Oil Politics
This essay explores the politics of oil in Africa. Section one provides the historical background of the oil industry and surveys the momentous transformation since the discovery in West-Central Africa of major ultra-deepwater oil reserves in the mid-1990s. This resulted in a continent-wide race for African oil acreage, including onshore and in frontier countries not previously thought of as oil-rich. These changes are discussed in the context of the oil price boom of the current decade as well as growth prospects for oil across Africa.
Section two outlines the relationship between the major players in the political economy of oil, including the international oil companies, the oil-producing states, and the industrial importers of oil in the West and, more recently, in Asia. This entails an analysis of the pattern of state-society relations, the so-called ‘resource curse’, and the type of state structures created by dependence on oil. Section three focuses on the long-term governance failures in oil-rich countries and surveys the normative challenge to ‘business as usual’ as articulated by Western and African civil society groups in the past 15 years in matters of human rights, corruption, and the environment. Despite some improvements, the essay concludes that the oil-and-politics nexus is likely to exacerbate conflict and produce non-developmental outcomes in the new oil states, with existing patterns of domestic and international relations prevalent in the established producers being replicated.
Oil Development in the 1990s
Since the mid-1990s, the African oil sector has gone through momentous changes. In a short span of time, the oil-rich Gulf of Guinea region became one of the world’s petroleum investment hotspots, with companies from China, India, Brazil, Norway, and Russia – amongst many others – joining the still-predominant Western oil majors in the race for acreage.1 In addition to increased production in established oil states such as Angola and Nigeria, this period has witnessed massive new investments in adjacent states, including Ghana, Equatorial Guinea, Chad, and a number of states in East Africa. These dynamics have already drastically changed, or are set to change, the political economy and exercise of power of a number of important states. Despite these recent upheavals, it is important to note that the political economy of oil extraction in West and Central Africa is much older, often having roots in the late colonial era. This history is important in its own right when dealing with the older oil producers, but it also reveals much about the institutional and political economy impacts of oil in post-colonial Africa, its effect on the calculus of power, and the likely results of oil wealth for a number of up-and-coming oil states.
In some cases, oil exploration started in the first half of the twentieth century, and by the late 1950s, several states, such as Angola and Nigeria, were modest producers. Companies present in these countries in late colonial or early post-independence days remain the leading players across the region. Even in today’s diversified investment context, around 80 per cent of oil production is by, or involving state partnerships with, just five firms: ExxonMobil, Chevron, Royal Dutch/ Shell, Total, and ENI. These companies, as well as others they have absorbed over the past decades, have proven remarkably resilient in the tough political and economic environment of the Gulf of Guinea, braving large-scale warfare, regime changes, and all sorts of logistical challenges. They have laboured under the imperative of continued engagement with the region on account of its oil endowment, the access provided to foreign oil corporations and the very favourable investment conditions.
An important feature is the pragmatism at the heart of long-standing relationships between oil investors and foreign oil firms. While resource nationalism in 1960s–1970s North Africa, the Middle East, and Latin America led to the expropriation or diminishment of Western oil corporations’ interests and political clout, in the Gulf of Guinea this had but a slight impact on operators, even in Nigeria where there were substantial contract renegotiations. The reason for this more cautious leadership by oil-rich governments is straightforward: they had neither the capital nor the technical and managerial expertise to extract the oil themselves. Nigeria’s and Angola’s notable human resources were primarily so at the level of negotiations: NNPC and Sonangol, respectively, could never match the ambitions of such developing world counterparts as PEMEX, PDVSA, or SONATRACH.
