ROBERT MUKOMBOZI
KIGALI
RWANDA's attempts to break the dependence syndrome, which has hampered most African countries development, could have paid off.
Thirteen years after the 1994 genocide that devastated this tiny central African country, the Kigali leadership has pushed an economic, social and political growth that depends largely on home-made solutions.
Although the issue of borrowing continues to play a role, as the case is in all global markets, in Rwanda, it has become reasonably minimal.
The country is shifting towards utilizing all her resources, human and material to solve development chancellor. The government is working hard to involve every Rwandan in the reconstruction task without relying on foreign expertise.
Immediately after the ruling Rwanda Patriotic Front/Army had captured power in 1994, after the bush war struggle that put an end to the debacle in which over million Tutsis and moderate Hutus were massacred, the most urgent task was to build trust among Rwandans, and reconcile them.
The RPF government bonded victims and culprits that had participated in genocide and encouraged them to live in harmony again. Among confidence building strategies was the institution of a National Unity and Reconciliation Commission. The commission has engaged Rwandans of all walks of life in the country and in the Diaspora on how to rebuild their own motherland.
Most of the Rwandan professionals had either died or fled the country, while those that were steering national policies were often inexperienced. Now the RPF-led government of President Paul Kagame has continued to reject the idea that, as a people emerging out of conflict, others should conceive and design systems, processes and strategies for Rwanda.
Mr Kagame has always made his view very clear on this matter that in any event, a development programme that is conceived and executed by external actors is unsustainable in the long run.
Gacaca system
A classical illustration of a home grown policy is the Gacaca court system which addressed genocide cases that would require a lot of time and resources to be resolved.
The Gacaca system is a centuries-old Rwandan community-based justice system in which the accused and the accuser meet in a village square, led by a council of elders, to settle cases.
In the history of this country, it was a tool for reconciliation since the penalties were mutually binding. In modern Rwanda, the Gacaca court system has been modernised to handle part of the bulk of genocide crimes -the less serious cases, while other categories of crimes against humanity are executed by the conventional western style courts.
However, the international community's view on this communal court system in Rwanda is indifferent.
Sometimes the West has reacted out rightly hostile to this initiative, arguing that Gacaca does not fit the principles of conventional court systems. But, in his address to the African Business Leaders Forum in Johannesburg, South Africa, recently, Mr Kagame challenged the critics to provide an alternative to Gacaca.
"We also point to the United Nations International Criminal Tribunal for Rwanda (ICTR). The tribunal has since 1995 tried 31 people at a cost of over US$1 billion," he noted.
Wednesday, 26 September 2007
Monday, 24 September 2007
G8 making wrong diagnosis for Africa
Moses Byaruhanga
I read in the media that the G8 countries concluded their meeting in Heiligendamm, Germany last Friday by pledging $60 billion to combat HIV/Aids, TB and malaria.
The G8 also renewed their commitment made two years ago to increase other aid to Africa by $50 billion a year by 2010. This was another lost opportunity by the developed countries to address the problems of Africa. Borrowing from Jeffrey Sachs in his book; The End of Poverty in the chapter “clinical economics,” he argues that the problem of the Breton Wood Institutions with Africa is that they make a poor diagnosis and as a result give wrong prescriptions.
The G8 countries continue to make a wrong diagnosis of the problems of Africa, hence prescribe a wrong medicine by increasing aid. The problem of Africa is not aid or the lack of it. If aid was a solution to Africa’s problem, with the amount of aid the developed nations have pumped in Africa (Africa receives an annual aid flow of $13 billion), African countries would be developed by now. When Europe was in an economic recess after the World War, it was not helped by mere aid but by the Marshall Plan which was a comprehensive economic development plan meant to ensure Europe’s economic stability and strategic security in the postwar era.
Before the plan was passed, Congress set up a bipartisan committee led by Christian Herter which made a crucial trip to Europe to study the problem on the round and report back to Congress. George Marshall under whom the plan was named was the United States Secretary for Finance during President Truman’s administration. What the US did through the Congressional committee above was to use Jeffrey Sachs’ clinical economic diagnosis of the economic problems of Europe at the time.
This is what the G8 leaders are lacking in trying to help Africa overcome its economic problems. With aid, unless that aid is targeted to promoting investment and trade, nothing will become of it. Africa will not develop because of aid. Instead Africa needs value addition to its raw materials and end the inequitable relationship with the West by selling raw materials.
Africa should stop selling coffee beans but sell roasted or instant coffee, stop selling lint but finished garments, stop selling tobacco leaves but cigarettes, stop selling cocoa but chocolate, stop selling crude oil but oil products, etc. For a long time the West took a protectionist approach by denying finished goods from Africa entry into their markets. A finished good from Africa would be charged a high tax compared to a raw material. The idea was to discourage finished goods from Africa and the third world at large.
When you add value to raw materials and sell them as finished goods, you gain two advantages. Firstly, a finished good fetches more value than a raw material.
President Museveni in his numerous speeches has always given an example of cotton where a kilo of lint cotton fetches one dollar while if you turn that same lint into a garment, you earn about $10. For every one kilo of lint exported from Africa, we lose nine dollars.
With increased earnings from finished goods, farmers would earn more and would be guaranteed a steady market. When farmers incomes increase, then they can spend more on social services like education, health, sanitation and consumption at large leading to industries selling more because of a high purchasing power.
Secondly, value addition creates employment in the local economy. On the other hand selling raw materials creates jobs in the countries that import our raw materials.
So if the G8 is to do anything to help Africa, it should be, among others, to encourage companies in the West to invest in Africa and in promotion of trade in finished goods between Africa and the West.
This point was well articulated by President Museveni during his address to the African Business Forum organised by the Commonwealth Business Council in London last Tuesday. A lady from Nigeria who was seated next to me at the forum listening to Museveni make his points congratulated Uganda for having Museveni as our leader.
A member of the House of Lords told one of the Ugandan ministers that he agreed with 75 per cent of what President Museveni said, but even with the 25 per cent which he disagreed with, he enjoyed the manner and logic in the way Museveni articulated his points to the audience. That is Museveni for you on African matters.
The writer is special presidential assistant on political affairs
Email: political@infocom.co.ug
I read in the media that the G8 countries concluded their meeting in Heiligendamm, Germany last Friday by pledging $60 billion to combat HIV/Aids, TB and malaria.
The G8 also renewed their commitment made two years ago to increase other aid to Africa by $50 billion a year by 2010. This was another lost opportunity by the developed countries to address the problems of Africa. Borrowing from Jeffrey Sachs in his book; The End of Poverty in the chapter “clinical economics,” he argues that the problem of the Breton Wood Institutions with Africa is that they make a poor diagnosis and as a result give wrong prescriptions.
The G8 countries continue to make a wrong diagnosis of the problems of Africa, hence prescribe a wrong medicine by increasing aid. The problem of Africa is not aid or the lack of it. If aid was a solution to Africa’s problem, with the amount of aid the developed nations have pumped in Africa (Africa receives an annual aid flow of $13 billion), African countries would be developed by now. When Europe was in an economic recess after the World War, it was not helped by mere aid but by the Marshall Plan which was a comprehensive economic development plan meant to ensure Europe’s economic stability and strategic security in the postwar era.
Before the plan was passed, Congress set up a bipartisan committee led by Christian Herter which made a crucial trip to Europe to study the problem on the round and report back to Congress. George Marshall under whom the plan was named was the United States Secretary for Finance during President Truman’s administration. What the US did through the Congressional committee above was to use Jeffrey Sachs’ clinical economic diagnosis of the economic problems of Europe at the time.
This is what the G8 leaders are lacking in trying to help Africa overcome its economic problems. With aid, unless that aid is targeted to promoting investment and trade, nothing will become of it. Africa will not develop because of aid. Instead Africa needs value addition to its raw materials and end the inequitable relationship with the West by selling raw materials.
Africa should stop selling coffee beans but sell roasted or instant coffee, stop selling lint but finished garments, stop selling tobacco leaves but cigarettes, stop selling cocoa but chocolate, stop selling crude oil but oil products, etc. For a long time the West took a protectionist approach by denying finished goods from Africa entry into their markets. A finished good from Africa would be charged a high tax compared to a raw material. The idea was to discourage finished goods from Africa and the third world at large.
When you add value to raw materials and sell them as finished goods, you gain two advantages. Firstly, a finished good fetches more value than a raw material.
President Museveni in his numerous speeches has always given an example of cotton where a kilo of lint cotton fetches one dollar while if you turn that same lint into a garment, you earn about $10. For every one kilo of lint exported from Africa, we lose nine dollars.
With increased earnings from finished goods, farmers would earn more and would be guaranteed a steady market. When farmers incomes increase, then they can spend more on social services like education, health, sanitation and consumption at large leading to industries selling more because of a high purchasing power.
Secondly, value addition creates employment in the local economy. On the other hand selling raw materials creates jobs in the countries that import our raw materials.
So if the G8 is to do anything to help Africa, it should be, among others, to encourage companies in the West to invest in Africa and in promotion of trade in finished goods between Africa and the West.
This point was well articulated by President Museveni during his address to the African Business Forum organised by the Commonwealth Business Council in London last Tuesday. A lady from Nigeria who was seated next to me at the forum listening to Museveni make his points congratulated Uganda for having Museveni as our leader.
A member of the House of Lords told one of the Ugandan ministers that he agreed with 75 per cent of what President Museveni said, but even with the 25 per cent which he disagreed with, he enjoyed the manner and logic in the way Museveni articulated his points to the audience. That is Museveni for you on African matters.
The writer is special presidential assistant on political affairs
Email: political@infocom.co.ug
Museveni calls for one African army
TABU F. BUTAGIRA & RONALD BATRE
KAMPALA/ARUA
President Yoweri Museveni has criticised his African peers for relying on foreign military forces to maintain peace and security on the continent.
Gen. Museveni said Africa needs to immediately build one strong army that would intervene swiftly to restore calm in any beleaguered state and end unnecessary western benefaction. "Should Africa continue to seek defence patronage from abroad?" Mr Museveni asked on Friday, adding: "In whose interest is this patronage?"
Presently, over 13, 000 UN troops under the United Nations Mission in Congo are struggling to restore calm in the restive eastern DRC where renegade rebel chief Gen. Laurent Nkunda is fighting the Kinshasa government of Joseph Kabila.
On August 1, the UN approved the deployment of 26, 000 military and police personnel to Sudan's volatile Darfur region where an estimated 200, 000 people have died and another 2 million displaced since a conflict erupted in the oil-rich western province in 2003.
The home-grown African Union troops deployed there earlier are over stretched and have under performed mainly due to logistical bottlenecks and lack of money.
"While we may get help from bodies like the United Nations, it is imperative that we take initiative in promoting peace and preventing conflict," Mr Museveni said in a speech read for him by State Finance Minister (general duties), Jachan Omach at International UN Peace Day national celebrations in Arua on Friday.
"We need to build a credible military force that can guarantee the future of the African race". The President said many of the wars ravaging African Countries have continued to escalate and claim more lives due to delayed response arising from over reliance on foreign armed forces.
He said conflict resolution must be given a new priority on Africa's development agenda if harmony is to prevail within and between the continent's 53 nations. "Africa must strive to be ideologically independent if we are to secure and maintain peace and stability across (national) borders. We must share the same vision for our continent," Mr Museveni who had initially disagreed on fast tracking formation of a single African government, said.
"Conflicts have devastated the African continent, causing loss of millions of lives, human rights have been abused and entire populations forced to abandon dwellings and take on refugee status," he said.
"It is not only appalling but also abhorrent that the perpetrators of such acts normally attack defenseless civilians, children and women in order to advance their causes". The International Peace Day was celebrated under the theme: Promoting Cross-border Peace and Stability; Our Commitment, Struggle In Our Development and Progress.
KAMPALA/ARUA
President Yoweri Museveni has criticised his African peers for relying on foreign military forces to maintain peace and security on the continent.
Gen. Museveni said Africa needs to immediately build one strong army that would intervene swiftly to restore calm in any beleaguered state and end unnecessary western benefaction. "Should Africa continue to seek defence patronage from abroad?" Mr Museveni asked on Friday, adding: "In whose interest is this patronage?"
Presently, over 13, 000 UN troops under the United Nations Mission in Congo are struggling to restore calm in the restive eastern DRC where renegade rebel chief Gen. Laurent Nkunda is fighting the Kinshasa government of Joseph Kabila.
On August 1, the UN approved the deployment of 26, 000 military and police personnel to Sudan's volatile Darfur region where an estimated 200, 000 people have died and another 2 million displaced since a conflict erupted in the oil-rich western province in 2003.
The home-grown African Union troops deployed there earlier are over stretched and have under performed mainly due to logistical bottlenecks and lack of money.
"While we may get help from bodies like the United Nations, it is imperative that we take initiative in promoting peace and preventing conflict," Mr Museveni said in a speech read for him by State Finance Minister (general duties), Jachan Omach at International UN Peace Day national celebrations in Arua on Friday.
"We need to build a credible military force that can guarantee the future of the African race". The President said many of the wars ravaging African Countries have continued to escalate and claim more lives due to delayed response arising from over reliance on foreign armed forces.
He said conflict resolution must be given a new priority on Africa's development agenda if harmony is to prevail within and between the continent's 53 nations. "Africa must strive to be ideologically independent if we are to secure and maintain peace and stability across (national) borders. We must share the same vision for our continent," Mr Museveni who had initially disagreed on fast tracking formation of a single African government, said.
"Conflicts have devastated the African continent, causing loss of millions of lives, human rights have been abused and entire populations forced to abandon dwellings and take on refugee status," he said.
"It is not only appalling but also abhorrent that the perpetrators of such acts normally attack defenseless civilians, children and women in order to advance their causes". The International Peace Day was celebrated under the theme: Promoting Cross-border Peace and Stability; Our Commitment, Struggle In Our Development and Progress.
IMF chief predicts 7% growth rate for EAC
Sunday, 23rd September, 2007 E-mail article Print article
Kato is optimistic about EAC
By Takatoshi Kato
THIS is an exciting time for Africa. Sub-Saharan Africa as a region is experiencing its best economic performance in 30 years. Many countries continue to excel as they record historically high economic growth rates and impressive economic stability.
The global economy has been expanding steadily over the last five years. The major emerging market economies are leading the way, and most regions around the world continue to participate in the rising trend. While the recent financial market turmoil has cast a shadow on the global outlook, our assessment is that while it may well put a dent in the global expansion, it should not derail it. We expect the global economy to remain strong, growing at about 5% in 2007 and 2008.
In this environment, sub-Saharan Africa continues to experience its fastest economic expansion in three decades. Over the last three years, growth has remained between 5% and 6%. This is attributable in part to the supportive external environment, but also to strong domestic investment and productivity gains supported by sound economic policies in most countries.
All across the region, countries are using increased resources from commodity exports, debt relief, and private inflows to raise spending in pursuit of the Millennium Development Goals (MDGs).
In the East African Community (EAC) as a group, economic growth has kept pace with broader sub-Saharan African growth since 2002, and has even exceeded it in the past two years. This is especially noteworthy, considering that growth in the EAC countries has been propelled not so much by foreign demand as by improved economic policies and reforms.
The IMF expects growth in sub-Saharan African to accelerate to well over 6% in 2007 and 2008. While oil-exporting countries will drive much of this acceleration, non-oil producing low-income countries will also contribute.
Growth in the EAC should rise even further, to about 7% in 2007 and 2008.
Of course, there are risks to this positive outlook, including that of an unanticipated strong slowdown of the global economy, or of lower access to financing due to the ongoing re-pricing of risk in global financial markets.
Aid flows could also fall short of expectation, especially as so far the promised scaling-up of aid from international donors has not fully materialised.
Despite these risks, the current expansion gives Africa a unique opportunity for development. The challenge now is to sustain and broaden the growth momentum, building on a virtuous cycle of reform, stabilisation, and growth that seems to be emerging in the region.
A dynamic private sector is key to raising and sustaining growth, reducing poverty and integrating the region into the global economy. In bringing this about, the public sector has a pivotal role to play in establishing an environment conducive to private sector activity.
Achieving this will require maintaining economic stability, investing in infrastructure, strengthening the financial sector and public institutions, and liberalizing business regulations.
Developing human capital, alongside infrastructure, is important too. Stronger efforts to improve health and education are critical to this objective. The importance of private sector development is also recognised in the new UN sponsored MDG Africa Working Group to accelerate African countries’ progress toward the Millennium Development Goals.
To address the pressing development needs, a strengthening of public financial management and governance is needed. To speed improvements in these areas, the IMF and the World Bank have started joint pilot projects in a number of countries. Strengthening public financial management and governance not only helps to make the most out of limited resources, it also helps unlock aid and attract investors.
However, experience shows that higher aid and spending create new challenges, both to preserving economic stability and to external competitiveness.
Since foreign financing alone may not raise investment to the level needed to achieve development goals, countries must also put more emphasis on developing the local financial sector. This would help boost domestic savings and increase the private sector’s access to financing.
In tackling impediments to economic growth, the IMF has maintained close ties to the East African Community.
The Fund’s concessional lending under its Poverty Reduction and Growth Facility remains an important resource for many low-income countries. This is complemented by other facilities as well as technical assistance.
However, not all low-income countries necessarily want or need IMF financial assistance. As countries’ needs change, the IMF has naturally adapted to meet these needs.
Accordingly, the Fund’s emphasis is shifting from financing to policy support. The Policy Support Instrument allows the Fund to address the needs of low-income countries that seek IMF advice, monitoring, and endorsement of their economic policies but not Fund financial support. Two EAC members, Uganda and Tanzania, are among the countries making use of this facility.
The IMF has also quite dramatically increased its capacity-development assistance over the last five years to EAC countries, and its East African Regional Technical Assistance Center, now about to mark its fifth year, has been instrumental in this regard.
The IMF realises that going forward, more needs to be done, beyond economic stabilisation, for EAC countries to move toward middle-income status. The IMF will remain a committed partner to sub-Saharan Africa and the EAC as they continue to progress toward realising their economic ambitions.
The writer is the deputy managing director of the International Monetary Fund. He arrived in the country on September 23
Kato is optimistic about EAC
By Takatoshi Kato
THIS is an exciting time for Africa. Sub-Saharan Africa as a region is experiencing its best economic performance in 30 years. Many countries continue to excel as they record historically high economic growth rates and impressive economic stability.
The global economy has been expanding steadily over the last five years. The major emerging market economies are leading the way, and most regions around the world continue to participate in the rising trend. While the recent financial market turmoil has cast a shadow on the global outlook, our assessment is that while it may well put a dent in the global expansion, it should not derail it. We expect the global economy to remain strong, growing at about 5% in 2007 and 2008.
In this environment, sub-Saharan Africa continues to experience its fastest economic expansion in three decades. Over the last three years, growth has remained between 5% and 6%. This is attributable in part to the supportive external environment, but also to strong domestic investment and productivity gains supported by sound economic policies in most countries.
All across the region, countries are using increased resources from commodity exports, debt relief, and private inflows to raise spending in pursuit of the Millennium Development Goals (MDGs).
In the East African Community (EAC) as a group, economic growth has kept pace with broader sub-Saharan African growth since 2002, and has even exceeded it in the past two years. This is especially noteworthy, considering that growth in the EAC countries has been propelled not so much by foreign demand as by improved economic policies and reforms.
The IMF expects growth in sub-Saharan African to accelerate to well over 6% in 2007 and 2008. While oil-exporting countries will drive much of this acceleration, non-oil producing low-income countries will also contribute.
Growth in the EAC should rise even further, to about 7% in 2007 and 2008.
Of course, there are risks to this positive outlook, including that of an unanticipated strong slowdown of the global economy, or of lower access to financing due to the ongoing re-pricing of risk in global financial markets.
Aid flows could also fall short of expectation, especially as so far the promised scaling-up of aid from international donors has not fully materialised.
Despite these risks, the current expansion gives Africa a unique opportunity for development. The challenge now is to sustain and broaden the growth momentum, building on a virtuous cycle of reform, stabilisation, and growth that seems to be emerging in the region.
A dynamic private sector is key to raising and sustaining growth, reducing poverty and integrating the region into the global economy. In bringing this about, the public sector has a pivotal role to play in establishing an environment conducive to private sector activity.
