Petroleum to the People _ Foreign Affairs

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8/27/13 Petroleum to the People | Foreign Affairs

www.foreignaffairs.com/articles/139647/larry-diamond-and-jack-mosbacher/petroleum-to-the-people?page=show

H om e In t er n a ti on a l Edi tion s Di gi ta l Ne w sst a nd Job Boa r d A cc ou n t Ma n a ge m en t RS S N ew sl et t

SEARC

Log in Re gi st er (0 ) My C

Petroleum to the PeopleAfricas Coming Resource Curseand How to Avoid It

A rt icl e Su m m ar y an d A u t hor Biog ra ph y

In October 2 01 1, the U.S. Department o f Justice filed a motion to seize a palatial cliff-top home in Malibu,

California. The 16-acre property towers over its neighbors, with a palm-lined driveway leading to a

plaster-and-tile mansion. Situated in the heart of one o f the United States most ex pensive

neighborhoo ds, the $30 million estate includes a swimming pool, a tennis court, and a four-hole golf

cour se. In its complaint, the Justice Department also set its sights on high-performance speedbo ats

worth $ 2 million, o ver two do zen c ars (inc luding a $ 2 million Mase rati and eight Fer raris) , and $3 .2

million in Michael Jackson memorabilia -- in total, assets equaling approx imately $7 1 million. What

made these extravagant possessions all the more remarkable was that they belonged to a government

worker fro m a sm all A frican c ou ntry who was m aking a n offic ial sa lary of ab ou t $80,000 a y ear: Teo do ro

Nguema Obiang Mangue, the oldest son o f and heir apparent to Teod oro Obiang Nguema Mbasogo, the

longtime president o f Equatorial Guinea.

Home to over one billion barrels of oil reserv es, Equatorial Guinea has exported as many as 40 0,000

bar rels o f oil a d ay sinc e 1 995 , a bonanza that has made the c ou ntry wea lthie r, in ter ms o f GDP per capita,

than France, Japan, and the United Kingdom. Little of this wealth, howeve r, has helped the v ast majority

of Equatorial Guineas 7 00,0 00 peo ple: today, three ou t of every four Equatorial Guineans live on lessthan $2 a day, and infant mortality rates in the country have barely budged since oil was first discovered

there. The presidents family memb ers and other elites co nnected to the Obiang regime, meanwhile, have

prospered.

As a re sult , Equatorial Guinea has be co me a tex tbo ok e xamp le o f the so-called re sourc e curse, a glo bal

phenomenon in which vast natural resource wealth leads to rapacious corruption, decimated

gov ernance, and chro nic underdev elopment. Worse still, for the last three dec ades, the Obiang family

was a ble to tra de a nd tr av el fre ely aro und the w or ld, until the Ju stic e Depa rtm ent finally mov ed t o seize

the yo unger Obiangs home and possessions o n the charge that he had used his position and influence to

acquire illicit wealth. The United States recent c rackdown is laudable, but the familys ability to trav el

and conduc t business in the United States and around the wor ld for so long highlights the gaps in the

architecture of international accountability and justice. Equatorial Guineas story yields many

foreboding lessons, but none more obvious than this: oil-rich developing countries that want to avoid the

Larry Diamonda n d Jack Mosbacher

September/October 2013

A man walks aw ay as c rude oil spills from a pipeline in Dadabili, Niger state, April 2, 2011. (Afolabi Sotunde /

Courtesy Reuters)
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New sources of oil and gas could injectclose to $3 trillion into the economies ofsome of Africas poorest and leastdeveloped nations.

resource curse cannot wait for the international system to fight corruption for them.

