“Skilled personnel and patriotism essential to achieve the Tanzania Vision 2025,” Minister Mkuchika

UONGOZI Institute in collaboration with the Ministry of Minerals organised a four-day intensive leadership workshop for senior leaders from the Ministry of Minerals and Mining Commission. The workshop, which took place from 28th – 31st May 2019 in Dodoma, aimed at enhancing the capacity of leaders to make strategic choices and decisions; leading people; managing other resources; and excel in personal leadership qualities.

The workshop was officiated by the Hon. Capt (Rt.) George Mkuchika (MP), Minister of State, President’s Office, Public Service and Good Governance. Also present was Hon. Doto Mashaka Biteko (MP), Minister for Minerals.

Mr. Kadari Singo, UONGOZI Institute’s Head of Executive Education, shared the composition of the programme on behalf of the CEO.

He stated, “This programme covers Government Structure and Communication Protocols; Personal Leadership and Emotional Intelligence; Leadership of Public Resources; Internal Controls of Public Entities; Good Governance; Protocols and Etiquette.”

In his remarks, Minister Biteko extended special appreciation to Minister Mkuchika for accepting the invitation to officiate the workshop. Minister Biteko touched on the structure of the Ministry of Minerals and the human resource challenges it faces.

He explained, “The establishment of the Mining Commission in 2017 has created a shortage of staff, particularly in leadership positions.” He further stressed on the need for immediate solutions to address the issue and allow the Ministry to realise its goals.

In his opening address, Minister Mkuchika stressed the link between the mining sector and the government’s development agenda:

He said, “The Fifth Phase Government is determined to maximise the benefits from the mining sector and boost the country’s economy. Since 2015, we have witnessed several reforms, including the establishment of dedicated ministry for mining, new mining regulations and the establishment of the Mining Commission.”

Minister Mkuchika highlighted how ministries can help achieve the goal to ensure Tanzania becomes a middle-income country by 2025: “We can achieve this by having skilled personnel and a sense of nationalism among us.”

He further underscored the importance of transparency; efficiency; and communication while also urging the Ministry to strengthen its human resource and administration system.

Minister Mkuchika also expressed concern about Tanzania being “ripped-off” for many years, and that persistent effort was required to put an end to natural resource theft and corruption.

UONGOZI Institute participates in the 11th Mwalimu Nyerere Intellectual Festival

The Mwalimu Julius Nyerere Intellectual Festival creates a space for reflections on Africa’s past, present and future development. The event honours the memory of Mwalimu Julius Kambarage Nyerere, Tanzania’s founding father and leading Pan-Africanist, with a series of lectures, debates, exhibitions and artistic performances that explore his political philosophy and thoughts on education, unity and development.

The 11th festival was organised under the theme Pan-Africanism and the Quest for Unity, Democratisation and Development: The State, Markets and Knowledge Society, from 22nd –24th May 2019. Similar to previous years, the festival was organised under the auspices of the Mwalimu Nyerere Chair of Pan-African Studies at the University of Dar es Salaam (UDSM).

The festival was supported by UONGOZI Institute, Bank of Tanzania, Haki Elimu and CRDB Bank. The Institute’s participation came from a desire to draw lessons from Mwalimu Nyerere’s life that may be instructive to Africa’s current and future generation of leaders working to achieve sustainable development for the continent.

The event was graced by H.E. Jakaya Kikwete, former President of the United Republic of Tanzania and Distinguished Nyerere Lecturer. Those present included academics and experts from Tanzania, Kenya, Uganda, Malawi and the United States of America.

Speaking at the opening ceremony H.E. Jakaya Kikwete acknowledged the efforts made by regional institutions and African countries to stimulate development and better governance across the continent while noting that challenges still present.

“There is no doubt that some significant strides have been made in good governance in Africa, compared to what the situation was in the past decade,” he expressed.

He also noted that extreme poverty is still a challenge to most of the African countries.

He said, “Sadly, 27 out of 30 poorest countries in the world are in Africa,” adding, “In the United Nations Human Development Report, throughout all indicators, most African countries, if not all, have the lowest scores.”

The former President also expressed his optimism in the area of unity, stating that there has been robust cooperation among the African states, particularly across economic and diplomatic fronts, at bilateral and regional levels.

