An aerial view of an oil exploration site in Bulisa district. Officials in East Africa are gushing with anticipation over potential oil revenue
East Africa is the global oil and gas industry’s hottest
frontier. Barely a month goes by, it seems, without a major discovery in
Mozambique, Tanzania, Uganda, or the eastern Democratic Republic of the Congo.
This new African
windfall is hardly without precedent. Several west and central African states
-- most notably Angola and Nigeria -- have already experienced petroleum booms
of their own. Over the last decade, they benefited from a spectacular jump in
oil prices, which rose from $22 per barrel in 2003 to $147 per barrel in 2008
and remained high, for the most part, until recently. The spoils were enormous:
from 2002 to 2012, Angola’s GDP jumped from $11 billion to $114 billion and
Nigeria’s went from $59 billion to $243 billion.
The opportunity
afforded by this extraordinary decade was unprecedented and is unlikely to
recur. Sadly, however, decision-makers have mostly squandered it. If the new
east African producers are not to repeat the mistakes of the established ones,
then, they should heed the lessons of Africa’s last oil boom.
GREASING THE
WHEEL
The last decade
did see some improvements for Africa’s oil producers, especially when compared
to the continent’s earlier boom in the 1970s and early 1980s. Under the
stewardship of a handful of reform-minded technocrats, countries such as
Angola, Gabon, and Nigeria tamed inflation, stabilized their economies, and
wiped debt burdens clean. They subjected chaotic banking sectors to new
regulatory discipline.
And in response to criticism from the likes of Oxfam,
Global Witness, and the Open Society Foundations, they instituted some limited
governance reforms that increased, albeit marginally, the transparency around
opaque oil dealings.
Yet these
improvements, though praiseworthy, failed to transform Africa’s oil
producers. The emphasis by many observers on the need for capacity
building was misplaced. The key challenge was not that elites in these
countries lacked the skills or structures to properly manage the boom; it was
their unrestricted access to billions of petrodollars. Most were already
sophisticated, worldly decision-makers with the ability to rationally pursue
their own interests. And many of them gladly paid lip service to voluntary
reform efforts such as the Extractive Industries Transparency Initiative, a
program created in 2002 to prevent corruption in resource-rich states. By
centralizing and modernizing the management of natural resource wealth, these
technical overhauls in fact made it easier for elites to exercise control over
oil revenues.
Angolan leaders,
for example, talked up economic diversification and even a commitment to
industrialization. The country built up some necessary infrastructure. But the
government directed much of the oil money toward sports stadiums, shopping
malls, skyscrapers, and other vanity projects. Most states built up foreign
exchange reserves, but politicized their management. Venal state governors
raided Nigeria’s Excess Crude Account, which was intended to put away oil
profits for a rainy day, to help win elections. And last year, Angola named
José Filomeno dos Santos, a son of the country’s president, to manage the $5
billion in its new sovereign wealth fund.
Human
development indicators, meanwhile, have barely budged. Nigeria actually saw an
increase in poverty by some measures. A decade on, Africa’s petrostates remain
some of the most resource-dependent in the world, deriving the lion’s share of
government revenues from hydrocarbons. Elites have siphoned much of the
region’s oil money offshore; the principal beneficiaries of the oil bonanza
have been Lisbon, London, New York, and Zurich, not Abuja, Libreville, Luanda,
and N’Djamena. Africa’s oil-rich states have been run by many of the same
people for decades. These decision-makers lack both developmental ambitions and
a concern for their poorer countrymen. Now flush with petrodollars, they have
become even less accountable to their constituents at home or to their critics
abroad, using oil revenues to stave off political reform.
This outcome should
not surprise experts, who know that long-running fiscal windfalls do not
incentivize bold, politically difficult reforms, especially when those
proposals conflict with vested interests. As a result, Africa’s booming
economies are now woefully unprepared for lower oil prices, with analysts
predicting a major fiscal crisis if oil falls below $60 per barrel. That
possibility is becoming more and more likely; given the newfound abundance of
cheap U.S. shale gas and the slowdown of emerging economies, African
petrostates risk entering a post-boom era without the means of addressing
festering pre-boom development challenges.
A WAY FORWARD
In countries
such as Nigeria and Angola, corruption and patronage make reform especially
difficult. But the international community can still help prevent East Africa’s
new producers from taking the same path, provided it embraces a new approach.
Voluntary initiatives have consumed too much attention and political capital
over the last decade, often allowing non-reformist states and firms a free
ride. It’s time to embrace tougher reforms.
For starters,
foreign governments must continue to pass and enforce strong regulations on
extractive industries. The 2010 Dodd-Frank bill, for example, requires that all
U.S. and foreign firms reporting to the U.S. Securities and Exchange Commission
disclose payments made to any government for the commercial development of
natural resources. The European Union has passed similar legislation and the
Canadian government has committed to doing the same. Outsiders should also help
stem the interminable exodus of capital from Africa’s oil-rich economies to
Western capitals.
Capacity
building, of course, remains essential for states that have no previous
experience dealing with extractive industries or managing the dynamic economies
that will accompany the windfall. But because the problems of resource wealth
are fundamentally political in nature, the solutions need to be more than
merely technical. Putting oil money at the service of development in Africa
means tackling the increasingly criminalized character of political leaders and
their global networks of resource extraction, not peddling yet another package
of technocratic reforms.
In that vein,
Western donors should leverage their influence in countries such as Mozambique,
Tanzania, and Uganda, where they still provide extensive budgetary support, to
encourage stronger regulatory and institutional oversight mechanisms. Such
reforms would first and foremost have to diminish the discretionary power of
political elites -- an important goal for civil society groups, many of which
have expressed fears that donor countries are downplaying their concerns about
corruption in favor of capitalizing on the coming boom.
But however
important the role of outsiders, the struggle to channel resource wealth into
development will mostly play out in the domestic arena. That’s where lawmakers
decide on key legal and regulatory frameworks that allow for greater oversight
over oil revenue and empower local communities.
In the end,
success depends most on popular mobilization. Domestic proponents of reforms
need to push questions surrounding oil and gas to the center of political life
and foster large-scale activism against bad governance. They will need help
from the media and from civil society. If past experiences are any guide, these
organizations should prepare for adversarial relationships with increasingly
intolerant and well-funded regimes and rulers who are enamored of Nigerian- and
Angolan-style governance. (Mozambicans, in fact, have already come to fear the
creeping “Angolanization” of their country.) Such organizations must have
strong global connections and benefit from extensive outside support if they
are to survive, let alone thrive.
None of this can
wait much longer: within the next five to eight years, Kenya, Mozambique,
Tanzania, Uganda, and others will have joined the club of major African energy
exporters, and the window of opportunity for shaping these sectors will have
narrowed considerably, if not closed outright. Whatever system for distributing
oil profits is established by then will define these states -- and the
prospects of their people -- for generations to come.
http://www.foreignaffairs.com/articles/141197/ricardo-soares-de-oliveira/avoiding-africas-oil-curse
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