Equatorial Guineas example will become increasingly relev ant over the next dec ade as a massive wave o f

new oil and gas discoveries transforms Africas economic and political landscape. Over the next ten

year s, ne w technologies w ill allo w oil prod ucer s to ex tra ct billions of barr els of ex porta ble oil fr om the

East African Rift Valley and West Africas Gulf of Guinea. If current estimates are ev en close to acc urate,

trillions of dollars in oil revenue will ultimately descend on a dozen African countries that have never

before exper ienc ed s uc h influx es. In Eas t Africa, that li st wi ll likely inc lude Ethiop ia, Ke ny a, Malawi,

Mauritius, Tanzania, and Uganda; in West Africa, it will probab ly include Gambia, Ghana, Liberia, So

Tom and Prncipe, Senegal, and Sierra Leone. (Niger is another p ossibility, but giv en the lack of firm

estimates of its oil reserve s, it is not included in the calculations here.) A nd this windfall would co me on

top of the enormous oil revenues that some still-poor sub-Saharan African countries, such as Angola,

Chad, Gabon, Nigeria, and Sudan (and South Sudan), have be en earning for decade s, as well as the new oil

rev enues that Ghana is beginning to accrue. A ll told, within a decade, a third or mo re of African co untries

may derive the majority of their export earnings from oil and gas.

Oil booms poison the prospects for development in

poor c ountries. The surge of easy money fuels

inflation, fans waste and massive c orruption,

distorts exchange rates, undermines the

competitiveness o f traditional export sectors such

as agriculture, and preempts the growth of

manufacturing. Moreover, as oil prices fluctuate on

world m arkets , oi l-ric h co untr ies can sud denly be co me c ash p oo r when boo ms go bust (s ince po or

countries rarely save any of these revenue windfalls). Oil booms are also bad news for democracy and the

rule of law. In fact, not a single deve loping country that derive s the bulk of its expo rt earnings from oil

and gas is a democracy . Rather than fostering an entrepre neurial middle class, oil wealth, when

contro lled by the gov ernment, stifles the emergence of an independent business class and swells the

power of the state v is--vis civil society.

In Africa, then, where one-party dominance or outright authoritarian rule prevails, as in Ethiopia,

Gambia, Tanzania, and Uganda, oil wealth will further entre nch it. And where democ racy is struggling to

sink roots -- as in Kenya, Liberia, Malawi, Senegal, and Sierra Leone -- it could easily ov erwhelm weak

state institutions. Even Ghana, the most liberal and stable democ racy in West Africa, co uld fall victim to

the problem of oil revenues. The country now ex ports fewer than 100,000 barrels a day, but that figure

is estimated to soar to as much as half a million barrels by 2015.

If used wisely, this influx of capital has the potential to fund pathbreaking improveme nts in physical

infrastructur e and human we ll-being. But if state officials, enabled by the absenc e of meaningful

institutions of transparency and accountability, manage to divert the oil revenues to themselves, then

the new wealth will serv e only to further consolidate the po wer and inflate the perso nal fortunes o f the

ruling elites. There is no reaso n to ex pect that newly r ich oil produce rs in Africa will meet a fate much

different from that of A ngola, Equatorial Guinea, Nigeria, and Sudan, all of which rank in the worst fifth of

all countries in terms of bribery and corruption.

Unless, that is, African gov ernments embrac e a radical policy approac h: handing a large share of the new

revenues directly to the people as taxable income. The influx of funds from new oil discoveries will be so

large that if properly managed, it could catapult developing countries into genuine economic and social

dev elopment. By taking control of these rev enues out o f the hands of the political elite and restoring the

link between citizens and their public officials, this oil to c ash strategy offers the best hope for

tomorrows oil-rich African nations to avoid the fate that has befallen so many of yesterdays.


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THE CAUSE OF THE CURSE

For a long time, those who studied economic development assumed that valuable natural resources were

a blessing -- that, as the scholar Norton Ginsburg wrote in 19 57 , the possession o f a sizable and

diversified natural resource endowment is a major advantage to any co untry embarking upon a period of

rapid economic growth. Since the 1980s, however, experts have come to the consensus that the

opposite is true. In fact, the economies of resource-rich countries have performed far worse than those of

their resource-poor neighbors, and increases in natural resource wealth are strongly correlated with

greater corruption, authoritarianism, political and economic instability, and civil war.

