Africa’s energy boom must be managed carefully

Image: Flickr, CIFOR
Image: Flickr, CIFOR

The Department of Mineral Resources recently lifted the moratorium on shale gas exploration in the Karoo.

According to the US Energy Information Administration, this area potentially holds 485 trillion cubic feet of shale gas. These estimates come in the context of major discoveries of fossil fuels in the rest of the African continent.

Conventional gas in Mozambique and Tanzania, coal in Mozambique and Botswana and crude oil in Uganda, Kenya and Ghana, are just a few examples that come to mind.

As governments across Africa scramble to monetise these abundant, yet finite resources, multinational oil and gas companies, state and private, devise strategies on how they can use these newly-discovered riches for portfolio diversification and shareholder benefit.

In many underdeveloped countries, developing these resources has the potential to contribute to the eradication of energy poverty and insecurity while contributing to economic growth. In reading the possibilities that this boom holds for Africa, a few considerations need to be made.

Firstly, these energy resources are a boon for economic development because export earnings can be used towards goals of human development and economic diversification through fuelling growth in sectors other than the extractive industries. Energy can also be used locally for job creation and to boost energy-intensive industries and small and medium enterprises needing energy to operate.

Secondly, while we cannot deny that the greenhouse gases emitted in burning fossil fuels for energy are harmful to the environment, the reality is that many African countries in dire need of energy access currently cannot afford to rely solely on renewable energy sources such as solar or wind power for mass electrification.

Thirdly, due to limited electricity grid connections, the majority of Africans still use wood, coal and paraffin for heating and lighting in their households. These informal, localised sources of energy are responsible for fires and health hazards in the form of respiratory diseases.

Fourthly, the scale of the resources for energy-generation far outweighs current demand on the continent. The chances are that bulk of these fossil fuels will be exported to regions with greater demand for energy and the ability to pay international market prices.

In many quarters, hope abounds. Citizens who are confronted with headlines stipulating successive resource discoveries and foreign direct investment figures of billions of dollars are seeing improved livelihoods as goals within their reach. Politicians and government officials committed to the upliftment of the destitute are seeing a tangible boost to their cause. While the more self-serving among their ranks are devising strategies that will allow them to exchange their influence in the assigning of contracts for rents.

Civil society on the other hand, is adopting a more cautious approach, preferring to issue warnings of how pear-shaped resource exploitation could go if the requisite governance structures are not put in place.

In assessing the prospects for these fossil fuel discoveries, it must be noted that resource abundance does not automatically translate into economic growth and broad social benefit. In fact, in resource-rich countries such as the Democratic Republic of Congo and Sierra Leone resource abundance has been linked to conflict, resource-dependence, poor economic performance, high inflation and social disorder.

img bottles-selling-gas-benin-cc-adam-cohn
Image: Bottles of gas being sold informally, Benin © Adam Cohn/Flickr

That there is optimism and hope for the potential that these windfalls hold for the continent’s development is not on its own an issue. However, some concerns that come to mind are whether governments are willing and able to make sure that these resources make tangible changes to the lives of ordinary citizens, to whom they belong; whether citizens, directly or through civil society organisations or representative institutions such as parliament, realise that only they can compel governments to guarantee benefits to society at large; if parliaments across Africa are strong enough to hold public officials to account when it comes to public goods and finances; whether corporate actors in the extractive industries realise that they can no longer act as though they exist in enclaves by ignoring issues of broader societal benefit in societies characterised by poverty, low education levels, inadequate infrastructure, limited access to health care and unemployment.

If this resource wealth is to translate into export revenues, access to energy, economic growth and human development in African countries, the following governance imperatives need to be addressed.

One, the legal and regulatory framework governing the energy sector must ensure predictability, equality, fairness and clarity. It must regulate the production of the resource, its internal use and exports. Corporate conduct must be subjected to strict measures such as a legal requirement for a social contract between companies and local communities to ensure that companies obtain a social licence to operate. There must be clarity of jurisdiction between national, provincial or district and local government to promote clear structures of control and responsibility in resource governance. It is crucial that governance structures prevent opportunities for rent-seeking, clientelism and the servicing of patronage networks.

Two, political and administrative leaders must root out corruption in their ranks. African leadership is in dire need of a moral regeneration that encourages putting the needs of humanity above the myopic financially-driven desires of self. Governments are urged to indicate political will and commitment to the values of fairness and transparency through the establishment of well-capacitated oversight institutions that can hold public officials and their decisions to account. This includes accounting to parliament and setting up independent monitoring institutions that are not subject to political intervention or irregular financial incentives.

Three, from the outset, policymakers must acknowledge that natural resources are finite, and start thinking about economic diversification to ensure that benefits from the resources outlives the actual presence of the resources in the ground. This involves human resource development and channelling funds to boosting sectors outside of the extractives industry such as manufacturing and services.

This resource boom has tremendous potential, which will only be realised if we acknowledge that while there are no easy solutions. Good governance can help lift millions out of poverty. If Africa is to benefit from its natural resource wealth, governments, civil society and companies need to act in concert for the benefit of the citizens, the individual countries and the continent as a whole.

Africa’s time has come. May Africa rise to the challenge!

20 Sep 2012
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