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Oil, Cash and Biometrics:
Tools for Avoiding the Resource
Curse
Alan Gelb
Center for Global Development
DSA 2012 Conference,
London, November 3,
Oil Cash and Biometrics A DSA 110312
1
Overview
• Driven by high prices and technology, the rate of resource
discovery has accelerated
– Many countries, including Uganda and other African countries,
are discovering oil, gas and other minerals.
• Countries face a choice on how to absorb natural rent from
these resources.
– Public investment or transfers as citizen dividends
– Evidence is growing in favor of the dividend option
• New technology makes the dividend option feasible
– Political economy constraints will limit full application
• Especially non-discretionary allocation
– But there is space for partial application of direct distribution
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Discovery: Uganda Example
• Oil deposits long suspected in the Albertine Lakes Basin
– January 2009 Heritage and Tullow Oil announced major find: exploration
has continued, including on DRC side of the lakes
• High payoff to exploration costs of about $1 billion
– Reserves initially estimated at over 1 billion barrels.
– Some difficulties: remote location and low grade: lower natural rent
• Huge increase in national wealth.
– Rent flow around 10% of GDP for 20 years
– Comparable with recent aid flows
– Total about $1500 per citizen or 15 times annual investment
• Reserve levels recently upgraded to 3.5 billion barrels
– Typical pattern: Initial “greenfield” finds are followed by further finds as
knowledge base expands
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Uganda is not alone
Global Discovery 2000-2008
Oil 44% of initial reserves,
Gas 35%,
Copper 70%
Gold 54%
On average, imputed discovery 4% per year
Value of Oil Reserves discovered 2000-2008 at current rent (CR) valuation
about $38 trillion (compare to Global GDP 2009 $54 trillion)
Source: Gelb, Kaiser Vinuela CGDWP 290 2012
Recent Oil and Gas Discoveries in Africa
Country
Chad
Sudan/S.Sudan
Equatorial Guinea
Uganda
Ghana
South Africa
Mozambique
Tanzania
Kenya
Date
Reserve Estimates
1973
1979
1995
2006
2007
2009
2010
2010
2012
Oil 1.5 billion barrels
Oil 5 billion barrels
Oil 1.2 billion barrels
Oil 3.5 billion barrels
Oil 660 million barrels
Shale gas 16 trillion cubic meters
Gas 2.8 trillion cubic meters
Gas 6.5 trillion cubic meters
Proving reserves
Source Arezki, Dupuy, Gelb 2012 forthcoming
4
High Expectations
• “No one in Uganda or internationally can now doubt
the country’s steady and deliberate path to a middleincome country status in the near future…This is more
so with the reasonable discoveries of oil which, without
any doubt, will accelerate our progression to middleincome country status….With the recent discoveries of
oil in Western Uganda, the country’s prospects for
domestic revenue and self-reliance in financing public
investments and programmes are much brighter today
than at any time in the past”. President Yoweri
Museveni, National Address, October 9, 2009.
But will it happen?
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Investment versus Citizen Dividends:
Governance, Efficiency, Exhaustion
The Governance Argument: Distribute and Tax
• Studies suggest the “Resource Curse” is Path-Dependent
– Effects depend on initial conditions and trajectory of governance and/or policy
• Governance includes both accountability and capacity dimensions
– Accountability: Tsui 2005: 100 billion barrel discovery pushes democracy 20%
below trend
– Capacity: Quality of public investment management, tax administration,
below non-oil countries (Knack)
• Oil boom 2002-2009: Autocracies become more entrenched, regulatory
quality and rule of law erode in factional LAC democracies (WGI: Gelb forthcoming)
• Advocates: strengthen the fiscal contract: Distribute oil rents to citizenowners and tax back
– Erase the “participation deficit”
– “No representation without taxation”
– Analyses include Brautigam, Fjeldstat and Moore 2008, Moss 2011, Devarajan
et al 2012 and others
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Uganda: Institutional Risks
• Corruption: CPI ranking 2001 80, 2010 127
• Corruption in procurement a serious concern
– High loss estimates, widespread impunity
– “Gap between existence and implementation of safeguards “one of
the largest in the world (Global Witness)
• Also in revenue administration
– Domestic non-oil tax yields stagnant at about 11% of GDP
– Revenue Authority second most corrupt institution in Uganda (AfDB)
– Efficiency of decentralized government low and falling
•
•
•
Remorseless sub-division to create new districts for patronage: now 111
districts
Limited local capacity. Teacher absenteeism estimated at 35%
Concern over political entrenchment. Common in resource-rich
countries
–
President in power since 1986……..
