Fry Nas the Oil Boom in Equatorial Guinea

8/12/2019 Fry Nas the Oil Boom in Equatorial Guinea

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J drzej George Frynas is a Lecturer in International Management at the Department of Commerce, Birmingham Business School, University of Birmingham, Edgbaston, Birming-ham B15 2TT, UK, e-mail: [email protected]. He would like to thank the NufeldFoundation for its generous funding, which enabled him to travel to Equatorial Guinea. Heis also grateful to Antony Goldman, and an anonymous reviewer for helpful comments on anearlier draft, and to Wood Mackenzie and Scott Mitchell for help in obtaining key data forthis study.1. Economist Intelligence Unit,EIU Country Prole 2002 (EIU, London, 2002), p. 55; andEIU Country Report Equatorial Guinea October 2003 (EIU, London, 2003), p.10. Even whenthe GDP growth rate was at its lowest in 2003 (10.2 percent), it was still considerably higherthan in other petro-states in the region such as Gabon (1.2 percent), Angola (1.5 percent) andCameroon (4.2 percent). Economist Intelligence Unit,EIU Country Prole 2004 (EIU, London,2004), p. 20.

THE OIL BOOM IN EQUATORIAL GUINEA

JEDRZEJ GEORGE FRYNAS

ABSTRACT

In less than a decade, Equatorial Guinea has transformed itself from anAfrican backwater into one of the worlds fastest growing economies anda sought-after political partner in the Gulf of Guinea. The sole reason forthis transformation has been the discovery of oil and gas. This articleoutlines the rise of Equatorial Guinea as one of Africas leading oil-

producing countries and investigates the political, economic and socialeffects of becoming a petro-state.The article is based on the authors eldresearch in Equatorial Guinea in the autumn of 2003 and interviews withsenior oil company staff, government ofcials and staff of internationalorganizations as well as secondary sources. This research demonstrateshow reliance on oil and gas exports can lead to profound changes in acountrys political economy.

A DECADE AGO, EQUATORIAL GUINEA WAS CONSIDERED an African back-

water, with a stagnating economy and an unsavoury reputation for humanrights abuses and the involvement of government ofcials in criminal activi-ties. In less than a decade, it has transformed itself into one of the worldsfastest growing economies and a sought-after political partner in the Gulf of Guinea. Its gross domestic product (GDP) is said to have grown by astaggering average of 41.6 percent per year between 1997 and 2001, thehighest in the world, and is forecast to rise by a respectable 23 percent in2004.1 The country has turned into one of the largest recipients of foreigndirect investment in sub-Saharan Africa (about US$5 billion invested in

19982003). Up to 3,000 American expatriate workers live in EquatorialGuinea today and the United States re-opened its embassy in the capital

527

African Affairs , 103/413, 527546 Royal African Society 2004, all rights reservedDOI: 10.1093/afraf/adh085


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Malabo in late 2003.2 The sole reason for this transformation has been thediscovery of oil and gas.

This article outlines the rise of Equatorial Guinea as one of Africas

leading oil-producing countries and the effect of oil production on thecountrys political economy. The article is based on the authors eldresearch in Equatorial Guinea in the autumn of 2003, interviews with senioroil company staff, government ofcials and staff of international organiz-ations as well as secondary sources.

The making of a petro-state

When Equatorial Guinea became independent from Spain in 1968, its

economy centred on cocoa production,which provided 75 percent of GDP.The eleven-year rule by Francisco Macias Nguema (196879) turned thecountry into a pro-Soviet one-party state and led to a collapse of cocoaproduction (from some 28,000 tonnes in 196970 to 4,000 tonnes ten yearslater).3 In just over a decade, one-third of the population had either beenkilled or had left the country.A coup by Teodoro Obiang Nguema Mbasogo(Maciass nephew) in 1979 ended the reign of terror by his uncle, althoughessentially the same family stayed in power and Maciass police statecontinued in existence. Equatorial Guineas cocoa sector never recovered,

despite government efforts, including the reintroduction of forced labourand the return of some former Spanish plantation owners. Obiangs hardcurrency earnings came to rely on activities as varied as foreign aid/loans,unsustainable logging activities and some more illicit practices (see GeoffreyWoods article in this issue).4 While the Presidents Esangui clan did ratherwell out of these activities, oil wealth has now provided the elite with accessto greater nancial resources than ever before, and political legitimacy inthe eyes of the West.

Oil exploration had been undertaken in Equatorial Guinea during the

colonial era but it proved unsuccessful. Ironically, the rst explorationsuccess after independence was achieved by nationals of the former colonialpower. In 1980, the Spanish oil rm Hispanoil formed a joint venture withEquatorial Guinea called Guineo-Espaola de Petroleos S.A. (GEPSA). Inthe early 1980s, GEPSA signed a production-sharing contract for the Alba

528 AFRICAN AFFAIRS

2. The embassy was closed in 1995 in a move seen as a protest against human rights abusesin Equatorial Guinea, following a tough stand on abuses by the US ambassador at the time.U.S. renews ties with Equatorial Guinea, Associated Press, 17 November 2003. Manyobservers believe that the pressure by US oil companies on the Bush administration led to there-opening of the embassy.3. Max Liniger-Goumaz, Small is Not Always Beautiful: The story of Equatorial Guinea(C. Hurst & Company, London, 1988), pp. 8990.4. See also Janet Roitman and Grard Roso, Guine-quatoriale: tre off-shore pourrester national,Politique Africaine 81 (2001), pp. 12142.


