Friday, August 26, 2005

Oil contracts, Western Aid and Southern Sudan

As the new government of Southern Sudan starts operation in the next few months, it is worth examining some of the challenges that it will face. I say some, because the list is long and depressing, but also as a means of sifting and prioritizing these challenges. As we have all read and heard, there is what could only be mildly called a case of heightened expectations by our people, and anxious anticipation by many commercial and development institutions looking forward to working in Southern Sudan.

As an emerging oil producer, we should seriously pay heed to the experience of similar countries and regions that entered into concession contracts with big multinationals. A recent Economist article by Sanou Mbaye, a former African Development Bank economist, gave me pause and starkly outlined the acute unfairness inherent in the dealings between the African governments in one side, and the West with its Oil companies and financing institutions. In the case of Sudan, they are projecting production rates of 227,000 barrels a day, much of which will be extracted from the Southern region. Besides the usual culprits such as graft and corruption, the author illuminated the fact that the very contractual instruments that these extraction schemes are based are predatory and dishonest.

A stark example is that of the West African nations of Cameroon and Chad, both of which just struck oil deals financed by the World Bank with multinationals such as Chevron, Patrons and Exxon. The annual net returns for Chad and Cameroon from the exploitation of their natural resources come out to $62 Million and $18.6 respectively. The return for the World Bank, The European Investment Bank and the other Oil Multinationals is estimated at $4.7 Billion annually. Now, just try to wrap your head around those numbers and get some coherence out of them. It is inconceivable that the cost for the financing and operation of these oil concessions justifies such a disparity in returns for the parties. This just goes to show that there is a big gulf between what the World Bank means when it trumpets poverty eradication, and what its actions and lending practices impose on the ground in the poor capitals of Africa. All the talk about corrupt African governments falls short of the mark because it leaves out an integral co-conspirator in the looting of our treasures, and that is the global institution and its clients that work to facilitate this looting. In Chad, you are talking about the government potentially looting from an annual pool of $62 million dollars, while the Oil companies walk out with billions of dollar in broad daylight and without any shame. In fact, they walk out repeating the same refrains about corrupt Africans and how much good they are doing in these poor backwaters. Moreover, if we are talking about mere hundreds of millions in returns from the oil sector, then we should snap out of our dreams and recognize that Oil is not the source of salvation that many people are counting on. The Nigerian experience, where the par capita income of the citizenry hasn’t budged from $1 a day, should be a sober reminder that we need to cultivate other means besides counting on this finite natural resource.

In the context of Southern Sudan, it is important that the new GOSS enshrines transparency as a hallmark of their dealings in the Oil and Reconstruction sectors, and that the commissions mandated by the CPA be constituted to function without backroom dealing. It is also important that they stay vigilant when dealing with our more experienced partners from the government who have mastered the art of fudging the numbers and hiding the real costs and returns from the Sudanese people. The expectations of the people need to be tempered sufficiently back to the reality of reconstruction, especially at the scale needed in Southern Sudan. The leadership should use the bully pulpit of government to stress a new mobilization from everyone for development, much the same as the one we mustered for the recently concluded war. Investment in the educational and Agricultural sectors will thus produce greater reproducible results, and hasten the day when our greatest economic returns will come from sectors that produce finished products and services. No developed country in the face of the Earth got there by feverishly selling its natural resources to greedy speculators and swindler, while ignoring schemes that depend on a resourceful and active workforce. The tigers of Southeast Asia have shown us that fostering a climate of internal trade and cooperation, self dependency, realistic expectations, and open political participation can lead to poverty alleviation and prosperity faster than foreign aid and World Bank schemes. While it is true that we live in an interconnected world order dominated by some big players, it is wise to also start thinking clearly about ways to wean ourselves away from dependence.

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