By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publisher of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021*
In the year 2012, the then Kenya’s President H.E. Mwai Kibaki announced the discovery of oil in Turkana County. Expanding extractive industries, particularly in sub-Saharan Africa, is characterized by increasing levels of political, social, technical and environmental risk. Changes brought about by extractive investment can have negative social impacts, such as rapid urban growth, physical and economic displacement of communities, weakening of traditional social structures, new conflicts, and even impoverishment. Sudan, Democratic Republic of Congo and Nigeria are just but few examples of African states that have gone on internal armed conflict because of their rich natural resources.
In Democratic Republic of Congo, the war has largely impacted on the environment and native wildlife. Parties to armed conflicts have resorted to occupying natural habitats thereby scaring animals away. Further, the illegal trade of minerals bars communities from benefiting from its resources. There is conflicting literature on the potential of extractive industries capacity to promote national development. It has been observed that proponents of resource-led development, argue that the inflow of foreign direct investment (FDI) into the country and a model of export based growth will provide jobs, economic growth and ultimately, poverty reduction. However, for many resource rich developing countries pursuing this model, the reality has been low economic growth, environmental degradation, deepening poverty and, in some cases, violent conflict.
There have been renewed hopes of ‘spurred economic growth and development’ in Kenya as a result of the recently discovered oil resources in the country. Turkana County is documented as one of the Counties with the highest level of poverty in Kenya. The distrust between local communities around the region against each other has led to constant conflicts as well as cross border conflicts. The conflict is largely sparked by livestock rustling, harsh climate and boundary dispute. Due to low literacy levels, other communities have subsequently been employed as locals had no skills for drilling and seismic work.
While there are prospects of ‘real’ development in the region, the foregoing averments in the international arena affirm that the expected development may not be realized or may not achieve the desired outcome for the country and specifically the locals. Pegging hopes of development on the extractive resources only may mean that the region remains under-developed or undeveloped for longer as the oil may not turn out as expected. If anything, it may add to the above mentioned problems that characterise the region in question. Failed economies result in conflicts, as a result of natural resources bad governance or mismanagement. Skewed distributions of benefits from natural resources can fuel social exclusion and conflict, threatening sustainability.
For instance, in the case of Kenya, there have been reports that the Irish Oil Firm Tullow, which was allocated the Lokichar Basin oil reserves, has so far incurred $ 1.5 billion (Kenya Shillings 150 billion) in exploration costs and this amount is to be recovered once production begins. This has led to the fears that in the absence of proper audits by Kenya, explorers such as Tullow Oil may inflate recoverable costs ultimately denying Kenyans the full benefits of their national resource. Kenya has in the past been advised that since it has a very short period within which it can maximize benefits from the oil sector before their depletion, it should continue to focus on key sectors such as agribusiness and service sectors. There is need to review two case studies, Ghana and Nigeria, to see benefit of right management of extractives sector and Nigeria to see potential dangers of resource curse.
Lessons for Kenya from Ghana: Extractives Sector as a Development Catalyst
Ghana is often considered a model of best practice, based on the government’s distribution of a proportion of mining rents to mining affected communities. In Ghana’s mining sector, the system devised to distribute mining wealth to local level is royalty, with royalty agreements being set at between 3% and 6%, provided directly to the government quarterly, which is the main source of revenue derived by gold mining. The mine revenue is paid to the Large Tax Unit of the Ghana Revenue Authority, which then dispenses the money into the Consolidated Fund. Of this sum, 80% is retained by the government and used for general budget support. 10% is dispensed into the Mineral Development Fund (MDF), which is ostensibly used to help fund public mining sector institutions and for funding ad-hoc flagship projects in mining communities.
Decentralization of mining revenue in Ghana is legislated as compensation for mining-affected communities; it is not a dividend or admission that citizens in mining areas have economic rights to mineral deposits. It is however noteworthy that even in Ghana, it has been observed that as is the case in many countries, the relationship between industrial mining and communities in Ghana is complex and highly contested, because, despite macroeconomic growth fueled by the mining boom, Ghana remains a country with high rural poverty. There have even been instances of misappropriation of mineral benefits distributed through the grassroots leaders, namely, village chiefs who are supposed to ensure that the funds are invested well for the benefit of the communities. The result has been unending poverty despite the presence of resources. Ghana can offer good lessons in terms of models of division, while ensuring that Kenya does not fall into the same problem of misappropriation of funds. Local communities should be also supported and encouraged to diversify their sources of livelihood in a way that ensures sustainability in income and growth for both the communities and the country.
Lessons for Kenya from Nigeria: Extractive Resources Can be a Curse
There has been documented evidence from the vast majority of resource-rich countries, especially those endowed with depletable natural which suggests that resource riches can be a ‘‘curse’’ rather than a ‘‘blessing’’. One such country is Nigeria, one of the largest economies of the African continent and one of the leading oil producers in the world. It is estimated that oil accounts for more than 90 percent of the country’s exports, 25 percent of the Gross Domestic Product (GDP), and 80 percent of government total revenues. Notable is the observation that the oil boom of the 1970s led to the neglect of agriculture and other non-oil tax revenue sectors, expansion of the public sector, and deterioration in financial discipline and accountability.
While oil exports have fuelled real GDP growth of over 5 per cent a year in Nigeria, the official unemployment rate climbed from 15 per cent in 2005 to 25 per cent in 2011, and youth unemployment rates are estimated to be as high as 60 per cent. The source of Nigeria’s vast oil wealth is also a site of an ecological disaster that has destroyed livelihoods of farmers and fisher folk in the delta’s inlets on a huge scale. This is because environmental damage not only affects health and wellbeing but also decimates livelihoods, such as fishing and agriculture that depend upon natural resources. Kenya should therefore avoid a scenario where oil exploration result in corruption, human rights abuse and environmental degradation which in turn affects the livelihoods of the people.
*This article is an extract from the Article: Securing Our Destiny through Effective Management of the Environment, (2020) Journal of Conflict Management and Sustainable Development Volume 4(3), p. 1. by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya). Dr. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized among the top 5 leading lawyers and dispute resolution experts in Kenya by the Chambers Global Guide 2022.
References
Muigua, K., “Securing Our Destiny through Effective Management of the Environment,” (2020) Journal of Conflict Management and Sustainable Development Volume 4(3), p. 1.