IN SHREVEPORT, LOUISIANA, Laura FitzGerald is known as the “Belle of the Wells.”1
After learning how the land and oil rights industry works, FitzGerald, a former oil company employee, struck out on her own. She founded Illios Resources in 2004 and began amassing oil rights and selling them to oil companies. She has since accumulated more than 18,000 acres of mineral rights and made millions of dollars.2
She later wrote about her successes, particularly outstanding for a woman in this field, for a company blog:
“Growing up, my older brother always told me I could do anything a guy could do. I think that had an effect on me. I believe it to this day, and I believe it’s true for any woman who puts her mind to a task. The simple fact of the matter is that this is America. Financial independence is the birthright of every American. If we relentlessly execute our vision, course correct when necessary, and push through the resistance, we will win.”
What a statement. FitzGerald’s attempt to encourage other female entrepreneurs was predicated on the idea that if you live in the U.S., you already have a leg up when it comes to achieving your financial goals.
I don’t know if that’s true across the board, but as FitzGerald’s story demonstrates, being in the U.S. certainly opens the door to opportunity when it comes to oil and gas resources. Even landowners who never work in the petroleum industry have a very real chance of profiting from the sale of their property’s mineral rights. Around 2012, states paid out more than $54 billion in royalties to landowners whose property was the site of oil and gas fracking, according to data from the National Association of Royalty Owners (NARO). “There are millionaires being made every day from North Dakota to Pennsylvania,” Jerry Simmons, director of the NARO, told Business Insider at the time.3
During the oil boom in 2012, some North Dakota towns seemed to be packed with people who’d made big money selling mineral rights to their property, Reuters wrote. “Average income in Mountrail County, the hub of the North Dakota oil production boom, roughly doubled in five years to $52,027 per person in 2010, ranking it in the richest 100 U.S. counties on that basis, including New York City, and Marin, California. The boom could be creating up to 2,000 millionaires a year in North Dakota.”4
Granted, North Dakota oil towns saw their share of troubles a few years later, when the oil boom fizzled out. But the point is, the lives of everyday people there were changed because of natural resources on their property.
Imagine the transformation in African lives and communities if women here could pursue their goals the way that FitzGerald did. Or if property owners in, say, Cameroon or Nigeria could benefit from the discovery of oil on their property.
Unfortunately, that’s not how things work in today’s Africa. If you discover oil on your property, it’s a non-event—you have nothing. Whether natural resources are found on private property or community property, they belong to the state. Period.
To make matters worse, Africans often feel left out when the state decides how to spend the money those natural resources generate. Those feelings of being disregarded are major drivers behind the violence we’re seeing in the continent. People feel the not-so-pleasant impacts of oil and gas operations, from oil spills that impact the environment to declining income opportunities in other sectors. And they see little to none of the myriad benefits that petroleum revenue could and should be delivering, from financial and economic benefits to infrastructure, education, and healthcare programs. Instead, oil revenues are supporting large, unwieldy central governments and lining the pockets of a select few.
It’s the resource curse in a nutshell.
We shouldn’t be waiting for foreign governments or aid organizations to come in to fix this. It’s our obligation to find ways to start changing this dynamic. We should be looking at the examples of countries that do manage oil resources effectively. We should be considering the creation of trusts that manage and protect resources specifically for communities. We need to find a way to ensure that more stories about oil and gas changing everyday people’s lives take place in Africa.
For the people in the Niger Delta, day-to-day life can be harrowing at best, with violence, kidnappings, and extreme poverty all too common. The root causes of the turmoil there are complex: from long-standing religious and ethno-regional tensions to conflicts over land use to ongoing attacks by militant groups, which manage to draw support from disaffected locals living in poverty. But without a doubt, mismanagement of oil revenue—and failure to use it to improve the lives of the indigenous population—is fueling the fire. Locals have lost patience with foreign oil corporations reaping the rewards of oil production, while their standard of living remains unimproved and unacceptable. Frequent oil spills in the region, more than 7,000 between 1970 and 2000, have only incensed people there further and led to the formation of militant groups that have attacked both oil workers and pipelines.5
More than a decade ago, Sebastian Spio-Garbrah, an African analyst for the Eurasia Group, reported that billions of dollars in oil revenue generated in the Delta were simply disappearing. “The Niger Delta receives more money per capita than anywhere else in Nigeria,” he told PBS. “The problem is that this money has then been mostly siphoned off, misspent and abused.”6
Nigeria’s 1999 Constitution attempted to address this. According to the constitution, at least 13 percent of all revenue made through contracts with foreign oil producers must go back to the oil-producing states. The states, in turn, are expected to spend that revenue on things that would benefit the states’ population.
