Governance of Natural Resources in Africa: Why Some Countries Fail to Negotiate Fair Contracts

27 Jan 2014
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The paper concludes that limited restraint or accountability over contract negotiations tempts policy makers to accept unfair and ineffective contracts that provide short-term political solutions to long-term social and economic problems. The conclusion doesn’t suggest that increase beneficiation is the magic bullet. Without resolving wider governance issues, increased taxation will not produce a direct positive effect on the population and sustainable development.

 

Some studies suggest that countries with abundant natural resources, specifically mineral and fossil fuels have lesser development outcomes than resource poor countries (Karl, T 1997 and Gary, I and Karl, T 2003). This phenomenon popularly known as the resource curse/paradox of plenty is used to describe and narrate the development path of many African countries rich in natural resources but experience poor development outcomes. However empirical evidence also suggests that natural resource abundance does not ipso facto lead to poor development outcomes.

 

The reasons for this apparent paradox have been varied. From a governance perspective (accountability and transparency), it has been pointed out that in the absence of strong public financial management and institutional mechanisms to ensure transparency and accountability, natural resource abundance might lead to poor development outcomes. This is because malign distributive struggle for rents weakens state institutions and consolidates authoritarianism (Lane  &  Tornell  1996 Wantchekon & Jensen 2000). Moreover, it entrenches patrimonialism and rent seeking (Wantchekon & Jensen 2000; Wantchekon&Iam 2002 and Bratton (1998:51–66; Bratton and Van de Walle 1997) and limits social accountability owing to the dependence on rent (rather than taxation) for service delivery (Ross 1999, 2001, 2004; Moore 2004, Smith 2004; Campbell 1993; Shambayati 1994; Chaudry 1989). It has also been pointed out that natural resource abundance might lead to poor development outcome because resource rent provides the incentive to instigate the means to sustain conflict (Ross 2004; Bannon & Collier 2003; Berdal M and Malone, D M, 2000). In a context of natural resource abundance and the absence of a viable private sector, politics can involve contest for access to and control of resource rent which might result in intense and contentious elite competition for such resources.

 

The current governance analytical approaches and policy orientation are however biased towards transparency on rent appropriation and expenditure. Policy actions are too focused on demand side interventions that encourage greater citizen involvement and participation. Nonetheless, it is to be noted that availing information in the public domain is not adequate, and the presumption that relevant stakeholders will use it to pressure for change may not hold true under various circumstances (Alexandra Gillies & Antoine Heuty, 2011). There is emerging evidence that corruption and abuse of authority on natural resource governance occur at the negotiation stage, which is often shrouded in secrecy and devoid of robust horizontal and vertical accountability (Rogerio Ossemane, 2013).

 

Most importantly, the narrative on the resource curse has largely viewed the level of beneficiation as a constant rather than a variable. Yet the reality is that beneficiation varies considerably both within and across natural resource rich states over time. Varying beneficiation is not just an empirical fact or accident. It has policy implications and provides insights to state society relations (social/vertical accountability), the quality of governance institutions (horizontal accountability) and the fiscal regimes (public financial management) that may emerge in resource rich states. The conversations on the varying level of beneficiation so far focus on technical and capacity issues. Whilst governance has been mentioned, most invariably in composite surveys (RGI 2013), there is limited analytical examination and a nuanced perspective on the causal relationship between governance quality and the level of beneficiation.

 

Drawing insights from new institutional economics, this paper proposes an analytical narrative and framework to examine differentiated levels of beneficiation. The framework hypothesizes that the varying degree of beneficiation  over  time  and  space  is  not  the  result  of  ignorance  or accident   but   of   deliberate   choices   by   government   after   careful examination of potential cost and benefits. Building on the agency theory, it proposes four hypotheses that high levels of beneficiation seem to be correlated with strong legal and political oversight over discretionary contract negotiations. The first hypothesis (H1) proposes that Very low level of beneficiation but high level of corruption and uneven development outcomes; H2: Fairly good level of beneficiation but uneven development outcome across space and different political constituencies; H3: Fairly good level of beneficiation; high levels of corruption; strong patronage/rent seeking and probable slow improvement in development; H4: High level of beneficiation and strong sustainable development outcomes.