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ECON-Report no. 2004-062, Project no. 41360 PublicISSN: 0803-5113, ISBN 82-7645-716-9LLU/cjo, THA, 13. September 2004

ECON Analysis AS

P.O.Box 5, 0051 Oslo, Norway. Phone: + 47 45 40 50 00, Fax: + 47 22 42 00 40, http://www.econ.no


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- ECON Analysis -West Africa oilcurse or blessing?

Table of Contents:

1 INTRODUCTION.......................................................................................11.1 Key findings......................................................................................1

2 THE VOLUME AND POTENTIAL OF WEST AFRICAN OIL.................3

3 WEST AFRICAS GROWING GEOPOLITICAL ROLE .......... .................7

4 NORWAY AND WEST AFRICA COMMERCIAL BONANZA ANDOFFICIAL NEGLECT? ............................................................................10

5 THE RESOURCE CURSE AND WEST AFRICAS OIL AND GAS .......135.1 Fuelling conflict? ............................................................................155.2 Implications and challenges.............................................................165.3 Responsibility and leverage.............................................................17

6 CHALLENGES TO THE INTERNATIONAL OIL INDUSTRY..............20

7 CHALLENGES TO THE NORWEGIAN GOVERNMENT .....................257.1 Multilateral options .........................................................................267.2 Proposed input to Norwegian multilateral strategies ........................297.3 Bilateral options and scope of action ...............................................30


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1 IntroductionThis overview report summarises findings of the project West African oil curseor blessing? The project has been carried out by ECON Analysis at the request ofthe Norwegian Ministry of Foreign Affairs. Its main goal is to analyse thedynamics behind the impact of oil revenues (and also the oil sector in general) onthe security, social, economic and political development in the region. It aims atproviding relevant background information to facilitate informed and effective

Norwegian policy-making on West Africa. Project research was carried out in theperiod from December 2003 through May 2004. In addition to this survey ofoverall conclusions and recommendations, the project provides the followingoutput:

A study on geopolitics and energy security dimensions of West Africas oiland gas (ECON Report 2004-063);

A study of international policy initiatives that address, directly or indirectly,oil revenue management challenges in West Africa (ECON Report 2004-064);

Country briefs of the following West African countries: Nigeria, Angola,Equatorial Guinea, Gabon, Chad, Cameroon and So Tom e Prncipe(ECON Report 2004-065).

1.1 Key findingsWest Africa is experiencing an unprecedented oil and gas bonanza. Led byNigeria and Angola, oil will generate up to 200 billion USD in regionalgovernment revenue for this decade only, and a similar if not larger amounttowards 2020. The regions geopolitical role is growing, as it provides a welcomealternative to oil imports from high-risk regions in the Middle East. The US willsoon take 25 per cent of its oil imports from West Africa. This picture contrastsconspicuously with glaringly negative impacts of oil on the human development

indicators of West African countries. For Nigeria in particular, 30 years of oilhave coincided with no or even negative economic growth and vast increases inabsolute poverty and inequality. And even if countries like Angola and Chadpresently experience rapid oil-fuelled economic growth, corruption and extremepoverty relegate them to the two last places in World Economic Forums 2004African Competitiveness Report.

West Africas oil curse is a major challenge to the international community notonly because of the suffering of its largely desolate and poorly educatedpopulation. Increasingly it threatens the regions unique potential of providinghighly welcome oil exports to major geopolitical powers. While the largely off-


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shore production facilities are considered fairly low-risk today, continued failurein oil sector- and revenue management may generate societal anger and mistrustand could throw many of the countries back into dictatorships and civil wars.More than before, this will also challenge international oil companies. For a rangeof reasons their licence to operate, and their valued brand names, are bound tobecome more sensitive to how oil impacts on their countries of operation

particularly in a region that is totally dependent on oil. Their CSR-inspiredcommitment to be a force for good link their agendas closely with those ofconcerned governments and multilateral institutions, who are currently enhancingtheir efforts to address West Africas oil curse.

On many accounts Norway is well placed to engage in this growing internationaleffort to address West Africas resource curse. Norwegian oil- and servicescompanies are already investing in the region to the tune of 5-8 billion NOKannually (or more), and West Africa is set to become one of its key marketsbeyond the Norwegian continental shelf. Norways overall experience inmanaging oil and gas resources to the benefit of the people generates substantialinternational interest, and represents a unique starting point for Norwegian

contributions to improved oil management in West Africa. This potential,however, contrasts with a very limited official Norwegian interface with theregion. There are many reasons for this relative absence, but we conclude that asignificant boost is needed in order to realise Norways potential to contributemeaningfully to global efforts to improve oil management in West Africa. In sodoing, it is essential to address the coherence cracks in present Norwegianpolicies, by uniting the following three main policy branches behind a commonagenda: foreign policy, industrial policy/business promotion and developmentcooperation. A number of specific recommendations to this effect are presentedtowards the end of this report.


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2 The volume and potential ofWest African oil

Oil holds enormous promise for the troubled population of West Africa. Provenoil reserves doubled in the last decade, to over 60 billion barrels. West African oilproduction is projected to increase by 50 per cent or more by 2010, when it islikely to exceed 6 billion barrels of oil (double that of Norways current

production). Investment in the regions deepwater fields will exceed 50 billionUSD by 2010, making the Gulf of Guinea the worlds largest recipient of offshorehydrocarbon capital investment.

As of present, the annual gross value of oil produced in West Africa has passed 30billion USD and is likely to reach 50 billion USD by 2010. Petroleum FinanceCorporation (PFC) estimates that for the present decade, the region will receive amean expected value of above 180 billion USD, and 350 billion USD in theperiod 2002-2019. These are rather conservative estimates that exclude value fromyet-to-be-discovered reserves, and the share that international oil companies(IOCs) are expected to take (150 billion USD for the entire period 2002-2019)comes over and above the estimated government revenues.

The figures presented below give some indications of the size and significance ofthe emerging West African oil bonanza. Figure 1 reveals the expected levels of oilrevenues as distributed between the countries in the region and betweengovernments and international oil companies.


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Figure 2.1 Estimated oil value for West African governments and

international oil companies, including Government and IOC

take levels 2002-2010

0

50

100

150

200

250

Chad Cameroon Gabon EquatorialGuinea

Angola Nigeria Norway

US$billion

0

2

4

6

8

10

12

14

16

18

20

US$thousand

Government IOC Per Capita

60%

40%80%

20%

60%40%

75%

25%75%25%28%

72%

88%

12%

Source: PFC and CSIS, 2004

The second figure provides the proportional share of oil revenues betweencountries in the region for the coming two decades. We see that Nigeria andAngola dwarf the other countries, and also that Nigeria by any measure willremain the regional oil super power.