In the Nigerian case, attempts at indigenization of the economy and gaining membership to Organization of the Petroleum Exporting Countries (OPEC) were laced in 1970s nationalist rhetoric, but the role of Western corporations was left intact (Biersteker 1987). In the Francophone chasse guardée, France’s national oil company (NOC), Elf-Aquitaine, retained a dominant position both in conservative states, such as Gabon, and the nominally socialist Congo-Brazzaville. In Angola, this pragmatism was even more surprising in view of the country’s embrace of socialist economics and Eastern Bloc assistance. On account of the total destruction of the non-oil economy following civil war and foreign invasion in 1975, the Movimento Popular de Libertação de Angola – Partido do Trabalho (MPLA, The People’s Movement for the Liberation of Angola) government understood that the oil sector would be its fiscal lifeline. To that effect, it proceeded to woo back the foreign oil corporations (with emphasis on Gulf Oil, later bought by Chevron) that had been responsible for oil production in the late colonial years. Moreover, Angola’s leaders created national oil company Sonangol, which was deliberately insulated from the predominant logic of the Angolan economy and allowed to mature into a competent representative of the state’s interests. The Angolan oil sector thus thrived, in spite of Cold War politics and internal conflict. The bizarre scenario of Cuban troops protecting US oil companies from US-backed guerrilla attacks became commonplace (Soares de Oliveira 2007b).
An assessment of the Gulf of Guinea’s worth for the global economy of oil in the early 1990s would have been lukewarm, and at this stage, no other African sub-region was a major producer. It contained one world-class oil power – Nigeria – and a number of medium-sized producers. Companies active across the Gulf of Guinea and in possession of the relevant geological data knew that the region had great potential (as did some companies interested in Sudan), but for many it still paled in comparison with oil provinces opening up elsewhere. Aside from French interests, the region did not rank high in geopolitical considerations. This received wisdom abruptly changed in the mid-1990s.
The introduction of seismic research and ultra-deepwater technology suddenly opened up a new offshore frontier to foreign investors. The enthusiasm for the Gulf of Guinea’s oil potential was such that a global suspension in investment in the late 1990s, when oil prices dipped below US$10 giving oil firms no incentive for capital expenditures, did not affect the investment frenzy in the region. Over the next decade, tens of billions of dollars-worth in oil sector investment poured into the Gulf of Guinea. Despite some misgivings, international financial institutions (IFIs) have contributed to this and were even the lead actors in opening up Chad, one of the new petro-states in the region, through support of the Chad–Cameroon pipeline to bring the crude oil to world markets.
The geopolitical importance of this region soon followed its promising commercial reassessment. Eager to diversify energy supplies outside of the Persian Gulf, the United States defined the Gulf of Guinea as an area of ‘national strategic interest’2 and resultantly sees securing energy supply routes to be one of the key missions of the newly created Africa Command (AFRICOM). In tandem with an exponential increase in its Africa presence, China’s interest in African oil has grown considerably (Alden et al. 2008). The same applies to other Asian states, such as India, Malaysia, South Korea, and Japan as well as investors from Norway, Russia, and Brazil and the myriad small companies interested in frontier locations. By the mid-2000s, this enthusiasm for African oil poured out of the Gulf of Guinea in all directions, with East Africa in particular witnessing a stampede of investors (Anderson and Browne 2011). Such a massive escalation of foreign direct investment (FDI), together with the increase in oil production and, most importantly, the jump in oil prices to an unprecedented $147 per barrel in July 2008, resulted in record levels of gross domestic product (GDP) growth and international interest, with the treasuries of Africa’s oil-rich states expected to earn hundreds of billions of dollars in oil rents.
Oil States, Oil Companies, and Oil Importers
Since the late 1950s, the political economy of oil, and its character, have been structured around three sets of empowered players and their three-way relationship. They are: the oil-producing state itself, in the form of its governing elite; the foreign (mostly Western) oil companies; and the oil-importing states in the industrial world, which until the 1990s essentially meant the West.
