Africa’s wealth now its curse - Emirates24|7

Africa’s wealth now its curse

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Africa is cursed – with riches. In an era of rising petroleum prices, African oil is drawing new interest from major companies around the globe, says John Ghazvinian, author of Untapped: The Scramble for Africa’s Oil. They see the continent as the most promising place in the world for new production. It does not have the huge deposits that the Middle East and Russia do, but what it does have is accessible and largely unexploited.

 

“Since 1990 alone, the petroleum industry has invested more than $20 billion (Dh73bn) in exploration and production activity in Africa,” writes Ghazvinian. “A further $50bn will be spent between now and the end of the decade, the largest investment in the continent’s history.”

 

But most Africans are seeing little benefit from this influx of oil drillers and investment. In fact, because of an economic paradox known as the “Resource Curse”, they are often hurt by exports of their countries’ oil.

 

“Between 1970 and 1993, countries without oil saw their economies grow four times faster than those of countries with oil,” Ghazvinian notes, adding that oil exports inflate the value of a country’s currency, making its other exports uncompetitive. At the same time, workers flock to booming petroleum businesses, which saps other sectors of the economy.

 

“Your country becomes import-dependent,” he says. “That decimates a country’s agriculture and traditional industries.” In addition, oil money tends to corrupt politicians. They end up vying to pocket a share of the finite petroleum riches, rather than looking for ways to invest in their country’s long-term prosperity.

 

Some Westerners chalk up all of Africa’s problems to corruption, thus absolving themselves of any responsibility, he suggests, adding that the truth is often far more complicated. Some local leaders do abscond with ill-gotten funds, but they then stash that money in Western banks where the bankers look the other way. Western governments, too, overlook bad behavior, as long as the oil flows reliably through the pipelines.

 

Africa’s oil belt lies mainly along its Western coast in the countries abutting the Gulf of Guinea. “One third of the world’s new discoveries of oil since 2000 have taken place in Africa,” Ghazvinian notes.

 

The world’s two most energy-hungry economies, the United States and China, are vying to stake out spheres of influence in the oil-producing areas. Chinese oil firms, which typically do not face the same quarterly earnings pressure that Western ones do, are pouring billions into all sorts of infrastructure projects across the continent, Ghazvinian says. At the same time, international politicians and activists are calling for multinational efforts to relieve poverty and kick-start the continent’s oft-sputtering economies.

 

Some commentators have pointed to Norway as an example of the way in which Africa’s oil-rich countries might conduct themselves. Norway, the world’s third largest oil exporter behind Saudi Arabia and Russia, salts away a share of its wealth in a national pension fund, now worth more than $300bn. The fund is expected to grow to about $900bn in the next decade and invests only passively, in non-Norwegian stocks and bonds. That limits the temptation of politicians to use money for pork-barrel projects.

 

Ghazvinian doubts whether a comparable vehicle would work in Africa. Norway is a small, homogeneous country of about five million people that was relatively advanced when its oil began to gush. Even Nigeria, where the oil industry has operated for decades, probably would not be able to adapt the Norwegian model, he says. While its oil wealth is vast – it has the world’s 10th largest reserves – so are its problems. It is both an enormous country, with about 135 million people, and an ethnically diverse one, with hundreds of distinct ethnic groups. And its reserves lie in the poor, rural Niger Delta.

 

Little of the oil wealth gets invested back into the delta and few of the companies employ local people. That has contributed to civil unrest and lawlessness. “A thousand people a year are killed in small-scale guerrilla warfare in the delta,” he says. “Boys will drill holes in the pipelines at night and suck out the oil: 100,000 to 200,000 barrels a day were disappearing like this at one point. The money is siphoned off to arm the local guerrilla groups.”

 

Throughout all of the major sub-Saharan oil producers, Ghazvinian typically found the same situation. The sizzling oil sector was enriching a clique of politically connected people and creating boomtowns catering to the industry but seldom providing much wider economic benefit or even employing many local people.

 

On top of that, the flow of oil riches can create bizarre contrasts. Luanda, the capital of Angola and also the centre of its oil industry, is just one example. Luxury high-rises are being built there despite the country’s extreme poverty, and oil companies are paying $15,000 a month to rent apartments for their employees. “The disparity between rich and poor there is like nowhere else in the world,” he says. Oil companies are literally flocking to the country because its reserves lie offshore, allowing for safer drilling than in, say, the Niger Delta.

 

These same firms often argue that their role in Africa is simply getting oil out of the ground, maximising profits and paying taxes. Politicians, they contend, are responsible for investing the tax revenues in education and infrastructure.

 

“The oil companies will often say that they would like to invest in infrastructure or schools, but they do not have the expertise,” Ghazvinian notes.

 

“That’s glib. Exxon Mobil is making billions and can hire consultants. They could do more. They do not have to usurp the role of government to do something useful in the countries where they are operating.”

 

At the very least, he adds, the oil companies might come together and fund some sort of petroleum engineering university so more Africans could ultimately work in the industry. (Distributed by The New York Times Syndicate.)

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