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the world bank, multinational companies and the resource curse in Africa. | Taxes | Economic Growth
the world bank, multinational companies and the resource curse in Africa.
this article studies and analyses the effect of the world ban and multinational oil companies on the resource curse in Africa.
the world bank, multinational companies and the re...
THE WORLD BANK, MULTINATIONAL OIL CORPORATIONS, AND THE RESOURCE CURSE IN AFRICA
Remember, I lived in Nigeria exactly at the time the oil boom started. The Economic Minister meets with the Prime Minister. "Sir," he says, "I have got some good news and bad news." The Prime Minister asks for the good news first and is told that the country has just discovered vast reserves of petroleum. The Prime Minister is happy. He says, "Well, this is great. We can accelerate income growth in this country. What could the bad news possibly be," he asks his Economic Minister. The reply is, "The bad news is that we have just discovered vast reserves of petroleum."'
Member of the Nigerian and California Bars. SPILS and Lieberman Fellow, Stanford Law School and Research Fellow, Program on Energy and Sustainable Development ("PESD"), Center for Environmental Science and Policy, Stanford University. An abbreviated version of this Article was presented at the Young Scholars Symposium at Stanford Law School on March 13, 2004. I am deeply grateful to Professor and PESD Director David Victor and Professor Terry Lynn Karl of the Department of Political Science at Stanford University for their wonderful insights that led to the conception and preparation of this Article. The resourcefulness of Richard Sears (Shell, Houston), Eddie Wikina, (Shell, Nigeria) and Ike Oguine (ChevronTexaco, Nigeria) is highly appreciated. My sincere gratitude also goes to Jonathan Greenberg of Stanford Law School for his highly valuable comments, and to Peter Koski (J.D. Candidate, 2005, Stanford Law School) for his excellent editorial assistance. I take full responsibility for any errors in this work. 1 Emmy B. Simmons, Linking Trade and Sustainable Development: Keynote Ad-
[Vol. 26:1
The story of oil and gas development in Africa is a very sad one. From earlier developers like Nigeria to the newest entrants such as Equatorial Guinea, petroleum production has generated a great sense of unease. Huge revenues from royalties and oil exports flow into government coffers and pad the pockets of public officials and their cronies. Multinational oil corporations have also been major beneficiaries. 2 The only losers seem to be the citizens of these countries, in particular, members of oil producing communities, who bear the brunt of the discovery and exploitation of oil while missing out on the benefits. There is little doubt that Africa's oil and gas producers epitomize the "resource curse" phenomenon-a counter-intuitive, inverse association between economic growth and endowment with natural resources. 3 Resource-rich countries, almost without exception, are riddled with multifarious and nefarious social, economic, and political problems. Stories of extreme poverty, environmental degradation, human rights abuses, authoritarianism, civil conflicts, and wars are rife. Over the years, scholars in development economics and political science have devoted considerable attention to this issue. Recently, there has been a resurgence of interest in this subject. One reason behind this revival is the anticipated massive inflow of funds from new oil developments in some African countries, including Chad, Cameroon, Sudan, Sao Tome, and Equatorial Guinea. The hope is to ensure that these projects do not suffer the same plight as their older counterparts, while reversing the curse 4 where it already exists. Certainly a paradigm shift is warranted, and the importance of pragmatic solutions cannot be overemphasized. 5 The thesis being
dress, 18 AM. U. INT'L L. REV. 1271, 1292 (2003). 2 See Antony Goldman, Who Benefits from Africa's Oil?, BBC NEws, Mar. 9, 2004 (noting that while oil-producing countries are among the poorest in the world, companies producing the oil seem to benefit), available at http:// news.bbc.co.uk/2/hi/africa/3542901.stm.
3 See RICHARD M. AuTY, SUSTAINING DEVELOPMENT IN MINERAL ECONOMIES: THE RESOURCE CURSE THESIS 1-7 (1993) (discussing the resource curse thesis). 4 See Paul Stevens, Resource Impact - Curse or Blessing?, 13 CENTRE FOR ENERGY, PETROLEUM & MINERAL L. & POL'Y INTERNET J. 1, 14 (Mar. 25, 2003) (discussing the
distinction between a "blessing" and a "curse" and how countries securing oil revenues can avoid the "curse"), at http://www.dundee.ac.uk/cepmlp/journal/ html/vo113/voH13-14.html. 5 See XAVIER SALA-I-MARTIN & ARVIND SUBRAMANIAN, ADDRESSING THE NAT-
propounded here is that, notwithstanding the fact that the results in African oil exporters suggest the presence of a resource curse, these countries are not necessarily cursed by their resources. What they have been beset with is a curse of leadership. Leaders representing different regime types and periods of time have shown similar traits in misgoverning their people and misusing their resources. They have also not introduced the right kind of management structures to ensure the use of these resources in a way that benefits their citizens. There seems to be a growing recognition that for meaningful changes to occur, the structure of resource management in these countries needs to undergo some fundamental changes. Two key ideas that illustrate this thinking, and that have been generating a lot of interest of late, are information disclosure and what this Article refers to as "trust funds." Trust funds aim to create a transparent and more beneficial process of managing and monitoring oil revenues, a departure from the corrupt and unaccountable arrangements that currently characterize oil and gas development in Africa. Information disclosure, exemplified by the Extractive Industries Transparency Initiative (the "EITI") and the Publish What You Pay (the "PWYP") Campaign, promotes the publishing of corporate payments to governments and calls on governments to disclose their oil receipts. The object is to ensure that oil revenues are fully accounted for and properly utilized. Both ideas incorporate a leading role for multinational corporations ("MNCs") and international financial institutions, notably the World Bank Group. 6 This Article takes an interdisciplinary approach drawing on economics, law, and political science to evaluate these ideas with a view to ascertaining their ability to avert or reverse the curse. In addition, this Article will look at the major impediments to implementing these ideas in Africa, the most prominent of which are state sovereignty and the absence of corporate regulation in international law. To counter such impediments, this Article advoURAL RESOURCE CURSE: AN ILLUSTRATION FROM NIGERIA 2 (Nat'l Bureau of Econ.
Research, Working Paper No. 9804, 2003) (proffering one such idea that involves directly distributing the oil revenues to the public), available at http://pape rs.nber.org/papers/w9804.pdf. 6 The International Monetary Fund ("IMF')has also been involved in seeking ways to address the resource curse, especially in Africa. See, e.g., MENACHEM KATZ
ET AL., LIFTING THE OIL CURSE: IMPROVING PETROLEUM REVENUE MANAGEMENT IN
(2004) (discussing macroeconomic and oil sector policy, and governance issues of seven oil-producing countries of Africa).
Subsection 2. Section 2 focuses on the resource curse generally. Subsection 2.the EITI and the PWYP Campaign-will be closely examined. In the absence of a governing structure to which all MNCs are subject. As useful as these two ideas may be. Pa.3 examines the role of institutions as an independent or explanatory variable for the low level of growth in resource-rich countries. The trust fund established under this project is analyzed and its strengths and weaknesses are highlighted. those who decide to be uncooperative may gain a competitive advantage over those who choose to conform to higher standards such as transparency in their transactions. The examination of national trust funds will be in the context of a recent application of the idea in Africa . Section 3 discusses the resource curse in Africa. such as conflicts and civil wars. The World Bank Group has played a key role in oil and gas projects across the globe.1 thereof is a theoretical discussion of the resource curse thesis that surveys the current literature on the phenomenon. This serves as a deter- . focusing primarily on African countries that produce or export oil in significant quantities. Subsection 2. MNCs have been implicated in a number of practices linked to the resource curse. strong impediments such as state sovereignty and the absence of real regulation of MNCs present formidable challenges to their implementation in Africa. This Section discusses the World Bank and MNCs in light of their growing interest in addressing the resource curse. Int'l Econ.U. This Article is organized into seven major sections.the ChadCameroon Oil Pipeline Project. Occasional references are made to African countries involved in the production and export of other resources such as copper and diamonds. Two prominent efforts in that regard . J. Disclosure of corporate payments to governments as a valuable tool for preventing or reversing the resource curse is also discussed. namely national trust funds and information disclosure. Section 5 examines two of the ideas being presented as a cure for the resource curse. 26:1 cates a restructuring of international law in two major areas: redefinition of the notion of sovereignty and a clearer articulation of the position of MNCs in international law. L.2 looks at ideas advanced by economists and political scientists on the causes of the resource curse. [Vol. The availability of information regarding payments made by corporations to mineralproducing countries will promote transparency and help the cause of public accountability. Section 4 looks at the World Bank Group and MNCs.
"). THE RESOURCE CURSE PHENOMENON . RTs. 2004) (detailing how the Angolan government rebuffed efforts by the IMF to reconcile the country's oil-backed loans with information in the external debt database on the basis of infringement on national sovereignty). Countries that have deposits of natural resources in abundant quantities have exhibited a gnawing tendency to perform worse than those not similarly endowed on virtually every social and economic indicator. cannot be overemphasized.1. SCI. where government officials are not enamored of efforts to constrain their unaccountable practices.hrw. POL. Concept One of the most puzzling and perplexing discoveries of modem scholarship is a paradoxical phenomenon referred to as the resource curse. No Accountability: The Use of Oil Revenue in Angola and Its Impact on Human Rights. & SOC. 126 (2003) ("What has been discovered in the past fifty years is that the blessings of natural resources can be a curse in disguise. 8 Alan Heston.2005] THE RESOURCE CURSE IN AFRICA rent to the latter group of companies. they usually resort to sovereignty as a convenient excuse. 588 ANNALS AM. 9 See generally ALAN GELB & ASSOCIATES. One useful mechanism is sub-national or local trust funds instituted and funded by these entities. 2. Crusades and Jihads: A Long-run Economic Perspective. The need for local trust funds to serve as veritable complements to national trust funds.org/reports/2004/angola0104/angola0104.pdf. 9 Jeffrey Sachs and Andrew Warner note that this paradox "has 7 See Arvind Ganesan. as the situation on the ground already indicates. Some Transparency. available at http://www. 16 HuM.8 The resource curse thesis posits that there exists a negative relationship between endowment with natural resources and social and economic development. 48-51 (Jan. OIL WINDFALLS: BLESSING OR CURSE? passim (1988) (studying the impact of oil windfalls on countries with different economic and social attributes). 112. Section 7 discusses the role the World Bank and MNCs can play in further addressing the resource curse in the face of-or regardless of -the identified obstacles. ACAD. 7 The perplexing question that emerges is what the next line of action should be where there is a misalignment between the interests of the people and the harmful wishes of a sovereignty-hugging political clan. or as viable alternatives where national trust funds are infeasible due to political and practical constraints. Section 6 discusses corporate regulation in international law and the concept of sovereignty. Section 8 is the conclusion. 2. In the case of sovereignty. WATCH 1.
at 5. supra note 10. for Int'l Dev. at 2-3. J. Nigeria. Taiwan. which was resource poor.' 2 The 19th and 20th centuries saw the rise of the Swiss and Japanese economies while resource-rich Russia lagged behind. 1995).2 per cent per year). and life expectancy at birth is worse than in non-oil/mineral dependent countries of the 10 JEFFREY D."" In the 17th century. NATURAL RESOURCE ABUNDANCE AND ECONOMIC GROWTH 2 (Harv. Oil-exporting countries grow more slowly than non-oil rich countries over time (between 1965-1980 OPEC members experienced an average decrease in their per capita GNP of 1. Their infant mortality. Int'l Econ. it still had a weak economy compared with the Netherlands. 12 SACHS & WARNER. 517a. the most authoritarian. malnutrition. Asia. Hong Kong. although Spain had silver and gold flowing in abundance from the colonies. and/or the most conflict-ridden in the world. Pa. supra note 4. while their non-oil counterparts grew by an average of 2. L. SACHS & ANDREW M.U. Development Discussion Pa- per No. They have unusually high poverty rates compared with countries dependent on the export of agricultural products. Terry Lynn Karl provides the following description of what she refers to as oil's "paradox of plenty": Countries that are dependent on petroleum revenues for their livelihood (with the notable exception of Norway) are among the most economically troubled.3 per cent per year. Africa and Latin America. 26:1 been a constant motif of economic history. This is true across regions-in the Middle East. 11 Stevens. [Vol. . and they diversify their economies less easily. This sad development. at 2 13 Id. resourcepoor countries such as Korea. while a ubiquitous feature in many resource-rich economies." 10 Paul Stevens observes that "[c ] oncern over the impact of great wealth on a society goes back at least as far as the writing of the fourteenth century Arab philosopher Ibn Khaldun in which he identifies the fifth stage of the 'state' as one of waste and squandering. WARNER. 14 Id.13 In more recent times.. and Vene14 zuela have been beset with economic calamities. is particularly evident in the petroleumproducing countries. Inst. and Singapore have been able to build strong economies at the same time that their resource rich counterparts like Mexico.
same income level. Their health care and their school enrolment tend to be less than in their non-resource rich counterparts; OPEC countries spend less than 4 per cent of their GNP on education compared with almost 5 per cent for the world as a whole (1997 figures). But they are more likely to spend from two to ten times more on their militaries and to be ruled by authoritarian leaders. The localities surrounding oil installations are among the most environmentally damaged and conflict-ridden in the world. Worst of all, the probability of having civil wars is higher in oil-exporting countries than in their resource-poor counterparts. This is oil's "paradox of plenty" and it is not a pretty picture.15 Although doubts have been raised about the existence of this phenomenon, 16 the evidence supporting the prevalence of the resource curse seems to be strong. 17 Empirical evidence provides some of the strongest support. An analysis of the impact of mineral and other resource exports on GDP in ninety-seven countries from 1971-1989 showed the inverse relationship between resource abundance and rapid economic growth. Likewise, scholars have shown a link between higher mineral and oil dependence and a high level of poverty, disproportionate military expenditures by governments, and a higher level of authoritarianism. Corruption is higher and the probability of civil-war is also greater in countries 8 dependent on oil and minerals.' It should be noted that the existence of the resource curse is not
15 Terry Lynn Karl, The Oil Trap, TRANSPARENCY INT'L Q. NEwSL. (Transparency Int'l, Berlin, Germany), Sept. 2003, at 1, availableat http://www.Transparenc y.org/newsletters/2003.3/tiq-sept2003.pdf. 16 See Graham A. Davis, Learning to Love the Dutch Disease: Evidence from the Mineral Economies, 23 WORLD DEv. 1765, 1776 (1995) (suggesting that "the resource curse is, if anything, the exception rather than the rule"). 17 See KYM ANDERSON, ARE RESOURCE-ABUNDANT ECONOMIES DISADVANTAGED? 3 (Ctr. for Int'l Econ. Studies Seminar Paper 97-03, 1997) ("Empirical evidence suggests that economies well endowed with natural resources relative to other factors of production have grown slower than other economies over the long term."), availableat http://www.adelaide.edu.au/cies/sp9703.pdf. 18 THOMAS I. PALLEY, COMBATING THE NATURAL RESOURCE CURSE WITH CITIZEN REVENUE DISTRIBUTION FUNDS: OIL AND THE CASE OF IRAQ 3 (Foreign Policy in Focus, FPIF Special Report, Dec. 2003), available at http://www.fpif.org/pdf/papers/ SRordf2003.pdf.
a law cast in stone, as countries can take initiatives to check it.19 Yet the extent of its existence presents sufficient cause for pause and bewilderment. First, it appears to cut across virtually every barrier. Countries that have little or nothing in common ethnically, geographically, culturally, or politically still seem to face the same predicament.20 Second, it is counter-intuitive. 21 Both common sense and economic theory present bases to believe that more resources should be a blessing, not a curse.22 The presence of natural resources in commercial quantities leads to the generation of valued foreign exchange, brings in investors from other parts of the world with much needed capital and increases the chances of producing goods in view of the availability of raw materials. 23 Indeed, "few people would argue that more income is a bad thing. Standard economic theory asserts that one can never be made worse off by a positive wealth effect." 24 In decades past, some prominent economic theorists stridently argued that low growth in developing countries may be linked to a lack of access to the necessary capital for development. The "staple theory" of growth maintained that countries rich in oil and mineral resources may be able to overcome this predicament by attracting foreign companies to exploit these resources. Money generated from a growing extractive sector would then be used in the construction of needed infrastructure and in the establishment of secondary industries and diversification. 25 In a similar vein, the "big
19 See Richard M. Auty, Industrial Policy Reform in Six Large Newly Industrializing Countries: The Resource Curse Thesis, 22 WORLD DEV. 11, 24 (1994) (explaining that resource-rich countries can combat the resource curse with good industrialization policy choices).
20 TERRY LYNN KARL, THE PARADOX OF PLENTY: OIL BOOMS AND PETRO-STATES,
at xv-xvI (1997).
21 See ERLING ROED LARSEN, ARE RICH COUNTRIES IMMUNE TO THE RESOURCE
(Statistics Norway, Discussion Paper No. 362, 2003) (stating that "[g]rowth studies show, counter to intuition, that the discovery of a natural resource may be a curse rather than a blessing since resource-rich countries grow slower than others"), availableat http://www.ssb.no/publikasjoner/DP/pdf/dp362.pdf. 22 See Stevens, supra note 4, at 3 (explaining that some countries have managed to avoid the "resource curse" and because of their success, can consider large revenues from natural resources to be a "blessing").
CURSE? EVIDENCE FROM NORWAY'S MANAGEMENT OF ITS OIL RICHES 1 23 MARIA SARRAF & MOORTAZA JIWANJI, BEATING THE RESOURCE CURSE: THE
CASE OF BOTSWANA 3 (World Bank Env't Dep't, Environmental Economics Series Paper No. 83, 2001).
Ross, EXTRACTIVE SECTORS AND THE POOR 6 (Oxfam America, Research Paper, Oct. 2001), available at http://www.oxfamamerica.org/newsand
push" theory of economic development made the case that what developing countries needed was to expand demand in large measures to provide the needed encouragement for private corporations to make an investment in industrialization. 26 With the massive infusion of capital from resource exports, a more propitious opportunity for the validation of these theories could not have arrived. Unfortunately, this has not proven to be the case. Poor countries with considerable endowment of resources have not escaped their pre-resource-discovery miseries. If anything, resources have exacerbated their already pitiable conditions. This is another piece of the puzzle. In fairness to those who expect resource wealth to translate to economic development, there is rich precedent for such optimism. Gavin Wright and Jesse Czelusta seek to present a counterargument to the idea that resource abundance portends bad news for economic growth by highlighting examples of countries that have successfully utilized resources to achieve development. 27 Petroleum and other resources contributed immensely to the emergence 28 of United States, Canada and Australia as strong economies. Coal and hydrocarbons deposits played a fundamental role in the success of the Industrial Revolution. 29 Norway was the poorest country in Europe in 1900, but is now one of the richest European States primarily due to utilization of resources including oil.30 Botswana has catapulted itself from one of the poorest countries at independence in 1965 to an upper income society through its dia31 mond mines. Karl, however, rejects the argument that the energy-influenced development of yesteryear can be compared to the situation of oil exporters today. She argues that "the oil-led development model of today is significantly different from the role that energy played
publications/publications/researchjreports/art2635.html/pdfs/eireport.pdf. 26 Id. 27 Gavin Wright & Jesse Czelusta, Exorcizing the Resource Curse: Minerals as a Knowledge Industry, Past and Present (July 2002) (unpublished manuscript, on file with author). 28 See generally id. (describing the effect that petroleum and other resources had on the respective economies of the United States, Canada, and Australia). 29 JEFFREY D. SACHS, TROPICAL UNDERDEVELOPMENT 18 (Nat'l Bureau of Econ. Research, Working Paper No. 8119, 2001).
