The oil curse in Africa Inge Amundsen Chr

The ‘oil curse’ in Africa Inge Amundsen Chr. Michelsen Institute Olje for Utvikling i Nord og i Sør Ui. Tø, Tromsø, 5 December 2007

The Resource Curse • The Resource Curse – The Paradox of Plenty – The Dutch Disease • What is it? – Economic explanations – Political explanations • Examples – Angola – Nigeria – Cameroon • Political consequences

The blessed and the cursed • • • Norway Australia Canada Chile Brazil Peru Malaysia Botswana … • Rich in • • • Nigeria Angola DR Congo the Sudan Sierra Leone Liberia Zambia Colombia Azerbaijan … • Poor in – Natural resources • oil and gas • diamonds • other minerals • timber • fish • foreign aid – Economic development • contraction and concentration – Redistribution • increasing inequalities • increasing poverty – Democracy • authoritarianism • weak governance

Economic explanations • The Dutch Disease – Relative price effect • Higher currency value • Imports • Competition difficult – Crowding out productive sectors • Over-investment in extractive industries • Under-investments in manufacture, agriculture • De-industrialisation – Volatility • • Uncertainty for businesses Low investments in alternative production Government waste and debt Capital flight

Political explanations • The Rentier state model – Rents increases the stakes/prize of controlling the state • • Off-shore, foreign, High-Tec Government business, government take Consumption, enrichment, corruption, embezzlement Can lead to conflict, violence, civil war – Rents increases state autonomy • • • Natural resources: “un-earned”, easy Little taxation of domestic economic activity No “social contract” Little influence of business interests, middle class Little influence of civil society, interest organisations

Political explanations • The Rentier state model – Rents increases the powers of the state • Means to manipulate institutions – Parliament, judiciary – Special institutions – Elections • Means to buy (off) rivals – Patronage, clientelism, favouritism, nepotism • Means to buy instruments of coercion – Military hardware – Security companies – Suppression

Example: Nigeria • 40 years of oil production – Africa’s leading oil producer – Total income $ 300 bn 25 years • Poverty – People in extreme poverty: 27 to 66% – Economy as poor as before oil • Corruption – No 147 of 179 on TI index – Abacha embezzeled 2 -5 bn US$ 93 -98 • Authoritarianism – – – Biafra War 67 -70 Coups d’état 83, 93 “Niger delta syndrome” Sharia states Freedom House ranking 4 (PF) Federal government + some states

Example: Angola • Oil • – – – Comparable to Norway • Surpassing in 2010 – 90% of exports • 90% of government revenues • Diamonds Poverty • Gini coefficient: > 0, 60 Poverty line: < 60% No 162 of 177 on HDI Internally displaced, landmines Corruption – No 147 of 179 on TI index – Dos Santos largest landowner in California? (“ 200 families”) – New airport, “New Luanda” • Authoritarianism – – Civil war 75 -91, 92 -94 No elections since 1992 Freedom House ranking 6 (NF) Non-transparent social spending

Example: Cameroon • Oil – 6 in sub-Saharan Africa – 30 years of oil income • 3 -5 % of GDP – Peak in 1986 – Chad-Cameroon pipeline • Poverty – No 144 of 177 on HDI • Corruption – No 138 of 179 on TI index • Authoritarianism – Paul Biya since 1982 – Freedom House ranking 6 (NF)

Political consequences • Democracy first! – Political science theory: no democratisation of oil-rich regimes • Democratisation – Institutions matter – Good governance • Service delivery • Basic human rights – From below • Support from the outside – Transparency (PWYP/EITI) – Legal standards – Support to civil society • Drivers of change

Some literature

Summary “Without improving their democratic institutions and administrative capacity, it is unlikely that African oil exporters will be able to use petrodollars to fuel poverty reduction; instead oil monies are more likely to make matters worse for the poor” Catholic Relief Services (2003): Bottom of the Barrel. Africa’s Oil Boom and the Poor