Clearly, that hasn’t been the reality. In Nigeria, the World Bank has estimated that as a result of corruption, 80 percent of energy revenues in the country only benefit 1 percent of the population. As Nigerian Folabi Olagbaju of Amnesty International said in 2007, “Oil exploration has not led to social and economic development for the peoples in the oil-producing states. It has benefited the Nigerian ruling class.”
More than a decade later, little has been done to improve the situation. And unfortunately, Nigeria is not an outlier among African nations with petroleum reserves.
Cameroon, for example, also has had a case of “disappearing” oil revenue. Since oil was discovered in Cameroon in 1977, approximately $20 billion has been paid in oil rents—but only 54 percent of the money appeared in the government budget.7
And how has Cameroon’s resource wealth played out for Cameroonians? There has been some good news on the economic front: During the last decade, the country’s gross domestic product per capita has grown by 4 percent annually, above the global average of 2.6 percent.8
Other figures, however, show oil revenue failing to impact the lives of the people who need help most: 48 percent of the population continues to live below the poverty line. Healthcare is sparse, and Cameroon’s life expectancy is only 57 years for males and 59 years for females.
Some might argue that local poverty and disenfranchisement, particularly in the South-West region of Cameroon, have contributed to the Anglophone crisis taking place. Since late 2017, it has resulted in violent clashes, the deaths of scores of people, and the displacement of tens of thousands.
The crisis has its roots in African Colonialism and the German colony of “Kamerun” being divided between France and England by the League of Nations following Germany’s defeat in World War I. In 1960, when Cameroon gained its independence, English-speaking residents were given the option of joining the French-speaking portion of Cameroon or becoming citizens of neighboring Nigeria. They voted to stay, but since that time, have described unfair treatment, with education, roads, and healthcare in their western region of the country being neglected—despite the production of tens of thousands of barrels of oil per day in the South West, an English-speaking region.9
Some English-speakers want their grievances addressed, while others are calling for a more extreme solution: the creation of an independent state which they refer to as “Ambazonia.” English-speakers have complained about the unbalanced distribution of revenue from natural resources.
Their concerns resonate strongly with me: I am from the Manyu division in the South-West region. These grievances are valid. We aren’t producing jobs at the rate we should, and the private sector is suffering from high taxes, corruption, and red tape. Millions of young Cameroonians don’t have healthcare. Children and teenagers are senselessly being killed. I believe the only way out is a conversation that includes all of the people involved, all of the stakeholders. All of the country’s residents should be treated with dignity, justice, and equity.
Another troubling case is the worsening situation in Libya. It would be fair to say that the country has been in a state of turmoil since the uprising of 2011 put an end to the 42-year rule of Muammar Gaddafi, and various forces started battling for control of the country’s oil reserves.
Mustafa Sanalla, chairman of Libya’s National Oil Corporation (NOC), has struggled to keep the crude flowing while militias have fought over oil facilities. His staff members have been killed and kidnapped. He was nearly killed when the NOC headquarters were attacked by ISIS. At one point, the Petroleum Facilities Guard, an armed force charged with protecting Libya’s oil facilities, had to shut down the country’s largest oil field. Interruptions in oil production have cost the country $100 billion in lost revenues in the last 5 years, Sanalla estimated in early 2019.
The production cuts are a major problem in Libya, which relies heavily on its oil revenue. There has been a collapse in public services, healthcare in particular.10 About a third of the population is living in poverty, without access to clean drinking water or sewage systems.11
While these examples are extremely troubling, I still believe it is possible to learn from them and put an end to resource revenue mismanagement. And that process should begin with a serious examination of those who manage their revenue well.
In the 1960s, Stavanger was a small Norwegian fishing town with a declining economy and dwindling population. These days, Stavanger is Norway’s fourth-largest city and a popular tourist destination. It is home to a university, a concert hall, several museums—including the popular Norwegian Petroleum Museum. Huge ships travel daily from the town’s harbor to oil platforms offshore. And Stavanger is not unique in Norway; it’s a picture of the transformations that occurred nationwide after oil and natural gas reserves were discovered in 1969.