Figure 2.2 Proportional distribution of expected government oil value

2002-2019

Angola

28 %

Nigeria

61 %

Gabon

4 %

Equatorial Guinea

5 %

Chad

1 %

Cameroon

1 %

Source: PFC and CSIS, 2004

In comparing present (2002) oil revenues to GDP, government revenues andexport revenues respectively, Figure 2.3 gives a graphic illustration of thedominant role of oil in West African economies. If anything, with the expectedincrease in revenues described above, oil is becoming to grow into an even moredominant factor in the years to come.


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Figure 2.3 Oil revenues as compared to GDP, total government revenues

and export revenues in 2002

23 %

36 %

30 %

18 %

7 %

19 %

81 %77 % 77 %

56 %

34 %

25 %

95 %92 % 92 %

79 %

49 %46 %

Equatorial Guinea Nigeria (2001) Angola Gabon Cameroon (2001) Norway (2003)

Oil revenues as % of GDP 2002

Oil revenues as % of total revenue 2002

Oil revenues as % of export revenues 2002

Source: IMF, OED (Norway)

Figure 2.4 compares current (2002) production levels with the reserve situation inthe region, and also contrasts that to the situation in Norway and the UnitedKingdom. This provides another indication that oil is going to remain a key factorin West Africa for decades to come, and in particular for Nigeria, at a time whereoil production levels have already peaked in the North Sea. Add to this picture thesubstantial gas reserves that only now are starting to be utilised and exported togrowing markets overseas.1

Figure 2.4 Comparison of petroleum production levels in relation to proven

reserves (2002)

0,4

2,51,1 5,4

10,3

4,7

24,0

0

500

1 000

1 500

2 000

2 500

3 000

3 500

Cameroon Gabon Equatorial

Guinea

Angola Nigeria Norway UK

Productionthousandbarrelsdaily

0

5

10

15

20

25

30

Provenreserves(thousandmillbarrels)

Production (thousand barrels daily) Proven reserves (thousand mill barrels)

Source: BP Statistical review 2003, EIA (Equatorial Guinea)

1 For instance, Nigeria and Algeria are currently working with the World Bank and other potential investorson plans for a trans-Sahara natural gas pipeline from Nigeria to Algeria, which will help Nigerian gasreach European markets. World Bank support for the deal is still pending, however, not least due tocontroversies surrounding the Extractive Industries Review.


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Ranking among the poorest developing countries in the world, the projectedincome provides a unique potential for economic growth and social well-being inWest Africa, dwarfing by far any other source of income. The challenge, as wewill see below, is to find ways to break up the vicious cycles that have hithertomade oil a curse rather than a blessing across the region.


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3 West Africas growinggeopolitical role

In geopolitical terms, Africa fell off the map following the end of the Cold War.As superpower rivalry on the continent subsided, Africas political and economicmarginalisation grew. This trend is now about to be reversed, particularly for keywestern parts of the continent. Africa is back in the geo-strategic calculation of

major powers. The international security dimension of the continents multiplechallenges has become more pronounced as a result of the war on terrorism andthe spiralling migration patterns across the Mediterranean. Africa has served as astaging post for terrorist attacks both within the continent and in the Middle East.Along a more positive vein, foreign investment is returning, the overwhelmingbulk of it relating to the development of petroleum resources on- and offshoreWestern Africa. Moreover, the international community seems increasinglydevoted to helping Africa, at least those countries showing signs of improvedleadership and governance. The US Millennium Challenge Account and the newBritish Commission for Africa are cases in point.

Unrest in the Middle East, Iraq and elsewhere, pushing oil prices towards 40USD/barrel, are increasingly moving the energy security spotlight towards WestAfrica. While its overall oil output will represent 7-9 per cent of global oilproduction at the end of the decade, the regions position as an incrementalsupplier will be even stronger. On a rough estimate, towards 2010 one in five newbarrels of oil brought on the world market will come from West Africa. And whenOPEC nations cut back their own production to sustain high oil prices, it is thesuppliers outside OPEC that step in to meet rising demand. Nigeria is the onlyOPEC member (and a lukewarm one at that) in West Africa. To Western countrieswith growing energy security agendas, the comparative advantages of the regionhave become more apparent: openness to foreign investment; relative politicalstability; limited OPEC influence; low political risk on account of predominantly

offshore production, proximity to US and European markets and high qualitycrude oil.2

Importantly, foreign investment in the petroleum sector reflects a confluence ofbusiness and geopolitics, in the sense that the commercial interests of internationaloil companies often come together with the broader economic and securityinterests of their home governments. If companies can rely on the governments to

2 The latter is not the least important: much of present spare production capacity in other regions, includingSaudi Arabia, holds far lower quality and often needs additional processing in order to meet demand.


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do their bidding, it can sharpen their competitive edge. And the more powerful thegovernment, the greater the potential to the company. It is no accident, therefore,that the supermajors ExxonMobil, Shell, Total, BP and ChevronTexaco,dominate the West African energy scene.

This confluence of business and geopolitics serves to explain the growing US role

in West Africa. Today, 17 per cent of US oil imports originate in the region, whilethe corresponding figure will reach 25 per cent before 2015. US energycompanies account for a third of the more than 50 billion USD that will beinvested in the Gulf of Guinea by 2010. Increasingly, the US military is trainingthe armed forces in counter-terrorism, peacekeeping and border patrol, and thereare rumours about US moves towards setting up a military base in So Tom ePrncipe. US expansion in the region to some extent comes at the expense ofFrance, for a number of reasons. Both France and the francophone countries seetheir interests promoted by diversification beyond each others backyards theformer by engaging more thoroughly also with other African regions, and thelatter with increasing contacts with US, European and Asian countries like China.The privatisation of Total (formerly TotalFinaElf) has probably also oiled a (also

otherwise) strong push by the main French oil company into non-francophoneAngola and Nigeria.

Nigeria remains at the centre of British interests in the region, while theimportance of Angola is rising. Energy security is moving upwards on the UKspolicy agenda, as the country is just about to become a net oil importer. Since themid 1990s, efforts to promote British energy interests have increasingly beenaccompanied by calls for more transparent and accountable oil revenuemanagement in these countries. This reflects the growing preoccupation in Britishcivil society, and increasingly also with institutional investors, with the seeminglyharmful effects of oil & mineral riches on poor oil-producing nations. Nigeria iscommonly perceived as the ultimate example of an oil-producing nation afflicted

with the resource curse, and there is growing concern that history may berepeating itself in Angola and elsewhere in West Africa

The emerging geopolitical salience of West Africa is also behind Chinas growingappetite for investments and political dialogue with governments of the region.Chinese companies are winning high-profile construction contracts in severalcountries. China is particularly eager to court oil producing countries in WestAfrica (and other African countries such as Sudan), for a number of reasons: First,it reflects hat Chinas economic influence is growing beyond Asia. Second, asChinas dependence on oil imports is rocketing (and in fact constitutes a maindrive behind current high oil price levels), securing sources of supply beyond thepolitically charged Persian Gulf region, in this case in West Africa, takes on

added significance. China, a net exporter of oil until the mid-1990s, will soon beimporting volumes of oil equivalent to total West African oil production. Third,China is trying to counter Taiwanese steps to buy recognition and influence inWest Africa.

