A hospital in Africa

How to build an extractive industry that will benefit Senegal’s healthcare system?

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How to build an extractive industry that will benefit Senegal’s healthcare system?

Marta Driessen

18 Feb 2020

8min min read
  • Health status indicators--Developing countries
  • Medical care
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healthcare system which is caring and accessible for all is a condition sine qua non for sustainable development, the reduction of poverty and the reinforcement of states in a region. As such, the funding of healthcare and education should be any government’s top priority. Obviously, this is not a revolutionary idea. Nor has it never been advocated for. Unfortunately, it would appear like there remains a lack of political will in Senegal to implement the necessary changes.

Is it realistic for Senegal to strive for a 100% publicly financed healthcare system? Can its tax system and fiscal conditions support the enormous cost that such a healthcare system would entail? Would it be more effective to engage in a public-private partnership, which would allow the influx of capital needed, while still, although with a higher burden, provide care and services to the general population? Is Cuba’s healthcare system an inimitable example because of its political system, or is it simply a matter different priorities? Whatever the case, a striking lack of investment in the Senegalese healthcare system is evident.

Senegal is now going through the second implementation phase of the “Emergent Senegal” plan (Plan Sénégal Emergent in French). This initiative, popularised during the electoral campaign in February 2019 as the embodiment of Macky Sall’s success and ambition, frames healthcare as one of the factors that will enable sustainable development in the country. However, the plan fails to prioritise healthcare. Instead, investment will be poured into a variety of sectors that have nothing to do with healthcare. This is to be done by attracting foreign direct investment, rather than strengthening existing national capacities.

Economic growth and sustainable development do not necessarily go hand in hand, and this is a fact that those in power consistently turn a blind eye to. In this context, the discovery of gas and oil reserves in Senegal takes on a particular importance. This is something which a priori looks to be gift from nature and a great opportunity to fulfil the people’s dreams of social justice and development. However, history shows that the possession of natural resources coveted by a variety of internal and external actors is more often a curse than a blessing, recurring in what many call “the paradox of plenty”.

Regardless of the different realities and government’s attitudes in different countries, there are a series of recurrent phenomena which, to a greater or lesser extent, take place in the majority of cases. Firstly, and especially in a context of scarcity of capital and of weak economies, the proportion of investments and human capital dedicated to the exploitation of the natural resource in question is often overwhelming in comparison with the rest of growing parts of the economy.

Thus, the prioritisation of financial and human resources usually erodes the economic fabric of a country and slows down its industrialisation process, which would allow a more stable and sustainable development. This phenomenon is called “the Dutch disease”. Due to the fact that the diversification of the country’s industry and income reaches a worryingly low position in the government’s short-term priority list, the country becomes dependant on the new natural resource, in a range of ways.

"All hope that the recently discovered Senegalese gas and oil will provide social justice to the many has been brutally shattered as early as at the contract awarding stage."

Moreover, the discovery of natural resources is likely to have a detrimental effect on the situation of women and their empowerment. The extractive industry, which will have dominated public and private investment, is commonly saturated with men (especially in the case of gas and oil). From a gender perspective, the consequent erosion of the country’s economic fabric affects the amount and the quality of the employment opportunities outside of the extractive sectors, which, with time, would prevent many women from having economic independence from their husbands. As a result, this situation would restore and reinforce traditional gender roles.

Lastly, during good times, money floods into state coffers, potentially causing high inflation levels, which in its turn harms the economy’s competitiveness and the country’s export levels. The moment that the price of the natural resource falls, depending on the dependency levels of the economy on the natural resource, the country will find itself in an extremely vulnerable position.  This being said, there is a wide range of scenarios which, combined or not, can take place depending on each country’s realities.

Natural resources as a scourge on democracy and honesty

There are countless historical examples in which the discovery of natural resources has resulted in an increase in corruption levels and a striking lack of transparency. The Obiang case in Equatorial Guinea is paradigmatic for its extremity, but the situation created by Nigeria’s oil is not far behind. Connected to this idea is the fact that when a state gets more income from natural resources than from its citizens’ taxes and input, the link between those who vote and their representatives is inevitably affected.

If the government doesn’t need its citizens in order to be solvent, all incentive to provide the population with decent services and social justice disappears. This is only avoidable if a strong legal framework is created to ensure transparency; contract awarding, investments and distribution of profit need to be regulated and information about these processes must be easily accessible to the population.

Natural resources as a gift from nature

The newly discovered natural resources can be nationalized and the benefits become part of the state’s social expenditure, at least partly. This approach, present in Norway, seems the solution to a country’s socioeconomic problems. However, it requires a large dose of realism and planning skills. The price of natural resources in general oil and gas in particular is very likely to fluctuate unexpectedly, in contrast with manufactured goods, which have added value and an essentially stable price. Venezuela’s case evidences that no government, well-intentioned as it may be, should undertake significant long-term investments in healthcare, education or social justice only supported by these dangerously unstable revenues.

