Be Careful with Oil

By The Piper

The recent capacity-building event at the Arthur Chung Conference Centre provided Minister of Governance, Raphael Trotman a platform to boldly remind us that ‘oil is coming’. The event was graced by an illustrious group of local interests, as well as diplomats from overseas. I say bravo to the event. At the same time, I insist that we be careful because oil is no panacea.

There are a number of problems with oil wealth, especially in places where it is newly found. In what follows, I identify and describe some of these problems. I ask readers not to take my arguments as any kind of political attack on the APNU+AFC, because after-all, it was the PPP that brought foreign investors into the oil sector. The observations are, to use an American expression, of a bi-partisan nature. Let’s get to work.

Firstly, oil wealth is no guarantor of economic development, political stability, or social well-being. On the contrary, black gold can produce the exact opposite effects. New found oil wealth invariably leads to structural dependence, inflation, overnight elites, deepening of ethnic conflicts, and consumption as spectacle.

States quickly become addicted to the new wealth, and as has happened in Nigeria, other sectors of the economy are often neglected. The problem is usually expressed in composition of exports (and foreign exchange earnings), and/or GDP. More than ninety percent of Nigeria’s exports are from crude. Venezuela, with 300 billion barrels of proven oil reserves, is even more dependent as oil accounts for ninety five percent of its exports.

Even economies with an industrial capacity and massive science and technology infrastructures have not escaped. Hydrocarbons account for sixty eight percent of Russia’s exports. Fracking has probably hurt Russian national interest more than anything else since the end of the Cold War. You can well imagine the story of Saudi Arabia when it comes to dependence.

Secondly, oil does not necessarily contribute to political democracy, or even political stability. Saudi Arabia is a monarchy, which in reality means rule by one family – the House of Saud. This country is known for dastardly human rights violations. Human Rights Watch 2015 Report catalogues a long list of abuses. There is no free speech, and those such as Waleed Abu al-Khair, a high level human rights lawyer, are sentenced to lengthy prison terms for speaking up.

The Report also notes that “Judges can order arrest and detention, including children, at their discretion. Children can be tried for capital crimes and sentenced as adults if physical sign of puberty exist.”

Saudi Arabia is also dependent on NATO and more specifically, the United States, for its national defence. Mexico, an oil exporting country, was a one party state for decades, ruled as it were by the Institutional Revolutionary Party (PRI). PEMEX, the state-owned oil company has long been a bastion for party bosses and their relatives. We should also remember that Mexico collapsed under the watch of Miguel De la Madrid’s sexenio (1982-1988) whose conservative government trashed the ejidos (small farms) and invested billions in industrialization based on projected hydrocarbon revenues.

The multinational banks, of course, heaped petro-dollars on the country after 1973, making it one of the most highly indebted countries in the world. Ironically, the international banks saw Mexico as a good investment precisely because of new hydrocarbon discoveries in the early 1980s. Mexico is reeling under unimaginable violence that no oil, or oil based industrialization can stop.

Oil revenues have not helped the Bolivarian Revolution next door. The command economy (which in theory should allow for greater distribution of oil wealth) has produced massive shortages, such as Guyana has in the 1980s. Prominent members of the opposition are often arrested.

Russia shows the stratospheric rise of Vladimir Putin who has accepted the American challenge for a new round of global cold war politics. The challenge was implicit in Obama’s Asian tilt. Instead of strengthening hard-fought democratic gains, Russia is now aggressively rebuilding its navy and air force, and has not shied away from direct involvement in the Middle East.

The quality of Nigerian democracy is pathetic although, to its credit, there have been peaceful transitions ever since President Olusegun Obandanjo handed over state power to President Yar’Adua. While that is admirable, ethnic strife and religious extremism are tearing Nigeria apart. The Delta region where oil is located remains the poorest in the entire country.

Guyana does have an open door in front of it as the Minister of Governance Raphael Trotman stated. The real issue is who will be allowed to walk through. Even more importantly we should ask – what might the newly minted oil elites do with their access.