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acreage, returning to a eld rst probed by the US rm Mobil undercolonial concessions in 1967. GEPSA drilled a successful Alba gas appraisalwell in 1985 and the data indicated that the gas eld could potentially

become the rst commercial hydrocarbon project in Equatorial Guinea.The Spanish withdrew in 1990 only because GEPSA failed to identify asuitable gas market at the time. Following Hispanoils withdrawal, theEquatoguinean government immediately opened the Alba area for bidsfrom other foreign companies and a new contract was signed with WalterInternational, an afliate of Walter Oil & Gas, a creation of the outgoingUS ambassador Chester Norris. In July 1990, Walter drilled a successfulwell near the original discovery. By December 1991, the Alba eld hadstarted producing gas liquids.5

The production from the Alba eld was very modest and it was not untilthe mid-1990s that Equatorial Guinea joined the club of noteworthy oil-producing countries in West Africa. In March 1995, Mobil struck oil in itsZaro eld and, by August 1996, production had started at an initial40,000 barrels/day and rose to 190,000 barrels/day within several years, ahuge increase on the initial daily liquid production of 5,000 to 7,000 barrelsfrom the Alba eld.6

The next major milestone in the making of the Equatoguinean petro-state was the discovery of the Ceiba oil eld by the small US oil company

Triton in 1999. Up to then, GEPSAs and Mobils discoveries lay to thenorthwest of Bioko Island and to the south of the geological structuresextending from the Niger Delta. In contrast, Ceiba was situated muchfurther to the south, off the coast of Rio Muni (Equatorial Guineasmainland sandwiched between Cameroon and Gabon) in a largely un-explored area. Hailed as the most important African oil nd of 1999, theCeiba eld started production in November 2000 with an output of justunder 40,000 barrels/day.7

Mobils and Tritons successes spurred the interest of other oil companies

and exploration increased sharply following the discoveries. At the sametime, following Olusegun Obasanjos electoral victory in Nigeria in 1999,Equatorial Guinea and Nigeria were able to resolve a border dispute relatedto the ownership of the Zaro eld; this helped to alleviate some of theanxieties of foreign businessmen over investments in the country.

THE OIL BOOM IN EQUATORIAL GUINEA 529

5. Wood Mackenzie, Stepping on the gas a Marathon for Equatorial Guinea,West AfricaUpstream Report , December 2001. Natural gas is a hydrocarbon substance close in chemicalcomposition to crude oil; it is found sometimes on its own and sometimes in the same reservoiras crude oil. Gas can contain various hydrocarbons which can be extracted as liquids duringprocessing; gas with signicant amounts of such hydrocarbons is called wet. The Alba eldinitially produced only gas liquids but within ten years, it also started producing gas.6. Petroleum Economist (various).7. Ceiba Field a dream come true,Oil & Gas Investor , September 2001.


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In the meantime, the ownership of Equatoguinean oil elds has under-gone major changes,which in itself reects the keen interest of investors inEquatorial Guineas potential:

In August 2001, Triton was taken over by another US rm, AmeradaHess, for over US$3 billion.8

In November 2001, the US company Marathon Oil acquired a majorityshare in the Alba eld from CMS Oil & Gas (which had previouslyacquired rights to the eld from Walter Oil & Gas and other smallerpartners).9

Unrelated to Equatorial Guinea developments, Mobil decided to mergewith Exxon to form ExxonMobil in late 1998.10

As a result of these ownership changes, the oil and gas industry of Equa-torial Guinea is now dominated by three US companies: the worlds largestoil company ExxonMobil, followed by Amerada Hess and Marathon Oil.For all three companies, Equatorial Guinea is an important asset, albeit toa varying extent. Devon Energy, Noble Energy (both US rms) and EnergyAfrica (a South African rm) also have important ownership stakes in thecurrent oil output, but they do not operate the oil concessions. Exxon-Mobil, Amerada Hess and Marathon run the day-to-day operations(compare Tables 1 and 2). While various other foreign rms continue to

explore for oil in Equatorial Guinea, notable is the absence of the twoBritish giants Royal Dutch/Shell and BP.Like elsewhere in the developing world, the government of Equatorial

Guinea was keen on obtaining an active stake in the countrys oil develop-ment through the creation of a national oil corporation GEPetrol in 2001.It has acquired ownership stakes in all three producing oil elds 5percent ownership of Block B (encompassing the Zaro eld), 3 percentownership in the Alba oil concession and a 5 percent carried interest inthe oil output from the Ceiba eld (see Table 1). At the same time,

GEPetrol launched a number of small joint ventures, including the GESeisjoint venture with the tiny oil-servicing company Terra Energy, a jointventure with the Swiss-based oil trading rm Glencore to conduct explo-ration, and the Sonagesa airline, a joint venture with Sonair Servico Areo(an arm of the Angolan national oil corporation) to operate direct ightsfor American oil workers between Malabo and Houston.11

So far, the governments venture into the oil business has been verymodest, especially when compared with the achievements by other African

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8. Amerada Hess to buy Triton Energy, Alexanders Gas & Oil Connections , 14 August 2001.9. Wood Mackenzie, Stepping on the gas.10. Exxon and Mobil seal $75bn deal, Financial Times , 2 December 1998.11. Interview with a senior ofcial of the oil ministry (Malabo, August 2003).


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national oil corporations such as the Nigerian National Petroleum Corpo-ration and Sonangol in Angola. This underlines both the relative newnessof the oil concessions in Equatorial Guinea and the governments relative

inexperience with oil matters. This inexperience forced the government torely on various foreign advisers, including a British-based oil consultancyrm ECL (which resides permanently as advisers within the Ministry of Mines and Energy, thede facto oil ministry), and left Equatorial Guinea


Table 1. Ownership and oil production of the main oil concessions inEquatorial Guinea

Concession block Field ownership Forecast production 2005

Alba block Marathon Oila (63.3%) ca.70,000 barrels/dayc(encompassing Alba eld) Noble (33.7%)

Equatorial Guinea (3%)Block B ExxonMobila (71.25%) ca.300,000 barrels/day(encompassing Zaro eld) Devon (23.75%)

Equatorial Guinea (5%)Block Gb Amerada Hessa (85%) ca. 55,000 barrels/day(encompassing Ceiba eld) Energy Africa (15%)

Notes: a Operator of the block.b The government has a 5% carried interest in the blocks prot oil.c Production from condensates and liqueed petroleum gas.

Sources: African Business (January 2004); Martin Quinlan, Nigeria Equatorial Guinea So Tom e Prncipe: Gulf of Guineas Golden Triangle,Petroleum Economist (May 2004).

Table 2. Forecast of company share of oil production (barrels/day)a,20047

2004 2005 2006 2007

ExxonMobil 217,300 217,300 184,700 157,000Devon Energy 72,400 72,400 61,600 52,300Amerada Hess 46,000 46,000 106,600 116,400Marathon 37,800 42,900 42,900 42,900GEPetrol/Equatorial Guinea 22,800 23,000 24,500 23,100Noble Energy 20,200 22,900 22,900 22,900Energy Africa 8,100 8,100 18,800 20,500

Total 424,600 432,600 462,000 435,100

a Includes production from condensates and liqueed petroleum gas.Source: adapted from data provided by Wood Mackenzie.


