of spending by extractives companies can enhance human development: spending on project activities (infrastructure, procurement, employment) and social investment. In both cases, the impact can be amplified by government policies and practices.
Timing and magnitude of new natural resource revenues in Africa
This paper estimates the scale and timing of revenues from recently discovered natural resources in six countries: Mozambique, Tanzania, Ghana, Uganda, Sierra Leone, and Liberia. These countries were chosen because sufficient data exists to make projections, and the discoveries are in sectors in which the countries have not yet elaborated a policy framework, which creates opportunities to direct these resources toward human development. The new revenues are projected to be significant but not transformational – ranging from 2% of GDP in Tanzania to 6% of GDP in Liberia over the first 10 years of production.
Natural resource revenues and macroeconomic policy choices
This paper explores the fiscal policy choices that will determine the impact of new natural resource revenues on the economy as a whole – and thus, in the long term, on human development. These choices include whether to bring forward anticipated revenues through borrowing, how to balance the spending and saving of resource revenues to avoid exceeding the economy’s absorptive capacity and running the risk of “Dutch disease,” whether to save through central bank reserves or a sovereign wealth fund, and how to balance investment and consumption spending through sound project appraisals that account for future operations and maintenance spending.
How to use natural resource revenues to improve health and education in Africa
This paper makes the case for investing new natural resource revenues in health and education. Evidence shows a high economic return on these investments, and most governments have committed to ambitions in these sectors in their national development plans. This paper compares projections (from the previous paper) of the likely scale and timing of resource revenues in Mozambique, Tanzania, Ghana, Uganda, Sierra Leone and Liberia with estimated financing gaps in health and education and shows that these gaps could be partially filled. The paper also introduces a framework for thinking about the choices involved in each country context.
How to use natural resource revenues to enhance demand for public services through social protection
This paper discusses ways to use a portion of new natural resource revenues to fund the creation or expansion of non-contributory social protection programs, most notably cash transfer programs. Such programs can boost human development by tackling poverty and promoting inclusive economic growth. The paper explores design features of cash transfer programs that address demand-side barriers to accessing health and education services. It also compares projections (from the paper above titled Natural resource revenues and macroeconomic policy choices) of the likely scale and timing of resource revenues in Mozambique, Tanzania, Ghana, Uganda, Sierra Leone and Liberia with the cost of a basic social protection package.
Creating local content for human development in Africa’s new natural resource-rich countries
This paper explores ways that governments can harness spending by extractives companies to boost economic development through “local content” policies. These policies aim to broaden the benefits to local firms and workers from project spending on employment, procurement, and infrastructure. Research shows that local content requirements are often economically inefficient and that it may be more effective to focus on creating an enabling environment – working with extractives companies to identify future needs, analyze existing gaps, and address those gaps through training and capacity building (for example, by helping local firms understand procurement procedures and meet international quality standards).
Leveraging extractive industries for skills development to maximize sustainable growth and employment
This paper discusses how extractives industry projects can contribute to skills development. While some skills required by these projects are highly specialized, others – such as project management, accounting, engineering, and construction – are widely applicable. If local people can be trained in these skills, the local economy will benefit from their employment and from their ability to subsequently use the skills in other sectors. The industry also stands to benefit because local workers can be more cost-effective than international workers. The paper examines options for governments to work with industry on skills development.
Extractive industries and social investments: Principles for sustainability and options for support
This paper focuses on social investments that extractives companies often make in localities affected by project activities, which are aimed at securing the company’s “social license to operate.” Although these investments typically account for only about 1% of total project expenditure, they can have significant impact on human development. The paper discusses the importance of sustainability, participation, and inclusiveness. Alignment with government plans is also crucial: for example, companies could commit to building schools or hospitals if the government commits to meeting the recurrent costs; or the government could ease regulations to help social investment aimed at local small business development