In his remarks, Professor William Anangisye, Vice Chancellor of UDSM, underlined that those present gathered, “Not only out of intellectual curiosity but more profoundly in search for a better destiny for humanity, especially in Africa.”

During the opening ceremony, Professor Rwekaza Mukandala, former Vice Chancellor of UDSM, was installed as Mwalimu Nyerere Chair in Pan-African Studies.

Book Review: Sovereign Wealth Funds – States Buying the World

By Japhet Lutambi

SWFsWhat are Sovereign Wealth Funds (SWFs)? What are the Sources, Size and objectives of SWFs? Why SWF had little media interest on their investment prior to 2007? Why commentators are concerned at the Rise of SWFs? Lixia Loh (PhD) addresses these questions in her book; Sovereign Wealth Funds: States Buying the World. Lixia Loh (PhD) aims to clarify the nature, strategies and investment holdings of SWFs to enable policy makers and academics to make reasoned judgement on the significance of this fast-growing phenomenon. Since, the comparatively recent massive growth of SWFs coupled with the complexity and opaque nature of their strategies and investment holdings has given rise to concern at the highest level in many western countries.

SWFs are not a new phenomenon. They were introduced in 1950s but little research has been done on them. Despite their long history, it is only until few years ago that they became of interest to investors, policy makers and academics. The Kuwait Investment Fund was the first SWF set up in 1953 to invest the revenue from its oil industry (Page 1).  Many other SWFs have been set up ever since, most of these funds were set up to invest revenue from commodity exports. Due to the success of the Abu Dhabi Investment Authority (ADIA), Norway’s Government Pension Fund-Global and the Government of Singapore Investment Corporation (GIC), countries with excess foreign reserves from either sale of commodities or exports have set up similar funds, thus resulting in the unprecedented growth in the assets under the SWFs management. Non-commodity SWFs are largely funded by excess foreign reserves and budget surpluses. Singapore was the first country to set up a SWF using its fiscal surplus, with Temasek Holdings established in 1974. Initially, most of these funds were set up using revenue from commodities, particularly oil. But over the years more funds were set up using a country’s fiscal surplus and foreign reserves.

The term “Sovereign Wealth Fund” was coined by Andrew Rozanov of State Street Global Advisors in 2005 to describe the investment funds created by nations. The US Treasury defines SWF as a government investment vehicle funded by foreign exchange assets and managed separately from official reserves.  Despite the many definitions of SWFs, they generally share the following characteristics:

  • They are owned by a sovereign government.
  • They are managed separately from the sovereign central bank, ministry of finance and treasuries.
  • They invest in a portfolio of assets of different risk profiles.
  • They have a long-term investment horizon.
  • Unlike pension funds, they have no explicit individual liabilities.
  • They can either operate as a separate legal entity from the government or they can legally be part of the government or central banks.

It is fairly arbitrary to estimate the size of SWFs. They are hindered by the fact that most of these funds do not publish the value of the assets they have under management. A report by the Monitor Group in 2008 stated that the value of SWFs is estimated to be between US$1.9 trillion and US$ 2.9 trillion. In general, most SWFs share similar characteristics but they are heterogeneous group with different policy objectives. The main objective of SWFs identified by IMF are; stabilization of fund, saving funds, reserve investment corporations, development funds and pension reserve funds. However, the lack of transparency and international rules to regulate the SWFs has raised concerns regarding their activities and motives. A lot of concerns have risen mainly due to the lack of information and understanding about SWFs.

SWFs can exist as separate legal entities from the state or the central bank, or they can fall within a pool of assets managed by the central bank, statutory agencies or the ministry of finance. They can be established under specific constitutional laws, general fiscal laws or under the central bank law. To gain a better understanding of the structure of SWFs, five large SWFs are examined (Page 19).

Investment abroad allows SWFs to achieve diversification from their domestic economy and achieve a potentially higher rate of return in international markets (Page 77). However, Dr. Loh describes a trend in Page 80 which indicates that the SWFs have slowed down their activities due to the global economic downturn and the uncertain future in the developed markets. To some SWFs such a move is necessary to help domestic firms which are having difficulties in raising capital. For example, China’s CIC (China Investment Company Ltd) has been actively involved in reviving domestic firms and invested $ 20 billion to recapitalize the Agriculture Bank of China,   whereas the SWFs of France, which was set up specifically to help local firms, has taken an 8 percent stake in Valeo SA, France’s second largest car parts maker.

