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A ‘Crude Awakening’: Revisiting The Political Economy Of Oil In Africa

A ‘Crude Awakening’: Revisiting the Political Economy of Oil in Africa

The extant literature on the ‘resource curse’ in both its classical and revisionist forms does not adequately focus on the role of social and political dynamics in shaping the landscape of resource abundant countries in Africa.

By Garth le Pere

No other natural resource in Africa has provoked as much controversy and debate as oil. A vast cottage industry of academic research and media commentary has developed and provides differing and often highly tendentious interpretations on the implications of Africa’s oil largesse for economic development and political stability. Perhaps representative of the general interest provoked and in what has now become the most authoritative and seminal work on the subject, Duncan Clarke’s Crude Continent runs into over 600 pages.

Much of the literature pivots on whether oil is indeed the most egregious consequence of the ‘resource curse’. This is usually accompanied by various apocalyptic forebodings in different analytical accounts which emphasise the central role of oil but also other mineral resources, especially diamonds in perpetuating violent conflict, blighting the social and economic landscape with higher levels of poverty, fuelling institutional weakness and endemic corruption, acting as a disincentive to peace and stability, and providing the impetus for authoritarian rentierism among ruling elites. Even Hollywood saw commercial opportunity in the ‘resource curse’ with the production of Blood Diamond as an almost cynical paean to Africa’s primordial excesses. This cottage industry has thus been complicit in spawning a mythology around African oil that has become highly influential not only in shaping research agendas and public perceptions but also in helping to define relevant policy responses by international financial institutions and Western governments alike where the influence oil is very much viewed in pathological terms. Such responses have typically turned on the symptoms associated with the ‘resource curse’. These include raised expectations and the proclivity of governments to increase public spending; oil is held responsible for price volatilities which impede growth, distribution, and poverty alleviation, thereby impairing governments’ ability to deal with inflationary pressures and to maintain fiscal control; the oil sector is said to subvert growth in manufacturing and agriculture because of the ‘Dutch Disease’ effect; and due to its inherent rent-seeking nature, it exacerbates problems of transparency and accountability.

However, the effect of the ‘resource curse’ is often grossly exaggerated and labours under the burden of the available evidence. Generally, a reductionism which borders on sophistry pervades many studies where development performance and economic growth are explained by the size and nature of countries’ natural resource assets. Intervening social and political factors and historical considerations are conveniently ignored. Most crucially, there is a fallacy of composition problems where the political economies of eight oil- producing African countries are often thought to represent an entire genus of 54 countries, whether they have natural resource wealth or not. We thus concur with Clarke’s observation that “…the idea that oil is a curse in Africa is a shallow and misplaced one, devoid of historical perspective and adequate empirical validity.” Yet the mythology of oil persists and has even gathered a certain resonance in the public mind. For example, a BBC Africa survey in June 2007 chronicles some hysterical reactions of respondents to the discovery of oil in Ghana. A sampling makes the point: “…the discovery of oil in Ghana made me weep…oil benefits only the ruling elite…the people are doomed to suffer a curse…oil corrupts absolutely…it creates rebel groups…it will be the kiss of death for many in Ghana…it brews wars…oil attracts more enemies than friends….it’s never a blessing…”. Oil is thus held responsible for much of the insidious malaise and travails that afflicts the continent.

This essay will explore the different dimensions of the ‘resource curse’ argument. There is a vast literature to draw on but here we will be concerned with three overarching themes. The first is a critical assessment of the different accounts which have proven influential in defining the terms and contours of the ‘resource curse’ debate and its empirical veracity. Given the extent to which Africa’s oil economies are incorporated into the sinews of the energy global capitalist matrix and its production system, the next section provides an overview of how its political economy functions and which interests are served. Then in the third section, there is a reflection on how the Gulf states ‘late rentier’ model of development could be instructive and hold policy lessons for Africa’s oil producing countries and those whose economies are dependent on commodities.

There is considerable variation in the development trajectories of resource abundant countries in Africa: they have taken different paths to democratisation depending on their colonial and post- colonial legacies; and very importantly, not all have descended into factional, corrupt, predatory or rentier states.