30 SAVE THE CHILDREN, LIFTING THE RESOURCE CURSE: EXTRACTvE INDUSTRY, CHILDREN AND GOVERNANCE 8 (2003), available at http://www.savethechildren.
org.uk/temp/scuk/cache/cmsattach/18_EITI.pdf.
Again. Michael Ross contends that a 32 Terry Lynn Karl. this hard to imagine scenario seems to be the dominant trend socially. at 2. 1981) (1776). notwithstanding that centuries ago reliance on minerals for economic development was the subject of strictures as it is today. 33 a fact that tends to weaken Karl's assertion. 33 Wright & Czelusta. supra note 27. at 5.H. 2004). together with the ordinary profits of stock. Political and Economic Consequences.U.. Canada and Australia" because in those successful earlier experiences. would least chuse to give any extraordinary encouragement . however. and economically. Pa. as opposed to the domineering position it occupies today in the economies of oil-exporting nations. J. did not allow their natural resource wealth to truncate their march toward economic growth. However. "Oil and mineral exports do not simply fail to alleviate poverty. instead of replacing the capital employed in them. Cleveland ed. On the other hand. commonly absorb capital and stock. supra note 25. in line with the paradox. Campbell et al. a rise in incomes occasioned by oil wealth is said to lead to a converse result: increasing oil wealth either reduces or evaporates the democratization effect. at 2. quoted in Wright & Czelusta. they used these resources as a springboard to propel them to the socioeconomic status that they enjoy today. 34 ADAM SMITH. that resource-based economic growth and a bad press have been companions for centuries now. 34 Thus. eds.. evidence from many studies indicates that there is a tendency for governments to become more democratic in the event of rising incomes. They are the projects. 26:1 in the late 19th and early 20th centuries in the United States.. Even if natural resource wealth does not confer a comparative advantage. politically." 35 From a political perspective.. therefore.. In the 18th century. many countries. Oil-Led Development: Social. 662 (Cutler J. 2 AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS 562 (R. to which of all others a prudent law-giver who desired to increase the capital of his nation. supra note 27. they appear to make it worse. 35 ROSS. Int'l Econ. the contribution of mining to the overall economic input was quite small. Adam Smith wrote: Projects of mining. it is not expected to be a definite disadvantage. as indicated above. in 4 ENCYCLOPEDIA OF ENERGY 661. L. [Vol. . 32 It should be noted.
232 (2004). Does Oil Hinder Democracy?. the converse claim may also hold: The absence of massive flows of oil. and with 37 lower likelihoods of civil war and anti-state protest.38 In Venezuela. 2003) ("According to some studies of Iran's 1979 revolution. even when controlling for repression. who fell in 1979. The countercontention. supra note 37. steep declines in oil revenues and lower receipts of strategic rents have not always been accompanied by a weakening of authoritarian institutions or entrenchment of democracy. democratization would have advanced much further than it has"). Oil Wealth and Regime Survival in the Developing World. 39 Furthermore. based on cross-sectional time series data from 107 countries in the developing world between 1960 and 1999. 1960-1999. 38 Gary C. especially in the Middle East. 325. ("[S]ome have argued that oil wealth contributed to democratization in Venezuela. Explaining the Arab Democracy Deficit: Part 1. 41 This can be explained on the ground that while oil wealth weakens state institutions.org/articles/0302_me." A recent study disputes the conclusion that oil wealth is more closely linked with nonviability of regimes and political instability."). oil wealth undermined the stability of the Shah's regime by fueling rapid socio-economic change. 53 WORLD POL. 328 (2001). However.meib. INTELLIGENCE BULL. While it may be said that oil wealth impedes democracy in some cases. or other external rents may help or accelerate democratization. it also can be a vehicle for constructing viable re36 Michael L. . at 232 (proposing that oil wealth has generally increased the durability of regimes and that repression does not account for this puzzling effect). htm. is that "oil wealth is robustly associated with increased regime durability. POL. 37 Benjamin Smith. at http://www. there are also instances where the flow of oil rents has helped undermine the stability of authoritarian regimes. 40 See id. 5 MIDDLE E. such as that of the Iranian Shah. Ross. 41 See Smith.").20051 THE RESOURCE CURSE IN AFRICA component of the resource curse is that "oil and mineral wealth 36 tends to make states less democratic." An eclectic way of looking at it is to aver that the impact of oil wealth on democracy may be two-sided. under certain conditions. instead of oil wealth undermining regime viability. the presence of oil may have played a major role in democratizing the country. (arguing that "had exogenous rent been a central foundation of authoritarian governance in the Arab world. SCI. it may actually enhance its durability. J. 48 AM.40 In some cases.-Mar. 39 See id. 37 (Feb. Gambill. if the abundant flow of oil revenues or external rents works against democracy.
297. L. 298 (1999) (discussing theories of the resource curse). AN ALTERNATIVE INTERPRETATION OF THE 'RESOURCE CURSE': THEORY AND IMPLICATIONS 1 (Nat'l Bureau of Econ. does not solve the paradox. [Vol." I do not reject the validity of this categorization. 2002) (footnotes omitted).d. on file with author). 51 WORLD POL. and propelled by the circumstances in which they found themselves. scholars in economics and political science have had a much harder time explaining its causes both generally and as applied to specific countries.edu/ faculty/ ross/paper. they have been able to make their way toward rapid growth. It can actually be argued that not having resources freed these countries from the shackles that have been associated with resources. 43 RICARDO HAUSMANN & ROBERTO RIGOBON. economic.U. Ross. categorizes what I refer to here as the "social explanation" under the political science rubric of "cognitive explanations. Unencumbered by resource wealth. The Political Economy of the Resource Curse. available at http: / /www. 44 42 Benjamin Smith. Working Paper No. This prompted Hausmann and Rigobon to observe: "[t]he concern that natural resource wealth may somehow be inmiserating [sic] is a recurring theme in both policy discussions and in empirical analysis. while "social explanation" should be used for cases that cover the whole of society.) (unpublished manuscript. Ross. lack of resources has not hindered resource-poor countries from rising to enviable heights in the arenas of economic growth and social development. 2.pdf. Yet this explanation. Finally. and political. The Wrong Kind of Crisis: Why Oil Booms and Busts Don't Lead to Democratic Transition 2 (n. in view of the justifiable bewilderment occasioned by the effect of resource wealth.2.org/papers/w9424. Pa.polisci. 44 See Michael L. while plausible. Research. The empirical regularity seems to be in the data but understanding its causes has been a much 3 4 harder task." A variety of variables may account for the resource curse. however. Int'l Econ. Existing explanations can be categorized into three broad areassocial. What Causes the Curse? While there is hardly any question that the resource curse is a reality. 1. available at http://www. 26:1 gime coalitions and vibrant state institutions that prove useful in maintaining the rule of leaders when they face the kinds of crises 42 that undercut other governments.pdf. but believe that "cognitive explanations" are better suited for public actors.ucla. it is pertinent to note that while resources have not provided the needed engine for growth in many resource-rich countries. .nber. 9424.
48 Id. J. supra note 44. "men of a fat and fertile soil. the case-study level. While the instability of export earnings from commodity exports is hardly disputable. and an ailment 46 commonly known as the 'Dutch Disease. Several centuries ago. 47 However.2. whereas contrariwise a barren country makes men temperate by necessity. THE RESOURCE CURSE IN AFRICA Social Explanation The social explanation is anchored by the premise that laziness is concomitant with the abundance of natural resources. 2. the result may be a resource curse. at 298. However. at 304. at 303 ("[I]t may seem that a decline in the terms of trade for primary commodities can account for much of the resource curse. and by consequence careful.2. 46 47 . Ross. the poor economic linkages between resource and nonresource sectors. a number of countries have used minerals and commodities as a foundation for their economic development. it should also be borne in mind that in the past. is still elusive at while "statistically robust at the global level. are most commonly effeminate and cowards. the terms of trade effect. Tooley ed. The fact that a number of resource-poor countries have prospered far more than their resource-rich counterparts tends to accentuate this point.. & trans.").1."' The first economic explanation is premised on the assumption that the terms of trade are major determinants of economic growth. and industrious.2. 1967). ." 48 The argument pertaining to the instability of international commodity markets is that resource-dependent countries suffer from the resource curse because of unstable commodity markets. the French scholar Jean Bodin opined that. Norway's success in the management of its resources tends to debunk the "laziness" myth. Id. "necessity is the mother of invention. vigilant." 45 The aphorism. Today.2005] 2. it stands to reason that when there is a decline in the terms of trade for primary commodities." could well explain this paradox. Economic Explanations Four major economic explanations for the negative correlation between resource wealth and economic growth have been identified: "a decline in the terms of trade for primary commodities. SIx BooKs OF A COMMONWEALTH 5 (M. If this premise is accepted. the instability of international commodity markets. the issue is whether this necessarily translates 45 JEAN BODIN.
states have taken action to nationalize their mineral and petroleum industries and have adopted strong measures to capture the economic rents that MNCs were repatriating to their home countries. . with consistent growth in oil revenues since 1999. Nov.g. Managing the Curse of Oil. manufacturing boomed.org/NigerDelta/Essays/Utomi-Oil. available at http://www. driving spending to the nontradeable sector (e. 50 Id.. The second element is the migration of labor and capital to the booming nontradeable sectors.U. construction). the first element is the spending effect. The oil windfalls of 1991 put an end to this progress and. L. has two elements in its technical form. [Vol. which results in inflation.J. THE GUARDIAN. 53 According to economists.html. 52 Id. Both of these elements combine to render the non-boom-tradeable sector (e. at 305. Pa.(citing ODIN KNUDSEN & ANDREW PARNES. 53 The general form associates the term with every conceivable malady occasioned by resource abundance. TRADE INSTABILITY AND ECONOMIC DEVELOPMENT (1975)). .49 "Yet even studies that find [that export instability] retards growth have so far been unable to link ex50 port instability to the resource curse. . 2003 (arguing that Nigeria is worse off after 1999 than ever before). 51 Id."51 To solve this linkage problem. 54 See Pat Utomi. Utomi bases his position principally on data that indicate that in the years that Nigerian oil revenues dwindled (1987-1990). Scholars contend that this instability should actually lead to higher economic growth by promoting unusually high levels of private investment. which owes its origin to the experience of the Netherlands with the discovery of North Sea natural gas in the 1960s. 24. 52 Yet the resource curse persists in these countries. Nigeria's economy has been in 4 the doldrums.g. manufacturing and agriculture) less or noncompetitive and to effectively crowd out previously productive sectors." The resource curse is also attributable to the fact that commodity exports "generate little growth in other sectors of the economy. 26:1 into something negative for the commodity exporters.5 49 Id.waado. The Dutch Disease.. . Int'l Econ. Nigerian scholar Pat Utomi links the problems of the Nigerian economy to the Dutch Disease. Natural resource booms tend to lead to appreciation in the real foreign exchange rate. which exporters use as a way of protecting themselves against future price shocks.
Statist explanations state the proposition that booms in resources have a tendency to weaken state institutions. and placing their windfalls in foreign currency to keep their exchange rates 56 from appreciating. Id. concerns or governments of a given country. should they feel it necessary. and statist explanations. and that governments can usually offset its impact.. the leading state-centered argument is premised on the rentier thesis." 2. States: The Case of Iran. at 307." External rents are "rentals paid by foreign individuals. that [Dutch Disease] is less common in developing states than originally thought. temporarily subsidizing their agricultural and manufacturing sectors. Mahdavy. 56 57 58 Id. Hossein Mahdavy defined rentier states as "those countries that 58 receive on a regular basis substantial amounts of external rent. Cognitive explanations suggest that being rich in resources induces myopia or extravagance in policy makers.A. it has been convincingly shown that it may not be as widespread as earlier thought. and they fall into three principal categories: cognitive explanations. supra note 44. Cook ed. 428 (M. Arguably. Societal explanations contend that where natural resources abound. in 59 Id. however."). societal explana57 tions. at 305 ("More recent research suggests.20051 THE RESOURCE CURSE IN AFRICA It should be noted that while the Dutch Disease appeared to be a promising explanation for the resource curse a few years ago. In a seminal article first published in 1970."5 9 The basic feature of external rents is that they are received without much input from the productive processes of the domestic economy of the country receiving them. Mahdavy includes oil revenues received by governments of oil exporting countries in the definition of external 55 See Ross.2. H. concerns or governments to individuals. if they consider the necessary course of action to take. . States have a range of options to offset its impact. Based on this conceptualization.55 These policy options include "maintaining tight fiscal policies. Political Explanations Political scientists have also advanced a number of theories as to the underlying causes of the resource curse.3. 1970). The Patternsand Problems of Economic Development in Rentier STUDIES IN THE ECONOMIC HISTORY OF THE MIDDLE EAST 428. at 308. members of society favor policies that impede growth.
[Vol. there are four key features that are conditio sine qua non for the characterization of a state as rentier. in 2 THE RENTIER STATE 1.org/iraq/khafaji (last visited Jan. 50 (defining the rentier state "in its broadest sense as the regular dependence of a country on substantial amounts of external economic rents whose variations are not related to changes in productivity or changes in inputs to the production process"). 62 See. Prelude to the Resource Curse: Explaining Oil and Gas Development Strategies in the Soviet Successor States and Beyond. 1987) ("A rentier state is then a subsystem associated with a rentier economy"). Hobart. STUD. Sept. 62 Hazem Beblawi and Giacomo Luciani. THE RENTIER STATE IN AFRICA: OIL RENT DEPENDENCY AND NEOCOLONIALISM IN THE REPUBLIC OF GABON 13 (1996) (explaining that Beblawi and Luciani "prefer instead to define the concept of a 'rentier economy' of which rent plays a major role."). 66 Second. Accordingly.g. SOCIAL SCIENCE RESEARCH COUNCIL. 63 Hazem Beblawi & Giacomo Luciani. supra note 32. 367. The Rentier State in the Arab World. 65 First. 26. L. 66 Id.' 64 YATES. and in which that rent is external to the economy"). at 663. University of Tasmania. see also DOUGLAS A.au/government/ APSA/JSymonsfinal. at 428-29. 65 Hazem Beblawi. at para. supra note 63. NGOs in International Organizations: Searching for Legitimacy in Global Governance 15 (unpublished paper presented to the Australasian Political Studies Association Conference.utas. available at http://www..edu.16 U. rejected its underlying meaning. insisting on an emphasis on the economy. 2003) (noting that rentier states are "states that are substantially financed through externally generated revenues (such as those derived from oil) rather than extraction of the domestic population's surplus production. 34 CoMP.6 3 These scholars abandoned an exclusive focus on the state in conceptualizing the issue. "oil rents produce a rentier 61 state. POL. 61 Karl. 29-Oct. they advanced the concept of the "rentier economy" of which the rentier state is a subset. the rent must originate from foreign sources or sources 60 Id. in general. 2005). there must be a dominance of rent situations in the economy. Introduction. id." Mahdavy's definition of a rentier state has generally been accepted and adopted by other writers. . available at http://conconflicts. 1. 11 (Hazem Beblawi & Giacomo Luciani eds.. 26:1 rents. YATES. Int'l Econ. at 661 (defining a rentier state as "a state that lives from externally generated rents rather than from the surplus production of the population"). while supporting Mahdavy's idea of the rentier state. Pa. in THE RENTIER STATE. J. e. 64 According to Beblawi.ssrc. supra note 63. IN SEARCH OF LEGITIMACY: THE POST-RENTIER IRAQI STATE. at 49. 51-52.pdf. Pauline Jones Luong & Erika Weinthal. 368 (2001) (stating that a rentier state is "a state that primarily procures revenue from external sources and then redistributes it to the population as a form of social and political control").60 Karl concurs that. Jonathan Symons. ISAM AL KHAFAJI.
punchng. Id.. THE PUNCH.. see YATES. 73 Moreover. 69 . at 91 (explaining how dependence on oil taxation caused the Venezuelan government to miss the opportunity to build a national administrative structure). Fourth. citizens lose the incentive to demand accountability of those who spend the tax revenues. supra note 63. Where there is no need to tax because resource revenues are sufficient to keep the machinery of government running.").2005] THE RESOURCE CURSE IN AFRICA that are external to the economy. in what has been described as "the most 67 68 Id. see also YATES. Apr. even if rent situations (e. 71 Id. but also be earned abroad . at 14-15 ("The key feature of a rentier state according to Luciani is that external rent liberates the state from the need to extract income from the domestic economy.. supra note 63. rent versus taxes). even if they come in substantial and domineering numbers. 67 This excludes domestic rents. dependency on taxes from citizens to run the state would invite the interest of political leaders to introduce wealth creation policies. income from tourism) predominate. 73 Id. on the other hand. ). external versus internal) and less on the nature or "structure" of the revenue (that is. at 14 ("[Tlhe government must be the principal recipient of the external rent in the economy. Id.economy must be the government. 72 The wealth of information that is generated by a vibrant tax bureaucracy is also lost. in THE RENTIER STATE.com /business/article03/040401. Where a government has no need for taxes from their citizens. only a tiny minority may participate in generating the rent. the major recipient of 69 the external rent in the. ProductionStates: A Theoretical Framework. at 69 ("The essential impact of oil production and exports is that they free the state from the need of raising income domestically. government officials are not impelled to focus. on creating wealth that they can eventually tax. at 172 ("[It was not surprising that the petro-state failed to develop a trained cadre who could design tax systems . Luciani's emphasis. 74 Karl.g. supra note 20. ").").as a major impact of the rentier economy."). supra note 63. the economy is not rentier.. 2004 (citing the views of Xavier Sala-I-Martin). Third. is on the origins or "sources" of the state revenue (that is. 68-69 ("[I1t is essential that the income of the state not only be in the nature of a rent. where a majority of the citizens play an active role in the generation of rent. Allocation vs. available at http://www.. 1.. 68 Thus. 72 See KARL.70 Luciani sees state autonomy -the freedom that rent provides the state from the need to extract income from the internal or 71 domestic economy. 70 Giacomo Luciani.. at 63.. which means the loss of a vital tool for social and economic planning. 74 IMF Says Nigeria'sNatural Resources is a Curse.
more formally. at 7. [Vol. 8 0 human interaction.U. long-term efficiency in the allocation of resources is either helped or hindered. The thrust of the argument is that the state could undergo an evolution from an extractive one to a distributive one when oil revenues begin to assume the status of the dominant source of government revenue. supra note 37. and the diverse development 76 trajectories of nations are initiated. The Distributive State in the World System. at 233. Int'l Econ." 78 2. political explanations for the resource curse have been criticized for the absence of careful hypothesis testing. INSTITUTIONS. supra note 37. 80 DOUGLASS C. and political explanations discussed above. In this manner. 77 Smith.. Instead. at 310.. 78 YOuNKYOO KIM. at 233. THE RESOURCE CURSE IN A POST-COMMUNIST REGIME: RUSSIA 3 (2003). institutions determine levels of economic growth. 76 KARL. in turn. 15 STUD." 75 devotes extraordinary attention to this question of the ability to extract taxes from the citizens: How these [resource-rich] states collect and distribute taxes. 77 It should be mentioned.3.. however. institutions have been presented as a potential explanation for the resource curse. Fall 1980. J. INT'L DEV. INSTITUTIONAL CHANGE AND ECONOMIC PERFORMANCE 3 (1990). creates incentives that pervasively influence the organization of political and economic life and shapes government preferences with respect to public policies. . 79 A view has been advanced that the resource factor is not necessarily at the root of the economic malaise seen in a number of resource-rich countries. modified. leading to consequences that evidence the resource curse. Douglass North broadly defines institutions as "the rules of the game in a society the humanly devised constraints that shape or. or sustained. supra note 20. NORTH. supra note 44. Pa. that " [uInlike economic explanations.." Good institutions are believed to make all 75 Smith. 26:1 ambitious comparative analysis of rentier states. L. IN COMPARATIVE PERSPECrIVE 79 . see also Jacques Delacroix. Ross. at 3. 11-14 (describing the emergence of the distributive state). The Role of Institutions Apart from the social. COMP. economic.