The political debate on SWFs has witnessed a shift with SWFs moving from investing in sensitive sectors to ones with less political involvement, but nonetheless investment in consumer goods and manufacturing is fairly limited. Dr. Loh however summed up the explained investment policies and activities of SWFs in the book that; the main objective of the heterogeneous SWFs can be divided into two broad categories: Income transfer and wealth creation (Page 88-101).

From page 117 to 167, which is chapter 4, the author provides an overview of the investment policies of SWFs, their investment by countries and by sector, choice of investment strategies and the regulations that these funds face in their overseas investments. The author examines the investments of five of the largest SWFs namely; Abu Dhabi Investment Authority (ADIA), China’s Investment Company (CIC), Government of Singapore Investment Corporation (GIC), Singapore’s Temasek Holdings, and Government Pension Fund-Global (GPFG-Norway) in greater details. Of the five, UAE’s ADIA is the biggest SWF in asset value and has been the most active in terms of its investment and its quest to build itself into an international investment house.

The author shows in the last chapter the future development of SWFs. As SWFs are buying up global companies, the speed of their growth is faster than that of any other investment vehicles. While other investment vehicles have shrunk significantly due to the financial crisis, SWFs have defied the economic uncertainty and how a more prominent presence have in the financial sector. The general market consensus is that the size of SWFs will have sustained growth and the number of new SWFs is likely to increase over the years. The projected growth estimated by Deutsche Bank shows that SWFs will grow steadily over the years at an average rate of 15 percent per annum. Many other industry players, academic researchers and policy makers believe that SWFs will become a dominant force in the global financial markets, helping to shift economic power from the West to the East.

 Reviewer’s observation

Tanzania can set and establish its own Sovereign Wealth Fund and invest revenue from its commodity exports. For example, with high growth in the tourism and extractive sector, revenue collected there can be invested in the global and emerging markets across the world for the sake of future generation.

Japhet Lutambi is a PGD student in Economic Diplomacy at Mozambique-Tanzania Centre for Foreign Relations. He is also a Member of UONGOZI Institute’s Resource Center.

Disclaimer: The views and opinions expressed in the above article are the views of the author and do not necessarily represent the views of UONGOZI Institute.

Book Review: Orientalism (3rd Edition)

By Mélisande Denis

OrientalismOriginally published in 1978, Orientalism, written by Edward W. Said, is still highly topical forty years later, and is especially worth reading to understand the issues of racism, of identity and of relations between different cultures. Indeed, it addresses crucial questions related to cultural representations: how do we perceive a culture that is not our own? Can we ever truly understand it? And how do these representations impact the way cultures relate to each other? Said, drawing from his experience as a Palestinian living in the West and as a Comparative Literature professor at Columbia University, provides critical insights to this wide-ranging debate as he analyzes the relationship between the Western (‘Occident’) world and the Orient throughout history. He reckons that, for centuries, Orientalism has defined the links between Europe (and later on, the United States) and the East.

According to him, Orientalism can be defined in three complementary ways: first as an academic label assigned to any scholar teaching or writing about the Orient; second as a way of thinking based on a perceived distinction between the Orient and the Occident; and third as a Western discourse (that is to say, a compelling way of presenting and discussing the Orient that gives it a specific meaning and frames Western perceptions about it) prompting domination and authority over the East. Building his argument on analyses of major Western writings – from influent academics, political and military leaders, but also from famous novelists and artists such as G. Flaubert (Madame Bovary, Salammbô), R. Kipling (The Jungle Book) or J. Conrad (Heart of Darkness) –  he asserts that the West has ascribed an identity to the East which is far from objective and does not reflect the actual Orient, but merely acts as flattering mirror designed for a Western audience, and as a tool to justify Western dominance.

In fact, he argues that this identity derives from four major characteristics: an absolute differentiation between the Occident and the Orient; a constant use of abstract references (meaning that concrete evidence coming from the East is dismissed as being irrelevant compared to the theoretical works of Orientalist scholars); a tendency to over-generalize accounts of the Orient (no effort to deliver a detailed, specific or balanced perspective is undertaken by these experts); and a sense of fear (because the East is said to be so different from the West, it might appear as a threat to a Western audience and should, as such, be controlled). In this perspective, the Occidental understanding of the East, based on systematic opposition, generalization and abstraction, is patently detached from the day-to-day reality experienced by people living in the East: it is then no more than a “collective daydream of the Orient” (Orientalism).