The root cause of the curse is the diver gent effect that reso urce we alth has on the incentives of citizens

and public officials. When unearned income -- or rents, as eco nomists say -- replace s taxes as the main

source of government funding, the social contract between a population and its government is severed.

In well-functioning states (especially democracies), citizens consent to be taxed in exchange for public

services and protection. Since the gove rnment relies on tax revenues for its very existence, taxation

(Foreign Affairs)


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It is time to try a new approach tobeating the resource curse: the direct

distribution of oil revenues to citizens.

beco mes the b inding for ce of ac co untabi lity be tween p ubl ic o fficials and t heir co nst itue nts: public

servants are incentivized to meet the publics expectations because the population at large is the most

direct and important stakeholder in the governments functions. As direct investors, citizens also have a

powerful interest in seeing that their taxes are used pro perly and e fficiently.

It follows that the introduction of nontax r eve nue -- from foreign aid or the sale of valuable natura l

resources, for example -- reduces a governments reliance on revenue from its people and thus weakens

the incentive to serv e them. In the absence of the bonds o f scrutiny and accountability that taxation

forges, the exte rnal rents that fall into state coffers are seen not as belonging to the peo ple but as up for

grabs by the luckiest, the best connected, or the most brazen. Corruption, patronage, and rent seeking

flourish. Elites grow rich; everyone else grows dependent, cynical, or detached.

The result is that oil states generate not public goods for development but private and political goods

instead. When state revenue seems to gush up from the ground as free money, and when resource rents

displace taxation as the main source of government revenue, political elites have incentives to focus on

the private ac cumulation of wealth and limit distribution of it to their political support networks. They

have little reason to use this public treasure to deliver roads, schools, fertilizers, clinics, medicine, and so

on. Meanwhile, the people have incentives to plead and compete for whatever crumbs may fall from the

political table.

These political dynamics already tend to impede

progress in all low-income countries. They become

insurmountable traps in ones where the state s

revenue is largely derived from ex ternal rents,

especially a massive flow of oil revenues. Y et that

is exactly what many African countries will likely

soon experience.

AFRICA'S COMING OIL BOOM

In the next decade, thanks to innovations in exploration and extraction technologies, oil producers will

be able to profita bly tap are as in A frica whe re reser ves hav e lo ng be en susp ec ted to lie. Twelv e A fric an

nations are likely to become new high-level oil exporters. Although estimates of oil reserves and

exporting capacity are notoriously volatile, it is possible that more than 25 billion barrels of oil will

beco me a vailable for ex port in Africa ov er t he nex t de cade -- eno ugh to incr eas e expo rt e arnings m any

times over in some countries and revolutionize the social well-being of over one billion Africans.

These new sources o f oil are highly co ncentrated in two geo graphic areas: in West Africa, offshore in the

At lant ic Oce an and the Gulf of Guine a, and in East Afric a, in the Rift V alle y , whic h ru ns thro ugh muc h of

the region. Oil is not new to the Gulf of Guinea. With major long-term ex porter s, such as Equatorial

Guinea and Nigeria, the area has been ex porting as much as three million barrels of oil a day for ov er four

decades. A period of unprecedented regional stability, however, has allowed for a new wave of

investment in the exploration and production of previously untapped deep-water oil sources. In the past

five ye ars, comme rcial-quality oil sourc es have been found in or off the coasts of Senegal, Gambia, Sierra

Leone, Liberia, Ghana, and So Tom and Prncipe. Although the estimates of recoverable oil reserves

vary gre atly by co untr y (four billio n ba rrels in So To m and Pr nc ipe, two billion in Ghana, 1 .5 b illio n

each in Senegal and Liberia, and one billion in Gambia), and although these estimates v ary in their

certainty, what is clear is that each country has enough exportable oil to transform its politics and

economy.