Oil States
The seven oil-rich states in West and Central Africa include Nigeria, Cameroon, Angola, Gabon, Congo-Brazzaville, Equatorial Guinea, and Chad; Ghana began oil production in 2010, bringing it to eight countries. Other neighbouring states are either engaging in serious oil exploration or have started to produce modest but growing amounts of oil. The Gulf of Guinea’s oil states are heterogeneous in size, population, colonial legacy, and resource endowment, but they share three key factors. The first is their dependence on foreign technology to extract oil; second is an overwhelming dependence on oil revenues for the fiscal sustenance of the state; and third is a consistent record of poor use of oil revenues, high corruption, and low human development indicators. These common characteristics mean that oil-rich states, while unique in their own right, can be studied within a general framework and are amenable to a degree of generalization regarding their post-colonial trajectories. This is particularly so when comparing their character during the pre-oil, oil-boom, and post-oil boom eras.
The first common element concerns the pre-oil character of their political economies. Although there were differences in economic development, availability of skilled personnel, timing and manner of decolonization, and so on, all of the states mentioned above faced important deficiencies at the time of independence that did not augur well for productive use of oil revenues. Their economies were commodity-based (sometimes on just one major agricultural commodity) and therefore highly dependent on world market shifts (Williams, this volume). Their institutions were shallow and their bureaucracies inefficient. Their politics were despotic and uncivil. Strictly speaking, none of the states in the region had ever experienced what is now termed ‘good governance’, and a ‘developmental elite’ was everywhere absent. Many analysts have rightly emphasized the impact of the so-called ‘resource curse’– the paradox whereby mineral resource endowment in developing countries tends to lead to the deepening of poverty and strife rather than development, however defined – on oil-rich states in the Gulf of Guinea and elsewhere, as well as of other closely related phenomena, such as ‘Dutch Disease’ (Gelb 1988; Auty 1995). That said, it is important to recognize that these states had none of the preconditions that have led to at least ambivalently positive results in other oil-rich states. Post-independence governance challenges made it highly unlikely from the outset that oil would be a force for good in the Gulf of Guinea.
The second shared element is the character of boom-era policies during the 1970s and early 1980s. Visions for the state that held sway during this period were statist and high-modernist, with emphasis on the need to import the hardware of industrial advanced societies – in the form of infrastructure and heavy industry – and a concomitant neglect of previously predominant (i.e. agricultural) economic activity. Even at this stage, Gulf of Guinea states did not resemble the Weberian model of a modern bureaucracy exercising a monopoly of violence over a given territory. Still, the oil-fuelled, nationalist rhetoric of state elites was premised on mimicking the industrial world and achieving such an end-product through state intervention in society. In practice, however, such dreams of modernization were trumped by patrimonial politics, corruption and mere incompetence, the undermining of labour-intensive economic activity, non-pursuit of economic diversification, and the failure to construct a viable non-oil fiscal foundation for the state. All of this was compounded by the serial resort to foreign lending. When oil prices fell in the 1980s, the oil states saw a precipitous fall in their revenues and the near impossibility of repaying their quickly escalating debts. The very viability of the state was at stake amidst the debris of white elephant projects, half-finished infrastructure, and social unrest.
The third element is the manner in which the Gulf of Guinea’s oil-rich states tackled the political and economic decay of the post-boom era. Essentially, they have done so through the following trends: state abandonment; state ‘privatization’ or discharge of functions; and the tailoring of state tools around core matters with which it is still concerned. State abandonment is the simplest. Areas previously under the scope of state intervention were no longer defined as the state’s own and were therefore neglected. This contains a policy-specific dimension (for example, the abandonment of welfare, health, and educational provisions), and a geographical dimension (the retreat from economically useless areas). The result was the implosion of human development indicators throughout the region.