DISEASE. 29/2002.no/memo/memopdf/memo2902. Johnson. independent judiciary. REV.. if the right institutions are put in place..uio.8 5 81 Daron Acemoglu et al. will invest more in human and physical capital and use these factors more efficiently.unsw. Formal and informal institutions are identified as pivotal to the growth process. of Oslo.. of N. Working Paper Series No. 2002). Research. Ross contends that the inability of a state to "enforce property rights may directly or indirectly lead to a resource curse.W. Thomas and Rodrik." The argument is that those countries that are growth losers suffer from a deficit in institutions. resources can actually constitute a blessing.S. summarizes the importance of institutions: While recognizing that the concept of institutions remains somewhat ambiguous. 83 Ross. Working Paper No. http://www. of Econ.3 (2001).91 AM."83 On the other hand. Countries that enforce private property rights. [and] social and political institutions that mitigate risk and 82 manage social conflicts. . INSTITUTIONS AND THE RESOURCE CURSE 13 (Dep't of Econ. and moral hazard. 84 The critical role of institutions in promoting economic development has a strong scholarly Support.pdf. and institutions providing equal access to education and ensuring civil liberties . 2003/7. the concept of good institutions incorporates "constraints on government expropriation. Brindley... 2000).. drawing from North. available at http://www. their importance in supporting the process of economic development is uncontentious. and Robinson. ECON.docs. property rights enforcement.au/economics/research/workingpapers/2003 . 1370 n.oekonomi. INSTITUTIONS FOR HIGH-QUALITY GROWTH: WHAT THEY ARE AND HOW TO ACQUIRE THEM 2 (Nat'l Bureau of Econ. available at 85 DAMIAN BRINDLEY. Univ. supra note 44. and protect their citizens from too much government expropriation. anti-competitive behavior. 2003).edu. 7540. Univ. According to Acemoglu.. 1369. 84 HALVOR MEHLUM ET AL.fce. at 298. a moderately cohesive society exhibiting trust and social cooperation. Memorandum No. 82 DANI RODRIK. INSTITUTIONS AND'ECONOMIC DEVELOPMENT 10 (Sch. The Colonial Origins of Comparative Development: An Empirical Investigation.20051 THE RESOURCE CURSE IN AFRICA the difference."81 Rodrik's definition of good institutions includes a "regulatory apparatus curbing the worst forms of fraud. Thus.
91 Id. [Vol. 26:1 The fact that a number of growth winners like Norway." 88 A similar conclusion is made in relation to trade. supra note 84. SACHS. 93 The Sachs_07. Botswana. . at 2.. INSTITrTIONS RULE: THE PRIMACY OF INSTITUTIONS OVER GEOGRAPHY AND INTEGRATION IN ECONOMIC DEVELOPMENT. Employing recently developed instruments for institutions and trade. and institutions. Their position is that geographical factors. Xavier Sala-iMartin and Arvind Subramanian explain this problem in terms of "stunted institutional development" 90 and contend that "[w]aste and corruption from oil rather than Dutch Disease has been responsible for [Nigeria's] poor long run economic performance. supra note 5. at 14 (stating that because Sachs and Warner "dismiss one rent-seeking mechanism by showing that there is at most a weak impact of resource abundance on instituti6nal'quality . including natural resource endowments. Arvind Subramanian. they look at geography (which is a major determinant of such things as climate and endowment of natural resources). see also JEFFREY D. 90 SALA-I-MARTIN & SUBRAMANIAN. international trade. abstract.U. abstract (Nat'l Bureau of Econ. or with the benefit of. and Australia have been able to thrive in spite of. L. resource abundance does not cause a deterioration of institutions"). Dani Rodrik. Working Paper No.pdf. . 89 Looking at Nigeria's socio-economic malaise and political predicament despite years of being a major oil exporter. . 9305.. 89 Id. 93 See MEHLUM.. 88 Id. 2002). 87 DANI RODRIK ET AL. Pa." They further state that after controlling for institutions. 86 Id. the impact of measures of geography on incomes are "at best weak. "have a strong indirect effect [on incomes] by influencing the quality of institutions. Int'l Econ. The major conclusion from their 87 study is that "the quality of institutions 'trumps' everything else. Canada. reject the contention that the abundance of resources only causes deterioration in institutions." 91 Rodrik and others also raise a crucial point about the contribution of resources to the deficiency or the poor quality of institutions. supra note 87. abstract. and Francesco Trebbi examine the factors that determine income levels around the world. who see the impact of resource abundance on institutional quality as at most weak. J. the direct effects of which are considered insignificant. their natural resource endowments seems to 86 strengthen this argument. Research." 92 Sachs and Warner. 92 RODRIK ET AL.
2003). 9106.20051 THE RESOURCE CURSE IN AFRICA Warner position is believed to enjoy lesser empirical support. 94 See OLA OLSSON. It is argued that while the role of institutions should be in no way diminished. Most of the major research efforts during the last two or three years have focussed [sic] on this connection and has [sic] shown that it appears to be the one that has the greatest empirical support. . and crops affect development through institutions). Research. geology. WILLIAM EASTERLY & ROSS LEVINE..pdf. not geographic factors. and the rule-of-law are the primary determinants of levels of economic development. germs. as it suggests that geographical factors do have a direct influence on levels of economic development beyond their effect on institutions. INSTITUTIONS DON'T RULE: DIRECT EFFECTS OF GEOGRAPHY ON PER CAPITA INCOME 2 (Nat'l Bureau of Econ.. Brindley rejects the views of Acemoglu. Research. the productivity of agriculture. to Africa). Kenneth Kaunda: "We are in part to blame... see also DARON ACEMOGLU ET AL. the transport costs between farflung regions and major markets) are indeed based on direct effects of geography on production systems.94 3. account for decrease in societal wealth). and Rodrik et al. free trade. Rodrik.. This fact is illustrated by the famous remarks of former Zambian President. the quality of a society's institutions is in turn strongly influenced by its geography. Working Paper No. and the effects of institutions on income per capita. and many of those very same channels would still be likely to apply today"). supra note 85. available at http://www.gu. Goteborg Univ. Working Papers in Economics No. GERMS AND CROPS: How ENDOWMENTS INFLUENCE ECONOMIC DEVELOPMENT (Nat'l Bureau of Econ. Research. 8460. However. at 2 (citations omitted). 106. and environmental sustainability. the disease environment and risks to survival of immigrants. and noting that: [Miany of the reasons why geography seems to have affected institutional choices in the past (e. TROPICS. BRINDLEY. human health.handels. 2001) (hypothesizing that institutional reversal. topography. However.se/epc/archive/000 02978/01/gunwpe0106. 2002) (finding evidence that tropics. Working Paper No. Id. and biogeography all contribute to mould [sic] the rules that societies live by. Proponents of the third and perhaps most subtle hypothesis argue that institutions like private property rights. Easterly and Levine.. it is not the entire story. Climate. Acemoglu et al.GEOGRAPHY AND INSTITUTIONS: A REvIEw OF PLAUSIBLE AND IMPLAUSIBLE LINKAGES (Dep't of Econ. REVERSAL OF FORTUNE: GEOGRAPHY AND INSTITUTIONS IN THE MAKING OF THE MODERN WORLD INCOME DISTRIBUTION (Nat'l Bureau of Econ. at 2.g. and others while offering support to Sachs' position: The evidence presented in this paper comes out on the side of Sachs and his co-authors. 9490. 2003) (questioning the conclusions of Acemoglu et al. supra note 81 (comparing the European development of institutions. Working Paper No. the suitability of locations for European technologies. THE RESOURCE CURSE IN AFRICA The resource curse in Africa is not limited to the oil and gas sector.
J. 2004.opec."95 However. 98 the fifth largest producer in the Organization of the Petroleum Exporting Countries ("OPEC").uk/cepmlp/journal/html/vol8/article8-14. "). . the rural communities which produce about seventy-five percent of Nigeria's petroleum are among the poorest in the nation. African oil exporters present the most fitting illustration and telling confirmation of the resource curse.. 2003. at 37.html.. at 20 ("[Angola] is the second largest producer of oil in Africa after Nigeria . 100 Since the mid-1970s. 26:1 but this is the curse of being born with a copper spoon in our mouths. Int'l Econ. RIVERS AND BLOOD: GUNS.gov/emeu/cabs/nigeria. Oct. available at http://www. such as Equatorial Guinea. html.eia. Country Analysis Briefs: Nigeria ("Nigeria. There is a reasonable apprehension that this malady. 2004. absent an effective remedy. Gabon and Angola -confirm this trend while newer exporters. A closer look at many of the oil producing countries reveals some of the basic symptoms of the resource curse in varying degrees. 2 (May 7. at 6. 8. BULL. supra note 44. The World Bank One Year After: The Commission's Report to Congress 8 CEPMLP INTERNET J. 100 Mark Mazzetti. Allan H. yet it is one of the poorest countries in the world. INT'L HERALD TRIB.. U. 101 HUMAN RIGHTS WATCH. CHI. "Africa's older oil exporters Nigeria." Nigeria is the largest oil producing nation in Africa. Nigeria Struggles Against the Curse of Oil. available at http://hrw. IAN GARY & TERRY LYNN KARL. Jan. Apr. 2001). at 13. see also Dep't of Energy.pdf. Nearly seventy percent of Nigeria's population live below the World Bank's and the United Nations' ("U. at http://www. NEWS & WORLD REP.N. OPEC ANN. 01 Ironically. Nigeria has earned enormous amounts of money from oil production and export. seem about to embark on the 96 same course.ac...99 and the fifth largest supplier of oil to the United States.S. Pax Americana. TRIB. 2. 95 96 99 ORGANIZATION OF THE PETROLEUM EXPORTING COUNTRIES ("OPEC").pdf. STAT. The socio-economic and political predicament of Nigeria is Ross.U.dundee. 97 the sixth largest oil producer in the world. 97 See Famine as Government Policy. Pa.org/backgrounder/af- rica/nigeria02O5/nigeriaO2O5.doe.").org/Publications/AB/ pdf/AB002003. will extend to the newer entrants in the oil industry. As some commentators have observed. § 1.") designated poverty line -subsisting on less than one dollar per day. BOTTOM OF THE BARREL: AFRICA'S OIL BOOM AND THE POOR 77 (2003). 6. . Meltzer. available at http://www. at 297. 98 Jonathan Power. was the 5th largest supplier of crude oil to the United States in 2003. [Vol. 14. 2003. L. . OIL AND POWER IN NIGERIA'S RIVERS STATE 6 (2005)..
See generally Mirian Kene Omalu. Under the production sharing contracts. Beyond the Poverty Alleviation Programmes: Toward a New Frameworkfor Managing Natural Resources in Nigeria 2 (unpublished paper presented at the Conference on Tropical and Subtropical Agricultural and Natural Resource Management ("Deutscher Tropentag"). 70 (1996).asp?ReportID=28258. 5-7. Nigeria:Focus on the Scourge of Poverty (June 11. available at http://www. to sixty-six percent in 1996. whose production accounts for ninety percent of the country's income. OIL & GAS L. subsisting on less than $1. Developments in Petroleum Exploration and ProductionArrangements in Nigeria. and TotalFinaElf which partially fund the development process) and the Nigerian government. According to the Federal Office of Statistics in Nigeria. the level of poverty increased substantially over the years.40 a day. and those living in oil-affected communities suffer from 102 Integrated Regional Information Networks. particularly the oil producing areas. that its development and infrastructure could be so poor. Berlin.102 enough to be able to improve the economic situation of the people and address the lingering issues at the core of conflicts and crises within the country. & TAX'N REV.'" 104 Oil production in Nigeria is primarily a joint venture between multinational oil corporations (including ExxonMobil.N. (stating that surveys conducted by Nigeria's Federal Office of Statistics indicate that while twenty-eight percent of Nigerians lived in poverty in 1980.pdf. 2002). Oct.de/2004/abstracts/full/100. to forty-six percent in 1985. with sixty-six percent of Nigerians living in poverty. 103 See id.20051 THE RESOURCE CURSE IN AFRICA breathtaking in its misery considering that Nigeria is estimated to have earned up to $320 billion from crude oil exports between 1970 and 1999. "Nigeria has been characterised as a country of 'poverty amid plenty. According to the World Bank. . 2004).103 It seems paradoxical that in a country so rich in oil reserves. poverty has increased from twenty-eight percent of the population in 1980. 10 these entities have profited handsomely from the extraction business. 105 Nigeria is gradually moving away from participation joint ventures and toward production sharing contracts.org/report. 104 Bello Umar & Hamza Kankiya. Office for the Coordination of Humanitarian Affairs.irinnews. Corruption is pervasive in the country. the oil companies invest in the exploration without government support and. 5 While which has rights to all mineral resources in the country. the remainder of the country.tropentag. 70. ChevronTexaco. has suffered on many fronts. The rate at which poverty is growing among the 123 million Nigerians is alarming. U. This move is considered beneficial to both the government and the oil corporations since the government was always having difficulty coming up with its own part of the investment costs required under the joint ventures. Royal Dutch/Shell. availableat http://www. they recover their investments as well as a share in the crude oil that is produced during the life of the contract. in 1996). if there is commercial discovery.
of the country. Human Development Index. According to the International Monetary Fund ("IMF"). 109 Id. 108 Plagued by corruption and heavily burdened with foreign debt. at 33 ("In 1999.107 The country's dictatorial ruler. supra note 96. has been in power since 1968 and is known for his lavish spending. now thought to be over $11 billion. 113 These loans generally have not been used for the benefit. Pa. $4. Gabon has been producing oil since the late 1960s. HUMAN DEVELOPMENT INDICATORS 142 (2004) (ranking Angola 166th out of 177 countries). 112 See Ganesan. supra note 7.. L. supra note 63 (laying out a definition for a "rentier" state and discussing its economic troubles). "). but rather to enrich the country's political leaders.2 billion in expenditures .org/reports/global/2004/pdf/hdrO4_HDI. Int'l Econ. 111 See HUMAN DEVELOPMENT REPORTS. Omar Bongo. a magistrate in Switzerland. The country ranks low on the U. upon sensing some irregularities. . froze more than $700 million in bank deposits that had been linked to oil-backed 106 See YATES. In early 2002. at 29. Despite the oil wealth that has poured into government coffers for over thirty years. the IMF estimated that oilbacked debt was estimated at 33 percent of Angola's total external debt. 109 Angola and Congo-Brazzaville not only "show the same problems as the older producers. thereby further endangering its fiscal position. at 31.")."' and its average life expectancy of forty-five years is thirty percent lower than that of most developing countries.. J. the government has a dismal poverty reduction record. supra note 96. Gabon is still unable to provide a decent standard of living for its small population of 1. the govern- ment continues to take out loans backed by its oil reserves.S.N. at 30." but also have the additional burden of long drawn-out civil wars.U." 0 Although Angola's oil reserves increased four-fold in the 1990s alone and overall oil production has been considerable.3 million people. 107 GARY & KARL.pdf. The level of corruption is amazing. 108 Id. the Angolan government could not account for about U. [Vol. undp. available at http://hdr. at 33 ("The IMF concluded that from 1997-2002. the country's level of poverty has hardly improved. 113 See GARY & KARL. 26:1 human rights abuse.112 To worsen matters.. billions of dollars went missing from the country's coffers between 1997 and 2002. Gabon has experienced economic stagnation 06 and is said to suffer from the Dutch Disease. 110 Id.
the government has not been able to jump-start its development."" Observers have also expressed concern about Sao Tome. and poverty is growing. The country has a huge amount of oil-backed debt. Pain or Gain? Crunch Time Looms for Sao Tome Oil. Newly acquired wealth is being used to support authoritarian rule in the country. . supra note 96. The President is currently consolidating power and concentrating it in himself and his relatives.2005] THE RESOURCE CURSE IN AFRICA loans. human rights violations. supra note 7. 114 In Congo-Brazzaville. at 39. 114 Ganesan. and their contributions to the perpetration. 23. REuTERS. 2003 ("No one was hurt." Equatorial Guinea seems to be following the dangerous example of its neighbors. at 50-51 (discussing the circumstances surrounding the judge's decision). 119 Nicholas Shaxson. in July 2003. Because of this. 117 118 Id. 116 Id. and amelioration of the resource curse. AND AFRICA'S RESOURCE CURSE This Section discusses the World Bank and MNCs."" 7 Fiscal mismanagement and corruption are the order of the day. The increases in government imrevenue have not been accompanied by any "appreciable 8 provement in [the] lives of most citizens of the country. particularly in Africa. at 34-38 (discussing Congo-Brazzaville's myriad problems). Elf Aquitaine (now part of TotalFinaElf). a coup attempt against the government of President Fradique de Menezes was linked to expected oil revenues. Dec. THE WORLD BANK. to bargain effectively to the benefit of its citizens. 115 See GARY & KARL. "According to human rights organizations and international observers. at 41."). the government is reportedly too closely tied to the leading oil company. rigged elections and little transparency or accountability. perpetuation. the country Jbas a history marked by extreme levels of repression." 9 4. Id. an emerging oil-producing country. but the putsch revealed a streak of anger at the government for signing what the coup plotters regarded as flawed exploration contracts. MULTINATIONAL OIL CORPORATIONS. at 37." 5 More than seventy percent of the populaone dollar per tion of this resource-rich country lives on less than 6 day and half do not have access to clean water.