In East Africa, tectonic plates have been splitting apart for millenia, creating a massive rift that runs for

roughly 2,200 miles. As the plates have diverged, deep-seated plumes of magma have expelled oil intoreservoir sands. Recent technological advances, including extended-reach drilling and long-distance

imaging technology, have made the extraction of oil from these sands more economically efficient.

Meanwhile, relative regional stability ov er the past decade has taken much of the financial risk out of

long-term investment. As in West Africa, the estimates of reserves here vary. But the best ones available

suggest that roughly nine billion new barrels of reco ver able oil and gas could be found in the Rift Valley

within the nex t deca de: 3 .5 b illio n barrels in Ugan da, u p to three bill ion eac h in Keny a and Tanzania, a nd

at least half a billion in Ethiopia.

At current price s, the ne w so urc es o f oil and ga s co uld injec t close to $3 tril lion into the ec ono mies of

some o f Africas poore st and least dev eloped nations. Consider this: the total annual GDP of the 12 future

exporters in 201 1 was $181 billion. If $3 trillion flows to these countries from oil over a period of 30 to

50 y ears, then the total annual increase in economic output would amount to $60 billion to $1 00 billion


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-- an increase o f over o ne-third (and much more if oil prices rise).

These future African oil exporters already rely heav ily on another rent in the developing world:

international assistance. Each of these governments already derives at least a quarter of its operating

rev enues from foreign aid; seve ral of them, including Ethiopia, Liberia, Malawi, Sierra Leone, and

Uganda, derive ov er half their income from it. Given curr ent rates of eco nomic growth, it is possible that

eve ry future A frican oil state (with the possible ex ception o f Ghana) will derive more than half of its total

rev enue from some form o f nontax income, whether it be oil or foreign aid. Historically, aid has generally

come without conditions, although that has changed somewhat in the last decade or two, as donors have

begun d ema nding po litic al and ec ono mic reforms. For Afr ica n eli tes who want to u se s tate rev enu e as

they wish, the beauty of new oil revenues is that they come with no conditions at all.

For every $1 that the 12 future expo rters currently receive from taxation, an additional $1.50 is

receiv ed from foreign aid. With the infusion of oil and gas into their econo mies, these co untries will

beco me m uch mo re dependent o n ex ter nal r ent s. The med ian ratio of exter nal r ents to do mes tic tax atio n

is expected to increase by a multiple of nearly five, from just ov er one to one to nearly five to one. Put

differently , this will mean that the median new o il producer will be almost as dependent o n oil and aid as

the continents most famous vic tims of the resource c urse: Angola, Chad, and Nigeria.

External rents often ravage a states incentive structure when they significantly outstrip taxation -- say,

by a fac tor o f two o r mo re. That is alr eady the case in so me heav ily aid-dep endent co untr ies , such a s

Liberia, Malawi, Sierra Leone, and Uganda. With the expe cted sur ge in oil income, these c ountries will see

their revenue structures distorted to degrees even beyond those of Angola, Chad, and Nigeria. Even

countries with more balanced revenue structures, such as Ethiopia and Tanzania, will experience major

swings, with their ratios of rents to taxes likely soaring to above two to one.

Al tho ugh sev eral cou ntries in Africa have ma de great s trid es in impr ov ing go vernanc e o ver the p ast

decade, no c ontinent has more o bviously displayed the sad drama of the resource curse: Africas oil-rich

states have beco me strikingly more co rrupt than their resource-poor neighbors. A ccording to the

World wide Gov ernanc e I ndic ato rs, co mpiled a nnua lly by the World Bank, A fricas c urr ent oil e xporte rs

rank in the bottom quintile globally in their relative ability to control corruption, formulate and

implement effective policies, regulate private-sector development, and enforce the rule of law.

