AFRICA: Vulnerability Despite Growth

By Eyasu solomon
High oil prices and a dependence on commodities cloud prospects, two new reports say.
African economic growth would accelerate to 5.9% in 2007, with oil exporting countries outperforming oil importers, which would face rising inflation from the high cost of fuel, the Organisation for Economic Co-operation and Development (OECD) said in its 2007 African outlook on June 11th. The 30-member group of industrial countries warned that Africa as a whole was unlikely to meet Millennium Development Goals on improving access to water and sanitation in poor countries by 2015.
South Africa would expand at a brisk rate of 4.5% in 2007 and 2008 but the country's outlook could be clouded by international risks, including rising US interest rates, higher oil prices and a downturn in commodity prices. The report cited uncertainty over the choice of successor to President Thabo Mbeki as a negative factor for South Africa's economy. "In 2007 the average real gross domestic product (GDP) for the continent is expected to be 5.9%, with the difference between the two groups of countries (oil exporters and importers) even more marked at 7.4% and 4.7% respectively", the OECD said. In 2006 Africa grew 5.5%, well above the long-term trend, for the fourth consecutive year.

"Oil importing countries will need to contain inflationary pressures now running into double digits as a result of oil price increases, and to finance or to contain increases in their current account deficits", the OECD said. High energy prices had pushed Africa's inflation rate up to 9.1% overall in 2006, with oil importers faced with a rate of 12%, which was set to edge up to 12.9% by 2009. Progress towards the "Millennium Development Goals" of halving poverty by 2015 was being made—but not fast enough.
Ten million more people a year had gained access to drinking water between 1990 and 2004 but the population had grown even faster, which meant the annual total had to triple for those goals to be met, it said. Improved sanitation was more difficult, with 35m more people needing access a year, compared with the present 7m. "Even then, 234m people will lack safe drinking water by 2015 and 317m to improved sanitation", the report said.
On the positive side, African trade rose to 50% of GDP between 1996 and 2005 from 43% between 1980 and 1995, while foreign direct investment (FDI) tripled to $30.6bn between 2001 and 2005, it said.
But Africa's share in world trade remains minimal, at 1.5%, while it receives less than 4% of the world's foreign direct investment. To benefit from globalisation, African economies should capitalise on rising annual aid inflows, set to reach $51bn by 2010 against $40bn in 2006, the OECD said. (Business Day, Johannesburg 12/7)
Meanwhile, the UN’s 2007 mid-year World Economic Situation and Prospect report found that growth in Africa was likely to average 6% in 2007, compared with global growth of 3.4%.
However, "even the best governed countries on the continent have not been able to make sufficient progress in reducing extreme poverty in its many forms", the report said.
The report, an advance excerpt from a fuller document to be published later in the year, was issued as leaders of the Group of Eight (G8) top industrial democracies were meeting in Germany (p. 17397).
It said that progress remained fragile because it was driven largely by a boom in commodity prices. Meanwhile, aid to sub-Saharan Africa had stayed virtually unchanged since 2004, not counting one-off debt relief and humanitarian assistance.
Donors needed to move more quickly if they were to meet their 2005 pledge to double aid to Africa by 2010, the United Nations said. It also called for fairer trading rules and progress on the Doha round of world trade talks.
"The stark figures in this report should stir us to move away from debating principles towards working out the practicalities of scaling up interventions", said UN Deputy Secretary-General Asha-Rose Migiro, a Tanzanian. (Financial Times, London, 29/5, Reuters 6/6)
Curse or Blessing?
Africa's abundance in natural resources, especially oil, has been called a curse because of the fierce global thirst that exists for these assets. Oil and other mineral resources have led to conflict and corruption in countries like Sierra Leone (diamonds), Niger (oil), Equatorial Guinea (oil) and Angola (oil). According to the Energy Information Administration, which supplies official statistics to the US government, there is more trade in oil globally than in any other product as oil from producing countries is shipped to consumer countries. Millions of dollars are annually poured into Africa by international oil companies. Millions more are being spent in exploratory enterprises. It is a resource that is indispensable to the world economy. Therefore it should generate money to address the health and social issues of the oil-producing countries on the continent. Not so. In Angola, a cholera epidemic wreaked havoc in 2006. President Jos Eduardo dos Santos was criticised for enriching himself from the oil industry while his people were dying due to a lack of clean drinking water.
