Successful oil-producing countries have been able to save, invest and diversity their economies. FILE PHOTO | NMG
In the oil and gas sector,
there is a dichotomy between countries that have found oil and have been
able to enhance development of their country and those that have been infected by the oil curse: the dreaded Dutch disease.
able to enhance development of their country and those that have been infected by the oil curse: the dreaded Dutch disease.
Successful
oil-producing countries have been able to save, invest and diversity
their economies. They have saved oil and gas resources in sovereign
wealth funds and other areas to be invested for future generations.
By
saving their funds in such a manner, they ensure that when the oil runs
out, as oil is a finite resource, they will still be able to provide
for their citizens. Examples of countries that have done so include
Norway, whose Government Pension Fund is the largest in the world, worth
over $1trillion and whose revenue comes from its North Sea Oil Drilling
operation.
In addition, they do not only save, but
invest their revenue for the future by focusing on areas that will such
as infrastructure to lay the foundation for development in other
sectors. Countries such as Ghana have invested in road infrastructure
which is a stimulus to other sectors.
Diversification
of the economy is another key consideration for oil-producing countries.
Successful countries ensure that sectors other than the oil sector are
supported and grown.
They use the oil revenue to
develop other sectors to ensure there is balanced development and so
that oil revenue does not lead to movement of workers to the oil
industry. Ensuring teachers are well-paid is a strategy used to ensure
they do not leave the classroom to go work in the better paying oil
fields.
On the other hand, certain countries have been
affected by the oil curse, the so-called Dutch disease. This refers to a
situation where there is an increase in economic development in the oil
sector of a country and a decline in other sectors.
Capital inflows
It occurs due to several factors including when the increased
investment in the oil sector, leads to increased pay for workers in the
sector as opposed to others, hence causing people to move from other
sectors to work in the oil industry. It is also caused when there are
increased capital inflows that lead to appreciation of a currency and
hence makes the goods exported from the country more expensive for other
countries to buy, making other sectors less lucrative and hence likely
to struggle.
So what can be done in such a case? A 2011
study entitled, Direct Redistribution, Taxation, and Accountability in
Oil-Rich Economies, suggests that some of the revenue received from oil
should be transferred directly to citizens and then taxed by the
government to finance its budget.
The direct transfer
of revenue to citizens is a way of empowering citizens as they are able
to decide on how to spend the cash according to their priorities. In
addition, taxation of citizens is likely to lead to increased scrutiny
of public spending as citizens will want to know how their taxes are
spent. This in turn will lead implementation of programmes that benefit
the public as a whole.
Equitable sharing of oil revenue
that benefits communities from which oil is extracted and the country
as a whole, create a feeling of inclusiveness among citizens. This in
turn will lead to ownership and acceptance of oil production activities,
which will help the nation avoid the oil-curse and Dutch disease and
instead enable it to reap the benefits of being an oil producing
country.
Ronald Ng’eno, communication specialist, Nairobi.
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