The Challenges of Developing Eastern Africa’s Natural Resources

About the Project

The discovery of significant oil and gas reserves in Eastern Africa provides a major opportunity for boosting economic development in the region. In developing these reserves, Kenya, Mozambique, Tanzania and Uganda have the chance to rapidly transform their economies and address development needs. However, this opportunity comes with risks and policy challenges, and dependency on natural resources for economic growth has been frequently linked to poor macroeconomic performance in developing countries. KAPSARC is working collaboratively with leading economic policy think tanks in four countries to understand one central question: How can countries develop their natural resources to create and sustain inclusive economic development? Aspects of this include:

1. The role of oil and gas fiscal regimes in promoting natural resource development;

2. The role of local content regulations and indigenization in shaping the impact of natural resource-driven development; and

3. The macroeconomic impact of local content regulations and indigenization of natural resource development under different fiscal policy scenarios.

The workshop yielded several insights for policymakers in resource-rich developing countries:

1. Managing a country’s expectations, particularly in the communities surrounding natural resource extraction sites, is often overlooked in the negotiations about fiscal regimes;

2. Fiscal regime negotiations are sometimes overly focused on the concept of ‘government take’, which can ignore the important issue of the tradeoffs imposed on the international oil companies (IOCs) that ultimately commit to investments in the oil and gas sector;

3. Local content policies are a political imperative for oil and gas projects in Eastern Africa and all parties should recognize this;

4. The legacy of mining industries in many African countries has left a wake of resentment and mistrust among local communities that is driving the debate over local content policies in the oil and gas sectors; and

5. The significant social welfare and development needs in East African countries require different fiscal policies for managing natural resource revenues than those prescribed for industrialized nations.