Extractives in Somalia: Getting it Right and Avoidance of the Resource Curse

Communities and generally stakeholders in various economies greatly need delivery of efficient services and economic benefits derived from exploitation of natural resources

Somalia is increasingly becoming a new frontier for extractives with numerous discoveries of mineral resources and hydro-carbons (oil and gas).

The country’s development phase for most minerals is yet to start, so there is no infrastructure in place to enable commercial production of the resources. Somalia has great opportunity for learning vital lessons thereby ensuring avoidance of the legendary resource course.

This has to take due consideration of proper management of impacts of the sector on the communities as well as guaranteeing appropriate benefit sharing with great sense of protection and consolidation of local communities’ livelihoods. None the less, experiences from other African countries like Nigeria, Angola, Cameroon, and Guinea Bissau among others that do exploit natural resources show that there are considerable challenges to realizing the opportunities presented by the extraction of petroleum and other mineral resources.

There is considerable realization that resource extraction operations tend to be located in backwater settings with very minimal amenities like roads, schools, and hospitals among others. It thus becomes an uphill task to build trustworthy relationships between such communities and the companies and/or businesses operating in such contexts. Moreover, such populations have minimal trust in the government especially when the feelings of marginalization are rife.

On the other hand, trustful relationships based on legitimacy and shared understanding businesses, the Federal Government and regional governments and communities within and around areas of extractive activities are critical. The relationship between companies and communities, if not guided by some trust and respect, could be mismanaged, and result in conflicts among the parties.

Often misconceptions, misunderstandings and unrealistic expectations are the triggers of conflict in many extractive sector settings. It is, therefore, important to understand the dynamics between communities and extractive sector companies in order to avoid mitigate and/or adequately compensate for negative impacts and to maximize benefits toward equitable but also inclusive development.

The cost of hosting extractive activities by local communities

Much as governments, especially in Africa, firmly trust in the view that extractives led-growth provides a great thrust for transformation owing to the huge amounts of revenues that are normally expected, sometimes distortions come up. This happens because of expenditure bonanzas where by huge infrastructure development projects are undertaken with the anticipation of revenue windfalls from extractives.

Uganda is in this situation apparently but following the fall in the oil prices globally, the shocks in the economy are rife. Ghana and Angola are equally impacted in the same way, and all this is at the macro level mostly.

At the micro level, host communities of the extractive activities like in the Turkana region of Kenya and the Albertine region of Uganda have for a long time been in the backwater situation and they now face the impacts including job provisions, improvement in social amenities, and some local economic enhancement as the main positive benefits.

However, there are equally many and over whelming negative impacts such as displacement and resettlement, livelihoods disruptions, environmental pollution, and health hazards among others which they are already facing and/or are destined to face. The situation is even worsened by widespread incompetence among local authorities where extractive activities are undertaken.

This creates a huge gap in the engagement processes and the business companies normally have an upper hand to the extent of determining what information to share and the methods of sharing the information.

Dilemma of natural resource generated wealth

There is a paradox inherent in countries with huge natural resource endowments and more so in Africa. It is not the norm that natural resources have to cause mayhem in the economies where they are found but owing to the governance systems in different African countries, unfortunate outcomes are often the rule.

Countries with large endowments of natural resources, such as oil and gas, often perform worse in terms of economic development and good governance than do countries with fewer resources. But there are also cases of countries that have had good outcomes from natural resources exploitation. Case in point is Botswana, which has greatly benefited from diamonds and Norway has equally benefited from the oil and gas resources, thanks to good governance trends in both cases.

But still there are challenges that economies like Botswana face. 70% percent of the Botswana government’s revenues come from diamonds. To-date, it is arguably clear that the precious stones (diamonds) do not hold the same promise for the future, and Botswana needs to make alternative plans and promote diversification.

It should be noted that natural resources’ exploitation faces two realities and these are the finite nature of the resources and the cyclical aspects with regard to commodity prices. Such realities are never well appreciated by host communities and when the times are not good, disillusionment sets in thereby creating fertile grounds for tensions.

Strangely enough, despite the prospects of wealth and opportunity that accompany the discovery and extraction of oil and other natural resources, such endowments all too often impede rather than enhance balanced and sustainable development. This is because of lack of appropriate development strategies that have proper appreciation and consideration of local development needs coupled with failures in making the right choices in terms of investment of the “windfall revenues”.

Getting it right and avoidance of the resource curse

There are key principles of ensuring proficient management of natural resources exploitation as well as provision of durable benefits to communities. Three core aspects have to be duly considered and they include: proper identification and management of impacts on communities; respectful engagement processes and equitable distribution of benefits.

Impacts emanating from resource exploitation do cause lots of discomfort to the communities and if not well managed, it leads to resentment of activities. Secondly, the behaviour of staff from resource companies (and governments) greatly impacts relations with communities and if they are not well trained and advised, unfortunate situations can occur. Lastly, communities do greatly desire to accrue tangible and durable benefits owing to their proximity to extractive activities.

Below are some pointers on what can be done to minimize the existence of the legendary resource curse in the midst of extractive activities in Africa.

Responsible business promotion should be the norm and tracking of extractive sector products from source to the markets would greatly help in ensuring proper management of extractive activities in the sector. For example, the Kimberly process helped in minimizing the diamonds mining and marketing.

Licensing is a key mechanism whereby government can reap early revenues and maximize long-term national benefits. Government must ensure that it simplifies both negotiations and tax structures to mitigate knowledge asymmetries with the extractive sector companies.

Government and industry must engage and share information with affected communities to manage local expectations regarding the extractive sector and build trust on long term basis.

Meaningful participation of national organizations in resource development is a central objective of many emerging producers. Capacity is needed to enable this, and more effort needs to go into where and how best to develop this capacity. There is great need for collaboration and partnership among stakeholders including governments, NGOs/CSOs, and business entities. This can ensure proper leverage of efforts and beneficial regulation of the extractive sector.

Overall, exploitation of natural resources has great potential for generating wealth that can create durable benefits to present and future generations. Communities and generally stakeholders in various economies greatly need delivery of efficient services and economic benefits derived from exploitation of natural resources. Disenfranchisement and exclusion of some quarters of the populace is recipe for conflicts and this is normally exacerbated by lack of security for persons and property.