Tunis — Oxford economist Paul Collier's latest book, The Plundered Planet (Oxford University Press), is a call to action. It deplores the extraction of Africa's natural resources to benefit a few, rather than the many, and it presents a plan for change.
The book has appeared at a time when issues of governance are increasingly being linked to issues of development in Africa. Back-to-back forums in Tunisia this week are evidence of the trend. Over 350 people attended the African Media Leaders Forum, and several of them are also participating in the Mo Ibrahim Foundation Forum, a gathering of experts on governance and development, which began yesterday. At both events, speaker after speaker has said that without transparent, accountable government, progress toward prosperity cannot be sustained – and that without economic development, durable democracies cannot be built.
Paul Collier is attending the Mo Ibrahim Forum this weekend. Earlier, Tami Hultman caught up with him in his Oxford office to discuss his proposals – and the project he and his colleagues have launched to help both governments that want to do the right thing and the citizens who want to hold their governments accountable. Here are excerpts from that conversation.
Your book is written to be understood by non-economists, but it is about a complex subject, and it does require attentive reading. What's the elevator pitch – what's it about?
Properly harnessed, the resource discoveries now happening in Africa are the biggest opportunity for good that Africa has ever had and is likely to have in our lifetimes.
The next decade is going to see a huge amount of value extracted from Africa – not only because of high commodity prices but because Africa is the last frontier for resource discovery. At present, the rich world, per square mile, has five times more [resources] than Africa. That's not because Africa's got less, but because it's got less search, less discovery.
With high commodity prices, that stuff is going to be discovered by hook or by crook. The challenge is to stop it being done by crook – stop the appalling history of plunder repeating itself.
Say a bit about how to approach that challenge.
Quantities of natural resources coming out are going to be enormously greater than the quantities that are currently coming out. Those natural assets under the ground should benefit all citizens, present and future.
Historically there have been two forms of plunder. One is where the few expropriate what should be benefiting the many. The other is where the present generation burns up what should be benefiting the future. The governance challenge is to prevent those two forms of plunder. Bad economic histories don't have to repeat themselves. We are having this conversation in Europe, and the best example of bad economic history repeating itself is here, in Germany.
Germany is, without a shadow of a doubt, the best economy in Europe. The reason is very simple; it used to be the worst run.Three generations ago, Germany messed up so badly in economic management that it went into hyperinflation. That was such a catastrophic, searing experience that the Germans came out with the sense of "never again"
Now, all around Africa, you see the same sense of "never again." People are very aware that the past is a history of plunder, and they don't want the future to be a history of plunder. They are where Germany was. One thing Germany did was to build "checks and balances" rules on key decisions. The other thing the Germans did was to build a critical mass of citizens who understood what those rules were for and defended them. Three generations on, the Germans are still vigorously defending the "no inflation" principle.
That's an example of how Africa can make a practical reality of "no more plunder". It has to build the institutional checks and balances which will prevent it, and it has to create the critical mass of citizens who understand the issues and what those checks and balances are for.
Okay, but what are the practical steps a country needs to take? You mentioned earlier that you'd had a recent visit from a Liberian official who wanted advice about how that country – where oil exploration is underway – can get its policies right. So perhaps you could use Liberia as an example.
It is a matter of building these institutional checks and balances. It's quite a long decision chain to get right in order to turn oil into prosperity. Many countries don't get it right. But it's perfectly doable.
The first link in the decision chain is managing the discovery process. That means trying to extract – for the government, for the society – as much of the value of oil as possible, where there is a strong conflict of interest between the interest of the company and the interest of the society.
What are the key principles? One is to get some public geological information, so you level the playing field a little bit. The World Bank after years of refusing to fund that has now decided that they are in the business of funding public geological information for African governments. So you can learn a little of what you've got before you start negotiating with companies.
Then pre-screen companies so you're not dealing with rogues. There are a lot of crooks flying into Liberia. And you want companies that have the necessary financial and technological capability.