Conversely, Africas future ex porters currently well outpace the regional average in these percentile

rankings. Unless a new approach is tried, oil will drag the future ex porters do wn to the miserable

governance levels of the current exporters.

To date, no African country has been able to keep oil money from being largely usurped and misused by

the powerful. Every one of the 12 current oil exporters currently falls into the bottom half of the UNs

Human Dev elopment Index . Acc ording to the World Bank, more than a tenth of all children born in oil-

rich African countries die before the age of five, double the global average. If Africa is the worst-

gov erned co ntinent in the world, its oil states are the worst o f the worst.

OIL TO CASH

At the heart o f the r eso urc e c urs e lie wea k inst itut ions tha t fail to pre vent pub lic o fficial s fro m ex ercis ing

discretion ov er the rev enue from oil and other ex ternal rents. Experts have traditionally rec ommended

solving that problem by focusing on instilling transparency and accountability. If only the people knew

how much oil revenue their government was receiving and how the money was being spent, the thinking

went, they co uld hold their le ade rs a cc ou ntab le at the ballot bo x. And so the Int ernat ional Mo netary

Fund and the World Bank made increasing the transparency of resourc e rev enue a co ndition for

multilateral aid. Global efforts such as Publish What Yo u Pay, a mov ement aimed at getting extrac tive

industries to declare all the money they pay to governments for the rights to natural resources, and theExtractive Industries Transparency Initiative, a public-private partnership that sets global standards for

transparency and accountability in resourc e-rich nations, have b rought external pressure to bear on

governments receiving income from natural resources.

These initiatives are vital to promoting good governance in resource-rich developing countries, and they

should be extended to the new oil producers. But transparency initiatives alone are not nearly adequate

to the task. Resource flows are co mplex, with co untless steps in the process from the time oil is

discovered, extracted from the ground, and sold on the international market to when it is transferred as

revenue to government accounts and spent by o fficials. Efforts to ex pose how rev enues are accrued and

dispersed have not worked as well as expected because, as the scholar Todd Moss has written, they only

shed light on one link in the long chain from oil in the ground to dev elopment outc omes. A lthough

transparency is an integral piece of any countrys pursuit of effective and honest governance,


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transparency alone fails to reverse the underlying incentives afflicting oil-rich countries.

Given that reality, it is time to try a new policy approach, one that could drastically alter these

incentives: the direct distribution of a portion of oil revenues to citizens as taxable income. In practical

terms, this scheme would work as follows: When a government received revenue from oil and gas

exports, a certain predetermined proportion of it (ideally, at least 50 percent) would immediately be

distributed directly to the bank accounts of the countrys citizens. Then, the government would treat

those distributed revenues as income and tax some of it back. Each country could adjust the rate of

taxation to transfer only that amount of cash that economists determined could be absorbed by the

aver age poo r family without fueling inflation or distorting incentives.

This oil-to-cash sy stem should not be c onfused with those of oil-rich Arab states, suc h as Kuwait, Qatar,

and Saudi Arabia, that lavish on their citizens payments and cradle-to-grave services. These programs

lack two key features. First, the money goes to the state and o nly then is distributed (often at its

discretion), as financial payments, social serv ices, increases in public salaries, and so o n. Second, citizens

in these countries do not pay any income tax, so the crucial bond of accountability never materializes.

Instead of increasing citizen participation and strengthening accountability, state-to-c itizen distributions

in these countries simply use o il revenues to keep the people satiated while further entrenching the

power of elites. In doing so, these payments serve to increase citizens dependence on the state, rather

than increasing their ownership of it.