Erudite and dense, Said’s argumentation is thus highly ambitious, as it aims at exposing the Orient as a mere construction of the West, and in doing so, at altering contemporary perspectives on the Eastern part of the world.  This denunciation of Western prejudices has triggered endless debates, generated numerous responses from renowned scholars, and turned Orientalism into a classic of social sciences. Reviewing the countless opinions that were expressed about the book throughout the past forty years would be a never-ending task; but it could be argued that Said’s perspective on identity construction is one of the key elements that can account for his book’s lasting influence. In fact, beyond its specific geographical framework, i.e. the power relationship between the East and the West, it addresses the universal question of culture, criticizing a widely shared tendency to construct one’s identity by establishing opposites and “others”.

The binary opposition between “them” and “us”, and the recurring differentiation between what is “close” and what is “far away”, so strongly decried by Said, still serve as the basis of most cultural discourses. Indeed, defining something as foreign, as “the other”, often helps reinforce one’s own identity: “the other” represents everything one is not, and should often be wary of. Orientalism has successfully demonstrated how unfounded and deceptive such a posture is: in Said’s words, “the orient-versus-occident opposition was both misleading and highly undesirable; the less it was given credit for actually describing anything more than a fascinating history of interpretations and contesting interests, the better” (Orientalism, Afterword, 1995).

In short, Orientalism invites readers to question and deconstruct their own representations and (potential) biases: an identity that is based on ascribed characteristics and on binary oppositions cannot be authentic, and one should focus on more relevant accounts. It might nonetheless be interesting to mention that in denouncing Western inaccurate perceptions of the Orient, Said himself falls into this cultural representation trap: if he distinguishes between several periods of Western domination (i.e. between French, British and American imperialism), he does not try to deconstruct the identity of “the West”. On the contrary, he tends to present it as a uniform entity, in much the same way as Orientalists did when discussing the East. This relative shortcoming of Said’s argument illustrates the difficulty to move beyond established cultural interpretations, and to account for the richness and diversity of a different culture. Be as it may, Orientalism provides a compelling framework to reflect on cultural discourses, or in other words, on what Nietzsche has defined as truths: “illusions about which one has forgotten that this is what they are” (On Truth and Lying in a Non-Moral Sense, 1896).

 

Disclaimer: The views and opinions expressed in the above article are the views of the author and do not necessarily represent the views of UONGOZI Institute.

Comprehensive leadership programme for TANESCO begins

UONGOZI Institute in collaboration with the Tanzania Electric Supply Company Limited (TANESCO) has developed a comprehensive leadership programme for TANESCO’s Leadership Team. The programme has been designed to enhance leaders’ capacity to make strategic choices and decisions; maximise production; manage public resources; and excel in personal leadership qualities.

The four-phase programme covers various leadership development topics: Personal Leadership and Emotional Intelligence; Good Governance and Ethics, Integrity and Anti-corruption; Internal Controls of Public Entities; and Management of Public Resources.

To date, three phases have been implemented. The first, delivered from 15th–18th April 2019, included senior leaders of the company (directors, regional and plant managers). The second (6th – 10th May) and third (10th – 14th May) phases included district and line managers.

Tanzania on good track in domesticating the Africa Mining Vision

About 70 leaders and experts from seven countries met in Dar es Salaam to deliberate on ways to domesticate the Africa Mining Vision (AMV), a pathway developed by African nations that puts the continent’s long-term and broad development objectives at the heart of all policy making concerned with mineral extraction.

Held from 9th – 10th May, 2019, the forum included governmental, private sector, and civil society representatives from Tanzania, Botswana, Nigeria, Kenya, Ghana, Uganda and Lesotho.

The forum was organised by UONGOZI Institute, the Ministry of Minerals and the United Nations Development Programme (UNDP). During proceedings, the extent to which policies and the regulatory regime in the Tanzania’s mineral sector are aligned with the AMV principles was reviewed. The roadmap and strategy for formulating a Country Mining Vision (CMV) for Tanzania was also discussed.