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with less favourable deals with oil companies than most other countries inthe Gulf of Guinea, despite a major renegotiation of production-sharingcontracts in 1998.12

The scal terms set out in production-sharing contracts with oilcompanies are very favourable to foreign oil companies, as compared withmost petro-states in the region, perhaps with the exception of neighbour-ing So Tom e Prncipe. But even compared with So Tom e Prncipe,Equatoguinean terms are still good enough to attract plenty of investorinterest (see Table 3).13 A broader comparison of how much the govern-ment actually earns from the oil is more striking: Equatorial Guineasgovernment is reported to obtain a mere 39 percent of the revenues raisedfrom oil (in a typical contract), compared with 78.4 percent in Gabon, 76

percent in the Democratic Republic of Congo (offshore areas) and 70.2percent in Nigeria (for deepwater areas comparable to those in Equator-ial Guinea) (see Table 4).14 This government take will increase in futureyears as the cumulative oil output increases, although even then theEquatoguinean terms will be comparable with those of other states in theGulf of Guinea.

Equatorial Guineas further attractions to investors were relatively lowsignature bonuses (down payments for the initial award of oil licences),which varied between US$500,000 and US$1 million, compared with tens

532 AFRICAN AFFAIRS

12. The ECL contract runs until at least 2005,with a possible two-year extension.The remitof ECLs work is very broad, including advice on drafting legislation and overseeing non-oilmining sectors. (Interview with a senior ofcial of the oil ministry, Malabo, August 2003). TheEquatoguinean government has also been assisted by various US actors such as the major USlaw rm LeBoeuf, Lamb, Greene & MacRae (which helped, amongst other things, in dis-cussions related to boundary disputes with Nigeria and Gabon, and in setting up GEPetroland, more recently, advised GEPetrol on issues such as the planned LNG plant) and specicpersonalities, notably Chester Norris (US ambassador to Equatorial Guinea 198891 and aTexan oil man) who is Obiangs personal friend and one of the principal pro-Obiang lobbyistsin the United States.13. Some of the scal terms in So Tom e Prncipe are more favourable, especially the

royalty rates. However, corporation tax in Equatorial Guinea is much lower at 25 percent,compared with 50 percent in So Tom e Prncipe, while signature payments have been muchlower than those in So Tom e Prncipe in the past. Furthermore, oil production has not yetstarted in So Tom e Prncipe and experience shows that governments tend to increase oilrents once the oil starts owing. On contract terms, see also Wood Mackenzie, EquatorialGuinea restructures PSC, West Africa Upstream Report , June 1998 and Martin Quinlan,Nigeria Equatorial Guinea So Tom e Prncipe: Gulf of Guineas Golden Triangle,Petroleum Economist (May 2004).14. The overall government take in Nigeria is even higher because a large proportion of theoil revenues is derived from old contracts for onshore and shallow water areas which are muchmore favourable to the government. These contracts were negotiated many years or evendecades ago, and the respective companies have already recouped most of their initial invest-ments by now. Above all, the Nigerian government is under little pressure to provide betterterms to investors since they are less dependent on new investment in onshore and shallowwater areas. In contrast, deepwater areas in Nigeria, Angola, and So Tom e Prncipe as wellas Equatorial Guinea require vast new foreign investment, so the contracts governingdeepwater areas are much more favourable to investors in all of these countries. Therefore,scal terms for deepwater areas allow for the most appropriate method of comparison.


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of millions elsewhere in the Gulf of Guinea and hundreds of millions in

Angolas deepwater. The attractive scal terms were accompanied by rela-tively low operational costs for the oil companies. Furthermore, audits bythe World Bank in 2001 have revealed discrepancies between what thecompanies were supposed to pay and how much they actually paid to thegovernment; a 2003 report by the International Monetary Fund stated thatthe oil companies (including ExxonMobil) had to repay US$88 million(amounting to an estimated 3 percent of GDP) reclaimed by the govern-ment from audits for the period 19962001.15 So long as the governmentdoes not place excessive demands on oil companies in the future, the terms

offered by the Equatoguineans will therefore continue to attract investors.


15. Global Witness,Time for Transparency (London, March 2004).

Table 3. Comparison of licence terms for deepwater oil production inEquatorial Guinea and So Tom e Prncipe

Equatorial Guinea Joint Development Zone(So Tom e Prncipe/Nigeria)

Royalty rate Starts at 10% for elds 0% at 20,000 b/d or below;producing up to 25,000 rises progressively to abarrels/day (b/d); rises maximum royalty of 5%progressively to 16% for for elds producingelds with 100,000 b/d 70,000 b/d or aboveor above

Cost recovery (after Up to 70% of remaining up to 80% of remainingroyalty payments) production production

Income tax 25% 50%Prot oil The private contractors the private contractors

share starts at 90% for share starts at 80%;the rst 50 million barrels declines progressively toof production; declines 25% (according to aprogressively to 40% formula related to(above 200 million barrels post-tax oil eldof cumulative production) protability)

Other inuences on Government share in each

rm protability licence reduces thecompanies prot shares;but low signature bonuseslimit initial investment

Source: Martin Quinlan, Nigeria Equatorial Guinea So Tom e Prncipe:Gulf of GuineasGolden Triangle,Petroleum Economist (May 2004); data provided by Wood Mackenzie.


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Given attractive scal terms and promising geological conditions, investorinterest in Equatorial Guineas oil sector is likely to continue.While produc-tion predictions tended to be unreliable in the past, the consultancy rm

Wood Mackenzie has forecast that the countrys output could rise to462,000 barrels per day of oil equivalent by 2006 (see Tables 1 and 2).Above all, ExxonMobil has increased the production capacity in the Zaroeld to some 300,000 barrels/day following a US$1 billion expansionproject in 20023. Amerada Hess hoped to increase production to as muchas 90,000 barrels/day by 2005, and production from further oil elds isalready on the drawing board, although Ameradas new developments haverecently experienced political and technical delays.16 Marathon Oils liquidproduction from the Alba eld is expected to rise to about 70,000

barrels/day. At the same time, Marathon has concluded an agreement withthe government for a plant to produce liqueed natural gas (LNG) (gaswhich will be exported in liquid form on specially built tankers, to be re-gasied at a US terminal in Louisiana) with an annual production capacityof 3.4 million tonnes. The project encountered major problems in 2003,which apparently surfaced during GEPetrols negotiations with Marathon,17but the two sides appeared to have resolved their problems in early 2004and a joint venture called EG Gaz Natural was formed between Marathonand GEPetrol to build and operate the US$1.4 billion LNG plant at the

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16. The estimates are taken from African Business , Special Country Report EquatorialGuinea (January 2004) andPetroleum Economist (various).17. Marathon encounters problems in Equatorial Guinea,Energy Compass , 26 February2004.