The oil-to-cash approach has bee n engineered by a team of scholars at the Center for Global Deve lopment

(including Nancy Birdsall, Alan Gelb, Alex andra Gillies, Moss, and A rv ind Subramanian) who co ntend

that it would attack the fundamental causes of the resou rce c urse. Directly distributing oil revenue s as

taxable income would create a broad and active co nstituency o f citizens who were directly affected by

the governments management of their resources, in place of the often passive populations of corrupt,

resource-cursed states. In a single step, it would build a broad domestic tax base -- a fundamental piece

of any modern, well-governed state. Moreover, immediately tax ing the income through explicit

deductions from the transfers would make citizens aware o f the fiscal relationship, strengthening the ties

of accountability between the officials who control the state and the people whose money they are

spending. Citizens would come to realize that it is indeed their mo ney that the state is spending.

To many, the co ncept of direct c ash transfers of oil dollars seems like a well-intentioned but utter ly

infeasible option. For star ters, one might ask, how can countries that lack moder n banking sectors or

even national identification systems be expected to implement cash-transfer programs? The answer is

that many already have. As Moss has written, as of 2009, some 60 developing countries, including

Botswana, Brazil, India, Mexico, and Panama, have made r egular direct transfer pay ments to

approximately 17 0 million people. That success o wes to rec ent advancements in affordable and reliable

personal-identification technologies that use b iometric identifiers such as fingerprints and facial and

retinal recognition. Gelb estimates that as many as 450 million people in developing countries have had

their biometric data cataloged. Although governments will need to invest in systems that allow them to

properly and transparently transfer money into citizens accounts, new technology in the area of

electronic banking is making this process continuously cheaper and more logistically feasible. Africa has

experienced explosive growth in cell-phone subscriptions, now estimated at over 800 million, which,

even allowing for users with multiple devices, means that the majority of Africans now have access to cell

phones. Moreo ve r, mobile-banking platforms, such as Keny as M-Pesa, are pro liferating.

Other skeptics might argue that it would be more e fficient for states to spend their oil wealth on

dev elopment pro jects than to put it into the hands of the poor and uneducate d. But the argument that

poor people dont understand their best interests as well as bureaucrats and public servants do is a

paternalist myth. Indeed, evidence from existing cash-transfer programs reveals that the transfers are

most often spent on food, education, health care, and business investments. Moreover, most of themoney is spent on local goods, stimulating community-level development.

The greatest obstacle to oil-to-cash programs is, of course, political. Why, many wonder, would any

politician ever willingly give up control of oil money? Indeed, in developing countries, control over

natural resource revenues fuels the patrimonial ties and patronage networks that keep leaders in power.

An d it is tru e that an aut oc rat is v er y unlike ly to giv e up this vast oppo rtu nity to accu mula te weal th and

perpetuate his rule.

But nine of the 12 future oil exporters are democracies, and therein lies the hope for these revenue-

distribution systems. In these countries, competitive elections with uncertain outcomes determine who

rules. In some of them, democracy may well expire in the fever of sudden riches. But in others, a broad

coalition of forces in civil society and politics could compel rulers to implement some kind of oil-to-cash


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V ie w Th is A r ti cl e a s Mu lt ip le Pa g es

ESSAY, JUL 1944

Order in OilHerbert Feis

ONLY a short tim e ago the

atmosphere in which

interna tional petroleum affairs

w er e b ei n g dis cu ssed w a s h ig h ly

charged. The v iolent

thunderstorm which centered

about th e proposed trans-

A r a bi a n pi pe li n e c a st a n ee r ie

darkness ov er the wh ole

panoram a of our foreign

relations. Now, happily , the

w ea th er h a s im pr ov ed to a

gent le dr izz le, and a rum inat ive

ESSAY, JAN 1943

Latin American Oilin War and PeaceFrederick Haussmann

WIT H m ost of t h e F a r Ea st

already fal len to the enemy and

the Ca ucasus a nd Middle East in

danger , Lat in Am erica i s the

only im portant oil producing

area outside the United States

not yet seriously t hreat ened by

the wa r. Its importan ce is

enhanced by the fact that

supply lines from Latin Am erica

to the major theaters of war are

shorter than th ose from th e

ESSAY, NOV/DEC 1998

OPEC as OmenJahangir Amu zegar

The nex t gr eat oil boom is on:

