Researcher / Policy Analyst |
Sub-Saharan Africa

Oil revenue and government effectiveness in sub-Saharan Africa

This research seeks to investigate whether oil and gas revenues impact the quality of governance in Sub-Saharan African countries by comparing certain governance metrics in countries with oil production with those that do not.

Research informing summary:
Preprint: Oil revenue and government effectiveness in sub-Saharan Africa (2022)
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About:

This research used a quantitative approach and comparative statistics method.

Sub-Saharan African countries were divided into two categories, oil producers, and non-oil-producers. Nine governance metrics were compared across both categories. The metrics used were taken from reputable third-party agencies such as Transparency International and the World Bank. The mean of each metric was compared across the categories to identify which group does better. This methodology is limited in that analyzes the metrics at a point in time and does not incorporate changes in governance metrics with oil revenue over time.

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Funding:

This research was independently conducted and did not receive funding from outside of the university.

Key points

  • In general, non-oil-producing countries perform better than oil-producing countries across all nine governance metrics analyzed.

It is generally expected that African countries with substantial revenue from natural resources such as oil and gas, would perform better in economic development terms and thus be a better place to live and do business. By comparing quantitative measures of the quality of governance across these two categories of countries in sub-Saharan Africa, this research aims to identify whether initial expectations hold.

Findings

  • The expectation of encountering corruption in business and government circles is higher for oil-producing countries than for countries that do not produce oil.

  • It is more difficult to do business (e.

    g., starting a business, obtaining permits, etc.) in oil-producing countries than in non-oil countries.

  • Politically and culturally influential institutions within oil-producing states are generally more fragmented and less aligned across class, ethnicity, and religion than in non-oil-producing countries.

  • Citizen acceptance of state institutions is lower in oil producers than in non-oil producers.

    In oil-producing states, citizens are more likely to be involved in anti-government acts which may rob the government of moral legitimacy.

  • The quality and accessibility of public services such as healthcare, education, and infrastructure are lower in oil-producing countries than in those that do not produce oil.
  • Political division along social, religious, and political lines, as well as inequalities in the distribution of state resources, are higher in oil-producing countries than in non-oil-producing countries.

  • Inequalities in income distribution are generally higher in oil-producing countries than in non-oil-producing countries.

  • Individual citizens of oil-producing countries suffer substantially greater restrictions on their rights relative to countries that do not produce oil.

  • There is a substantial difference in political rights between oil-producing and non-oil-producing countries.

    Citizens of oil-producing countries have fewer political rights such as participation in the electoral process, than those of non-oil-producing countries.

What it means

This research can be applied to the design of macroeconomic development policies for sub-Saharan African countries. The expectation that oil and gas production contributes decisively to better governance should be challenged vigorously on a case-by-case basis. A country’s oil production status should be integral to political risk analysis by companies seeking entry into African countries before a final investment decision is made. Better risk management strategies could better protect against the loss of life and capital. For instance, oil-producing countries with elite infighting may be prone to legal and regulatory delays and may be subject to higher risks of corruption and political violence.

How to use

  • Policymakers and investors considering entering or expanding their businesses in Africa should incorporate insights from this research into their political risk analysis to better identify risks and define mitigation strategies
  • In the last few decades, oil and gas production has become more competitive: As a response, African countries should have reformed their oil and gas sectors to make them more attractive for foreign investment and thus, increase their revenue. However, countries such as Nigeria - the largest oil-producing country in sub-Saharan Africa - took about 20 years to implement their petroleum sector reform bill, resulting in several investors pulling out of Nigeria.
Special thanks to Smaranda Bob for preparation assistance

We would like to extend a special thank you to Smaranda Bob, for their invaluable contribution in assisting the preparation of this research summary.

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Freeman, Baba. 'Oil revenue and government effectiveness in sub-Saharan Africa'. Acume. https://www.acume.org/r/does-oil-production-affect-government-effectiveness-in-sub-saharan-africa/