State privatization meant more than the sale of state assets to private entities. It included the passing of former state responsibilities to non-state actors from security and education sectors (to private companies, militias, mercenary outfits; and to the churches, respectively), to disease control and food provision (to the UN system and non-governmental organizations – NGOs – see Jennings, this volume). These trends have remained constant in most of the region’s petro-states, even after oil revenues and investor interest soared again in the 1990s and beyond. The contradiction is apparent in the appellation of these countries as ‘successful failed states’, wherein both segments of the population – the oil-rich and the extremely poor – amount to one half of the political and economic makeup of the Gulf of Guinea states.3
The empirical element of failure is undeniable. A veritable basket case of dysfunctional state experiences, the Gulf of Guinea brings together the pathologies of the colonial and post-colonial African state with the ailments of petro-statehood studied by political economists the world over (Karl 1997; Chaudhry 1997). However, the presence of oil deposits changes the calculus of state survival by preserving oil states in the region from Somalia-type demise. Because they do not need money to the same extent as other oil-poor African states, oil states are guaranteed considerable freedom from international financial institutions. They also possess solidly long-term, legal engagement with the international economy through the sale of the fuel that powers industrial civilization. Oil ensures that whatever the domestic political conditions of these states, there will be an interest by multiple external and internal actors in maintaining a notional central structure, and that enough resources will be available to prop up incumbents, guarantee their enrichment, and coerce or co-opt enemies. This allows these ruling elites to build and maintain a political order that is violent, arbitrary, and exploitative, but fairly reliable. The resulting political process is and will be unstable and fragmentary, but the structure of politics itself will be stable and viable, while oil lasts. This political and material success of the elite does not cancel out the decay around itself but, as Prunier and Gisselquist (2003: 103) note, an analysis of failure must allow for the fact that certain forms of governance can be ‘successful as measured against its own parameters and judged by the standards of its political program’.
Provided two conditions are in place, the relationship between oil states and oil companies will work in a mutually beneficial way despite the surrounding chaos. The first is a prerequisite for foreign involvement in the oil sector: the creation of a parallel economic system that insulates oil companies from the unreliability of local conditions, with its own acceptable legal framework and logistical efficiency. In such enclave contexts, companies can operate freely and do not face the rent-seeking, contractual uncertainty, or threat of expropriation that are widespread outside the oil sector. The second condition – essential for elite survival and enjoyment of revenues – is the creation and maintenance of two kinds of state organizations that are spared the decline evident elsewhere. The first pertains to the instruments of coercion, in the form of armed forces, numerous police and paramilitary outfits, and more informal instruments of repression, such as private militias. There is substantial variation across the region, from the warfare of the Niger Delta to the more controlled environments elsewhere, but trends are similar throughout. The second is an entity that can articulate state interests in the oil sector with comparative prowess, bringing together its scarce human resources and enabling success in negotiations and joint ventures, as well as access to oil-backed loans. This function is normally performed by the NOC, with Angola’s Sonangol as the best example, but can also be performed informally by consultants close to the executive.
Although there is no space here to discuss the subject of elite politics in the oil state in-depth (see Soares de Oliveira 2007a), a brief comment is in order. A dependency theory type of approach to the political economy of the region – one that gives the key explanatory role to the evils of the world economy and very little or none to the character of domestic empowered political actors – fails to address the role of elites in the oil partnership. While they are indeed constrained by their specific position in the world economy and the feeble character of the polities over which they preside, they are well-endowed, consequential actors in their own right. Any investigation of African oil will find them at the centre of political and economic outcomes in the post-colonial era, especially at a time of unparalleled revenues.
Oil Companies
A close study of corporate involvement in the oil sector dispels a number of misconceptions about foreign investment in Africa. While some decently run African states have found it hard to attract FDI, some of the worst-governed states on the continent are the site of a large-scale, long-term corporate presence. In this context, oil companies are best understood as integral parts of the local power structure and co-creators of the political economy of oil, rather than passive entities accepting pre-existing methods and structures. They are intensely networked with local decision makers and understand the nature of the business-and-politics nexus in the oil states. The technically capable, vital role in oil extraction played by these firms is underpinned by a vast array of associated foreign businesses that perform useful roles in the functioning of the political economy of oil, including assorted consultants, oil services companies, auditors, and the international banking industry, which has played the role of creditor and money launderer for decades. The latter in particular is central to understanding the character of oil money flows from Africa into the core of the world economy.
