17 July 2013

Can Natural Resources be an Anti-Poverty tool in Africa?

outdoor money exchange
Natural resources could be the next great development financing tool. It is quite simple. Take the money that a government makes from the sale of oil, gold, copper, etc. and give citizens a cut.

Giving direct cash will help out the people that need it most and it could spur on development as people will then spend the money on local businesses and services. Additionally, it will reduce corruption and let the average citizen hold his or her government accountable for how money is spent.

That is the basic case made by Todd Moss of the Center for Global Development in his Oil-to-Cash initiative. A new working paper from leading World Bank economists Shanta Devarajan and Marcelo Giugale takes the idea and applies it to resource-rich African nations. They come up with some theoretical ways that countries can design schemes that will turn natural resources from a curse to a blessing.

It matters now because more African countries are discovering major reserves that will significantly alter their trajectories. A look at the history of established resource-rich nations like Nigeria and Angola reveals a worrisome trend, say the authors. They too can turn things around by adopting direct dividend payments (DDPs). Governments can follow the example of Alaska and the Canadian province of Alberta who developed schemes that distribute a fixed proportion of resource revenues to all citizens.

Giving a modest amount of natural resource revenues to citizens can contribute significantly to the elimination of poverty in some countries.

“A transfer of about 10 percent of oil revenues in Angola, Equatorial Guinea and Gabon, distributed universally, would be sufficient to close the poverty gap in these countries,” write Devarajan and Giugale. “For larger countries such as Mozambique and Nigeria, the transfer would cover about half the poverty gap.”

Governments were initially resistant to DDPs for three reasons:
  1. Too hard and costly to identify citizens;
  2. No incentives for present leaders to give up resource revenues;
  3. Cash-strapped governments cannot afford to give away valuable revenue that pays for public services.

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