Assessing the ‘resource curse’

There are three strands which can be disaggregated in scholarly accounts that attempt to explore the linkages between the paradox of resource abundance and economic performance and conflict. Firstly, protagonists have argued that countries with rich mineral resources in sub-Sahara Africa were subject to slower growth than those less endowed. Others were of the view that mineral economies did not do well in terms of agricultural growth, export diversification, and inflation compared to their opposite non-mineral economies, and were likely to suffer from poor savings, high unemployment, high external indebtedness, and high export earnings vulnerability. The second strand has to do with natural resource abundance being associated with the onset of civil war and the intensity of violent conflict. The most celebrated studies in this genre are those by Collier and Hoeffler who variously examined natural resource abundance as a major determinant in starting civil wars, and in encouraging secessionism and sectarian strife. Thirdly, a number of studies suggest that there is a correlation between natural resource abundance and low levels of democratisation. The archetypical African countries are said to experience breakdowns in, or stalled transitions to, democracy, and to be more likely than not to revert to authoritarian forms of rule.

As with all good social science, several counter-studies have emerged to challenge the hegemony of the ‘resource curse’ literature. The evidence had to be treated with caution on several fronts. There was concern about the robustness of difference in measuring resource abundance; when different measures have been used, the results tend not to support the resource curse idea. For example, if levels of production and reserves rather than exports to GDP ratios are used, natural resource wealth does not significantly influence economic growth. Similarly, if measured in terms of natural resource stock per capita, there is no relationship between the onset of civil war and resource endowments.

In short, a major bone of contention is whether ratios of natural resource exports to GDP, on the one hand, and natural resource exports to total exports, on the other, are the correct and relevant measures of resource wealth. If this premise is challenged, then the conceptual and empirical logic of the ‘resource curse’ rests on a weak foundation and the causal links in the hypothesis that natural resource abundance results in poor economic outcomes or civil wars are by no means conclusive or convincing.

These analytical and normative deficits on the relationship between natural resource abundance and economic performance and conflict have focused much greater attention on the role of political variables as mediating or intervening factors in the relationship. As such an interesting revisionist literature has taken shape which variously draws its inspiration from behaviouralism, public choice theory, institutionalism, and dependency and world systems theory, among others. Behavourists argue that resource booms generate myopia, over-exuberance, wishful thinking, and false optimism among ruling elites which leads to excessive government spending and fiscal profligacy. By contrast, those of the rational actor persuasion hold that the problem is not irrational behaviour on the part of political actors but rent-seeking that results from resource booms. Rent-seeking encourages wastage in ceremonial projects, and perverse incentives such as providing benefits to particular groups, gaining control over allocation of rents, and avoiding accountability.

An allied statist perspective asserts that rentier states are more concerned with the political distribution of rents rather than promoting private investment, production, and economic growth. Consequently, natural resource abundance leads to poor governance where ruling elites engage in predatory and oligarchic behaviour. And finally, there are arguments about developing countries with abundant resources being presented with a Hobson’s choice with regard to their forced incorporation into a global capitalist system on terms that suit the interests of developed countries. This structural relationship of dependence explains persistent poverty and under development among resource rich countries and their asymmetric reliance on developed countries for all sorts of assistance, be it economic, development, technological, or military.

There have also been interesting revisions in the nexus between natural resources and the causes of civil war. Economic incentives and opportunities are not sufficient on their own but interact with social and political grievances, inter-ethnic tensions, and security dilemmas in the outbreak of warfare and communal strife. In order words, there is less support for the greed and grievance thesis when alternative causal mechanisms are considered, such as land expropriation, environmental degradation,joblessness and levels of poverty, and, critically, foreign intervention. State and institutional weakness and dysfunction also enters the analytical equation here in a two-stage process. In the first, predatory states emerge from resource abundance and as such, are less concerned with issues of growth and development. This is a recipe for conflict and the onset of civil war in the second stage, encouraging military opposition from disaffected groups, where lootable resources can quickly spawn organised militias capable of challenging the state and ruling elites.

Africa’s oil-rich states form an integral part of a complex and opaque transnational web of relations with global powers which ensures the exploitation of ‘enclave investments’.

A general critique, however, emerges from these brief considerations which of course hardly do justice to the complexities and nuances of the debates. Firstly, the extant literature on the ‘resource curse’ in both its classical and revisionist forms does not adequately focus on the role of social and political dynamics in shaping the landscape of resource abundant countries in Africa. There is the mistaken assumption that ruling elites have a high degree of autonomy from domestic social formations mainly through financial and fiscal means and rarely do they have to confront pressures from below. This is patently false since corporate and organised social and political groups existed well before resource wealth became manifest and hence, notwithstanding the rentier effects of resources, different groups— whether professional, class, ethnic, or religious—have continued to make various demands on the state. The social and political terrain thus matters as much, if not more, in explaining poor economic performance, lack of democracy, or recourse to violence.