Table 4. Comparison of government take from oil revenues inWest Africa

Equatorial Guinea Gabon Congo-B. Congo- Nigeria


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Punta Europa site on Bioko Island.18 The rst LNG cargo is not expecteduntil at least 2007, but Marathon is already considering a further expan-sion of the project.19

Nonetheless, the current enthusiasm about Equatorial Guineas futureprospects as a petro-state should be treated with some caution. The Ceibaeld may not be as productive as was previously thought, and there havebeen few signicant oil and gas discoveries in recent years. The French oilrm Total has withdrawn from Equatorial Guinea following disappointingoil exploration, while ChevronTexaco was also considering a withdrawal forthe same reasons. In the words of Antony Goldman of the Economist Intel-ligence Unit: Of course, for the government, the money is still brilliant,but Zaros life is 1015 years, after which EG may be waking up to some-

thing of a hangover.20

Unless Equatorial Guinea makes some major oil andgas discoveries during the next few years, there is a possibility that it willfollow the fate of Gabon, which is running out of oil, rather than Angola,which is increasing production. This uncertainty about the future, which isultimately down to the vagaries of the geological formation of the planet,underlines the dangers of a countrys over-reliance on oil exports. For now,Equatorial Guinea is enjoying oil sector growth and oil wealth is changingthe face of the country.

The political impact of oil

Ones assessment of the signicance of Equatorial Guineas oil dependsat least partly on ones subjective view. From the perspective of the globaloil industry, Equatorial Guineas proven oil reserves of just over 1 billionbarrels are dwarfed by Nigeria, Libya or the United States,whose reservesare in turn dwarfed by those of Saudi Arabia, Iraq or Iran.21 In terms of oil output, Equatorial Guinea is not even in the top 30 oil-producingnations in the world. However, from an African perspective, its oil industry

is highly signicant. Equatorial Guinea has quickly risen to become amiddle-sized oil-producing country in Africa (see Table 5). Owing toexpanded output in late 2003/early 2004, the country has now become the


18. Equatorial Guinea all sweetness and light, Africa Energy Intelligence , 7 April 2004;Marathon Oils LNG project in Equatorial Guinea moving ahead, Natural Gas Week , 25 June2004.19. Marathon already mulling second train at LNG plant in Equatorial Guinea,PlattsOilgram News , 3 December 2003.20. Antony Goldman, pers. comm. May 2004. The author is grateful to Antony Goldmanfor pointing out these important issues.21. In 2002, the proven oil reserves of Nigeria, Libya and the United States were estimatedat 24 billion, 29.5 billion and 30.4 billion barrels respectively. In comparison, the reserves of Saudi Arabia, Iraq and Iran were 261.8 billion, 112.5 billion and 89.7 billion respectively (BP Statistical Review of World Energy , June 2003). Nonetheless, some estimates suggest that Equa-torial Guineas current reserves stand at some 34 billion.


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third largest oil producer in sub-Saharan Africa and the sixth largest oilproducer in Africa behind Nigeria,Algeria, Libya, Angola and Egypt. Equa-

torial Guineas oil production has overtaken that of the more traditionalregional players, Gabon, Congo (Brazzaville) and Cameroon, which has initself become a source of tension with President Bongo of Gabon and Presi-dent Biya of Cameroon over the countries respective maritime boundaries.But, whatever perspective one takes, the international status of EquatorialGuinea has been much enhanced as a result of its oil riches.

Like other petro-states with expanding oil production such as Angola andNigeria, Equatorial Guineas oil revenues make it less reliant on foreigndonors, as compared with non-oil rich states. The actual oil revenues are

much larger than the alternative foreign development assistance (the biggestbargaining weapon of foreign donors) and can be spent without stringsbeing attached. In addition, the prospect of future oil revenues allows thegovernment to obtain oil-backed loans (that is, loans against future oil

536 AFRICAN AFFAIRS

Table 5 . African oil production by country, 19932003(thousand barrels/day)a

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Algeria 1329 1324 1327 1386 1421 1461 1515 1578 1562 1681 1857Angola 504 557 633 716 741 731 745 746 742 905 885Benin 3 2 2 2 1 1 1 1 1 Cameroon 130 115 106 110 124 105 95 88 80 72 68Chad 40Congo-Brazzaville 185 185 180 200 225 264 293 275 271 259 243Congo (DRC) 25 25 28 30 28 26 24 25 24 23 22Egypt 941 921 924 894 873 857 827 781 758 753 750Equatorial Guinea 5 5 7 17 60 83 100 113 181 237 249Gabon 305 337 356 365 364 337 340 327 301 295 240Ghana 6 6 7 5 5 6 6 6 6 6Ivory Coast 6 16 14 10 10 7 5 10 20Libya 1402 1431 1439 1452 1489 1480 1425 1475 1425 1376 1488Morocco ^ ^ ^ ^ ^ ^ ^ ^ 3 ^ ^Nigeria 1985 1988 1998 2138 2303 2163 2028 2104 2199 2013 2185Senegal ^ ^ ^ ^ ^ ^ ^ ^ n/a n/a n/aSouth Africa 8 9 9 8 15 15 32 32 23 20 16Sudan 2 2 2 5 9 12 63 174 211 233 255Tunisia 99 93 90 89 81 83 84 78 71 73 66

a Includes crude oil, shale oil, oil sands and natural gas liquids; excludes liquid fuels from othersources, especially the sizeable coal-to-liquids production in South Africa.^ Less than 0.5.Sources: compiled largely from data supplied directly to the author by the senior BP manager incharge of BP Annual Statistical Review ; some 20013 data for the smaller producers are fromOil and Gas Journal (various).


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output), as demonstrated by GEPetrols ability to negotiate a $400 millionoil-backed loan from a syndicate led by Deutsche Bank.22 In comparison,the International Monetary Fund had relatively little to offer and, not

surprisingly, President Obiang has been able to resist calls by the IMF formajor macroeconomic reforms for years.23 The IMF and the World Bankhave had only limited involvement in Equatorial Guinea since the begin-ning of the oil boom. The last project funded by the World Banks Inter-national Development Association (IDA) a health improvement project closed in 1999 and there has been no new Bank lending programme forthe country since then.