To date, the Chinese approach in the region has been more in the form of politicaldialogue and offering assistance and credits than direct investment in oil and gasacreage, but that is about to change. Wei Jianguo, the deputy minister in ChinasMinistry of Commerce, who visited Nigeria in May 2004, announced that Chinesecompanies Sinopec and CNPC were prepared to invest 500 million USD indeepwater oil blocks OML 64 and 66 off the Nigerian coast, and also indicated


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growing general interest in Chinese oil and gas expansion in Nigeria and otherWest African countries (Afroil, 25 May 2004).


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4 Norway and West Africa commercial bonanza and

official neglect?A number of historical and cultural reasons lie behind a strong bias towards

Eastern and Southern parts of the continent in Norwegian relations with Africa.Missionary movements carved out these regions on the map, and they precededphilanthropic organisations and official aid bodies who could capitalise on well-established networks. Language and also less tangible cultural factors haveprobably also played a role historically Francophone Africa has attracted onlylimited attention in Norway. Over the last decades development cooperation hasbeen a prime determinant of official Norwegian relations with Africa. Well intothe 1990s the Norwegian embassy in Dar es Salaam, Tanzania, housed moreofficials than its counterpart in Washington DC and was thus the largestNorwegian embassy worldwide. As of 2004 the picture is a bit more mixed, whilethe (plus/minus) ten relatively well-staffed embassies in Eastern and SouthernAfrica tell a clear message with regard to Norwegian foreign and development

cooperation policies towards Africa. It reflects, of course, the annual flow of 3-4billion NOK in Norwegian development aid to (primarily these regions in) Africa.

West Africa is presenting an altogether different picture. The official Norwegianpresence is marginal, with embassies only in three countries Nigeria, the IvoryCoast and Angola. The former two are two-person stations, while Angola featuresa couple of more people due to larger humanitarian and developmentalprogrammes. The remaining broad range of countries are covered either throughthe mentioned three embassies (by side-accreditation) or by a home-based WestAfrica-ambassador. For two of the emerging oil countries of the region Chadand Equatorial Guinea, Norway does not even have diplomatic relations. Thisrelative diplomatic and political neglect is generally explained by historical

factors, concentration of aid resources in other parts of the continent, the need fora small country to make priorities, and tight budgets.

It stands out in clear contrast, though, to the increasing Norwegian commercialpresence in the region. West Africa is emerging as one of the key regions forsome the key oil & gas region outside the maturing Norwegian continental shelf.Statoil and Hydro are already joined by 20-30 service- and supply companies. Ona rough estimate, jointly the Norwegian oil and gas industry is likely to investsomewhere between 5 an 8 billion NOK annually in West Africa in the comingyears. Norwegian service, supply- and shipping companies stand for more thanhalf of these investments. This implies that Norway Inc. invests far more in West


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Africa than in East and Southern Africa combined, development cooperationincluded. Overall, Europe contributes more than half of all foreign investment inWest Africas oil and gas (US companies now make up one third), and Norwayfeatures as one of the key strategic European players. Roughly, again, Norwaystands for 10-20 per cent of European petroleum investment in the region, and it isprobably only the US, the UK and France that can boast a significantly higher oil

& gas presence in present and future West Africa.3

Most Norwegian companies operate in the region (and elsewhere) with little or nocontact with Norwegian authorities. They work either for national government- orquasi-government bodies, or for international oil- and gas companies. Contractsare generally won in tough international competition. INTSOK oil and gaspartners, the Norwegian business body for international promotion of Norwegianoil and gas companies, does an important job not least for a range of the smallercompanies, while the larger supply/services companies operate moreindependently and engage with INTSOK on a more selective basis. INTSOK itselfis a mainly industry-financed body featuring more than 100 corporate members. Itreceives some official funding, though, in the absence of any significant

Norwegian export promotion funds for this sector.

Statoil and Hydro generally do not depend on the typical INTSOK promotionalservices, but work with them on more generic approaches vis--vis regionalgovernments. On the other hand they have a quite pronounced interest in good andexpanded official relations between Norway and West African countries. For nowthis primarily relates to Nigeria and Angola, while they are likely to have interestsalso towards other oil countries in the region (Statoil has already bid for a licencein So Tom e Prncipe). Statoil in particular has recently been adhering to a so-called NOC-NOC strategy an approach to new upstream markets through closecooperation with national oil companies (NOCs).

A main feature of this strategy is sharing of experience from the Norwegianhistory of comparatively successful exploration, production and management ofoil and gas resources. Hence, the link to the Norwegian government is obvious,and official visits to markets such as Nigeria typically feature seminars and eventswhere both the government officials (the oil and energy minister and seniorbureaucrats) and Statoil (with others) convey the Norwegian oil & gas experience.Statoil also typically encourages the development of MoUs or similar frameworkagreements between the respective governments. Such agreements are consideredvaluable tools and interfaces for Statoil and other commercial entities to plug intoat their convenience.

Besides the door-opening role as just illustrated, official Norway features a small,

albeit slowly growing policy agenda in West Africa.4

Again, this mainly relates toAngola and Nigeria. In Nigeria, Norway spends an annual 10-15 million NOK ona governance-focused (although fairly thinly spread) development cooperationagenda. In early 2004 the Norwegian Petroleum Directorate (NPD) signed acooperation agreement on oil management capacity building with its Nigerian

3 These are rough back of the envelope estimates, derived from interviews with industry representatives,including INTSOK, and taking into account the considerable annual variations and uncertainties involvedin these kinds of exercises.

4 See the country briefs for Nigeria and Angola for more detail on the Norwegian interface with the region.


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counterpart. NORAD funds the agreement within a frame of 15 million NOK overa 2-3 year period. This makes petroleum management feature along withgovernance as the main elements in an extremely modest Norwegian developmentcooperation programme with Nigeria. In addition to convening training seminarsconveying Norwegian competencies on marginal field development anddeepwater technology, INTSOK has been involved in interesting activities

recently (2002-2004) on the topical concept of local content in the Nigerian oiland gas industry, drawing on Norwegian experience and contributing input tolawmaking in the area (Nigerian Local Content Bill), financed mainly byNORAD.

Angola is a different story here the legacy of civil war and desperate relief needshas motivated a significant humanitarian and transition assistance from Norway.With peace (from 2002 and onwards) has come normalisation of aid relations,and a development cooperation programme in the order of 100-120 million NOK,focused on humanitarian assistance, good governance (including in the energysector), education, health and private sector development. As for oil and gasmanagement, NPD has run a capacity building programme over a number of

years, with only partial success due not least to capacity constraints at the outsetin the Ministry of Petroleum and related agencies. There are positive signs as ofpresent (2004), though, related to improved willingness and ability to implement anew energy law. INTSOK, Aker Kvrner, FMC Kongsberg and ABB havelaunched an aid-supported sub-sea training programme at a regional oilmanagement college, and INTSOK and DNV have initiated work on a qualitymanagement project within the oil sector.