Natural resources as an economic burden

A country who possess natural resources but no economic, material, technological or human resources to process them and provide added value to the raw materials, are inevitable forced to export the raw materials to another country who does. The latter then resells the refined product to the country of origin for it to be able to use it. The prime example of this phenomenon is, again, Venezuela’s oil business, which for this reason ultimately results in a negative trade balance with the US.

Natural resources as an excuse to auction a country to the highest bidder

It is sadly common for countries in this situation to completely open their arms to foreign direct investment in order to exploit its national natural resources. In this case, investment capital rapidly moves in and out of fragile economies and, while national and foreign elites are rubbing their hands in glee, the general population’s situation does not improve. The time has come to accept that the so-called trickle-the down effect only makes sense on paper.

The case of the Niger Delta (Nigeria), endowed with large amounts of oil, is the perfect example of this possible scenario. Western companies such as Shell, Exxon Mobil, Chevron, Elf, Agip and Texaco have been allowed by the federal government to exploit the oil and gas resources. Not only is there no economic benefit for local communities, but oil spillages and other environmental impacts diminish land fertility and leave the people of a region dispossessed of their land, delta forest and water resources. They have been left dispossessed of their livelihood. This situation has led to a long-lasting violent conflict; outcome which constitutes a whole new and sadly common dimension of the “natural resources curse”.

Senegal's case

All hope that the recently discovered Senegalese gas and oil will provide social justice to the many has been brutally shattered as early as at the contract awarding stage. Aliou Sall is the president’s brother and was the manager of the Senegalese branch office of Petro Tim Ltd, which coincidentally is the enterprise who got the exploration concession. "Monsieur Frère", who was accused in 2014 of illicit enrichment through his position in the oil sector, has now alledgedly accepted a 250,000$ bribe from the company PetroTimLtd.

When the BBC first exposed this scandal on the 3rd of June 2019, Senegalese opposition parties and civil society exploded in outrage and organised a peaceful demonstration, permission for which was denied by Senegalese authorities. Since the prohibition did not prevent the protest from happening on June 14, the police forces violently disrupted the demonstration with tear gas and detained more than 20 protesters. This chain of events highlights the opacity of the Senegalese extractive sector and evidences that, as it currently stands, the discovery of natural resources in Senegal might be more an excuse to auction a country to the highest bidder and a scourge on democracy and honesty rather than a gift from nature.

Taking into account the state that the Senegalese healthcare system finds itself in and its dire need for investment, it would surely be more sensible to prudently allocate the benefits of the extractive industry to the health sector. However, the national healthcare budget must not depend on petrol revenues because of the instability of its price. A sudden collapse in commodity prices can be catastrophic; unsustainable borrowing, expenditure cutting, potential “pro-cyclical” fiscal policies (policies which exacerbate the boom-bust cycles in the local private sector) and inability for the state to plan social programmes and investments in advance are some common outcomes in this situation.

Avoiding undesirable consequences requires transparency and a great dose of patience and planning skills to start including natural resources revenues in the national budget. Two good ways to delink expenditures from revenues are paying down debt and saving in a fund when revenues are high, in order to be ready to draw savings when revenues are low. In Senegal’s case, such a fund could be fed with taxes from companies, licenses to explore for oil and production licenses. Over time, if Senegal ever creates a partly state-owned extraction or oil refining company, another source of income for the fund could be a number of its dividends.

Norway’s fund, a textbook example of a success story in managing the inconstancy of prices, only invests in international financial markets, transforming oil wealth into financial wealth to prevent the national economy from overheating. They have chosen a well diversified global portfolio: the fund cannot own more than 10% of a company and is subject to a number of ethical rules to, for instance, protect the environment. Moreover, it is forbidden to withdraw more than the annual expected returns of the fund. It is only the above-mentioned financial wealth that will eventually be part of the national budged. Besides mitigating fluctuations of oil prices, a centralized fund facilitates transparency and respect for the environment.

In short, a specific portion of the income originally generated by the national natural resources should be one of the many fixed income streams that the state should allocate to the Senegalese health sector – always taking into account the aforementioned precautions. It is the only way for the natural resources to really contribute to the country’s sustainable development.

This article was originally published by the Senegalese civil society organisation Wathi

The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.

(Main image: A general ward at the Anka General Hospital where Médecins Sans Frontières (MSF) is providing medical assistance to children and women in Anka, near Gusau, on December 4, 2019. - At Sani's mine, large lumps of rock are hammered into smaller fragments that are then washed and sieved to try to find a few specks of gold. The process risks exposure to lead, a poisonous mineral present in the rocks. In the past decade over 500 children have died from lead poisoning, said Simba Tirima a doctor working at a clinic run by aid group Doctors Without Borders (MSF) in the town of Anka. (Photo by Kola Sulaimon / AFP) (Photo by KOLA SULAIMON/AFP via Getty Images)