Perhaps surprisingly, given that Equatorial Guinea no longer dependson the nancial assistance of international institutions and Western

donors, the regime is eager to cultivate friendly relations with donors andinternational organizations. While nancial assistance is not an importantissue, President Obiang seeks international legitimacy, which is conferredthrough high-level diplomatic relationships (such as meetings with seniorUS ofcials). At the same time, the discontinuity brought about by the oilboom appears to have caused some concern recently within the ruling eliteabout possible social upheavals; in this context, foreign technical assist-ance is regarded as a means of improving the functioning of the state, sothat future social upheavals can be prevented.24 As an illustration of this

new trend, the President has appealed personally to British governmentofcials for the establishment of a permanent ambassador in the country,has called privately for British technical assistance (such as assistance toimprove the workings of government ministries and other arms of the stateadministration) and has even expressed an interest in the Extractive Indus-tries Transparency Initiative/EITI (a British government initiative toincrease transparency over payments by mining and oil companies to host


22. Equatorial Guinea: Deutsche Banks advisers, Africa Energy Intelligence , 26 November2003.The loan was intended to fund the governments share of the LNG plant. However, thepackage put together by Deutsche Bank was frozen in early 2004, GEPetrols DirectorDomingo Mba Esono (who had held the post since GEPetrols inception in 2001) lost his jobin the process and the government stated its intention to fund its share of the LNG plant fromits own sources. Nonetheless, the willingness of foreign nancial institutions to lend to Equa-torial Guinea demonstrates the ease with which Obiang can obtain vast sums of money. See

Africa Energy Intelligence , 10 March, 25 February and 11 February 2004; also seeMarathonencounters problems in Equatorial Guinea,Energy Compass , 26 February 2004.23. A three-year structural adjustment facility starting in 1993 was suspended in 1995amidst IMF criticism of the countrys scal policy, just before Equatorial Guinea haddeveloped the Zaro eld to provide alternative sources of revenue. The government alsofailed to act on World Bank recommendations for economic reforms, including those suggestedby a World Bank mission in October 2001.24. Indeed, the main attraction of the IMF, World Bank and other foreign donors toEquatoguinean decision-makers today is technical assistance, for instance in areas such asagricultural policy and the management of oil revenues.


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governments).25 In 2003, the government formally requested technicalassistance from the World Bank for the management of the oil sector, forpublic investment planning and for the creation of a poverty reduction

strategy; amongst other developments, the Bank has agreed to providetraining to ofcials of the Ministry of Mines and Energy and GEPetrol.Also in 2003, the Equatoguinean government and the IMF participated ina so-called Article IV consultation, with the IMF expressing much lesscriticism of government policy than in previous reports.26 Obiangs desirefor international legitimacy and for technical assistance to strengthen hisregime helps to explain why Equatorial Guinea has continued to cooperatewith the IMF and has made an effort (albeit largely cosmetic) to improveits human rights image.

Nonetheless, Obiang can have more condence in dealing with the outsideworld, as foreign governments are keen not to jeopardize the chances of theirnationals obtaining business opportunities in Equatorial Guinea.The UnitedStates keen to diversify its oil supplies and to please its oil industry lobby has re-opened its embassy and provided limited assistance (for example,scholarships for Equatoguineans to study at US universities). Spain keento promote business opportunities for the Spanish oil company Repsol andother Spanish rms wrote off 60 percent of Equatorial Guineas US$134million debt in July 2003, has supported its claims in the boundary dispute

with Gabon, and has made little protest at the killing of a Spanish nationalby an Equatoguinean soldier at a checkpoint.27 Equatorial Guineas humanrights abuses and inequitable government policies still cause some concernto certain Western governments, especially in terms of potential adversepublicity over closer ties with the regime, but criticism of government policyhas become more muted as a result of the oil discoveries.

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25. However, the British interests in Equatorial Guinea are restricted and there are currentlyno plans to establish a permanent embassy or to provide major technical assistance. Britishpresence in Malabo is largely limited to the posting of a commercial attach (Interview with

an ofcial at Britains Foreign Ofce, London, February 2004).26. IMF, Republic of Equatorial Guinea: 2003 Article IV Consultation (Washington DC,December 2003), p. 33 and Appendix.27. Economist Intelligence Unit,EIU Country Report Gabon and Equatorial Guinea October 2002 (EIU, London, 2002), p.40 and EIU Country Report Equatorial Guinea October 2003 , p. 12. Interestingly, despite some of these steps, relations with the United States andSpain have soured as a result of somewhat erroneous perceptions in Malabo that bothcountries have undermined Equatorial Guineas interests. Equatoguinean government ofcialsseem to believe that investigations into irregularities with the Riggs Bank accounts in Washing-ton (which implicate Equatorial Guinea and could theoretically lead to an indictment of President Obiang on money-laundering charges) have been politically motivated; this followedhostile media coverage of the country in the United States (especially a special report on thecountry on CBSs high-prole 60 Minutes TV show in November 2003). Ofcials alsoexpressed public criticism of Spain, which granted asylum to Severo Moto (exiled oppositionleader linked by Equatoguinean ofcials to the March 2004 coup attempt) and criticized theirregularities in the legislative elections in April (which gave the Presidents party and its allies98 of the 100 seats in the new parliament). Economist Intelligence Unit,EIU Country Report Gabon and Equatorial Guinea May 2004 (EIU, London, 2004), pp. 30 and 357.


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At the same time as oil revenues have improved the governmentsposition vis--vis international organizations and foreign governments, oilhas strengthened its hand vis--vis domestic constituencies. Oil revenues

allowed the government to buy greater security protection (such as hiringa foreign security rm and paying higher salaries to security forces) and theoil business provided more avenues for patronage to members of the rulingelite (such as the provision of private security services to foreign companiesby the private rm Sonavi, linked to Obiangs brother Armengol, or the useof job agencies by oil companies see below).28 In other words, oil hasstrengthened the basis of authority for Obiang,who may later this year cele-brate 25 years in ofce. Indeed, it is no coincidence that Africas leadingpetro-states have some of the continents longest serving heads of state,

including Bongo in Gabon, Dos Santos in Angola and Gadaf in Libya.The oil boom has led to tensions within the Presidents Esangui clan overthe distribution of the newly found wealth. But the domestic politicalimpact of the boom has been modest, in the sense that there have beenrelatively few changes in the way the Esangui clan rules the country. It hascontinued to be run by the President and his brothers and sons as well asvarious other members of the family and close associates such as thecurrent oil minister Cristobal Menana Ela.The oil boom has merely led toan incorporation of oil rents into the existing power structures by placing

key family and associates into positions where they can benet from thenew riches. For instance, the Presidents second son Gabriel Mbega ObiangLima became deputy oil minister,while his rst son Teodorn (a likely presi-dential successor) obtained the infrastructure portfolio in a reshufe inearly 2003, in addition to the lucrative forestry portfolio.29 The underlyingpolitical structures did not change.