Secondly, there tends to be a general silence about the extent to which the external environment impacts on resource abundant countries in Africa (see next section). Certainly, this has been a theoretical concern of dependency theorists but no one working in this tradition has made a direct connection between external factors as an intervening variable and resource wealth and development performance. As a consequence, performance is viewed mainly through the prism of domestic issues and internal dynamics, and hence a crucial structural and functional external linkage is missed. And finally, there is the problem of resource determinism where resource rich countries are viewed as homogenous in terms of the causal linkages between economic performance, regime type, and potential for civil war. However, there is considerable variation in the development trajectories of resource abundant countries in Africa: they have taken different paths to democratisation depending on their colonial and post- colonial legacies; and very importantly, not all have descended into factional, corrupt, predatory or rentier states. This has profound implications for the utility of the analysis for policy- relevant discourse, especially as concerns why some resource abundant countries in Africa have fared better than their counterparts or even resource-poor countries. It has been argued, therefore, that institutions matter a great deal in managing the ‘resource curse’ and averting conflict, and this includes the rule of law, the quality of bureaucracy and the civil service, anti-corruption agencies, and the general regulatory environment such as appropriate competition and investment policies.

Locating Africa in the global oil nexus

For the most part, oil and gas originate in developing countries but are mainly consumed and processed in developed countries. In 1990, global demand for oil was 66m barrels a day (b/d); by 2000 it had risen to 75m b/d; by 2010 it was 100m b/d; and if current trends continue, is expected to rise to 120m b/d by 2030. Hydro- carbon fuels, mainly crude oil and petroleum, continue to be the main source of energy in the world and are the quintessential touchstone of modern capitalism and its consumer- driven culture. Hydro-carbon resources are thus essential for global economic growth and constitute a core strategic interest of developed countries and emerging powers alike.

It is against this backdrop that Africa has emerged as a geo-strategic zone of increased relevance in the global production chain of oil even though it only has about 9 per cent of proven world reserves compared to 62 per cent in the Middle East. Africa’s leading and established oil producers include Nigeria, Angola, Sudan, Algeria, Congo Brazzaville, Chad, Libya, Equatorial Guinea, Gabon, and Egypt. However, Ghana’s Jubilee oil eld, the Ogaden region of Ethiopia, and the Lake Albert Basin of Uganda have recently registered major oil discoveries. As a measure of growth in the sector, Africa’s oil production is set to increase by more than 50 per cent from a current 11m b/d to 17m b/d by 2025. Moreover, the commercial costs of oil production and exploration in Africa are relatively low and a major attraction for oil companies is the high success rate in exploration and drilling for new sources. African oil also tends to be of a very high quality with its much sought after low-sulphur content. And then in terms of logistics and supply-chain management, crude oil from Africa is generally closer to the markets of the United States and Europe compared to the Middle East Of interest is also the growing diversity and influx of mostly state- owned oil companies which Clarke calls the ‘antelopes in the food chain’. These include Brazil’s Petrobras, China’s National Offshore Oil Corporation and the Chinese National Petroleum Corporation, India’s Oil and Natural Gas Corporation, Malaysia’s Petronas, Japan’s Teikoku Oil Company, South Africa’s Sasol, Ireland’s Tullow Oil, Canada’s Petro- Canada, and the Korean National Oil Corporation, among others. These new players increasingly challenge the dominance and have encroached on the territories of the giant ‘Big Five’ multinational companies, namely, Exxon-Mobil, Shell, Total, Chevron, and BP, whose market capitalisation ranges from US$150bn to US$500bn.

Africa’s oil producing countries have thus provided the gravitational pull for the continent’s emergence as a key node in the calculus of global energy security and the supply of other strategic natural resources. The United States already depends on Africa for nearly 25 per cent of its crude oil imports which is more than the entire Persian Gulf, while China accounts for more than 30 per cent as its energy security becomes a major determinant of its involvement in Africa. Indeed, the two countries actively compete for access to Africa’s resources in what The Economist has labelled ‘A New Scramble‘. The US has gone as far as putting in place an Africa Command (AFRICOM) as the bridgehead of its military-security apparatus in Africa which is primarily concerned with securing America’s energy interests (see Horace Campbell’s article in this volume). The US military base in Djibouti and the Bush administration’s Pan-Sahel Initiative are seen as complementary to AFRICOM’s role. Meanwhile, China has overtaken both the United States and European countries to become the continent’s main trading partner while the top five recipients of US investment are oil-producing countries (Equatorial Guinea, Gabon, Angola, Chad, and Nigeria).

