Africa: Bottom of the Barrel (Oil), 06/18/03

AFRICA ACTION Africa Policy E-Journal June 18, 2003 (030618)

Africa: Bottom of the Barrel (Oil) (Reposted from sources cited below)

This posting contains the executive summary and brief excerpts from the introduction to an important new report on Africa's Oil from Catholic Relief Services released this week. The full report is available at http://www.catholicrelief.org/africanoil.cfm

The report has case studies on Nigeria, Gabon, Angola, Congo- Brazzaville, and Equatorial Guinea, as well as the Chad-Cameroon pipeline. It also contains recommendations on policy beginning with mandatory disclosure of payments as a basis for advocacy for local citizens' groups. As with other recent reports, it documents the perverse effects of oil wealth in blocking rather than contributing to development, and calls for changes that would allow income from expected massive increases in production in coming years to be used productively for African development. .

Related recent news articles include:

Daphne Eviatar, "Striking it Poor: Oil as a Curse" (New York Times, June 7, 2003) Reports on critiques within the World Bank citing the negative effect of oil and other extractive industries.

Charlotte Denny, "Scramble for Africa" (Guardian, UK, June 17, 2003). Notes U.S. opposition to oil company transparency, and British retreat from possible backing of mandatory disclosure proposals.

Gregg Jaffe, "In Massive Shift, U.S. Plans to Reduce Troops in Germany," (Wall Street Journal) June 10, 2003 In context of plans for redeployment of U.S. troops in coming years, cites focus on "key oil reserves in Africa and the Caucasus region." Journalist quotes unnamed U.S. officials as saying "a key mission for U.S. forces would be to ensure that Nigeria's oil fields ... are secure."

Additional related reports and E-Journal Postings

Christian AID (UK) Fueling Poverty: Oil, War, and Corruption, May, 2003 http://www.christian-aid.org.uk/indepth/ 0305cawreport/fuellingpoverty.htm [type URL on one line] Includes reports on Iraq, Angola, Sudan, and Kazakhstan

Africa: Shell and its Neighbors, May 5, 2003 http://www.africaaction.org/docs03/shel0305.htm

Nigeria: Elections, Oil, and Violence, April 3, 2003 http://www.africaaction.org/docs03/nig0304a.htm

USA/Africa: Questions for Candidates
(includes references on U.S. & Africa's oil) http://www.africaaction.org/docs02/ques0210.htm

Nigeria: Oil, Poverty, and Rights, July 9, 2002 http://www.africaaction.org/docs02/nig0207a.htm http://www.africaaction.org/docs02/nig0207b.htm

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Bottom of the Barrel: Africa's Oil Boom and Prospects for Poverty Reduction, A Catholic Relief Services (CRS) Report

Executive Summary

Oil Boom: Peril or Opportunity?

Sub-Saharan Africa is in the midst of an oil boom as foreign energy companies pour billions of dollars into the region for the exploration and production of petroleum. African governments, in turn, are receiving billions of dollars in revenue from this boom.

Oil production on the continent is set to double by the end of the decade and the United States will soon be importing 25 percent of its petroleum from the region. Over $50 billion, the largest investment in African history, will be spent on African oil fields by the end of the decade.

The new African oil boom centered on the oil-rich Atlantic waters of the Gulf of Guinea, from Nigeria to Angola is a moment of great opportunity and great peril for countries beset by wide-scale poverty. On the one hand, revenues available for poverty reduction are huge; Catholic Relief Services (CRS) conservatively estimates that sub-Saharan African governments will receive over $200 billion in oil revenues over the next decade. On the other hand, the dramatic development failures that have characterized most other oildependent countries warn that petrodollars have not helped developing countries to reduce poverty; in many cases, they have actually exacerbated it.

Africa's oil boom comes at a time when foreign aid to Africa from industrialized countries is falling and being replaced by an emphasis from donor nations on trade as a means for African countries to escape poverty. The dominance of oil and mining in Africa's trade relationships, coupled with this decline in aid flows, means that it is especially vital that Africa make the best use of its oil.

