AfDB cautions on use of Africa’s newly-found oil cash

05 April 2012, Sweetcrude, NAIROBI – President of the African Development Bank (AfDB), Donald Kaberuka, says African nations joining the elite club of oil and gas producers should invest in education and roads while supporting traditional sectors to avoid the “oil curse” trap.

Ghana, Kenya, Mozambique, Tanzania and Uganda have all discovered oil and gas in recent years, thrusting them into a crossroads between following the likes of diamond-rich Botswana into prosperity or the likes of Nigeria into over-dependence on oil.
Kaberuka said governments of these should resist using windfalls from oil and gas exports to pursue populist policies like sharply raising public sector wages.

“(They should) avoid using the resources to rapidly increase recurrent expenditure. That is what people will be expecting but that would be the wrong thing to do,” he told Reuters.

Over-reliance on oil exports has created an imbalance in the economies of producers like Angola and Gabon, with the oil sector overshadowing others and giving rise to inflationary pressures that curb citizens’ purchasing power.

In extreme cases in the past, it has led to outright conflicts and exclusion of vast segments of the population, leading to the term “oil curse”.

“This region (East Africa) has done very well without oil, without gas, without minerals. These are finite resources. In other countries they have become a curse, so make the right public policy choices,” Kaberuka said.

Earnings from the resources should be channelled into sectors like education and the infrastructure in order to build a sustainable base for future development, he said.

Kaberuka said he expected total infrastructure spending on the continent to rise from the $42 billion invested last year.

“It will be higher especially in the energy sector. The regulatory environment for the energy sector is improving… that makes it much more possible for independent producers to come and generate energy, knowing they will be paid,” he said.

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