1. 11 U.N. 18.T. ICSID. Dec.N. 249 (establishing the International Development Association (the "IDA")). 1966) (establishing the International Center for the Settlement of Investment Disputes (the "ICSID")).S. 1942. investment and stability in less-developed countries [("LDCs")]. 7 U. 123 See Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. 17.N. 2284. T.T. available at http:// www. 124 See Convention Establishing the Multilateral Investment Guarantee Agency. 606 U. A more restrictive categorization reserves the name "World Bank" for the IBRD only. Within the World Bank Group. Is It Appropriate for the World Bank to Promote Democratic Standards in a Borrower Country?.T. 26:1 The International Bank for Reconstruction and Development (the "IBRD"). 4 ILSA J.S. 1955.12 1 the International Finance Corporation (the "IFC"). 134. 122 the International Center for the Settlement of Investment Disputes (the "ICSID"). When the IBRD was established in 1944. 17 WIs.org/screens/about/convent/convent.T. 60 Stat.T. J. Over time.S. 1440.S. Pa. while the IFC. 178-79 (1997) (tracing the evolution of the World Bank).1 20 the International Development Association (the "IDA").N. L.T. INT'L & COMp. and especially after the introduction of the Marshall Plan in 1947. 173.T.S. and the improvement of living and working standards in those countries.S.T. 125 Mark E. Wadrzyk.S. the purposes of the World Bank 120 See Articles of Agreement of the International Bank for Reconstruction and Development. 26.miga. 575 U. 12089. 27. The World Bank [Vol.A.J. 1508 U. 439 U.T. 553.I. 2197. 2 U. 1956) (establishing the International Finance Corporation (the "IFC")). 1270.htm. 264 U. see also Halim Moris. 294 (Dec. 99 (establishing the Multilateral Investment Guarantee Agency (the "MIGA")). 1960. 11. Int'l Econ. Mar. 14. 117 (entered into force July 20.S. 1965) (establishing the International Bank for Reconstruction and Development (the "IBRD")). 1985. No. The World Bank and Human Rights: Indispensable Partnershipor Mismatched Alliance?.S. INT'L L. 1965. amended as 16 U."'125 According to Ibrahim Shihata. Oct.T. the World Bank Group's purposes shifted to (and now center on) "the promotion of economic growth. 17 U. 4. and MIGA are affiliates of the World Bank. 122 See Articles of Agreement of the International Finance Corporation. its mission was to reconstruct the war-torn economies of Europe after the Second World War. May 25. L. former Vice President and General Counsel of the World Bank. 1945.N.S. 159 (entered into force Oct. 121 See Articles of Agreement of the International Development Association. the World Bank comprises the IBRD and the IDA. Jan.1 23 and the Multilateral Investment Guarantee Agency (the "MIGA") 124 compose the World Bank Group. 553 (1999).N.U.S. .
INT'L L. is seen as being profit-driven when it ventures into such lucrative sectors as oil and gas financing. technical assistance. 129 Least-developed countries are countries with annual per capita income of $875 or less. 131 See Heather Turcotte. 40 (1988)."). Russia. 128 Middle-income countries are countries with per capita income of less than $5. The MIGA insures private investors against noncommercial risks in politically volatile environments. WORKING FOR A WORLD FREE OF POVERTY 18 (2003). and policy advice to the least-developed states. See JOSEPH E. including Bolivia. International and Global Security Issues within Petroleum Production..185 a year. McNamara had redirected the Bank's effort at its elimination..alternativesjournal." The IFC provides debt and equity financing for private-sector projects in developing countries. STIGLITZ. Since 1992. 17 DENV. which assures 126 Poverty alleviation became a major guiding principle for the Bank under President McNamara.5 billion for oil. and environmental protection. 133 (2002) (detailing the extent of the World Bank's involvement in funding for oil production). education. " WORLD BANK GROUP.. The World Bank Group has been involved for a considerable period of time in oil. 127 While the IBRD's sphere of influence extends to middle-income countries. at 1.. at 19 (discussing the World Bank's lending policies). 1 ALTERNATIVES: TURKISH J. Trinidad and Tobago.20051 THE RESOURCE CURSE IN AFRICA include alleviating poverty 126 and fulfilling such basic needs as clean water.. The Bank. gas. particularly the IFC. See id. GLOBALIZATION AND ITS DISCONTENTS 13 (2002) ("Touched by the poverty that he saw throughout the Third World.I.. Bosnia. or obtain favorable borrowing terms from. Indeed. 128 the IDA concentrates on providing subsidized loans (known as "credits"). 129 some of whom are unable to attract the attention of. live in these countries . Shihata. Brazil. . Slippery Security: National.. 130 Id. the international financial markets. The World Bank and Human Rights: An Analysis of the Legal Issues and the Record of Achievements. and mining projects in different parts of the world. and coal projects in twenty-five developing countries. while the ICSID settles investment disputes between private investors and their host states. housing. 131 Its involvement in some of these projects has resulted in strong criticisms against the World Bank's participation. the World Bank is "one of the world's largest sources of funding for the de130 veloping world. J. INT'L REL. healthcare. available at http://www. & POL'Y 39. 109.net/volumel/ number4/heatherpdf. 127 Ibrahim F. the Bank has approved $18. "Seventy-five percent of the world's poorest people . Guatemala.pdf. gas..
org/ogmc/ files/ finaleirmanagementresponseexecsum. particularly the introduc- . at W1 (discussing objections to the World Bank's recommendations to limit oil and coal projects to protect the environment). thereby exacerbating the already bad situation or undermining any improvement from the Bank's participation. the Bank instituted an Extractive Industries Review in 2001.2. Pa. former Minister of Environment of Indonesia. 2004. 26:1 better returns on investment. 5. N. TIMES. available at http://www. Apr.worldbank. at http://www. Int'l Econ. 133 See Extractive Industries Review ("EIR"). 4.pdf. 2004) (on file with author). at 6 (detailing a request by twenty-one banks. World Bank Group (Jan. submitted its final report entitled Striking a Better Balance in January 2004. emissions-reducing projects. 2004) (outlining the World Bank's future involvement in the extractive industries).137 Different definitions of the term ex132 See id. STRIKING A BETTER BALANCE-THE WORLD BANK GROUP AND EXTRACTIVE INDUSTRIES: THE FINAL REPORT OF THE EXTRAcTIVE INDUSTRIES REvIEw (Sept.the World Bank Group in the oil.eireview. chaired by Dr. gas. 24. 137 This portion of the Article draws heavily from EMEKA A. The World Bank is unlikely to endorse most of these recommendations. J. who do not want the World Bank to adhere to the Extraction Industries Review recommendations). What is the EIR? (explaining that the aim of the group is "to produce a set of recommendations that will guide the involvement of.Y. In response to some of these criticisms.org (last visited Feb. 136 See Nicole Itano. 135 See WORLD BANK GROUP.133 The Review. Emil Salim. 2004. among other things. DURUIGBO. that the World Bank should phase out oil investments by 2008 and concentrate on investments aimed at developing renewable energy resources. L."3 It recommended. Multinational Corporations The term MNC is sometimes used interchangeably with such other terms as transnational corporation ("TNC") and multinational enterprise ("MNE"). which comprise the so-called Equator banks. MULTINATIONAL CORPORATIONS AND INTERNATIONAL LAW: ACCOUNTABILITY AND COMPLIANCE ISSUES IN THE PETROLEUM INDUSTRY (2003). 4. and clean energy technology. and mining sectors"). 132 The Bank has also been excoriated for ignoring human rights and environmental concerns surrounding some projects or the host countries for these projects. 135 The African Mineral and Energy Ministers and a group of investment 36 banks have voiced strong objections to the recommendations.U.12. TIMES. President. Demetri Sevastopulo. at 130 (arguing that the Bank involved itself in money-making policies even if it didn't primarily benefit communities). Proposal to Limit Oil and Coal Projects Draws Fire. Banks Contest Ban Proposedfor Coal and Oil Extraction. Wolfensohn. 2005). Emil Salim to James D. 134 See Letter from Dr. Mar. FIN. 17. [Vol.
Zhiguo in Mining and Petroleum in Asia and the Pacific: The Ok Tedi Gao.. MNCs are defined as large corporations that have business operations in one or more countries apart from the country of their incorporation either directly or through subsidiaries and affiliates. 907-09 (2003). 2001) ("Strangely. in PERSPECTIVES ON CORPORATE CITIZENSHIP 166. see also Alejo Jose G. no universally accepted definition of MNCs exists. 679 n.'"). Norms on the Responsibilities of TransnationalCorporations and Other Business Enterprises With Regard to Human Rights. MNCs. THE MULTINATIONAL CHALLENGE TO CORPORATION LAW: THE SEARCH FOR A NEW CORPORATE PERSONALITY'vii.org/Publications/Publications. rev. 2002).10 (perm ed. Zillman et al. 140 PHILLIP I.html. supra note 142. the post-World War II dominance of the "Seven Sisters" (Exxon. 166 (Jorg Andriof & Malcolm McIntosh eds. 144 See LEIGHTON ET AL. the United Kingdom.n-h-i. 40 However.138 THE RESOURCE CURSE IN AFRICA Peter Muchlinski explains that economists define an MNC as an entity that "owns (in whole or in part). 142 Almost since the inception of commercial oil production in 1859 in Pennsylvania. eds.. have dominated world oil development. the strategic partnerships negotiated by the governments of France. Pennsylvania in 1859. and the United States to gain access to Middle East oil reserves. BLUMBERG. 97 AM.2005] ist. 143 through the period after the two World Wars. 901. in HUMAN RIGHTS IN NATURAL RESOURCE DEVELOPMENT: POLICY AGENDA PUBLIC PARTICIPATION IN THE SUSTAINABLE DEVELOPMENT OF MINING AND ENERGY RESOURCES 679. INT'L L. Gulf. controls and manages income generating assets in more than one country. available at http://www.1 (Donald N.. FLETCHER CYCLOPEDIA OF THE LAW OF § 8296. MULTINATIONAL ENTERPRISES AND THE LAW 12 (1995). at 27-28 (detailing the power of Stan- dard Oil before its dissolution in 1911. Mobil. (1993). as well as state-run oil corporations. 143 The origin of the petroleum industry is generally associated with Colonel E. as with many other concepts that do not lend themselves to an easy definition. 139 PETER MUCHLINSKI. vol. . When Multinational Corporations Act as Governments: The Mobil Corporation Experience. Standard Oil of California." 139 To Phillip Blumberg.. the overarching role of MNCs in this area has been an ever-present feature. TNC and MNE.. Texaco. they are affiliated Corporations that are incorporated in different jurisdictions but are conducting a common enterprise under common control. 144 tory chapter and chapter 4. Sison. PRIVATE CORPORATIONS 142 MICHELLE LEIGHTON ET AL. BEYOND GOOD DEEDS: CASE STUDIES AND A NEW FOR CORPORATE ACCOUNTABILITY 26-27 (2002).' 41 For the purposes of this Article. the formation of OPEC. Drake's discovery of petroleum in Titusville. J. and the emergence of smaller and independent oil companies operating in different parts of the world). and Royal Dutch/Shell). 2002). British Petroleum.. see David Weissbrodt & Muria Kruger. and even up to present times. 141 See WILLIAM MEADE FLETCHER ET AL. For decades. there is no agreed definition for a 'multinational corporation. 138 For a variety of definitions of the terms MNC. Public Participation Case and its Implications.
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT.7 trillion to $6. 52 (1992) ("Third World representatives increasingly acknowledge the role multinationals play as a conduit of technological know-how to host cultures.1. 51. 26:1 MNCs are key actors and players of consequence in the international field today. While in 1990. than the views of the President of the United States from whom they may not expect much both politically and practically). 150 See Thomas Donaldson. BP.").. J. 148 In 2002. environmental. and it would be impossible to speak of international trade and investment without them. 4. 661 (2002) ("In recent decades. 2005). foreign affiliates accounted for about twenty-four million employees. Foreign affiliates of MNCs currently account for one-tenth of world GDP and one-third of world exports.").000 foreign affiliates around the world. there were about 65. L. TRANSNAT'L L. that number rose dramatically to fifty-four million in 2001. at 86 tbl IV. 722 (2002) (arguing that the government of China is more likely to give greater attention and regard to the opinion of the CEOs of multinational corporations who have tens of thousands of Chinese workers in their employ. Id. 145 MNCs in the oil and gas sector particularly stand out. see also Shira Pridan-Frank. and most have adopted a pro-multinational position. at 2-3. While this species of corporate entities has been experiencing a steady growth in size. Royal Dutch/Shell.1. Actually. 1. 147 its phenomenal growth 148 has come with immense social. 40 COLUM. According to the United Nations Conference on Trade and Development ("UNCTAD") in its World Investment Report 2002. both were roughly equal. See Scott Greathead. while due credit is given to the positive contributions of MNCs in such areas as job creation 149 and new technologies. 149 Job creation internationally has added to the power and influence of MNCs. available at http://www.pdf (last visited Feb. HumanGenomics: A Challenge to the Rules of the Game of International Law. 5 0 there has been growing concern regarding the 145 146 Id. Int'l Econ. . and TotalFina Elf are among the world's top twenty-five MNCs in terms of for146 eign assets. Id. Id. J. the stock of outward foreign direct investment increased from $1. & Soc'Y REV. ExxonMobil (the world's largest oil company).000 multinational corporations. Id. WORLD INVESTMENT REPORT 2002:-TRANSNATIONAL CORPORATIONS AND EXPORT COMPETITIVENESS [here- inafter UNCTAD Report].6 trillion. Can Multinationals Stage a UniversalMorality Play? 81 Bus. in light of the expansion of international trade and globalization.. and they had up to 850.. at 4 tbl. the power and influence of private commercial companies have grown. and economic costs to humanity. Pa. over the same period. ChevronTexaco.unctad. 147 LEIGHTON. at 14. 619.org/en/ docs/wir2002_en. and influence. at 14. J. [Vol. The Multinational and the "New Stakeholder": Examining the Business Case for Human Rights. the oil corporations mentioned above fall within the top twenty. supra note 142 at 3. TRANSNAT'L L. Thus. Further.U. 719. They also recorded sales amounting to $19 trillion which was more than twice as high as world exports in 2001. UNCTAD Report. 35 VAND. in 1990. supra note 146. power.
. eds. available at http://www.umn. Another multinational mantra is that oil companies are not responsible for how the money they pay is used. paved with 'take the money and run' asphalt. 183 (2002) (describing mechanisms to enforce violations of the law of nations). African Commission on Human and Peoples' Rights. DEATH AND the terrible record of environ- mental destruction and human rights violations in the oil-producing regions of Nigeria). this is a significant con55 tributor to the malaise that pervades these countries. 2003. If a country's ruler asks them to deposit money in a Swiss bank account they do as they are told. see AL. at 19. 151 See. OIL FOR NOTHING: MULTINATIONAL CORPORATIONS. see also Terry Collingsworth. 152 See The Social and Economic Rights Action Center for Economic and Social Rights v. there must be a corrupter.essentialaction. available at http://www1. 155/96.edu/humanrts/africa/comcases/155- 966. But it withers when exposed to the scrutiny of the public and careful professional oversight. The Key Human Rights Challenge: Developing Enforcement Mechanisms. Oiling the Desire for Sao Tome Unity. . The major oil corporations operate in African countries and a number of them have been implicated in or associated with human 152 rights violations.org/shell/report. Henriksen ed.n-h-i. Dec.. escalation of poverty conditions. According to the President of Sao Tome. e. OIL DEVELOPMENT IN NIGERIA: A CRITICAL INVESTI- GATION OF CHEVRON CORPORATION'S PERFORMANCE IN THE NIGER RIVER DELTA (2001) (discussing Chevron's record of accountability within Nigeria's oil development). J. 15 HARV. . 153 JUDITH KIMERLING ET See EMEKA DURUIGBO. Oil development . For an example outside the African continent. Comm. Annex V (2001) (detailing how the operations of oil corporations have caused environmental degradation and health problems). HUMAN RIGHTS AND THE OIL INDUSTRY (Asbjom Eide et al. cannot be a one-way street. AFRICA ANALYSIS. 154 Such vices include prostitution and criminal activities by youths who can not find gainful employment.g. 2000) (describing the role and policies of transnational corporations with respect to human rights). See HENRY CLARK ET AL.' But in order for someone to be corrupt. 1991). pdf. If they are aware that their payments are being misused they nod and wink and turn away while blaming it all on 'those foolish and corrupt Africans. Fradique de Menezes.. No. AMAZON CRUDE (Susan S. Nigeria. Annual Activity Report. 151 environmental pollution and degradation. . I know that many petroleum companies say that they are not responsible for the well-being of the countries in which they operate and all--but one--refuse to publish what they pay. ENVIRONMENTAL IMPUNITY IN THE NIGER DELTA (2000) (summarizing DESTRUCTION. Corruption also thrives in secrecy. RTs. 5 3 and an increase in social vices in their host communities..2005] THE RESOURCE CURSE IN AFRICA negative impact of economic globalization. HuM. available at http://www.html. 5 4 MNCs have also been accused of adopting a philosophy and attitude with the African governments with which they do business that favors detachment from the way states manage resources and corruption. 155 Fradique de Menezes.org/Publications/Pubs-pdf/NigeriaCorpAccount..
26:1 Both the World Bank and multinational oil corporations operating in Africa have begun to pay more attention to the resource curse. 157 The terms "resource curse" and "paradox of plenty" are sometimes used interchangeably.pdf . economic 56 and environmental issues where we operate. 21. 4. 2002 CHEVRONTEXACO CORPORATE RESPONSIBILITY REPORT 9. . if not in practice. OIL AND GAS SECTOR ISSUES AND POLICY: SOCIAL AND ECoNOMIC IMPACT. 2005).nwc.3. available at http://www. neither investment nor oil revenues have been able to guarantee economic growth or poverty reduction. the presence of major oil and gas industries has been associated with a variety of negative social and environmental outcomes. See Scott Pegg. J. 20. 82 (describing the paradox of plenty). addressing fundamental issues related to poverty and health is a critical stepping stone to being able to help find solutions to the range of other complex social. REV. In its first Corporate Responsibility Report released in 2003.com/cr-report/2002/ docs/complete_ report./www2.navy." where resource development fails to generate the sustainable benefits expected. Globalization and Natural-Resource Conflicts. available at http://www. 58 Id. Int'l Econ. 158 WORLD.mil/press/Review/2003/Autumn/pdfs/art5-a03.U. L. The so-called "Paradox of Plenty." a term economists use to describe locations with abundant natural resources that are prone to perform worse on economic and social development indicators than more resource-poor countries.chevrontexaco.ifc. ChevronTexaco stated: Some countries and regions have been described as suffering from the so-called "resource curse.BANK GROUP. % (last visited Feb.htm (last visited Feb. ChevronTexaco is concerned about this issue.pdf (last visited Feb. 56 NAVAL WAR C.org/ogmc/wbogpolicysocioec onomic. 4. 2005). 2005). Growing Interest? [Vol. at least in rhetoric. . The World Bank has noted in relation to the resource curse or 57 paradox of plenty : Unfortunately. is one of the most urgent challenges [at the local and national levels]. Thus. In our view. Pa.available at http:/. in certain cases. 156 CHEVRONTEXACO.
supra note 25. ADDRESSING THE RESOURCE CURSE: NATIONAL TRUST FUNDS AND INFORMATION DISCLOSURE The primary thesis presented in this work is that although African oil producers manifest the symptoms of the resource curse. see also GARY & KARL.Where norms and rules are weak. greater endowments of natural resources lead to worse economic performance in the long run. oil is not necessarily a curse to Africans or any group of people. The next Section discusses these mechanisms.org/files/17957_WDR_2003_chp_7_web. at 149-50 (2003). oil trust funds and information disclosure (prominent examples of which are the EITI and the PWYP Campaign) are attracting a great deal of attention as useful tools for addressing the resource curse in Africa. at 17 ("To their credit. and the most conflict-prone states in the world). the World Bank Group.. long resisted by some economists. This new posture is clearly illustrated by their efforts in designing a revenue management plan (the "RMP") under the ChadCameroon Oil Pipeline Project and some support for efforts to improve transparency and accountability through information disclosure. 159 The report directly looks at the resource curse phenomenon: [Tihe question of whether oil and minerals hinder the emergence of democratic institutions has been tested empirically and found to hold for a panel of 113 countries between 1971 and 1997 .20051 THE RESOURCE CURSE IN AFRICA This phenomenon is again given clear recognition in the World Bank's World Development Report for 2003. WORLD DEVELOPMENT REPORT 2003. the Bank and oil MNCs have stepped in to play 160 a more active role in stemming the tide of the resource curse.. the most authoritarian.worldbank. A successive crop of self-centered leaders. Instead. . supra note 96 at 18 (discussing how countries that are dependent on oil exports are over time the most economically troubled.").. compared with countries that have smaller resource endowments. In recent times.pdf. through corruption and ineptitude. available at http://econ. 160 See Ross. WORLD BANK. emergence of new institutions is hampered. Indeed. and a set of international mining firms. that natural resource abundance has a considerably negative effect on 159 the development of vital state institutions. and the. has misgoverned the continent.... Existing institutions are eroded. The Bank appears to have adopted the view. have begun to look for ways to reduce the social and environmental costs of oil and mineral projects in developing states. the major curse bedeviling African oil exporters is the curse of leadership. 5. Data on real per capita GDP show that developing countries with few natural resources grew 2-3 times faster between 1960 and 1990 than natural resource-abundant countries .