CRS is committed to helping to ensure that Africa's oil boom improves the lives of the poor through increased investment in education, health, water, roads, agriculture and other vital necessities. But for this to occur, these revenues must be well managed. Thus, this report addresses two fundamental questions: How can Africa's oil boom contribute to alleviating poverty? What policy changes should be implemented to promote the management and allocation of oil revenues in a way that will benefit ordinary Africans?

Managing Petrodollars Well:

Presently, Africa's oil revenues are inserted into governments lacking in transparency, accountability and fairness. 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. CRS supports the proper democratic management of this natural resource and the implementation of just development strategies that provide benefits for the poor.

A first step towards these goals is to build transparency. Oil is a natural resource owned by all Africans. Nevertheless, as this report describes, many aspects of the oil industry in Africa are concealed or shrouded in mystery; key facts about oil are often treated as state secrets. Thus, it is difficult, if not impossible, to track how much money is being generated or how these revenues are spent. Transparency depends on multinational oil companies publishing what they pay and on governments revealing what they spend.

The Responsibility for Change:

Like oil exporters in other regions, long-time African oil producers such as Nigeria, Angola, Congo-Brazzaville, Cameroon and Gabon, have been largely unable to convert their oil wealth into broad-based poverty reduction. Nor have these countries been able to diversify their economies or prepare for a post-oil future. To the contrary, petroleum has become a magnet for conflict and, in some cases, civil war. New oil producers, such as Equatorial Guinea, appear to be repeating some of the mistakes of their more experienced neighbors.

But while the record of oil exporters in Asia, Africa, Latin America and the Middle East shows that oil-dependence is most often a perilous development path, negative outcomes from oil booms are not inevitable.

The primary responsibility for managing Africa's oil wealth in a transparent, fair, and accountable way lies with Africa's governments. Building democratic states capable of focusing on reducing poverty is one of the key challenges facing Africa in the 21st century.

Africa's governments, though, are only one part of a web of interests and relationships in the African oil boom. Other key actors determining the outcomes of this boom are foreign oil companies, International Financial Institutions like the World Bank and the International Monetary Fund, export credit agencies, and Northern governments. The World Bank Group has played a catalytic role by supporting changes in legal frameworks and investment environments, financing projects and providing risk insurance. Export credit agencies have provided additional finance in risky environments, with few strings attached. The U.S. has identified increasing African oil imports as an issue of "national security" and has used diplomacy to court African producers regardless of their record on transparency, democracy or human rights.

The Need for a "Big Push":

Many of these actors are now making tentative steps to address the "paradox of plenty" problem generated by Africa's oil boom. They have begun to recognize that improving the distribution of benefits from oil production is not only an ethical mandate, but also an essential ingredient towards a more stable and sustainable world. The IMF and World Bank are taking steps to increase transparency in Africa's oil economies. Corporate actors are increasing their philanthropic programs and engaging in dialogue with civil society on ways to increase transparency in the sector. And Northern governments, such as the U.S. and U.K., are beginning to acknowledge the need to address the perils of oil-led development. These actions, while welcome, are not enough.

Because developing oil fields and building pipelines happens faster than the construction of efficient states and good governance, only a sustained, coordinated and coherent international effort - a "big push" to change the policy environment - by the relevant actors involved in Africa's oil boom can improve the prospects for transforming Africa's oil wealth into improvements in the lives of the poor. Only a concerted change in the incentive structure surrounding oil can help to ensure that petroleum revenues will be well managed.

The Chad-Cameroon Pipeline Project is the biggest international effort to date to focus an oil development project on a poverty reduction outcome. Multinationals, International Financial Institutions, and governments are working to increase the benefits and minimize the harm of this oil project to local populations. International and local civil society groups are closely monitoring the project. In Chad, Africa's newest petro-state, the explicit goal is to build government capacity to manage massive new oil wealth in a transparent and fair manner. To date, results have been mixed, but the real test will come when, in 2004, oil revenues will more than double Chad's national budget overnight.

