In the past couple of weeks, the International Crisis Group, which monitors and comments on conflict situations around the world, has been focusing on the African country of Chad. Chad is neighbor to Sudan and starting point of what had been one of the most anticipated oil pipelines in history. ICG’s recommendations ask Chad’s government to step up to the plate and become more inclusive and honest, and for the US, France and China (China!) to pressure it to do so. This seems unlikely to happen.
Negotiating the Chad oil deal, and its 665-mile long oil pipeline which snakes through Cameroon on its way to the Atlantic Ocean, took a long time and the involvement of an consortium of oil companies. The World Bank acted as midwife. It was a difficult birth, especially since Chad didn’t really have that much oil to begin with – maybe 900 million barrels — and is land–locked. (For example, in 2004, Saudi Arabia has an estimated 260 billion barrels.) This made the project comparatively unprofitable; the Bank had to put up millions to get it off the ground.
The Bank meant well: it wanted to give an economic chance to a country that doesn’t have a whole lot going for it. The Bank, which became involved in 2000, pushed for a new approach involving outreach and payment to the local populations whose land the oil and pipeline would use. The people were told what was about to happen; they were paid a nominal sum for the property they would lose. There were many solemn vows of transparency and good governance by the Chadian government. By the end of 2003, the wells were drilled, the pipeline completed, and the oil flowed to the sea.
Chad did not have a democratic government to begin with. President Deby was in power for a decade by the time the project was started. He is still in power. Shortly after the oil began to flow, he began to backtrack. He bought quantities of weapons, ostensibly to deal with the incursions from the neighboring Darfur region. There were telltale signs of cronyism and corruption; the official oversight committee was crippled. Child mortality rose. The money never reached the people. The initial cash payments the people received were mostly wasted (hardly surprising in a country where most people are illiterate, there is no functioning economy, and little financial infrastructure to speak of) — so the economy did not grow.
The World Bank pulled back when the abuses became too apparent; in 2006, it suspended loans to Chad. In 2008, Chad repaid the loans, while reneging on its promises, and freed itself from the Bank and its constraints.
Obviously, the resource curse has Chad in its teeth. But why would any one have thought it would be otherwise?
Let me be the one to bell the cat. I’ll say what most international institutions will not say and most developing countries would never ever want said. Although nationalizing the oil and oil industry when Mexican President Cardenas first did it in 1938 — when the foreign oil companies were robbing the country blind, ruining the environment, underpaying their native workers and wreaking political chaos — was the best, the obvious, thing to do then, times have changed. The solution has become the problem.
Turning over control of a (local) natural resource to a national government, which can do with it and the ensuing revenues what it will, looks like a good idea but it simply hasn’t worked. Many countries do it: Nigeria, Saudi Arabia, Iran, Angola, Gabon, Venezuela, Ecuador — so, so many. Where has it worked? Where has it transformed a country into a multi-sector economy, a democratic country?
A few will point to Botswana, which is a success. But Botswana’s situation, with a concentration of diamonds in a corner of the country and a great legacy of good governance cannot be easily duplicated elsewhere. The same with Norway — a Western industrialized, stable, well governed, wealthy and long-peaceful country.
So perhaps not nationalization. And the privatization of such resources, a popular alternative among free-marketers because it allows parties with the capital and expertise to handle the project, also offers little benefit for the people or the country as a whole.
If not nationalization or privatization, what? That’s the real question. Is it local ownership? Private ownership with huge taxes? Sovereign wealth funds? Partial public trading of nationalized oil companies like Norway’s Statoil? International laws?
Until and unless we look for an alternative, neither International Crisis Group nor anyone else should be surprised at outcomes like Chad.
