How Eastern Africa can avoid the resource curse

This post originally appeared on the African Development Bank’s Integrating Africa Blog, where yours truly is a regular contributor. 

Eastern Africa is the new fossil fuel frontier (for more check out this (pdf) Deloitte report). In the last few years Kenya, Uganda, Tanzania and Mozambique have discovered large quantities of commercially viable oil and gas deposits, with the potential for even more discoveries as more aggressive prospecting continues. There is reason to be upbeat about the region’s economic prospects over the next three decades, or at least before the oil runs out. But the optimism must be tempered by an acknowledgement of the dangers that come with the newfound resource wealth. Of particular concern are issues of governance and sound economic management.

We are all too aware of the dangers of the resource curse. This is when the discovery and exploitation of natural resources leads to a deterioration of governance, descent into autocracy and a fall in living standards. Associated with the resource curse is the problem of the Dutch disease, which occurs when natural resource exports (e.g. oil and gas) lead to an appreciation of the exchange rate, thereby hurting other export sectors and destroying the ability of a country to diversify its export basket. The new resource-rich Eastern African states face the risk of having both problems, and to avoid them they must cooperate.

In many ways Eastern African states are lucky to be late arrivals at the oil and gas game. Unlike their counterparts in Western and Central Africa, nearly all of them are now nominal electoral democracies with varying degrees of institutionalized systems to ensure transparency in the management of public resources. Across the region, the Big Man syndrome is on the decline. But challenges remain. Recent accusations of secrecy, corruption and bribery surrounding government deals with mining companies suggest that there is a lot of room for improvement as far as the strengthening of institutions that enforce transparency (such as parliaments) is concerned. It is on this front that there is opportunity for regional cooperation to improve transparency and resource management.

While it is easy for governments to ignore weak domestic oversight institutions and civil society organizations, it is much harder to renege on international agreements and treaties. A regional approach to setting standards of transparency and accountability could therefore help ensure that the ongoing oil and gas bonanza does not give way to sorrow and regret three decades down the road. In addition, such an approach would facilitate easier cross-border operations for the oil majors that are currently operational in multiple countries, not to mention drastically reduce the political risk of entering the region’s energy sector. It would also leave individual countries in a stronger bargaining position by limiting opportunities for multinational firms to engage in cross-border regulatory arbitrage.

The way to implement regional cooperation and oversight would be something akin to the African Peer Review Mechanism, but with a permanent regional body and secretariat (perhaps under the East African Community, EAC). Such a body would be mandated to ensure the harmonization of laws to meet global standards of transparency and protection of private property rights. The body would also be mandated to conduct audits of national governments’ use of revenue from resources. The aim of the effort would be to normalize best practices among states and to institute a global standard for states to aspire more – more like the way aspirations for membership in the European Union has been a catalyst for domestic reforms in the former Yugoslavia and Eastern Europe.

Regional cooperation would also provide political cover to politicians with regard to economically questionable fuel subsidies. The realities of democratic government are such that politicians often find themselves forced to concede to demands for fuel subsidies from voters. But history shows that more often that not subsidies come at an enormous cost to the economy and instead of benefitting the poor only benefit middlemen. In addition, as the case of Nigeria shows, once implemented such policies are never easy to roll back both due to politics and the power of entrenched interests. Regional agreements capping any fuel subsidies at reasonable levels would be an excellent way to tie politicians’ hands in a credible manner, while at the same time providing them with political cover against domestic criticism.

Beyond issues of governance, there is need for cooperation on regional infrastructure development in order to reap maximum value for investment and avoid unnecessary wastes and redundancies. Landlocked Uganda and South Sudan will require massive investments in infrastructure to be able to access global energy markets. The two countries’ oil fields are 1,300 km and 1,720 km from the sea through Kenya, respectively. One would hope that as these projects are being studied and implemented, there will be consideration for how to leverage the oil and gas inspired projects to cater to other exports sectors – such as agriculture, tourism and light manufacturing – as well. KPMG, the professional services firm, recently reported that transportation costs eat up as much as 20 per cent of Africa’s foreign exchange earnings.  There is clearly a need to ensure that the planned new roads and railways serve to reduce the cost of exports for all outward oriented sectors in the region. Embedding other exports sectors (such as agriculture, timber, domestic transport, etc.) in the process of developing new transportation infrastructure will minimize the likelihood of their being completely crowded out by the energy sector.