Although corporate reactions to the governance of oil states has evolved in recent years, a core perception still holds sway: oil firms act under the geological imperative of going where the oil is and the political imperative of going where they are welcomed by sovereign authorities. What oil-rich sovereign governments do or do not do with the revenues they earn is a different matter altogether and, from the corporations’ point of view, not their responsibility. Leaving aside the fact that this apolitical discourse is often contradicted by intensely political actions (e.g. lobbying in Western capitals in favour of the governments of oil-rich states), it goes without saying that the policy choices of Africa’s petro-elites could not possibly be implemented in the absence of the resources that these companies make available to them. Furthermore, the lack of diversification of oil economies means that a handful of corporations are by far the largest taxpayers and that there is barely any fiscal activity outside the oil sector. Any comparative fiscal history, or a specific comparison with the political role of the NOCs of oil-rich countries from Iran, to Venezuela, or Mexico, shows that entities that bestow upon the state such a disproportionate amount of the resources that allow it to exist and function are endowed with significant political clout and are constitutive of the governance outcomes of the state.
Oil-importing states
The third and final category of players in the oil partnership is that of the oil-importing states in the industrial world, which until recently meant the Organisation for Economic Co-operation and Development (OECD) economies, but has now come to include emerging Asian economies as well. For decades the political economy of oil was based on the exchange of political support and prosperity for local dictators, and reliable provision of oil for industrial states and their consumers. While there were other factors at work, including the generally accommodating attitude towards post-colonial states in their early years and the sidelining of normative concerns during the Cold War, the existence of a smooth-running and mostly positive oil partnership played a key role in facilitating authoritarian rule.
There were, of course, difficulties in doing business in such an unstable region as the Gulf of Guinea. Civil wars, like the attempted secession of Biafra, could close down production, and wider political dynamics, such as a Nigeria–UK diplomatic tussle, could result in investor casualties. Generally, though, the region proved a reliable source of oil imports, with Cold War inclinations on the African side tempered by the desire for oil revenues. Even today, oil companies still find it to be lucrative, on balance, to persevere amidst conditions as disabling and violent as those prevalent in the Niger Delta. Indeed, new companies keep coming to the region. It can be argued that the issues now at the forefront of all discussions of oil in Africa – the governance, environmental, and human rights record, and corruption and the failure to bring forth a development dividend for the majority – were non-issues until a decade ago.
The dramatic commercial and geopolitical reassessment of African oil in the mid-1990s, discussed above, was eventually matched by a normative reassessment. There were long-term trends at stake, both in the West and in Africa. In the former, this included the end of the Cold War and the emergence of ‘ethical’ foreign policies promoting democracy and free markets. The West had less willingness to partner with questionable regimes, and civil society agendas increasingly challenged corruption, environmental exploitation, and the use of natural resources to underpin war efforts. In Africa, especially in the impoverished and highly polluted Niger Delta region, vocal and occasionally violent grassroots protest emerged, confronting the corporation-state nexus and the tragic implications of oil production for surrounding communities. Jointly, these trends amounted to a searing critique of the oil partnerships of the previous decades, and led to the politicization of its governance record. The speed with which this critique burst into international policy debates nonetheless took many by surprise.
The International ‘Progressive Agenda’
While the progressive agendas matured rapidly in the early 1990s, a tragic event in late 1995 was the precipitating cause of their near-complete mainstreaming in the subsequent years. Despite high-level international opposition and pleading, Nigeria’s military ruler Sani Abacha ordered the execution of Ken Saro-Wiwa and eight other anti-oil activists. Saro-Wiwa, a writer, was the leader of a protest by his fellow Ogoni against perceived exploitation by the government and oil firms. Royal Dutch/Shell, the biggest oil operator in Ogoniland and in Nigeria, was dubbed an accomplice in the executions, as well as in the long-term destruction of lives and the ecosystem across the Niger Delta. Oil companies were put on the defensive as Human Rights Watch, Global Witness, Transparency International, and other international organizations shed light on their role in the region.
