Let Africans Share In Their Natural Resource Wealth

Shantayanan Devarajan and Marcelo Giugale Devarajan and Giugale are, respectively,

Chief Economist and

Director for Economic Policy and Poverty Reduction Programs for Africa at the World

Bank. Follow us on twitter: @Marcelo_WB and @Shanta_WB.

As the Natural Resource Charter holds its third annual workshop at Oxford on June

29-30, 2011, 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. 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, something that is making 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. This,

however, will take time. Is there a short-cut to better accountability in the

management of natural resources? Yes, there is: direct transfers of resource

dividends to citizens.

Some 35 African countries already transfer cash directly to their poor—whether

through smart cards, debit cards, cell-phones, or in person. This is getting

cheaper and safer. The coverage of banking and cellular telephone 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

each and every citizen, not just the poor. This kind of direct dividend payment is

of course not new—Alaska has been practicing it since the early 1980s.

Why would giving people a share of commodity revenues help avoid, let alone reduce,

corruption? Because if you know you are getting a portion of the oil revenues, you

will surely be interested in the total amount—not to mention in what the

government does with its share. You will now want to know that the company that

explores, exploits and exports your country’s oil is competent and

transparent—otherwise you lose money. You may even care less about whether

that company is public or private, as long as the best possible operator is in

charge. You will not support politicians who interfere with the process. In brief,

you will hold government to account more.

Optimally, one would means-test the dividend transfers, that is, one would give more

to those who are poorer. But that could be an insurmountable political and

practical road-block. A uniform and universal transfer—the same amount to

every citizen—would anyway be progressive, because it will help the poor more

than the rich. If governments were to give up a tenth of their resource revenues,

the typical dividend may amount to $100 per person per year—peanuts if you are

rich, but a life-saver if you live on less than two dollars a day, as most Africans

do. And since the transfer goes directly to the individual, it may give a boost to

groups that are regularly discriminated against, especially women.

As a possible additional benefit, direct dividend transfers could help national

unity. In countries where regional, ethnic or religious differences make it

difficult to agree on how to share natural wealth—a problem that is sadly

common in Africa—the idea that everyone gets at least a bit of the riches,

personally, individually, regardless of location, ethnicity or faith, just for being

a citizen of the country, may be a useful source of national identity.

But if the resource money goes straight to the people, how will governments pay for

“public goods” such as vaccinations, primary schooling, or defense? Two

possibilities. One is to transfer all the resource revenues to the citizens, and

then tax them. After all, this is how resource-less economies pay for public

spending—and why their taxpayers are keen to monitor it. The other possibility

is to transfer only a portion of the commodity revenues. Either way, direct dividend

payments could be funded by governments’ cutting back on the more inefficient

and inequitable transfers that resource-rich countries already make—like tax

breaks, fuel subsidies, and jobs in the civil-service—and that are regularly

captured by the connected and the wealthy. In other words, dividend transfers and

fiscal integrity can go together.

Finally, will this kind of transfers weaken public institutions by by-passing them?

On the contrary, giving people a direct stake in their country’s riches can

buy time, and goodwill, for the slow-but-necessary construction of better governance

institutions.

As first published on www.guardian.co.uk/global-development

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