In isolation, each country’s resource sector policy is currently informed by domestic political economy considerations and regional geo-politics. There is an emerging sense of securitization of resources, with each country trying to ensure that the exploitation of its resources does not depend too much on its neighbours. Because of the relatively small size of the different countries’ economies, the risk of ending up with economically inefficient but expensive pipelines, roads and railways is real. South Sudan is currently deciding whether to build a pipeline through Kenya (most likely), through Ethiopia, or stick with the current export route for its oil through Sudan (least preferred due to testy relations). For national security and sovereignty reasons, Uganda is planning on a 30,000-barrel per day refinery in Hoima, despite warnings from industry players that the refinery may not be viable in the long run. Some have argued for the expansion of East Africa’s sole refinery in Mombasa to capture gains from economies of scale, an option that Uganda feels puts its energy security too much in Kenya’s hands.

In the meantime, Kenya and Tanzania are locked in competition over who will emerge as the “gateway to Eastern Africa,” with plans to construct mega-ports in Lamu and Tanga (Mwambani), respectively. While competition is healthy and therefore welcome, this is an area where there is more need for coordination than there is for competition among Eastern African governments. The costs involved are enormous, hence the need for cooperation to avoid any unnecessary redundancies and ensure that the ports realize sufficient returns to justify the investment. Kenya’s planned Lamu Port South Susan Ethiopia Transport Corridor (LAPSSET) project will cost US $24.7 billion. Tanzania’s Mwambani Port and Railway Corridor (Mwaporc) project will cost US $32 billion.

Chapter 15 of the EAC treaty has specific mandates for cooperation in infrastructure development. As far as transport infrastructure goes, so far cooperation has mostly been around Articles 90 (Roads), 91 (Railways) and 92 (Civil Aviation and Air Transport). There is a need to deepen cooperation in the implementation of Article 93 (Maritime Transport and Ports) that, among other things, mandates the establishment of a common regional maritime transport policy and a “harmonious traffic organization system for the optimal use of maritime transport services.”

The contribution of inefficient ports to transportation costs in the regional cannot be ignored. Presently, the EAC’s surface transportation costs, associated with logistics, are the highest of any region in the world. According to the African Development Bank’s State of Infrastructure in East Africa report, these costs are mainly due to administrative and customs delays at ports and delays at borders and on roads. Regional cooperation can help accelerate the process of reforming EAC’s ports, a process that so far has been stifled (at least in Kenya) by domestic political constituencies opposed to the liberalization of the management of ports. The move by the East African Legislative Assembly to pass bills establishing one-stop border posts (OSBPs) and harmonized maximum vehicle loads regulations is therefore a step in the right direction.

Going back to the issue of governance, more integrated regional cooperation in the planning and implementation of infrastructure development projects has the potential to insulate the projects from domestic politics and patronage networks that often limit transparency in the tendering process. Presently, Uganda is in the middle of a row with four different Chinese construction firms over confusion in the tendering process for a new rail link to South Sudan and port on Lake Victoria. The four firms signed different memoranda with different government departments in what appears to be at best a massive lapse in coordination of government activities or at worst a case of competition for rents by over-ambitious tenderpreneurs.  This does not inspire confidence in the future of the project. A possible remedy to these kinds of problems is to have a permanent and independent committee for regional infrastructure to oversee all projects that involve cross-border infrastructure development.

In conclusion, I would like to reiterate that Eastern Africa is lucky to have discovered oil and gas in the age of democracy, transparency and good governance. This will serve to ensure that the different states do not descend into the outright kleptocracy that defined Africa’s resource sector under the likes of Abacha and Mobutu in an earlier time. That said, a lot remains to be done to ensure that the region’s resources will be exploited to the benefit of its people. In this regard there is a lot to be gained from binding regional agreements and treaties to ensure transparency and sound economic management of public resources. Solely relying on weak domestic institutions and civil society organizations will not work.

Who is the M23?

Jason Stearns over at Congo Siasa provides a link to a backgrounder worth reading on the rebel group.

Also with regard to the M23, Onyango-Obbo of the East African has some advice for Kabila:

In the past 15 years, the Banyamulenge have fought the same fight in the DRC [ "the persecution of the Congolese Tutsis"]. Kabila can be smart, offer them a political deal and save DRC, or choose the destructive path preferred by successive Congolese governments of recent years and lose eastern DRC — or even power in Kinshasa.

Criticisms and ultimatums to the eastern DRC rebels like that issued at last week’s Kampala emergency summit, and international condemnation and sanctions, will not change that fact.

I share Onyango-Obbo’s view on this matter.