Other developments raised uncomfortable questions about the oil industry’s record in Africa. In France, long-simmering scandals regarding Elf-Aquitaine finally erupted and a vast Gabon-centred regional strategy of corruption and influence-peddling was unmasked. At the IFIs, received wisdom on the beneficial impact of extractive industries was questioned by research that showed an inverse connection between mineral resource endowment and broad-based development. Indeed, research seemed to show that oil- and mineral-rich states in the developing world were more likely to suffer from heightened political competition, corruption, and civil war than non-resource-rich states, and were also more likely to be poorer in the long run (see Gelb 1988). The lifting of the taboo around discussions of corruption at the IFIs also facilitated international scrutiny over oil-related malfeasance in Africa.
There are three dimensions to the subsequent pursuit of a ‘progressive agenda’ in Gulf of Guinea oil politics (Soares de Oliveira 2007a). While they vary in their impact and are not the only such developments to have taken place, they encapsulate the dynamics of reform in the late 1990s and the early part of the last decade. The first call for change pertains to the lack of transparency of business transactions, and the attendant corruption and siphoning off of oil revenues. Though colossal graft in developing nations and the role of multinational corporations in facilitating it had been a concern for decades, the broad-based recognition that it needed to be tackled is relatively recent (until the mid-1990s, the 1977 US Foreign Corrupt Practices Act was one of the few pieces of legislation to target such occurrences). Aided by strong civil society campaigning and such developments as the 1997 OECD anti-corruption convention and G8 pronouncements on the evils of corruption, international efforts to address this gathered speed in the mid- to late 1990s. This new emphasis was part of a broader concern with corruption, but had particular implications for resource-rich countries. These were not only states where the discrepancy between available resources and dire poverty was most glaring; there was also a clear link between illicit revenue flows and war-making – especially by insurgent groups – which fuelled high-profile campaigns, such as that against ‘blood diamonds’. Crucially, this focus soon transcended the usual reformist constituencies and came to include institutions like the International Monetary Fund (IMF), which became interested in the huge gaps in oil-rich member-state accounts.
In addition to the persistent work of the international NGOs mentioned above, two attempts to address corruption should be mentioned. The first was the Publish What You Pay (PWYP) campaign, which started in 2002 with the support of civil society organizations around the world. The campaign argued for hard regulation of financial transactions between states and companies, with timely and disaggregated publishing of accounts made a precondition for firms listing in Western stock exchanges and respecting accounting standards. Unsurprisingly, support for a regulatory approach was very thin beyond the core activist groups. A second campaign, launched by British Prime Minister Tony Blair and now having its own secretariat in Oslo, was the Extractive Industries Transparency Initiative (EITI), which called on both governments and companies to publish their transactions on a voluntary basis. EITI was loudly embraced by stakeholders across the oil nexus, including not just oil-importing states and oil firms but also many oil states.
While some were genuine in their embrace of EITI, three aspects were pivotal from the viewpoint of recalcitrant players in the oil game. First, this ‘reform-light’ option allowed them to buy into the now-unavoidable reformist discourse at little cost. Second, it helped stave off the threat of hard regulation, for which there was no constituency outside civil society groups. Third, its vague and loophole-ridden character meant that constraints to long-standing behaviour would either not materialize or be phased in slowly enough that alternative routes for similar behaviour could be explored. As to genuine reformists, who urged less patient ‘hard regulators’ to accept slow and incremental approaches, they assumed that the reformist turn was irrevocable and its deepening inexorable. The possibility that the very international climate allowing for the blossoming of reforms could change fast in a contrary direction was not taken into account.