Achieving this will require maintaining economic stability, investing in infrastructure, strengthening the financial sector and public institutions, and liberalizing business regulations.
Developing human capital, alongside infrastructure, is important too. Stronger efforts to improve health and education are critical to this objective. The importance of private sector development is also recognised in the new UN sponsored MDG Africa Working Group to accelerate African countries’ progress toward the Millennium Development Goals.
To address the pressing development needs, a strengthening of public financial management and governance is needed. To speed improvements in these areas, the IMF and the World Bank have started joint pilot projects in a number of countries. Strengthening public financial management and governance not only helps to make the most out of limited resources, it also helps unlock aid and attract investors.
However, experience shows that higher aid and spending create new challenges, both to preserving economic stability and to external competitiveness.
Since foreign financing alone may not raise investment to the level needed to achieve development goals, countries must also put more emphasis on developing the local financial sector. This would help boost domestic savings and increase the private sector’s access to financing.
In tackling impediments to economic growth, the IMF has maintained close ties to the East African Community.
The Fund’s concessional lending under its Poverty Reduction and Growth Facility remains an important resource for many low-income countries. This is complemented by other facilities as well as technical assistance.
However, not all low-income countries necessarily want or need IMF financial assistance. As countries’ needs change, the IMF has naturally adapted to meet these needs.
Accordingly, the Fund’s emphasis is shifting from financing to policy support. The Policy Support Instrument allows the Fund to address the needs of low-income countries that seek IMF advice, monitoring, and endorsement of their economic policies but not Fund financial support. Two EAC members, Uganda and Tanzania, are among the countries making use of this facility.
The IMF has also quite dramatically increased its capacity-development assistance over the last five years to EAC countries, and its East African Regional Technical Assistance Center, now about to mark its fifth year, has been instrumental in this regard.
The IMF realises that going forward, more needs to be done, beyond economic stabilisation, for EAC countries to move toward middle-income status. The IMF will remain a committed partner to sub-Saharan Africa and the EAC as they continue to progress toward realising their economic ambitions.
The writer is the deputy managing director of the International Monetary Fund. He arrived in the country on September 23
Wednesday, 19 September 2007
Hot money and the double edged sword
Written by Eston Kimani
19-September-2007: In 1997, Asia attracted almost half of the total capital inflow to developing countries. The Asian countries were experiencing what would come to be known as the Asian economic miracle; sustained economic growth for over 30 years, high income growth, poverty reduction, and improved health.
During this period, the stock exchanges of the Asian countries soared and the high interest rates offered by the governments of these countries resulted in an influx of capital from developed countries.
In recounting this period, Joseph Stiglitz, the former chief economist at the World Bank writes that much of this capital was hot money; the kind of capital that looks for the highest return in the next day, week, or month, as opposed to long-term investment in things like factories.
A lot of the hot money went into the stock markets of the Asian countries and in real estate resulting in a bubble as asset prices significantly appreciated.
Inevitably the stock market and real estate bubbles burst resulting in the Asia financial crisis that not only brought economic ruin but threatened to destroy the social fabric of the Asian countries.
As the stock market and real estate bubbles burst, the hot money was quickly removed from the stock market and real estate. This was done through massive sell offs, which resulted in the stock and real estate prices plummeting.
Then since the hot money had to be reconverted back to foreign currency, the respective currencies of the Asian countries suffered a big setback given that a lot of local currency was being dumped to buy foreign currency.
The devaluation of the Asian currencies had a big negative impact on the Asian economies.
In order to discourage the hot money from leaving and increasing the pressure on the local currencies, many Asian governments responded by increasing the interest rates within the economy to make it attractive for the money to stay within the economy.
However the resulting high interest rates caused more problems as companies with debt obligations went into bankruptcy, as they could not afford to pay the high interest rates.
Additionally the value of stock market and real estate assets had decreased significantly once the bubble burst meaning that those assets that had been acquired through credit could no longer support their debt servicing. In this way, many Asian economies found themselves in a lose-lose situation.
Given the spectacular returns of African stock markets in the recent past, there is growing interest from foreign investors to get into the African market.
Yet, African governments must not let the attention get to their heads. Strategies must be put in place to encourage long term investors through issuance of such instruments such as infrastructure bonds that can be used to raise money for badly needed infrastructure projects.
Additionally, there should be measures in place to guard against hot money that is likely to cause problems in the future. Early exit fees and limits on how much foreign currency is allowed to leave the country within a short period of time are some of the controls that can be used to discourage hot money speculators.
As foreign investors become increasingly interested in the Nairobi Stock Exchange, we have to ensure that we have the controls and well laid procedures that will ensure a win-win situation and built a foundation that will serve us well into the future.
Despite the thrill that is likely to come from an appreciation in stock prices as foreign investors increase the demand for stocks, we have to ensure that we guard the long term well being of the stock market and the economy.
An oft-told story is that of a man who went out to find diamonds and mineral riches. He travelled far and wide in his quest to locate the precious minerals but could never find any. Since he was very determined, he decided that he would sell his land and risk his fortune to find the treasure he was seeking for.
He sought out a buyer and explained that he needed the money to go out in search of mineral treasure. Once the buyer had bought the land, he set out to explore it and to his amazement realised that the man’s land had vast reserves of gold, diamonds and minerals.
The man after treasure had looked over far and wide for minerals but had never even bothered to look at his own land.
As government officials and ministers go in and out of foreign capitals looking for investors they need to remember this story. Given the vast unexploited resources in our country, it is time for us to look inward to find treasure.
We need to shift our attention from trying to convince others to invest in our economy and to focus on helping the Kenyan citizens identify and exploit the opportunities around them. Once we have successfully done that, we will not need to convince anyone to invest in our economy as they will come out seeking for us.
Is it not true that “chema chajiuza kibaya chajitembeza?” Or what good shall it do for us to have a growing economy that we do not own? The economist, Paul Krugman, argues that only growth in total factor productivity and not capital investment can lead to long-term prosperity.
This means that there is a lot can be done if we stop giving the excuse of “lack of funds” for our inaction and focus on developing the country and its people in as many diverse ways as possible.
Kimani is the CEO of Africa Value Investment Partners and is a graduate of the Massachusetts Institute of Technology.
africa.value@gmail.com
19-September-2007: In 1997, Asia attracted almost half of the total capital inflow to developing countries. The Asian countries were experiencing what would come to be known as the Asian economic miracle; sustained economic growth for over 30 years, high income growth, poverty reduction, and improved health.
During this period, the stock exchanges of the Asian countries soared and the high interest rates offered by the governments of these countries resulted in an influx of capital from developed countries.
In recounting this period, Joseph Stiglitz, the former chief economist at the World Bank writes that much of this capital was hot money; the kind of capital that looks for the highest return in the next day, week, or month, as opposed to long-term investment in things like factories.
A lot of the hot money went into the stock markets of the Asian countries and in real estate resulting in a bubble as asset prices significantly appreciated.
Inevitably the stock market and real estate bubbles burst resulting in the Asia financial crisis that not only brought economic ruin but threatened to destroy the social fabric of the Asian countries.
As the stock market and real estate bubbles burst, the hot money was quickly removed from the stock market and real estate. This was done through massive sell offs, which resulted in the stock and real estate prices plummeting.
Then since the hot money had to be reconverted back to foreign currency, the respective currencies of the Asian countries suffered a big setback given that a lot of local currency was being dumped to buy foreign currency.
The devaluation of the Asian currencies had a big negative impact on the Asian economies.
In order to discourage the hot money from leaving and increasing the pressure on the local currencies, many Asian governments responded by increasing the interest rates within the economy to make it attractive for the money to stay within the economy.
However the resulting high interest rates caused more problems as companies with debt obligations went into bankruptcy, as they could not afford to pay the high interest rates.
Additionally the value of stock market and real estate assets had decreased significantly once the bubble burst meaning that those assets that had been acquired through credit could no longer support their debt servicing. In this way, many Asian economies found themselves in a lose-lose situation.
Given the spectacular returns of African stock markets in the recent past, there is growing interest from foreign investors to get into the African market.
Yet, African governments must not let the attention get to their heads. Strategies must be put in place to encourage long term investors through issuance of such instruments such as infrastructure bonds that can be used to raise money for badly needed infrastructure projects.
Additionally, there should be measures in place to guard against hot money that is likely to cause problems in the future. Early exit fees and limits on how much foreign currency is allowed to leave the country within a short period of time are some of the controls that can be used to discourage hot money speculators.
As foreign investors become increasingly interested in the Nairobi Stock Exchange, we have to ensure that we have the controls and well laid procedures that will ensure a win-win situation and built a foundation that will serve us well into the future.
Despite the thrill that is likely to come from an appreciation in stock prices as foreign investors increase the demand for stocks, we have to ensure that we guard the long term well being of the stock market and the economy.
An oft-told story is that of a man who went out to find diamonds and mineral riches. He travelled far and wide in his quest to locate the precious minerals but could never find any. Since he was very determined, he decided that he would sell his land and risk his fortune to find the treasure he was seeking for.
He sought out a buyer and explained that he needed the money to go out in search of mineral treasure. Once the buyer had bought the land, he set out to explore it and to his amazement realised that the man’s land had vast reserves of gold, diamonds and minerals.
The man after treasure had looked over far and wide for minerals but had never even bothered to look at his own land.
As government officials and ministers go in and out of foreign capitals looking for investors they need to remember this story. Given the vast unexploited resources in our country, it is time for us to look inward to find treasure.
We need to shift our attention from trying to convince others to invest in our economy and to focus on helping the Kenyan citizens identify and exploit the opportunities around them. Once we have successfully done that, we will not need to convince anyone to invest in our economy as they will come out seeking for us.
Is it not true that “chema chajiuza kibaya chajitembeza?” Or what good shall it do for us to have a growing economy that we do not own? The economist, Paul Krugman, argues that only growth in total factor productivity and not capital investment can lead to long-term prosperity.
This means that there is a lot can be done if we stop giving the excuse of “lack of funds” for our inaction and focus on developing the country and its people in as many diverse ways as possible.
Kimani is the CEO of Africa Value Investment Partners and is a graduate of the Massachusetts Institute of Technology.
africa.value@gmail.com
World Bank project to help light up sub-Saharan Africa
By CATHERINE RIUNGU
Special Correspondent
Power to the people. This is the objective of a new initiative to provide modern lighting to the 250 million people in sub-Saharan Africa who have no access to electricity.
Jointly managed by the bank and its private sector lending arm, the International Finance Corporation (IFC), Lighting Africa aims to develop market conditions for the supply and distribution of new, non-fossil fuel lighting products such as fluorescent light bulbs and light emitting diodes in rural and urban areas that are not connected to the electricity grid.
The “energy poor” in Africa spend about $17 billion a year on fuel-based lighting sources such as kerosene lamps that are costly, inefficient, and provide poor quality light while causing pollution and posing fire hazards.
For these consumers, lighting accounts for 10 to 15 per cent of total household income. They offer a potentially huge market for modern lighting products that are safe and reliable, that provide higher-quality light, and that are cost-competitive with fuel-based lamps and powered by renewable energy or mechanical sources.
Lighting Africa, which is supported by a number of donors, including seed money from the Global Environment Facility, seeks to attract the international lighting industry, as well as local suppliers and service providers, to this market.
IFC executive vice president Lars Thunell said, “In partnership with the private sector, IFC will help develop sustainable business models to supply good quality lighting to the poorest of the poor in Africa. Our goal is to give families and small business owners clean, modern and affordable alternatives to fossil fuel lamps.”
S. Vijay Iyer, World Bank energy sector manager for Africa, said, “Modern lighting will mean improved air quality and safety for millions of people in Africa. It will mean longer reading hours for students and longer business hours for small shops. Lighting Africa will directly contribute to the Millennium Development Goals. It is a cornerstone of the World Bank’s Clean Energy and Development Investment Framework and the Africa Energy Access Scale-Up Plan.”
More than 350 companies have already expressed interest in the initiative.
Gerard Kleisterlee, president and CEO of Philips, said in a recent speech, “The rural lighting market, like many markets for low-income people in developing countries, is not well known or explored. It is essential that governments and international organisations such as the World Bank, NGOs and various companies get together in a network to work out the appropriate business models.”
The chairman of the Kenya Renewable Energy Association, Vincent Loh, said, “The Development Marketplace competition provides a unique opportunity for local African companies to participate in the development of lighting products and services tailored to local market needs and conditions.”
The World Bank’s Development Marketplace is a competitive grant programme that funds innovative, small-scale development projects. These projects not only deliver results, but also have the potential to be expanded or replicated elsewhere. Since its inception in 1998, the programme has awarded over $50 million to roughly 1,000 projects through global, regional and country-level Marketplaces.
The first phase of Lighting Africa, which started last week, will launch a competition for the design and delivery of innovative, low-cost, high-quality, non-fossil lighting products that target low-income consumers in sub-Saharan Africa. Ten to 20 winners will receive grants up to $200,000. The project will then initiate market research in Kenya, Ghana, Tanzania, and Zambia to better understand consumer demand, behaviour and preferences. The research will also look at local supply, marketing, and distribution channels. Initial results of this research are expected early next year and will be used to inaugurate a business-to-business Web portal where manufacturers, distributors, and marketers from all over the world can create partnerships, conduct business online and access the latest market information.
To kickstart the project, a competition for the design and delivery of innovative lighting products was also launched, dubbed “Innovations in Off-Grid Lighting Products and Services for Africa.” The competition will reward project ideas that address the various off-grid lighting needs of sub-Saharan Africa, including alternative distribution models, new clean lighting technology, stronger production chains, and improvement of the policy environment. Ten to 20 winners will receive grant funding up to $200,000.
The competition is open to a broad range of innovators around the world, including private businesses, non-governmental organisations, universities, government entities and individuals.
Lead sponsors include the Energy Sector Management Assistance Programme, the Global Environment Facility, and the Public-Private Infrastructure Advisory Facility. Other supporters include Good Energies Inc, the governments of Norway and Luxembourg, the European Commission and the Renewable Energy and Energy Efficiency Partnership. The deadline for submitting proposals is October 31, 2007.
Special Correspondent
Power to the people. This is the objective of a new initiative to provide modern lighting to the 250 million people in sub-Saharan Africa who have no access to electricity.
Jointly managed by the bank and its private sector lending arm, the International Finance Corporation (IFC), Lighting Africa aims to develop market conditions for the supply and distribution of new, non-fossil fuel lighting products such as fluorescent light bulbs and light emitting diodes in rural and urban areas that are not connected to the electricity grid.
The “energy poor” in Africa spend about $17 billion a year on fuel-based lighting sources such as kerosene lamps that are costly, inefficient, and provide poor quality light while causing pollution and posing fire hazards.
For these consumers, lighting accounts for 10 to 15 per cent of total household income. They offer a potentially huge market for modern lighting products that are safe and reliable, that provide higher-quality light, and that are cost-competitive with fuel-based lamps and powered by renewable energy or mechanical sources.
Lighting Africa, which is supported by a number of donors, including seed money from the Global Environment Facility, seeks to attract the international lighting industry, as well as local suppliers and service providers, to this market.
IFC executive vice president Lars Thunell said, “In partnership with the private sector, IFC will help develop sustainable business models to supply good quality lighting to the poorest of the poor in Africa. Our goal is to give families and small business owners clean, modern and affordable alternatives to fossil fuel lamps.”
S. Vijay Iyer, World Bank energy sector manager for Africa, said, “Modern lighting will mean improved air quality and safety for millions of people in Africa. It will mean longer reading hours for students and longer business hours for small shops. Lighting Africa will directly contribute to the Millennium Development Goals. It is a cornerstone of the World Bank’s Clean Energy and Development Investment Framework and the Africa Energy Access Scale-Up Plan.”
More than 350 companies have already expressed interest in the initiative.
Gerard Kleisterlee, president and CEO of Philips, said in a recent speech, “The rural lighting market, like many markets for low-income people in developing countries, is not well known or explored. It is essential that governments and international organisations such as the World Bank, NGOs and various companies get together in a network to work out the appropriate business models.”
The chairman of the Kenya Renewable Energy Association, Vincent Loh, said, “The Development Marketplace competition provides a unique opportunity for local African companies to participate in the development of lighting products and services tailored to local market needs and conditions.”
The World Bank’s Development Marketplace is a competitive grant programme that funds innovative, small-scale development projects. These projects not only deliver results, but also have the potential to be expanded or replicated elsewhere. Since its inception in 1998, the programme has awarded over $50 million to roughly 1,000 projects through global, regional and country-level Marketplaces.
The first phase of Lighting Africa, which started last week, will launch a competition for the design and delivery of innovative, low-cost, high-quality, non-fossil lighting products that target low-income consumers in sub-Saharan Africa. Ten to 20 winners will receive grants up to $200,000. The project will then initiate market research in Kenya, Ghana, Tanzania, and Zambia to better understand consumer demand, behaviour and preferences. The research will also look at local supply, marketing, and distribution channels. Initial results of this research are expected early next year and will be used to inaugurate a business-to-business Web portal where manufacturers, distributors, and marketers from all over the world can create partnerships, conduct business online and access the latest market information.
To kickstart the project, a competition for the design and delivery of innovative lighting products was also launched, dubbed “Innovations in Off-Grid Lighting Products and Services for Africa.” The competition will reward project ideas that address the various off-grid lighting needs of sub-Saharan Africa, including alternative distribution models, new clean lighting technology, stronger production chains, and improvement of the policy environment. Ten to 20 winners will receive grant funding up to $200,000.
The competition is open to a broad range of innovators around the world, including private businesses, non-governmental organisations, universities, government entities and individuals.
Lead sponsors include the Energy Sector Management Assistance Programme, the Global Environment Facility, and the Public-Private Infrastructure Advisory Facility. Other supporters include Good Energies Inc, the governments of Norway and Luxembourg, the European Commission and the Renewable Energy and Energy Efficiency Partnership. The deadline for submitting proposals is October 31, 2007.
Flowers, fish and tourism among EA’s trade strengths
By BENON HERBERT OLUKA
Special Correspondent
A study conducted by the United States International Trade Commission has identified cut flowers, fish (prepared and preserved), flat-rolled steel, garments and apparels, financial services and tourism as the sectors where East African economies have the biggest comparative advantages in global trade.
According to a 214-page report titled Sub-Saharan Africa: Factors Affecting Trade Patterns of Selected Industries, Kenya enjoys a comparative advantage in five of the six sectors in which the East African economies can compete favourably at the international level — making it the most grounded exporter in the region. Kenya’s Achilles’ heel is, surprisingly, the financial services sector.
Uganda comes second with a comparative advantage in three (cut flowers, tourism and financial services) of the six sectors, while Tanzania is third, enjoying a comparative advantage in only tourism and flat-rolled steel. Rwanda is fourth with tourism being the only sector where it can make substantial gains against competitors on the global market.
The six-month study, which was concluded in April this year, was commissioned to examine the factors affecting trade patterns in 12 select industries that were seen to have experienced significant changes in exports from Sub-Saharan African countries in the past five years.
The 12 industries selected for study were: Nuts (principally cashews), cocoa butter and paste, cut flowers, fish (prepared and preserved), acyclic alcohols, flat-rolled steel, petroleum gases (principally liquefied natural gas), textiles and apparel (principally apparel), unwrought aluminium, wood veneer, financial services and travel or tourism services.
According to the study’s findings, while increased demand was the predominant factor affecting export growth in the selected industries in the 2001-05 period, a number of government policies and initiatives related to investment, infrastructure, trade agreements and regional integration also contributed significantly.
Kenya is specifically mentioned in the report as a case study of how favourable government policies can influence the growth of exports in a specific sector. The report notes that the Kenyan government attributes early growth of the floriculture sector in the 1990s in part to the liberal macroeconomic policy environment and government encouragement of foreign investment and international trade.
“The Kenyan government’s National Export Strategy focuses on certain priority sectors, including horticulture, which includes cut flowers,” says the report, further explaining that the government’s main role in encouraging the floriculture industry has been to provide infrastructure development, incentives and support services.
The investment and business environment in Kenya has been enhanced through government divestiture and privatisation; the abolition of import and export licensing; the removal of administrative and price controls; freedom of movement of foreign exchange in and out of the country; liberalisation in the banking sector; and the removal of import duties on packaging, seeds, agro-chemicals and other necessary inputs for floriculture exports,” the report adds.