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The Efficiency Argument
LICs
• Governments often already transfer part of the oil rents to citizens
through inefficient and inequitable means
MICs
0
1
2
3
– Iran fuel subsidies:
richest quintile
received
6 times
per-head4 subsidy than poorest
quintile
SSA
– Tend to become unsustainable (Iran’s subsidies up to 30% of GDP)
MENA
– Discretionary
distribution politicized (Venezuela: Misiones)
• Public investment has less growth impact if inefficient and also if fails to
stimulate private investment
• The larger the windfall the greater share should be transfers Arezki, Dupuy, Gelb 2012
LAC
ECA
EAP
IMF index of Public investment Management
0
1
2
3
4
Non-oil
exporter
Oil
Exporter
0
1
2
3
4
Uganda ranks 41 out of 71 countries, especially weak in execution
Absorptive constraints => Investment budget under-executed
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The Exhaustion Argument
• How much should countries save because of
finite reserves?
• Simple PI model (Timor L’Este)
– Rent 100, no discounting; investment real return 3%
– 10 years reserve: permanent consumption = 25
– 30 years reserve: permanent consumption = 59
• The exhaustion argument is weakened by
patterns of discovery
– Resource horizons typically far longer than initial
estimates
– There are still many reasons to spend cautiously,
especially market uncertainty
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Citizen Dividends
• Many studies of cash transfer systems (CCT, UCT)
– Ease constraints on poor households to access income
opportunities:
• Few negative incentive effects for moderate transfers
• Very large transfers, as in Gulf, may be different
• Only few examples of “dividend” programs in
developing resource exporters:
– Iran (fuel price compensation), Mongolia (child benefits)
Bolivia (pensions), Timor L’Este (veterans)
– Venezuela: misiones and off-budget funds
• 2011 $30 billion = $1000 per head or 61% of oil income
• Not “citizen dividends” but at government discretion: potential to
entrench populist policies
10
Dividends and Technology
• Any dividend program will need two elements:
– Who are the citizens? Identify uniquely
– Transfer on basis of citizenship and without leakage
• Biometric ID expanding rapidly in developing countries
– Some 150 programs cover over 1 billion people
– Used for a range of applications, including transfers, often
with smartcards or electronic banking
– At least half are donor funded
– Gelb and Decker 2011 summarize 19 transfer cases.
• Some are large-scale (Pakistan’s Watan card (flood relief))
• Many have operated in difficult conditions (DRC demobilization)
• Some have been running a long time (South Africa social transfers)
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Developmental Biometric Cases by
Type and Region
Source: Gelb and Clarke 2012
12
Dividends and Technology contd.
Few rigorous impact evaluations but evidence show:
• Technology now makes it possible to provide unique ID
to citizens, at least up to 200 million population
– India UIDAI technical reports
• Can transfer funds with little leakage to large numbers
of identified individuals
– Pakistan Watan card
• Can audit transfers down to finial recipient
Technology also has risks but makes the theoretical
prospect of citizen owners a practical option.
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Conclusion.
• Few governments will voluntarily divest themselves of all
resource revenues
– But even partial distribution as dividends could get closer to the
optimal balance
– Help strengthen citizens’ sense of ownership
– And relieve pressure for highly distortionary and inequitable
subsidies
• Until recently there was no feasible way to implement such
a program in most countries
– It is now possible, with political will
– Can facilitate through the design of programs through which oil
income can be progressively channeled
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Some GCD Working Papers
•
•
•
•
Moss. 2011 No. 237
Gelb and Decker. 2011. No. 253
Gelb and Majerowicz. 2011. No. 261
Devarajan, Ehrhart, Le and Rabelland. 2011.
No. 281
• Gelb, Kaiser and Vinuela. 2012. No. 290
• Rodriguez, Morales and Monaldi. No. 306
• Gelb and Clarke. 2013 forthcoming
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