Every nation wants to strike oil. Unfortunately, for many of them that are successful, not long after, they are worse off due to the high levels of corruption and mismanagement of oil proceeds at every stage of the process. Monies which are meant for development related initiatives aimed at improving the quality of life citizens enjoy are actually squandered away.
Managing wealth derived from natural resources is not an easy task; in fact it is fraught with difficulties; and if not done well, can adversely impact macroeconomic performance in the short and long terms. Research has shown that quite a few of these oil rich countries are home to some of the world’s poorest people. Africa, in particular is a perfect example of how corruption and mismanagement of natural resources could stifle development. For example, millions of people in oil-rich Nigeria still live in poverty. Although oil is said to account for 75% of the Nigerian economy, no-one knows how much the country actually produces or refines because hundreds of thousands of barrels of oil are stolen every day, at each level of the supply chain. A similar situation exists in Angola, Chad, Libya, Equatorial Guinea etc where inspite of the massive oil wealth, the actual benefits are not trickled down to those in need.
Stanford professor Terry Karl has noted that oil-dependent countries, “eventually become among the most economically troubled, the most authoritarian, and the most conflict-ridden in the world.” This phenomenon is called the resource curse. Now that Guyana has found oil and production is expected to begin in 2020, the same concerns are being expressed. It must be mentioned that in spite of severe public pressure, the Guyana Government has refused to publish the contract signed with ExxonMobil. Some analysts are also questioning our level of preparedness for the advent of commercial oil production.
According to Transparency International (TI) in one of its analysis on corruption in oil producing countries, too often, wealth stays in the hands of politicians and industry insiders. Revenues do not get published. Payments made to governments to exploit resources remain secret and bribery and embezzlement go unchecked.
TI has also pointed to the fact that many oil and gas companies protect the identities of their equity holders and subsidiaries.
“This allows corrupt leaders to hide stolen funds unnoticed. Inadequate financial statements make it easy to disguise corrupt deals, and impossible for any of us to monitor them. Many oil and gas companies don’t publish information country by country. This allows them to hide the royalties, taxes and fees they pay.”
Without such information, it would be difficult to hold governments accountable for the money they receive.
This is not to say, however, that all countries with an abundance of natural resources would end up like those alluded to earlier. There are many examples of governments that have succeeded in ensuring that their citizens are better off by ensuring the wealth from natural resources are channeled towards key development initiatives and distributed more evenly. For example, due to sensible resource management Norway has lifted its prospects far and above what it was prior to any major oil or gas discovery. Alaska is another example; the state is bound by law to put at least a quarter of its revenues from oil into the Alaska Permanent Fund, which was established in 1976. The money is invested and each year, every resident of Alaska gets a share of the dividends. These payments stimulate the economy and reduce income disparities. They have contributed to a massive reduction in poverty in Alaskan Natives, the state’s poorest group.
In addition to good governance; accompanied by an effective legal framework and sensible long-term planning, analysts have also proposed alternative systems in which a share of the income from oil is gifted directly to citizens.
In about two years’ time, Guyana will begin to pump oil; will the oil proceeds be a blessing that brings prosperity and hope for citizens or a political economic curse that has been the case for so many other developing countries. The various stakeholders – oil and gas watchdogs, media, civil society, parliament, private sector and citizens as a whole must become more aware and vigilant in order to ensure that Guyana avoids the resource curse.