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5 The resource curse andWest Africas oil and gas

While oil resources and the growing international attention bring loads ofopportunities to West Africa, the legacy oils impact on poor countries so far isvery bleak. It was put on the edge recently in an editorial in Financial Times onthe prospects of the Chad-Cameroon pipeline project:5

By past experience, you could wish nothing worse upon a developing

country than an oil find. Oil wealth has done little or nothing to make theworlds poorest better off. It breeds corruption among greedy elites. Themoney it generates is habitually misappropriated or misspent. It createsdependence and squeezes other economic activities out. Under itsinfluence, governments loose control of their budgets. No longer needingto rely on taxes, they become less answerable to their people as taxpayers.

Oil has proved an addiction for rulers, a malediction for the ruled.

The following quote from the authors of a major IMF report on oils impact onNigeria illustrates the salience of the resource curse phenomenon for WestAfrica:6

Nowhere are all the pathologies associated with oil as clearly manifest asin Nigeria. The Biafran war of secession Africas biggest civil war inthe late 1960s, which led to one million deaths, was in part an attempt toby the eastern, predominantly Igbo, region to gain exclusive control of oilreserves. Nigeria has witnessed the assassination of two leaders, sixsuccessful coups and four failed ones, and 30 years of military rule. In pastdecades, Nigerian rulers may have plundered oil wealth to the tune of tensof billions of dollars. The explosion in windfall-financed governmentexpenditures also provided increased opportunities for kickbacks.All these

factors have contributed to poor growth but also to staggeringly

destructive development outcomes. Thus, oil and the institutionaldeterioration that it has led to, has perhaps been the single most importantcause of Nigerias economic and political problems.

Nigerias economic record since 1960 has been extremely poor, while it fareseven worse on measures of poverty and income distribution. Between 1970 and

5 Financial Times, 8 October 2003. See country brief on Chad and the companion study on multilateralinitiatives and options for further discussion of the Chad-Cameroon pipeline project.

6 IMFSurvey, 15 March 2004; excerpt from an interview with Arvind Subramanian and Xavier Sala-I-Martin.


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2000, the poverty rate, measured as the share of the population subsisting on lessthan 1 USD a day, doubled from 35 per cent to 70 per cent. This translates into anincrease in the number of poor from about 19 million in 1970 to a staggering 90million in 2000. And whereas in 1970 the top two per cent of the populationearned the same amount as the bottom 17 per cent of the population, in 2000 thetop 2 per cent had the same income as the bottom 55 per cent of the population.

Nigerias record in oil sector & revenue management may be particularly dismal,while it reflects a general pattern across developing and transitional economies.Managing sudden and large inflows of revenues responsibly and even just theprospect of such inflows in countries without robust governance systems haveproved prohibitively difficult. A number of the economic dynamics behind theresource curse have become well-known, and are further described elsewhere: theDutch disease, pressures to subsidise by vested interests, temptations to spend onwhite elephants, revenue volatility, temptations for corruption and increases ofsecurity and military spending.7

Just as important as these problematic economic dynamics, according to IMF, is

the way that the resource curse works by destroying the very political andinstitutional fabric in countries such as Nigeria. Here, oil has worked to minimisethe two-way interaction between the state and its citizens. Governments (andgovernment-related elites) with easy recourse to oil rents do not need to promotewealth creation that they can then tax; in turn, citizens have less incentive thanotherwise to hold governments accountable. Historical experience suggests thatinstitutional development is impeded because of this disconnect betweengovernments and their people.

The other countries in our sample also struggle with resource curse challenges.Gabon comes closest to Nigeria in terms of a long (several decades) and troubledlegacy of oil, and currently struggles with huge debt problems as oil reserves and

production are dwindling. On balance Cameroon has had less of a problem, as it isless dependent on oil and has a more diversified economy. As emerging oil states,Chad and So Tom e Prncipe have every opportunity to learn from othercountries failures, and is currently benefiting from a wide range of internationaladvice missions and initiatives.

Angola, the second major oil power of the region is well into the critical phase ofoil revenue management, and may still have time to learn from some of Nigeriasmistakes. Unfortunately, the pretext that the deeply entrenched civil war providedfor not addressing the key issues does not bode well for progressive oilmanagement reforms. A conspicuously rich and corrupt elite is already in place,co-existing with extreme poverty all across the country. Add to this an all-

powerful (non-transparent) state oil company, generally very weak human andinstitutional capacity in state- and commercial institutions, a vulnerable processtowards democracy and a weak and marginalized civil society. This explains whyAngola (with Chad) was relegated to the very bottom of the 2004 WorldEconomic Forum African Competitiveness Ranking recently (ranking 25 Africancountries), in spite of featuring one of the continents highest (oil-fuelled) growthrates (Financial Times, 2004).

7 See the companion report (ECON Report 2004-63) on multilateral initiatives to deal with the resourcescurse in West Africa


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Then subtract the civil war and add a few levers of political autocracy andmismanagement, and you have a short-cut version of Equatorial Guinea. Thiscountry mirrors Angola in terms of being on the upwards curve in terms ofreserves and revenue inflows, while leaving only limited hope in terms of politicalwill and outside leverage to address resource curse issues properly.

The following table illustrates the different countries ranking on globaldevelopment and corruption indexes up against GDP per capita levels. Whilecorruption figures are lacking for a number of countries, there is, unfortunately,only limited hope of better corruption ranking for the remaining oil countries oncedata become available.

Table 5.1 Comparison of GNI per capita, human development and

corruption level

GNI per capita $2002

UN HumanDevelopment Index

2003 Ranking

(total 175)

TransparencyInternational

CorruptionPerception Index2003 (total 133)

Norway 37850 1 9

Gabon 3700 118 -

Equatorial Guinea 4200 116 -

Cameroon 560 142 126

Angola 660 164 124

So Tom e Prncipe 397 122 -

Chad 220 165 -

Nigeria 290 152 132Sources: The World Bank, UNDP, Transparency International, World Facts & Figures

5.1 Fuelling conflict?On top of (and related to) the economic, political and institutional resource cursedimensions just cited, oil also has a long legacy of fuelling civil and cross-boundary conflict, in Africa and beyond. Sudan is probably the most notoriouspresent example in Africa. Nigerias past as well as present situation provideample evidence of how both existing oil production and the future prospects oflucrative revenues flows, are formidable destabilising forces and often lead to

violence and war. Many of the 10.000 people killed in communal violence inNigeria since the end of military rule in 1999 died in oil-related conflicts. On-going fighting in the oil-rich Niger Delta continue to take a heavy toll in terms ofhuman lives, and significantly hampers oil production and exports from theregion.