The second call for change pertained to the responsibilities of corporations themselves. The dismissive approach of most oil companies could not withstand the challenges to their actions. The private sector concocted a discourse on corporate social responsibility (CSR). It appeared as an essentially reactive endeavour by companies to both deflect criticism on the environmental and social impact of their activities, and to prevent the creation of putative transnational regulatory frameworks to tackle these problems. Eventually, most firms adopted non-binding, voluntary codes of good corporate behaviour and are now more capable of dealing with external criticism of operations with less awkwardness. The most important development amidst the upsurge in oil company philanthropy entailed by CSR was the outpouring of resources across the Niger Delta. The killing of Saro-Wiwa provided oil companies with a wake-up call, at least from the perspective of improving their dismal public relations record. Royal Dutch/ Shell, for instance, went from a measly $100,000 in social spending in 1991, to $69 million in 2002 (Soares de Oliveira 2007a: 243–53). A Niger Delta Development Commission was created with partial financing by the oil companies, although it soon became infested with networks linked to the ruling party. While this shows an increased commitment on the corporate side, there is scarcely a positive impact in the region and the evermore sophisticated and criminalized insurgency has continued to expand.
A third progressive agenda was, when first put forth, potentially the most intrusive of all suggestions to improve the record of the political economy of oil in the Gulf of Guinea. This was the idea that in order to bring about the desired developmental outcomes for oil-producing states, important aspects of public policy – especially at the level of oil revenue management – should be supervised by the international community. This approach was implemented in landlocked Chad. The project was reminiscent of nineteenth-century attempts at controlling the public finances of bankrupt states, such as Greece, Egypt, and the Ottoman Empire, and appropriately dubbed an instance of ‘shared sovereignty’ by Krasner (2004). After years of reluctance on account of the security situation, a consortium headed by Exxon-Mobil got the crucial support of the World Bank in 2000. In exchange for the financing and political support for building the oil and pipeline project, the Chadian government had to sign up to agreements that, among other things: environmental standards would be high throughout the project; 80 per cent of oil revenues would be used for social purposes; part of the revenues would be kept in a future generations fund; and government spending decisions would be followed and, if necessary, vetoed by a revenue oversight committee partly staffed by civil society representatives (Gary and Reisch 2005). Chad’s President Idriss Deby was never enthusiastic about the agreement but played along while the project was being built. Once it was up and running, Deby reneged on important sections of the agreement and, after almost three years of acrimonious relations with the World Bank, the agreement was quietly dropped in 2008 (The Economist 2008).
Contemporary Challenges to Reform
By 2004, the governance and oil debates were seemingly over. While the reformist agendas meant different things to different people, no serious public voice was arguing that such matters were irrelevant, not a matter for corporations, or best addressed by a laissez-faire approach. Actors diverged on the urgency of specific reforms, but the character of governance outcomes in oil-rich African states was the subject of tacit agreement. Even violent dictatorships, such as Equatorial Guinea, scrambled to sign up to EITI in hope of not falling foul of the new reformist consensus. However, the apparent victory of the reformist agenda was overshadowed by two facts. First, that rhetorical acceptance of reforms was not actually materializing into different policies on the ground. Second, that a massive shift then underway in international oil markets led to record oil prices and a concomitant move away from the more austere economic conditions that had enabled the reformist drive to take place initially.
In the four years to 2012, several factors have militated against progress in addressing the deep-seated problems of oil states. As always, the rise of oil prices (this time, to an historically unprecedented $147 per barrel in July 2008) meant that policymakers in industrial states again embraced the default realpolitik approach to relations with major energy producers. The chancelleries of even the most reformist northern European states are now wary of antagonizing states from which they badly need oil and gas.
