Africa’s economic transformation: The role of natural resources

Michel Camdessus

In debate over the recent boom in mineral and oil extraction in Africa, the insistence on the risk of a “resource curse” irritates me by its simplistic and fatalistic implications. Natural resources are neither a curse nor a blessing. Provided they are not dramatically mismanaged, they can be simply a source of opportunity for tremendous good.

Over the past decade, Africa’s economies have been riding the crest of a global commodity wave. Surging demand for natural resources has pushed export prices to new highs. Africa’s petroleum, gas and natural resources have become a powerful magnet for foreign investment. With new exploration revealing much larger reserves than were previously known, Africa stands to reap a natural resource windfall.

The challenge facing the region’s governments is to convert the temporary windfall into a permanent breakthrough in human development.

We need to focus on how natural resources can contribute towards higher human development outcomes and reduce inequality. Effective and transparent management of a country’s natural resources is a priority for fighting corruption, conflict prevention and promoting sustainable development.

The responsibility for ensuring this lies primarily with African governments. However, African governments cannot resolve all these governance challenges on their own. The international community must also shoulder responsibility.

When foreign investors make extensive use of offshore companies, shell companies and tax havens, they weaken disclosure standards and undermine the efforts of reformers in Africa to promote transparency. Such practices also facilitate tax evasion and, in some countries, corruption; draining Africa of revenues that should be deployed against poverty and vulnerability. For ordinary people, in Africa as in Europe, current tax practices are raising questions about fairness, social justice, and citizenship.

It is encouraging that today, a shared agenda is emerging.  What is striking is that change is happening, and fast, as the demand for greater transparency and fairness extends globally and accelerates.

The EU has shown leadership by enacting the EU Accounting and Transparency Directives. This law will force natural resource companies to publish details of the billions in payments they make to governments around the world, such as taxes, royalties and license fees. Together with the U.S. Dodd-Frank act, these EU directives will make it easier for people in resource-rich countries to see where the money generated from their natural resources is going, and therefore ensure it is better used for their benefit.

The recent G8 Summit in Lough Erne was a welcome step towards creating a better, fairer global business environment. But it was less bold than we had hoped.

The G8 needs to legislate more on transparency through registries of companies and rules of disclosure. By making public the owners of all registered companies, G8 countries will take a big step forward towards tackling a key method of corruption – anonymous company ownership. But the G8 communique contained no legislative commitment to tackle such issues. There is clearly much more work to do.

The past decade of growth has provided several African countries with the unprecedented prospect of taking their populations out of poverty and developing robust, modern and sustainable economies. The EU and African countries would both gain from further developing a friendship that is based on mutual respect, equality, and the new and changing challenges the continent faces.

With the G20 summit scheduled for September, more governments have opportunity to be engaged, putting flesh on the bones of the Lough Erne communique.

Published in: Friends of Europe

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Chaired by Kofi Annan, the former Secretary-General of the United Nations, the Africa Progress Panel (the Panel) includes distinguished individuals from the private and public sectors, who advocate on global issues of importance to Africa and the world.

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