Then you run a transparent auction, and try to get as much competition in the system as possible. Competition is the government's friend, because competition reveals value. Don't auction everything at once. Auction a few plots and learn, from what's discovered, what the value is of neighboring plots. Then gradually auction off plots in widening concentric circles.
Then you have to design a good tax system for oil. Would it be outrageous for Liberia to put a better one in place than it may have now? No.
What if Liberian officials feel they need the credibility of reliably maintaining agreements they have made on such things as tax rates?
Well, the British government has received tax revenue from oil over the last thirty years. On average, it has changed its tax regime every two years. I suggest to the Liberians that they should make a commitment that Liberia's tax regime will be considerably more reliable than the British tax regime! So you manage the discovery process; you manage the taxation process. The real issue is how you spend the money.
How do you spend the money wisely, when there are so many competing needs?
The first decision on the spending side is between using money for consumption now and using the money for the future.
The nature of oil discoveries in Africa is that they are usually relatively small fields that won't last that long. Due to the underlying geology, the efficient way of extracting the oil is a rather short burst. So you have a few years of big revenues; then it's over. You are dissipating a natural asset. To protect the interest of the future, you have to build up some offsetting asset.
Now how much of the revenue should be saved for the future? Not 100 percent; that would be foolish. Liberia in the future is surely going to be more prosperous. So it's sensible to use some of the money to address poverty now.
But if you use all the revenues, you'll temporarily lift poverty, but the future will be as poor as the present. There is a sensible range of consuming resource revenues relative to saving for the future - perhaps something around half and half.
That decision to save and invest for the future needs to be ring-fenced. One strategy of doing that in a poor country is creating a kind of sovereign development fund, used fundamentally to put in place assets within the country.
But some of the money should be invested in foreign assets. One reason is that you need liquidity to smooth your spending. Think of how wild the ride has been with oil prices. In the last three years, it's been between $37 and $147. You can't have spending as bouncy as that; it would be a terrible mess!
Another reason for putting some of the money abroad is that Africa is desperately short of the infrastructure it needs. A country like Liberia needs to build the capacity to invest domestically. At the moment it doesn't have the capacity to invest productively.
What needs to be done is what I call "investing in investing" – spending the time, the resources, the effort and the focus to build the capacity to invest well within the country. The public sector has to learn how to design, select and implement projects.
And the private investment climate has to be good enough, because the private and public are interdependent. Government builds the roads; the return on roads depends on trucks that use them.
Everything you've said about what needs to be done sounds quite straightforward. But in the real world, every bit of it is extremely complicated. You have all sorts of obstacles – from political pressures against getting it done – for all sorts of reasons – to the sheer lack of skilled people to put the mechanisms you've described into place. And you surely know that. So are you optimistic that what you've outlined is feasible?
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I try to never be accused of optimism or pessimism. I try to be an Afro-realist. The question is: what needs to happen next to make things better?
Where is Liberia now? It's on the cusp of a huge opportunity that needs to be seized. What does it need to do in order to seize that? It needs government to build these checks and balances on the chain I just sketched. It needs a critical mass of citizens to support that process and to make sure that it happens.
Without a critical mass of informed citizens, this cannot happen, because this is a decision chain that has to hold for a generation. Going from poverty to prosperity takes a generation. That's good news, because it used to take a century. But we can't do it faster than a generation.
And it's a weakest link problem. If any one link in that chain breaks, you've got plunder. That whole chain has to hold again and again.
The essential checks and balances have to be grounded in informed citizens. That's why my colleagues and I have built a thing called the Natural Resource Charter, which is a set of guidelines for that decision process. The content of those guidelines is continuously updated through a process of review by experts and citizen groups.
The Charter has already been adopted and endorsed by African institutions, so it's already owned by Africa. The next step is to make it better known and engage more people in the process, so that governments can see what they need to do and citizens groups can get up to speed on the key issues.
I'm sure AllAfrica's users will be interested in tracking that process and seeing how it develops. I suspect a good many will want to become engaged in making it work. So we'll be watching and reporting on what and how you're doing.
We need much more public participation in the effort to use resources for development. We'll keep you informed as we go along, and the Natural Resources Charter website will help citizens join the dialogue.