During his keynote address, Hon. Doto Mashaka Biteko MP, Minister for Minerals, underscored the government’s wish to enhance the competitiveness of the mining sector.

He said, “Tanzania is well endowed with mineral resources which can contribute to socio-economic development of the country. The contribution can be in terms of job creation, inclusive development, the participation of local communities and greater female involvement to ensure their share of the benefits. There is also the inter-linkage of the sector with other sectors of the economy, while increased exports contribute to GDP.”

Minister Biteko highlighted two policy concerns that need to be addressed to fulfil this wish: local content and stakeholders’ capacity to support critical development in the sector.

He went on to note the official percentage growth of mining and quarrying activities (17.5%) as well as mineral exports (14.2%) whilst remaining mindful of the challenges that still exist in the sector. He added that despite such growth figures the sector requires continued transformati0n.

In concluding his address, Minister Biteko stated that in order for Tanzania to successfully domesticate the AMV, commitment from all key actors is required. He conveyed his gratitude to the United Nations Economic Commission for Africa and African Minerals Development Centre for propagating the AMV. UONGOZI Institute and UNDP were also commended for supporting domestication processes.

On her part, Ms. Natalie Boucly, UNDP Resident Representative a.i., stated that UNDP is committed in collaborating with the Government of Tanzania to strengthen the capacity in governing the extractive sector.

She said, “Since 2014, in collaboration with the Government of Tanzania and various partners, we have implemented several activities, mainly on creating awareness on the AMV, building capacity in negotiating extractive contracts, and studies to analyse gaps in AMV domestication.”

Ms. Boucly further touched on the Gap Analysis of Africa Mining Vision in Tanzaniastudy which was conducted by UNDP and UONGOZI Institute to analyse AMV integration gaps in the country.

She observed, “The study’s objective was to review the existing legal and policy frameworks related to minerals and hydro-carbon, and propose a realistic roadmap that aligns with the AMV.”

Ms. Boucly further stated that the overall findings of the study show that Tanzania’s performance in implementing the AMV principles is medium, indicating that the country is following the right course to domesticating the AMV.

Ms. Boucly commended the government for undertaking key reforms, some of which are consistent with the AMV principles. She added that findings from the study and outcomes from the forum will contribute to the interventions aimed at supporting the government’s policy work.

In his remarks, Professor Joseph Semboja, UONGOZI Institute’s CEO, shared the Institute’s position in relation to Tanzania implementing the AMV.

“We believe that embracing the AMV principles will maximise the benefits from the extractive sector and boost the country’s economy,” he stated.

He was optimistic that a rich mix of expertise and experience in the room could generate ways forward to assist Tanzania and other African governments working to ensure that the extractive sector contributes to socio-economic transformation.

The AMV aims to shift away from the current and dominant ‘resource-for-development’ model towards one that may bring about the structural transformation of African economies by using mineral resources to catalyse broad-based and inclusive growth and development. Since its adoption, various African countries have made progress in domesticating this initiative by establishing country visions that embrace the aspirations and guidelines of the AMV.

From Africa Rising to Rising Debt in Africa: The Looming Debt Crisis

By Dr. Maureen Were

IMG_2092

Africa’s rising public debt continues to attract increased attention regionally and internationally. The narrative about Africa seems to have gradually shifted from ‘Africa rising’ to ‘rising debt in Africa’. In December 2018, I attended the African Economic Research Consortium (AERC) biannual research workshopin Nairobi. AERC is a premier institution devoted to the advancement of research and training to inform economic policies in Sub-Saharan Africa(SSA).The plenary session onthe looming debt crisis in Africanot only grabbed my attention, but also elicited illuminating and timely discussions.

Growing risk of debt distress

As was noted in the discussions, the  key concern is not just about the amount of debt, but the rate at which it has accumulated, and  the shift towards non-concessional debt, especially commercial debt, which is costlier and more vulnerable to changes in financing conditions.  According to the April 2018 edition of the Regional Economic Outlook for Sub-Saharan Africa by the International Monetary Fund (IMF), the median level of public debt in SSA as at end of 2017 exceeded 50% of gross domestic product (GDP). About 40% of low-income developing countries in SSA slid into debt distress or are at high risk of debt distress. These include Chad, Mozambique, South Sudan, and Republic of Congo.