The good news, however, is that the oil-related cross-boundary conflicts in WestAfrica are proving, on balance, manageable. This is not least due to a largelybenign incentive structure: even if they play on strong nationalist sentiment andmay carry considerable price tags, the strong international interest in the regionsoil bonanza make peace preferable both in an immediate and longer term horizon.


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Generally, also, off-shore oil and gas resources, which is the dominating featurein the region and will be that even more so in the future, are far less amenable toconflict than oil resources on-shore, particularly in so far as civil unrest and warare concerned.8

Both Nigerias general borderline conflict with So Tom e Prncipe and its

conflict with Equatorial Guinea over the Shapiro field have been resolvedrecently. Another dispute, involving Equatorial Guinea, Cameroon, Nigeria andSo Tom e Prncipe, moved towards resolution in 1999 when the countriesagreed to apply UN Law of the Sea principles of demarcation. However, Nigeriahas a continuing dispute with Cameroon over the ownership of the Bakassipeninsula between the two countries and, consequently, over the offshoreborderline. Because of this, Equatorial Guineas border with Cameroon is stillsubject to challenges in some areas. Another uncertainty in the east of the Gulf ofGuinea involves Equatorial Guineas border with Gabon, centring on theownership of the Mbagne island.

Figure 5.1 Licence blocks and further oilfields in the Gulf of Guinea

Source: Petroleum Economist (2004)

5.2 Implications and challengesWest Africa is a petroleum region of dramatic contrasts. Huge oil and gaspotential, considerable international investment and growing geopolitical salienceco-exists with probably the most conspicuous feature of the resource curse

globally. It is not only radical dreamers who would suggest that the region couldbe better off if oil was never found or explored. Any close reading of recent IMF,UNDP and other research reports on oil curse dynamics (like those quoted above),

8 This may be different, though, for countries facing acute secessionist struggles. Western Sahara is a case inpoint, with interesting international implications. Here, offshore oil is a stumbling block in UN-led effortsfor peace between the Moroccan government and the Polisario Front claiming independence for WesternSahara. Seismic surveys by Norwegian TGS-Nopec have identified oil potential in contested areas.Currently (May 2004), Total of France and Kerr-McGee of the US are squaring up for a fight withSterling Energy and Premier Resources over disputed territory off the Moroccan coast. Rabat has awardedthis potentially lucrative acreage to the former, while the latter have been given the same acreage byPolisario (Afroil, 25 May 2004).


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make it difficult to sustain opposite conclusions. The region displays consistentlynegative links between oil income and human development, and it fares badly alsocompared with relevant comparator non-oil nations in Africa.

What are the policy implications of this? What kind of challenges does thisparadox of plenty in the midst of deep misery pose to the international

community? First, notwithstanding the dire general predictions by researches andinternational institutions, West African nations are not pre-destined to fail.Determinism is analytically and morally indefensible. Botswana is one resource-rich African country that has managed her (mineral) resources well. Malaysialeads a number of developing oil nations for whom oil have been more of ablessing than a curse (even if oil has never dominated its economy as it does in thetypical resource curse countries).

And along another vein, the overall political situation is more amenable topositive change than perhaps ever in West African history. NEPADs activitiesand features such as the new anti-corruption convention of the African Unionshows an important strategic acknowledgement of (at least parts of) the problem,

not least in terms of the need to tackle corruption and cronyism associated withoil. At country level, stable democratic rule in Nigeria with strong (at least verbal)commitment to transparency and anti-corruption implies a unique potential forprogress, even if implementation will prove an up-hill task indeed. On their sideChad and So Tom e Prncipe have accepted and indeed invited unprecedentedlevels of international involvement and scrutiny of prospective oil revenues. Andwhile the jury is still out on the sincerity of the Angolan governments pledges ondemocracy and management & transparency reforms of its rising oil revenues, thereturn of peace has removed a major reform barrier.

5.3 Responsibility and leverageThe international oil industry plays a crucial role in West Africa, and itscontributions will be even more salient as oil exploration moves deeper anddeeper into the regions technologically demanding continental shelves.Admittedly, they have wielded a lot of discrete (and sometimes not so discrete)power in West African countries, sometimes in close alliances with their homegovernments. But by any standard the main responsibility for developing West

Africas oil resources and managing its oil wealth rests with the respective

governments and entrusted stakeholders within the respective countries.Increasingly, also, IOCs have to play by the rules and to the tune of governmentalregulatory bodies as they do in all other petroleum provinces. In brief, the oilcountries of West Africa are sovereign nations that have every right to manage oil

resources to their liking. The resource curse implies that with such a right followsa considerable burden of responsibility, but essentially this is a responsibility thatis or should be defined by political institutions in the respective countries.

This does not mean, however, that the international community should not bother,or has no responsibility for addressing resource curse challenges in West Africa.First, all countries in the region actively invite and promote foreign companies toinvest in their oil adventures. Fundamentally, they depend on the international oilindustry for everything from seismic surveys through exploration, productionrefining and exports. Increasingly, also, many of them engage foreign politicalplayers in wider oil management issues. Nigeria has become an active participant


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in EITI, and its government draws on resources such as TransparencyInternational in its renewed drive against oil-fuelled corruption. And as referred toabove, So Tom e Prncipe and Chad have made their doors wide open (at leastfor now) for international advice on oil revenue management. More generally, allcountries are members of a wide range of international institutions, whosemandates bind the respective governments to international norms, which again to

some extent are subject to monitoring with respect to their implementation. Onbalance, the most important institutions in this regard are the InternationalMonetary Fund (IMF) and the World Bank Group, while UN organisations matteron some dimensions and new and more flexible initiatives such as EITI may beparticularly effective in terms of leverage.9

There are, however, significant limitations in the leverage that the internationalcommunity has over West African oil nations. The most important one is intrinsicto the resource curse dynamics: the larger the flow of oil revenues intogovernment coffers, the less motivation of the same government to abide bydemands of the international community to change structures and spendingpatterns. When questioned by the ECON team on US leverage over West African

oil nations, State Department officials stated that the only country where the USgovernment could realistically wield some real and direct influence, was in smalland tiny So Tom e Prncipe. Otherwise powerful Bretton Woods institutions(IMF & the World Bank) do also have limited leverage in the face of rapidlygrowing oil revenues. Their interface with the Angolan government illustratesthis. While they have managed get into some kind of bargaining position with theAngolan government recently, playing on Angolas continuous need for loansuntil revenues exceed expenditure, they are just about to face another setback.According to international news agencies (Financial Times, 2004), ignoring theadvice of IMF, Angola has received an oil-backed loan pledge from China in theorder for 2 billion USD, while they are also syndicating a loan from varioussources out of London in the order of 2,5 billion USD.