The petroleum reserves were key to the change, but what really made the difference was Norway’s strategy for managing the massive revenues it has generated. As a result of that approach, Norway has been able to use its $40 billion in annual revenues to spread prosperity around the country.
That’s not to say there weren’t a few missteps along the way. Almost immediately after the country started exporting oil and gas, revenues poured directly into the government budget. Within a few years, however, Norway’s booming oil and gas exports started putting the country at risk of moving from a diverse economy to one that depended heavily on petroleum.
“Norway had four years of Dutch disease, where wages went up, factories lost their top people to the oil industry, and foreigners coming in to invest in the oil boom drove up the value of the currency so high that customers in other countries could no longer afford Norway’s other export products,” said Farouk al-Kasim, who was with Norway’s Oil Ministry at the time. “Initially, the government reacted by handing out subsidies, and we went deeper into the mire.”12
Fearful for Norway’s economy, the government searched for a solution. In the mid-1970s, upon al-Kasim’s recommendation, Norway started investing profits from state-owned oil companies into technological research that not only enhanced the country’s extraction abilities, but also helped other Norwegian industries—including construction, transportation, manufacturing, even hospitality—develop and grow.
And in 1995, Norway took a more dramatic step: It started limiting government expenditures of oil revenue to 4 percent. That money was to be used for infrastructure and public projects, along with investment in foreign financial markets. The remaining revenue was put into a sovereign wealth fund that, as of 2014, had grown to $890 billion.
Norway has remained highly committed to transparent fund management. The public has access to every investment made, as well as risk exposure and performance. Fund managers meet regularly with lawmakers and journalists.
Norway’s prime minister Jens Stoltenberg summed up his country’s approach to resource revenue in a 2013 speech at the Kennedy School of Government at Harvard University. Norway became one of the wealthiest nations in the world, he said, by refusing to spend its massive revenues, placing them in a fund, and only using its annual returns. “That way the fund lasts forever. The problem in Europe with the deficits and the debt crisis is that many European countries have spent money they don’t have. The problem in Norway is that we don’t spend money we do have. That requires a kind of political courage,” he said.13
It would be fair to say that many African countries have been guilty of spending oil money they don’t have yet. Others are guilty of misspending the money they do have, money that could pave the way for a brighter future.
While Norway’s model may not be a perfect fit for African countries, there are elements of it that would work. They include:
Using only a percentage of oil revenue for capital expenditures. That percentage does not necessarily need to be as low as 4 percent: African countries need investments in infrastructure, education, healthcare, and other human services to improve the quality of life for everyday people and grow the economy.
Spending on capital projects prudently, with the understanding that oil and gas prices are volatile, and revenues will ebb and flow.
Channeling revenue into projects and initiatives that not only benefit the petroleum sector, but can spill over into other industries and foster economic diversification.
Setting aside large portions of revenue. Save it. Invest it. Earmark it for citizens and communities.
It may not be long before a variation of Norway’s sovereign wealth fund is in place in Africa. In February 2019, Kenya’s government released a draft law for creating one.14 If the law goes into effect, petroleum and mineral revenues would be channeled into one of three directions: savings, a budget stabilization fund, or a fund for domestic spending and investment. Kenya does not rely on petroleum money, it only represents a small percentage of fiscal revenue, but a fund like this is a promising step forward in terms of transparently managing natural resource revenue. The law includes fund objectives, clear deposit rules, public disclosure requirements, and competitive, transparent selection of external managers.
The Natural Resource Governance Institute (NRGI) has pointed out, however, that the law would introduce risks to public money as well. For one thing, board members would be nominated by the president’s office, which also would be the sole oversight actor. The NRGI recommends taking steps to ensure that at least three board members are nominated by parties other than the president and that parliament, the parliamentary budget office, and an independent external auditor review the fund’s performance regularly. I strongly agree.
In their paper, “Petroleum to the People, Africa’s Coming Resource Curse—And How to Avoid It,” Larry Diamond and Jack Mosbacher made a radical suggestion: that African countries need to hand new revenues directly to people as taxable income. “By taking control of these revenues out of the hands of the political elite and restoring the link between citizens and their public officials, this ‘oil to cash’ strategy offers the best hope for tomorrow’s oil-rich African nations to avoid the fate that has befallen so many of yesterday’s,” they wrote.15
If an African country adopted their proposal, it would commit to depositing a predetermined percentage of its oil revenues directly into citizens’ bank accounts, much like U.S. governments do with Social Security payments. And just like Social Security, these payments would be taxed—at a rate poor families could manage, Diamond and Mosbacher noted.
