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Good Contracts and Clear Politics Needed to Benefit from Natural Resources
Countries have the sovereign responsibility and their citizens expect them to use their natural resources responsibly, Roger Nord, the Deputy Director, IMF Africa Department, said on Wednesday, October 31, at the ongoing African Economic Conference in Kigali, Rwanda.
One sure way to achieve this is to ensure that right from the start they negotiate contracts that are in their interests. Countries that are already in agreements that disfavour them should find all means possible to renegotiate them, he added.
The best place to start, according to Prof. Chukwuma Soludo, the former Governor of Nigeria’s Central Bank, is to put in place robust legislation against which these negotiations can be anchored.
“Those discovering oil now and natural resources, write the laws before you start exploiting them. Once the resource revenues start flowing it becomes difficult to manage or even to write the laws,” Soludo said while contributing in a plenary focused on harnessing Africa’s extractive industries.
Yet the laws alone aren’t enough. Countries will need the right politics, he added.
“The major lesson from Nigeria is that the whole questions and decisions are really political. You can’t discuss these issues without getting down to the rules of how political decisions are taken in a particular context,” Soludo noted, drawing on experiences from his country, which has been exporting oil since the 1950s.
“You’ve got to understand the domestic political decision processes, institutions and interest groups that are around it because it is not just a mechanical process... You could write out the technical notes where you are advising countries, but it won’t go far because just like the normal IMF conditionalities, it is still the domestic political process that will prevail at the end of the day.”
Louis Kasekende, the Deputy Governor of Uganda’s Central Bank, also noted the importance of good governance to achieving better returns on natural resources by highlighting what he termed the governance deficit associated with extractive industries.
“The governance issues will interact with the decisions of savings consumptions investment. If you don’t have a capable state, if you have poor governance your choices of areas you move into may be greatly influenced by rent-seeking and might actually make it worse for the economy that you don’t get structural transformation and you don’t get sustainable long-term growth. So, everything we can do to strengthen governance is extremely important,” Kasekende, one of the panelists, said.
Kasekende strongly cautioned against simply focusing on extractive industries. Rather, countries ought to be thinking about more comprehensive development strategies that cover all its sectors.
They shouldn’t ignore the private sector, which is widely acknowledged as the premier driver of economic growth and transformation.
He praised the competitiveness report that the African Development Bank jointly produces with the World Bank as a good guide countries must rely on to determine what needs to be addressed first.
“In most cases, we talk in generalities; private sector requires an improved business environment.
What do you mean by an improved business environment? Is it on the legal side? Is it within infrastructure, telecoms, railways, water? What is it?
“The World Bank, the ADB and the World Economic Forum present you with this report that can guide what an individual country or even region should be placing its emphasis on,” Kasekende said.
For Mwangi Kimenyi, a Senior Fellow at the Brookings Institution, comprehensive plans are only as good as they are implemented.
“If you look at the visions that a lot of countries have developed, I mean Vision 2020, Vision 2030, they are actually very well done. They look at the whole country, the potentials, and try to see ways of going through the transformation. The issue is how we go about implementing them.”