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Politics

The Curse of Oil

20 July 2003

Sao Tome and the Curse of Oil

By Gwynne Dyer

Why has Algeria been devastated by tyranny and civil war, while neighbouring Morocco is peaceful, relatively democratic, and no poorer? Why is Angola, once Portugal’s richest African colony, a wasteland of poverty, violence and corruption with enclaves of glittering wealth, while Mozambique, its poor relative in colonial times, is now peaceful, fairly equal, and politically open? Why was Iraq under Saddam Hussein even more violent and repressive than Syria, its near twin that has also been ruled by the Baath Party for over three decades?

Because for countries in the developing world, oil wealth is usually a disaster: Algeria, Angola and Iraq all have a lot of oil, while Morocco, Mozambique and Syria do not. All of these countries had fragile political structures, ethnically complex populations and difficult colonial pasts, but the ones that descended into a full-spectrum nightmare were the ones that struck it rich with oil. To see how it works, consider Sao Tome, which began its descent last week.

Sao Tome is a small island state in the Gulf of Guinea left over from Portugal’s African empire. It fell on hard times economically after independence in 1975, but recently undersea oil was found straddling the seabed border between Sao Tome and Nigeria. Current estimates suggest that there are between 6 and 11 billion barrels in Sao Tome’s section — enough for a production of around a million barrels a day.

Since there are only 140,000 people in Sao Tome, that would yield enough revenue to increase their current per capita income of $280 per year twenty-fold if it was divided up evenly. Divided up much less equally, however, it would make some people disgustingly rich. Last week some people with guns decided that that was a much more appealing prospect.

Sao Tome has been a multi-party democracy since 1990, but as oil wealth loomed the local political parties began accusing one another of being under the influence of foreign oil interests. By last year’s parliamentary elections, some militants of the rival parties were going around armed — and in January President Fradique de Menezes dissolved the parliament before it could limit his powers to negotiate oil contracts with oreigners.

De Menezes had just signed a deal settling a long-standing dispute with Nigeria over the two countries’ undersea frontier that gave the latter 60 percent of the oilfield, and his opponents were convinced that he had been bought off. In April some former mercenaries from Sao Tome who fought for South Africa’s apartheid regime in the infamous ‘Buffalo Battalion’ joined a minor party called the Christian Democratic Front (FDC) and called for a rebellion. And then on 16 July, while de Menezes was visiting Nigeria, there was a coup.

The coup leader is a well-known army officer, Major Fernando Pereira, but his partners are the guns-for-hire of the FDC. As de Menezes says, “It’s only for the oil that they have seized power” — the first big flow of revenue, at least $100 million, will come with the sale of rights to nine offshore blocs in October — and so Sao Tome starts its descent into hell. Or maybe not, because the outside world’s attitude is changing.

The other Portuguese-speaking countries of Africa, backed up by Nigeria and South Africa, have threatened to use force if the soldiers do not allow President de Menezes to return. The United States, which plans a military base in Sao Tome to protect the growing share of its oil imports that comes from countries around the Gulf of Guinea, also opposes the coup. And the oil companies themselves are under pressure to clean up their act.

The days of huge bribes as standard operating practice for Western oil and mining companies in the Third World are numbered, because investors, human rights activists, and even the companies themselves are starting to insist on full disclosure of payments made. BP has taken the lead, posting its production-sharing agreement with Azerbaijan on a website and disclosing ‘signing payments’ that it made to Angola.

The Angolan state oil company threatened to expel BP if it published any further information, but other companies can see the logic of BP’s move. The dirty deals may mean bigger profits for oil companies, but they can also mean bigger problems because the local people hate them for it. That is what drives the chronic violence against foreign companies operating in Nigeria’s oil-rich Delta region, for example.

So there has been a surprisingly positive response to the British government’s Extractive Industries Transparency Initiative, launched last year to persuade oil, gas and mining companies to reveal their payments to resource-rich countries voluntarily. And the non-governmental organisation Global Witness has launched a parallel campaign called ‘Publish What You Pay’, asking stock exchanges to require listed oil and gas companies to publish a single annual figure of net payments in each country where they operate.

Mobil is facing a huge criminal case over alleged bribes in Kazakhstan, and the French company Elf faces similar action over payments in various African countries. The tide is gradually turning against the old way of doing business — but whether it will turn in time to save Sao Tome is another question.

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To shorten to 725 words, omit paragraphs 10 and 11. (“The  Angolan…operate”)