They believe the taxation part is critical because it would restore the accountability that exists when governments rely on their people for revenue. This “oil-to-cash” approach has already been laid out by scholars at the Center for Global Development. They argue that by paying taxes on the money they received, citizens would shift from passivity to active engagement with their governments.
Diamond and Mosbacher aren’t the only ones to make a case for channeling petroleum revenue directly to citizens. Shanta Devarajan, senior director, development economics, with the World Bank, has made similar arguments.
“If, instead of making [unaccountable] public-spending decisions with their oil revenues, governments were to distribute these revenues directly to citizens [in equal amounts to all citizens], and then tax them to finance public goods, there would be at least two effects. First, citizens would have a better idea of how much revenues there were. Second, since expenditures were being financed from their tax payments, citizens may have greater incentive to scrutinize these expenditures,” he wrote in 2017. “Even without the additional scrutiny, simply the lump-sum transfer of just 20 percent of oil revenues is sufficient to eliminate extreme poverty in Angola, Republic of Congo, Equatorial Guinea, Gabon, and Nigeria.”16
To be honest, I’m on the fence about this strategy. I agree with the benefits of citizens supporting governments with taxes, but the direct deposits would rely heavily on a level of federal government transparency and cooperation that we rarely see. What would prevent governments from “shaving off” some of the revenue they receive before sharing citizens’ percentages?
I do like a number of the points raised by Diamond and Mosbacher, beginning with the idea that Africans don’t need their governments deciding what’s best for them when it comes to spending revenue.
“The argument that poor people don’t understand their best interests as well as bureaucrats and public servants do is a paternalist myth,” they wrote. Excellent point, gentlemen.
Instead of depositing revenue directly into individual accounts, or channeling nearly all of the revenue into a sovereign wealth fund like Norway does, I think there is real potential for the idea of natural resource revenues going into trust funds that would be established for—and managed by—African communities.
An agreed-upon percentage of revenue would be added to the fund regularly. Deposits wouldn’t be made by federal governments but by oil and gas companies. Community members would serve on a board of trustees to manage the fund and invest deposits, joined by trustees or advisors outside of the country who could provide impartial technical guidance on trust management. Income generated by the trust fund would be used for the benefit of the local population, and community members would have the power to decide how that money is used. Money transferred in and out of the account would be made public, possibly on a website. Of course, establishing this kind of system would require legislation or policies, and making that happen would require cooperation at the federal level.
In a 2004 article about community-based trust funds for the North Carolina Journal of International Law and Commercial Regulation, Emeka Duruigbo pointed out that trust funds are far from a foreign concept in sub-Saharan Africa:
“In Amodu Tjani v. Secretary of Southern Nigeria, Viscount Haldane stated: ‘The notion of individual ownership is quite foreign to native ideas,” Duruigbo wrote. “Land belongs to the community, the village or the family, never to the individual. All the members of the community, village, or family have an equal right to the land, but in every case the Chief or Headman of the community or village, or head of the family, has charge of the land, and in loose mode of speech is sometimes called the owner. He is to some extent in the position of a trustee and as such holds the land for the use of the community or family.”17
The paper cites the example of the Alaska Permanent Fund (APF), created by an amendment to the Alaska Constitution in 1976. Today, 25 to 50 percent of mineral revenues paid to the state are deposited into the fund for current and future Alaskans. The fund is managed by the Alaska Permanent Fund Corporation, which receives guidance from an independent board of trustees. Alaska has set up additional oversight by giving its legislative branch final approval of fund investments. And the public is involved in oversight, too, because removal of board members is effective only when accompanied by a statement disclosed to the public containing the reasons for removal. Citizens also have access to information about how much the fund earns and how the revenues are distributed.
In 1982, the fund started making annual dividend payments to residents. Between then and 2015, the fund has issued a total of $22.4 billion to eligible citizens in amounts ranging from $330 to $2,000 per person. Note the fund distributes dividends; it doesn’t involve a government transferring a portion of their oil revenues directly to citizens.