In Equatorial Guinea the same pattern is repeated. According to the international human rights watchdog, Amnesty International, Equatorial Guinea is the second most corrupt country after Chad in Africa. It is also the continent's third largest oil producer after Nigeria and Angola with a daily offshore production of 350,000 barrels. But 70% of the population survive on less than US$1 a day. In 2004 Riggs Bank of Washington was involved in a scandal when it was found that it had willingly accepted billions of dollars from the country's leader, Teodoro Obiang Nguema Mbasago. An inquiry was launched by the US senate which found that oil companies operating in the African country were bribing the countries’ leaders by paying school fees for their children and forming business deals with leaders. Chinese state-owned firms are active in Southern Sudan, Nigeria and Angola. Critics say there is reason for concern about China's interest in African oil. The Chinese government has been criticised for human rights abuses and a lack of accountability. China is just one country extracting oil", Sumayya Hassan Athamni, company secretary of the National Oil Company ofKenya told IPS. "It is unfair to blame China for problems if there are others in the oil industry whose hands are not clean. We all know what happened with Shell in Nigeria."
Double Standards
"African countries have to look at internal structures in order to ensure that the oil wealth reaches the ordinary man and woman in the street. There have to be viable systems in place to monitor the industry", according to Athmani. "The large oil companies are concerned about environmental, corruption and human rights issues in the Western world where there are structures in place guarding against abuse. In Africa and other developing countries where these structures are not in place, they had no scruples in forsaking these standards", claimed Athmani. "If an oil company tars a road leading from the exploration fields to the company's headquarters, it can most definitely not say it has met part of its corporate social responsibility", Athmani pointed out. Banks also have to guard against corruption. "It does not matter how many good governance codes they have signed up to, if they do not in practice enforce these codes, it means nothing", said Athmani.
The list of the negative effects of high oil revenue is long but includes: trickle down effect fails to materialise due to the absence of a downstream sector; agriculture sector is neglected leading to an impoverishment of the rural population; low tax ratios and high consumption expenditures—typically on imported goods—reinforce inflationary tendencies; and displacement or disenfranchisement of indigenous people, conflicts over land use rights and environmental degradation.
Some of these negative effects are attributed to the enormous revenue flow that renders the establishment of a functioning tax system obsolete. As a result, the general public and civil society have rather little interest in the way these revenues, to which they do not contribute, are used. In addition, pertinent checks and balances remain underdeveloped, or the government is able to undermine them. With regard to expenditure, no use is made of openings or diversifying the economy, enhancing infrastructure or expanding education systems. "There is virtually no transfer of knowledge to local enterprises, and only minimal employment in domestic labour market is created", Geerd Wurthman, of the German Economic Development Ministry, states. "At the same time, the booming oil revenues give rise to a rent-seeking mentality on the part of governing elites that is extremely detrimental for the country's development", he adds. Governing elites enjoy ownership and/or control of oil reserves without having to pay for them. The resulting revenue that accrues to them fosters corruption and cronyism and strengthens authoritarianism.
Mary M'mukindia, an independent Kenyan analyst for the oil industry, argued that governments have to put in place structures which ensure that citizens benefit from oil wealth. She supports initiatives such as "Publish What you Pay" which forces international oil companies to publish the amounts of money they pay to governments. Cesar Chelala, the award-winning writer on human rights issues, wrote in an article in the Gulf Times on May 16th that oil companies, the World Bank, the International Monetary Fund (IMF) and powerful governments should demand transparency from African governments. In 2002, British Prime Minister Tony Blair launched the Extractive Industries Transparency Initiative (EITI). Under the regulations of this initiative, countries rich in mineral and oil wealth as well as the companies extracting the wealth have to publish payments received and made.
Owning the Resources
So far, 14 of 23 oil-producing countries in Africa are members of EITI. Ironically, of all the countries, only Nigeria and companies working there have agreed to submit their accounts. The only other country in the world that has done this is Azerbaijan, according to an article by the Catholic Fund for Overseas Development. For EITI to work, M'mukindia says there should be three-way compliance. First: governments should "want to have" a transparency model. Second: extractive companies should be keen. In this regard, governments can implement laws which force companies to comply. Third: Civil society organisations (CSO) should be involved. "They represent the people who are the real owners of the resources", said M'mukindia. But for CSO to have an effect, they need to be well-informed. "They need to be brought up to speed with international standards and the intricacies of the industry. They have to understand the economy of the mining industry and they have to know what happens on the markets in Europe and America. They have to know when the trade is especially robust.