The BRICS countries have also stepped into this competitive fray for the continent’s hydro-carbon resources. China is the dominant player with more than US$13bn invested in 63 oil-generating projects. Then Brazil provides Angola with an oil-backed credit line for US$580m over three years which is paid for with 20 000 barrels a day and India has similarly offered oil-producers lines of credit worth more than US$1bn for infrastructure projects in exchange for oil. And while South Africa’s trade with Africa is heavily skewed in its favour, oil forms the bulk of its imports from African countries.

All these considerations highlight the extent to which the continent’s oil producers are locked into a global configuration of upstream and downstream production networks and attendant power relations where the ‘Big Five’ continue to dominate the technology of production as well as the logistics chains and supply routes. In this manner, as Obi argues, Africa’s oil-rich states form an integral part of a complex and opaque transnational web of relations with global powers which ensures the exploitation of ‘enclave investments’. Moreover, certain oil-governance initiatives have hardly ameliorated this situation and if anything, have merely compounded the obfuscation and malfeasance that are part of multinational company’s conduct in Africa’s oil industry. Of note here is Transparency International which was founded in 1993 in order to raise awareness about corruption and advocate anti-corruption laws, in addition to developing measures of corruption in the form of the Corruption Perception Index. In 1999, it created the Bribe Payers Index and in 2003, the Global Corruption Barometer. Then in 2002, the billionaire philanthropist, George Soros, established a “Publish What You Pay” initiative to encourage oil companies to make public what they pay to governments of oil- exporting countries but as far as can be divined, this has had little moral force in eliciting compliance through mandatory disclosures. A third initiative was led by former British Prime Minister Tony Blair and resulted in the establishment of Extractive Industries Transparency International in 2003 whose main goal was to promote revenue transparency at local level. This was to be achieved through increased transparency, reducing the risk of corruption, and improving macro-economic management in the extractive sector.

Notwithstanding these governance initiatives, the continent has continued to suffer from the fight of capital which has mainly been a consequence of commercial tax evasion, trade mispricing, accumulated debt, and weak tax enforcement and compliance regimes rather than outright corruption. By one estimate this amounted to US$854bn between 1970 and 2008, with oil exporters bearing the brunt of losses. Nigeria alone is said to have lost capital at a rate of US$10bn a year. This capital flight from Africa has been occurring in the context of oil companies recording exceptionally highpro ts,someofwhichhavebeen labelled ‘obscene’.

In the broader scheme of this global political economy of oil, Africa’s geo-strategic locus is one of supplying cheap oil to world markets in a production cycle that is subject to the vagaries of price volatility and domination by multinational companies. In this characterisation oil is not a ‘curse’ but “…is cursed by the high premium placed on it by global capitalism, spawning inequalities and contradictions fed by an insatiable greed for nite hydrocarbon resources by the world’s industrial powers, and often at huge environmental and social costs to its victims.”

Reviewing the ‘rentier-state’ model

The fact that African countries have experienced real and consistent growth rates of 5 per cent on average over the last decade has largely been attributable to hydro-carbon revenue bases and growing corporate oil investments, especially by the new players. Together with the push of democratisation and other regional and continental transformative strategies, most African countries have registered improved economic and political governance and have been able to overcome structural impediments although worrisome symptoms of misrule, poverty, inequality, and corruption remain. Implicit in our argument here is that while oil as a strategic African resource has suffered from tabloid-style sensationalism, it has the potential to drive Africa’s quest for development and growth; in Clarke’s opinion, “the industry could and should be central to Africa’s reconstruction.” The question is how?

Here we can usefully refer to the political economy theory of rents which are commonly royalties and other payments for oil and gas exports that accrue to governments. Much of the research evolved out of the oil boom periods in the Middle East that began in the mid-1970s. Rent-seeking behaviour has often been linked with neo-patrimonialism by which the allocative state distributes oil wealth and ensures elite solidarity in sustaining new versions of state capitalism in the face of market reform pressures and globalisation. However, studies of the politics of Arab Gulf states whose economies have increasingly been integrated into global financial and investment circuits have led to a review of the traditional rentier state model, resulting in what has been called ‘late rentierism’ and which has applicability for Africa’s oil producers as far as its policy relevance is concerned.

This capital flight from Africa has been occurring in the context of oil companies recording exceptionally high profits, some of which have been labelled ‘obscene’.

While features of the rentier state remain intact such as its centralised nature and earning a large proportion of its revenue from unproductive external sources, non-rentier aspects have also assumed growing prominence in foreign and economic policy, political reform, welfare and service provision, and in relations with society. In short, there is recognition in late rentierism that more active development policy and entrepreneurial state capitalism can not only promote state legitimacy but can also be salutary for long-term economic growth and industrial diversification since oil is a nite resource.
There are thus several characteristics of the late rentier model which challenge the ‘resource curse’ thesis and which might be germane to Africa by providing compelling normative and policy pointers:

• A responsive but undemocratic state:

the state becomes more responsive to societal welfare because of growing demographic, welfare, employment, and distributive pressures. In the case of Africa, there has been growing popular repudiation of authoritarian rule and calls for greater democratisation and political liberalisation.