The economic impact of oil

It can safely be said that oil has transformed Equatorial Guineas economy.According to 2002 estimates by the Economist Intelligence Unit (EIU), oiland methanol exports accounted for 92 and 6 percent of the countrysexport earnings respectively, while wood and cocoa exports accounted forsome 2 and less than 0.1 percent respectively.30 The oil share is likely to


28. Interviews in Malabo, August 2003.29. Economist Intelligence Unit,EIU Country Report Gabon and Equatorial Guinea April 2003 (EIU, London, 2003), p. 31. With the inow of oil revenues, the countrys infrastruc-ture has already received a boost in funding and infrastructure projects can be lucrative oppor-tunities for rent-seeking.30. Economist Intelligence Unit,EIU Country Report Equatorial Guinea October 2003 ,p. 4. Methanol is processed in a plant in the capital Malabo (Marathon and Noble have a 45percent equity share each, with the remaining share owned by the state), with gas suppliedfrom the Marathon-operated Alba eld.


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remain at this high level, as production has expanded further since 2002,and contractual income from the Zaro eld was set to rise in 2004.31

According to IMF gures, the inow of oil revenues helped to raise

Equatorial Guineas GDP from 39,500 million CFA francs in 1990 to1,509,800 million CFA francs in 2002, a staggering 38-fold increase.32GDP per capita was estimated at US$5,310 in 2003, one of the highest inAfrica, although the real gure could be lower.33 As perhaps the most visibleeconomic impact, the development of oil has encouraged a constructionboom in the capital Malabo, the oil town of Luba on Bioko Island and Bataon the mainland. But, in the words of Roitman and Roso, GDP gures arean illusory description of the national wealth and the staggering increaseson paper stand for little in the real world.34 Equatorial Guineas wealth is

concentrated in the hands of a tiny elite, so oil revenues do not benet themajority and do not stimulate the economy as a whole. The oil industryitself has generated few linkages to the local economy, as most supplies,including even basic foodstuffs and prefabricated buildings for expatriatecompounds, are imported into the country. A report by the US Depart-ment of Energy stated:

Despite rapid growth in real GDP, there is strong evidence of government misappro-priation of oil revenues, in particular, for lavish personal expenditures. Furthermore,the failure of the government to inject oil revenues into the countrys economy,

especially to fund much-needed improvements in the countrys infrastructure, hasmeant little improvement in the economic and social welfare of most Equato-guineans.35

Jobs in the oil industry are relatively well paid by Guinean standards, aslocal cleaners can earn from about US$300 per month while secretaries andtranslators can earn between US$1,200 and $1,300.36 However, the oilindustry has very limited impact on employment creation by its very nature.It is highly capital-intensive,which means that large amounts of capital andequipment but few workers are required. It is difcult to estimate thenumber of workers in the industry, but it is far below 10,000. The vastmajority are expatriates and migrants, including Americans, Cameroonians,

540 AFRICAN AFFAIRS

31. Having recovered the cost of its initial investment, ExxonMobil and its partners are dueto start paying the governments share of prot oil in 2004 (Interview with a senior ofcial of the oil ministry, Malabo, August 2003). Nonetheless, any increases in oil revenues could bepotentially moderated by lower oil prices and an appreciation of the CFA franc.32. IMF, International Financial Statistics , various.33. Economist Intelligence Unit,EIU Country Prole 2004 , p. 22. GDP per capita wasestimated based on a population gure of about 0.5 million. If the recent census data of 1million are used, the GDP per capita is halved.34. Roitman and Roso, Guine-quatoriale, p. 131.35. US Department of Energy website athttp://www.eia.doe.gov/emeu/cabs/eqguinea.html(accessed 2 December 2003).36. Agustin Velloso, From cocoa elds to oil in Equatorial Guinea,Counter Punch , 1November 2003.
http://www.eia.doe.gov/emeu/cabs/eqguinea.htmlhttp://www.eia.doe.gov/emeu/cabs/eqguinea.html


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Nigerians and even Filipinos hired by Marathon Oil. If one observersgures are to be believed, ExxonMobil employs only 200 locals, whileAmerada Hess employs some 180 and Marathon 250.37 Given the lack of

specialized skills locally for jobs such as electricians and welders, mostlocals working for the oil companies are unskilled labourers such as cleaners,drivers and security guards.

But even the few available jobs are used by the government for patron-age purposes through the use of job agencies, a peculiar feature of theEquatoguinean oil industry. Such job agencies provide unskilled and semi-skilled local workers to oil companies.Foreign oil companies are not obligedto use them. But the use of agencies enables rms to avoid red tape andmanagers see agencies as a means of social control. As one expatriate

human resources manager said to the author: If you use an agency, theywill deal with a worker if they do not work hard or do not come to work.38 Job agencies have proliferated in recent years but they are far from provid-ing job opportunities to the general population. The agencies are ownedand controlled by the Presidents family and associates, and potential oilworkers need to present the ruling PDGEs party membership card in orderto be enrolled.39 The economic benets of employment for the populationare further limited, as agencies retain a sizeable portion of a workers salaryas income tax and other deductions. The example of job agencies demon-

strates how the development of the oil industry has been integrated intothe existing political structures and has limited economic opportunities. Job agencies limit access to oil-related job opportunities for the broader

population, but more worryingly the development of the oil industryhas led to negative effects for the rest of the economy. Like other petro-states, Equatorial Guinea appears to suffer from the phenomenon knownas the resource curse. Rather than leading to a better economic climate,the oil riches have fostered economic underdevelopment and politicalmismanagement.40 One effect of the oil boom was the appreciation of the