Increases in the amount and cost of debt imply higher shares of revenue towards the servicing of debt at the expense of other priority needs. Moreover, although the debt levels for some countries are currently considered to be within manageable limits, on average, the risk of future debt distress is rising across SSA. These have implications on debt sustainability and sustainable development, especially given limited growth in domestic tax revenues and export earnings in most SSA countries.

What factors have contributed to the accumulation of debt?

There are several factors that have contributed to the buildup of public debt, most of which featured during the discussions. These include the following:

  • Infrastructure gaps: Debt accumulation is partly due to the need to finance infrastructure projects, with some countries like Ethiopia and Kenya looking towards China to close the gap.
  • Weak domestic debt markets and lack of long-term financing options.
  • Increased access to international financial markets:The buildup of debt between 2008 and 2016 coincided with negative yields in advanced countries following the global financial crisis. This made several African countries attractive to foreign investors, leading to increased issuance of sovereign bonds. As monetary policy is tightened in advanced economies, rising interest rates can pose a challenge.
  • Fiscal sustainability challenges: Revenue mobilization has not matched the increase in expenditures, leading to increased fiscal deficits and limited fiscal space. Despite economic growth, tax revenue as a share of GDP has not increased significantly.
  • The fall in commodity prices disproportionately affected countries dependent on oil exports, such as Nigeria and Angola. The global commodity price boom that began in the early 2000s dissipated after prices started going down in 2011 as global demand softened vis-à-vis
  • Other factors include exchange rate depreciation (Zambia); poor debt management, including cases of undisclosed debt (Mozambique and Republic of Congo); and negative growth (Chad, Equatorial Guinea and Republic of Congo).

What could then be done to avoid the looming debt crisis?

Based on the above, some of the policy proposals in terms of way forward include the following: ensuring higher returns to investment and better value for borrowed funds; strengthening public debt management; promoting public-private partnerships; deepening domestic financial markets including the role of capital markets; exercising prudent fiscal policy to ensure fiscal sustainability, including opening avenues for domestic resource mobilization; and borrowing in domestic currencies to hedge against exchange rate risk.

In addition, there is a lot more that can be done, particularly in terms of structural transformation towards export diversification to avoid over-dependence on one or two key export commodities. African countries need to enhance their competitiveness in global markets and exploit opportunities provided by regional integration and the Continental Free Trade Area.

The denominator (GDP) is just as important as the numerator (debt). Sustainable economic growth both in terms of its composition and the rate have direct implications on a country’s ability to borrow and repay and is hence, expected to play a prominent role in determining whether the rising debt will remain a subject of debate in the foreseeable future.

Dr. Were is Research and Policy Advisor for a joint research project by UONGOZI Institute and United Nations University World Institute for Development Economics Research (UNU-WIDER). The project aims to facilitate the development and implementation of public policies that promote economic transformation and inclusive growth in Tanzania and the Eastern African region.

Disclaimer: The views and opinions expressed in the above article are the views of the author and do not necessarily represent the views of UONGOZI Institute.

A version of this article was originally published in the WIDERAngle blog under a Creative Commons license. Read the original article.

Can Natural Resources jump-start Industrialisation?

By Dr. John Page

At the end of last year, I filmed a lecture that will be part of a Massive Open Online Course (MOOC) on industrialisation in Africa. The course is based on a joint research project between the Brookings Institution and UNU-WIDER called Jobs, poverty and structural change in Africa. The topic of the filmed lecture on natural resources and industrialisation was of more than passing interest to the audience. Tanzania has discovered significant reserves of natural gas while its National Development Plan prioritises industry. For Tanzania the question is: can gas jump-start industrialisation?

Mining. Photo: Unsplash Dominik VanyiThe forthcoming book, Mining for Change: Natural Resources and Industry in Africa(Oxford University Press, 2019), helps to answer that question. It addresses how the revenues and opportunities offered by natural resources can be used to change economic structure. The book features country studies on five African resource exporters — Ghana, Mozambique, Tanzania, Uganda, Zambia — and focuses on three areas of public policy central to industrialisation: understanding and managing the resource boom, the construction sector, and linking industry to the resource. Here I provide some ideas about how policy, and institutional changes, along with public investment, can push the pace of structural change in a resource-rich economy.

