Published: October 31, 2007 in Knowledge@Wharton
Africa is cursed -- with riches. In an era of rising petroleum
prices, African oil is drawing new interest from major companies
around the globe, says John Ghazvinian, author of Untapped: The
Scramble for Africa's Oil. They see the continent as the most
promising place in the world for new production. It doesn't have the
huge deposits that the Middle East and Russia do, but what it does
have is accessible and largely unexploited. And the oil's high
quality makes it relatively inexpensive to refine.
"Since 1990 alone, the petroleum industry has invested more than $20
billion in exploration and production activity in Africa," writes
Ghazvinian, a visiting fellow at the University of Pennsylvania, who
spoke at a recent event sponsored by the Wharton African Students
Association. "A further $50 billion will be spent between now and the
end of the decade, the largest investment in the continent's
But most Africans are seeing little benefit from this influx of oil
drillers and investment. In fact, because of an economic paradox
known as the "Resource Curse," they are often hurt by exports of
their countries' oil. "Between 1970 and 1993, countries without oil
saw their economies grow four times faster than those of countries
with oil," Ghazvinian notes, adding that oil exports inflate the
value of a country's currency, making its other exports
uncompetitive. At the same time, workers flock to booming petroleum
businesses, which saps other sectors of the economy. "Your country
becomes import-dependent," he says. "That decimates a country's
agriculture and traditional industries."
Consider Gabon, which produces about 300,000 barrels of oil a
day. "It's covered with tropical rainforest, but it's hard to find
bananas that are grown there. They are mostly imported from Cameroon.
At one point, Gabon was the world's largest per-capita importer of
champagne." The oil -- and the champagne -- will eventually run dry.
Gabon, with relatively small reserves, is already coming to terms
with that possibility. By then, much of the rest of the country's
economy may have atrophied, Ghazvinian says. Economists also call
this phenomenon "the Dutch Disease" because it was observed in the
Netherlands after natural gas was discovered in the 1960s in that
country's portion of the North Sea. The Dutch manufacturing sector
withered as the gas industry grew.
In addition, oil money tends to corrupt politicians. They end up
vying to pocket a share of the finite petroleum riches, rather than
looking for ways to invest in their country's long-term
prosperity. "The governments aren't dependent on income taxes and
therefore don't have to do what the citizens want," he says. "The
state isn't an engineer of economic growth, but a gravy train. None
of the money gets down to the people."
Some Westerners chalk up all of Africa's problems to corruption, thus
absolving themselves of any responsibility, he suggests, adding that
the truth is often far more complicated. Some local leaders do
abscond with ill-gotten funds, but they then stash that money in
Western banks where the bankers look the other way. Western
governments, too, overlook bad behavior, as long as the oil flows
reliably through the pipelines. "There are incentives on both ends.
At the moment," Ghazvinian says, "there are no incentives for the
resource-rich governments to do the right thing."
Living in the Stone Age
An historian by training and a journalist by trade, Ghazvinian isn't
an anti-corporate crusader or an oil-industry apologist. Rather, he
set out to portray a region that, thanks to its oil riches and its
debilitating poverty, is increasingly occupying a place in economic
and political debates in developed nations.
Africa's oil belt lies mainly along its Western coast in the
countries abutting the Gulf of Guinea. "One third of the world's new
discoveries of oil since 2000 have taken place in Africa," Ghazvinian
The world's two most energy-hungry economies, the United States and
China, are vying to stake out spheres of influence in the oil-
producing areas. Chinese oil firms, which typically don't face the
same quarterly earnings pressure that Western ones do, are pouring
billions into all sorts of infrastructure projects across the
continent, Ghazvinian says. At the same time, politicians like Tony
Blair, Britain's former prime minister, and activists like Bono,
singer for the rock band U2, and Jeffrey Sachs, an economist at
Columbia University, are calling for multinational efforts to relieve
African poverty and kick-start the continent's oft-sputtering
Some commentators have pointed to Norway as a possible example of the
way in which Africa's oil-rich countries might conduct themselves.
Norway, the world's third largest oil exporter behind Saudi Arabia
and Russia, salts away a large share of its wealth in a national
pension fund, now worth more than $300 billion. The fund is expected
to grow to about $900 billion in the next decade and invests only
passively, in non-Norwegian stocks and bonds. That limits the
temptation of politicians to use the money for pork-barrel projects.
It has been nicknamed "the future-generations fund."
Ghazvinian doubts whether a comparable vehicle would work in Africa.
Norway is a small, homogeneous country of about five million people
that was relatively advanced when its oil began to gush, he points
out. It already had the sorts of public institutions that enabled it
to prudently manage its newly found wealth. "I'm not sure that a
future-generations fund can be airlifted to Chad. You would need a
lot of healthy, functioning civil institutions before you could do
that. Chad is one of the world's poorest countries," with 80% of its
citizens living below the poverty line.
Even Nigeria, where the oil industry has operated for decades,
probably wouldn't be able to adapt the Norwegian model, he says.
While its oil wealth is vast -- it has the world's 10th largest
reserves -- so are its problems. It's both an enormous country, with
about 135 million people, and an ethnically diverse one, with
hundreds of distinct ethnic groups. And its reserves lie in the poor,
rural Niger Delta. "People in the Niger Delta live almost as if it's
the Stone Age," Ghazvinian says. "They live in stick huts on little
islands in the mangrove swamps. Many of the villages are accessible
only by boat. Nearby, you will have these multibillion oil
facilities, with executives being dropped in by helicopter."
Little of the oil wealth gets invested back into the delta and few of
the companies employ local people, he points out. That has
contributed to civil unrest and lawlessness. "A thousand people a
year are killed in small-scale guerilla warfare in the delta," he
says. "Boys will drill holes in the pipelines at night and suck out
the oil: 100,000 to 200,000 barrels a day were disappearing like this
at one point. The money is siphoned off to arm the guerilla groups."
The situation in other African oil-producing countries is just as
difficult. Equatorial Guinea is "a family business masquerading as a
country," Ghazvinian quips. "It's one of the most closed societies on
As he researched his book, Ghazvinian visited all of the major sub-
Saharan oil producers and typically found the same situation in each.
The sizzling oil sector was enriching a clique of politically
connected people and creating boomtowns catering to the industry but
seldom providing much wider economic benefit or even employing many
local people. "It's a capital-intensive industry, not a labor-
intensive one," he points out. "So they don't need to hire a lot of
people, and the ones they do hire are petroleum engineers. You have
local people hired to be security guards, but that's about it."
On top of that, the flow of oil riches can create bizarre contrasts.
Luanda, the capital of Angola and also the center of its oil
industry, is just one example. Luxury high-rises are being built
there despite the country's extreme poverty, and oil companies are
paying $15,000 a month to rent apartments for their employees. For
expatriates, "it's one of the most expensive cities in the world," he
says. "The disparity between rich and poor there is like nowhere else
in the world." Oil companies are flocking to the country because its
reserves lie offshore, allowing for safer drilling than in, say, the
These same firms often argue that their role in Africa is simply
getting oil out of the ground, maximizing profits and paying taxes.
Politicians, they contend, are responsible for investing the tax
revenues in education and infrastructure.
"The oil companies will often say that they would like to invest in
infrastructure or schools, but they don't have the expertise,"
Ghazvinian notes. "That's glib. Exxon Mobil is making billions and
can hire consultants. They could do more. They don't have to usurp
the role of government to do something useful in the countries where
they are operating." At the very least, he adds, the oil companies
might come together and fund some sort of petroleum engineering
university so more Africans could work in the industry.