37. Ibid . According to Velloso, total gures for local oil workers may be in the range of between 1,100 and 1,500, whilst oil companies employ an estimated 6,000 expatriate workers.But all these gures should be treated with great caution, as gures from different sources donot match and it is often unclear whether they include/exclude contractors and (dependingon when the data were collected) whether they include contractors involved in constructionwork (when employment gures are at their peak). For instance, ExxonMobil claims that ithas 100 employees in Equatorial Guinea (including 15 resident expatriates and 40 Equato-guineans) but the company employs a further 500 contractors (Pers. comm., senior ExxonMobilstaff, January 2004).38. Interview with a senior staff member of a British rm, Malabo, August 2003.39. For instance, the main agency in Malabo APEGESA is reportedly linked to theformer oil minister Juanolo and the rst lady. Other agencies in Malabo (e.g. ATSIGE andMTT) are also reportedly owned by Esangui clan members and there are still other agenciesin Bata on the mainland. (Interviews in Malabo, August 2003).40. For a review, see M. L. Ross, The political economy of the resource curse,World Politics51 (1999), pp. 297322.


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exchange rate, a phenomenon known as the Dutch Disease. As a result of rising ination (see below), the real effective exchange rate appreciated by15 percent between the end of 2001 and mid-2003 alone, which has made

Equatoguinean exports of non-oil goods more costly and therefore erodedthe competitiveness of the non-oil sectors of the economy. This loss of competitiveness was reected in the decline of non-oil exports by 30 percent,just as non-oil imports increased by a staggering 189 percent.41 At the sametime, resources such as capital and labour have shifted into the oil sectorand into the production of domestic goods to meet the surging domesticdemand, which has further undermined the traditional export sectors.

While the effects of Dutch Disease could be potentially curbed throughprudent government action, the oil boom has had negative consequences

for an already opaque system of governance. Since non-oil taxes are of littleimportance, the ruling elite has less incentive to nurture other economicsectors. Above all, there are no serious attempts to modernize the agri-cultural sector which could generate many more jobs than the oil industry,as agriculture still provides well over half of employment in EquatorialGuinea.

Social impact

The oil boom has triggered urban migration,with the growth of the urbanpopulation estimated at 5.2 percent per annum in the period 19952000.42However, real growth may have been much higher, as Equatoguinean exiles,Nigerians, Cameroonians and others have ocked to Equatorial Guinea insearch of work and business opportunities. According to the latest censusin 2002, the population has doubled from an estimated 0.5 million in 1994to about 1 million, although it has been alleged that the gures may havebeen manipulated for political purposes.43 This increase has put pressureon the existing urban infrastructure and created its own peculiar problems

including increased prostitution in the service of oil workers.Based on the authors eld visit to Equatorial Guinea, it would appearthat the key social impact has been generated by ination, caused by thegrowing oil industry through spending on labour, food, housing, etc., andincreases in government spending (fuelled by oil revenues), coupled withan underdeveloped commercial environment. According to the EconomistIntelligence Unit, the annual ination rate has been in single digits (4.6

542 AFRICAN AFFAIRS

41. IMF, Republic of Equatorial Guinea: 2003 Article IV Consultation, p. 20.42. Economist Intelligence Unit,EIU Country Prole 2002 , p. 49.43. Economist Intelligence Unit,EIU Country Report Gabon and Equatorial Guinea October 2002 (EIU, London, 2002), p. 39. The EIU stated that it is possible that the author-ities are planning to use the results to inuence the size of the electoral roll and to createphantom voters, although the scale of the scam may be less than the opposition partiesclaim.


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percent in 2000, 8.8 percent in 2001, 7.6 percent in 2002, 6.0 percent in2003).44 But, judging by anecdotal evidence on price increases, the realgures may have been much higher, and some unofcial estimates have put

ination rates at more than 50 percent. Oil development and the neglect of agriculture have further contributed to import dependency; even manybasic foodstuffs are now imported from Cameroon and elsewhere, and theprices of some basic commodities have more than doubled. Obviously,Equatorial Guinea relied heavily on imports before, but the oil boom hasmade the situation even worse. Living standards for the majority have there-fore fallen despite a huge rise in GDP per capita.

At the same time as living standards have worsened, foreign assistancehas dropped from $30.8 million to $21.3 million in the period 19962000.45

On the one hand, foreign donors such as the IMF and the European Unionhave been disappointed with the lack of progress with regard to politicaland economic reform. On the other hand, there has been a growing feelingthat Equatorial Guinea no longer requires as much foreign assistance inview of its abundant oil revenues. As a consequence, the country will benetless from some of its most worthwhile social projects. To give one example,the UN AIDS programme provided an AIDS testing lab in the Malabohospital but there is now no money for basic equipment including syringes.46

The government has set aside some funds for welfare improvements and

there have been slight improvements in health and education indicatorssince the mid-1990s. Life expectancy is said to have increased by about 2years to 51 years in 19952001, while there has been a signicant drop inthe pupil-teacher ratio and adult illiteracy rates.47 But the Equatoguineangovernment has generally been very slow to invest the rising oil revenues inareas such as health and education, while setting aside tens of millions of dollars for projects such as a new capital, Malabo 2, new roads and twonew ports (Luba Freeport and K-5).48 IMF gures suggest that Equator-ial Guineas government expenditure on health and education is much

lower than elsewhere in Africa, even in comparison with other petro-states.In 19972002, the country spent a mere 1.23 percent of its governmentexpenditure on health, while Cameroon spent 3.4 percent, Nigeria 5.95percent, Mozambique 10.6 percent and South Africa 12.1 percent. Equa-torial Guinea spent 1.67 percent on education, compared with 4.9 percent


44. Economist Intelligence Unit,EIU Country Report Equatorial Guinea October 2003 ,p.4.45. Economist Intelligence Unit,EIU Country Prole 2002 , p. 73.46. Interviews in Malabo, August 2003.47. IMF, Republic of Equatorial Guinea: 2003 Article IV Consultation, pp. 13 and 37.48. Most of these infrastructure projects will serve the oil industrys needs either directlyor indirectly. Luba and K-5 ports will act as service centres for the oil companies. Theimproved transport links including roads linking Malabo and Bata with their respectiveairports and a new airport terminal in Malabo also serve primarily the needs of oil rmsand the countrys elite.