These policies have made Kenya’s cut flower industry the world’s second largest after Colombia, having leapfrogged Ecuador and the Netherlands, which were ahead of it in 2000.
By far the largest producer of cut flowers in sub-Saharan Africa, Kenya registered an average growth rate of 111 per cent between 2001 and 2005. In 2005, Kenya earned $357.7 million from cut flower exports — up from the $310.6 million that it earned the year before.
Although Uganda is way off the pace compared with Kenya, its own earnings from cut flowers also grew substantially with the country earning $35 million in 2005 — $10 million more than what South Africa earned in the same year.
On the whole, total sub-Saharan cut flower exports rose steadily between 2001 and 2005 — increasing by 65 per cent over that period as other countries in East and Southern Africa attempted to replicate Kenya’s success in floriculture. This was at least 20 per cent higher than the global exports growth rate of 41 per cent, which saw the total global earnings rise from $1.7 billion in 2001 to more than $2.4 billion in 2005.
In the case of Uganda, the report offers a sobering assessment saying the country does not actually enjoy a comparative advantage in the garments and apparels sector.
It would appear that Uganda has been barking up the wrong tree, with the government for the past five years offering substantial financial support to textile firms and touting the sector as the country’s flagship export to the US under the Africa Growth and Opportunities Act — albeit with little success.
Within the East African region, Kenya and Ethiopia are the only countries that are said to have a comparative advantage in the apparel sector, with Lesotho, Botswana, Swaziland, and Madagascar being the only others within the whole sub-Saharan African region.
However, even these six countries have not fared that well collectively. While total global apparel exports increased by 31 per cent from $159.5 billion in 2001 to $209.3 billion in 2005, sub-Saharan African apparel exports increased by 13 per cent from $2.2 billion in 2001 to $2.8 billion in 2004 before declining to $2.4 billion in 2005.
While Uganda’s apparel industry received recognition from the US study, its financial services sector — which grew from $1 million in 2002 to $45.8 million in 2004 — is highlighted as an area where the country now has a definite comparative advantage globally.
According to the report, the factors that determine a country’s ability to sustain its textile industry on the global market include trade agreements and programmes, strengths of regional trade blocs, government programmes and policies as well as supply-side factors such as availability of labour and the historical presence of a textile and apparel industry
Special Correspondent
A study conducted by the United States International Trade Commission has identified cut flowers, fish (prepared and preserved), flat-rolled steel, garments and apparels, financial services and tourism as the sectors where East African economies have the biggest comparative advantages in global trade.
According to a 214-page report titled Sub-Saharan Africa: Factors Affecting Trade Patterns of Selected Industries, Kenya enjoys a comparative advantage in five of the six sectors in which the East African economies can compete favourably at the international level — making it the most grounded exporter in the region. Kenya’s Achilles’ heel is, surprisingly, the financial services sector.
Uganda comes second with a comparative advantage in three (cut flowers, tourism and financial services) of the six sectors, while Tanzania is third, enjoying a comparative advantage in only tourism and flat-rolled steel. Rwanda is fourth with tourism being the only sector where it can make substantial gains against competitors on the global market.
The six-month study, which was concluded in April this year, was commissioned to examine the factors affecting trade patterns in 12 select industries that were seen to have experienced significant changes in exports from Sub-Saharan African countries in the past five years.
The 12 industries selected for study were: Nuts (principally cashews), cocoa butter and paste, cut flowers, fish (prepared and preserved), acyclic alcohols, flat-rolled steel, petroleum gases (principally liquefied natural gas), textiles and apparel (principally apparel), unwrought aluminium, wood veneer, financial services and travel or tourism services.
According to the study’s findings, while increased demand was the predominant factor affecting export growth in the selected industries in the 2001-05 period, a number of government policies and initiatives related to investment, infrastructure, trade agreements and regional integration also contributed significantly.
Kenya is specifically mentioned in the report as a case study of how favourable government policies can influence the growth of exports in a specific sector. The report notes that the Kenyan government attributes early growth of the floriculture sector in the 1990s in part to the liberal macroeconomic policy environment and government encouragement of foreign investment and international trade.
“The Kenyan government’s National Export Strategy focuses on certain priority sectors, including horticulture, which includes cut flowers,” says the report, further explaining that the government’s main role in encouraging the floriculture industry has been to provide infrastructure development, incentives and support services.
The investment and business environment in Kenya has been enhanced through government divestiture and privatisation; the abolition of import and export licensing; the removal of administrative and price controls; freedom of movement of foreign exchange in and out of the country; liberalisation in the banking sector; and the removal of import duties on packaging, seeds, agro-chemicals and other necessary inputs for floriculture exports,” the report adds.
These policies have made Kenya’s cut flower industry the world’s second largest after Colombia, having leapfrogged Ecuador and the Netherlands, which were ahead of it in 2000.
By far the largest producer of cut flowers in sub-Saharan Africa, Kenya registered an average growth rate of 111 per cent between 2001 and 2005. In 2005, Kenya earned $357.7 million from cut flower exports — up from the $310.6 million that it earned the year before.
Although Uganda is way off the pace compared with Kenya, its own earnings from cut flowers also grew substantially with the country earning $35 million in 2005 — $10 million more than what South Africa earned in the same year.
On the whole, total sub-Saharan cut flower exports rose steadily between 2001 and 2005 — increasing by 65 per cent over that period as other countries in East and Southern Africa attempted to replicate Kenya’s success in floriculture. This was at least 20 per cent higher than the global exports growth rate of 41 per cent, which saw the total global earnings rise from $1.7 billion in 2001 to more than $2.4 billion in 2005.
In the case of Uganda, the report offers a sobering assessment saying the country does not actually enjoy a comparative advantage in the garments and apparels sector.
It would appear that Uganda has been barking up the wrong tree, with the government for the past five years offering substantial financial support to textile firms and touting the sector as the country’s flagship export to the US under the Africa Growth and Opportunities Act — albeit with little success.
Within the East African region, Kenya and Ethiopia are the only countries that are said to have a comparative advantage in the apparel sector, with Lesotho, Botswana, Swaziland, and Madagascar being the only others within the whole sub-Saharan African region.
However, even these six countries have not fared that well collectively. While total global apparel exports increased by 31 per cent from $159.5 billion in 2001 to $209.3 billion in 2005, sub-Saharan African apparel exports increased by 13 per cent from $2.2 billion in 2001 to $2.8 billion in 2004 before declining to $2.4 billion in 2005.
While Uganda’s apparel industry received recognition from the US study, its financial services sector — which grew from $1 million in 2002 to $45.8 million in 2004 — is highlighted as an area where the country now has a definite comparative advantage globally.
According to the report, the factors that determine a country’s ability to sustain its textile industry on the global market include trade agreements and programmes, strengths of regional trade blocs, government programmes and policies as well as supply-side factors such as availability of labour and the historical presence of a textile and apparel industry
Sunday, 9 September 2007
African heads of state must do more to save Darfur
Africa has endured a tortured history, and continues to persevere under the burden of political instability and religious, racial, and ethnic strife.
Over a decade ago, nearly one million Rwandans were murdered over a three month period. Today, Rwanda struggles to come to terms with this painful history.
It is said of the Jewish Holocaust that “the world slept and did not know.” Today, there is, perhaps, nowhere on earth where the crime of genocide is more glaring than in Darfur, Sudan.
In that region, domestic bigotry in juxtaposition with foreign multinational oil interests has served to create a humanitarian emergency of epic proportion.
The world community has responded to this crisis, albeit belatedly; however, much more needs to be done to address a most tragic situation. When President Bush first declared that what was happening in Sudan was genocide, one African president left his country and traveled to America to “correct Bush” and instruct him that what was happening was rebellion against the government of Sudan! As hundreds of thousands perish in Darfur, it is African nations and their leaders, this time that have become silent spectators.
The African Union must play a far more central role in bringing about a suitable solution to the crisis in the Darfur region. By galvanizing their resources, African nations will realise the Bantu maxim - a human is human because of other humans - that represents the African communal viewpoint.
Prof. Chinua Achebe,
author of Things Fall Apart
Over a decade ago, nearly one million Rwandans were murdered over a three month period. Today, Rwanda struggles to come to terms with this painful history.
It is said of the Jewish Holocaust that “the world slept and did not know.” Today, there is, perhaps, nowhere on earth where the crime of genocide is more glaring than in Darfur, Sudan.
In that region, domestic bigotry in juxtaposition with foreign multinational oil interests has served to create a humanitarian emergency of epic proportion.
The world community has responded to this crisis, albeit belatedly; however, much more needs to be done to address a most tragic situation. When President Bush first declared that what was happening in Sudan was genocide, one African president left his country and traveled to America to “correct Bush” and instruct him that what was happening was rebellion against the government of Sudan! As hundreds of thousands perish in Darfur, it is African nations and their leaders, this time that have become silent spectators.
The African Union must play a far more central role in bringing about a suitable solution to the crisis in the Darfur region. By galvanizing their resources, African nations will realise the Bantu maxim - a human is human because of other humans - that represents the African communal viewpoint.
Prof. Chinua Achebe,
author of Things Fall Apart
Thursday, 6 September 2007
joint United Nations/African Union peacekeeping operation for Darfur is unprecedented
Hybrid force in for a tough call
By OSCAR KIMANUKA
The joint United Nations/African Union peacekeeping operation for Darfur is unprecedented — not just for the number involved or for the sheer complexity of the operation.
Never before have UN peacekeepers worked with another international organisation — the AU in this case — in a single integrated operation that is fully funded by the UN assessment mechanism and under the integrated command structure and rules, procedures, and processes of the UN.
The troop numbers have also swelled from 7,000 to about 26,000. Rwanda occupies a special position in the force: It contributed about 29 per cent of the troops while Maj-Gen Charles Karenzi Karake is the new deputy commander of the joint force.
While the hybrid mission by the UN/AU — that came to being at the 5,727th meeting of the Security Council of July 31, when Resolution 1769 (2007) was adopted to authorise its creation — is a novel idea, it is bound to swim in a river of difficulties.
ONE OF the challenges to be faced by the hybrid force in Darfur is its size. It takes time and effort to mobilise such a force besides the existing tripartite mechanism of the UN, the AU and the government of Sudan in as far as the administrative component of the mission is concerned.
Sadly, some of the expected 26,000 troops will not be deployed until 2008.
EQUALLY, IT is not easy to find and fund the troops with the necessary training, equipment and logistical support.
The Darfur mission demonstrates the daunting challenge to peacekeepers that Africa has become. It is estimated seven out of the UN’s 16 peacekeeping operations worlwide are in Africa.
The success of this mission will largely depend on adapting it to the unique circumstances in Sudan.
But the most important factor, may as well be the hardest to judge and the most difficult to foster: The political commitment of the protagonists to the ongoing peace process.
Also, the readiness of the parties involved to commit to peace and to make the political compromises that is inherent in any peace process, cannot be taken for granted.
Oscar Kimanuka is a commentator on social and economic issues based in Kigali. E-mail: oscar_kim2000@yahoo.co.uk
By OSCAR KIMANUKA
The joint United Nations/African Union peacekeeping operation for Darfur is unprecedented — not just for the number involved or for the sheer complexity of the operation.
Never before have UN peacekeepers worked with another international organisation — the AU in this case — in a single integrated operation that is fully funded by the UN assessment mechanism and under the integrated command structure and rules, procedures, and processes of the UN.
The troop numbers have also swelled from 7,000 to about 26,000. Rwanda occupies a special position in the force: It contributed about 29 per cent of the troops while Maj-Gen Charles Karenzi Karake is the new deputy commander of the joint force.
While the hybrid mission by the UN/AU — that came to being at the 5,727th meeting of the Security Council of July 31, when Resolution 1769 (2007) was adopted to authorise its creation — is a novel idea, it is bound to swim in a river of difficulties.
ONE OF the challenges to be faced by the hybrid force in Darfur is its size. It takes time and effort to mobilise such a force besides the existing tripartite mechanism of the UN, the AU and the government of Sudan in as far as the administrative component of the mission is concerned.
Sadly, some of the expected 26,000 troops will not be deployed until 2008.
EQUALLY, IT is not easy to find and fund the troops with the necessary training, equipment and logistical support.
The Darfur mission demonstrates the daunting challenge to peacekeepers that Africa has become. It is estimated seven out of the UN’s 16 peacekeeping operations worlwide are in Africa.
The success of this mission will largely depend on adapting it to the unique circumstances in Sudan.
But the most important factor, may as well be the hardest to judge and the most difficult to foster: The political commitment of the protagonists to the ongoing peace process.
Also, the readiness of the parties involved to commit to peace and to make the political compromises that is inherent in any peace process, cannot be taken for granted.
Oscar Kimanuka is a commentator on social and economic issues based in Kigali. E-mail: oscar_kim2000@yahoo.co.uk
There is an alternative to the EU deal.
By JOHN OCHOLLA
A lot has been said about the proposed Economic Partnership Agreements between the European Union and countries from Africa and the Caribbean and Pacific regions (ACP).
One of the recent topics has been that Tanzania must choose whether to negotiate with the SADC bloc or the East African Community.
However, the discussion left out a more important question: Should countries sign EPAs at all?
It is argued EPAs will create free-trade zones between each of the ACP countries and the EU. In this deal, the EU will not levy taxes on imports from the ACP countries, and vice versa.
But the deal is not without opposition. For example, the EU, with an economy about 366 times bigger than that of the EAC and with huge subsidies for its agricultural sector, can easily flood the latter’s markets with cheaper products.
The deal would also see significant losses of revenue from import duties for Africa. For example, Kenya would lose upto 12 per cent of total revenues.
The EU maintains that if the EPAs are not signed by the end of this year, ACP countries will lose the privileged market access to European countries that they enjoy now (ACP countries receive zero tariffs on unprocessed goods when exporting to Europe).
THE EU adds that the ACP countries have to choose between signing an EPA agreement come 2008 or falling back on a worse trade regime whereby countries like Kenya could face a rise in tariffs of upto 60 per cent of their exports into the EU.
Despite the EU claims, the choice does not have to be between signing these EPAs or losing privileged access to the EU market.
There is a better alternative: GSP+ or the “Special incentive arrangement for sustainable development and good governance.”
If the current zero-tariff rating into the EU ends by the end of this year, the introduction of the GSP+ regime would give the ACP countries continued favourable access to the EU market.
Currently, 15 developing countries, mainly in Latin-America enjoy the preferential access that GSP+ gives with the EU.
On a technical level, it would require ACP countries to sign certain international conventions to be eligible for the GSP+ regime. Kenya has signed 24 out of the 27.
Therefore, rather than push for rushed and unfavourable EPAs, EU should instead allow developing countries in Africa to gain access to the GSP+ option.
IT IS really up to the EU to demonstrate the political will to go this way. Equally, the African negotiators must open up to this option — something they have not explored.
With the outcomes of the EPA negotiations looking bleak, it is not too late for negotiators to try this route.
Since the trade arrangement between the ACP states and the EU is key to the future of African development, alternatives must be explored. The negotiators should therefore not feel pushed to sign a bad deal before the December 31 deadline.
John Ocholla is an economist and policy analyst with EcoNews Africa
A lot has been said about the proposed Economic Partnership Agreements between the European Union and countries from Africa and the Caribbean and Pacific regions (ACP).
One of the recent topics has been that Tanzania must choose whether to negotiate with the SADC bloc or the East African Community.
However, the discussion left out a more important question: Should countries sign EPAs at all?
It is argued EPAs will create free-trade zones between each of the ACP countries and the EU. In this deal, the EU will not levy taxes on imports from the ACP countries, and vice versa.
But the deal is not without opposition. For example, the EU, with an economy about 366 times bigger than that of the EAC and with huge subsidies for its agricultural sector, can easily flood the latter’s markets with cheaper products.
The deal would also see significant losses of revenue from import duties for Africa. For example, Kenya would lose upto 12 per cent of total revenues.
The EU maintains that if the EPAs are not signed by the end of this year, ACP countries will lose the privileged market access to European countries that they enjoy now (ACP countries receive zero tariffs on unprocessed goods when exporting to Europe).
THE EU adds that the ACP countries have to choose between signing an EPA agreement come 2008 or falling back on a worse trade regime whereby countries like Kenya could face a rise in tariffs of upto 60 per cent of their exports into the EU.
Despite the EU claims, the choice does not have to be between signing these EPAs or losing privileged access to the EU market.
There is a better alternative: GSP+ or the “Special incentive arrangement for sustainable development and good governance.”
If the current zero-tariff rating into the EU ends by the end of this year, the introduction of the GSP+ regime would give the ACP countries continued favourable access to the EU market.
Currently, 15 developing countries, mainly in Latin-America enjoy the preferential access that GSP+ gives with the EU.
On a technical level, it would require ACP countries to sign certain international conventions to be eligible for the GSP+ regime. Kenya has signed 24 out of the 27.
Therefore, rather than push for rushed and unfavourable EPAs, EU should instead allow developing countries in Africa to gain access to the GSP+ option.
IT IS really up to the EU to demonstrate the political will to go this way. Equally, the African negotiators must open up to this option — something they have not explored.
With the outcomes of the EPA negotiations looking bleak, it is not too late for negotiators to try this route.
Since the trade arrangement between the ACP states and the EU is key to the future of African development, alternatives must be explored. The negotiators should therefore not feel pushed to sign a bad deal before the December 31 deadline.
John Ocholla is an economist and policy analyst with EcoNews Africa
Care breaks ranks with NGOs, forgoes $45m in US food aid
By DAGI KIMANI
Special Correspondent
Care International — one of the largest humanitarian agencies in East Africa, with operations in all countries in the region — will not take direct US food aid grants from 2009 but will buy from the open market through funds from philanthropic organisations and other donors.
The decision in the outcome of an internal discussion that has been going on in the organisation for nearly half a decade about the impact of the grants on local agriculture and food markets. By turning down food aid, Care will essentially lose $45 million in aid a year.
Under the current system, the US government buys relief food from the American market and donates it to aid groups as an indirect form of financing. The groups are authorised to sell the food in the local markets and use the money for their programmes.
As a result of the system, it is not unusual to see adverts in the East African media by international NGOs advertising huge consignments of foodstuffs such as wheat, maize and oils for sale locally. The system is said to raise $180 million each year for relief agencies.
According to Care, the Kenyan market has seen major incidents of “dumping” by relief organisations in recent years. For example, in 2003, a private Kenyan company bought almost 9,000 metric tonnes of crude US soybean oil from an international NGO for use in its edible oil production facility, bypassing local sources.
The move by Care is significant because it has been the largest beneficiary of the system over the years followed by Catholic Relief Services (CRS), which also has significant operations regionally. Both organisations say they recover just 70 to 80 per cent of the money used to buy the food by the US government from their sales in beneficiary countries.
A more efficient transfer of aid, critics say, would be a simple transfer of cash through the conventional banking systems to enable relief organisations to buy what they need locally, supporting local agriculture.
CRS and Save the Children, however say that they will not stop converting the American donations into money unless another system of accessing American aid is put in place.
Some NGO beneficiaries of the US system say that the move by Care was unwarranted, and that it did not take into cognisance all the variables in the matter.
World Vision and 14 organisations under the Alliance for Food Aid (AFA) oppose Care’s move, arguing that the aid system helps to prevent food demand spikes in affected countries due to donor buying. However, critics say that the system was crafted to favour America’s highly subsidised farming sector without due consideration to the recipient country’s agricultural sector.
Special Correspondent
Care International — one of the largest humanitarian agencies in East Africa, with operations in all countries in the region — will not take direct US food aid grants from 2009 but will buy from the open market through funds from philanthropic organisations and other donors.
The decision in the outcome of an internal discussion that has been going on in the organisation for nearly half a decade about the impact of the grants on local agriculture and food markets. By turning down food aid, Care will essentially lose $45 million in aid a year.
Under the current system, the US government buys relief food from the American market and donates it to aid groups as an indirect form of financing. The groups are authorised to sell the food in the local markets and use the money for their programmes.
As a result of the system, it is not unusual to see adverts in the East African media by international NGOs advertising huge consignments of foodstuffs such as wheat, maize and oils for sale locally. The system is said to raise $180 million each year for relief agencies.