Alaska’s approach would be a good fit for Africa, writes Landry Signé, a David M. Rubenstein Fellow in the Global Economy and Development Program with the Brookings Institute. “The success of such a fund is not just the redistribution of natural resource profits, but also the transparency that such a distribution will require, and the improvement of the associated governance processes. In fact, reducing the discretionary power of leaders in allocating the revenue from natural resources will reduce unaccountable governance, rent-seeking practices, and corruption,” he wrote.18
Africans also should take a look at the Nunavut Trust of Canada, a community-managed fund established as part of the Nunavut Land Claims agreement in 1999. The agreement led to the creation of Nunavut territory and called for the indigenous Nunavut people to receive $1.2 billion in compensation money over a 14-year period. The money was channeled through the Nunavut Trust, which was charged with protecting and enhancing the funds for the benefit of the people.
In her report, “Caspian Oil Windfalls: Who Will Benefit,” Caspian Revenue Watch Director Svetlana Tsalik described the fund as a promising example for other underdeveloped oil-producing nations. “Unlike government-run oil funds, the Nunavut Trust is a community-managed fund. It has earned strong returns while maintaining accountability to its constituents. The Trust also demonstrates how these communities can be compensated for the negative external consequences of oil development, and how they can turn such compensation into an enduring source of income.”19
I am confident that establishing trust funds for communities would help us overcome a multitude of oil revenue mismanagement problems.
Instead of watching an elite few put petroleum revenue in their pockets while they deal with the consequences of extraction, everyday Africans would see tangible benefits in their own communities.
Individuals would finally have a say on how oil revenues are invested and how returns are spent. Their voices and insights would be valued and capitalized upon.
Communities would not have to rely on governments to be “middlemen.” Companies would make the payments directly into the fund.
Communities could invest fund returns into programs that translate into improved quality of life and job opportunities. As a result, disenfranchisement, desperation, and violence would decrease.
Communities, if they chose to, could invest in projects that help protect their environments, which might reduce instances of militant groups attempting to shut down E&P activities.
On its face, the revenue management program proposed for the Chad-Cameroon Pipeline had everything going for it: stakeholder buy-in, oversight mechanisms, and the potential to change Africans’ lives for the better. Once it was put into practice, however, it simply didn’t work.
A little history: In 1988, more than a decade after oil was discovered in Chad, the governments of Chad and Cameroon and a consortium of foreign oil companies agreed to build 300 oil wells and a 1,070-kilometer pipeline that would span from the Cameroon coastline northeast to the Doba oil fields in southern Chad.20
Because Chad was a low-income country with a long history of civil war, commercial banks and consortium members insisted that a multilateral development agency be brought in as a partner to help mitigate risk. The World Bank agreed to fill that role and serve as the project’s key guarantor. What’s more, they decided to use the project as an opportunity to bring about positive changes in Chad. The World Bank convinced Chad’s president, Idriss Déby, to earmark 85 percent of Chad’s oilfield revenue for socioeconomic programs such as education, healthcare, and rural development. They also pressed the Parliament of Chad to pass a law on revenue management that called for consistent monitoring and the creation of an oversight committee with four representatives from civil society.
In 2003, the pipeline was completed, and Chad began exporting oil. By the end of 2006, more than $440 million was transferred into a London escrow account for the Chad government.21
Unfortunately, problems started emerging as soon as 2004, when the Chad government failed to fully comply with certain aspects of the arrangement. In 2005, Déby announced plans to seek re-election, sparking a rebellion by possible successors. Toward the end of that year, Chad’s parliament approved reforms to the arrangement that had been proposed by Déby. The government now had greater access to the oil revenues for discretionary use, and security was now listed as a priority, opening the door for increased military spending. The World Bank suspended all payments and froze the oil revenue account.
After a rebel attack in 2006 nearly removed Déby from office, and a collapse of state seemed likely, the World Bank relented and agreed to most of the government’s changes to the revenue management program. But by 2008, after another rebel attack, the World Bank determined that the model it had in mind for revenue management simply wasn’t going to happen and ended its involvement.22
What can we learn from this? For one thing, Chad’s production and export activities came online too quickly, before Chad had time to build up the kind of institutional capacities it would need to take in, manage, and distribute large volumes of oil money.
But the program’s greatest weakness was that it was created and managed by an outside organization. I’ve said it before: It’s up to Africans to address the challenges of Africa. The World Bank was well-intentioned, but the program they put in place didn’t align with the realities on the ground in Chad.
Ultimately, the World Bank’s idea of pulling oil revenues into a fund that would help Chad’s people was a sound one. Now, we just need to see African shareholders launch an initiative of their own.