•An incremental opening to globalisation: from being considered introverted and isolationist, rentier states of the Gulf Region have increasingly become integrated and active in spheres of global trade, investment, nance, consumption, sport, tourism, transport, and communications. Because of their colonial and post-colonial legacies, African countries are much more incorporated into global circuits but oil wealth gives them greater leverage to act relatively autonomously in driving their own development and growth agendas.

• Active economic and development policy: the later rentier state in the Gulf has assumed a more active role in monetary and fiscal matters, national infrastructure projects, trade and industrial policy, creating more business-friendly environments, and generally in economic diversification strategies. This has increased the institutional and managerial competence of the state and its agencies.

• Changing energy focus: where Gulf states were once ‘energy-centric’ because oil and gas constituted their lifeblood, the economies of late rentiers are more ‘energy- driven’ in the sense that oil and gas are increasingly being used to encourage or crowd in sectors that feed into or relate to the oil and gas industry. This helps to circumvent the effects of the ‘Dutch Disease’ phenomenon, and improve the prospects for economic diversification and more efficiently run and managed state-owned enterprises.

• New forms of state capitalism: the state remains the most powerful economic force in society and controls most of the levers of production which are the hallmarks of neo-patrimonial practice. However, it has increasingly allowed market mechanisms to operate by putting in place goals and strategies for export-led economic growth and investment beyond oil and gas as well as for the private sector to thrive under conditions of a carefully regulated environment.

• A long-term perspective: late rentiers are concerned with the long-term survival and political stability of the regime. Planning tools thus include managed diversification and partial- marketisation of economic sectors, creating a wider employment base, and introducing low-risk taxation schemes as a strategic response to the naldepletionofhydro-carbon assets and the rents that accrue from these. The large sovereign wealth funds of the Gulf countries can be seen as regime responses to the long-term imperative.

The interface between rents and neo-patrimonial behaviour by ruling elites is held culpable for much of the corrosive effects of natural resources in Africa, particularly oil. As such political institutions have been corrupted, poverty has been exacerbated, there is a lack of ethical norms, and the environment has been degraded. Most tellingly, oil players have provoked conflict and internecine war. We have questioned the merits of this critique but as the late rentier model demonstrates, there is much scope and hope for a progressive agenda based on greater transparency, accountability, and social responsibility that are not necessarily guided by the servile nostrums of oil governance initiatives.

Conclusion

Across Africa, an early harvest is apparent from the great promise and positive effects of growth, and improved levels of democratisation and governance. However, while Africa’s growth has largely been propelled by the recent super-commodity cycle of global demand, economic conditions are likely to remain dif cult, especially in view of a burgeoning population of youth. The political economy of Africa’s abundant resources will continue

to labour under the paradox of problematic capital flows and terms of trade, uneven growth and employment opportunities, and an unstable peace and security environment.

Africa’s crude and natural resource bounties will continue to inspire negative and specious stereotypes unless the symptoms of the ‘resource curse’ are squarely and openly confronted. Bold domestic and continental visions in both policy design and implementation are critically needed. With the guidance of continental charters such as the New Partnership for Africa’s Development and the African Union’s Vision 2063, this must include ongoing monetary and fiscal discipline, macroeconomic stability, promoting entrepreneurship, good governance, and effective institutions. They provide a virtuous circle for building developmental states in Africa that are capable of enhancing the prospects for economic growth, political stability, and democratic accountability.

There has been a critical ideological and normative shift in Africa and globally. This rstly relates to Africa taking greater responsibility for its own destiny and seriously adhering to the injunction to seek ‘African solutions to African problems’. At the global level and given its increased geo-political signi cance, the mood has changed from what external actors can do for Africa to what they can do with Africa. Ironically, Africa’s oil and natural resource futures rest with both! 

This article originally appeared in The Thinker and has been republished with permission.

Garth le Pere

is the founder and former Director (1994-2010) of the Institute for Global Dialogue and Senior Partner, DAJO Associates. He teaches at the University of Pretoria’s master course in Diplomatic Studies for senior officials in South Africa’s Department of International Relations and Cooperation. He is the author and editor of numerous books and reports on South Africa’s foreign policy, South-South relations and China’s role in Africa. He consults regularly for the South African government on foreign policy issues.

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