According to Care, the Kenyan market has seen major incidents of “dumping” by relief organisations in recent years. For example, in 2003, a private Kenyan company bought almost 9,000 metric tonnes of crude US soybean oil from an international NGO for use in its edible oil production facility, bypassing local sources.
The move by Care is significant because it has been the largest beneficiary of the system over the years followed by Catholic Relief Services (CRS), which also has significant operations regionally. Both organisations say they recover just 70 to 80 per cent of the money used to buy the food by the US government from their sales in beneficiary countries.
A more efficient transfer of aid, critics say, would be a simple transfer of cash through the conventional banking systems to enable relief organisations to buy what they need locally, supporting local agriculture.
CRS and Save the Children, however say that they will not stop converting the American donations into money unless another system of accessing American aid is put in place.
Some NGO beneficiaries of the US system say that the move by Care was unwarranted, and that it did not take into cognisance all the variables in the matter.
World Vision and 14 organisations under the Alliance for Food Aid (AFA) oppose Care’s move, arguing that the aid system helps to prevent food demand spikes in affected countries due to donor buying. However, critics say that the system was crafted to favour America’s highly subsidised farming sector without due consideration to the recipient country’s agricultural sector.
Washington threatens to put Eritrea on ‘terror list’
By KEVIN J KELLEY
Special Correspondent
Relations between the United States and Eritrea are deteriorating rapidly, with Washington now threatening to add Asmara to a list of sponsors of terrorism.
The US also recently shut down Eritrea’s consulate in California.
Eritrean President Issayas Afewerki has reacted angrily to the Bush administration’s moves.
“Its strategy of monopoly and dominance through fomenting confrontation among peoples is leading the world to a dangerous path,” President Afewerki declared during a two-hour interview on state television last week.
Jendayi Frazer, the State Department’s top Africa policymaker, had told reporters two days earlier that the US might brand Eritrea a state sponsor of terrorism because it is allegedly arming insurgents in Somalia. The Bush administration has accused these Islamist forces of harbouring al Qaeda operatives who took part in the 1998 bombings of the US embassies in Kenya and Tanzania.
We cannot tolerate... their support for terror activity, particularly in Somalia,” Ms Frazer said in regard to Eritrean government officials.
If designated a sponsor of terrorism, Eritrea would join such US arch-enemies as Iran, Cuba and North Korea. Inclusion on that list results in a country being hit with a variety of financial sanctions as well as the loss of all non-emergency US aid. American delegates to the World Bank and International Monetary Fund are also obligated to oppose loans by the Bretton Woods institutions to the targeted countries.
Eritrea can still avoid these punishments by ending its support for the Islamist militants in Somalia, Ms Frazer noted.
She said information gathered by US intelligence is consistent with what United Nations experts reported last month. UN monitors charged that Eritrea has shipped “a huge quantity of arms” to the Somali insurgents. The weapons are said to include surface-to-air missiles and explosive devices.
But many observers believe Eritrea is helping the Somali guerrillas as a way of hurting its longstanding foe, Ethiopia, which invaded and occupied Somalia late last year. Eritrea and Ethiopia fought a bloody two-year border war that ended in a stalemate in 2000.
Ms Frazer said Washington had decided to close the Eritrean consulate in Oakland, California, in retaliation for Eritrea’s denial of visas to US diplomats and its insistence on inspecting diplomatic pouches containing secret documents.
The United States has also accused Eritrean officials of impeding relief workers and expropriating food aid shipments.
“We’ve watched them throw out USAid,” she said, referring to the United States Agency for International Development. “We’ve watched them take the food out of the warehouses of UN organisations.”
Washington has further complained about government repression of Eritrean dissidents.
But Ms Frazer also acknowledged that Eritrea’s behaviour is “not all bad.” She did not dispute a reporter’s suggestion that Eritrea has helped quell violence in eastern Sudan.
Eritrea is also supporting some of the rebel groups in Darfur that are fighting for greater autonomy from authorities in Sudan’s capital, Khartoum. And the United States holds the Sudan government primarily responsible for the carnage in Darfur.
But the Assistant Secretary of State for African affairs added at her recent press briefing that the Darfur rebels “are also attacking civilians and are a part of the problem in Darfur.”
She urged Eritrea to help bring the rebels to the bargaining table.
Relations between Washington and Asmara are complicated in other ways as well.
Eritrea was one of the few nations in Africa to support the 2003 US-led invasion of Iraq. At the same time, President Afewerki noted in his interview last week that the United States had never supported Eritrea during the course of its 30-year war for independence from Ethiopia.
Special Correspondent
Relations between the United States and Eritrea are deteriorating rapidly, with Washington now threatening to add Asmara to a list of sponsors of terrorism.
The US also recently shut down Eritrea’s consulate in California.
Eritrean President Issayas Afewerki has reacted angrily to the Bush administration’s moves.
“Its strategy of monopoly and dominance through fomenting confrontation among peoples is leading the world to a dangerous path,” President Afewerki declared during a two-hour interview on state television last week.
Jendayi Frazer, the State Department’s top Africa policymaker, had told reporters two days earlier that the US might brand Eritrea a state sponsor of terrorism because it is allegedly arming insurgents in Somalia. The Bush administration has accused these Islamist forces of harbouring al Qaeda operatives who took part in the 1998 bombings of the US embassies in Kenya and Tanzania.
We cannot tolerate... their support for terror activity, particularly in Somalia,” Ms Frazer said in regard to Eritrean government officials.
If designated a sponsor of terrorism, Eritrea would join such US arch-enemies as Iran, Cuba and North Korea. Inclusion on that list results in a country being hit with a variety of financial sanctions as well as the loss of all non-emergency US aid. American delegates to the World Bank and International Monetary Fund are also obligated to oppose loans by the Bretton Woods institutions to the targeted countries.
Eritrea can still avoid these punishments by ending its support for the Islamist militants in Somalia, Ms Frazer noted.
She said information gathered by US intelligence is consistent with what United Nations experts reported last month. UN monitors charged that Eritrea has shipped “a huge quantity of arms” to the Somali insurgents. The weapons are said to include surface-to-air missiles and explosive devices.
But many observers believe Eritrea is helping the Somali guerrillas as a way of hurting its longstanding foe, Ethiopia, which invaded and occupied Somalia late last year. Eritrea and Ethiopia fought a bloody two-year border war that ended in a stalemate in 2000.
Ms Frazer said Washington had decided to close the Eritrean consulate in Oakland, California, in retaliation for Eritrea’s denial of visas to US diplomats and its insistence on inspecting diplomatic pouches containing secret documents.
The United States has also accused Eritrean officials of impeding relief workers and expropriating food aid shipments.
“We’ve watched them throw out USAid,” she said, referring to the United States Agency for International Development. “We’ve watched them take the food out of the warehouses of UN organisations.”
Washington has further complained about government repression of Eritrean dissidents.
But Ms Frazer also acknowledged that Eritrea’s behaviour is “not all bad.” She did not dispute a reporter’s suggestion that Eritrea has helped quell violence in eastern Sudan.
Eritrea is also supporting some of the rebel groups in Darfur that are fighting for greater autonomy from authorities in Sudan’s capital, Khartoum. And the United States holds the Sudan government primarily responsible for the carnage in Darfur.
But the Assistant Secretary of State for African affairs added at her recent press briefing that the Darfur rebels “are also attacking civilians and are a part of the problem in Darfur.”
She urged Eritrea to help bring the rebels to the bargaining table.
Relations between Washington and Asmara are complicated in other ways as well.
Eritrea was one of the few nations in Africa to support the 2003 US-led invasion of Iraq. At the same time, President Afewerki noted in his interview last week that the United States had never supported Eritrea during the course of its 30-year war for independence from Ethiopia.
Equity fund to expand presence in East Africa
By PHILIP NGUNJIRI
Special Correspondent
DEG, one of Europe’s largest development finance institutions, is planning to enlarge its equity portfolio in East Africa, mainly in Kenya.
It will concentrate on acquiring equity in private infrastructure projects in which Industrial Promotion Services-Kenya (IPSK) will act as the local link, according to DEG regional director Eric Kaleja.
DEG is a member of the KfW banking group, which finances and structures investments of private companies in developing countries and emerging markets.
IPSK is owned by the Aga Khan Fund for Economic Development (Akfed), with which DEG has co-operated for over 20 years on various projects.
DEG capital has enabled IPSK to enlarge its equity portfolio in Kenya and expand into Tanzania and Uganda.
The bulk of DEG’s investment activity is in tailor-made long-term loans. The bank also engages in equity participation, typically taking up a 5-25 per cent shareholding in profitable projects and occasionally filling a seat on the board of directors.
The most recent case was when the development finance institution took up 6 per cent shares towards additional equity capital in Kenya’s Investments & Mortgages (I&M) Bank Ltd (I&M).
Teaming up with Proparco, the private sector arm of AFD — the official French government bilateral development institution — will provide $5.6 million to strengthen I&M’s equity base.
Proparco also takes up 6 per cent shares of the Kenyan bank, bringing together a total of 1,300,000 shares towards additional equity capital in the bank.
Both institutions have been financing and structuring investments of private companies in Africa for several decades in all sectors of the economy.
Following the transaction, I&M Bank becomes one of the first medium-sized local banks in Kenya with international participation, which industry insiders say will send a positive signal to both local and international capital markets that the bank is now ready to do business.
The equity investment will enhance the bank’s market position and enable it to realise its growth potential, says Arun Mathur, I&M Bank’s chief executive officer.
“I&M Bank needs additional core capital funds, as risk buffer and to strengthen the bank’s structural liquidity. The transaction will maintain the current growth path and further increase its loan business. It will also improve financial intermediation in Kenya, which is crucial for creating sustainable economic growth.”
I&M Bank has posted impressive growth over the past three years, both in terms of assets and profitability. The bank, which started as a non-banking financial institution in 1974, is today a fully fledged commercial bank offering a broad range of corporate and retail banking products and services.
In the corporate market, I&M caters primarily for medium-sized corporations that, according to Mr Mathur, are key to fostering Kenya’s economic growth and broad-based wealth creation.
DEG’s Mr Kaleja says that, in addition to enlarging its equity portfolio, DEG will also focus more on the region’s telecommunication sector, which has great potential.
He said that, in East Africa, besides the traditionally dominant agricultural sector, tourism and telecommunications have also gained importance.
“In most of these countries, high investment costs have prevented the establishment of a fixed-line nationwide telecommunications network,” he said.
He added, “Large parts of the population do not have access to modern forms of telecommunication. There is thus massive demand, and more and more effort must be geared towards the development of cellular telecommunication networks.
“This can boost communications and trade enormously, especially in rural areas, where large distances are involved,” he said.
DEG has financed several projects in Africa to help develop telecommunication services in the region. It has financed investments in Uganda and Nigeria by providing MTN with long-term loans.
MTN is one of the leading African mobile telecommunications companies operating in countries such as South Africa, Nigeria, Cameroon, Uganda and Swaziland.
DEG invests in all sectors of the economy, with special attention to agribusiness, infrastructure and processing industries as well as the financial sector.
The financial institution has provided finance in various African countries for enterprises that produce and process foods.
These include investments made by the Aiglon Group, whose activities include the production and marketing of cotton and palm oil in Cote d’Ivoire and Burkina Faso.
It has also provided finance for companies such as Compagnie Fruitière, which grows and trades in fruit such as bananas and pineapples. DEG thus bridges financing gaps in countries where long-term finance is practically unavailable. There are considerable positive consequences for the population: Altogether, the agro projects co-financed by DEG in sub-Saharan Africa provide employment for about 250,000 small farmers.
DEG has been active in East Africa since its foundation and has provided financing of about 240 million euros ($336 million) for more than 70 enterprises in the region.
The current portfolio covers more than 20 project companies with a financing volume of about 90 million euros ($126 million).
Special Correspondent
DEG, one of Europe’s largest development finance institutions, is planning to enlarge its equity portfolio in East Africa, mainly in Kenya.
It will concentrate on acquiring equity in private infrastructure projects in which Industrial Promotion Services-Kenya (IPSK) will act as the local link, according to DEG regional director Eric Kaleja.
DEG is a member of the KfW banking group, which finances and structures investments of private companies in developing countries and emerging markets.
IPSK is owned by the Aga Khan Fund for Economic Development (Akfed), with which DEG has co-operated for over 20 years on various projects.
DEG capital has enabled IPSK to enlarge its equity portfolio in Kenya and expand into Tanzania and Uganda.
The bulk of DEG’s investment activity is in tailor-made long-term loans. The bank also engages in equity participation, typically taking up a 5-25 per cent shareholding in profitable projects and occasionally filling a seat on the board of directors.
The most recent case was when the development finance institution took up 6 per cent shares towards additional equity capital in Kenya’s Investments & Mortgages (I&M) Bank Ltd (I&M).
Teaming up with Proparco, the private sector arm of AFD — the official French government bilateral development institution — will provide $5.6 million to strengthen I&M’s equity base.
Proparco also takes up 6 per cent shares of the Kenyan bank, bringing together a total of 1,300,000 shares towards additional equity capital in the bank.
Both institutions have been financing and structuring investments of private companies in Africa for several decades in all sectors of the economy.
Following the transaction, I&M Bank becomes one of the first medium-sized local banks in Kenya with international participation, which industry insiders say will send a positive signal to both local and international capital markets that the bank is now ready to do business.
The equity investment will enhance the bank’s market position and enable it to realise its growth potential, says Arun Mathur, I&M Bank’s chief executive officer.
“I&M Bank needs additional core capital funds, as risk buffer and to strengthen the bank’s structural liquidity. The transaction will maintain the current growth path and further increase its loan business. It will also improve financial intermediation in Kenya, which is crucial for creating sustainable economic growth.”
I&M Bank has posted impressive growth over the past three years, both in terms of assets and profitability. The bank, which started as a non-banking financial institution in 1974, is today a fully fledged commercial bank offering a broad range of corporate and retail banking products and services.
In the corporate market, I&M caters primarily for medium-sized corporations that, according to Mr Mathur, are key to fostering Kenya’s economic growth and broad-based wealth creation.
DEG’s Mr Kaleja says that, in addition to enlarging its equity portfolio, DEG will also focus more on the region’s telecommunication sector, which has great potential.
He said that, in East Africa, besides the traditionally dominant agricultural sector, tourism and telecommunications have also gained importance.
“In most of these countries, high investment costs have prevented the establishment of a fixed-line nationwide telecommunications network,” he said.
He added, “Large parts of the population do not have access to modern forms of telecommunication. There is thus massive demand, and more and more effort must be geared towards the development of cellular telecommunication networks.
“This can boost communications and trade enormously, especially in rural areas, where large distances are involved,” he said.
DEG has financed several projects in Africa to help develop telecommunication services in the region. It has financed investments in Uganda and Nigeria by providing MTN with long-term loans.
MTN is one of the leading African mobile telecommunications companies operating in countries such as South Africa, Nigeria, Cameroon, Uganda and Swaziland.
DEG invests in all sectors of the economy, with special attention to agribusiness, infrastructure and processing industries as well as the financial sector.
The financial institution has provided finance in various African countries for enterprises that produce and process foods.
These include investments made by the Aiglon Group, whose activities include the production and marketing of cotton and palm oil in Cote d’Ivoire and Burkina Faso.
It has also provided finance for companies such as Compagnie Fruitière, which grows and trades in fruit such as bananas and pineapples. DEG thus bridges financing gaps in countries where long-term finance is practically unavailable. There are considerable positive consequences for the population: Altogether, the agro projects co-financed by DEG in sub-Saharan Africa provide employment for about 250,000 small farmers.
DEG has been active in East Africa since its foundation and has provided financing of about 240 million euros ($336 million) for more than 70 enterprises in the region.
The current portfolio covers more than 20 project companies with a financing volume of about 90 million euros ($126 million).
Keep Vision 2030 from blurring
Keep Vision 2030 from blurring
By L. MUTHONI WANYEKI
In 2008, Accra will be the site of the 2008 review of implementation of the Paris Declaration.
What Paris Declaration?
The Paris Declaration arguably marked a turning point in relations between suppliers and recipients of overseas development assistance. Initiated in 2005, it represents a consensus by 139 partners — almost all bilateral donors (excluding China), 26 multilaterals and 57 states from the underdeveloped South — on improving the effectiveness of ODA in order to realise sustainable “development.”
It is credited with attempting to address two roots causes of underdevelopment — the quality (if not the quantity) of aid as well as governance — by transforming the relationship between donors and recipients.
The so-called Paris principles are local ownership, alignment, harmonisation, measuring for results and mutual accountability. By local ownership is meant determination of development priorities by recipients of ODA. By alignment is meant prioritisation of ODA according to that determination. By harmonisation is meant co-operation and coordination among suppliers of ODA. By results is meant longer-term development outcomes by moving to programme- rather than project-based approaches—including budgetary support, sector-wide programme support and so on.
And by mutual accountability is meant shared responsibility by suppliers and recipients for the realisation (or not) of those outcomes.
Whether we realise it or not, the Paris principles are being operationalised in Kenya. Even though Kenya does not need budgetary support, sector-wide reform programme support is being jointly offered to the Kenyan government by suppliers of ODA already — the education and governance, justice, law and order sectors being two examples. And Kenyan civil society is drawing from basket funds such as those on civic education and gender and politics. So much for harmonisation.
AS FOR LOCAL OWNERSHIP AND alignment, the Kenya Joint Assistance Strategy (KJAS) was concluded in July. The national strategy on which it was pegged was the Economic Recovery Strategy — which the National Rainbow Coalition brought in to replace the Poverty Reduction Strategy Paper. The ERS, however, expires at the end of the year. And there are many questions around what will replace it.
First, although the PRSP was the result of long consultations and enabled participation in its formulation, it was criticised for being imposed on Kenya by the international financial institutions and for not engaging with the Kenyan parliament.
The ERS, of course, was brought into being without any consultation and participation at all — but it was the vision of a NARC that then had unquestionable public support. What is being proposed now by the rump of the original NARC is Vision 2030. Which is problematic for several reasons.
First, Vision 2030, although it is supposed to be finalised through consultations countrywide, is actually being drawn up by a multinational consulting agency, McKinsey! Local ownership surely includes the reliance on local expertise to set up the basic parameters for debate and discussion.
Secondly, of course, the whole Vision 2030 process assumes that this government will, in fact, make it back into office following the general election. Even if it does, it will by no means command the kind of popular support that enabled the ERS to commence without question. Third, KJAS is already complete. Alignment surely would imply more than tweaking it a bit here and there following the elections.
Our overall development direction — and the external support given towards that — are clearly too important to leave in the hands of those who are more concerned about the acquisition of power than its use in the public interest.
L. Muthoni Wanyeki is a political scientist based in Nairobi
By L. MUTHONI WANYEKI
In 2008, Accra will be the site of the 2008 review of implementation of the Paris Declaration.
What Paris Declaration?
The Paris Declaration arguably marked a turning point in relations between suppliers and recipients of overseas development assistance. Initiated in 2005, it represents a consensus by 139 partners — almost all bilateral donors (excluding China), 26 multilaterals and 57 states from the underdeveloped South — on improving the effectiveness of ODA in order to realise sustainable “development.”
It is credited with attempting to address two roots causes of underdevelopment — the quality (if not the quantity) of aid as well as governance — by transforming the relationship between donors and recipients.
The so-called Paris principles are local ownership, alignment, harmonisation, measuring for results and mutual accountability. By local ownership is meant determination of development priorities by recipients of ODA. By alignment is meant prioritisation of ODA according to that determination. By harmonisation is meant co-operation and coordination among suppliers of ODA. By results is meant longer-term development outcomes by moving to programme- rather than project-based approaches—including budgetary support, sector-wide programme support and so on.
And by mutual accountability is meant shared responsibility by suppliers and recipients for the realisation (or not) of those outcomes.
Whether we realise it or not, the Paris principles are being operationalised in Kenya. Even though Kenya does not need budgetary support, sector-wide reform programme support is being jointly offered to the Kenyan government by suppliers of ODA already — the education and governance, justice, law and order sectors being two examples. And Kenyan civil society is drawing from basket funds such as those on civic education and gender and politics. So much for harmonisation.
AS FOR LOCAL OWNERSHIP AND alignment, the Kenya Joint Assistance Strategy (KJAS) was concluded in July. The national strategy on which it was pegged was the Economic Recovery Strategy — which the National Rainbow Coalition brought in to replace the Poverty Reduction Strategy Paper. The ERS, however, expires at the end of the year. And there are many questions around what will replace it.
