The ‘oil curse’ in Africa

Inge AmundsenChr. Michelsen Institute

Olje for Utvikling i Nord og i Sør

UiTø, Tromsø, 5 December 2007

The Resource Curse

• The Resource Curse– The Paradox of Plenty– The Dutch Disease

• What is it?– Economic explanations– Political explanations

• Examples– Angola– Nigeria– Cameroon

• Political consequences

The blessed and the cursed

• Norway• Australia• Canada• Chile• Brazil• Peru• Malaysia• Botswana • …

• Nigeria• Angola• DR Congo• the Sudan• Sierra Leone• Liberia• Zambia• Colombia• Azerbaijan• …

• Rich in – Natural

resources• oil and gas• diamonds• other

minerals• timber• fish • foreign aid

• Poor in

– Economic development• contraction and

concentration

– Redistribution • increasing

inequalities• increasing poverty

– Democracy • authoritarianism• weak governance

Economic explanations

• The Dutch Disease

– Relative price effect• Higher currency value• Imports• Competition difficult

– Crowding out productive sectors• Over-investment in extractive industries• Under-investments in manufacture, agriculture• De-industrialisation

– Volatility• Uncertainty for businesses• Low investments in alternative production• Government waste and debt• Capital flight

Political explanations

• The Rentier state model

– Rents increases the stakes/prize of controlling the state• Off-shore, foreign, High-Tec• Government business, government take• Consumption, enrichment, corruption, embezzlement• Can lead to conflict, violence, civil war

– Rents increases state autonomy• Natural resources: “un-earned”, easy• Little taxation of domestic economic activity• No “social contract”• Little influence of business interests, middle class• Little influence of civil society, interest organisations

Political explanations

• The Rentier state model

– Rents increases the powers of the state• Means to manipulate institutions

– Parliament, judiciary– Special institutions– Elections

• Means to buy (off) rivals– Patronage, clientelism, favouritism, nepotism

• Means to buy instruments of coercion– Military hardware– Security companies– Suppression

Example: Nigeria

• 40 years of oil production– Africa’s leading oil producer– Total income $ 300 bn 25 years

• Poverty– People in extreme poverty: 27 to 66%– Economy as poor as before oil

• Corruption– No 147 of 179 on TI index– Abacha embezzeled 2-5 bn US$ 93-98

• Authoritarianism– Biafra War 67-70– Coups d’état 83, 93– “Niger delta syndrome” – Sharia states– Freedom House ranking 4 (PF)– Federal government + some states

Example: Angola

• Oil– Comparable to Norway

• Surpassing in 2010

– 90% of exports • 90% of government revenues

• Diamonds

• Poverty– Gini coefficient: > 0,60– Poverty line: < 60% – No 162 of 177 on HDI– Internally displaced, landmines

• Corruption– No 147 of 179 on TI index– Dos Santos largest landowner in

California? (“200 families”)– New airport, “New Luanda”

• Authoritarianism– Civil war 75-91, 92-94– No elections since 1992– Freedom House ranking 6 (NF)– Non-transparent social spending

Example: Cameroon

• Oil– 6 in sub-Saharan Africa– 30 years of oil income

• 3-5 % of GDP– Peak in 1986– Chad-Cameroon pipeline

• Poverty– No 144 of 177 on HDI

• Corruption– No 138 of 179 on TI index

• Authoritarianism– Paul Biya since 1982– Freedom House ranking 6 (NF)

Political consequences

• Democratisation– Institutions matter

– Good governance• Service delivery• Basic human rights

– From below

• Support from the outside– Transparency (PWYP/EITI)

– Legal standards

– Support to civil society• Drivers of change

• Democracy first!– Political science theory: no democratisation of oil-rich regimes

Some literature

Summary

“Without improving their democratic institutions and administrative capacity, it is unlikely that African oil exporters will be able to use petrodollars to fuel poverty reduction; instead oil monies are more likely to make matters worse for the poor”

Catholic Relief Services (2003):

Bottom of the Barrel. Africa’s Oil Boom and the Poor