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Wednesday, 18 June 2014

Future Oil Revenues and Political Dynamics in West and East Africa: A Slippery Slope?

  Ross Harvey
SAIIA Occasional Paper No 188, June 2014

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Governance of Africa's Resources Programme

This paper attempts to model the likely interaction between political dynamics and windfall oil rents in a number of soon-to-be oil-dependent economies in Africa. Using a theoretical framework designed by North, Wallis and Weingast, and a game theoretic model developed by Robert Bates, it examines the potential impact of these rents in four countries, namely Ghana, Liberia, Uganda and Tanzania, conditioned on the nature of the current political equilibrium. Only when these dynamics are properly understood can credible policies be designed to overcome the difficulties normally associated with oil dependence. The paper finds that the nominal existence of democracy is by itself insufficient to propel countries towards economic dynamism and meaningful political inclusion. Only in instances where ratios of oil rent to government revenue are low and existing institutions relatively strong is equilibrium political stability likely to be maintained. In almost all instances, oil rents disrupt political incentives in a way that is likely to undermine economic performance. Ghana is a potential exception but the bulge of youth unemployment and relatively limited access to economic opportunities outside the extractive industries remain a cause for concern. In the light of these findings, policy practitioners should aim to design policies for oil rent management that understand political equilibria and neither disrupt these equilibria towards instability in the short run nor entrench a predatory elite over the long run.

Author: Ross Harvey