First, although the PRSP was the result of long consultations and enabled participation in its formulation, it was criticised for being imposed on Kenya by the international financial institutions and for not engaging with the Kenyan parliament.
The ERS, of course, was brought into being without any consultation and participation at all — but it was the vision of a NARC that then had unquestionable public support. What is being proposed now by the rump of the original NARC is Vision 2030. Which is problematic for several reasons.
First, Vision 2030, although it is supposed to be finalised through consultations countrywide, is actually being drawn up by a multinational consulting agency, McKinsey! Local ownership surely includes the reliance on local expertise to set up the basic parameters for debate and discussion.
Secondly, of course, the whole Vision 2030 process assumes that this government will, in fact, make it back into office following the general election. Even if it does, it will by no means command the kind of popular support that enabled the ERS to commence without question. Third, KJAS is already complete. Alignment surely would imply more than tweaking it a bit here and there following the elections.
Our overall development direction — and the external support given towards that — are clearly too important to leave in the hands of those who are more concerned about the acquisition of power than its use in the public interest.
L. Muthoni Wanyeki is a political scientist based in Nairobi
The East African Political Federation Postponed
Billion-shilling gunshot wedding called off
By KARL LYIMO
After spending large sums to fast-track the East African Political Federation by 2013, the five heads of state in the East African Community — Kenya, Uganda, Rwanda, Burundi and Tanzania — finally bowed to the will of their people: forget about it, at least for now.
ACCORDING TO EAC secretary-general, Juma Mwapachu, 70 per cent of the Kenyans polled, 76 per cent of Ugandans, and a whopping 97 per cent of Tanzanians are in favour of a political federation.
But, 76 per cent of Tanzanians and 70 per cent of Ugandans do not want a fast-tracked federation — certainly not by 2013!
IN OTHER words, about 47.8 million people (1.37 times Kenya’s population) out of the combined Uganda and Tanzania population of 65.46 million people (2005 figures) oppose fast tracking the federation.
Rwandans (7.6 million) and Burundians (7.54 million) were not polled on the fast-tracking. But, added to the Kenyans, all three come to 49.84 million, just two million more than the nay-sayers.
The five countries have a combined GDP of $137 billion in terms of purchasing power parity (PPP) — or $41 billion in real terms.
BUT, THEIR annual per capita GDP (PPP) differs wildly, with Uganda’s (2005 estimates) being highest at $1,700. Others are Kenya —$1,445; Rwanda — $1,300; Burundi — $739 (2003 figures) and Tanzania — $723.
How these socio-economic jigsaw pieces are going to fit together in the puzzle is anybody’s guess!
THE DECISION on gradual rather than a fast-tracked federation – the shotgun wedding as proposed by the Amos Wako Commission — was reached by the top brass in the five EAC states at their sixth summit in Arusha on August 20. Perhaps not unexpectedly, the result was received with mixed reactions from different quarters.
Kenya may not have been particularly happy with the outcome that has trashed the report of a Commission chaired by the country’s attorney-general.
Nor can Uganda’s President Yoweri Museveni, whom many perceive as the most likely to have become the Federation’s first president had the event occured in 2013.
THIS IS surprising, though, taking into account the man’s diametrically opposed positions on the EA Federation (vocally supportive) vis-Ã -vis the proposal by Libya’s Muammar Gaddafi for fast-tracking an Africa Union government.
My beef here is: Was all that cost justified — or necessary in the first place? We already had the answer that the various Commissions arrived at from the horse’s mouth as it were.
IN A widely publicised Report of the Committee on Fast-Tracking East African Federation February 2007, the Department of Political Federation at the EAC Secretariat in Arusha succinctly put what it must have cost billions of shilling to “discover” through polling Commissions.
“The art of transforming the EAC into a Political Federation is a delicate process,” the Secretariat says in something of an understatement. “A Political Federation first might give people hope for a better future — but (will) not guarantee future tangible benefits.
“Focusing on economic integration first will enable the people to see tangible benefits, and build support for deeper integration — including support for a Political Federation.”
Karl Lyimo is a freelance journalist based in Dar. E-mail: lyimokarl@hotmail.com
By KARL LYIMO
After spending large sums to fast-track the East African Political Federation by 2013, the five heads of state in the East African Community — Kenya, Uganda, Rwanda, Burundi and Tanzania — finally bowed to the will of their people: forget about it, at least for now.
ACCORDING TO EAC secretary-general, Juma Mwapachu, 70 per cent of the Kenyans polled, 76 per cent of Ugandans, and a whopping 97 per cent of Tanzanians are in favour of a political federation.
But, 76 per cent of Tanzanians and 70 per cent of Ugandans do not want a fast-tracked federation — certainly not by 2013!
IN OTHER words, about 47.8 million people (1.37 times Kenya’s population) out of the combined Uganda and Tanzania population of 65.46 million people (2005 figures) oppose fast tracking the federation.
Rwandans (7.6 million) and Burundians (7.54 million) were not polled on the fast-tracking. But, added to the Kenyans, all three come to 49.84 million, just two million more than the nay-sayers.
The five countries have a combined GDP of $137 billion in terms of purchasing power parity (PPP) — or $41 billion in real terms.
BUT, THEIR annual per capita GDP (PPP) differs wildly, with Uganda’s (2005 estimates) being highest at $1,700. Others are Kenya —$1,445; Rwanda — $1,300; Burundi — $739 (2003 figures) and Tanzania — $723.
How these socio-economic jigsaw pieces are going to fit together in the puzzle is anybody’s guess!
THE DECISION on gradual rather than a fast-tracked federation – the shotgun wedding as proposed by the Amos Wako Commission — was reached by the top brass in the five EAC states at their sixth summit in Arusha on August 20. Perhaps not unexpectedly, the result was received with mixed reactions from different quarters.
Kenya may not have been particularly happy with the outcome that has trashed the report of a Commission chaired by the country’s attorney-general.
Nor can Uganda’s President Yoweri Museveni, whom many perceive as the most likely to have become the Federation’s first president had the event occured in 2013.
THIS IS surprising, though, taking into account the man’s diametrically opposed positions on the EA Federation (vocally supportive) vis-Ã -vis the proposal by Libya’s Muammar Gaddafi for fast-tracking an Africa Union government.
My beef here is: Was all that cost justified — or necessary in the first place? We already had the answer that the various Commissions arrived at from the horse’s mouth as it were.
IN A widely publicised Report of the Committee on Fast-Tracking East African Federation February 2007, the Department of Political Federation at the EAC Secretariat in Arusha succinctly put what it must have cost billions of shilling to “discover” through polling Commissions.
“The art of transforming the EAC into a Political Federation is a delicate process,” the Secretariat says in something of an understatement. “A Political Federation first might give people hope for a better future — but (will) not guarantee future tangible benefits.
“Focusing on economic integration first will enable the people to see tangible benefits, and build support for deeper integration — including support for a Political Federation.”
Karl Lyimo is a freelance journalist based in Dar. E-mail: lyimokarl@hotmail.com
EU’s stalling on trade deal leaves exporters anxious
By CATHERINE RIUNGU
Special Correspondent
The European Union’s failure to commit itself on whether trade between the bloc and the African Caribbean and Pacific countries will be disrupted when the Lome Convention expires in December has sent negotiators on one hand, and traders on the other, into renewed anxiety.
Last week, horticultural export associations from eight African countries met in Nairobi and expressed concern that despite reports trickling in from different quarters that an agreement had been reached not to disrupt trade until a new trading dispensation is concluded, the EU has not given its assurance.
Chairman of the Horticultural Council for Africa (HCA) Hasit Shah said they have recommendations that they want the EU to commit to by October to clear the uncertainty over the future of trade.
The HCA concerns come just a week after the Common Market for East and Central Africa secretary-general Erastus Mwencha said that, under the East and Southern Africa (ESA) grouping through which 16 African countries have been negotiating with the EU for an Economic Partnership Agreement to replace the Cotonou pact which comes to an end January next year, both parties had settled on a raft of agreements which would see trade continue pending conclusion of the EPAs.
Kenya’s Ministry of Trade, last month expressed similar sentiments, with the director of External Trade Peter Mwaniki saying that both ESA and the EU had come to an agreement on how trade would be conducted in the absence an EPA.
But neither Comesa nor the government have been forthcoming on what the agreement entails, the common denominator being that a list of sensitive products has been drawn and is at an advanced stage of discussions.
Two weeks ago, the list contained over 2,000 products, which the EU said was too long and wanted revised. As at last week, it had been reduced to 1,700 — still considered too long — and has since been returned to members for further reduction.
According to Rod Evans, the deputy chairman of the Kenya Flower Council and a key member of the EPA negotiating team, Trade Minister Dr Mukhisa Kituyi has written to the EU, asking for a firm commitment that there will be an interim arrangement for continued preferential trading with Europe.
Dr Kituyi confirmed writing to the EU and expressed confidence that a commitment would be granted soon.
He added that pushing for the interim agreement was now a priority.
HCA said that the fresh produce sector stands to lose most because growers have contracts extending beyond January 2008, and these contracts, to supply supermarkets at fixed prices are based on the existing trade regime.
“Should things change in January,” Mr Shah said, “Our produce will be subjected to price rises, which could lead to immediate loss of markets. With increased cost of produce, we may not be able to sell what we have already planted leading to massive losses.”
Special Correspondent
The European Union’s failure to commit itself on whether trade between the bloc and the African Caribbean and Pacific countries will be disrupted when the Lome Convention expires in December has sent negotiators on one hand, and traders on the other, into renewed anxiety.
Last week, horticultural export associations from eight African countries met in Nairobi and expressed concern that despite reports trickling in from different quarters that an agreement had been reached not to disrupt trade until a new trading dispensation is concluded, the EU has not given its assurance.
Chairman of the Horticultural Council for Africa (HCA) Hasit Shah said they have recommendations that they want the EU to commit to by October to clear the uncertainty over the future of trade.
The HCA concerns come just a week after the Common Market for East and Central Africa secretary-general Erastus Mwencha said that, under the East and Southern Africa (ESA) grouping through which 16 African countries have been negotiating with the EU for an Economic Partnership Agreement to replace the Cotonou pact which comes to an end January next year, both parties had settled on a raft of agreements which would see trade continue pending conclusion of the EPAs.
Kenya’s Ministry of Trade, last month expressed similar sentiments, with the director of External Trade Peter Mwaniki saying that both ESA and the EU had come to an agreement on how trade would be conducted in the absence an EPA.
But neither Comesa nor the government have been forthcoming on what the agreement entails, the common denominator being that a list of sensitive products has been drawn and is at an advanced stage of discussions.
Two weeks ago, the list contained over 2,000 products, which the EU said was too long and wanted revised. As at last week, it had been reduced to 1,700 — still considered too long — and has since been returned to members for further reduction.
According to Rod Evans, the deputy chairman of the Kenya Flower Council and a key member of the EPA negotiating team, Trade Minister Dr Mukhisa Kituyi has written to the EU, asking for a firm commitment that there will be an interim arrangement for continued preferential trading with Europe.
Dr Kituyi confirmed writing to the EU and expressed confidence that a commitment would be granted soon.
He added that pushing for the interim agreement was now a priority.
HCA said that the fresh produce sector stands to lose most because growers have contracts extending beyond January 2008, and these contracts, to supply supermarkets at fixed prices are based on the existing trade regime.
“Should things change in January,” Mr Shah said, “Our produce will be subjected to price rises, which could lead to immediate loss of markets. With increased cost of produce, we may not be able to sell what we have already planted leading to massive losses.”
Uganda urges UN to take over military role
By KEVIN J. KELLEY
Special Correspondent
The Uganda government is calling on the United Nations to send troops to Somalia to replace its Uganda People’s Defence Force detachment, which has been unable to restore order in Mogadishu.
Addressing the UN Security Council last week, Uganda ambassador Francis Butagira said the handover “should be done now, not postponed to a future date.”
He urged the Council, “To liberate itself from the traditional approach of not authorising peacekeeping operations when there is no peace to keep.” The UN must intervene in place of the UPDF even though Somalia remains in turmoil, Mr Butagira said.
Hundreds of civilians have been killed in Mogadishu in recent months, and many thousands have fled the capital amid worsening violence.
Uganda’s call for a more aggressive form of UN military action was echoed last week by Kenya.
Zachary Muburi-Muita, Nairobi’s UN emissary, declared during the same August 27 debate that the Security Council’s current policy on peacekeeping is “untenable.” The Kenyan diplomat did not specifically mention Somalia, but he pointed out that countries in conflict that allow outside forces to intervene are seeking “to create peace, not to keep it.”
About 1,800 Ugandan soldiers are now in Somalia. This contingent is supposed to be part of an 8,000-strong African Union force authorised by the United Nations last year. But Uganda remains the only nation to have committed troops to the AU’s Somalia operation, and Kampala is now clearly eager to end its lonely role in a chaotic country that has been without effective governance for the past 16 years.
Logistical and financial issues account in part for the failure of other African nations to supplement the UPDF detachment in Somalia. But reluctance to be seen as abetting Ethiopia’s US-backed occupation of Somalia is another important reason for African states’ reluctance to join this AU mission.
The United States has also sent troops into Somalia and carried out bombing runs in co-ordination with Ethiopian forces. Washington says it is hunting for Al Qaeda-linked militants responsible for the 1998 Nairobi and Dar es Salaam embassy bombings.
Critics in Uganda have accused the government of putting UPDF soldiers in harm’s way in Somalia mainly in order to curry favour with the United States. The Bush administration has lauded Uganda’s involvement in Somalia and has urged other African countries to contribute troops to the AU mission.
President Yoweri Museveni gives no public indication that he is rethinking his decision to send 1,800 Ugandan soldiers to Somalia. Indeed, the government announced recently that it would dispatch an additional 250 troops to Mogadishu.
But Mr Butagira’s remarks in Washington last week strongly suggest that Kampala will not be willing much longer to serve as the AU’s sole military force inside Somalia.
Uganda appears disconcerted that several African nations are now rushing to pledge troops to an expanded peacekeeping operation in Sudan’s Darfur region even as they fail to make good on promises to help in Somalia.
The United Nations and the African Union say they will soon jointly deploy a 26,000-strong force in Darfur in what would be one of the largest UN-backed peacekeeping operations in its history.
The Security Council has also begun discussing a possible military intervention in Somalia in place of the nominal AU mission there. The 15-nation Council led by the world’s most powerful countries asked Secretary-General Ban Ki-moon last month to draw up contingency plans for a UN deployment in Somalia. But the Council specified no timeline for such a handover and it simultaneously approved a six-month extension of the AU’s mandate to operate in Somalia.
Special Correspondent
The Uganda government is calling on the United Nations to send troops to Somalia to replace its Uganda People’s Defence Force detachment, which has been unable to restore order in Mogadishu.
Addressing the UN Security Council last week, Uganda ambassador Francis Butagira said the handover “should be done now, not postponed to a future date.”
He urged the Council, “To liberate itself from the traditional approach of not authorising peacekeeping operations when there is no peace to keep.” The UN must intervene in place of the UPDF even though Somalia remains in turmoil, Mr Butagira said.
Hundreds of civilians have been killed in Mogadishu in recent months, and many thousands have fled the capital amid worsening violence.
Uganda’s call for a more aggressive form of UN military action was echoed last week by Kenya.
Zachary Muburi-Muita, Nairobi’s UN emissary, declared during the same August 27 debate that the Security Council’s current policy on peacekeeping is “untenable.” The Kenyan diplomat did not specifically mention Somalia, but he pointed out that countries in conflict that allow outside forces to intervene are seeking “to create peace, not to keep it.”
About 1,800 Ugandan soldiers are now in Somalia. This contingent is supposed to be part of an 8,000-strong African Union force authorised by the United Nations last year. But Uganda remains the only nation to have committed troops to the AU’s Somalia operation, and Kampala is now clearly eager to end its lonely role in a chaotic country that has been without effective governance for the past 16 years.
Logistical and financial issues account in part for the failure of other African nations to supplement the UPDF detachment in Somalia. But reluctance to be seen as abetting Ethiopia’s US-backed occupation of Somalia is another important reason for African states’ reluctance to join this AU mission.
The United States has also sent troops into Somalia and carried out bombing runs in co-ordination with Ethiopian forces. Washington says it is hunting for Al Qaeda-linked militants responsible for the 1998 Nairobi and Dar es Salaam embassy bombings.
Critics in Uganda have accused the government of putting UPDF soldiers in harm’s way in Somalia mainly in order to curry favour with the United States. The Bush administration has lauded Uganda’s involvement in Somalia and has urged other African countries to contribute troops to the AU mission.
President Yoweri Museveni gives no public indication that he is rethinking his decision to send 1,800 Ugandan soldiers to Somalia. Indeed, the government announced recently that it would dispatch an additional 250 troops to Mogadishu.
But Mr Butagira’s remarks in Washington last week strongly suggest that Kampala will not be willing much longer to serve as the AU’s sole military force inside Somalia.
Uganda appears disconcerted that several African nations are now rushing to pledge troops to an expanded peacekeeping operation in Sudan’s Darfur region even as they fail to make good on promises to help in Somalia.
The United Nations and the African Union say they will soon jointly deploy a 26,000-strong force in Darfur in what would be one of the largest UN-backed peacekeeping operations in its history.
The Security Council has also begun discussing a possible military intervention in Somalia in place of the nominal AU mission there. The 15-nation Council led by the world’s most powerful countries asked Secretary-General Ban Ki-moon last month to draw up contingency plans for a UN deployment in Somalia. But the Council specified no timeline for such a handover and it simultaneously approved a six-month extension of the AU’s mandate to operate in Somalia.
Wednesday, 5 September 2007
U.S analysis of Africa's Oil and Gas Sector
July 13, 2007
Africa's Oil and Gas Sector: Implications for U.S. Policy
by Ariel Cohen, Ph.D. and Rafal Alasa
Backgrounder #2052
In his 2006 State of the Union address, President George W. Bush said, "[W]e have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world."[1] Increasing political instability in the Middle East and growing U.S., Indian, and Chinese demand for oil have made energy security a paramount concern.
As the 2001 National Energy Policy Report notes, U.S. energy security depends on diversity of supply. African states, particularly West African producers, are an ideal source of U.S. oil imports because transporting oil from Africa is cheaper than shipping oil from the Middle East, and protecting Africa's onshore and offshore reserves is easier.
Increasing U.S. investment in Africa has numerous advantages. Geographically, the United States is much closer to West African oil states than it is to the Middle East. Most African oil reserves are offshore and therefore largely secure from domestic and political tensions. Oil can be transported via open sea lanes rather than through shallow water canals or straits. As a result, African oil accounts for a growing share of the oil refined on the U.S. East Coast.[2] In addition, Africa offers the ideal climate for private investors to create an ethanol industry to supply the U.S. with an alternative energy source and to diversify African economies.
Oil and gas are critical not only to U.S. security and economic health, but also to African nations. Properly managed oil and gas revenues would augment their economies, contribute to much-needed development, and improve their standards of living. Multinational oil companies have the investment resources and technical expertise to make African states wealthier and more competitive. Numerous U.S.-based oil companies—including ExxonMobil, Marathon Oil, and Chevron—already have a strong presence on the African continent.
To help Africa to attract scarce global investment capital, to maximize Africa's energy potential, and to increase U.S. energy security, the U.S. should take the following steps:
The Department of State, Department of Energy (DOE), Department of Agriculture (USDA), and Agency for International Development (USAID) should develop a comprehensive strategy to improve the investment climate in Africa, focusing on privatization of the oil and gas industry's assets and reserves.
The State Department, DOE, and International Energy Administration, with the full participation of energy companies, should create a coordinating forum of major energy-consumer countries.
The Department of Defense (DOD) should work with African governments through its Africa Command (AFRICOM) to determine security needs and improve the security environment in energy provinces and along the coasts of Africa.
The DOE, U.S. Trade Representative (USTR), and Department of the Treasury should work with Congress to remove tariffs and quotas on sugarcane ethanol before 2009.
The State Department and USAID should assist West African governments in creating national, independent, and professionally managed oil "generations" funds to address their long-term developmental needs.
