In the oil and gas sector, there is a dichotomy between countries that have found oil and have been able to enhance development and those that have been afflicted by the oil curse: the dreaded Dutch disease.
Successful oil-producing countries have been able to save, invest and diversify their economies. They have saved oil and gas resources in sovereign wealth funds and other areas to be invested for future generations.
Thus, they ensure that when the oil runs out, as it is a finite resource, they will still be able to provide for their citizens. Examples of countries that have done so include Norway, whose Government Pension Fund is the largest in the world, worth over $1 trillion and whose revenue comes from its North Sea oil drilling operation.
In addition, they not only save, but invest their revenue for the future by focusing on areas such as infrastructure to lay the foundation for development in other sectors. Countries such as Ghana have invested in road infrastructure, which is a stimulus to other sectors.
Diversification of the economy is another key consideration for oil-producing countries. Successful countries ensure that sectors other than oil are supported and grown.
They use the oil revenue to develop other sectors to ensure there is balanced development so there is no movement of workers to the oil industry. Ensuring teachers are well-paid is a strategy used to ensure they do not leave the classroom to go work in the better-paying oil fields.
On the other hand, certain countries have been aflicted by the oil curse, the so-called Dutch disease. The Dutch disease refers to a situation where there is an increase in economic development in the oil sector and a decline in other sectors.
It occurs due to several factors, including when increased investment in the oil sector leads to increased pay for workers in the industry as opposed to others, attracting people from other careers.
It is also caused when there are increased capital inflows that lead to appreciation of a currency, making the goods exported from the country more expensive for other countries to buy. This makes other sectors less lucrative and they are likely to struggle.
So what can be done in such a case? A 2011 study, Direct Redistribution, Taxation, and Accountability in Oil-Rich Economies, suggests that some of the revenue received from oil should be transferred directly to citizens and then taxed by the government to finance its budget.
The direct transfer of revenue to citizens is a way of empowering them as they are able to decide how to spend the cash according to their priorities. In addition, taxation of citizens is likely to lead to increased scrutiny of public spending as citizens will want to know how their taxes are spent. This, in turn, will lead to implementation of programmes that benefit the public as a whole.
Equitable sharing of oil revenue that benefits communities from which oil is extracted and the country as a whole, create a feeling of inclusiveness among citizens.
This, in turn, will lead to ownership and acceptance of oil production activities, which will help the nation avoid the oil curse and Dutch disease, and instead enable it to reap the benefits of being an oil-producing country.
Communication specialist