Importantly, therefore, any analysis of international efforts to help West Africabreak the vicious resource curse cycle, have to take a sober account ofleverage. Akey emphasis has to be on co-operation and capacity-building to engage withgovernments and other domestic stakeholders on issues and agendas where theygenuinely invite and depend on international input, and where common agendascan be gradually extended to sensitive oil management issues. Another morespecific lesson is to exploit windows of opportunity where and when they exist.Generally, countries are more amenable to external pressures in periods wherethey depend on international financing at competitive rates. In our sample thispresently applies for So Tom e Prncipe and Chad, while the window is about toclose in Angola (cf. above). And even for Chad, we conclude in the companion

report (ECON Report 2004-063) that the unique window provided through theWorld Bank-led pipeline project might soon narrow down in tune with growingrevenue flows. CSIS West Africa report (CSIS, 2004) emphasises reputationalleverage: they argue that the high priority governing elites in oil countries attachesto benign reception in Western countries (Washington, Paris, London) representsa potential for influence. While this is more topical in a US than in a Norwegian

9 See the companion report to this volume (ECON Report 2004 63) for a comprehensive review ofinternational institutions and initiatives that deal with or could deal with West Africas resource curse.


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context, Norwegian participants in relevant international forums should take noteof this possible inroad into key policy-makers scope of attention.


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6 Challenges to theinternational oil industry

The present features of West Africas resource curse notwithstanding, fewstakeholders are asking international oil and services companies to stay awayfrom the region. Doing so would be inherently problematic on political, historicalas well as practical accounts. There simply is no politically credible argument for

outside players to lobby African governments to keep their oil resources in theground. Selective pressures on particular Western oil companies to withdraw fromthe region are also flawed. Todays international oil industry is genuinely global.Oil companies from a broad range of countries, including many undemocraticones, stand ready to take over any BP, Shell or Statoil licence in Angola orNigeria. Unlike in Europe and USA, countries like China, Libya, Malaysia andIndia hardly feature any societal discourse on the performance of nationalcompanies in foreign lands.10 And add to this that the powerful national oilcompanies (NOCs) that dominate domestic oil politics are largely impenetrablefor national citizens and foreigners alike and have not even started addressingglobal transparency agendas.

This sentiment might change, though, with dramatically negative politicaldevelopments in Nigeria or Angola. But as of present the main externallyconveyed expectation on international players in the region is to engage, reformand be transparent. The latter transparency - is probably the most topical globalagenda as of present (2004), even iflocal contentdominates national agendas (seebelow). Global Witness, the UK-based advocacy group, started out back in 1999with calls for corporate disclosure of direct and indirect contributions by oilcompanies to the coffers of developing country governments in general and to thesuper-rich Angolan elite in particular. Their call was echoed almost immediatelyby a wide range of NGOs, which together helped form the PublishWhatYouPaycampaign in 2001 (also supported by influential international voices such as

George Soros). The logic of this effort is straightforward. By disclosinginformation about the nature and size of inflowing oil revenues, hithertodisenfranchised populations are sensitised to strategic information that can betransformed into tangible political capital and in so doing help keepinggovernmental (and related) elites more accountable for the use of oil money.

10 Recent developments in Sudan are useful reminders of this dilemma. Here, Canadian Talisman and otherWestern companies have left, at least partly due to resource curse-inspired political pressures. This hascontributed to give Indian, Chinese and Malaysian companies the strategic edge in Sudans oil bonanza.


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This potent policy challenge was soon picked up by governments and multilateralinstitutions. It reflected increasing concerns in Europe and the US that decades ofoil investments by leading international oil companies (IOCs) were notaccompanied by economic and social progress in poor oil countries. And itaddressed collective action problems illustrated by the angry Angolan reactions toBPs transparency stunt in London/Luanda in 2001. In 2002 Tony Blair launched

the Extractive Industries Transparency Initiative (EITI), which soon grew into themain multi-stakeholder forum to address urgent transparency challenges in hostcountries, the international oil industry and also in IOCs home countries(including the UK and Norway). As of mid-2004, EITI musters on with growing(if often hesitant) support from oil producing nations. The London-based Oil andGas Producers Association (OGP) encourages its oil company members to engageactively with EITI.11

But transparency is only one part of the puzzle. The main criticism of decades ofIOC engagement and profits from West African oil is the failure of their presenceto provide industrial and related societal spin-offs. There are strong perceptions,not least locally, that foreign oil companies are making large profits and only

scarcely benefit local populations, if at all. Again Nigeria is the prime examplebut other countries follow suit: their petroleum sectors remain extremelydependent on the international oil & gas industry, with conspicuously low levelsof technical and managerial capacity. Thousands of local staff have been flown toWestern oil capitals for education and training, while dynamic centres ofcompetence in the region scarcely exist. The same holds, to a large extent, forsupply- and services industries. Nigerias oil adventure started long beforeNorways quest for oil, while the successful and also now rapidly globalisingNorwegian supply and services industry makes Nigeria pale in comparison. Whythese contrasts?

Admittedly, even with the best of (altruistic) intentions, international oil players

would have had no easy task in sustaining dynamic African oil sectors. There areclear limits to what they can do as business agents in the absence of robustgovernance structures, and with limited capacity in local industries to start with.In Norway and the UK, IOCs were received by highly competent, incorruptbureaucracies and already flourishing private sectors, which made goodcandidates for mutually beneficial partnerships. All too often, IOC counterparts inWest African countries have been disenfranchised (and often largely illiterate)populations and corrupt elites bent on self-enrichment rather than responsiblenation-building.

Still, increasing attention to resource curse issues, and the very size and power ofthe oil majors drilling for West African oil, sharpen the pressure on IOCs to

address this agenda more forcefully. The seven largest oil companies operating inWest Africa feature market values and turnovers 15 times that of our countrysamples GNP.12 Host countries, led by Nigeria and Angola, are also gearing up

11 See companion ECON Report 2004-063 for more details and current status of the EITI initiative.

12 The following seven oil companies make it to the first 100 in Financial Times FT Global 500 of the largestcompanies worldwide: Exxon (3), BP (9), Royal Dutch/Shell (13) Total (23), ChevronTexaco (31), Eni(42) and ConocoPhillips (94). Their turnover and market value in 2004 add up to 1072 and 925 billionUSD respectively, while the 7 countries covered in this report muster a combined GNP of 68 billion (ofwhich Nigeria makes up almost ). Sources: Financial Times 27 May 2004, World Bank 2003 GlobalDevelopment Report.


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their demands on international players to increase substantially the nationalcontent of their activities in the region. On one hand, the national content- andrelated corporate social responsibility (CSR) agendas reflect lessons of pastmistakes and will hopefully inject precious energy into West African oil sectorsand economies at large. On the other hand, the extremely low starting point bodesfor a long and arduous industrialisation process that might easily fall short of

national aspirations. And, unfortunately, the present string of national contentdemands all too easily translate into protectionist trade agendas that leave a lot tobe wished in terms of economic efficiency (not to speak of efforts to stamp outcorruption). Its strong focus on oil-based industrialisation may also run counter toefforts by finance ministers and others to diversify their economies beyondpetroleum.