The United States consumes 25 percent of the world's petroleum[3] and 22.5 percent of the world's natural gas.[4] The U.S. imports 13.5 million barrels per day (MMBD), which accounts for 63.5 percent of U.S. consumption (20.6 MMBD).[5] Since 1973, U.S. consumption of foreign oil has escalated as a percentage of total consumption.[6] The available data indicate that this trend will continue and that global oil consumption will increase by 76 percent over the next 30 years and natural gas consumption will increase by 153 percent.[7] (See Chart 1.)
With crude oil prices above $60 per barrel and demand steadily increasing, the prospect of more African oil production coming on line should make both consumers and policymakers optimistic. With the exception of Angola and Nigeria, West African oil producers are not members of the Organization of Petroleum Exporting Countries (OPEC) and are therefore not subject to its dictates.
Africa's Growing Importance
Many Americans do not recognize the importance of Africa, particularly West African oil. Currently, over 18 percent of U.S. crude oil imports comes from Africa, compared to 17 percent from the Persian Gulf. (See Table 1.) Nigeria accounts for 47 percent of African oil imports, and Algeria and Angola provide 19 percent each.[8] A discussion paper issued by the National Intelligence Council in 2004 predicts that the U.S. will import 25 percent of its oil from Africa by 2015.[9]
The main focus of this paper is to identify the formidable barriers to investment in the African energy sector and how they can be reduced. For African nations to attract the investment capital required to develop their energy resources, they will need to create a more attractive investment climate. Creating a hospitable investment climate should be a priority for African governments, the U.S. government, the private sector, and market-oriented non-governmental organizations (NGOs).
Investment Barriers
Africa is one of the world's most difficult places to do business. In many African oil-producing countries, investors face arbitrary or nonexistent law enforcement, selective and stifling taxation, conflicting legal codes, high transaction costs, shoddy infrastructure, and pervasive corruption. Key obstacles to foreign investment fall into three main categories.
Political Instability and Corruption. Doing business in Africa requires facing significant political risks, including coups, ethnic strife, resource battles, and unstable transfers of power. Investment in the energy sector incurs even greater risks because of large initial capital costs and longer time horizons. If a new regime takes power and expropriates a multibillion-dollar project without paying full and fair compensation, investors can lose their entire investment.
Political instability often arises when state budgets depend on petroleum revenues and various political factions compete for control of the cash flow. For any given five-year period, the chance of a civil war in an African country varies from less than 1 percent in countries without resource wealth to nearly 25 percent in countries with such resources.[10] Oil may be a curse rather than a blessing to countries without appropriate institutional mechanisms.
In addition to fighting over control of oil revenues, the presence of oil often leads to government neglect of other economic sectors, such as agriculture. The World Bank has documented numerous cases in which oil retards the economic growth of exporting countries.[11]
Corruption discourages investment because it acts like a tax, increasing the cost of doing business. Furthermore, the Foreign Corrupt Practices Act prohibits U.S. companies from engaging in corrupt transactions. Sadly, African oil-producing and gas-producing countries are among the most corrupt in the world. Of the 163 countries ranked in 2006 by Transparency International, a Berlin-based corruption watchdog, Algeria ranked 84th, Gabon ranked 90th, Nigeria and Angola tied for 142nd, and Chad ranked 156th, with the 163rd being the most corrupt.[12]
Oil by itself is not necessarily the problem. Professor Terry Karl, a prominent authority on the "Dutch disease" and "resource curse," explained: "Oil in itself means nothing. What matters is the social and political and economic institutions in which oil is inserted. Oil can be a force for development or it can be force for war."[13] If high budget revenues from oil are reinvested in African energy sectors, including biofuels, institutions will need to be strengthened to provide the necessary checks and balances and market incentives.
Lack of Property Rights. The first institution that should be strengthened is property rights. The 2007 Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal, found that African countries generally perform poorly in protecting property rights.[14] Clearly written and well-enforced land and mineral rights laws form the bedrock for economic development and help to attract foreign investment. The more secure a country's property rights are, the greater the incentive for foreign firms to invest.
Secure property rights—including a low risk of license revocation or nationalization of assets— encourage foreign investment and boost economic growth. In China, improving property rights, starting with agriculture, has helped to raise millions out of poverty by attracting tremendous amounts of domestic and foreign investment.[15] Recent surveys from Poland, Romania, Russia, Slovakia, and Ukraine illustrate that entrepreneurs who believe that their property rights are secure reinvest between 14 percent and 40 percent more of their profits in their businesses than do those who do not believe that their property rights are secure. Farmers in Ghana and Nicaragua reinvest up to 8 percent more when they believe that their property rights are secure.[16]
To attract foreign investment to the energy sector, countries need a pro-investment regulatory legal framework. Canada's federal energy policy reform in the 1980s is an example of the best practices. It improved the investment climate by making the energy sector more market-oriented and improving property rights. Competitive measures were introduced into the sector by loosening ownership restrictions on the upstream oil and gas industries and by removing key fuel subsidies. These provisions were then further strengthened when Canada ratified the North American Free Trade Agreement and eliminated foreign ownership restrictions on production in the frontier lands. These conditions and a traditionally strong commitment to the rule of law and democracy have made Canada a top destination for U.S. firms, which bought over $35 billion in Canadian oil and gas assets in 2001.[17]
In contrast, Zimbabwe has demonstrated some of the worst practices. From 2000 to 2003, President Robert Mugabe authorized the seizure of 4,500 commercial farms, with predictable and devastating results. By 2001, foreign direct investment in Zimbabwe had fallen to zero. Zimbabwe is an even more germane example considering the potential of future commercial farms to become biofuel producers.[18]
A modern, liberal mining code may be a key to attracting investment. A survey by the South African Chamber of Mines found that red tape and regulatory uncertainty cost the mining sector 5 billion to 10 billion rand ($0.7 billion–$1.4 billion) per year in lost investment.[19] A recent survey by the Fraser Institute, a Canadian research body, ranked countries and U.S. states by their mining policies from an exploration manager's perspective. Nevada ranked the highest, while Papua New Guinea, the Congo, Venezuela, Russia, and Bolivia were near the bottom and Zimbabwe ranked the lowest in the survey's history.[20]
Legal Regimes and Regulatory Certainty. A well-functioning, independent, speedy, and impartial court system or conflict dispute mechanism is necessary to improve the investment climate. In Africa, many judiciaries are corrupt and not independent. The Angolan judicial system, ranked 149th out of 157 countries by the Index of Economic Freedom, suffers from political interference. In Chad (ranked 147th), magistrates, judges, and other members of the judiciary are appointed by presidential decree, effectively eliminating any separation of powers. The Algerian judiciary (ranked 134) is strongly influenced by the Ministry of the Interior.[21]
Additionally, high court fees prevent many businesses from adjudicating their disputes, and poorly educated judges and lawyers, low salaries, and corruption plague legal regimes in Africa.
Case Studies
Chad, Nigeria, and Sudan illustrate some of the most salient challenges to foreign investment in the African energy sector. Nigeria needs much better security (onshore and offshore), stronger anti-corruption measures, and a better wealth distribution mechanism. Surprisingly, in spite of security concerns and a terrible human rights record, Sudan has undertaken comprehensive reform to improve its investment climate and has attracted foreign investors, including China. Chad provides insight into the international community's efforts to reduce the effects of the "resource curse."
All three countries illustrate the need to diversify away from the petro-state model.
Nigeria. Nigeria is of great strategic importance to the United States. It is the largest oil producer (2.28 MMBD in 2006) in Africa and the 11th largest producer in the world.[22] Only Venezuela, Saudi Arabia, Mexico, and Canada export more oil to the United States. If currently shut-in oil were brought on line, Nigerian production could reach 3 MMBD.[23]
The Nigerian government is seeking to increase production capacity to 4 MMBD by 2010. In addition, Nigeria has estimated natural gas reserves of 184 trillion cubic feet, and the government is planning to generate as much revenue from gas as from oil by 2010. Over the next three years, Nigeria's oil and gas revenues are projected to reach $67 billion.[24] Nigeria has also embarked on a multibillion-dollar alternative fuels initiative geared toward reinvesting oil revenues into biofuel plantations to produce ethanol from sugarcane.[25] However, investment in Nigeria's energy sector is threatened by a number of formidable obstacles.
The fight over who controls oil revenues underlies many of Nigeria's problems. This is not surprising when one considers how few citizens currently benefit. Although petroleum revenues constitute 90 percent to 95 percent of Nigeria's total budget revenues, only 1 percent of the population receives the money.[26] A small group of foreign oil companies— including Royal Dutch Shell and Chevron U.S.A.— turn over nearly half of their profits to the Nigerian government. As a result, the government does not depend on revenues from the population and therefore does not provide quality services.[27]
This phenomenon, common among oil states, insulates political leaders from popular opinion. Instead of serving the public, they concentrate on securing oil revenues. A Nigerian official involved in anti-corruption efforts has stated that more than $380 billion was stolen or wasted from Nigeria's treasury between 1960 and 1999. During that period, the country produced over $400 billion worth of oil.[28]
Crime and politics are intertwined in the Niger Delta. While most petrol-states have a paucity of jobs, Nigeria's delta region offers ready employment, but only in crime. The region is home to the Movement for the Emancipation of the Niger Delta (MEND), an organization of disenfranchised citizens who are demanding that more of the oil proceeds be distributed to the population. Working for local elites, these rebels (mostly young men) steal oil directly from the pipeline and sell it offshore on the black market for guns and money. The local crime bosses then use the guns and money to consolidate control over land and local offices. This criminal network "bunkers" 40,000 barrels oil per day for an annual income of $1.5 billion.[29]
While operating offshore, MEND agents attack facilities and kidnap and sometimes kill foreign workers. In 2007 alone, there were 18 attacks against oil facilities, and about 70 foreigners were abducted. Thousands of foreign workers have fled, and at least three foreign companies have left, including a private drilling company and pipeline-laying company. As a result of this situation, Nigeria has lost an estimated $16 billion in export revenues since 2005, and Shell has shut down half of its production and has 500,000 barrels per day (bbl/d) shut in.[30]
Offshore workers are not safe either. Four Chevron oil workers were recently kidnapped from a barge off the Nigerian coast.[31] Clearly, security is one of the biggest challenges, but Nigeria's recovery will also depend on economic diversification.
Africa is also a potential source of ethanol, which could help to meet President Bush's call for a 20 percent reduction in U.S. gasoline consumption by 2017. Africa offers the ideal tropical climate for producing ethanol from sugarcane. Expanding the biofuel industry in Africa promises to create thousands if not millions of jobs for the long term, diversifying away from petroleum-based economies that produce few jobs. Increased ethanol production and trade with Africa would also send a strong signal to oil-producing countries, especially OPEC, to stop driving up prices by restricting production.
To tap Africa's potential and expand U.S.–Africa energy cooperation, real barriers will have to be overcome, especially the U.S. 54-cents-per-gallon tariff on ethanol. This tariff violates the principles of free trade and undermines U.S. energy security.
Nigeria has launched a multibillion-dollar alternative fuels initiative, reinvesting oil revenues into biofuel plantations to produce ethanol from sugarcane. If implemented successfully using market mechanisms, this initiative promises to attract massive foreign investment and create tens of thousands of jobs in the biofuel industry. Nigeria could become a model for successful diversification of an oil economy.
Sudan. War-torn Sudan has emerged as a major African oil exporter. After completing a major oil-export pipeline that runs from central Sudan to Port Sudan in 1999, Sudan's oil-exporting revenues have grown rapidly with help from consumer countries, especially China. From 2005 to 2006 alone, Sudan's crude oil production rose from 363,000 bbl/d to 414,000 bbl/d.[32] With new fields coming on line, Sudan anticipates that its oil production will reach 600,000 bbl/d this year.[33] The Economist Intelligence Unit estimates that almost 90 percent of Sudan's export revenues come from oil.[34] The Oil and Gas Journal estimates that Sudan has 5 billion barrels in reserves, mostly in southern Sudan.[35]
With the exception of grave security concerns, Sudan has a good investment climate. Even while under U.S. sanctions, Sudan has received high praise from the International Monetary Fund (IMF) for its comprehensive economic reforms and the government's management of the economy, specifically for managing inflation well and for robust economic growth.[36]
The government in Khartoum prefers development that is led by the private sector. To attract more foreign investment, Sudan has removed key price controls, liberalized its investment code and exchange regime, and reduced trade restrictions. These reforms and high oil prices have created an economic boom in Sudan. Sudan's growth rate has exceeded 5 percent for the past six years, and its gross domestic product is expected to double every five years.[37] Sudan has also been reinvesting in the energy sector.
While Sudan is reeling from what former Secretary of State Colin Powell has called the 21st century's genocide,[38] China continues to support Khartoum by buying half of its oil and supplying it with the arms that help to keep the government in power. In the past few years, Khartoum has doubled its defense budget, spending 60 percent to 80 percent of its estimated $500 million in oil revenues on weapons.[39] Some of these weapons have gone to the government-backed Janjaweed militia, which is accused of displacing over 2 million refugees—mostly into neighboring Chad—and killing more than 200,000 people in the four-year conflict in Darfur.[40]
A new report from Amnesty International cites 2005 trade figures to show that Sudan has imported $24 million in arms from China and $57 million of aircraft parts and equipment. Russia has exported to Sudan $21 million worth of aircraft and military equipment and $13.7 million of helicopters, such as the Russian Mi-24 helicopter gunship.[41] Ignoring international norms, Chinese Defense Minister Cao Gangchuan recently vowed to boost military exchanges and cooperation and stated that "military relations between China and Sudan have developed smoothly."[42] Unconditional support for the regime in Khartoum sets a negative precedent that the international community must continue to resist.
Despite today's positive investment climate, current and future battles will likely figure large in the run-up to southern Sudan's referendum on independence. Signed in 2005, the Comprehensive Peace Agreement (CPA) ended a 21-year civil war that killed 2.2 million people. The CPA stipulates that the people of southern Sudan can vote on independence in 2011. Because Khartoum depends on oil revenues, it will do everything within its power to keep its share of the oil from the south, where the majority of proven reserves exist.
Chad. Chad has a long history of civil war and exhibits many conditions associated with post-conflict zones. Throughout Chad, running water, electricity, paved roads, and health clinics are generally unavailable. Life expectancy is 46 years for men and 48 years for women.[43] Moreover, in 2005, Transparency International rated Chad the world's most corrupt country. In 2006, Chad fared only slightly better, ranking 156 out of 163.[44]
To overcome its geographic disadvantage of being landlocked, Chad needed a pipeline to make use of its over 1 billion barrels in proven oil reserves. In 1999, conditions inside Chad were so bad that no one in the private sector was willing to invest in a pipeline unless the World Bank was involved.[45] In the first project of its kind, the World Bank agreed to provide investment coupled with institutional oversight and transparency. The World Bank and a consortium of oil companies led by ExxonMobil, ChevronTexaco, and Petronas set up a pipeline project in Chad. This was supposed to be the first international effort to overcome the resource curse.
Construction on the $3.5 billion Chad–Cameroon Petroleum Development and Pipeline Project began in 2000 and was completed in 2004. To increase transparency, Chad was required to adopt the Petroleum Revenues Management Law, which stipulated that Chad's 12.5 percent of the oil revenues would be deposited into a Citibank escrow account monitored by an independent "college" before the Chadian government received it. Another 10 percent was deposited in a "future generations" fund to provide Chad with revenues after the oil reserves are exhausted.[46]
However, in December 2005, Chad's National Assembly abolished the future generations fund and diverted money away from poverty-mitigation efforts to arms purchases. The World Bank responded by suspending $124 million in loans.[47] In July 2006, the two sides reached a compromise, which specified that the Chadian government would commit 70 percent of revenues to development programs and 30 percent to government expenditures.[48]
President Idriss Deby will continue to face major military threats from Sudan-supported rebel groups in east Chad and threats from within the Chadian military. Rebels and military personnel will continue to be paid off with oil revenues. Corruption and investor uncertainty over potential civil war will continue to deter investment.[49] While some have called the Chad experiment a prima facie failure, others say that after three years it is still too early to judge.
What the U.S. Should Do
To attract scarce global capital and bolster economic development, African leaders need to develop the political will to overcome investment barriers. While the onus is on African leaders, policy coordination is crucial. Congress, the Administration, and energy companies can take a number of concrete steps to assist Africa.
The State Department, DOE, USDA, and USAID should develop a comprehensive strategy to improve the investment climate in Africa, focusing on privatization of the oil and gas industry's assets and reserves. Liberalization of the energy sector should be made an explicit part of the U.S. agenda for Africa. U.S. assistance should emphasize economic freedom and sound property rights. The U.S. should review assistance to countries that have state monopolies in their oil and gas sectors.
USAID should target technical assistance to help governments to privatize oil and gas sectors, establish stable regulatory environments, craft stronger property rights laws, create transparent and fair tax regimes, reform their judiciaries, fight corruption, and train government officials who supervise economic policy and the oil and gas sectors. This should include establishing liberal currency exchange control regimes and developing modern mining codes, especially subsoil legislation.
The State Department, DOE, and International Energy Administration, with the full participation of energy companies, should create a coordinating forum of major energy-consumer countries. The forum should work with African governments and financial institutions to harmonize policy and to develop a more hospitable energy investment environment. The forum could provide a venue for consumer countries to share best practices for increasing investment, promoting transparency and good governance, and fighting corruption. It should review state-of-the-art techniques of oil privatization and revenue generation and distribute this knowledge in Africa. Many African officials, industry managers, and elites are unfamiliar with the best practices of privatizing and instituting publicly accountable and transparent decision-making processes in oil production and revenue distribution.
The DOD should work with African governments through Africa Command to determine security needs and improve security environments in energy provinces and along the coasts of Africa. Greater cooperation with African governments will enhance the professionalism of African armed forces and improve the investment climate by increasing the security of energy resources and onshore and offshore platforms. This could help African militaries to develop doctrines, tactics, techniques, and procedures to protect energy resources. African countries can also apply to participate in the U.S. Foreign Military Sales program to obtain equipment, such as coastal patrol ships, aircraft, and other defense articles.
The DOE, USTR, and Treasury Department should work with Congress to remove tariffs and quotas on imported ethanol before 2009. Rescinding these market-distorting measures would encourage African governments to expand sugarcane ethanol production by ensuring a reliable U.S. market for their ethanol. Until lifted, these trade barriers will continue to hinder development of ethanol as a global, competitive energy commodity.
The State Department and USAID should assist African governments in creating national, independent, professionally managed oil "generations" funds. Such funds would provide revenues after oil resources are exhausted. They should be modeled on Norway's Government Pension Fund and similar funds. Ideally, they would be managed by the private sector. Such measures would go a long way toward legitimizing governments, increasing transparency, and overcoming the resource curse.
The Departments of State and Commerce and oil companies should also support the Extractive Industries Transparency Initiative (EITI), which seeks to set transparency standards for both investors and governments. Key elements of EITI are (1) public reporting of oil and gas payments by companies to governments and of the revenues received by governments from companies; (2) credible independent audits of payments and revenues; and (3) public release of the report and information on any discrepancies found.[50]
Conclusion
Development and transformation of Africa's energy sector presents a unique opportunity for cooperation between African countries and energy consumers, particularly since Africa is both geographically closer to the U.S. and safer than the Middle East as a source of energy.
Lack of security, corruption, waste, and mismanagement are inexcusable to all stakeholders. Increasing transparency of oil and gas revenue is vital for Africa, especially as African countries have a great opportunity to use petrodollars to drive economic development. It is also crucial that U.S. oil companies have a level playing field in this harsh environment so that their government-owned competitors cannot simply bribe their way into the choicest projects. Finally, it is important for the U.S. and other principal energy consumers, such as China and India, to ensure that governments supervising foreign investment in Africa maintain a modicum of transparency.
An attractive investment environment, especially in the lucrative energy sector, is the key to Africa's modernization. Developing sugarcane ethanol as an alternative energy sector is an important avenue in diversifying away from oil. The U.S. government and the private sector should strive to be the principal partners of their African counterparts in developing African energy resources for the benefit of Africans and Americans.
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation. Rafal Alasa is a graduate student at the Warsaw School of Economics and a former intern at The Heritage Foundation. Owen Graham, Research Assistant in the Allison Center, and Michael Belinsky, an intern in the Davis Institute, helped to produce this paper.