The international community’s singular focus on the humanitarian disaster in eastern DRC (caused by Rwanda’s and Uganda’s meddling) is giving Kabila a chance to kick the can down the road one more time – until the next time that a group of a few hundred men with guns chase his troops out of town and kill and rape and loot and cause all manner of harm to innocent civilians while they are at it. Then the same dance will be orchestrated – condemnations from the UNSC and bloggers, regional summits, a few resolutions that never get implemented, etc.

The present hue and cry in the media about the M23 misses the fact that you can’t simply wish away the de facto power imbalances in eastern Congo by appealing to humanitarian concerns. The woefully incompetent FARDC and the Kinshasa government cannot tackle the better organized rebels backed by more savvy armies in Uganda and Rwanda.

To end the conflict in eastern Congo Kabila must give a lot of concessions to the rebels. Without concrete concessions the conflict will merely have been postponed to a later date.

The alternative is for Kabila and his Kinshasa cronies to wake up one day and decide to lead a competent government and national armed force that will deter Rwanda, a country that is 88 times smaller with almost 7 times fewer people, from meddling within their country’s territory. That is, if they can.

Africa’s Singapore or Uganda waiting to happen?

Yet Rwanda has one huge advantage: the rule of law. No African country has done more to curb corruption. Ministers have been jailed for it. Transparency International, a watchdog, reckons Rwanda is less graft-ridden than Greece or Italy (though companies owned by the ruling party play an outsized role in the economy). “I have never paid a bribe and I don’t know anyone who has had to pay a bribe,” says Josh Ruxin, one of the owners of Heaven, a restaurant in Kigali, the capital.

The country is blessedly free of red tape, too. It ranks 45th in the World Bank’s index of the ease of doing business, above any African nation bar South Africa and Mauritius. Registering a firm takes three days and is dirt cheap. Property rights are strengthening, as well—the government is giving peasants formal title to their land.

That is the Economist on Rwanda. I remain cautiously optimistic about Kagame’s brand of effective authoritarianism. I just hope that he will not be tempted to degenerate into the Musevenis of this world.

kagame on the ropes

I respect all that Paul Kagame has done for Rwanda. Under his leadership the country appears to have survived the 1994 catastrophe, emerging as the least corrupt and one of the fastest growing economies in the region. But like most autocrats, Mr. Kagame has had his dark side. A damning UN report apparently documents atrocities committed by Rwandan troops in eastern Congo. The just concluded general election in the mountainous central African nation has also exposed the former rebel’s anti-democratic tendencies and intolerance of any form of opposition. It is slowly emerging that not even the much praised and disciplined Mr. Kagame is immune to the most common disease afflicting most autocrats: believing that they are God’s gift to their people and therefore have the right to do whatever they want with their power.

I have not read the entire UN report but for more on it check out Texas in Africa.

the drc: the fire continues to consume lives unabated

In the recent past the Niger coup, the return of the ailing Nigerian president Umaru Yar’Adua from a hospital in Saudi Arabia and the supposed peace deal between Khartoum and the Darfuris have stolen most headlines on the Continent.

But let us not forget that the eastern reaches of the DRC still approximate a war zone, to put it mildly. The ineffectual government in the opposite side of the country in Kinshasa still lacks the capacity to provide any amount of security to its citizens in the east. Makes you wonder why the DRC still survives as a single sovereign state.

The number of actual dead in the bloody civil conflict that begun with Kabila’s match towards Kinshasa in 1998 is sort of debatable – ranging from a low of just over 2 million to a high of 5.4 million, pick your number. Really, does it matter that only 2 million human beings instead of 5 million have so far died in the conflict? At this point should the numbers even matter?.

So let us not lose perspective here. Even by conservative estimates more than 2 million lives have been lost. Millions of children continue to stay out of school (with grave long-term consequences for the security and economy of the region). And those that benefit from the conflict – the generals and arms and mineral smugglers – continue to do so with impunity. There is also no question that international big business is either directly or indirectly bankrolling the conflict (check out the more detailed report from Global Witness here). Hillary Clinton’s visit last year to Goma highlighted the unbearably gruesome existence of those (especially women and children) who are unfortunate enough to find themselves in a war zone. Everyone who matters in the country and region know these facts. So the big question is: What will it take to change people’s approach to this conflict? Why isn’t more being done?

someone should pay for this and pay dearly

The pictures say it all. King Leopold’s ghost never left the vast central African country that is the DRC. In the East, a man by the name of Nkunda is waging a war against the Kinshasa government for God knows what reason. I don’t buy the story that he is protecting Tutsis from Hutus. If the rumors are true, Rwanda is in this for the minerals. Nkunda is an accomplice. Since when did an African warlord care about the people? This man thinks that the lives of Eastern Congolese people are expendable. He does not care about the people. I say he gets captured and taken through a public trial and then offered as an example to all future rebels.