alongside poor economic growth and authoritarianism.' 65 The central argument here is that oil and other resources are not the problem. showing that the problem is not necessarily with the resources. From their collection of empirical studies. there is a stark contrast to the woeful results in other resource-rich African countries. J. supra note 44. 162 NATURAL REsouRcEs AND THE MACROECONOMY 11 (J. 168 See Michael Ross. 164 See Smith. L.. Civil wars and conflicts have been viewed as a component of the resource curse. at 243 (stating that a major deficiency of scholarship in this area is that scholars have conceptualized oil "as a structural variable willfully exerting its own effects" while "underplay[ing] the importance of agency and timing"). Pa."63 Thus. 67 A closer examination suggests that resources have played both good and bad roles in this arena. 165 See id. 168 What human beings do with their natural endowments 161 In Botswana. Peter Neary and Sweder van Wijnbergen came to the important conclusion that "a country's economic performance following a resource boom depends to a considerable extent on the policies followed by its government. ("[R]egimes may well have avoided the substitution of oil for statecraft. Rather. a lot depends on the use to which they have been put.. and Botswana have done relatively well despite their oil and mineral wealth.U.. which has not only been blessed with stellar leadership. 26:1 mismanaged resources." 162 noting that "even small economies have considerable influence over their own economic performance.. supranote 37. on file with the . 161 Even economists have come to appreciate the role of government policy as an intervening variable. How Do Natural Resources Influence Civil War? Evidence from 13 Cases (June 11."). at 8 (praising Botswana's approach to its mineral resources). despite some strong arguments to the contrary. agency may have played a leading role. 166 See Ross. 163 Id. 2003) (unpublished manuscript. 167 Id. supra note 30. 164 there is hardly anything deterministic about where these oil-exporting countries have ended. but where these leaders have adopted the right approach and policies toward resource management. at 328. supra note 36. Chile. [Vol.").166 One example that substantiates this point is the role of resources in civil wars and conflicts. See SAVE TH9 CHILDREN. and not made any serious efforts to set the right policies or introduce the type of structures that are pivotal to ensuring the proper utilization of these natural resource endowments. Int'l Econ. Peter Neary & Sweder van Wijnbergen eds. at 357 ("There is nothing inevitable about the resource curse: states like Malaysia. at 307. 1986). cited in Ross.
1983). & POL'Y 1. 170 Marianne Guerin-McManus. efforts need to be concentrated on devising ways of using these resources for good.. "). 168 (2004). Los Angeles) (discussing different arguments on how resources could play a role in the onset. Two prominent arrangements along those lines are oil trusts and information disclosure. 169 See generally Emeka Duruigbo. L.. supra note 171. THE LAW OF TRUSTS 2 (11th ed.C. 1995) ("A trust is an equitable obligation binding a [trustee] to deal with property over which he has control .html.. as defined in a charter or deed of trust").2005] THE RESOURCE CURSE IN AFRICA 35 accounts for much of the outcome. University of California. UNDERHILL AND HAYTON: LAW RELATING TO TRUSTS AND TRUSTEES 3 (15th ed. SHERIDAN & GEORGE W. A.170 Oil trust funds are institutions in which the trust assets consist of oil revenues placed under the control of a board of trus171 tees for the benefit of members of an oil-producing area. at 169. See generally Duruigbo.1. J. Trust Funds in Common Law Countries. for the benefit of some persons (of whom he may be one and who are termed beneficiaries) or for some object permitted by law.1. In cen- . and whether by legal or equitable title. Conservation Trust Funds. not evil. supra note 169. HAYTON. Managing Oil Revenues for Socio-Economic Development in Nigeria: The Casefor Community-Based Trust Funds. 172 While some accounts Department of Political Science. It should be emphasized that the trust institution is not the exclusive preserve of Western and Islamic legal systems. at 26. and spent by a board of trustees or board of directors exclusively for a specific charitable purpose. & COM. in INTERAGENCY PLANNING GROUP ON ENVIRONMENTAL FUNDS: THE IPG HANDBOOK ON ENVIRONMENTAL FUNDS 25 (2000) (defining a trust fund as "a legal structure by which money or other property is held.. The genesis of the trust institution in Anglo-American law is still the subject of intense disputation.1. whether real or personal. ENVTL. KEETON. 121. L. not to the trustees. available at http://www. 172 Spergel. 171 See Barry Spergel. 20 UCLA J.INT'L L.com/shores -system/ef/efhandbook. National Trust Funds 5.. The Concept of Trust Funds169 A trust is an arrangement in law in which legal ownership and management responsibilities over an asset (res) are placed in the hands of a person or persons (trustee or trustees) on behalf of and for the benefit of another person or persons (beneficiary or beneficiaries). 2 (2001). see also DAVID J. in such a way that the real benefit of the property accrues. REG. for the benefit of [beneficiaries] . Thus. duration.geocities. and intensity of civil wars and conflicts and also presenting converse arguments). Keeton provides the classic definition of a trust as follows: A trust is the relationship which arises wherever a person (called the trustee) is compelled in equity to hold property. 5. invested. but to the beneficiaries or other objects of the trust. 30 N..
171.176 A trust fund can be utilized to accomplish an assortment turies past. supra note 169. at 169. the village or the family. at 5. Int'l Econ. Gaudiosi. 856 (1978) (describing the International Monetary Fund's effect on international trust law as a trustee of the Trust Fund of the International Monetary Fund). The Influence of the Islamic Law of Waqf on the Development of the Trust in England: The Case of Merton College.72 Am. village.old and new-have generally arisen where the existing legal mechanisms for accomplishing particular objectives. 404 (1921). See also W. especially the holding of property. the importance of trust funds cannot be overemphasized. L. 75 With the inadequacies surrounding the management of public properties (including natural resources). grants. 6 J. 176 See Tito v. 1242-43 (1988). or other funds that form the trust res. Viscount Haldane stated:. See generally Duruigbo. Waddel (No. 175 Guerin-McManus. J. 70 TuL.1 count that one chooses to accept. [T]he notion of individual ownership is quite foreign to native ideas. Secretary of Southern Nigeria. L. 174 Monica M. 164 (1962) (discussing the existence of trusts or trust-like institutions in Nigeria. J. or family have an equal right to the land. 1977) (Eng. The emphasis of such trusts is the control and use of revenues or donor funds. Ekow Daniels. Trust Funds in International Law: The Contributionof the InternationalMonetary Fund to a Code of Principles. INT'L L. REV. and Sierra Leone).U. at 169. Comment. 26:1 trace the origin to the English use or Middle Eastern/Islamic Law's waqf. 399. up until modem times. has charge of the land.) (involving royalties from the sale of phosphates and whether the Crown was trustee of the funds for the inhabitants of an island colony in the Western Pacific). or head of the family. 2 A. Pa. 129 (Ch. L. Land belongs to the community. 1148 (1996). see also Joseph Gold. 1231. and in loose mode of speech is sometimes called the owner. Ghana. supra note 169. Some Principles of the Law of Trusts in West Africa. there seems to be a consensus that trusts. 1139. 136 U.C. never to the individual. others locate it in Roman fideicommissum. PA. that the mismanagement of resources is not a necessary condition for establishing a trust. [Vol. 173 Avisheh Avini. have been limited by their inadequacy. . 3 All ER. REV. L. He is to some extent in the position of a trustee and as such holds the land for the use of the community or family. The Originsof the Modern English Trust Revisited. In Amodu Tijani v. It may also be emphasized. The use of the trust institution as a vehicle for property management is a practice that has seen better days. AFR. 2). Comment. All the members of the community. but in every case the Chief or Headman of the community or village. Duruigbo.' 73 Some scholars have also propounded the Germanic theory arguing that the trust 7 4 Notwithstanding the acowes its origins to the Salic salmannus.C. African societies have been able to devise trust-like institutions to address particular needs such as the management of family or communal property. supranote 170. however.
International Environmental Law and the "Bottom-Up" Approach:A Review of the Desertification Convention. on file with author). at 169-70 (stating that "[lately. or reverse the resource curse. improve domestic governance in oil-producing countries. Troubled Societies.. 133. 178 and community development. 180 See Duruigbo. 177 .162 (1995). Domestic governance in oil rich developing countries could be enhanced by creating oil trusts. According to Stephen Krasner: Oil has been a curse for the developing countries in which it has been located leading to less democracy and lower rates of growth. All oil revenues would be paid into an Guerin-McManus. 169 n. in SUSTAINABLE DEVELOPMENT AND INTERNATIONAL LAW 167 (Winfried Lang ed. supra note 169. The notion of trusts is emerging as an important part of petroleum policy discourse. The road to wealth and power for any ambitious individual leads through the offices of the central government. Oil wealth makes it possible for the state to buy off dissenters. supra note 170. mitigate. 1995). For instance. supra note 169.20051 THE RESOURCE CURSE IN AFRICA of purposes such as natural resource conservation. The board of directors of such trusts would be composed of national and non-national actors. 3 IND. See generally Duruigbo. 81 Such an arrangement would involve the World Bank and multinational oil corporations and will in effect amount to a sharing of the oil-producing state's sovereignty. especially oil. Sand. Danish. and Gradations of Sovereignty 41 (July 20. 179 Kyle W. not through individual enterprise or productive economic activity. at 170-71.GLOBAL LEGAL STUD. Trusts for the Earth: New International FinancialMechanisms for SustainableDevelopment.") 181 Stephen D. trust funds have been attracting attention in academic and policy circles as pragmatic tools for addressing the unfortunate predicament generally manifesting in entities blessed with natural resources. Outlaw States. and to build military machines that can be used to repress those who cannot be bought off.2002) (unpublished manuscript. have been able to use oil wealth wisely. Oil concentrates resources in the hands of the state. Only a few political entities. national directors could be appointed by the country's parliament or head of state and non-national figures by the World Bank. 177 environ179 mental protection. J. such as Alaska and Norway. Krasner. 178 Peter H. 80 Some scholars see institutions as being particularly important in the petroleum industry where oil trusts can provide an effective check on rent-seeking activity. and avoid.
2. Pa. The consortium conducted studies on the fea185 sibility of developing the oil and transporting it via Cameroon. at 11 (describing the Chad Oil Pipeline Project's revenue management arrangement as an oil trust fund). The above proposal bears close resemblance to the arrangement devised by international financial and corporate oil interests in collaboration with the governments of Chad and Cameroon to manage and monitor Chad's oil revenues. Almost one and one-half decades after the suspension of oil field development in 1979. Chad Revenue Management Plan Chad-Cameroon Oil Pipeline Project 5.1. Conoco left and Chevron sold its interests to Elf Aquitane. Harvard Business School. and Royal Dutch/Shell. thirty-five percent Id. In the midst of the ensuing frustration. 5. Oil was first discovered in Chad in the 1970s by a consortium of oil corporations that included Chevron. 183 The RMP established under the Chad-Cameroon Pipeline Project is discussed in the following part. 26:1 escrow account in a foreign bank. citing as their reason concerns about the economic viability of the project since oil was then selling at $10 per barrel. 8 4 but years of war and civil conflicts prevented further development of the oil fields. [Vol.2. a reorganized consortium reignited interest in Chad's oil. 9-202-010 Gan.U. at 1. Exxon.1. All transfers from the account would have to be approved by the board of directors of the trust. 184 Benjamin C. Conoco. two new members-Malaysia's Petroleum Nasional Berhad ("Petronas") and Chevron-joined the consortium and the stake holding stood at forty percent for Exxon. There might be commitment to using these revenues for specific activities such as health care and education. See also SAVE THE CHILDREN. Six months after their departure. Two members of the consortium eventually withdrew. Int'l Econ.1. 182 183 . 185 Id. The trust would monitor the use of the funds after 82 they had been transferred to the national government. J. Esty. The Chad-Cameroon Petroleum Development and Pipeline Project (A). 16. 2003). supra note 30. L. Case Study No.
Average expected price is $15 per barrel. This would provide the company with the needed cushion from political risk and insulation from criticisms from nongovernmental organizations ("NGOs"). One and one-half billion dollars is devoted to the extraction of oil from Chad's Doba Basin while $2. 1999))."188 The World Bank did not seem to have any illusions about the landmines that it would have to face. Id. The Cameroon portion of the pipeline will be under the ownership of Cameroon Oil Transportation Company ("COTCO"). the Board of Executive Directors of the World Bank voted to participate in the project. the President noted that as has been the case in many countries. In June 2000. at 6. at 1-2.2005] THE RESOURCE CURSE IN AFRICA for Petronas.070 km)pipeline that passes through Cameroon. Wolfensohn. Thus. McGovern. TOTCO is an incorporated joint venture between the Upstream Consortium and the government of Chad.2 billion will take care of the transportation aspect via a 670-mile (1. 187 According to the World Bank's President James Wolfensohn. The World Bank was invited to participate in the project. U. to Honorable James P. Projections from the investment were based on the assumption that the fields will produce 883 million barrels of oil that can be sold. an entity incorporated as a joint venture between the governments of Chad and Cameroon and the Upstream Consortium. and perhaps only opportunity for Chad to reduce the severe poverty of most of its population.S. 188 See id. one of the poorest countries on earth. it will be a tremendous challenge to translate Chad's oil revenues into services that would be directly beneficial to the poor. The Chad portion of the pipeline will be owned by Tchad Oil Transportation Company ("TOTCO"). The World Bank adduced as the reasons for its participation the project's commercial viability and alleviation of poverty in Chad. 86 The $3. at 6 (quoting Letter from James D. 186 187 . Total revenues expected from the project would be $13. House of Representatives (June 28. and twenty-five percent for Chevron. "the project provides the best. Project partners formed an unincorporated joint venture known as the Upstream Consortium to own and finance the exploration component.7 billion. ExxonMobil had stated that it would only go ahead with the project with the World Bank's involvement.7 billion Chad-Cameroon pipeline project is the biggest private sector investment in Africa. But the World Bank expressed the belief that challenges such as this are of Id.
production. [Vol. especially from the time of the invitation to the World Bank.1. see LIABILITY FOR ENVIRONMENTAL DAMAGE AND THE WORLD BANK'S CHAD-CAMEROON OIL AND PIPELINE PROJECT (Serge A. Bronkhorst ed. Int'l Econ.1 The Chad-Cameroon Oil Pipeline Project. July 10. as a condition for its participation. 1999). The project as currently designed has little chance of deliv- ering the claimed benefits to sustainable development while carrying major risks of irreparable environmental and social disruption.CAMEROON OIL AND PIPELINE PROJECT: PUITING PEOPLE AND THE ENVIRONMENT AT RISK (Sept. 190 and the displacement of indigenous peoples. [The World Bank's involvement] sets a disturbing precedent of public support for oil development which experience and analysis show has detrimental social and environmental impacts with few development benefits . Id. and the Rainforest Action Network also vehemently opposed the project because of the potential damage to the environment.environmentaldefense. 192 The focus here is on the RMP and its potential to avoid the problems associated with oil exploration.. 5.pdf. J. L.. supra note 184. insisted on a RMP that would ensure that the proceeds of oil development were used for socioeconomic development. . 191See Norimitsu Onishi. was mired in controversy. Pygmies Wonder if Oil PipelineWill Ease Their Poverty. 192 For more on the environmental implications and criticisms. Featuresof the Revenue Management Plan According to Ian Gary and Terry Karl. the potential impact of the project on the environment. at 3.U.Y. Pa. 26:1 the type that are incumbent on and required of a development in89 stitution of the caliber of the World Bank. TIMES. Other leading environmental groups such as the Friends of the Earth. available at http://www. Public interest groups.. 2000). at 9.org/documents/728_ChadCameroon-pipeli ne.. "[tlhe Chad-Cameroon Oil and Pipeline Project is the most significant. and export and fulfill the designers' aspirations of meeting the social and economic needs of the people of Chad. complained about the human rights-abusing government of Chad. among others. and most closely watched experiment designed to change the pattern of the 'oil curse' and promote poverty reduction through targeted use of oil 189 Id..2.2. the Sierra Club. Esty. THE CHAD . 190 ENVIRONMENTAL DEFENSE FUND. N. 191 The World Bank sought to address these concerns and. at A3 (noting that public interest groups are working to ensure Pygmies are compensated for the impact of an oil pipeline to be built through the Central African rain forest). 2000. The environmental and other aspects of the project are outside the scope of this work.
income taxes. In the course of the first ten years of production." 193 This approach to utilizing oil revenues will be under the RMP. we want to make certain that the country's new wealth will be invested for the well-being of all Chadians. at 8 (detailing the elements of the RMP). A Special Revenue Account is created in which they would be deposited. at 60.8 billion in producing countries. . In Chad. With our help. Id. the form of royalties. that is. between 2004 and 2013. Eighty-five percent of the remaining ninety percent will be deposited in local commercial banks and is dedicated to the financing of programs in five important sectors namely. See Esty. health and social ser193 GARY 194 195 &KARL. The government has less liberty when it comes to royalties and dividends. The government is given discretion on how to spend the revenues from income taxes subject to the limitation that they be used for general development purposes. Chad as has been the case in many other oil1 94 Chad is expected to receive $1. 195 The RMP contains specifications on the allocation and distribution of the expected revenue. the Chad Government has developed a revenue management program that targets oil revenues to key development sectors that are at the heart of its poverty alleviation strategy.2005] THE RESOURCE CURSE IN AFRICA revenues. This is an enormous amount of money for a country that has been cash strapped for years. The RMP was the fruit of the World Bank's efforts at ensuring that the attendant dangers of a large influx of oil revenues economic distortion. supra note 184. supra note 96. and dividends. education. A distribution formula has also been specified. income taxes will constitute sixteen percent of total revenues to Chad and the rest will come from royalties and dividends. in particular. According to World Bank's President Wolfensohn: Natural resource "booms" are difficult to manage. corruption and waste -did not manifest themselves in. Ten percent of the money will be kept in international financial institutions as a fund for future generations. This is why our knowledge of other countries' experience has been crucial to designing the project.
but a nine member oversight committee has the responsibility to review it. 77. The Group is composed of eminent persons and is slated to be in existence for ten years. Of the committee's nine members. 197 The Chadian government passed a law in December 1998 incorporating the principal elements of the RMP. It is incumbent on the World Bank and the government of Chad to approve an annual expenditure.U. availableat http://wwwwds. The World Bank has also instituted an International Advisory Group. The World Bank has extensive powers and leverage regarding monitoring of the full program and review of all expenditures.org/servlet/WDSIBankServlet?pcont=details&eid=000094946_ 00102111244720. The RMP is given teeth by the fact that the World Bank insisted that its implementation is a contractual obligation under the loans that the IBRD and European Investment Bank ("EIB") were proposing and tied the performance of the government under the RMP to future lending by the World Bank. The RMP provides for several layers of oversight. seven represent the government while two represent the civil society (a nongovernmental organization ("NGO") and a trade union). 2000) (providing a translation of Chad's law on oil revenue management). AND PIPELINE PROJECT ("IAG"). J.org/afr/ccproj/project/iag-wp-july 302001. 120 (2002) (describing a report on the Chad-Cameroon Project issued by the panel). 13. Int'l Econ. and environment and water resources. 198 See WORLD BANK.worldbank. J.worldbank. including procedures for audit and provisions relating to the establishment of an oversight committee. The committee will annually publish a review of those operations that are subject to external audit. Pa. 198 It is still too early to say how this management plan will turn out. The committee members are appointed for terms of three to five years. L. INT'L L. at http://www. The Application of the World Bank Standards to the Oil Industry: Can the World Bank Group Promote Corporate Responsibility? 28 BROOK. .pdf. 196 The World Bank Inspection Panel also represents a level of oversight for the whole project. rural development. PROJECT APPRAISAL DOCUMENT: CHAD-CAMEROON PETROLEUM DEVELOPMENT AND PIPELINE PROJECT 101-04 (Apr. Chad only started selling 196 INT'L ADVISORY GROUP FOR THE CHAD-CAMEROON PETROLEUM DEV. 2001). infrastructure. [Vol. the Oil Revenues Control and Monitoring Board (Revenue Management College). 26:1 vices. WORK PLAN OF THE INTERNATIONAL ADVISORY GROUP 7-8 (July 30. The remaining fifteen percent would be devoted to the development of the oil-producing Doba region. 197 See Genoveva Hernandez Uriz.