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[1] George W. Bush, "State of the Union Address," January 31, 2006, at www.whitehouse.gov/stateoftheunion/2006 (March 5, 2006).
[2] Paul Michael Wihbey and Barry Schutz, eds., "African Oil: A Priority for U.S. National Security and African Development," Institute for Advanced Strategic and Political Studies Research Papers in Strategy No. 14, May 2002, pp. 2–5, at www.iasps.org/strategic/africatranscript.pdf (May 10, 2007).
[3] U.S. Department of Energy, Energy Information Administration, Annual Energy Review 2006, Table 11.10, June 27, 2007, www.eia.doe.gov/emeu/aer/inter.html (April 19, 2007).
[4] Ibid., Table 11.12.
[5] U.S. Department of Energy, Energy Information Administration, "U.S. Weekly Petroleum Products Product Supplied," at http://tonto.eia.doe.gov/dnav/pet/hist/wrpupus2w.htm (March 31, 2006).
[6] Alan Greenspan, "Oil Dependence and Economic Risk," testimony before the Committee on Foreign Relations, U.S. Senate, June 7, 2006, at www.senate.gov/~foreign/hearings/
2006/hrg060607a.html (May 3, 2007).
[7] U.S. Department of Energy, Energy Information Administration, "International Energy Outlook 2006," June 2006, at www.eia.doe.gov/oiaf/ieo/excel/ieoreftab_2.xls (April 17, 2007).
[8] U.S. Department of Energy, Energy Information Administration, "U.S. Imports by Country of Origin," updated April 19, 2007, at http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2
_nus_ep00_im0_mbblpd_a.htm (April 19, 2007).
[9] National Intelligence Council, "External Relations and Africa," discussion paper, March 16, 2004, at www.dni.gov/nic/PDF_GIF_2020_Support/2004_03_16
_papers/external_relations.pdf (May 10, 2007).
[10] "The Paradox of Plenty," The Economist, December 20, 2005.
[11] Wihbey and Schutz, eds., "African Oil," pp. 16–17.
[12] Transparency International, "Corruption Perceptions Index 2006," 2006, at www.transparency.org/policy_research/surveys_indices/cpi/2006 (April 17, 2007).
[13] Ibid.
[14] For example, in terms of economic freedom, Algeria, Guinea–Bissau, and Angola were ranked 134th, 148th, and 149th, respectively, out of 157 countries. See Tim Kane, Kim R. Holmes, and Mary Anastasia O'Grady, 2007 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2007), at www.heritage.org/index.
[15] Commission for Africa, Our Common Interest: Report of the Commission for Africa, March 2005, p. 230, at www.commissionforafrica.org/english/report/thereport/
english/11-03-05_cr_report.pdf (May 7, 2007).
[16] The World Bank, World Development Report 2005 (Washington, D.C.: International Bank for Reconstruction and Development and The World Bank, 2004), p. 79, at http://siteresources.worldbank.org/INTWDR2005/
Resources/complete_report.pdf (June 1, 2007).
[17] Council of the Americas, Energy Action Group, "Energy in the Americas: Building a Lasting Partnership for Security and Prosperity," October 2005, at www.americas-society.org/coa/publications/
Papers/FINAL%20-%20COA%20Energy%20Action%20
Group%20Report.pdf (May 20, 2007).
[18] For a vivid example of how detrimental the loss of property rights can be to a country, see Craig J. Richardson, "How the Loss of Property Rights Caused Zimbabwe's Collapse," Cato Institute Economic Development Bulletin No. 4, November 14, 2005, at www.cato.org/pubs/edb/edb4.pdf (May 6, 2007).
[19] "South Africa Industry: Undermined," Economist Intelligence Unit Country Briefing, November 17, 2006.
[20] News release, "Mining Executives Rate the Investment Climate of Jurisdictions Around the World," Fraser Institute, March 22, 2006, at www.fraserinstitute.ca/shared/readmore.asp?s
Nav=nr&id=718 (May 9, 2007).
[21] Kane et al., 2007 Index of Economic Freedom.
[22] U.S. Department of Energy, Energy Information Agency, "Nigeria," Country Analysis Brief, April 2007, at www.eia.doe.gov/emeu/cabs/Nigeria/Background.html (May 1, 2007).
[23] U.S. Department of Energy, Energy Information Administration, "Crude Oil and Total Petroleum Imports Top 15 Countries," May 4, 2007.
[24] Abiola Morgan-Anyakwo and Craig Withers, "B2B Opportunities in Nigeria's Oil and Gas Industry," The Africa Journal, Winter 2006, p. 14, at www.africacncl.org/AfricaJournal/AJ_Winter_2006.pdf (May 9, 2007).
[25] Marianne Osterkorn, "Ethanol in Africa," EcoWorld, July 7, 2006, at www.ecoworld.com/home/articles2.cfm?tid=389 (May 20, 2007).
[26] New America Foundation, "The Petro Mirage: Conversation on Oil's Failed Promises in Developing Countries with Oil
on the Brain's Lisa Margonelli," May 16, 2007, at www.newamerica.net/events/2007/the_petro_mirage (May 29, 2007).
[27] David Adesnik, "Ignoring Nigeria," The Weekly Standard, May 14, 2007, at www.weeklystandard.com/Content/Public/Articles/
000/000/013/614ytnro.asp (May 9, 2007).
[28] Lydia Polgreen, "Africa's Crisis of Democracy," The New York Times, April 23, 2007, p. A1.
[29] Adesnik, "Ignoring Nigeria."
[30] Robin Knight, "Concerns Grow About Big Drop in Nigerian Oil Production," CNBC, May 9, 2007, at www.cnbc.com/id/ 18569318 (May 10, 2007), and U.S. Department of Energy, "Nigeria."
[31] Ibid.
[32] U.S. Department of Energy, Energy Information Administration, "Sudan," Country Analysis Brief, April 2007, at www.eia.doe.gov/emeu/cabs/Sudan/Background.html (May 1, 2007).
[33] Sapa–Agence France-Presse, "Sudan Oil Output to Reach 600,000 bpd," Business in Africa, April 3, 2007, at www.businessinafrica.net/news/north_africa/390808.htm (May 14, 2007).
[34] Economist Intelligence Unit, "Country Report: Sudan," April 2007.
[35] U.S. Department of Energy, "Sudan."
[36] David Christianson, "Sudan: Getting In at Ground Level," Business in Africa, September 6, 2006, at www.businessinafrica.net/energy_in_africa/997130.htm (May 14, 2007).
[37] Ibid.
[38] BBC News, "Powell Declares Genocide in Sudan," September 9, 2004, at http://news.bbc.co.uk/1/hi/world/africa/3641820.stm (July 5, 2007).
[39] Peter Brookes, "Into Africa: China's Grab for Influence and Oil," Heritage Foundation Lecture No. 1006, March 27, 2007, at www.heritage.org/Research/Africa/hl1006.cfm.
[40] Marc Lacey and Lydia Polgreen, "The Tragedy of Darfur: Ethnic Conflict in Sudan Has Killed 200,000 Civilians and Created 2 Million Refugees," The New York Times Upfront, May 8, 2006, at http://findarticles.com/p/articles/mi_m0BUE/
is_14_138/ai_n17212967 (May 29, 2007).
[41] Amnesty International, "Sudan: Arms Continuing to Fuel Serious Human Rights Violations in Darfur," May 5, 2007, at http://web.amnesty.org/library/index/engafr540192007 (June 1, 2007).
[42] Ling Zhu, ed., "China, Sudan Vow to Boost Military Exchanges," Xinhua, April 2, 2007, at http://news.xinhuanet.com/english/2007-04/02/
content_5926215.htm (May 14, 2007).
[43] Central Intelligence Agency, The World Factbook, s.v. "Chad,"April 17, 2007, at www.cia.gov/library/publications/the-world-
factbook/index.html (July 1, 2007).
[44] Transparency International, "Corruption Perceptions Index 2006."
[45] U.S. Department of Energy, Energy Information Administration, "Chad and Cameroon," Country Analysis Brief, January 2007, pp. 1–4, at www.eia.doe.gov/emeu/cabs/Chad_Cameroon/
Background.html (April 24, 2007).
[46] Carin Zissis, "Chad's Oil Troubles," Council on Foreign Relations, updated April 27, 2007, at www.cfr.org/publication/10532/chads_oil_troubles.html (May 16, 2007).
[47] Raymond Thibodeaux, "Anger Rises in Oil-Rich Chad as Funds Don't Aid the Poor," The Boston Globe, April 30, 2007, at www.boston.com/news/world/articles/2006
/04/30/anger_rises_in_oil_rich_chad_as_funds_
dont_aid_the_poor (April 30, 2007).
[48] U.S. Department of Energy, "Chad and Cameroon," p. 4.
[49] Economist Intelligence Unit, "Country Report: Chad," March 2007.
[50] For more information, see Extractive Industries Transparency Initiative, "EITI Priniciples and Criteria," at www.eitransparency.org/section/abouteiti/principlescriteria (July 1, 2007).
Africa's Oil and Gas Sector: Implications for U.S. Policy
by Ariel Cohen, Ph.D. and Rafal Alasa
Backgrounder #2052
In his 2006 State of the Union address, President George W. Bush said, "[W]e have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world."[1] Increasing political instability in the Middle East and growing U.S., Indian, and Chinese demand for oil have made energy security a paramount concern.
As the 2001 National Energy Policy Report notes, U.S. energy security depends on diversity of supply. African states, particularly West African producers, are an ideal source of U.S. oil imports because transporting oil from Africa is cheaper than shipping oil from the Middle East, and protecting Africa's onshore and offshore reserves is easier.
Increasing U.S. investment in Africa has numerous advantages. Geographically, the United States is much closer to West African oil states than it is to the Middle East. Most African oil reserves are offshore and therefore largely secure from domestic and political tensions. Oil can be transported via open sea lanes rather than through shallow water canals or straits. As a result, African oil accounts for a growing share of the oil refined on the U.S. East Coast.[2] In addition, Africa offers the ideal climate for private investors to create an ethanol industry to supply the U.S. with an alternative energy source and to diversify African economies.
Oil and gas are critical not only to U.S. security and economic health, but also to African nations. Properly managed oil and gas revenues would augment their economies, contribute to much-needed development, and improve their standards of living. Multinational oil companies have the investment resources and technical expertise to make African states wealthier and more competitive. Numerous U.S.-based oil companies—including ExxonMobil, Marathon Oil, and Chevron—already have a strong presence on the African continent.
To help Africa to attract scarce global investment capital, to maximize Africa's energy potential, and to increase U.S. energy security, the U.S. should take the following steps:
The Department of State, Department of Energy (DOE), Department of Agriculture (USDA), and Agency for International Development (USAID) should develop a comprehensive strategy to improve the investment climate in Africa, focusing on privatization of the oil and gas industry's assets and reserves.
The State Department, DOE, and International Energy Administration, with the full participation of energy companies, should create a coordinating forum of major energy-consumer countries.
The Department of Defense (DOD) should work with African governments through its Africa Command (AFRICOM) to determine security needs and improve the security environment in energy provinces and along the coasts of Africa.
The DOE, U.S. Trade Representative (USTR), and Department of the Treasury should work with Congress to remove tariffs and quotas on sugarcane ethanol before 2009.
The State Department and USAID should assist West African governments in creating national, independent, and professionally managed oil "generations" funds to address their long-term developmental needs.
The United States consumes 25 percent of the world's petroleum[3] and 22.5 percent of the world's natural gas.[4] The U.S. imports 13.5 million barrels per day (MMBD), which accounts for 63.5 percent of U.S. consumption (20.6 MMBD).[5] Since 1973, U.S. consumption of foreign oil has escalated as a percentage of total consumption.[6] The available data indicate that this trend will continue and that global oil consumption will increase by 76 percent over the next 30 years and natural gas consumption will increase by 153 percent.[7] (See Chart 1.)
With crude oil prices above $60 per barrel and demand steadily increasing, the prospect of more African oil production coming on line should make both consumers and policymakers optimistic. With the exception of Angola and Nigeria, West African oil producers are not members of the Organization of Petroleum Exporting Countries (OPEC) and are therefore not subject to its dictates.
Africa's Growing Importance
Many Americans do not recognize the importance of Africa, particularly West African oil. Currently, over 18 percent of U.S. crude oil imports comes from Africa, compared to 17 percent from the Persian Gulf. (See Table 1.) Nigeria accounts for 47 percent of African oil imports, and Algeria and Angola provide 19 percent each.[8] A discussion paper issued by the National Intelligence Council in 2004 predicts that the U.S. will import 25 percent of its oil from Africa by 2015.[9]
The main focus of this paper is to identify the formidable barriers to investment in the African energy sector and how they can be reduced. For African nations to attract the investment capital required to develop their energy resources, they will need to create a more attractive investment climate. Creating a hospitable investment climate should be a priority for African governments, the U.S. government, the private sector, and market-oriented non-governmental organizations (NGOs).
Investment Barriers
Africa is one of the world's most difficult places to do business. In many African oil-producing countries, investors face arbitrary or nonexistent law enforcement, selective and stifling taxation, conflicting legal codes, high transaction costs, shoddy infrastructure, and pervasive corruption. Key obstacles to foreign investment fall into three main categories.
Political Instability and Corruption. Doing business in Africa requires facing significant political risks, including coups, ethnic strife, resource battles, and unstable transfers of power. Investment in the energy sector incurs even greater risks because of large initial capital costs and longer time horizons. If a new regime takes power and expropriates a multibillion-dollar project without paying full and fair compensation, investors can lose their entire investment.
Political instability often arises when state budgets depend on petroleum revenues and various political factions compete for control of the cash flow. For any given five-year period, the chance of a civil war in an African country varies from less than 1 percent in countries without resource wealth to nearly 25 percent in countries with such resources.[10] Oil may be a curse rather than a blessing to countries without appropriate institutional mechanisms.
In addition to fighting over control of oil revenues, the presence of oil often leads to government neglect of other economic sectors, such as agriculture. The World Bank has documented numerous cases in which oil retards the economic growth of exporting countries.[11]
Corruption discourages investment because it acts like a tax, increasing the cost of doing business. Furthermore, the Foreign Corrupt Practices Act prohibits U.S. companies from engaging in corrupt transactions. Sadly, African oil-producing and gas-producing countries are among the most corrupt in the world. Of the 163 countries ranked in 2006 by Transparency International, a Berlin-based corruption watchdog, Algeria ranked 84th, Gabon ranked 90th, Nigeria and Angola tied for 142nd, and Chad ranked 156th, with the 163rd being the most corrupt.[12]
Oil by itself is not necessarily the problem. Professor Terry Karl, a prominent authority on the "Dutch disease" and "resource curse," explained: "Oil in itself means nothing. What matters is the social and political and economic institutions in which oil is inserted. Oil can be a force for development or it can be force for war."[13] If high budget revenues from oil are reinvested in African energy sectors, including biofuels, institutions will need to be strengthened to provide the necessary checks and balances and market incentives.
Lack of Property Rights. The first institution that should be strengthened is property rights. The 2007 Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal, found that African countries generally perform poorly in protecting property rights.[14] Clearly written and well-enforced land and mineral rights laws form the bedrock for economic development and help to attract foreign investment. The more secure a country's property rights are, the greater the incentive for foreign firms to invest.
Secure property rights—including a low risk of license revocation or nationalization of assets— encourage foreign investment and boost economic growth. In China, improving property rights, starting with agriculture, has helped to raise millions out of poverty by attracting tremendous amounts of domestic and foreign investment.[15] Recent surveys from Poland, Romania, Russia, Slovakia, and Ukraine illustrate that entrepreneurs who believe that their property rights are secure reinvest between 14 percent and 40 percent more of their profits in their businesses than do those who do not believe that their property rights are secure. Farmers in Ghana and Nicaragua reinvest up to 8 percent more when they believe that their property rights are secure.[16]
To attract foreign investment to the energy sector, countries need a pro-investment regulatory legal framework. Canada's federal energy policy reform in the 1980s is an example of the best practices. It improved the investment climate by making the energy sector more market-oriented and improving property rights. Competitive measures were introduced into the sector by loosening ownership restrictions on the upstream oil and gas industries and by removing key fuel subsidies. These provisions were then further strengthened when Canada ratified the North American Free Trade Agreement and eliminated foreign ownership restrictions on production in the frontier lands. These conditions and a traditionally strong commitment to the rule of law and democracy have made Canada a top destination for U.S. firms, which bought over $35 billion in Canadian oil and gas assets in 2001.[17]
In contrast, Zimbabwe has demonstrated some of the worst practices. From 2000 to 2003, President Robert Mugabe authorized the seizure of 4,500 commercial farms, with predictable and devastating results. By 2001, foreign direct investment in Zimbabwe had fallen to zero. Zimbabwe is an even more germane example considering the potential of future commercial farms to become biofuel producers.[18]
A modern, liberal mining code may be a key to attracting investment. A survey by the South African Chamber of Mines found that red tape and regulatory uncertainty cost the mining sector 5 billion to 10 billion rand ($0.7 billion–$1.4 billion) per year in lost investment.[19] A recent survey by the Fraser Institute, a Canadian research body, ranked countries and U.S. states by their mining policies from an exploration manager's perspective. Nevada ranked the highest, while Papua New Guinea, the Congo, Venezuela, Russia, and Bolivia were near the bottom and Zimbabwe ranked the lowest in the survey's history.[20]
Legal Regimes and Regulatory Certainty. A well-functioning, independent, speedy, and impartial court system or conflict dispute mechanism is necessary to improve the investment climate. In Africa, many judiciaries are corrupt and not independent. The Angolan judicial system, ranked 149th out of 157 countries by the Index of Economic Freedom, suffers from political interference. In Chad (ranked 147th), magistrates, judges, and other members of the judiciary are appointed by presidential decree, effectively eliminating any separation of powers. The Algerian judiciary (ranked 134) is strongly influenced by the Ministry of the Interior.[21]
Additionally, high court fees prevent many businesses from adjudicating their disputes, and poorly educated judges and lawyers, low salaries, and corruption plague legal regimes in Africa.
Case Studies
Chad, Nigeria, and Sudan illustrate some of the most salient challenges to foreign investment in the African energy sector. Nigeria needs much better security (onshore and offshore), stronger anti-corruption measures, and a better wealth distribution mechanism. Surprisingly, in spite of security concerns and a terrible human rights record, Sudan has undertaken comprehensive reform to improve its investment climate and has attracted foreign investors, including China. Chad provides insight into the international community's efforts to reduce the effects of the "resource curse."
All three countries illustrate the need to diversify away from the petro-state model.
Nigeria. Nigeria is of great strategic importance to the United States. It is the largest oil producer (2.28 MMBD in 2006) in Africa and the 11th largest producer in the world.[22] Only Venezuela, Saudi Arabia, Mexico, and Canada export more oil to the United States. If currently shut-in oil were brought on line, Nigerian production could reach 3 MMBD.[23]
The Nigerian government is seeking to increase production capacity to 4 MMBD by 2010. In addition, Nigeria has estimated natural gas reserves of 184 trillion cubic feet, and the government is planning to generate as much revenue from gas as from oil by 2010. Over the next three years, Nigeria's oil and gas revenues are projected to reach $67 billion.[24] Nigeria has also embarked on a multibillion-dollar alternative fuels initiative geared toward reinvesting oil revenues into biofuel plantations to produce ethanol from sugarcane.[25] However, investment in Nigeria's energy sector is threatened by a number of formidable obstacles.
