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The perils of African oil



Jonathan Power

January 9, 2004

LAGOS - Already the world's sixth largest oil producer and with large untapped, offshore oil deposits Nigeria is expecting to increase its export capacity by 50% or more within the next few years. By 2005, according to a U.S. National Intelligence Council forecast, Africa's share of U.S. oil imports will climb from 15% to 25%, close to the current proportion coming from the Middle East.

Nigeria along with Angola, Gabon, Equatorial Guinea, Sao Tome, Cameroon and, more recently, Chad and Sudan have become crucial players in the world's energy stakes. Yet it is not just the environmentalists, the anti-corruption and human rights activists that have become vociferous critics of the oil economy. Serious doubters can be found at the heart of government itself. In Nigeria, Ms Nedadi Usman, minister of state for finance, part of the all female team at the top of the finance ministry, tells me, "If we hadn't discovered oil we would have been better off today. Once we had oil our agricultural sector collapsed. Oil has made us lazy. When I was growing up I knew I had to use my brains to succeed. The oil generation doesn't feel this. We have become corrupted."

When I first asked Olusegun Obasanjo twenty years ago after his first spell as president of Nigeria- he was then a military dictator- what he had concluded about oil he said it was "a curse". Four years ago, having just been elected democratically, he seemed to have changed his tune. He told me that oil was one of "God's blessings on a poor country". But now, after a debilitating battle with on-going corruption, an economy that has seen the hollowing out of Nigeria's small industrial sector and, not least, continued guerrilla and ethnic strife in the Niger delta area where most of Africa's oil comes from, a rather fraught, would-be reforming, president, who no longer feels he has time on his side, exploded in public recently, " Oil and gas have blinded us….Oil and gas have taken us away from the values that we used to know. Oil and gas have brutalized us. We are no longer our brothers' keepers."

Obasanjo has a long list of accomplishments in diluting some of the worst political problems of the oil industry. Last year Obasanjo announced that Nigeria was going to abide by a ruling it had sought from the International Court of Justice that gave neighboring Cameroon sovereignty over the oil-rich Bakassi peninsular. (His minister of defense had instead recommended military action.) Nigeria and Sao Tome recently promised to publish the financial results of their next licensing round- a step towards the much sought after goal of demanding that oil companies disclose the payments they make to governments. Domestic pump prices, for decades subsidized, are now being deregulated. Oil refineries are being privatized. And, not least, there hasn't been a serious outbreak of violence in the Niger delta for two years now. Moreover, some observers, like the chief oil lobbyist for Shell, Larry Osai, say that at last one can see that oil revenues are being used for development- roads are being improved, schools better financed and drinking water supplies multiplied.

Yet even for Mr Osai Nigeria's oil is "an albatross", albeit one, he says, "that has to be carried". It means, he argues, that Nigeria- and Africa's other oil economies- are being drawn firmly within the U.S.'s political orbit, although so far not too intimately- Nigeria took a position against the war in Iraq.

But if Washington is perhaps showing more sophistication in dealing with its new oil partners than it has with the ancien regimes in the Middle East the harsh realities of being an oil economy remain. No country which is dominated by oil has yet found the way to convert oil into prosperity for the ordinary working people. As Moises Naim explains in the current issue of Foreign Policy, "An economy that relies mostly on oil exports inevitably ends up with an exchange rate that makes imported goods less expensive and exports more costly…..agriculture, mining and tourism [become]less international competitive." Only when a country has a strong democracy, a large economy and an effective public sector, as in Norway and the U.S., has oil not been a seriously distorting factor. The developing countries that have really made it, notably those in south east Asia, have been oil poor (and often enough generally poor in natural resources).

The trouble is, as Obasanjo has found, there is no going back to the pristine state. Nothing but maintaining good governance and a more sophisticated democracy can save Nigeria. Botswana- a diamond-dependent state- has shown what can be done. Angola, where nearly all the oil money goes to a corrupt political class, has shown what not to do. Nigeria, the biggest of them all, will be made or broken by oil. Right now, with only three and a half years to go in his final term, the odds still look stacked against Obasanjo. 


See also IHT for Jonathan Power's article, Nigeria struggles against the curse of oil


I can be reached by phone +44 7785 351172 and e-mail:


Copyright © 2004 By JONATHAN POWER


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