four form er Soviet republics on

the Caspian Sea ar e sitting at op

an economic bonanza. But they

should remember th e fate of

OPEC, wh ose mem bers

squandered their 1 97 0s

w in dfa ll . Wh er e d id a ll th e

money go? The state took on too

domin ant a n economic role and

w a ste d t h e w ea lt h a t h om e i n a

rash of boondoggle projects and

militar y buildups. All OPEC

model, or else vote into office an opposition party that has pledged to do so. It is hard to imagine a more

compelling opposition platform than the distribution of at least some share of natural resource revenues

directly to the long-impoverished people who are the real legitimate owners of the country and its

resources. Public opinion survey data from the research project A frobarometer show that Africans are

more aware of their rights and more demanding of democracy than social science theories have

traditionally assumed about the poor in developing countries.

Moreover, A frican civil societies are b ecoming better organized and more assertive, and with the growth

of new communications technologies (including community FM radio stations), a more vigorous public

sphere is emerging. Once A frican publics understand the possibilities of oil-to-cash programs, they may

seize on the idea. At that point, it will not be easy for elected leader s to insist that the state monopolize

these revenues, unless they rig elections and repress protests. Desecrating democracy to corner this

wea lth ma y be a te mpting st rat egy , but it is one wit h huge risks, inc luding being topple d fro m po wer and

punished. Some democratically elected leaders could opt instead to become public (and international)

heroes by embracing reform.

Unfortunately, the prospects for preempting the oil curse are much worse in Africas authoritarian states,

for they lack the political competition and civic pressure that could induce reform. But despite the

dangers that go along with challenging autocrats, public de mands for reform may r ise as corru ption and

misrule deepen, ultimately leading the regime to make meaningful concessions. Such a scenario is not

unthinkable, for example, in Uganda, where, after nearly three decades of Yoweri Musevenis presidency,

the signs of gover nance ro t are spre ading, and the public is noticing. Embracing at least a limited oil-to-

cash reform would bur nish any autoc rats tarnished legitimacy . After all, if presidents and ruling parties

gave so me of the new wealth to the people, that would still leave quite a lot o f state revenue for them to

manage. Eve n partial reform would begin to change the relationship between c itizens and the state and

create a new ince ntive for the public to mo nitor its rulers handling of oil wealth.

A RA DICAL A PPROACH

Nobody knows exac tly how much oil will be pulled from the ground of Africas new oil exporters o ver the

next decade. Current projections made by governments and oil exploration companies might be overly

optimistic, or perhaps the c urrent perio d of relative po litical stability in Africa will end, scaring off

investment in oil infrastructur e.

Regardless, oil will shape Africas future more than ev er, and so me groups and indiv iduals will find

themselves much wealthier in the next decade. The choice that Africas governments and people have to

make is whether the winners will be, as before, well-connec ted elites or whether the patter n can be

broke n and a new pr emise c an be embr ac ed: that a co untry s natur al re so urc es b elo ng no t to the state b ut

to its people.

Ad mittedly , the oil-to -ca sh plan is a n unwield y and largely untest ed in itiat iv e. But in an area whe re ev ery

conventional approach has failed, only a radical departure is likely to succeed. The biggest mistake

Afr ica s ne w oi l pro duc ers can ma ke, o ne that s ev eral ar e alr eady making, is t o assume t hat their

countries are different: that through good leadership, better statecraft, or incremental improvements in

their legal systems, they can avoid the resource curse. The stakes are simply too high for anything but a

radical new approach.