To improve outcomes for the poor, all actors need to change some of their practices and work together in a more concerted manner. Unless the main players in the oil story make specific policy changes, more fully described in the report's conclusion, Africa's oil boom is unlikely to foster any significant poverty reduction. Instead, oil riches most probably will continue to produce corruption and mismanagement, environmental destruction, human rights violations, and conflict. It is urgent that improvements be made now to emphasize transparency and fairness, the construction of capable and accountable institutions, and the respect for human rights and the promotion of democratic space in oil-producing countries.

Summary Recommendations:

National governments should

* Remove legal and extra-legal obstacles to transparent disclosure and monitoring of the oil sector.

* Guarantee respect for human rights, including freedom of expression, association, and the press.

* Collaborate with citizen groups monitoring the management and allocation of oil wealth.

Oil companies should

* Support the international "Publish What You Pay" campaign by publicly disclosing, in a disaggregated, regular and timely manner, all net taxes, fees, royalties and other payments made to African states, at any level, or to local communities, including compensation payments and community development funding.

* Fully respect human rights in their practices.

The World Bank and International Monetary Fund should

* Use all of their leverage, with both companies and countries, to strategically promote transparency, fair and accountable revenue management and allocation, and respect for human rights. Leverage should be properly sequenced, that is, significant steps towards the building of good governance should take place prior to assistance for developing the oil sector. The World Bank should ensure that all of its activities in the extractive sector are fully aligned with its poverty reduction mandate.

Export credit agencies should

* Require private sector companies wishing to access loans, guarantees and risk insurance to publicly disclose, in a disaggregated, regular and timely manner, all net taxes, fees, royalties and other payments made to African states.

The U.S. and other Northern governments should

* Emphasize the respect of human rights, the promotion of good governance and democracy, and the transparent, fair, and accountable management of oil revenues in their bilateral relationships with African petro-states.

* Support effective international efforts aimed at increased transparency of oil revenue payments by companies to developing countries.

* Use their influence to prioritize transparent, fair and accountable revenue management within the World Bank and IMF.

The United Nations should

* Ensure that its efforts to promote business partnerships with oil companies in African countries do not compromise the broader UN mission of promoting good governance, human rights and sustainable development.

* Support, through the United Nations Development Program, African civil society groups focused on increased transparency and accountability oil-producing countries.

International private humanitarian and development agencies and nongovernmental organizations should

* Strengthen and support the development of independent monitoring and information systems regarding oil activities and revenue management in Africa.

* Provide assistance to local groups to develop their capacity to generate credible independent information on oil development projects and oil revenue management.

* Unite with CRS and other groups to support the "Publish What You Pay" campaign.

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Introduction

"Our oil is still, in most cases, the private reserve of the powers that be . . . Central Africa wallows in misery despite the growing discoveries of oil . . . Our involvement, as a church in Central Africa, with the issue of oil does not arise from meddling in issues reserved for State authorities. We are witnesses to the suffering of the people to whom we belong. Our prophetic mission impels us to launch a heartfelt appeal to all those who participate in oil exploitation in our region or who wield any political and economic power."

Statement of the Catholic Bishops of Central Africa (Association of Episcopal Conferences of the Central African Region), July 2002, issued in Malabo, Equatorial Guinea

Sub-Saharan Africa is in the midst of an oil boom. This boom is a moment of great opportunity and great peril, especially for Africa's poor.

The impact of the oil industry in many African countries is hard to exaggerate. Catholic Relief Services (CRS) conservatively estimates that sub-Saharan African governments will receive over $200 billion in oil revenues over the next decade, the largest and most concentrated influx of revenue in Africa's history. But in most countries, petrodollars have not helped developing countries to reduce poverty; indeed, the presence of oil has exacerbated poverty. In Nigeria, for example, which has received over $300 billion in oil revenues over last 25 years, per capita income is less than $1 a day. Surprisingly, Nigeria has performed worse, in terms of basic social indicators, than sub-Saharan Africa as a whole and much worse than other regions of the developing world. This is an example of what has been called "the paradox of plenty."