The fight over who controls oil revenues underlies many of Nigeria's problems. This is not surprising when one considers how few citizens currently benefit. Although petroleum revenues constitute 90 percent to 95 percent of Nigeria's total budget revenues, only 1 percent of the population receives the money.[26] A small group of foreign oil companies— including Royal Dutch Shell and Chevron U.S.A.— turn over nearly half of their profits to the Nigerian government. As a result, the government does not depend on revenues from the population and therefore does not provide quality services.[27]
This phenomenon, common among oil states, insulates political leaders from popular opinion. Instead of serving the public, they concentrate on securing oil revenues. A Nigerian official involved in anti-corruption efforts has stated that more than $380 billion was stolen or wasted from Nigeria's treasury between 1960 and 1999. During that period, the country produced over $400 billion worth of oil.[28]
Crime and politics are intertwined in the Niger Delta. While most petrol-states have a paucity of jobs, Nigeria's delta region offers ready employment, but only in crime. The region is home to the Movement for the Emancipation of the Niger Delta (MEND), an organization of disenfranchised citizens who are demanding that more of the oil proceeds be distributed to the population. Working for local elites, these rebels (mostly young men) steal oil directly from the pipeline and sell it offshore on the black market for guns and money. The local crime bosses then use the guns and money to consolidate control over land and local offices. This criminal network "bunkers" 40,000 barrels oil per day for an annual income of $1.5 billion.[29]
While operating offshore, MEND agents attack facilities and kidnap and sometimes kill foreign workers. In 2007 alone, there were 18 attacks against oil facilities, and about 70 foreigners were abducted. Thousands of foreign workers have fled, and at least three foreign companies have left, including a private drilling company and pipeline-laying company. As a result of this situation, Nigeria has lost an estimated $16 billion in export revenues since 2005, and Shell has shut down half of its production and has 500,000 barrels per day (bbl/d) shut in.[30]
Offshore workers are not safe either. Four Chevron oil workers were recently kidnapped from a barge off the Nigerian coast.[31] Clearly, security is one of the biggest challenges, but Nigeria's recovery will also depend on economic diversification.
Africa is also a potential source of ethanol, which could help to meet President Bush's call for a 20 percent reduction in U.S. gasoline consumption by 2017. Africa offers the ideal tropical climate for producing ethanol from sugarcane. Expanding the biofuel industry in Africa promises to create thousands if not millions of jobs for the long term, diversifying away from petroleum-based economies that produce few jobs. Increased ethanol production and trade with Africa would also send a strong signal to oil-producing countries, especially OPEC, to stop driving up prices by restricting production.
To tap Africa's potential and expand U.S.–Africa energy cooperation, real barriers will have to be overcome, especially the U.S. 54-cents-per-gallon tariff on ethanol. This tariff violates the principles of free trade and undermines U.S. energy security.
Nigeria has launched a multibillion-dollar alternative fuels initiative, reinvesting oil revenues into biofuel plantations to produce ethanol from sugarcane. If implemented successfully using market mechanisms, this initiative promises to attract massive foreign investment and create tens of thousands of jobs in the biofuel industry. Nigeria could become a model for successful diversification of an oil economy.
Sudan. War-torn Sudan has emerged as a major African oil exporter. After completing a major oil-export pipeline that runs from central Sudan to Port Sudan in 1999, Sudan's oil-exporting revenues have grown rapidly with help from consumer countries, especially China. From 2005 to 2006 alone, Sudan's crude oil production rose from 363,000 bbl/d to 414,000 bbl/d.[32] With new fields coming on line, Sudan anticipates that its oil production will reach 600,000 bbl/d this year.[33] The Economist Intelligence Unit estimates that almost 90 percent of Sudan's export revenues come from oil.[34] The Oil and Gas Journal estimates that Sudan has 5 billion barrels in reserves, mostly in southern Sudan.[35]
With the exception of grave security concerns, Sudan has a good investment climate. Even while under U.S. sanctions, Sudan has received high praise from the International Monetary Fund (IMF) for its comprehensive economic reforms and the government's management of the economy, specifically for managing inflation well and for robust economic growth.[36]
The government in Khartoum prefers development that is led by the private sector. To attract more foreign investment, Sudan has removed key price controls, liberalized its investment code and exchange regime, and reduced trade restrictions. These reforms and high oil prices have created an economic boom in Sudan. Sudan's growth rate has exceeded 5 percent for the past six years, and its gross domestic product is expected to double every five years.[37] Sudan has also been reinvesting in the energy sector.
While Sudan is reeling from what former Secretary of State Colin Powell has called the 21st century's genocide,[38] China continues to support Khartoum by buying half of its oil and supplying it with the arms that help to keep the government in power. In the past few years, Khartoum has doubled its defense budget, spending 60 percent to 80 percent of its estimated $500 million in oil revenues on weapons.[39] Some of these weapons have gone to the government-backed Janjaweed militia, which is accused of displacing over 2 million refugees—mostly into neighboring Chad—and killing more than 200,000 people in the four-year conflict in Darfur.[40]
A new report from Amnesty International cites 2005 trade figures to show that Sudan has imported $24 million in arms from China and $57 million of aircraft parts and equipment. Russia has exported to Sudan $21 million worth of aircraft and military equipment and $13.7 million of helicopters, such as the Russian Mi-24 helicopter gunship.[41] Ignoring international norms, Chinese Defense Minister Cao Gangchuan recently vowed to boost military exchanges and cooperation and stated that "military relations between China and Sudan have developed smoothly."[42] Unconditional support for the regime in Khartoum sets a negative precedent that the international community must continue to resist.
Despite today's positive investment climate, current and future battles will likely figure large in the run-up to southern Sudan's referendum on independence. Signed in 2005, the Comprehensive Peace Agreement (CPA) ended a 21-year civil war that killed 2.2 million people. The CPA stipulates that the people of southern Sudan can vote on independence in 2011. Because Khartoum depends on oil revenues, it will do everything within its power to keep its share of the oil from the south, where the majority of proven reserves exist.
Chad. Chad has a long history of civil war and exhibits many conditions associated with post-conflict zones. Throughout Chad, running water, electricity, paved roads, and health clinics are generally unavailable. Life expectancy is 46 years for men and 48 years for women.[43] Moreover, in 2005, Transparency International rated Chad the world's most corrupt country. In 2006, Chad fared only slightly better, ranking 156 out of 163.[44]
To overcome its geographic disadvantage of being landlocked, Chad needed a pipeline to make use of its over 1 billion barrels in proven oil reserves. In 1999, conditions inside Chad were so bad that no one in the private sector was willing to invest in a pipeline unless the World Bank was involved.[45] In the first project of its kind, the World Bank agreed to provide investment coupled with institutional oversight and transparency. The World Bank and a consortium of oil companies led by ExxonMobil, ChevronTexaco, and Petronas set up a pipeline project in Chad. This was supposed to be the first international effort to overcome the resource curse.
Construction on the $3.5 billion Chad–Cameroon Petroleum Development and Pipeline Project began in 2000 and was completed in 2004. To increase transparency, Chad was required to adopt the Petroleum Revenues Management Law, which stipulated that Chad's 12.5 percent of the oil revenues would be deposited into a Citibank escrow account monitored by an independent "college" before the Chadian government received it. Another 10 percent was deposited in a "future generations" fund to provide Chad with revenues after the oil reserves are exhausted.[46]
However, in December 2005, Chad's National Assembly abolished the future generations fund and diverted money away from poverty-mitigation efforts to arms purchases. The World Bank responded by suspending $124 million in loans.[47] In July 2006, the two sides reached a compromise, which specified that the Chadian government would commit 70 percent of revenues to development programs and 30 percent to government expenditures.[48]
President Idriss Deby will continue to face major military threats from Sudan-supported rebel groups in east Chad and threats from within the Chadian military. Rebels and military personnel will continue to be paid off with oil revenues. Corruption and investor uncertainty over potential civil war will continue to deter investment.[49] While some have called the Chad experiment a prima facie failure, others say that after three years it is still too early to judge.
What the U.S. Should Do
To attract scarce global capital and bolster economic development, African leaders need to develop the political will to overcome investment barriers. While the onus is on African leaders, policy coordination is crucial. Congress, the Administration, and energy companies can take a number of concrete steps to assist Africa.
The State Department, DOE, USDA, and USAID should develop a comprehensive strategy to improve the investment climate in Africa, focusing on privatization of the oil and gas industry's assets and reserves. Liberalization of the energy sector should be made an explicit part of the U.S. agenda for Africa. U.S. assistance should emphasize economic freedom and sound property rights. The U.S. should review assistance to countries that have state monopolies in their oil and gas sectors.
USAID should target technical assistance to help governments to privatize oil and gas sectors, establish stable regulatory environments, craft stronger property rights laws, create transparent and fair tax regimes, reform their judiciaries, fight corruption, and train government officials who supervise economic policy and the oil and gas sectors. This should include establishing liberal currency exchange control regimes and developing modern mining codes, especially subsoil legislation.
The State Department, DOE, and International Energy Administration, with the full participation of energy companies, should create a coordinating forum of major energy-consumer countries. The forum should work with African governments and financial institutions to harmonize policy and to develop a more hospitable energy investment environment. The forum could provide a venue for consumer countries to share best practices for increasing investment, promoting transparency and good governance, and fighting corruption. It should review state-of-the-art techniques of oil privatization and revenue generation and distribute this knowledge in Africa. Many African officials, industry managers, and elites are unfamiliar with the best practices of privatizing and instituting publicly accountable and transparent decision-making processes in oil production and revenue distribution.
The DOD should work with African governments through Africa Command to determine security needs and improve security environments in energy provinces and along the coasts of Africa. Greater cooperation with African governments will enhance the professionalism of African armed forces and improve the investment climate by increasing the security of energy resources and onshore and offshore platforms. This could help African militaries to develop doctrines, tactics, techniques, and procedures to protect energy resources. African countries can also apply to participate in the U.S. Foreign Military Sales program to obtain equipment, such as coastal patrol ships, aircraft, and other defense articles.
The DOE, USTR, and Treasury Department should work with Congress to remove tariffs and quotas on imported ethanol before 2009. Rescinding these market-distorting measures would encourage African governments to expand sugarcane ethanol production by ensuring a reliable U.S. market for their ethanol. Until lifted, these trade barriers will continue to hinder development of ethanol as a global, competitive energy commodity.
The State Department and USAID should assist African governments in creating national, independent, professionally managed oil "generations" funds. Such funds would provide revenues after oil resources are exhausted. They should be modeled on Norway's Government Pension Fund and similar funds. Ideally, they would be managed by the private sector. Such measures would go a long way toward legitimizing governments, increasing transparency, and overcoming the resource curse.
The Departments of State and Commerce and oil companies should also support the Extractive Industries Transparency Initiative (EITI), which seeks to set transparency standards for both investors and governments. Key elements of EITI are (1) public reporting of oil and gas payments by companies to governments and of the revenues received by governments from companies; (2) credible independent audits of payments and revenues; and (3) public release of the report and information on any discrepancies found.[50]
Conclusion
Development and transformation of Africa's energy sector presents a unique opportunity for cooperation between African countries and energy consumers, particularly since Africa is both geographically closer to the U.S. and safer than the Middle East as a source of energy.
Lack of security, corruption, waste, and mismanagement are inexcusable to all stakeholders. Increasing transparency of oil and gas revenue is vital for Africa, especially as African countries have a great opportunity to use petrodollars to drive economic development. It is also crucial that U.S. oil companies have a level playing field in this harsh environment so that their government-owned competitors cannot simply bribe their way into the choicest projects. Finally, it is important for the U.S. and other principal energy consumers, such as China and India, to ensure that governments supervising foreign investment in Africa maintain a modicum of transparency.
An attractive investment environment, especially in the lucrative energy sector, is the key to Africa's modernization. Developing sugarcane ethanol as an alternative energy sector is an important avenue in diversifying away from oil. The U.S. government and the private sector should strive to be the principal partners of their African counterparts in developing African energy resources for the benefit of Africans and Americans.
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation. Rafal Alasa is a graduate student at the Warsaw School of Economics and a former intern at The Heritage Foundation. Owen Graham, Research Assistant in the Allison Center, and Michael Belinsky, an intern in the Davis Institute, helped to produce this paper.
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[1] George W. Bush, "State of the Union Address," January 31, 2006, at www.whitehouse.gov/stateoftheunion/2006 (March 5, 2006).
[2] Paul Michael Wihbey and Barry Schutz, eds., "African Oil: A Priority for U.S. National Security and African Development," Institute for Advanced Strategic and Political Studies Research Papers in Strategy No. 14, May 2002, pp. 2–5, at www.iasps.org/strategic/africatranscript.pdf (May 10, 2007).
[3] U.S. Department of Energy, Energy Information Administration, Annual Energy Review 2006, Table 11.10, June 27, 2007, www.eia.doe.gov/emeu/aer/inter.html (April 19, 2007).
[4] Ibid., Table 11.12.
[5] U.S. Department of Energy, Energy Information Administration, "U.S. Weekly Petroleum Products Product Supplied," at http://tonto.eia.doe.gov/dnav/pet/hist/wrpupus2w.htm (March 31, 2006).
[6] Alan Greenspan, "Oil Dependence and Economic Risk," testimony before the Committee on Foreign Relations, U.S. Senate, June 7, 2006, at www.senate.gov/~foreign/hearings/
2006/hrg060607a.html (May 3, 2007).
[7] U.S. Department of Energy, Energy Information Administration, "International Energy Outlook 2006," June 2006, at www.eia.doe.gov/oiaf/ieo/excel/ieoreftab_2.xls (April 17, 2007).
[8] U.S. Department of Energy, Energy Information Administration, "U.S. Imports by Country of Origin," updated April 19, 2007, at http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2
_nus_ep00_im0_mbblpd_a.htm (April 19, 2007).
[9] National Intelligence Council, "External Relations and Africa," discussion paper, March 16, 2004, at www.dni.gov/nic/PDF_GIF_2020_Support/2004_03_16
_papers/external_relations.pdf (May 10, 2007).
[10] "The Paradox of Plenty," The Economist, December 20, 2005.
[11] Wihbey and Schutz, eds., "African Oil," pp. 16–17.
[12] Transparency International, "Corruption Perceptions Index 2006," 2006, at www.transparency.org/policy_research/surveys_indices/cpi/2006 (April 17, 2007).
[13] Ibid.
[14] For example, in terms of economic freedom, Algeria, Guinea–Bissau, and Angola were ranked 134th, 148th, and 149th, respectively, out of 157 countries. See Tim Kane, Kim R. Holmes, and Mary Anastasia O'Grady, 2007 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2007), at www.heritage.org/index.
[15] Commission for Africa, Our Common Interest: Report of the Commission for Africa, March 2005, p. 230, at www.commissionforafrica.org/english/report/thereport/
english/11-03-05_cr_report.pdf (May 7, 2007).
[16] The World Bank, World Development Report 2005 (Washington, D.C.: International Bank for Reconstruction and Development and The World Bank, 2004), p. 79, at http://siteresources.worldbank.org/INTWDR2005/
Resources/complete_report.pdf (June 1, 2007).
[17] Council of the Americas, Energy Action Group, "Energy in the Americas: Building a Lasting Partnership for Security and Prosperity," October 2005, at www.americas-society.org/coa/publications/
Papers/FINAL%20-%20COA%20Energy%20Action%20
Group%20Report.pdf (May 20, 2007).
[18] For a vivid example of how detrimental the loss of property rights can be to a country, see Craig J. Richardson, "How the Loss of Property Rights Caused Zimbabwe's Collapse," Cato Institute Economic Development Bulletin No. 4, November 14, 2005, at www.cato.org/pubs/edb/edb4.pdf (May 6, 2007).
[19] "South Africa Industry: Undermined," Economist Intelligence Unit Country Briefing, November 17, 2006.
[20] News release, "Mining Executives Rate the Investment Climate of Jurisdictions Around the World," Fraser Institute, March 22, 2006, at www.fraserinstitute.ca/shared/readmore.asp?s
Nav=nr&id=718 (May 9, 2007).
[21] Kane et al., 2007 Index of Economic Freedom.
[22] U.S. Department of Energy, Energy Information Agency, "Nigeria," Country Analysis Brief, April 2007, at www.eia.doe.gov/emeu/cabs/Nigeria/Background.html (May 1, 2007).
[23] U.S. Department of Energy, Energy Information Administration, "Crude Oil and Total Petroleum Imports Top 15 Countries," May 4, 2007.
[24] Abiola Morgan-Anyakwo and Craig Withers, "B2B Opportunities in Nigeria's Oil and Gas Industry," The Africa Journal, Winter 2006, p. 14, at www.africacncl.org/AfricaJournal/AJ_Winter_2006.pdf (May 9, 2007).
[25] Marianne Osterkorn, "Ethanol in Africa," EcoWorld, July 7, 2006, at www.ecoworld.com/home/articles2.cfm?tid=389 (May 20, 2007).
[26] New America Foundation, "The Petro Mirage: Conversation on Oil's Failed Promises in Developing Countries with Oil
on the Brain's Lisa Margonelli," May 16, 2007, at www.newamerica.net/events/2007/the_petro_mirage (May 29, 2007).
[27] David Adesnik, "Ignoring Nigeria," The Weekly Standard, May 14, 2007, at www.weeklystandard.com/Content/Public/Articles/
000/000/013/614ytnro.asp (May 9, 2007).
[28] Lydia Polgreen, "Africa's Crisis of Democracy," The New York Times, April 23, 2007, p. A1.
[29] Adesnik, "Ignoring Nigeria."
[30] Robin Knight, "Concerns Grow About Big Drop in Nigerian Oil Production," CNBC, May 9, 2007, at www.cnbc.com/id/ 18569318 (May 10, 2007), and U.S. Department of Energy, "Nigeria."
[31] Ibid.
[32] U.S. Department of Energy, Energy Information Administration, "Sudan," Country Analysis Brief, April 2007, at www.eia.doe.gov/emeu/cabs/Sudan/Background.html (May 1, 2007).
[33] Sapa–Agence France-Presse, "Sudan Oil Output to Reach 600,000 bpd," Business in Africa, April 3, 2007, at www.businessinafrica.net/news/north_africa/390808.htm (May 14, 2007).
[34] Economist Intelligence Unit, "Country Report: Sudan," April 2007.
[35] U.S. Department of Energy, "Sudan."
[36] David Christianson, "Sudan: Getting In at Ground Level," Business in Africa, September 6, 2006, at www.businessinafrica.net/energy_in_africa/997130.htm (May 14, 2007).
[37] Ibid.
[38] BBC News, "Powell Declares Genocide in Sudan," September 9, 2004, at http://news.bbc.co.uk/1/hi/world/africa/3641820.stm (July 5, 2007).
[39] Peter Brookes, "Into Africa: China's Grab for Influence and Oil," Heritage Foundation Lecture No. 1006, March 27, 2007, at www.heritage.org/Research/Africa/hl1006.cfm.
[40] Marc Lacey and Lydia Polgreen, "The Tragedy of Darfur: Ethnic Conflict in Sudan Has Killed 200,000 Civilians and Created 2 Million Refugees," The New York Times Upfront, May 8, 2006, at http://findarticles.com/p/articles/mi_m0BUE/
is_14_138/ai_n17212967 (May 29, 2007).
[41] Amnesty International, "Sudan: Arms Continuing to Fuel Serious Human Rights Violations in Darfur," May 5, 2007, at http://web.amnesty.org/library/index/engafr540192007 (June 1, 2007).
[42] Ling Zhu, ed., "China, Sudan Vow to Boost Military Exchanges," Xinhua, April 2, 2007, at http://news.xinhuanet.com/english/2007-04/02/
content_5926215.htm (May 14, 2007).
[43] Central Intelligence Agency, The World Factbook, s.v. "Chad,"April 17, 2007, at www.cia.gov/library/publications/the-world-
factbook/index.html (July 1, 2007).
[44] Transparency International, "Corruption Perceptions Index 2006."
[45] U.S. Department of Energy, Energy Information Administration, "Chad and Cameroon," Country Analysis Brief, January 2007, pp. 1–4, at www.eia.doe.gov/emeu/cabs/Chad_Cameroon/
Background.html (April 24, 2007).
[46] Carin Zissis, "Chad's Oil Troubles," Council on Foreign Relations, updated April 27, 2007, at www.cfr.org/publication/10532/chads_oil_troubles.html (May 16, 2007).
[47] Raymond Thibodeaux, "Anger Rises in Oil-Rich Chad as Funds Don't Aid the Poor," The Boston Globe, April 30, 2007, at www.boston.com/news/world/articles/2006
/04/30/anger_rises_in_oil_rich_chad_as_funds_
dont_aid_the_poor (April 30, 2007).
[48] U.S. Department of Energy, "Chad and Cameroon," p. 4.
[49] Economist Intelligence Unit, "Country Report: Chad," March 2007.
[50] For more information, see Extractive Industries Transparency Initiative, "EITI Priniciples and Criteria," at www.eitransparency.org/section/abouteiti/principlescriteria (July 1, 2007).
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