IOCs also face increasingly demanding CSR agendas beyond local content. Infact, Shells debacle in the wake of Ken Saro Wivas killing in Nigeria in 1995(and of Brent Spar), was instrumental in catapulting CSR from (non-political)corporate philanthropy into the hotspots of the present globalisation agenda. Since1995, international oil companies have invested considerable time and funding

into various community-level development projects across West Africa. Shellsinvolvement in Nigerias troubled Niger delta stands out in terms of size as wellas challenges and dilemmas. Some industry sources put Shells annual Deltasocial investment activities in the order of 200 million USD. At the same time, theprogramme is facing growing criticism, including for corruption within its ownranks and contributions to violent conflict.

More generally, the thrust of IOCs CSR activities span a broad range of socialdevelopment activities, compensating, to no small avail, for the absence of evenminimum official welfare systems in the oil-rich areas of West Africa.Increasingly, IOCs engage in multi-stakeholder partnerships in the region withmultilateral institutions and local and international NGOs. They do this both to

bolster efficiency in what are not areas of core business competence, and also tosustain the legitimacy of their operations and their image in relations to hostgovernments and their battered populations. The local impacts of CSRinvestments of IOCs are hard to measure and many companies struggle withcomplex community projects at micro level. At macro (national, societal) levelthey are striving to find appropriate policy levers that do not translate intopolitical interference.

Whatever the intricacies, however, IOCs currently have no choice but to explorehow they can contribute over and beyond pumping up oil and generating taxincome and signature bonuses. First, host countries demand much more thanbefore, and make local content and CSR increasingly important elements in

competitive bidding regimes for future licenses (see Angola country brief inECON Report 2004-065). Second, in response to growing pressures from globalcitizens and their own employees, IOCs are embarking on fairly ambitious CSRstrategies that they will ignore only at their peril. Slogans such as BPs we wantto be a force for the good risks losing credibility if new and emerging oil statescome to mirror Nigerias malaise to date. And thirdly, even if offshore oilproduction succeeded in insulating itself from Angolas bloody civil war, theintegrity of IOCs investments cannot be guaranteed if West Africas oil cursegoes unabated. In short, IOCs have an increasing stake in positive developmentaloutcomes in West Africa and beyond with continued dramatic failure their verylicence to operate may be at risk.


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The following are general policy&performance recommendations to internationaloil companies and related supply- and service industries, including Norwegianones, operating in and off West Africa:

Continue investing in West African oil and gas, while at the same timestrengthening the strategic focus on how the company, and the industry ingeneral, can add more impetus to the collective strive towards enhanced

socio-economic benefits of West African oil.

Make sure your core business is sound, transparent and non-corrupt. Enronfeatured an impressive CSR agenda, while its core business operations wererotten indeed. Shells present (2004) struggle with reserves figures is analtogether different (and less serious) story, but serves as a reminder of thesalience of getting basic business practices and overall corporate governanceright. Only then are IOCs the role models, for instance in the area of anti-corruption which domestic companies in the region badly needs.

Engage proactively with EITI, and related initiatives that promotetransparency in the flow of oil revenues from oil companies and intogovernment coffers. This requires action both at headquarters and at countrylevel. As for the latter, Nigerias promising effort to participate in EITIefforts implies expectations and demands in this respect from oil companies.

In the generally comprehensive and demanding interface with national oilcompanies (NOCs), watch out for opportunities to convey to them ideas andbest practices regarding transparency and accountability. Appeals to theirself-interest (for instance regarding future demands on them should they listat New York or London exchanges) is a more realistic and practical optionthan any top-down approaches that will be regarded as condescending andcan backfire in terms of competitive positions. Statoil recently hosted aglobal NOC conference, and should be in a good position to engage in thisagenda.

Address the important but complex discourse on how your respectivecompany can contribute spin-off effects for local and national economies.Partly this means relating actively to local content demands by governmentsin and around new licensing rounds, and partly engaging in the heatedmulti-stakeholder discussion about the pros, cons and hows of local content.Beyond that, there is likely to be a strong case for enhanced IOCcooperation on local content strategies, in spite of the competitive andcollective action challenges linked to such cooperation.13

Continue engaging in relevant welfare-sustaining community level projectsin countries of operation. Consider deeper strategic cooperation andcoordination with stakeholders such as multilateral agencies and NGOs, and

also local governments where appropriate. Invite and take part in criticalscrutiny of the development impact of community-level projects, includingthrough external evaluation.

Consider expanded investment in dialogue with multilateral organisationssuch as the IMF, the World Bank and UN agencies, as well as individualgovernments where applicable, and support their efforts to influence oil

13 See ECON Report 2004-040 for an analysis of prospects and challenges related to increased CSRcooperation between international oil companies.


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7 Challenges to theNorwegian government15

Oil is a political commodity. Write May 2004 and few need reminders of this.With oil prices exceeding 40 USD a barrel, virtually no government, nor businessleader worldwide, is insensitive to the Saudi regimes battle with radical islamists(or the general sustainability of the regime for that matter). Oil continues to be a

key concern for Iraqs political future. President Putin illustrates the primacy ofpolitics over oil markets & tycoons by sending Russias largest oil companytowards bankruptcy, and keeps its CEO imprisoned. Energy-hungry China takeson the world with newly NYSE-listed oil companies but also a host of lessmarket-oriented measures available. South America sees century-old inter-stateconflicts resurfacing due to controversy over gas supplies and ensuing powerscarcities. Rows over Bolivian oil and gas have already claimed the scalps of oneprime minister and a host of energy ministers, and Bolivians will vote in July2004 on whether international oil & gas investments worth 3,7 billion USDshould be nationalised. Expectations of possible re-nationalisation are alsogreeting the new Indian government charged with leading the worlds largestdemocracy.

But what has this to do with Norways and the management of oil resources inWest Africa? There are many links, of which the following is key: More than 150million people in West Africa suffer from decades of failed development efforts.Much of that failure is due to inadequate political and economic governance.Governance of oil and gas resources has been particularly bad, and is now widelyclaimed to be a key cause particularly of Nigerias dismal development record.The blame for this is shared between a range of factors, including historical(slavery), culture, hostile international climate etc. But first and foremost itrepresents a political failure primarily of the countries themselves, but also ofthe international community, to ensure proper management of the regions

generous resource heritage.

Norway is a small country, and cultivates only limited relations with West Africa(see above). Still, the combination of:

i) the salience of Norway as a considerable oil player (world number three in oilexports and number seven in oil production),

15 and, by implication, other governments that interface with West African oil nations. This chapterconcentrates on the Norwegian scene, but should have fairly broad relevance beyond Norway.