The Nigerian experience does not have to be repeated in the future. The sizable oil revenues generated by Africa's oil boom, if well managed, offer the potential for improving the lives of the poor through increased investment in health, education, water, roads and other vital necessities. But if these revenues are inserted into governments lacking in transparency and accountability, it is unlikely that they will fuel poverty reduction; to the contrary, they are more likely to make matters worse for the poor. We seek to avoid this worst-case scenario. We support the creation of conditions that would allow for the just use of petroleum revenues and the adoption of development strategies that will benefit the poor. ...

Africa's trade relationship with the rest of the world is dominated by "extractive industries," especially oil, gas and mining. These sectors accounted for more than 50 percent of Africa's exports and 65 percent of all foreign direct investment during the 1990s. The planned investment in Africa's oil sector over the next decade will be by far the largest in Africa's legal economy. This new capital enters at a time when foreign aid to Africa from industrialized countries is falling and being replaced by an emphasis from donor nations on trade and participation in the globalized economy as a means for African countries to escape poverty. The dominance of extractive industries in Africa's trade relationships, coupled with this decline in aid flows, means that it is vital for the region to make the best use of its oil.

The Importance of Transparency and Accountability

Oil is the common heritage of Africa. Nevertheless, many aspects of the oil industry are deliberately concealed or shrouded in mystery; key facts about oil are often treated as state secrets. When the Catholic bishops of Central Africa met in July 2002 and issued a statement on oil and poverty in the Gulf of Guinea, they denounced the "complicity" between oil companies and politicians in the region and decried oil contracts that "are drawn up in absolute secrecy. The contracts our states sign are surely to the advantage of the latter and reinforce our economic dependence." This secrecy makes it extremely difficult, if not impossible, to assess whether the division of benefits between companies and governments is fair and to monitor the extent to which the government's share is being utilized to benefit the poor. Because this transparency is essential for holding all major players in the oil story accountable for their actions, we support the growing international campaign to "Publish What You Pay".

The Publish What You Pay Campaign

Church and civil society groups alike have increasingly called on governments and oil companies to be more transparent in their operations and financial dealings. With information on the amount of money received by their governments, church leaders, civil society groups and ordinary citizens can use what political space exists to try to hold their governments to account. CRS has joined more than 130 civil society groups around the world in endorsing the Publish What You Pay campaign platform.

Launched in June 2002, the Publish What You Pay campaign promotes mandatory, rather than voluntary, disclosure of extractive industry (oil, gas and mining) revenues from multinational companies to host governments. The coalition is calling on the G8 industrialized nations to take leadership and promote transparency over oil, gas and mining revenues worldwide. ...

Relying on companies to disclose information voluntarily has so far failed because they fear discrimination by host countries and competitive disadvantage - it is difficult take positive steps toward transparency unless all of their competitors are obligated to do the same. The campaign calls for mandatory disclosure backed by legislation so that citizens in developing countries are able to call their governments to account over management of resource revenue. Major human rights and development groups, such as, Human Rights Watch, Oxfam America, Save the Children, Global Witness, the Open Society Institute and others have joined local groups in producing countries in calling for mandatory disclosure of payments. The UNDP and the World Bank's IFC have endorsed the concept in principle. ...

Transparency in revenue payments is not a panacea for problems of revenue mismanagement, but rather a necessary first step for corporate and government accountability: you cannot manage what you cannot measure. The campaign is not suggesting that oil companies tell host governments how to spend their money, but rather that they should publish information that will help citizens hold their own government accountable. ... Whether derived from voluntary action or mandatory regulation, groups on the ground across Africa are ready to use information on oil payments to lobby their own governments.

For more information on the campaign, visit http://www.publishwhatyoupay.org

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Date distributed (ymd): 030618 Region: Continent-Wide Issue Areas: +political/rights+ +economy/development+

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Message-Id: <200306181442.h5IEgXH17838@marduk.africapolicy.org> From: "Africa Action" <e-journal@africaaction.org> Date: Wed, 18 Jun 2003 10:44:18 -0500 Subject: Africa: Bottom of the Barrel (Oil)

Editor: Ali B. Ali-Dinar

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