The impact of the extractive industries in Africa

There are many examples of the impact of natural resources on African governance. Nigeria is the largest economy in sub-Saharan Africa and an economy that still had a dominant agricultural sector in the 1960s. In fact, its biggest export sectors were related to agriculture. As soon as oil became the biggest sector, that led to the under-development of almost every other aspect of the economy. From the late 1990s, the financial sector did develop to some extent. But oil remains absolutely central to the economy, and it prevents the development of other alternative sources of income.

Other examples include Angola, which was until recently the third largest economy on the continent. Before the arrival of oil wealth, Angola used to have an economy that was much more diversified. However, in the long term, it has become so dependent on oil revenues that the incentives to produce anything else and to make the hard choices that are necessary for other sectors to be pushed forward are entirely lacking.

These are oil experiences. But there are also countries such as Zambia, one of the world’s leading exporters of copper, or the Democratic Republic of the Congo (DRC), one of the wealthiest countries in the world in mining terms. The impact mining has had on the trajectory of these economies is absolutely dismal.

There’s nothing intrinsic to mining wealth or oil that should account for those outcomes. Some experts have spoken of a “resource curse” whereby states that are wealthy in natural resources paradoxically end up with much worse outcomes in terms of development. But that tends to overstate the direct outcomes that resource wealth produces in terms of poverty and lack of development.

Whether we’re looking at the DRC, Angola or Nigeria, it’s important to examine not just the economic impact of natural resources but the political choices that post-colonial elites have made about development: which sectors they developed, which sectors they neglected, how they governed the economy, what choices they made about investing in the long term. In addition to the economic base of these countries, we need to consider the political story behind the wealth that they have.

The first thing to understand in regard to oil in Africa is that Africa has about 10–12% of all the available oil in the world. It doesn’t seem as important as the Persian Gulf or some other parts of the world, but there are some specific points about how oil works in Africa that make it very important. There are many areas of the world, such as the Middle East, where foreign companies are not really welcome. National oil companies owned by those countries extract most of the oil, and they’re not keen on foreign investors to come in and play that role.

Think of a country like Angola, where more than 90% of government revenue comes from oil. When there is a major oil shock – such as from 2014 onwards, with oil prices that were historically very low, even before the coronavirus pandemic – a third of the revenue of these countries disappears. This obviously has a major effect on how they can pay civil service salaries, the armed forces and so on. So part of the effect of oil is this major fiscal shock every time there is a decrease in global oil prices.

On the other hand, there is a strength to being reliant on the oil sector. The first one is that if you were the government of an oil-rich country, you probably made major investments in buying off a loyal clientele. You have parts of the population – middle-class people, civil servants, people in the security sector – that you co-opted during the good years. And sometimes that loyalty does repay itself during the lean years. You’re able to count on some support in this regard.

Even when the macroeconomic situation is terrible – think of a country like Nigeria, which has suffered so much over the last six years from the downturn – chances are that the State still has power both internally and externally. As a country that is sitting on all of those oil resources, it can still command some respect and dictate certain terms. That might include how it can access IMF emergency funding, or the way it is still able to control parts of State infrastructure, such as the armed forces or the intelligence service, to keep the population from rising against the status quo.

When we speak of failing States, or when we speak of these States from the point of view of their dysfunctions, we tend to have an ideal notion of what these States should be doing in terms of development. From that perspective, they’re not doing well. But from the perspective of sustaining themselves in power and, most importantly, from the perspective of giving those people who are influential in that society an enormously wealthy lifestyle, they’re extremely successful. The failing is relative; it relates to poverty alleviation and broad-based development. But there are nonetheless beneficiaries of these situations.

It’s important not to be fatalistic. Some people who speak about a “resource curse” seem to suggest these negative outcomes from resource wealth are more or less predetermined, and there’s very little one can do about it. But throwing one’s hands in the air and saying these countries are doomed because of their resource wealth is not the way to go about it.

However, it is nonetheless the case that countries that build their politics, economic infrastructure and institutions around resource wealth and little else do have an uphill struggle in getting out of that resource dependence, partly because other countries in the world economy have moved on. They’ve diversified, they’ve become competitive in other arenas, and these countries haven’t. So part of the solution entails not just the long-term dream of moving beyond oil or mining, desirable as that outcome should be, but rather managing dependence in the short and medium term.