In addition to high oil prices, other factors have played a role in taming the West’s reformist enthusiasm. Oil provinces expected to provide big opportunities to foreign investors – from Mexico and Venezuela, to Russia and assorted Middle Eastern states – either did not open up or, in fact, became more difficult to access. This made access to Africa’s oil fields even more precious. Additionally, major competitors from Asia’s oil-hungry economies – such as China’s CNOOC, PetroChina, and Sinopec, Malaysia’s Petronas, and India’s ONGC – engaged with Africa’s oil elites without the pretence of a reformist impulse. While the differences between big ‘Western’ and ‘Eastern’ oil companies is overemphasized, Western corporations have had to contend with strong challenges to the realpolitik approach, whereas Eastern companies have more or less unproblematically embraced it. The enabling role of Asian companies for the Khartoum regime is a high-profile example of this.
Another factor is that the commitment to reform was always timid and biased towards the incremental and voluntary, as opposed to the forceful and regulatory. Oil companies, even when they seemed to jump on the reformist boat, were more often than not engaging on damage limitation exercises. What is now deemed corrupt practice never decidedly affected the bottom line of these companies, and their engagement with African oil states has always been highly profitable. In fact, the clearest danger for oil firms was the damage to relations with power-holders in the oil-rich states if reform was pursued too strenuously. It is thus not surprising that oil companies were amongst the first to desert the reformist agenda as soon as the debates shifted.
The final and perhaps most important factor in accounting for the lack of success of the reformist agenda is that there was never a strong enough reformist constituency in oil-producing countries themselves. Despite protest by mainline churches, NGOs, and the media, where there was space to do so, and the occasional armed rebellion in countries such as Angola, Chad, Congo-Brazzaville, and Nigeria, the arrangements that are dismissed by those outside of the oil elite as abhorrent were and remain highly rewarding for those on the inside. Few, if any, realistic competitors to the oil incumbents think very differently about the state or the economy, and those who do are not at the present time within reach of decision-making positions. In fact, the clearest trend across the region is the consolidation and growing sophistication of these oil-fuelled regimes, to the detriment of better alternatives. In some countries there was a partial engagement with the reformist agenda but ultimately no schism occurred at the elite level. The political economy of oil in Africa is a joint, transnational creation of numerous local and foreign actors. It cannot be changed from the outside alone, and as made clear in this essay, the outside’s willingness to enact change was always ambivalent anyway.
Developments in this arena are not consistently negative. There is ground for cautious optimism that Ghana, the continent’s newest oil state and a democratic one with a free press, will be capable of managing its resources better than its neighbours have. At the international level, the US Dodd-Frank Act of 2010, which makes it compulsory for companies to disclose payments and other data in a disaggregated manner, brings on board many of the suggestions of the PWYP campaign, and money laundering and capital flight are slowing entering the mainstream of discussions on the world economy. This nascent transparency is not a panacea to decades of disappointing outcomes at the domestic level of established oil states. In addition to fundamental continuities in those cases, the dynamics in up-and-coming oil states, such as Uganda and South Sudan, do not point to a stronger regulatory framework, the institutionalization of revenue management, respect for local communities, or the suppression of rentier appetites. Moreover, there is a worrying degree of cross-border complexity and potential for dispute (especially but not only between Khartoum and Juba) that has been secondary in West and Central African oil development. In short, change to the patterns outlined in this essay needs to be based on reform at the level of the oil states, even if necessarily grounded in an international setting that incentivises benign choices instead of rewarding malfeasance. For the time being, this is an unlikely prospect in the old, and many of the new and up-and-coming, oil states.
Notes
1For further discussion of many of the themes in this chapter, see Soares de Oliveira (2007a).
2Assistant Secretary of State for Africa Walter Kansteiner, quoted in The Economist (2002).
3The idea of a ‘failed state’ that can be ‘successful’ because it continues to provide for the prosperity of elites and because it benefits from resource flows that allow it to go on standing is derived from Prunier and Gisselquist (2003). See also Soares de Oliveira (2007a).
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