Dangerous Business Part 3: Economic Development or Exploitation?

"The discovery of oil in Africa has been, almost without exception, a disaster for the host countries," writes Andrew Leonard in his Salon.com review of John Ghazvinian's novel, "Untapped: The Scramble for Africa's Oil," "The reasons are partly economic, partly having to do with the lack of well-developed institutions in many African states, partly owing to colonial legacies, and partly the fault of Western oil companies all too willing to turn a blind eye to corruption while the getting is good. In virtually no case has oil money been successfully employed for economic development, and so far, the likely prospect is that nearly every African country with significant oil deposits will end up worse off after the oil is gone than they were before the pumping started."

The assumption is that when a wealthy country finds resources on a poor country (such as Ethiopia) the lives of the people in that country will be drastically improved. The company will mine the resources, and in return, help the country with infrastructure, schools, etc. The opposite is in fact may be true. Between 1970 and 1993, writes Ghazvinian, countries without oil saw their economies grow four times faster then those countries with oil.

You have most likely heard the stories of corrupt governments, fat pockets, poverty, and environmental destruction that seem to be the result of in Western expansions in many African countries. High risk investments in politically and economically unstable counties will most likely lead to violence, as on on April 24, when over 70 employees in a Chinese-run oilfield in Ethiopia were killed, and more were kidnapped.

According to the Voice of America the government has been urging state-owned companies to operate internationally to help support China's expanding economy. Today's article in the Sudan Tribune reported on the annual meeting of the African Development Bank, which will take place in Shanghai on May 16. The location alone shows the powerful role that China has in African redevelopment. Over 800 Chinese companies, and around 100,000 Chinese citizens, live in Africa.

Since the U.S. began operations of AFRICOM in February, Pentagon and many military analysts argue the continentŐs growing strategic importance necessitates a dedicated regional command.

On May 3, the Council on Foreign Relations reported:

Some experts suggest the commandŐs creation was motivated by more specific concerns: China and oil. With Soviet influence gone and FranceŐs traditional presence much diminished, China has poured money into the continent in recent years as it jockeys for access to natural resources. And the United States is projected to import at least 25 percent of its oil from Africa by 2015, according to the National Intelligence Council.

I was reminded to pay closer attention to this story when I read another article in The Sudan Tribune. A Darfur-based rebel group (the Sudan Liberation Movement) warned foreign oil companies that they should stop doing business in the area. They said that the mineral resources are the property of the people of Darfur, and should remain unexploited until the conflict (civil war) is over.
Only people of Darfur are enabled to decide on the fate of this wealth, they said.

Sources: The Wall Street Journal (subscription), Voice of America, The Sudan Tribune, Salon.com
Image: The African Oil Politics Blog

Dangerous Business

This morning, at least 74 employees of China Petroleum and Chemical Corporation were killed by a rebel group. Before today, I did not know much about the Chinese investment in African oil.
China has spent billions of dollars up front to get preferential, long-term oil contracts with African countries. These deals typically ensure exploration and development rights as well as oil supply. They are made government to government, or national oil company to national oil company.
At the beginning of this month, African finance ministers met in Addis Ababa, the capital of Ethiopia, to assess the African economic situation. Africa's growth performance in 2006, as in previous years, was underpinned by improvement in macroeconomic management in many countries, and strong global demand for key African export commodities, especially crude oil.
In last week's blog, I noted that trade between Africa and China has grown 40% over the last year--and is still growing. The United States has also taken note.
In January of 2006, in his State of the Union address, President Bush said he wanted to reduce America's dependence on Middle East crude by 75 percent by 2025. Oil-rich areas in Africa would seem like a logical investment. In February, the US announced its intention of establishing more of a central command in Africa, called AFRICOM, to begin fully in October 2008. Troops already deployed in North Africa were involved in anti-terrorism efforts following September 11, 2001. Forbes reported, via the Associated Press, that "Officials also have said that Africa is strategically more important because of its oil production and increased efforts by China to gain influence on the continent." Hyperdynamics Corporation and Shell oil are two examples of American companies in Africa. In 1996, ExxonMobil discovered between 800 million and 1 billion barrels of oil in the Doba basin of southern Chad. The expansion highlighted the one of the major issues with Western development--while 98% of Chadians had no access to electricity, the twenty-five-mile-wide ExxonMobil facility lit up the night sky for miles around.

Armed militants in Nigeria kidnapped nine Chinese oil workers in January, and two more in March. Also in March in Nigeria, five Chinese telecommunications workers were abducted.
This morning in Ethiopia, the oil workers were attacked by members of the separatist group, the Ogaden National Liberation Front, or ONLF, reportedly because they felt that the company was exploiting the region's natural resources. In 1977, Somalia lost that particular region to Ethiopia. Thirty years later, the ONLF continues to wage a low-level war of independence on behalf of that region
Africa needs development. China and the US need resources. Now how do the superpowers help to empower these incredibly unstable parts of the continent without turning it into a cluster of indebted, and even more violent, countries?

Sources: BBC, Forbes, Business Week, InTheseTimes, Reuters, The Globe and Mail, The International Herald Tribune