How Africa Can Extract Big Benefits for Everyone from Natural Resources

Wednesday, June 29, 2011

As the Natural Resource Charter holds its third annual workshop at the University Oxford, in the UK, this week, the combination of rising commodity prices and falling costs of communication technology presents Africa with an unprecedented opportunity to reduce poverty and fight corruption at the same time.

The continent is experiencing a commodity boom, and the bonanza is likely to continue – prices are expected to stay high until 2015 at least. It may even get larger through new discoveries. This causes a triple problem for the region’s governments.

First, their currencies are appreciating, which leaves the other sectors of the economy – manufacturing, in particular – unable to compete with imports. Second, the risk of environmental damage associated with extracting natural resources is growing. And third, the opportunities for corruption and waste are multiplying – not just in the granting of exploration and exploitation permits, but also in the use of the revenues from resource extraction. Except for Botswana, the track record of Africa’s mineral and hydrocarbon exporters is sobering.

While Africa’s central banks are today better equipped to deal with currency appreciation, and its civil society more alert to environmental hazards, the institutions that control graft are not strong. They must be improved. However, this will take time. Is there a shortcut to better accountability in the management of natural resources? Yes, there is: direct transfers of resource dividends to citizens.

Around 35 African countries already transfer cash directly to their poor – through smartcards, debit cards, mobile phones, or in person. This is getting cheaper and safer. The coverage of banking and mobile phone services is expanding rapidly. So is biometric identification with mobile devices. Logistically, there is nothing that prevents governments from transferring a portion – or even all – of the income from natural resources directly to every citizen, not just the poor. This kind of direct dividend payment is not new – Alaska has been doing it since the early 1980s.

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