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http://www.foreignaffairs.com/author/jahangir-amuzegarhttp://www.foreignaffairs.com/articles/54603/jahangir-amuzegar/opec-as-omenhttp://www.foreignaffairs.com/author/frederick-haussmannhttp://www.foreignaffairs.com/articles/70242/frederick-haussmann/latin-american-oil-in-war-and-peacehttp://www.foreignaffairs.com/author/herbert-feishttp://www.foreignaffairs.com/articles/70358/herbert-feis/order-in-oilhttp://www.foreignaffairs.com/articles/139647/larry-diamond-and-jack-mosbacher/petroleum-to-the-people?


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w a lk a m on g th e i ssu es w il l n ot

be u n pl ea sa n t. Read

United States. Cura ao and

A r u ba -- t h e h u gh ex por t ba ses

in the Dutch West Indies -- are

800 m iles near er London than

are the oil ports of Texas. Read

mem bers came down wi th

"quick-money fever." They

be ca m e a ddi ct ed to su pp osed ly

limitless oil rev enues even a s

boom tu r n ed to bu st. Th e

Caspian states, too, risk going

from riches to rag s if they do not

resist th e tem ptations of

petromania. Read

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Vali Jamal, PhD

It was strange that in an article in Foreign Affairs on the challenges of oil exploration

and exploitation the foreign affairs of the resource boom are omitted, because the fact

of the matter is oil exploitation in Africa (read sub-Saharan) is going to be played out in

the context of peak oil and hence in the context of oil wars. Multiply that tenfold as

Africa is increasingly recognized as the resource basket of the world, with everything

you can nam e from gold and diamonds to rare earths and uranium . Widening disparities

in income are inevitable but unfortunately the R2P (right to protect) countries that

should care will be complicit in this as they jockey to earn deals from the African 0.001

percent. Agriculture will be the biggest loser as exchange rates militate against local food

production. Thats the story of Nigeria and Equatorial Guinea. I wrote about that quite a

while ago in the context of oil discoveries in Uganda. U nfortunately agriculture stands to

suffer even more directly as Africas abundant land is put up for sale by its leaders to

land- and water-challenged countries. The leaders will be mouthing development but

the benefits will elude the masses. African leaders despair of the peasants ever

developing agriculture and are happy to rent out land to foreigners. Almost one-third

of sub-Saharan Africas arable land has already been leased out (at a pittance) to Saudi

Arabia, India and China. So on the one hand the resource bonanza renders African

easants workless b encoura in food im orts while on the other hand land rabs

4

Al es sa ndra F

"Oil booms are also bad news for democracy and the rule of law. In fact,

not a single developing country that derives the bulk of its export

earnings from oil and gas is a democracy."

This statement might need some refining. I would like to point to the developing country

of Timor-Leste, where oil and gas currently make up 57% of total exports. While there is

undeniably still a long way to go, the achievements of this young democracy in the

management of oil revenues can serve as an interesting point of reference for the

discussion on the resource curse and how it can be avoided.

Dean Jackson

The article reads, "New sources of oil and gas could inject close to $3 trillion into the

economies of some of Africas poorest and least developed nations."

Don't count on it. Moscow and allies, who co-opted Western political parties decades ago,

have tasked the United States (and other Western nations) to ensure none of sub-

Saharan Africa's oil reserves sees the light of day. The introduction of such oil reserves

onto the global oil market would (1) critically affect the Russian economy (Russia is the

#2 oil exporter of oil); and (2) stall to a snail's pace the massive modernization of

Russia's military that is currently taking place.

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For those unfamiliar with this subject, the "collapse" of the USSR in 1991 was a strategic

ruse under the Long-Range Policy" (LRP). What is the LRP, you ask? The LRP is the

"new" strategy all Communist nations signed onto in 1960 to defeat the West with. The

last major disinformation operation under the LRP was the "collapse" of the USSR in

1991. The next major disinformation operation under the LRP will be the fraudulent

collapse of the Chinese Communist government. When that occurs, Taiwan will be

stymied from not joining the mainland.

" " '

r
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Petroleum to the People _ Foreign Affairs