2005] THE RESOURCE CURSE IN AFRICA oil in October 2003. Mar." Reduction of the corrosive problem of corruption and the promotion of transparency and accountability are also some of the advantages that such funds can bring. at 41. 200 Arrangements such as this have the basic ingredients to make them potentially beneficial. FUND. is that oil trusts could be used to enhance domestic governance in those developing countries that are rich in petroleum so long as they involve a high level of shared sovereignty in which national governments and external actors like the World 201 Bank share key powers on how the oil revenues are managed. A trust fund could also help in building the basic foundation of a democratic society. none of which currently exists. This sense of ownership exists in developed societies through "taxation with representation. supra note 190.. WASH. According to a report authored by Luc Lampiere and others at Harvard Law School's Human Rights Program. e. Some see it as not going far enough. but Little Trickles Down. Chad's RMP is not perfect and has been subjected to severe criticisms. supra note 199. One of the principal benefits. at 5. . supra note 181. and in December 2003. and real oversight. the government approved its first budget including oil revenue and submitted it to the Revenue Management College. real transparency. 200 Wax. as Krasner observed. was deposited into the account.199 In November 2003. 2004. the law "repre199 See. a first step in that direction. POST. at A16. Emily Wax.g. 202 at best. DEF. see also Oil Pipeline Opens for Business. giving the citizens a stake in the natural resource and making them keep an eye on how the government utilizes the money belonging to them. It establishes a link between the citizenbeneficiaries and the authority structures. receipts from the first sale of crude oil. Nevertheless. 13.5 million. the funds need to be properly structured to be able to do that. The proposed RMP and the law that was essentially imposed on the Chadian authorities is. the sum of $6. at A16 (reporting on the first few months of oil sales). Oil Wealth Trickles Into Chad. Peter Rosenblum attacked the efforts as being at a rudimentary stage: Oil will not lead to development in Chad without real participation. 17 AFR. REcOVERY 24 (2003) (describing the fiscal aspects of the oil pipeline). 202 ENvTL. 201 Krasner.
Int'l Econ. J. [Vol. Moreover. at 68. 197. Clark. that a measure of flexibility is warranted and that micromanaging should be discouraged. at 2. 203 The absence of a clear distribution formula among the designated priority sectors could also present problems because revenues are disproportion0 4 It ately allocated to one sector to the disadvantage of others. RTS. 2 could be counterargued. Managing Oil Revenues in Chad: Legal Deficiencies and Institutional Weaknesses. development and human rights" but its chances of success are infinitesimally low unless it is accompanied by the will of the political leaders or the confidence of the citizens. a line of action that could fuel tensions in a country enmeshed in power struggles and 2 05 ethnic divisions. 204 Genoveva Hernandez Uriz. 205 Id. and the World Bank's Internal Contradictions. 207 The problem with this criticism is that while it would have been preferable for the government to spend the money on more worthwhile projects or follow the RMP in this instance. 207 Id. HuM. 210 n. J. million dollar signature bonus on arms purchases. Harvard Law School (October 13. HUM.. the arrangement does not cover all the oil fields in the country. . Pa. The Chadian government's action embarrassed the World Bank. 15 HARV. Another aspect of the RMP that has invited criticism is the 203 Luc Lampriere et al. To Lend or Not To Lend: Oil. 206 GARY & KARL. 26:1 sents a remarkable breakthrough in linking private investment. at 69. RTs. See Dana L. Human Rights Clinical Program. this situation was not covered by the governing law.U. Critics also think that a weakness of the Chad management plan is that there does not appear to be sufficient evidence to estab0 6 They lish the belief that the government will follow its dictates.17 (2002) (noting the earlier failure of the ity. Another bone of contention is that significant revenues from oil are still outside the scope of the RMP. however. the government can hardly be fairly accused of not following a law that was inapplicable to its action. 208 Id. World Bank to monitor Chad's oil expenditures). So. J.14 HARV. L. 223 (2001) (relating the details of the Revenue Management Law). The World Bank and Human Rights: The Need for GreaterAccountabil205. These loopholes could defeat the whole purpose of ensuring proper and transpar2 08 ent management of funds. 5. 1999). 2 point to the fact that the government spent four million dollars out of a twenty-five. supranote 96. but the problem is that political leaders can take advantage of it to favor their choice projects or benefit their areas. Human Rights.
210 The process of removing Monitoring Committee members is also easy. Critics argue that a change permissible only through an act of Parliament would better ensure that the arrangement is not subject to the whims and caprices of the president. The constitution is without doubt the fundamental legal and political instrument in the land and usually very hard to amend. 28. 210 212 209 Id. hitting almost the forty dollar per barrel mark in March 2004 and over 213 fifty dollars later that year. For instance. 212 This is particularly important because Chad will be receiving money far in excess of the fifteen dollar per barrel projections as oil prices have skyrocketed. Lampriere. The mandate of the Committee looks murky. COLUMBUS DISPATCH. 21' The representatives of the Civil Society are also not required to be accountable to their constituency and could turn around to work against the interests of those they are supposed to represent. . 2004. 209 The Committee is also viewed as not sufficiently strong.. Mar. Gasoline 101: A Primeron High Prices. which could militate against the effective discharge of its duties. which caused him to lose his post as the president of the Revenue Oversight Committee). A possible solution would be to give powers of election and recall to NGOs and labor groups over their representatives. 211 GARY & KARL. at Id. See Mark Niquette et al. it has been suggested that giving the Monitoring Committee subpoena powers would strengthen it and enhance its work."). supra note 96. an unaccountable president would still find ways to manipulate things and effect changes. at 70. supra note 203. The RMP is also assailed for not providing for stabilization or sterilization funds to serve as a buffer against oil shocks and control the influx of money in such excessive amounts as to lead to inflation and the Dutch Disease. Chadian President Idris Derby is currently working to see that the constitution is amended to enable 70. at 1H ("The price of oil per barrel has risen from $30 in 213 November to $38 in recent days. supra note 96. Yet. The revenue management law is also considered inadequate because it can be changed by presidential decree.20051 THE RESOURCE CURSE IN AFRICA Monitoring Committee. making it possible to conveniently remove even competent members who fall out of favor with the government. 214 GARY & KARL. at 72 (discussing Chad's removal of Amine Ben Bark from his post on the Bank for Central African States. 214 A counterargument is that even if the law only stipulates for amendment via the parliamentary process.
219 See. 217 See JAMES SALZMAN & BARTON H. it is sometimes considered a form of regulation. requirements to collect and disseminate information have led to significant change in the behavior of regulated parties. 99 COLUM. Int'l Econ. THOMPSON. the disclosure of information has been viewed as a veritable means of accomplishing certain policy goals..georgetown. KAPLAN.2. Sage. 215 216 . 215 At the same time. [Vol. ENVIRONMENTAL LAW AND POLICY 46 (2003) ("[Plarticularly in the case of pollution. Regulating Through Information: Disclosure Laws and American Health Care. 218 Information disclosure is particularly attractive where there is a strong resistance to regulation or where the political will to do so is non-existent." (footnote omitted)). environmental protection. The Concept of Information Disclosure Over the years. On the Wax. 217 Laws requiring the dissemination and availability of information have been used to promote public health.U. 1701 (1999) (suggesting disclosure as a means of regulation). Because information disclosure may be able to achieve the same goals as command and control regulation.edu/gelpi/papers/poisonpaper. as the World Bank has pointed out. supra note 96. It is instructive to note that none of the criticisms seem to suggest that it is not a good idea to use this kind of arrangement for the equitable distribution and proper management of resources. 218 See generally.2. the president has appointed his brother-in-law to head the Central Bank."). 5.g. The important thing is to devise such arrangements in a way that avoids factors that could lead to their ineffectiveness. ECHEVERRIA & JULIE B. thus giving him a seat in the Revenue Management College. Pa. Such funds. J. JR. Information Disclosure 5. L.' It also requires effective democratic institutions. 219 This fact has not won it the endearment of those opposed to regulation. L. at A16. See GARY & KARL. effective economic development and poverty reduction extends well beyond budget allocations and the auditing and control of public expenditure.. POISONOUS PROCEDURAL "REFORM": IN DEFENSE OF ENVIRONMENTAL RIGHT TO KNOW (2002). REV. available at http://www.pdf. are not a substitute for the development of appropriate de216 mocratic institutions and macroeconomic policies. the successful 'translation of oil revenues into equitable. 26:1 him to run for a third term in office. JOHN D. Issues such as these are not things that any RMP or trust fund would be expected to address. e.law. even in the absence of overt prescriptive regulation. supra note 199. William M. and similar issues.1. at 70 ("[A]s the World Bank's Inspection Panel noted.
InternationalRelations. Is Sunshine the Best Disinfectant? The Promise and Problems of Environmental Disclosure. See Emeka Duruigbo. which sees it as a less cumbersome means to an identified end. Proceeding on the dictum that "sunshine is a disinfectant"225 it ensures that nefarious practices done in the dark are exposed."). W. Information disclosure is also viewed from the entitlement perspective by which it is seen as the right of the people to know or have access to information about matters that pertain to them. there is an ongoing right-to-know campaign to change California law and require corporations doing business abroad to report on their health. 25. Companies and governments have been required to report on their emissions. BROOKINGS REV. 29 ENVTL. at http://www.224 A general benefit of information disclosure is the promotion of transparency and accountability. 222 See Clifford Rechtschaffen. 223 A similar drive has been embarked upon to draft an international treaty along those lines. labor. which has been successful in reducing public exposure to lead). In essence. Spring 2002. at http:// www. electric light the most efficient policeman. Economics and Compliance with InternationalLaw: HarnessingCommon Resources to Protect the Environment and Solve Global Problems. 2005). 10581 (1999) (discussing California's Proposition 65.org (last visited Feb. REP. How to Reduce Lead Exposures with One Simple Statute: The Experience of Proposition 65.J. INT'L L. See also Mary Graham. OTHER PEOPLE'S MONEY 92 (1914) ("Sunshine is said to be the best of disinfectants. 177 (2001) (examining the international relations theory in relation to "ship-source oil pollution control" and discussing the economic effect of treaty implementation). M Louis D. BRANDEIS. L..crtkcalifor nia. thereby discouraging such conduct and equipping or empowering the society to react in a manner that it deems appropriate. 220 ECHEVERRIA 221 . Information disclosure as a policy tool has been utilized at both domestic and international levels.org/irtk.index.earthrights.2005] THE RESOURCE CURSE IN AFRICA other hand.222 At the moment. proponents believe that there is a right to information at & KAPLAN. International Right to Know Campaign. 223 See California Right to Know Project. 224 See EarthRights Int'l. at 18 (exploring applicability of Louis D. 2005). Brandeis's statement that "[p]ublicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants" (alteration in original)). 220 discharges into the oceans or compliance with international regulations. 221 and the composition of their products with particular emphasis on toxicity.shtrnl (last visited Feb. supra note 218. safety. 25. and environmental practices. it enjoys strong approbation from the pro-regulation camp. 31 CAL. at 3-4.
The Warning Game: Evaluating Warnings Under California'sProposition65.2.229 The EITI therefore seeks to replace the "lose-lose" situation that is currently the case in which the various stakeholders are disadvantaged in one form or another with a mutually beneficial arrangement for all concerned. announced the EITI. 319 (1996) ("The statutory preamble likewise declares the people's right 'to be informed . Tony Blair. Extractive Industries TransparencyInitiative and Publish What You Pay Campaign At the World Summit on Sustainable Development in Johannesburg in September 2002. 25.. 228 DEP'T FOR INTL DEV. at 60. The objective is the increase of transparency at two levels: corporate and governmental. 26:1 the domestic 226 and international levels. conflict and poverty. ExTRACTIVE INDUsTRIEs TRANSPARENCY INITIATIVE [hereinafter EITI]. supra note 7.U.pdf (last visited Feb. it seeks to enhance transparency of payments made by companies to governments and government-linked entities and of revenues accruing to the host country governments. 2005).Q. . Thus. 227 Ganesan. Ordinary citizens are being deprived of the gains of their patrimony and MNCs are (sometimes undeservedly) accused of being complicit with corruption and thus 226 See Clifford Rechtschaffen. L. gas and mining companies. royalties.gov. the Prime Minister of the United Kingdom. 227 This right is independent of whether people benefit from the notion of information disclosure or not. signature bonuses and other payments should be an important engine for economic growth and social development in developing and transition countries. 5.2. in the form of taxes. 303. [Vol. 23 ECOLOGY L. It is against the backdrop of these major benefits and this reasoning that information disclosure initiatives have recently emerged to confront the problems of oil development.dfid. Pa. at http://www. 228 The EITI anchors the justification for this initiative on the inability of mineral wealth over the years to bring benefits to people in the mineral-producing countries: Revenues from oil. 229 Id. Int'l Econ. J.uk/pubs/files /eiticorescript. the lack of accountability and transparency in these revenues can exacerbate poor governance and lead to corruption. (UNITED KINGDOM). However.
234 Advantages of voluntary mechanisms include greater chances of eliciting support 235 and better prospects for real compli236 ance with rules that flows from an internalization of the same. 236 For a discussion of the concept of internalization of norms. Moreover. as governments constrained by the disclosure of their revenues become more responsible. see DURUIGBO. The international community also loses because these oil-producing states' problems 230 could disrupt the world energy supply. 25. and better prospects for energy security. available at http://www.] acceptance of the voluntary mode [was] essential to secure participation in the [UNCTAD Code on Restrictive Business Practices] by most Western governments as well as the acquiescence of many corporations. GLOBAL WITNESS STATEMENT TO THE EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE 1. 23 3 While voluntary or non-binding and unenforceable arrangements have their merits. 234 For an extensive discussion of the limits and utilities of voluntary arrangements. at 1 (expressing concern that "the voluntary approach explicitly proposed by the EITI will not work in those countries where it is most needed"). while governments are sometimes shortchanged by MNCs. The EITI could help in ensuring that citizens are empowered to demand accountability from their governments and thus benefit more from their natural resources. The EITI is also set to favor "responsible [oil] companies" who will have the benefit of "a more level playing field.php/00101."). 231 EITI." The EITI is a voluntary initiative and this has been a source of criticism. at 1. see Harold . 230 See GLOBAL WITNESS. 235 See JOHN M. INTERNATIONAL CODES AND MULTINATIONAL BUSINESS: SETrING GUIDELINES FOR INTERNATIONAL BUSINESS OPERATIONS 46 (1985) ("[For example. 232 233 Id. supra note 228.2005] THE RESOURCE CURSE IN AFRICA hurting their investment standing and public image.globalwitness . they are also riddled with inadequacies. at 121-36 (reviewing the strengths and weaknesses of corporate codes of conduct). See GLOBAL WITNESS. supra note 230. The improved climate would also be valuable in attracting additional investments from which governments would benefit." 23 1 The decision to concentrate the initiative on the extractive sectors was based on the understanding that "there is a close correlation between the countries rich in natural resources and the countries 232 with high levels of poverty. taxpayers in the North are left with little or no option but to contribute aid to these countries even though their problems are caused by their leaders' mismanagement of resources. 2005).pdf (summarizing problems with the status quo) (last visited Feb.org/reports/download. a more predictable business environment. KLINE. supra note 137.
