How Africa’s New Producers Can Escape the Resource Curse
Every new petroleum province seems to follow the same script. A well tests positive; a minister declares a “game-changing moment”; and within weeks the national conversation shifts from how much oil may be underground to how quickly the money can be spent. Ghana experienced this in 2007, when Kosmos and Tullow discovered the Jubilee field and President John Kufuor predicted that the country would become an “African tiger”. Uganda, Kenya, Senegal, Mozambique, Niger and, most recently, the Republic of Congo have all had their own version of that hopeful press conference.
But anyone who has taken part in a farm-in negotiation, a production-sharing contract (PSC) renegotiation or a final investment decision (FID) knows that the excitement rarely survives contact with reality. Reserve estimates are revised downward. Breakeven prices prove higher than the roadshow slides suggested. Decommissioning liabilities that once seemed decades away arrive sooner than expected. Beneath all of this lies the industry’s oldest problem: a large, rapid and temporary flow of revenue landing in institutions that were never designed to absorb it. That is the resource curse. Across Africa, it has left a long trail, from the environmental and security crisis in the Niger Delta to oil-financed authoritarianism in Equatorial Guinea.
Yet the curse is not inevitable. A small group of countries, in Africa and elsewhere, have turned petroleum revenue into roads, hospitals, sovereign wealth and more diversified economies. What separates them from the cautionary tales is rarely the quality of their geology. The real difference lies in the fiscal terms they negotiate, the revenue laws they pass and the institutions they build before and immediately after first oil. Drawing on World Bank and IMF research, industry data and the experience of African and global producers, the evidence points to several practical lessons.
Get the Fiscal Terms Right Before the First Cargo Ships
At its core, every PSC negotiation determines who bears the risk when a project underperforms and who captures the upside when it succeeds. Cost oil, profit-oil splits, royalty rates, ring-fencing rules and local-content requirements are agreed years before production begins. These clauses can shape a country’s fortunes more profoundly than any spending decision made once revenue starts to flow. If the terms are poor, transparency further downstream cannot recover the value already lost.
World Bank research on Africa’s resource curse makes this point clearly. Countries that became excited about oil before producing or selling a single barrel often negotiated and legislated as though the most optimistic forecast in the room were certain. Among Sub-Saharan African countries that discovered oil and gas between 2001 and 2018, actual government revenue was, on average, 63 per cent lower than initially forecast. That gap reflects both optimistic licensing and contract decisions and geological uncertainty.
Uganda illustrates another facet of the problem: what happens when negotiated terms remain hidden. Lawrence Bategeka, a senior researcher at Uganda’s Economic Policy Research Center, has highlighted the persistent gap between what citizens are told and what the government has disclosed about its petroleum contracts. Parliament has repeatedly tried, with limited success, to close that gap. In upstream negotiations, the government is usually the less experienced party, sitting across from an international oil company that may have negotiated in forty other jurisdictions. Hiring independent technical and legal advisers before an agreement is signed, rather than after controversy erupts, is inexpensive insurance against decades of unfavourable terms.
Build the Budget Around the P90 Case, Not the Press Release
Reserve estimates are presented as ranges for good reason: P90, P50 and P10. In the industry, capital programmes are normally planned around the conservative end of that range. Too many governments in new producer countries have done the opposite, building five-year development plans and taking on sovereign debt based on the optimistic case prepared for a farm-out roadshow.
The numbers explain why this is dangerous. Apart from Mozambique’s giant offshore gas discovery, reserves per person in Africa’s newest producers are well below those of established producers such as Nigeria and Angola. In other words, the resource base is often smaller and the fiscal window shorter than the early excitement suggests. Guinea-Bissau, Liberia, São Tomé and Sierra Leone all reported oil discoveries, only to find the volumes were not commercially viable; exploration has since slowed sharply in each case. When a country borrows against 2P reserves before FID, or prepares its budget using a $90 Brent scenario when the sanctioned project’s economics assume $60, it invites a fiscal crisis as soon as the cycle turns. In this industry, the cycle always turns.
Respect the Pace of Institution Building
Regulators can only be trained so quickly. National oil companies need time to recruit capable engineers rather than political appointees, and environmental and safety oversight must be allowed to mature. That process is measured in decades, not in licensing rounds. According to an analysis in The Africa Report, Nigeria’s production rose by nearly 10,000 per cent during its “formative decade” a pace no regulatory system could realistically have supervised effectively. Saudi Arabia, by contrast, took fifty years to move from discovery to the national strategy that supports Aramco today, giving the country time to build capacity alongside production. Equatorial Guinea shows the danger at the other end of the curve. Its output fell from roughly 375,000 barrels a day in 2005 to about 250,000 by 2016 and now stands near 52,000 barrels a day on a good day. Without a diversified economy beneath it, that decline becomes a fiscal cliff.
For licensing authorities, the operational lesson is straightforward: exploration acreage and production timelines should be sequenced to align with institutional readiness. Resisting the temptation to maximise near-term output or to celebrate a string of FIDs is not caution for its own sake. It is how a country ensures that its regulators, auditors and negotiators understand the business by the time the largest volumes arrive.
Publish the Contracts, Not Just the Ribbon Cuttings
Information is never evenly distributed in upstream oil and gas, and secrecy allows that imbalance to harden into something more damaging. Tutu Alicante Leon of the advocacy group EG Justice told a U.S. congressional hearing that Equatorial Guinea’s 1994 oil negotiations were conducted and concluded entirely outside public view. He argued that the contracts remain hidden from citizens and parliament, and that they have helped sustain one of Africa’s longest-serving authoritarian governments. Ghana offers a different, though still imperfect, picture. Despite an exploration success rate of roughly 78 per cent across 23 discoveries, analysts, including Mohammed Amin Adam of the Africa Centre for Energy Policy, have documented serious environmental and social costs for affected communities, including displacement and inadequate compensation. The lesson is that publishing production figures does not automatically create accountability at the community level.
