Policy recommendations

Sub-Saharan Africa is still at the beginning of its natural resource discovery process. Natural resources do not need to be a curse. If properly managed, resource-driven development is the best opportunity for many resource-endowed African countries to grow sustainably and support the development of its citizens. In order to reap the benefits of its resources, governments of resource-endowed countries will need to follow this set of recommendations in order to get the natural resource management policy chain right:

  1. Invest in public surveys of mineral resource wealth. Little of sub-Saharan Africa’s resource wealth has been discovered, and more effort needs to be put into the discovery process. The information generated from the survey can be used to attract companies to bid for resource exploitation rights in a setting where both government and private parties have similar access to geological information.
  2. Consider the possible positive side-effects from the resource exploitation infrastructure and ensure contracts allow social benefits to be fully realised. Indeed, one of the most beneficial aspects of natural resource exploitation is the infrastructure it generates, such as transport links and healthcare facilities. Unfortunately, it is not a given that the infrastructure privately built as part of the exploitation process will be shared with public users, or will be built with public uses in mind. It is possible, at the contract negotiation stage, for the government to insist on multi-use or multi-user infrastructure.
  3. Ensure contracts clearly stipulate who is liable in the case of environmental damage, and set up a working system of public compensation for environmental damage. Environmental damage too often occurs as a result of resource exploitation. While everything possible should be done to prevent it, governments must also be ready to deal with it in a way that ensures fair and adequate compensation.
  4. Adopt transparent negotiation processes, auction extraction rights, put strong transparency arrangements for revenue management in place, and set up proper procedures to allocate extraction rights and binding agreements about tax rates. It is very difficult to monitor true resource exploitation revenues, and even harder due to often pervasive corruption problems. The mechanisms proposed ensure that governments get the share of revenues they deserve.
  5. Enhance private sector capacity by removing unnecessary bureaucratic hurdles, deepening financial markets, and trying to reduce the cost of various types of capital good where they are more expensive than the world average. This will improve the investment climate in the country, and thereby support ‘Investing in Investing’, which includes both developing the public sector’s ability to conduct large-scale investment projects, and removing impediments to private sector investment.
  6. Save large shares (30%–60%) of the resource income abroad, where returns are higher, while the country is improving its investment climate. Those savings should be brought home as capacity to invest into worthwhile and profitable ventures improves. This large share of savings will support future generations, who might no longer benefit from a steady income flow from natural resources, thereby making current resource exploitation sustainable.
  7. Invest large shares of their natural resource revenues into infrastructure and other forms of capital that support long-term growth. Countries are effectively depleting assets in the ground. There is thus a powerful case to be made for those revenues to generate at least equally valuable assets on top of the ground. Build strong institutions and rules, and ensure the citizen body supports them. Strong political actions are necessary to build and maintain the integrity of the NRM policy chain and to ensure natural resource wealth is used to support inclusive growth.

Harnessing natural resources is a weakest link problem. If any link in the chain is broken, the outcome will be suboptimal. All of the above actions need to be implemented in order to create a sustainable NRM framework. Because many of those actions are interdependent and taken separately by different people or different groups, it’s very difficult to get it right.

Getting NRM policies right is more important than in any other domain of policy. Natural resources have the potential to lead to large and sustained improvements in African standards of living. This is a chance that needs to be taken seriously, and governments must spend time and resources building robust institutions ensuring resource revenues support sustainable growth.