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African Governance Report V - 2018

Natural Resource Governance and Domestic Revenue Mobilization for Structural Transformation

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Exploitation of natural resources has dominated economic activity in Africa but the benefits have accrued only to a privileged few. The continent’s most common strategy of exporting commodities in their raw (non-valued added) form has led to disappointing results, reflected in unsustainable and non-inclusive economic growth, marginal improvements in the well-being of the population, and low levels of economic diversification and transformation. This edition examines efforts to improve the governance of Africa’s abundant natural resources, emphasizing the need to strengthen natural resource governance institutions and frameworks to enhance domestic revenue, the promotion of economic diversification, and structural transformation.

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Institutional and regulatory frameworks

Much of the continued economic underdevelopment and low human development of most of Africa’s resource-rich economies has been attributed to the natural resource governance regime. There is overwhelming evidence that the quality of institutions determines a country’s growth and development (Acemoglu, 2008; North, 1990). Strong economic governance institutions are equally critical facilitators of economic growth and development (Acemoglu et al., 2001). Mehlum et al. (2006) argue that institutions may be decisive for how natural resources affect economic growth. This has been evidenced in countries with a poor rule of law and weak institutions, where natural resources impede growth as entrepreneurial resources shift from production into unproductive activities, undermining the economy’s ability to respond to external shocks (Rodrik, 1998). The growth effects of revenue booms work depending on governance qualities, mainly institutional effectiveness (Collier and Goderis, 2007).

English

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