The remedy is not glamorous, but it is essential: publish PSCs and licensing terms in full, join and properly implement the Extractive Industries Transparency Initiative (EITI) standard, and grant parliamentary oversight bodies genuine audit access to revenue flows, not summaries produced after the fact. As Brendan O’Donnell of Global Witness has noted, the central danger of oil wealth is that large sums arrive quickly, long before a country has built the capacity to manage them in the public interest. Transparency cannot create that capacity on its own, but it can generate the political pressure needed to build it.
Build a Sovereign Wealth Fund That a Future Government Cannot Raid
On paper, most stabilisation funds look convincing: petroleum revenue flows in, a savings rule applies, and a formula determines how much can be spent each year. The real test comes when the government changes. Funds survive when their rules are firmly embedded in law and backed by independent governance. They are quietly depleted when withdrawals remain largely at the executive’s discretion.
Norway’s Government Pension Fund Global remains the benchmark for good reason. Built largely from petroleum revenue, it had grown to roughly $1.9 trillion by mid-2025, about $340,000 per citizen, and had delivered average annual returns of around 6.64 per cent since 1998. Its spending limit, known as the fiscal rule, has survived changes of government because it is anchored in law rather than left as a policy preference. Outside the Gulf, Malaysia and Indonesia are among the most frequently cited examples of countries that used hydrocarbon revenue from the 1970s onward to diversify their economies. Malaysia directed proceeds into agricultural modernisation and industrial upgrading rather than immediate consumption. Indonesia combined oil windfalls with investment in rice self-sufficiency and broader industrialisation. Alongside Botswana and Chile, both countries are widely regarded in the academic literature as having largely escaped the resource curse.
Ghana offers Africa’s closest example of a workable oil-sector framework. Its Petroleum Revenue Management Act (PRMA), passed in 2011, is widely regarded as one of Sub-Saharan Africa’s best-designed petroleum revenue laws. It established the Ghana Stabilisation Fund, a Heritage Fund for future generations, and fiscal rules intended to enforce saving during high-price years. Implementation has not always matched the design. Ministers retain discretion over the use of the Annual Budget Funding Amount, while the 2015–2016 price crash tested the system more severely than its architects expected. Even so, governance researchers regularly point to the PRMA as a model for new producers, including Uganda and Mozambique, as they develop their own revenue laws.
Botswana remains Africa’s best-known resource-curse success story, although its wealth came from diamonds rather than oil. Revenue generated through its production partnership with De Beers was channelled into infrastructure, education and public services under a coordinated fiscal framework. This helped transform a single-commodity economy into one of Africa’s upper-middle-income countries. The transferable lesson is not the commodity itself, but the system around it: legislated savings rules, independent fund governance and a national development plan that determines what the money must achieve.
Do Not Let Missing Midstream Infrastructure Erase a Good Discovery
Even a commercially attractive discovery can remain stranded for a decade if the pipelines, processing facilities and export terminals needed to monetise it have not been built or are trapped in cross-border disputes. African Sustainability Matters has noted that discoveries in Namibia, Senegal and Uganda continue to face long delays for these reasons. It also cites African Energy Chamber estimates that Sub-Saharan Africa loses between $30 billion and $40 billion in potential oil and gas revenue each year because of infrastructure gaps and delayed FIDs. By contrast, Norway now earns much of its additional value through tiebacks and brownfield projects on existing platforms rather than costly new greenfield developments. African operators could apply the same capital-efficient approach to mature fields, provided the fiscal regime is stable enough to make such investment bankable.
For host governments, the message is clear: the resource curse is not only about how money is managed after it is collected. Enormous value can be lost years earlier when midstream investment is treated as an afterthought to the excitement of an upstream discovery.
Treat the Barrel as a Bridge, Not a Destination
The hardest truth for any new producer is that global oil demand will not remain unchanged forever. Prudent countries are already treating hydrocarbon revenue as a bridge to a more diversified, lower-carbon economy, not as the economy’s permanent foundation. Senegal’s 2018 solar tender achieved a price of just €0.04 per kilowatt-hour. Ghana is using domestic gas as a transition fuel while restructuring its power sector, and Uganda and Rwanda have begun moving into electric-vehicle assembly. These activities cannot replace oil and gas revenue today. However, they show governments preparing for a market that may look very different by the time a field reaches peak production, let alone decline.
The same discipline is now needed in Africa’s critical-minerals boom. At a recent Nigerian conference on solid-minerals governance, commentators explicitly warned against a “dig now, regulate later” response to new lithium and rare-earth discoveries. It was a useful reminder that the resource curse is a failure of governance, not a problem unique to hydrocarbons. Whatever commodity comes out of the ground next will demand the same discipline.
The Common Thread
The stronger performers discussed here Norway, Malaysia, Indonesia, Botswana, and, at its best, Ghana understood the importance of sequencing. They set fiscal terms and savings rules before revenue arrived, built institutional capacity at a pace their institutions could sustain, and treated transparency as the default rather than a concession granted after scandal. The necessary advice is already public and well documented. What is often missing is the political discipline to follow it when pressure to spend is highest, which is precisely when that discipline matters most.
For Africa’s newest producers, striking oil is the easy part. The harder, far more consequential task is building the refinery of governance: the contracts, laws and institutions that can turn a discovery into lasting national wealth.
The writer is James Mugerwa, a lecturer at the Institute of Petroleum Studies – Kampala.