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in Angola, 12.1 percent in Nigeria, 12.3 percent in Cameroon and 21.9percent in South Africa. Indeed, Equatorial Guineas share has markedlydecreased since the development of oil; education spending dropped from

6.43 to 1.67 percent in the period 19926.49

As a result, health andeducation indicators for Equatorial Guinea are far lower than in countrieswith comparable GDP per capita levels.

The oil companies have engaged in some philanthropic activities, notablyMarathon Oils multi-million anti-malaria programme and, more typically,small sporadic donations of items such as school books for children.However, eld research suggests that philanthropic activities have not beenable to offset the negative impact of oil or ll the gap created by inadequategovernment and foreign donor expenditure. Indeed, evidence so far indi-

cates that the vast majority of corporate development projects are drivenby the public relations requirements of the rms, and their effectiveness isstrictly limited. Even more worryingly, some philanthropic efforts havedone little more than improve government-company relations and helpedin fostering patronage networks. One example was ExxonMobils donationof mosquito nets to the health ministry, aimed at combating malaria; theministry then sold the nets, partly to Cameroon.50 Obviously, the verydesirability of corporate-driven development projects is a matter of debate;this article merely suggests that the current wave of corporate initiatives

cannot ll the void left by the state.

The future?

Political instability could potentially hinder the development of oil.Equatorial Guinea has unresolved boundary disputes with Gabon andCameroon. Presidents Obiang and Bongo ofcially accepted UnitedNations mediation in January 2004,with Yves Fortier, Canadas former UNambassador, as mediator.51 But a resolution could still take many years and

neither Equatorial Guinea nor Gabon seems willing to make the necessaryconcessions for serious negotiations to begin; as the matter remains unre-solved, oil concessions previously awarded to the US company Vanco andMalaysias Petronas may yet be affected. In the meantime, little progresshas been made on resolving the dispute with Cameroon.52

544 AFRICAN AFFAIRS

49. African producers hold off on social spending,Energy Compass , 18 September 2003.50. Interviews in Malabo, August 2003.51. Equatorial Guinea-Gabon: UN mediates dispute over Corisco Bay islands, All Africa ,25 January 2004.52. The author is grateful to Antony Goldman for pointing out these important issues. Theexpulsion of hundreds of Cameroonians in the wake of the March 2004 coup attempt, whichled to the Cameroonian ambassador to Equatorial Guinea being recalled, has further strainedthe relationship between the two countries.The dispute was also not helped by the April 2004award of Block O adjoining the countrys maritime boundary with Cameroon.


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Another potential source of instability is the uncertain succession to thecountrys leadership. President Obiang is said to have suffered from healthproblems for years, but there are tensions within the Esangui clan over the

possible succession, as various key gures are opposed to Obiangs preferredsuccessor his son Teodorn. This seems to have led, amongst otherthings, to the arrest and alleged torture of the Presidents half-brother,General Agustn Ndong On, a Teodorn rival for the succession until hewas marginalized with other senior gures in December 2003.53 A securityclampdown after reports of a coup attempt in early March 2004 suggeststhat internal inghting is continuing. In more general terms, the oil boomhas increased the likelihood of political instability, as access to oil revenueshas undoubtedly caused frictions in the ruling elite and has become a major

attraction to any potential coup plotters and their partners, includingforeign businessmen and mercenaries. Indeed, it is perhaps less than a coin-cidence that the prospect of petro-dollars coincided with coup attempts inboth Equatorial Guinea and neighbouring So Tom e Prncipe within aspace of twelve months.

In addition to the prospect of political instability, the oil companies canalso expect the government to become more assertive and more skilful inits dealings with them. The government is likely to ask for better terms inproduction-sharing contracts, mandatory training schemes for local

workers and a sizeable government equity share in future developments.Employment of local workers and the transfer of technical knowledge havebecome crucial requirements in recent negotiations of new contracts andprojects, as Amerada Hess has already experienced in its protracted nego-tiations over the development of the Okume and Oveng elds in 2003.54The government has also demanded higher equity stakes in negotiations inthe last two to three years, including a 15 percent share in the Petronas-operated Block N, 25 percent in Marathons LNG plant and, most recently,30 percent in Block O awarded to Noble Energy and Glencore in early April

2004 (this compares with a 3 percent share in the Alba eld and 5 percentin the Zaro eld).55 Indeed, it is not inconceivable that the governmentcould even demand a majority shareholding in future.


53. Equatorial Guinea: hotspot in hot water,Energy Compass , 18 March 2004.54. Past contracts included a xed annual training budget available for training localpersonnel with typical payments of US$100,000 per annum during the exploration phase,rising to US$200,000 per annum during the production phase. These programmes were rela-tively modest and even these low costs could be recovered by the oil companies for taxpurposes. Future contractual obligations are likely to be much higher.55. The recent award of Block O also represents the rst time that GEPetrol has assumedoperatorship of an oil licence, although the much more experienced Noble Energy (thetechnical operator with a 45 percent stake in the block) is likely to run the day-to-dayoperations.


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Nonetheless, from the perspective of the oil companies, EquatorialGuinea has proved more stable and rewarding than other African petro-states, especially since the contractual terms with the companies have

proved very stable over the last 56 years. The companies nd it easier tonegotiate with the Equatorial Guinea authorities than elsewhere, as politicalpower is highly centralized, and once a deal is struck and the governmentis committed, operations can proceed quickly without much red tape. Thiswas notably exemplied by the rapid development of the Ceiba eld:Tritonbegan production 14 months after the discovery of oil which was a recordtime for a deepwater eld by any standards. In the words of one Britishmanager, Equatorial Guinea is a good place to do business, especially if compared with neighbouring countries like Nigeria (beset by instability) or

So Tom e Prncipe (where the government re-negotiated oil deals in2003).56 But not all Equatoguineans will agree with this positive assessment,just as the recent political turmoil has tempered the previous optimismamongst some expatriates.

546 AFRICAN AFFAIRS

56. Interview with a senior staff member of a British rm (Malabo, August 2003). OnNigeria, see J drzej George Frynas,Oil in Nigeria: Conict and litigation between oil companiesand village communities (LIT Verlag/Transaction Publishers, Hamburg/New Brunswick,NJ/London, 2000). On So Tom e Prncipe, see J drzej George Frynas, Geoffrey Wood andR. M. S. Soares de Oliveira, Business and politics in So Tom e Prncipe: from cocoa mono-culture to petro-state, African Affairs 102 , 406(2003), pp. 5180.

Documents

Fry Nas the Oil Boom in Equatorial Guinea