Understanding and managing the boom

The early questions posed by a natural resource discovery, ‘how big is the revenue likely to be?’ and ‘when will it come on line?’ are often the questions that are least well understood by politicians and the public. After a new mineral deposit is discovered it can take a decade or more to take the steps necessary for revenue to flow through to public finances. In Ghana, Mozambique, Tanzania, and Uganda, the size of the boom has been overestimated, while the delay in receiving revenues has been underestimated, leading, in the cases of Ghana and Mozambique, to rapid accumulation of debt. In addition, resource revenues tend to be highly volatile. Managing the boom requires educating the public to these inconvenient truths and avoiding the temptation to front load spending.

Because of the long lead time between discovery and revenue flow, countries have a window of opportunity to make decisions about savings rules and public expenditures and lock them in before pressures to spend become irresistible. A resource-abundant economy should never finance an investment project where the return, broadly and carefully assessed, is less than that obtained from holding foreign assets. Yet, all the countries we studied lacked effective systems to prioritise and select investment projects. To improve project selection, governments need to build a cadre of economists trained in project appraisal and make them responsible for project preparation in each spending ministry. The ministries of finance or economy should have a prioritised list of projects meeting the threshold rate of return.

Additionally, in our research we found that public investments were frequently made without adequate provision for the recurrent costs of maintenance. Because lack of maintenance can seriously degrade project returns, a medium-term expenditure framework (MTEF) that incorporates multi-year maintenance plans should be used to create budgets that are more forward looking.

Building roads. Photo: Allison Kwesell World BankThe Construction Sector

The construction sector determines a country’s ability to transform public investments into outcomes, and it has an important direct link to the natural resource sector. The extent to which the domestic economy can benefit from the construction phase of a natural resource project depends on the sector’s capacity to meet the price and quality standards of extractive investors.

A recurrent theme in our country studies is the extent to which firm capabilities — access to material inputs, skilled labour (engineers, technicians, artisans) and access to finance — limit the ability of domestic construction firms to expand production. The majority of construction firms in Africa are micro, small and medium enterprises (MSMEs), and business training (despite an uneven track record) may be one way to improve their capabilities.

Institutional and policy reforms can relieve other constraints. Where urban land rights are confused, or construction permits cause delays, governments can act. Policy restrictions on imports and poorly performing institutions, such as customs or the port, can be addressed. With planning, construction skills can be developed locally, and easing the restrictions on movement of skilled artisans within regional agreements can help to relieve bottlenecks.

Linking industry to the resource

Political pressures to ‘localise’ the benefits of a natural resource discovery is a reality faced by all resource-abundant economies. In response, African governments have adopted a wide range of ‘local content’ and ‘value added’ initiatives. Most countries have succeeded in enforcing requirements for the employment and gradual skills upgrading of nationals, but local procurement regulations have been met with less success. Resource-multinational corporations (MNCs), and their first-tier suppliers, often prefer to operate almost exclusively with foreign, second-tier suppliers. In general, local companies are found at the lower end of the natural resources supply chain, in activities such as transport services, catering and security. A ‘missing middle’ of productive small and medium enterprises (SMEs) in industry is a major reason why the extractive companies have difficulty finding qualified local partners.

Integrating local firms into the resource value chain depends on the ability of government and industry to develop effective public–private partnerships. While training can raise the capabilities of local firms to the minimum level needed to allow them to enter the MNC value chains, the government and the resource extraction companies must agree on the design of training, and on the qualification process through which a firm achieves second-tier supplier status. Without buy-in from both parties training will not be an effective strategy. Further, public officials must understand both the requirements of the procurement divisions of the MNCs, and the range of capabilities of domestic firms. A well-designed and properly staffed organization to negotiate and manage local participation— for example, a unit in the office of the head of state or government — can act as the broker between the multinational companies and domestic firms.

Dr. Page is Non-Resident Senior Research Fellow at UNU-WIDER and Senior Fellow in the Global Economy and Development Program at the Brookings Institution in Washington DC.

Disclaimer: The views and opinions expressed in the above article are the views of the author and do not necessarily represent the views of UONGOZI Institute.

This article is republished from the WIDERAngle blog under a Creative Commons license. Read the original article.

Related: Watch Dr. Page’s In Focus interviews on Opportunities and Challenges for Africa’s Industrialisation and Africa’s Natural Resources and Industrialisation.