The following was written in 2007, after the Arbitral Award on the Suriname border and the caution of Sir Sridath Ramphal that oil may not be an entirely unmixed blessing. Mr Ramphal talked of imitating “best practices” to ensure that after our “potential” is pumped from the ground (or ocean as the case may be) we are not just left with gaping holes – as has happened with our gold.
Lee Quan Yu’s avowal that he was happy that Singapore did not have oil may seem counterintuitive, but the ground reality is that resource-rich former colonies in general, and oil rich ones in particular, have been the worst performers as far as increasing their growth rates are concerned. One study showed that countries that depended heavily on resource extraction in 1970 grew at a measly average of 1% between 1970 and 1989. Consequently, their people have not experienced the dramatic increases in standards of living in such resource-poor countries like Singapore. Such results cry out for explanation.
Recently, a strong correlation has been demonstrated between the growth of the resource component of the GDP and conflicts within the countries. While the causation for this effect is complex and contextual, it challenges the widespread hope that, with increased revenue, our present squabbles over whether “marginalisation” is real or imagined will disappear. This effect of increased conflict is especially noticeable in divided societies, and should be of major concern to our policymakers. Not surprisingly, most conflicts have at their base a nexus with economics, and as the stakes rise with the flow of oil revenue into the national coffers, it is natural that competition for those revenues would increase. In divided societies, it is not natural for the groups outside the administration to suspect that the “in-group” is being favoured.
If the increased revenues are not equitably distributed, the growth frontier of the country as a whole is inevitably constrained, since the creative potential of significant segments of the population is not allowed to flower – and becomes lost to the society. All modern growth theories show that sustained high growth rates are only possible when the widest possible cross section of the society are involved. Social capital and all that. Increased conflicts – whether hot or cold – inevitably hinder economic activity and growth, and in so many instances, precipitate a spiral of increasing poverty and death in the midst of “plenty”.
The most significant factor in ensuring that countries remain locked in low growth rates and mired in poverty while the dollars keep pouring in is what the economists like to call “rapacious rent-seeking” – but which we laypersons recognise by the catch-all expression “corruption”. Corruption, from all studies, appears to be the major by-product of resource extraction.
We have to come up with a model of development that would involve the greatest number of our citizens, as the oil revenue begins to flow in the next decade. We propose that the Government utilise the “National Development Strategy” as a source document to initiate a national discussion – along the lines of the Constitutional Reform Process in 1999 – to create a more focused strategy, with the understanding that the oil revenues would be utilised to fund the projects proposed by the strategy. A national consensus on development projects should go a long way towards ameliorating the conditions that precipitate conflict over “marginalisation” of any group. We suggest that “Ethnic Impact Statements” accompany every project to address concerns over ethnic favouritism.
To ensure that the oil revenue does not flow into the pockets of corrupt politicians it would be best to constitute an independent “Oil Fund for National Development” (OFND), which operates on transparent accounting rules to ensure that all oil revenues are accounted for.
The rules of such transparency have now been fully endorsed by the international community, so it would not present any problem to so-called “privacy” needs of corporations. To place the oil revenue directly into the Consolidated Fund is to ensure that, at the very best (assuming no sticky fingers), the money will not be fritted away in pork barrel showy schemes, with no long-term impact on our sustainable development.
The OFND will have to ensure that the oil industry does not blossom at the expense of other previously important production sectors, such as agriculture and fishing; to ensure that the economy diversifies into manufacturing and higher technologies; and involve all sections of the society through the funding of a development bank.