In Kinshasa, Kabila is just as guilty. He is responsible for the power vacuum in the East that lets lunatics like Nkunda run around killing innocent women and children. His own soldiers, according to the NY Times, are killing people. Shooting the very civilians they are supposed to protect in the back.

It is time to stop pretending. Rwanda, if it supporting Nkunda should stop immediately. I am a fan of Kagame and I’d hate to see him tarnish his legacy this easily. Kagame, you saw it happen in your country, do not let the madness continue in the DRC. Kinshasa should be given an ultimatum: win the East or give it up. Fair and square. If Kabila’s forces cannot impose his will in the region, he should cede authority to the only force that currently seems to have the power to do so – that of the rebels led by Nkunda.

4 million human beings have died already. How many more can we let die before something gets done? I want to see people getting tried and punished for war crimes. I want to see Kabila out of power. I want to see Nkunda jailed or neutralised for his crimes. I want retribution. I want peace for the people of the DCR. If they can’t be a rational-legal state I want to see it split up. And my only reason is pure and simple: Enough is enough.

does anyone have the guts to tell kabila the truth?

So Gen. Nkunda and his men have yet again captured an army base in the East of the DRC, further raising questions of the viability of this vast country as a united nation-state. The news reports did not come as a surprise. I have said again and again that Kabila seems unable to take it to Nkunda and his army and because of this I think that the DRC should be split up. Millions of people should not live forever in misery and at the mercy warring armies simply because of King Leopold’s greed several decades ago.

Kabila does not have complete control of the country and because of this the African Union and the UN should consider putting the Eastern part of the country in a trusteeship with the aim of granting them complete autonomy if they so choose in a referendum some time in the near future.

Time will not stand still to wait for Kabila, Nkunda, Museveni and Kagame to resolve their differences. As they, through their surrogates, squabble, millions of real people continue to die or be confined to lives as base as no human being should have to countenance in the 21st century. Addis Ababa and New York have buried their heads in the sand for too long over this matter. It is time to wake up and face the realities on the ground.

Yes, I know this seems as too simplistic a suggestion. Rwanda has a stake in this because of the deposed Hutus in the region – Nkunda himself is a Tutsi claiming to be fighting to defend his ethnic kinsmen from these Hutus. Uganda is involved too, perhaps because of the minerals or just because of Museveni’s need to keep his army busy to avoid discontents at home. It is a complicated mess to put it mildly. But all these other facets of this conflict do not negate the fact that the DRC, a vast country that is the size of Western Europe, is too big to be governed by a weak government in Kinshasa. Kinshasa cannot project its power throughout the country. Period. No society, at least not in the modern political economy, can exist without government. The chaos in the East of the DRC are as much a result of Kinshasa’s ineptitude as they are of foreign meddling by Kagame and Museveni. I say divide the country, or give the East more autonomy and move one.

chadian government may fall soon

Idriss Deby, the president of Chad, is in deep trouble. Rebel forces are reported to have entered the capital, Ndjamena, and are marching to the presidential palace “surprisingly easily.” The rebels have been waging a war against the government of Mr. Idriss Deby for some years now and this time they managed to march into the capital and seem to be ready to topple the government.

Many had expected that the French army was going to step in to help Mr. Deby but it seems like the French are taking a wait-and-see position on this one. Mr. Deby accuses the government of Sudan of supporting the Chadian rebels. Sudan on the other hand accuses Chad of sponsoring the Darfuri rebels that have given Khartoum very bad press since 2000.

The African Union has condemned the attempted violent seizure of power but done nothing else. As the rebels marched towards the capital no country within the organisation offered any kind of support for Mr. Deby.

It is a bit surprising and disturbing at the same time that the government of Chad is being toppled so easily by a rebel movement. The march to the capital was well known and documented by the international media yet the government seemed to lack the capacity to take the fight to the rebels in the North East before they reached the capital. May be the government ought to be removed – because it has proven to be weak and unable to protect its people against these marauding desert rebels.

It is unclear what the rebels intend to do once they seize power. The success rate of such movements in forming governments is very low. Only Museveni, Kagame, Kabila, Zenawi and Charles Taylor have ever pulled this off before. All the other coups on the continent have been carried out by disgruntled government soldiers.

Meanwhile, as the men fight it out for power in this hot and dusty country, hundreds of thousands of people face crises on both sides of the Sudan-Chad border. The refugee camps are crowded, disease infested and unsafe. Aid workers have scaled down most of their operations due to the security situation leaving thousands without much hope for a better life.