Before we plunge into the rather uncertain future of oil production, which may otherwise seem promising, it is high time we paused as a country and gave consideration to the resource curse paradox as a serious omission in policy considerations so far. The resource curse paradox or the paradox of plenty is a perplexing concept in which most resource rich countries are unable to transform that wealth into improved livelihood for their population.
A study by Richard Auty has shown that since the 1960s, the per capita incomes of resource-poor countries has grown significantly faster than that of the resource-endowed countries, which continues to be a puzzling trend.
South Sudan and Chad for example have plunged into years of civil war based purely on oil revenues. Countries such as Ghana, Mexico, and Sweden have also experienced a surprising growth collapse coinciding purely with oil discovery.
Nigeria, though rich is diseased with corruption and income inequality. This paradox is therefore not a fallacy, and requires serious thought.
The two main manifestations of the resource curse are the Nigerian disease and the Dutch Disease. The Nigerian disease (or rentier states), is the tendency of a very small clique of individuals to benefit from oil rents at the expense of the country.
Transparency and accountability are therefore key in averting the Nigerian disease. The Extractive Industries Transparency Initiative (EITI) has been a successful intervention but Kenya has not applied for membership yet.
The initiative lays down standards of disclosure and accountability and validates both member states and oil companies against the standards. If oil revenues received by the government are fully disclosed, tracking becomes easier, and corruption harder. An informed population is also less likely to fall into civil wars and unrest as experienced in Turkana for instance.
Through the transparency initiative for example, Nigeria has uncovered a discrepancy of $9.8 billion (about 3.3 per cent of its 2009 GDP) in reported oil revenue between the year 1998 and 2009 while Libya has moved significantly in the index of the least corrupt countries.
Secrecy within the extractives is a time bomb that we should be weary of, especially with the population already raising question on how the sector is being managed.
Perhaps the hardest manifestation to deal with is the Dutch disease. Neglecting local industries, at the expense of non-renewables killed Dutch’s economy.
Kenya for example is traditionally mainly depended on agriculture and tourism which are more sustainable than non-renewable oil.
If the government is to channel most of the expenditure towards oil and gas infrastructure, then there is bound to be a progressive death of these traditional industries coupled with a massive movement of human capital to the more lucrative but unpredictable oil industry. The key therefore is to diversify as a matter of policy.
Dutch disease also comes about through excessive circulation of money within the economy. Without calculated government social policies and programmes to address the oil money in form of wages, this will eventually lead to menaces such as alcoholism, prostitution and spread of sexually related infections such as HIV/AIDS.
Of much concern to the economy however is the government income from oil-related activities. An oversupply of currency in the economy without an exception always leads to a higher demand for goods and services which consequently leads to inflation.
The inflation rate in Nigeria for example has been between 16-18 per cent over the past two years. The aim should be to keep as much oil money away from the economy through establishing an offshore oil-funded sovereign wealth fund.
This fund is not only useful in saving for future generations but also keeps the economy stable. Norway as a success story for example channeled all the oil income, from the very start, towards the fund and invested offshore in stock, bonds and real estate.
Only three per cent of the income is currently used to fund the national budget and currently the fund amounts to over $960 billion which translates to $185,000 for every child that is born in Norway.
For a developing country with an immediate need for this income, the solution lies in careful and gradual allocation of the funds to selected key sectors so that growth is realized at a sustainable rate. Such clear-cut policies are not in existence in Kenya currently, yet we are already rushing towards production.
02/10/2017
