The Case for Direct Transfers of Resource Revenues in Africa
Shantayanan Devarajan and Marcelo Giugale
with Hélène Ehrhart, Tuan Minh Le, and Huong Mai Nguyen
This is a 2013 report by the
Center for Global Development about citizen-ownership democracy scenarios in Africa.
It considers what happens if 10% of resource revenues are distributed as Direct Dividend Payment to citizens, in these African countries: Angola, Equatorial Guinea, Gabon, Mozambique, Nigeria, Republic of Congo, Tanzania and Uganda.
It concludes that even a small citizen dividend will have significant impacts on reducing poverty.
The interesting question is: why stop at 10%? What if the country becomes a full citizen-ownership democracy where 100% of the resource revenues are distributed as direct dividend?
"Noting that Africa’s resource-rich countries have not translated their wealth into sustained economic growth and poverty reduction, this paper shows that by transferring a portion of resource-related government revenues uniformly and universally as direct payments to the population, some countries could increase both private consumption and the provision of public goods, and thereby reduce poverty and enhance social welfare. We make the case based on theoretical considerations and explore how these direct dividend payments would look in practice in a group of selected African countries."
"This opens the door for DDPs to become a reality, not in every African country but in some. Preliminary estimates suggest that countries with large natural-resource bases relative to their population size, and with a long history of ineffective public administration, would benefit most from sharing a portion of their commodity-driven fiscal revenues with citizens. That portion need not be major: in most cases, distributing ten percent of those revenues would have a significant impact on poverty." (DDP: Direct Dividend Payment)
"Finally, it goes without saying that DDPs are not meant to by-pass or weaken the role of the state. They are not a substitute for continuing and enhanced efforts at developing the institutional capacity of governments. On the contrary, they complement those efforts, because they trigger additional demands for public accountability. When citizens know that they are getting only a portion of what belongs to them, they care to scrutinize how the total is being managed."
In particular, the report says a 10% distribution in Equatorial Guinea is enough to wipe out poverty. The 10% distribution is US$600. Now, imagine the citizens getting 100% of their ownership rights. That will be US$6000 each. Citizens of Equatorial Guinea should demand their citizen ownership rights.
"A country with a relatively small population like Equatorial Guinea could make DDPs of over 600 dollars per person by distributing just 10 percent of natural-resource fiscal revenues. This would be twice the size of the average poverty gap, that is, of the presumptive tax that every member of society would have to pay to end poverty (Foster, Greer and Thorbecke [1984]). Perhaps more telling, the 10-percent DDP would be one and a half times larger than the average poverty depth, that is, the money the average poor person needs to climb over the poverty line. That would be no minor achievement as, at the moment, three quarters of Equatorial Guineans live below that line."
The report mentions similar effects for other countries in its study:
"A similar situation applies to Angola and Gabon: a 10-percent DDP suffices to “close” the poverty gap, and to account for at least 40 percent of the poverty depth. By comparison, countries with larger populations and/or relatively less natural-resource income like Tanzania would cover only a small fraction of both gap and depth—single-digit percentages of the latter indicator. But being a populous country does not mean that DDPs can have no impact: a 10-percent DDP in Nigeria (population: 158 million) would account for about 40 percent and one fifth of the poverty gap and depth, respectively. The reason is that the 9 poverty line is particularly low (less than $300 per person per year). Mozambique, a future recipient of vast revenues from gas, is a similar case.
Here are a few related reports.
Sometimes the most efficient solution to poverty alleviation is the simplest: give poor people more money to spend.
By Tom Murphy, Guest blogger / July 18, 2013
Transferring a portion – or all – of the income from Africa's natural resources directly to citizens could help to reduce poverty and fight corruption