-C."). 663.some would say doomed . 111 YALE L. 157 (1998). Pa. 242 Press Release. voluntary arrangements can form the bedrock for future binding mechanisms or public initiatives at the domestic and international levels. 241 Nevertheless the EITI has attracted support from a broad range of entities including the World Bank Group.R. FAIRNESS IN INTERNATIONAL LAW AND INSTITUTIONS (1995)). Do Human Rights Treaties Make A Difference?. at . at 129-30. 241 See Laura Ho et al. CorporateCodes of Conduct and Product Labeling Schemes: The Limits and Possibilitiesof Promoting International Labor Rights Through Private Initiatives. Hathaway. 2599. 238 DURUIGBO. at 264558 (1997) (reviewing ABRAM CHAYES & ANTONIA HANDLER CHAYES. gives rise to potential opportunism. 41 (1999) ("Asset specificity . Steven R... Enforcing International Labor Rights Through Corporate Codes of Conduct. INT'L L.243 the government of Nigeria. J. 240 Voluntary arrangements are also prone . 15 U. REV. Liubicic. Dunoff & Joel P. 111. 9. PA. at 96 n. Trachtman.239 The problem of a competitive disadvantage that flows from voluntary disclosure prompted TotalFinaElf to state that it would only disclose payments if other corporations did the same. this gives rise to the need for binding mechanisms or institutions. 1935.. L. 327. 238 Therefore the abundance of potential for excessive opportunism should call for binding mechanisms or institutions. Salbu. 26:1 Most importantly. True Codes Versus Voluntary Codes of Ethics in InternationalMarkets: Towards the Preservation of Colloquy in Emerging Global Communities. J. leading society to clamor for stricter regulations. they create opportunities for the thriving of a free rider situation in which those who are not making the necessary efforts to reform their practices nevertheless share in the benefits provided by the progress made by their peers. For further discussion. 687 (1995). 383. 1960-62 (2002) (discussing the role of the transnational legal process in encouraging compliance with human rights treaties even when compliance appears to be against a state's self-interest).U. 24 YALE J. L. Why Do Nations Obey International Law? 106 YALE L. WBG Endorses Extractive Industries Transparency Initiative (Dec.. FRANCK. 242 the IMF. INT'L Bus. 239 See Jeffrey L. 31 HARV. For instance. L.to ineffectiveness due to the absence of independent monitoring or enforcement mechanisms.. supra note 96. Economic Analysis of International Law. disadvantages abound. 2003) [hereinafter WBG Endorses EITI]. World Bank Group. and a host of nonHongju Koh. In turn. 237 The history of regulation amply illustrates that voluntary initiatives have often preceded mandatory rules.J. 30 LAW & POL'Y INT'L Bus. (Dis)Assembling Rights of Women Workers Along the Global Assembly Line: Human Rights and the Garment Industry. 353-69 (1994).TRANSNAT'L L. 237 On the other hand.L. THE NEW SOVEREIGNTY: COMPLIANCE WITH INTERNATIONAL REGULATORY AGREEMENTS (1995) and THOMAS M. supra note 137. [Vol. see also Oona A. Lance Compa & Tashia HinchliffeDarricarr~re. J. Robert J. 401-05 (1996) (detailing the three types of voluntary codes of conduct in the garment industry).55. 33 COLUM. especially when those non-binding initiatives could not live up to their billing. Int'l Econ. 1. C.J. 240 GARY & KARL..
and the international NGO Global Witness.11. at http://www. Coale.. THE WARRI CRIsIs: FUELING VIOLENCE 21 (2003) ("In November 2003.20051 THE RESOURCE CURSE IN AFRICA governmental organizations. 2003. See Press Release. July 1..html.. in line with the internaat http://www. The PWYP campaign therefore urges the governments of the highly industrialized nations ("G7") to impose a requirement on MNCs to disclose what they pay to their host governments.245 One of the major problems faced by the mandatory disclosure requirements is the sanctity of contracts principle. ").soros .-led Extractive Industries Transparency Initiative.00..07. Nov. it found itself in troubled waters with the government and its competitors. a cardinal principle in Anglo-American jurisprudence and international business transactions. One crucial difference between the EITI."). Publish What You Pay: Confronting Corruption and the Natural Resource Curse. 244 The PWYP Campaign. The PWYP believes that voluntary disclosure has not been effective because more responsible companies are afraid of being undercut by their less scrupulous competitors. that while the EITI is comfortable with disclosure of aggregate payments made by all the resource companies operating in a country to the government. the PWYP insists on disclosure of disaggregated payments. As a matter of fact. /2003/nigeriall03/nigeriallO3. the Open Society Institute. Perhaps the most significant point of divergence is that the PWYP calls for mandatory disclosure of information. B.html."). OPEN SoC'Y INST..transparency. 2003) ("[President Obasanjo] stated his support for the principles of the NGO-led campaign Publish What You Pay.org/WBSITE/EXTERNAL/NEWS/O. 245 Thomas I. 243 See Horst Kohler. launched in June 2002 by the international financier and philanthropist George Soros.pdf.worldbank.org/reports tional 'Publish What You Pay' campaign .org/pressreleases-archive/2003/2003.. it excludes corporations that are not http:/ /web. Palley. at http://www.contentMDK:20143 509-menuPK:34463-pagePK:64003015-piPK:64003012-theSitePK:4607. President Obasanjo announced that the Nigerian government would publish budgets. 246 See Margarita T.org/initiatives/washington/articles-publications/ articles/publishpay_20030304. . when BP went ahead to disclose payments made to the Angolan government. Nigeria Takes the Lead on Oil Industry Revenue Transparency (Nov. is similar to and the PWYP is the EITI. 2003 (transcript available through the Federal News Service) ("The IMF supports the U. Stabilization Clauses in International Petroleum . Transparency International. 14.. see also HUMAN RIGHTS WATCH. 7...nig eria oil industryjrevenue. 244 The Nigerian government also supports the Publish What You Pay Campaign. 246 Moreover. Stock market regulators would be made to require resource companies to disclose such payments as a condition of being listed.K. Remarks at Conference for the Tenth Anniversary of the Introduction of the Tenge.hrw..
Besides. .U. 234 (2002) (citing a case where a stabilization clause in a petroleum contract was justified by the general principle of the sanctity of contract). requirements of information disclosure have not escaped accusations that they are laced with racial undertones or anchored in resistance to imperialism. imposed by external bodies are also open to this criticism. J. L. See generally DAVID H. making companies vulnerable to accusations of complicity in corrupt behavior. 247 As a group of European investors that represents up to $650 billion put it. uk/servlet/Satellite?cid=1053329505221&pagename=Smile/NCView&cpid=1054 307309197&c=Page. impairing their local and global. Investors are beginning to worry that such bad association with a company's name or brand could harm their investments. such as the EITI and trust funds. like many initiatives that are birthed in the developed world." Press Release. & POL'Y 217. PARRY. a feature that enables the excluded entities to evade the same obligations it assiduously seeks to impose. rendering them vulnerable to local conflict and in security. 2003). 26:1 listed on the stock market (including large state-owned oil corporations). conflicts and other problems with which some of these countries have been identified are considered inimical to business.30 DENV. in calling on companies to promote greater transparency in their revenue payments: "This is a significant business risk. Investing in troubled countries comes with a reputational disadvantage. Co-operative Insurance Society. One way companies can extricate themselves from this tangled web is through disclosure of their payments. Int'l Econ. 6. license to operate. A necessary corollary of corporate exoneration from the misuse Transactions. However.J. For MNCs. Further. for Extractive Companies.co. This would establish in the minds of the public that the companies are not responsible for the mismanagement of the huge revenues that 247 accrue to governments. Pa. INT'L L. at http://www. and possibly compromising their long-term commercial prospects in these markets. Other measures. the major impediments to implementation of information disclosure and strong national trust funds are the absence of international corporate regulation and the concept of state sovereignty.cispressoffice. This lacuna is huge. MAJOR IMPEDIMENTS TO IMPLEMENTING NATIONAL TRUST FUNDS AND INFORMATION DISCLOSURE The importance of information disclosure can hardly be overstated. THE SANCTITY OF CONTRACTS IN ENGLISH LAW 1 (1959) (exploring conceptions of the law of contracts). it could mean a reduction in exposure to'business risks. [Vol. Investors Call for Greater Transparency 2 (May 19.
253 See id. There may be a division of opinion as to whether a good corporate image or public opinion confers commercial benefits. at 70-71 (stating that the global economy has entered "the era of the corporate image" in which "consumers will increasingly make purchases on the basis of a firm's whole role in society: how it treats employees. members of the host communities would give the corporations breathing space and turn their attention to their errant local government 252 authorities. Sankar Sen & C. June 19-25. shareholders. 61 J. Does Doing Good Always Lead to Doing Better? Consumer Reactions to Corporate Social Responsibility. . 251 Id. Mastering Investment (Magazine). which is likely to benefit the oil corporations. Bhattacharya. allowing them to focus more aggressively on how the disclosed payments are being managed by their political leaders..68 (1997) (examining the effects of corporate associations on product responses). MKTG.g. at 50-52.B. Brand New Day. ECONOMIST. see also Geoffrey Heal. hardly anyone thinks that a good image is a detriment. July 2. 24 corporations spend a lot of money on public relations campaigns to burnish their images. and local neighbourhoods"). at 2 (noting the increasing "use of consumer buying power to attain social goals"). Dacin. 2001. 253 This could even 248 See. Brown & Peter A. 225 (2001) (exploring when corporate social responsibility initiatives work). e. 250 Some commentators have also observed that the publication of monies paid to local governments could be to the advantage of companies that face incessant demands for local benefits. 249 See Tom J. at 53 (describing the benefits of mandatory disclosure of oil com252 pany payments). TIMES. FIN. MKTG. It stands to reason therefore that information disclosure will also provide benefits to local communities. RES. 25' This is premised on the fact that with the knowledge that the governments are receiving vast sums of money from the oil corporations. 250 GARY & KARL. The Company and the Product: Corporate Associations and Consumer ProductResponses. However. Id. It will give a needed fillip and arsenal to civil society groups and local citizens. 38 J. supra note 96.20051 THE RESOURCE CURSE IN AFRICA of oil revenues is a positive perception by the public. 249 Subscribing to information disclosure could even provide better protection for corporate reputation than other avenues and mechanisms that companies have adopted to achieve the same objective such as codes of conduct and corporate philanthropy. Indeed. The Bottom Line to a Social Conscience. 1993. there is a very strong basis for the belief that companies enjoying positive public opinion are 8 It is no wonder that likely to have better economic performance. at 6.
J.pdf. and it was only through even harder prosecution that the oil companies finally agreed to pay the more than a billion dollars that they had avoided paying the state. for instance. and how the government uses the funds it receives from the sale of natural resources. Companies have strong incentives to maximize profits and the opacity that surrounds oil contracts and payments can 254 lead to abuse. In addition: Even more important is information about what the government receives for oil or other natural resources. 254 Joseph E. there is no doubt that scholars and campaigners will continue to try to convince oil-producing developing countries in Africa and other places to embrace the concept. Foreword to SVETLANA TSALIK. available at http://www. since without that transparency governments are lulled into a false sense of wealth that prompts them to make bad policy decisions. Int'l Econ. Based on these perceived benefits.soros. how this compares with what other countries are receiving. L. xii (2003). . in the State of Alaska. [Vol. One is left to wonder why this is not yet national policy in most of these countries. ing standards is essential to improving natural resource management and increasing wealth. Stiglitz. Pa. Joseph Stiglitz has noted that transparency in information relating to the revenues received by the government and fiscal account-. at xi. 26:1 lead to a reduction in conflicts among the various stakeholders as the lack of information and the mismanagement that flows from it certainly play a role in engendering strife in oil-producing areas. Governments should recognize that even in more developed countries major oil companies have tried to minimize their royalty payments by underreporting the effective price of oil and over-reporting their costs. The reality is that the governments would have to evaluate what danger it poses to them before they consider what benefits it holds for their country. A similar question or situation arises with national trust funds. CASPIAN OIL WINDFALLS: WHO WILL BENEFIT?.U. It was only through hard research that such evasion was detected.org/initiatives / cep/articlespublications/publications/caspianoilwindfalls_20030514/full-repo rt.
J. AND INTERNATIONAL GOVERNANCE (Gerard Kreijen et al. 256 GARY & KARL. supra note 96. This part discusses these two impediments. THE RESOURCE CURSE IN AFRICA The Chad-Cameroon Oil Pipeline Project is being credited with providing a model that is so useful that expectations are high about the possibility of its replication. at 73. SOVEREIGNTY. at 60 (quoting Mohamedu Diop. Government Failurein Sub-Saharan Africa: The InternationalCommunity's Options. 1003. One World Bank Group official has remarked: "This is going to be the model for every single project of this type world wide. Chad's Revenue Management Law and the Revenue Oversight Committee are novel institutions that could play a useful role if properly supported.1. Central Africa Resident Representative of the IFC)." 256 In view of the criticisms leveled against the Chad-Cameroon Oil Pipeline Project. Note. This is likely to be the route recommended for the new oil producers in Africa and perhaps even the older oil exporters. See James C. could prove useful in other 2 55 high profile. 43 VA. Owens. Sovereignty In its simplest form.. STEPHEN D. high-risk projects. such replication will be expected to incorporate changes that are tougher on governments. But the reality is that sovereignty and the absence of corporate regulation are strong impediments to implementing the type of arrangement that critics have proposed. with a strengthened mandate. sovereignty2 5 7 refers to "the power of 255 GARY & KARL. SOVEREIGNTY: ORGANIZED HYPOCRISY (1999). perceiving weaknesses in the structure -of projects that would make it easier for the government to out-maneuver the World Bank and the oil corporations at such a point that withdrawal from the country would be virtually impossible. allocation and management of revenues accruing to developing countries from international projects). are not so enthusiastic. in the context of past development failures based on oil. see generally STATE. 257 For interesting and stimulating discussions on sovereignty. INT'L L. 2002). and elements of the project could possibly be replicated elsewhere. . while favoring citizens. supra note 96. KRASNER. The World Bank's Independent Advisory Group. eds. 1044-49 (2003) (advocating an alternative arrangement in which an international supervisory body would be entrusted with the control. 6. Some commentators. According to some commentators: The World Bank effort on the Chad-Cameroon project is an innovative experiment.20051. however. and they could be adapted for other country contexts.
THE LAW OF NATIONS OR PRINCIPLES OF THE LAW OF .J. a small republic is no less a sovereign state than the most powerful kingdom. Hyperion Reprint ed. noting: "A dwarf is as much a man as a giant. C.260 One of the earliest leading authorities on sovereignty and statehood.. supra note 258. Campbell trans. O'Meara. 429. see also Shrewsbury. 14 (June 27) that "the whole of international law" is anchored upon the "fundamental principle of State sovereignty. 71 VA. Franklin ed. National Sovereignty and Human Rights in a Positive Law Context. 260 See Jianming Shen. so as to be annulled at the pleasure of any other human will. 261 JEAN BODIN.U. Shrewsbury. CHARTER art. 1183. The Continuing Constraintof Sovereignty: International Law. J. 259 The International Court of Justice declared in Case ConcerningMilitary and ParamilitaryActivities in and Against Nicaragua (Nicar. or in function. 115 (2003). 263 See U. International Protection." Id. Int'l Econ. REV. 262 HUGO GROTIUs." 265 Vattel did not mince 258 Stephen M. Cambridge Univ.U. U. supra note 258. & CoM. 1187 (1985) (" [S]overeign states possess complete authority within their respective national spheres. 115.). at 117-21 (discussing the evolution of the principle of state sovereignty in the context of international commercial law). which is widely regarded as giving birth to the nation-state and international law. J. writing that sovereignty was "not subject to the control of any other power. 417." 2 8 Sovereignty is at the foundation of international law." 262 The United Nations Charter provides for and protects the notion of sovereignty 263 The principle of sovereignty has a number of corollaries. ON SOVEREIGNTY: FOUR CHAPTERS FROM THE Six BOOKS OF THE COMMONWEALTH 3 (Julian H.. & trans. Applying the CriticalJurisprudenceof InternationalLaw to the Case Concerning Military and Paramilitary Activities in and Against Nicaragua.S. v. September 11th and the Single European Sky: Developing Concepts of Airspace Sovereignty. 26:1 states to regulate their internal affairs without foreign interfer2 59 ence. 265 EMMERICH DE VATTEL. 2. 264 The Swiss jurist Emmerich de Vattel elaborated on and emphasized the sovereign equality of states. at 419-20. 419-28 (2000) (discussing the history of the principle of state sovereignty). See also Elizabeth E. 26 BROOK. including the sovereign equality of States and the principle of nonintervention. Ruddick. at 133. and the Internally Displaced. Note. 1 ("The Organization is based on the principle of the sovereign equality of all its Members. widely regarded as the father of international law. supra note 260.C. conceived of the concept in absolutist terms." 261 Hugo Grotius. 264 Shen."). para. L.. [Vol. THE RIGHTS OF WAR AND PEACE 62 (A. 429-30 (1997) (discussing the prominence of sovereignty in the United Nations Charter). viewed sovereignty as being the absolute domain of the state. AIR L. see also Shrewsbury. see also Richard L. or in length of time. Pa. Note. "not limited either in power. at 117-18 (quoting Grotius). L. Hyperion Press 1979) (1901). especially with its connection to the Peace of Westphalia of 1648. 1986 I. INT'L L. Press 1992) (1583).N. 77 B. 68 J.") (emphasis in original). Jean Bodin. REV. L.
Appliques a la Conduite & Aux Affaires des Nations & des Souverains. at 423. The International Commission on Intervention and State Sovereignty. 1916) (1758). Sovereignty is a useful concept in protecting smaller nations from mightier powers. is abusive.N. Charter is one of 26 8 the most important corollaries of sovereignty. supra note 260. J.7 of the U. at 45 n. problems arise where a state has failed. or is weak. 266 Id.2. although there is a traditional association of the principle of nonintervention with the Peace of Westphalia. supra note 181. sovereignty is.. there is a reluctance to interfere in the political activities of borrower countries. RTs. Rhetoric and Reality: Human Rights and the World Bank. Additionally. In recent times. doubtless. based on its Articles of Agreement. Fenwick trans. At the same time. HuM. 269 See generally Korinna Horta. In such a situation. However. 269 A towering challenge is how to decouple the present conception of sovereignty from the entity of government. Principesde la Loi Naturelle. in the case of the World Bank. came up with an important report on the place of the principles of sovereignty and non-intervention in today's world. ou. there was no explicit articulation of the concept until one hundred years later in 1758 when Vattel published his Le Droits des Gens. Such states are unable to provide for the needs of the citizens and sometimes aggressively work against the citizens' interests through anti-people policies and practices. and where states are unable to do so owing to state failure or the outNATURE APPLIED TO THE CONDUCT AND AFFAIRS OF NATIONS AND SOVEREIGNS (C. 267 Krasner. these states are enabled to shield themselves with the concept of sovereignty or its corollaries. These international luminaries representing a cross-section of the globe reasoned that there is a "responsibility to protect" attach to states to protect the lives and liberty of their nationals.2005] THE RESOURCE CURSE IN AFRICA words about the importance of sovereignty: "Of all the rights that can belong to a nation. the ability of external entities like the World Bank to compel these states to adopt policies is severely curtailed. there has been a progressive movement toward curtailing the reach of sovereignty for the purposes of humanitarian intervention.267 The prohibition of interference and intervention provided for in Article 2. 268 Shen. ought most scrupulously to respect. a number of eminent scholars that convened in Canada in 2001. 15 HARV. the most precious and that which other nations. ." 266 Moreover. 227 (2002) (noting the limits of the World Bank's mandate).
275 Mortimer Sellers. 403. Franck. but steadily-to the extent where national leaders would not be able to hide under it to dehumanize their citizens. THE RESPONSIBILITY TO PROTECT (2001) [hereinafter ICISS]. INTERNATIONAL LAW: POLITICS AND VALUES 10 (1995) ("We might do well to relegate the term sovereignty to the shelf of history. repression or state failure. 11 CONN. are remote. 273 Id." 275 When governments begin to act as though state sovereignty is 270 INT'L COMM'N ON INTERVENTION AND STATE SOVEREIGNTY. The chances of an extension of this emerging idea of legitimate intervention to other areas. namely control of the proliferation of weapons of mass destruction and the people who possess them. emphasis on prevention. 274 Some scholars assert that this shift has already begun. and the state in question is unwilling or unable to halt or avert it. A similar extension or redefinition of the concept of sover272 eignty has been proposed in the context of international security. it is not a stretch to begin to imagine that the contours of sovereignty would experience a continuous chipping away-slowly. such as where a state has been unable to provide for the citizens due to the profligacy and irresponsibility of the leaders. [Vol." ICISS. 140 (2004). Lee Feinstein and Anne-Marie Slaughter state that the duty has three essential features. and collective exercise of the duty 273 through a global or regional organization. the Commission essentially chal271 lenges the traditional understanding of sovereignty. Nations could subsequently cede sovereignty to a senate or to a single person. 410 (1996)." Thomas M. See LouIs HENKIN. 271 Lee Feinstein & Anne-Marie Slaughter. 136. 46 (1992). Yet. "where a population is suffering serious harm as a result of internal war. According to the Commission. The Emerging Right to Democratic Governance. J. 26:1 break of war or hostilities. Pa. As a matter of fact. in the foreseeable future. L."). Int'l Econ. some scholars call for the abrogation of the concept of sovereignty entirely. INT'L L. at 137. the principle of nonintervention yields to the international responsibility to protect. the responsibility devolves to the international community. supranote 271. In that sense. Vattel argued that "national sovereignty belonged originally and essentially to the people collectively. with greater emphasis on "sovereignty of the people" than on "sovereignty for the benefit of the nation-state. but only to the common good of all citizens. sovereignty would once again begin to serve its proper purpose as a tool for the people's protection and benefit. 272 Feinstein & Slaughter. J. INT'L L. J. A Duty to Prevent. 86 AM. 270 Thus. 274 Indeed. supra note 270. . insurgency. at xi. 83 FOREIGN AFF.U. Republican Principles in International Law.
