Scramble for Africa

Fear of corruption and chaos in oil rush

Charlotte Denny, economics correspondent

Tuesday June 17, 2003

The Guardian

Washington's determination to find an alternative energy source to the Middle East is leading to a new oil rush in sub-Saharan Africa which threatens to launch a fresh cycle of conflict, corruption and environmental degradation in the region, campaigners warn today.

The new scramble for Africa risks bringing more misery to the continent's impoverished citizens as western oil companies pour billions of dollars in secret payments into government coffers throughout the continent. Much of the money ends up in the hands of ruling elites or is squandered on grandiose projects and the military.

Tony Blair will today urge the oil industry to be more transparent in its dealings with Africa. Openness and accountability are essentials for stability and prosperity in the developing world, he will tell oil company executives and oil exporting countries at a meeting in Lancaster House in central London.

African countries own 8% of world oil reserves. An estimated 0bn (£125bn) in revenues will flow into African government treasuries over the next 10 years as new oilfields open up throughout the Gulf of Guinea. Oil will bring the largest influx of revenue in the continent's history, and more than 10 times the amount western donors give each year in aid.

But Ian Gary, author of a new report, Bottom of the Barrel, from the US aid agency Catholic Relief Services (CRS), warned yesterday: "Petro-dollars have not helped developing countries to reduce poverty; in many cases they have actually exacerbated it. In Nigeria, for example, which has received over 0bn in oil revenues over the last 25 years, per capita income is less than a a day."

Despite the prime minister's backing for the extractive industries transparency initiative (EITI), aid agencies and MEPs say Britain has let oil companies off the hook by watering down plans to make publication of payments to third world governments mandatory.

"The purely voluntary approach will not work in the countries where it is most needed because many political and business elites have major vested interests in avoiding transparency," said Simon Taylor, director of Global Witness, which works to expose links between natural resource exploitation and human rights abuses.

British oil firms, including Shell and BP, have privately backed calls for publication of payments to be compulsory because they believe otherwise honest companies will be undercut by less scrupulous competitors.

BP was nearly kicked out of Angola for disclosing that it had paid a 1m signature bonus to the government in 2001.

But with the US administration under pressure from American oil companies to resist new regulations, Britain has abandoned the mandatory approach in favour of a statement of principles which industry and government representative can agree on.

"As the initiative is increasingly watered down, the ability of the EITI to deliver on the promise of increased transparency in African countries remains seriously in doubt," Mr Gary said.

Campaigners believe that without stronger enforcement, the British-led initiative will make little difference to helping African countries benefit from their oil reserves.

The discovery of high-quality offshore fields has attracted interest at the highest levels of the Bush administration, which is determined to lessen America's dependence on imports from the Middle East.

A taskforce headed by the US vice-president, Dick Cheney, predicted two years ago that West Africa would become the fastest growing source of oil and gas for the American market.

"The US geostrategic view is that all crude oil is good, and all non-Opec oil is especially good. The goal is to take the Saudi hand off the spare oil capacity spigot," said Duncan Clarke, chairman and chief executive officer of Global Pacific and Partners International, an independent energy advisory group.

Next month President Bush is planning to visit Senegal, Nigeria and South Africa, while the Pentagon is reportedly considering redeploying American troops to protect key oil reserves in Africa, particularly Nigeria.

Washington is preparing to reopen its embassy in Equatorial Guinea, where oil revenues have boosted GDP by 60% over the last two years, despite state department reservations over the country's appalling human rights record.

"The US 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," said Mr Gary.

The drive for African oil is taking on a much more American character, the report says. "New fields are being aggressively pursued by ExxonMobil, ChevronTexaco and by smaller firms such as Amerada Hess, Ocean and Marathon."

"The flag is following commerce but the companies are just plumbers, they act without corporate responsibility on the basis of the good ol' boy network," says one western diplomat observing the scramble at first hand in Angola.

The CRS report says Gabon, Angola and Nigeria, which discovered oil several decades ago, have fared worse than many African countries with fewer resources.

In Nigeria, an overvalued exchange rate has devastated the non-oil sectors of the economy while local uprisings over control of oil revenues have sparked large-scale military repression in the Niger delta. "So overwhelming is mismanagement and rent-seeking that Nigeria has become virtually synonymous with corruption," says the report.

In Gabon, oil has been at the centre of a string of scandals tainting the Mitterrand government, which turned a blind eye as the French-owned oil company, Elf Aquitaine, used the country's banks to launder money while paying huge bribes to the government.

"Oil rents have tended to impede democratisation and have sustained a long line of authoritarian rulers - from the Shah of Iran to Nigeria's Abacha to the House of Saud to Saddam Hussein," the CRS report says. "Dependence on oil tends to impede democratisation."

The World Bank and the International Monetary Fund have been too slow to recognise that corrupt governments are squandering oil revenues, the report says. Despite recent statements of support for transparency, the bank has yet to make its loans conditional on full disclosure.