. There is still hope of a delicate balance. The World Bank could be said to have taken some steps in that regard with the Chad-Cameroon Oil Pipeline Project.. 277 Peter Rosenblum highlights this point: At the core is a challenge to the sovereignty of undemocratic rulers .. 199 (2000). INT'L L. but would also empower the people. 278 Peter Rosenblum. Sovereignty-Modern: A New Approach to an Outdated Concept... no one would have interfered in the relations between an oil company and an African state." Krasner. where the World Bank strengthens loan conditions that reinforce the democratic process in Chad and enable the Chadian people to better determine how their resources should be spent. 97 AM. at 34. He who ruled the state controlled its resources . 782. although in "watered down form. 99 CURRENT HIST. That would still threaten the sovereignty of leaders. 195. J.2005] THE RESOURCE CURSE IN AFRICA their personal property and that they can use the powers attached to or inherent in sovereignty to work against the common good of the citizens. 278 If the World Bank really hopes to address the resource curse in new and old oil-producing African States. supra note 181. It would appear that the revenue management arrangements encroached on Chad's sovereignty. Previously. 277 Krasner sees the arrangements as a case of shared sovereignty. it should be prepared for a policy that makes it clear to some of the authoritarian or selfcentered leaders that the interests of the people should be paramount. it is incumbent on the international community and international institutions like the World Bank to insist on promoting the interest of the people or refrain from doing business with the renegade governments.. 800-02 (2003) (recognizing that the traditional concepts of sovereignty are dissolving and proposing a role for international institutions in managing the transition and the future effects). Jackson. . Pipeline Politics in Chad. This would include accepting strengthened national trust funds and support for mandatory disclosure of information on oil receipts. 276 This could amount to an informal contraction or re-definition of the notion of sovereignty.. The World Bank is already working with the government of Sao Tome on managing expected oil revenue and saving for the 276 See John H.
J. Sigmund Timberg. 81.U. 280 The States-centric. THE CHANGING STRUCTURE OF INTERNATIONAL LAW (1964).. Jonathan I. 64 LAW Q. Chow. 1955). 174. [Vol. 193 n. instead. The Subjects of the Law of Nations. 28 4 The same can hardly be said of MNCs. see WOLFGANG FRIEDMANN. BRIERLY. Suing Multinational Corporationsin the U. INT'L L. CORPORATIONS IN AND UNDER INTERNATIONAL LAW 1 (1987) (discussing the effect of international law). OPPENHEIM.C."). 8th ed. 178-79 (Apr. 283 L. 748. 285 See M. notwithstanding their enormous influence in the domestic and international planes that has continued to grow over the years. & FOREIGN AFF. Pa. namely international organizations 282 and individuals (to a limited extent)283 have been recognized as possessing international legal personality and thus subjects of international law.. 26:1 future.J. 287 See Saman Zia-Zarifi.J. Limiting Erie in a New Age of InternationalLaw: Toward a Federal Common Law of InternationalChoice of Law. 165. 97. 1949 I. 284 Hersch Lauterpacht. 33 GEo. 394-98 (1945) (reviewing the status of private parties). 281 See.145 (1988) (defining transnational corporations). 6. 74 IOWA L.2. L. REV. traditional view of international law confers on States the status of subjects of international law to the exclusion of all other entities that interact on the international plane.g. INTERNATIONAL LAW § 290 '(H. LAW OF NATIONS 1 (Humphrey Waldock ed. supra note 119. has left the regu8 6 with the atlation of these behemoths to municipal authorities 2 287 tendant unsatisfactory consequences. REV. An International Trade Tribunal: A Step Forward Short of Surrender of Sovereignty. 6th ed.285 The international legal system. Other entities. 279 Shaxson. 280 J. Transnational Corporations and Developing Public International Law. 279 It is expected that these strong principles will form a part of the arrangement that the Bank comes up with. Charney. Lauterpacht ed. Daniel C. L. Absence of CorporateRegulation in InternationalLaw International law has been described as the law governing States in their relation with one another. 11) (advising that the United Nations be a subject falling under international law). 117-19 (1948). 1983 DUKE L. 282 See Reparation for Injuries Suffered in the Service of the United Nations.S. 1963) (defining international law as "the body of rules and principles of action which are binding upon civilized states in their relations with one another"). IGNAZ SEIDL-HOHENVELDERN. 4 UCLA J. 84-86 (1999) (describ- . 281 The past few decades have witnessed an encroachment into this turf that used to be the exclusive preserve of nation-states. For Violating InternationalLaw. Int'l Econ. SORNARAJAH. 753 ("The only subjects of international law are nation-states..J. 373. THE INTERNATIONAL LAW ON FOREIGN INVESTMENT 55 (1994) (analyzing risk in foreign investment). 286 For a general discussion on this subject. e. L. K.
Louis HENKIN ET AL. 289 See Surya Deva. see IAN BROWNLIE. Review. 2001). especially developing ones. Recent Publications:The New Public Order. J. [O]f the biggest concentrations of wealth in the world.2005] THE RESOURCE CURSE IN AFRICA Regulation of MNCs in international law has not been realized mainly because such regulation would necessarily import their unambiguous recognition as entities in possession of international legal personality. states. 93 (July 22). 259. see Case Concerning the Payment of Various Serbian Loans Issued in France (Fr. 259-60 (Michael K. A) No. For instance. THE REGULATION OF NATIONALITY IN INTERNATIONAL LAW (1983)). see also Nicola Jagers. 51% are owned by MNCs and 49% by states. INTERNATIONAL LAW: CASES AND MATERIALS 368-69 (4th ed. 2 n. the determination of a corporation to go by higher standards will be derailed once there is a realization that others can successfully avoid playing by those rules. in HUMAN RIGHTS STANDARDS AND THE RESPONSIBILITY OF TRANSNATIONAL CORPORATIONS 259. 2003). 26 YALE J.J. Michael Reiterer. Corporate regulation in international law is an idea worthy of serious consideration. are international legal persons. compelling corporations to disclose their payments. especially MNCs. J. The Legal Status of the Multinational Corporation under International Law. see Elihu Lauterpacht.5 (2003) ( "In many situations. There is still a huge debate as to whether corpora2 88 tions. INT'L L.). Serb. Even if mandatory rules are created under the PWYP Campaign. International Law and Private Foreign InGLOBAL LEGAL STUD. Peter Malanczuk.. v.INT'L L. J.C. at 41 (July 12) and Anglo-Iranian Oil Company Case (U. 547 (2001). especially as it will seek to harmonize the multifarious rules with which corporations are expected to comply. For the jurisprudence of the Permanent Court of International Justice and the International Court of Justice. In particular. 20/21. 970.. 4 IND.. supra note 281.C. can be weaker than MNCs in terms of both economic and legal capacity. For a contrary view. if some corporations choose to bulk the trend ing the ineffectiveness due to lack of effective international regulation)."). PRINCIPLES OF PUBLIC INTERNATIONAL LAW 67 (6th ed. INT'L L. 527. 272-76 (1997). . 288 For the view that corporations have now been imbued with international legal personality. It will also eliminate the problem of competitive advantage which less scrupulous firms will have over more conscientious ones. 1999) ("[MNCs] have acquired a great amount of power . (ser. Book vestment. v. 970-74 (1987) (reviewing RUTH DONNER. there will still be other aspects of corporate life or endeavor that affect people and the environment over which clamor for corporate control will continue. In the absence of an international regulatory structure for MNCs that are generally not amenable to legal control in their host countries. Addo ed. 289 it is hard to elicit their cooperation on some of these issues.K. Human Rights Violations by Multinational Corporationsand International Law: Wherefrom Here? 19 CONN. 81 AM."). Iran).J. 1.I. 1952 I. A universal regulatory structure at the international level will serve the purpose better. 1929 P... Chow.
Certain business principles. Corporations that do not abide by the principles can be sanctioned before a competent judicial organ recognized by the international arrangement. 26:1 and "race to the bottom" on these issues. see THE ALIEN TORT CLAIMS ACT: AN ANALYTICAL ANTHOLOGY (Ralph G. At least.U. For a rich body of commentary on the Alien Tort Statute from divergent perspectives.. Business Section. CHRON. Oil Giants Say Disclosure Won't Work Everywhere. as the government of Angola essentially did when BP made public the signature bonuses it paid to the government. MITROKOSTAS. the incentives to adopt that approach are huge. . Pa. 1999). AWAKENING MONSTER: THE ALIEN TORT STATUTE OF 1789 (2003). However.. there is hardly any opportunity or forum for legal recourse against them. supra note 137. if there were an international legal arrangement binding on corporations. 291 David Ivanovich. In addition. Given that such an action can yield sizeable financial benefits. J. Int'l Econ. Emeka Duruigbo. In essence. For a further discussion on the importance of. including transparency and anti-corruption initiatives. L. 2003. at 1. Hous. Instead. This organ does not necessarily have to be one tribunal situated somewhere far from those who suffer the most from wrongful corporate behavior. [Vol. June 18. it will be hard pressed to accede to it. at 200-08. see DURUIGBO. 14 MINN. it will not be so inclined to brand the corporation as an enemy. even when such conduct occurred outside the United States. domestic judicial institutions in different parts of the world can be empowered and deployed to hear claims against the 290 recalcitrant corporations. every major corporation would be required to be a part of it. Steinhardt & Anthony D'Amato eds.GLOBAL TRADE 1 (2004). The Economic Cost of Alien Tort Litigation: A Response to Awakening Monster: The Alien Tort Statute of 1789. and impediments to. J. 291 The lack of international regulation of the sort envisaged here will remain a strong impediment to the realization of the objectives of the transparency campaigns and the efforts to get corporations 290 This would be similar to the practice under the Alien Tort Statute (also known as the Alien Tort Claims Act) in the United States where rules agreed upon by the international community are utilized in the domestic setting to hold corporations accountable for their actions that breach international law. will be part of that arrangement. corporate regulation in international law. if the government sees that a company is constrained to abide by international obligations to disclose payments. the existence of binding international legal obligations from which corporations cannot easily get away would strengthen their hands in negotiations and discussions with governments that are inclined to take a different path. GARY CLYDE HUF13AUER & NICHOLAS K.
under his own name. D.C. 294 Thus. 7. although Equatorial Guinea is a small country. 295 supra note 169. OIL IN NIGERIA: CONFLICT AND LITIGATION BETWEEN OIL COMPANIES AND VILLAGE CoMMuNITEs 52 (2000).N. This does not have so many alternative sources of funding.2/2003/12/Rev. open to doubt. It has been hailed as "the first nonvoluntary initiative accepted at the international level" to govern the activities of MNCs and other business entities. they have their limitations when it comes to addressing some local issues. supra note 7. It will be interesting to see what happens if any MNC does not abide by their dictates. it is even a huge sums of money. Among them is Equatorial Guinea's Teodoro Obiang. however. Weissbrodt & Kruger. The legal status of the norms is.000. for a discussion on how even Angola has proven less amenable to control or direction away from the corrupt and anti-people route embarked on by the government. supra note 138. Yet. supra note 96. for instance. the possibility of instituting a Chad-like arrangement begins to diminish. They provide avenues for transparently and accountably managing public assets and ensuring that governments free more money for national development. at 183-84. this option may be foreclosed. 293 JEDREJ GEORG FRYNAS. he believes that that they impose obligations and differ from previous voluntary initiatives. states that they are soft law.2005] THE RESOURCE CURSE IN AFRICA to play a greater role in addressing the resource curse. 292 An additional tool that is worthy of consideration as a complement or alternative to national trust funds is the institution of sub-national or local trust funds.4/Sub. who chaired the committee that drafted the norms.2 (2003). Where oilproducing states can have recourse to financing from private commercial lenders and international institutions by. See Ganesan. see also Duruigbo. A recent report by Global Witness accused several leaders in Africa and elsewhere of looting their own treasuries. LOCAL TRUST FUNDS National trust funds have their advantages. . As an experienced World Bank lawyer remarked to 9 the Author and others. it may still flex its muscles because it has already come by 5 For bigger and "richer" states. Professor David Weissbrodt. with a population of about 500. U.29 tougher battle. 293 Where national officials are opposed to their establishment. Nigeria can stand in for any large or rich country. E/CN. 294 GARY & KARL. at 913-14. who calls oil revenues a "state secret" and is accused of keeping oil companies' payments (running into hundreds of millions of dollars) in a bank in Washington. "Who's going to tell Nigeria what to do?"2 6 292 A set of "Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights" was recently approved by the United Nations Sub-Commission on the Promotion and Protection of Human Rights. Doc. borrowing against their oil wealth. 296 Here. However.
Smaller arrangements will be more manageable and may prove more effective. This is a positive gesture that does not place the sort of obligations that governments would oppose because only corporate and other nongovernment funds are involved. it is quite doubtful that a national fund will be able to address the needs of all the people. only they get mismanaged. In view of the fact that governmental involvement has been a part of the problem of mismanagement. J. Moreover. see Duruigbo. the role of the government will be minimal. [Vol. it can have a representative on the board of trustees.. in bigger countries. a local trust fund can dispense with governmental involvement or management. Asking governments to surrender to an extent their management of resources.. Local community members will play a key role in running these funds by electing most of the trustees and keeping an eye on their activities. the governments already spend money on some of these issues.. Int'l Econ. . at 184-85.U. 297 community-based trust funds are a useful option. the Nunavut Trust is a community-managed fund. 26:1 [ 2 The transaction costs involved in administering gigantic funds may also make such arrangements unproductive. Thus. The Trust also demonstrates how these communities can be compensated for the negative ex297 For an. It has earned strong returns while maintaining accountability to its constituents and serves as a good example for [other] underdeveloped oilproducing regions. transparent manner. Governmental participation will ensure that the government does not oppose the constitution of the trusts or refuse to contribute to their funding. The World Bank and MNCs could jointly play a role in setting up these funds as a way of managing local oil revenues and corporate community development funds in a.extensive discussion of community-based trust funds. may not be as threatening as the kind of national schemes to which governments may object. Svetlana Tsalik describes the fund and its attraction as follows: Unlike government-run oil funds. An example of a community-based trust fund run independent of the government is the Nunavut Trust of Canada. 298 Even in countries with more efficient governments. for instance. Pa. while expecting to meet the opposition of those who profit from the present corrupt schemes. Even where the trust incorporates public resources. supra note 169. 298 Id. L.
2005] THE RESOURCE CURSE IN AFRICA ternal consequences of oil development. 3 299 TSALIK. 303 promotes the publishing of corporate payments to governments and expects the governments to disclose their oil receipts. financial and development institutions and non-governmental organizations indicate that they are amenable to 300 putting of this idea into operation. and for proper allocation and utilization of resources. contrary to legitimate expectations and economic theory. has not been largely beneficial to many countries blessed with the natural resource. supra note 300 301 302 303 304 254. CONCLUSION . EITI. 299 It is heartening to note that preliminary discussions and correspondence between the Author and representatives of corporations. See Palley.Oil production.and new producers. See Duruigbo. This form of information . supra note 228. supra note 245. and how they can turn such compensation into an enduring source of income. at 92. A sterilization fund would keep resources away from officials who are prone to engender the Dutch Disease through ir0 4 Funds controlled by a trust responsible application of resources. supranote 242. It is imperative therefore to design arrangements that will help address this problem in both old. 8. sterilization. disclosure. Suggestions also include different kinds of funds for stabilization. see also WBG Endorses EITI. A stabilization fund would provide well-needed mitigation to the price shocks that have become a part and parcel of the oil industry. there is the concern that they may go the way of their predecessors. 30 ' They include promotion of revenue transparency by oil corporations and oil-exporting governments. at 64. communities. A number of ideas have been generating interest as panaceas to the resource curse. at 25. See Karl. Scholars in economics and political science have tried to explain the resource curse. As more African countries make a foray into oil development. exemplified by the EITI302 and the PWYP Campaign. This problem is particularly acute in Africa. supra note 169. Utomi. at 16. attributing it to a number of factors. supra note 54. The object is to ensure that oil revenues are fully accounted for and properly utilized. . supra note 32.
310 See Ricky Lam & Leonard Wantchekon. 98 AM. WHY Do RESOURCE ABUNDANT COUNTRIES HAVE AUTHORITARIAN GOVERNMENTS? 21 (Yale Univ. Political Dutch Disease 17 (unpublished paper presented at the N. 3 07 Revenue distribution arrangements are also being promoted. 139 (2004). supra note 18. Contra Coercion: Russian Tax Reforn. 307 Id. 1999) (discussing the independent organization which manages profits from Alaska's natural resource development). and Negotiated Institutional Change. J.E. scholars have been focusing on the importance of transparency in governance. Changes in the ownership structure in the oil industry have also been proposed as an option that could most effectively lead to democracy and economic development. [Vol. Leitner Ctr. U. mitigate or reverse the resource curse. at 3. 26:1 or trust-like institution are viewed as particularly important in the petroleum industry where oil trusts can provide an effective check on rent-seeking activity. 306 See LEONARD WANTCHEKON. L. 308 See SALA-I-MARTIN & SUBRAMANIAN. Accordingly. .. while taking away huge revenues from the government in order to enable the political leaders to build enduring institutions for economic development. Exogenous Shocks. Consortium Conference. (proposing the Alaskan model). democra09 3 tization and reforms of taxation and the civil service. which has also been commended as a way to steer states away from a rentier state mode and avoid the resource curse.ca/neudc2004/fp/wantchekon-leonard . 309 See Karl. available at http://www. at 16 (describing the process of Russian tax reform).U. Oct. 99-12. POL.hec. 1-3. The contention here is that in countries where the element of political contestation is present. "PALLEY.avril16.pdf. transferring the ownership of the oil industry to private domestic interests obviates some of the problems attendant to the concentration of oil resources in the government or foreign private interests. 2004). supra note 32. -improve domestic governance in oilproducing countries and avoid. at 12. Pa. The idea is that such distribution will offer citizens the benefit of resources with which their country has been endowed. 308 The need for reform of government institutions cannot be overemphasized. supra note 181. ScI. 305 An institutional arrangement by which an independent institution under the direct control of the judiciary is assigned the responsibility of monitoring the management of petroleum funds 306 has also been proposed. at 41. REV. Dev. Building on 305 Krasner. supra note 5. Montreal.310 Perhaps. this can be achieved through privatization. Int'l Econ. see also Pauline Jones Luong & Erika Weinthal. Working Paper No.
Accordingly it canvasses the institution of local trust funds as a complement or alternative to national trust funds. Most significantly. 1 This work has closely examined two of these proposals. solutions. Not satisfied that only national solutions are needed and recognizing that some national prescriptions may be infeasible. not the corrupt and oppressive governments.20051 THE RESOURCE CURSE IN AFRICA the argument that the resource curse is associated with state own3 1 ership. It has evaluated them and noted some impediments surrounding them. Luong & Weinthal. Energy Wealth and Tax Reform in Russia and Kazakhstan. . 27 REsouRcEs POL'Y 215 (2001) (discussing possible solutions to the resource curse). this argument calls for privatization. at 28. 311 See Pauline Jones Luong & Erika Weinthal. Corporate regulation in international law is also of critical importance. The World Bank and MNCs can play an important role in this regard. supra note 62. state sovereignty is a critical factor that needs to be aligned to the interests of the people. namely national oil trusts and information disclosure arrangements. this work also argues that it will be helpful to consider local-based.