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ii) a significant and growing commercial oil and gas presence in West Africa,

iii) the comparative success in Norwegian management of petroleum resources,generating strong interest in lessons from Norway,

iv) the ranking of Norway as the world largest donor of development funds as

measured per GNP, and

v) a related activist foreign policy;

adds up to a case for enhanced Norwegian engagement in the fate of West Africa.It is a case for targeted upgrading of Norwegian West Africa policies based onspecific notions about gradually changing Norwegian interests and a growingNorwegian scope of action vis--vis this region. While not advocating a majorshift in Norwegian development cooperation priorities, there are reasons to take aclose look at the case for aid to oil curse countries, including those in West Africa.With the increasing focus on performance-based allocation of aid resources,which penalises bad governance performers, these countries risk falling out of the

global development cooperation map.

16

This does not mean that Western oilcountries like Norway, the UK and the US should automatically compensate forthis by generating extra resources, but there is an acute dilemma here throughwhich the perfect risks becomes the enemy of the good. If the combination of badgovernance and increasing oil revenues make progressive aid players desert oilcurse countries, the most promising external levers for addressing oil managementchallenges are leaving with them.

So what are the options open to Norway in terms of engaging with West Africanoil countries? What is the (limited) impetus Norway can provide to the collectiveefforts in translating oil from a curse to a blessing for Nigeria, Angola, EquatorialGuinea and the like? In the following, we briefly explore multilateral and bilateral

options for expanded Norwegian support for sustainable oil management in WestAfrica. We conclude by suggesting a number of practical political/administrativesteps that might be called for in order to let action follow words.

7.1 Multilateral optionsMultilateralism is a key priority in Norwegian foreign policy, aid included. It ismotivated by factors such as the small size of the country, the vulnerable geo-strategic position of Norway (even after the cold war) and a conviction thatdevelopment cooperation funds adds up more forcefully and sustains strongerleverage if coordinated through international mechanisms. Nothing is morenatural, then, than to scrutinise multilateral avenues for support and policy

dialogue in a region with limited Norwegian presence. The related (relative) lackof West Africa competence in Norway points in the same direction.

The companion report on multilateral initiatives and options (ECON Report 2004-063) spells out a broad range of international ways and means to address resource

16 Consult, for instance, the recently published first list of countries eligible for US MCA funding, and the2004 World Economic Forum Competitiveness Index, both of which illustrate that resource cursecountries fare badly in governance terms and hence risk becoming black-listed in the emerginggovernance-focused aid agenda.


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curse issues. Its overall perspective is sober with respect to incentive problemsand lack of leverage over the countries in question. But multilateral institutionsare bound to be key players in any major external encounter with oil nations, not

least in efforts to handle collective action problems faced by international oil

companies. Among other features, the report identifies a number of specificfunctions that multilateral institutions perform, and discusses their relevance with

respect to oil management challenges. It also maps a wide range of organisationsand initiatives, most of which are geared towards influencing host governmentswhile some are also directed at corporate responsibilities.

Many international conventions address good governance in general, andgovernance of natural resources, including oil, in particular. The new UNconvention against corruption, and its OECD-based predecessors, are examples ofthe former, while the Kyoto Protocol addresses global environmental imprints ofoil and gas. One aspect of their significance is that they form role/inspirationalmodels for regional and sub-regional policy processes, such as NEPAD and thenew African Union anti-corruption convention. Their main function in WestAfrican oil management contexts is that they (for what it is worth) bind

governments to global governance norms, and provide inspiration and sometimespractical tools for reform-minded policy-makers, and also civil societyorganisations, in their struggle for improved governance locally. Norwayparticipates actively in the various global, norm-creating convention processes,partly by advocating Norwegian positions and partly by contributing funding todeveloping country participation and related capacity-building. Norway has alsobeen a lead donor country in supporting financially governance- and relatedagendas of the African Union and sub-regional bodies aiming to regulate thedeadly spread of small arms.

Norway contributes to established multilateral institutions in a number ofdifferent ways. 4-5 billion NOK is channelled to and through such organisations

annually, some of it through fixed (assessed) contributions but also a considerableshare in more flexible allocations providing (usually modest) opportunities forleverage. To no small degree Norway also uses multilateral channels as vehiclesfor aid implementation; directly through funding of specific programmes andmore indirectly through support to trust funds within multilateral institutions. Anexample of the latter is a joint Nordic (Norway, Finland plus) trust fund insupport of infrastructure and private sector development within the World BankGroup. Parts of the 100 million NOK invested in this fund to date are being usedon oil revenue management work in Africa and beyond.

Norwegian leverage with multilateral institutions is modest, but not least due tothe large amounts Norway brings to the table it is not neglible. Norwegian

approaches to wielding influence to let money talk differ of course dependingon organisation and type of activity. An important formal window is activeinvolvement in the boards of institutions such as the World Bank, IMF, UNDPand the African Development Bank (AfDB). One example is the ExtractiveIndustries Review (EIR) process, which is up for decision in the World Banksboard in mid- or late 2004, and where Norways oil history will contribute toabove-normal interest in Norwegian positions. The outcome of EIR may eitherpromote or block further World Bank leverage with oil governments in hedeveloping world (see companion ECON Report 2004-064 for details), and thequality and content of Norwegian positions matter.


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Norway is also expected to pass judgements in the near future on 200 millionUSD of World Bank support for the West African gas pipeline, which isconsidered essential for Royal Dutch/Shell and ChevronTexacos interest incoming in as major partners in the project. More generally, decision-makingwithin and around multilaterals boards may also influence the extent to which theorganisations are prepared and resourced to deal with resource curse issues. And

like what is the case with the EIR, multilaterals provide invaluable forums forNorth/South debates over how to balance economic, social and environmentaldimensions of energy production & consumption.

However, the most direct Norwegian contributions and leverage in this context isthrough support for governance- and anti-corruption action in general, andtargeted oil management initiatives in particular. More than 15 per cent ofNorwegian development cooperation is currently invested in good governance (asdefined by OECD), of which quite a bit goes through multilateral channels such asUNDP and the World Bank and where public sector reform- and capacity-building are important priorities. Overall, governance programmes of multilateralsin countries such as Nigeria and Angola are promising platforms for oil

management reform, even taken into account leverage problems and only a smallpart of their governance platforms relate to oil sector & revenue managementspecifically.

With respect to oil management in West Africa (and beyond), the most relevantand competent multilaterals are by far IMF and the World Bank. IMF has at leastthe potential to wield influence at the macro politico-economic level, throughconditionality linked to its stamp of approval for the financial soundness andgovernance of given countries. The companion volume (ECON Report 2004-064)also describes a number of more specific modalities in place for partly policing,partly building capacity, for improved transparency and revenue management. Itsdivision of labour with the World Bank is not always crystal clear, while the latter

leads un-controversially in addressing the wider developmental and distributionalaspects of oil management.

The World Bank Group has a wide array of governance tools available, includingin the area of oil revenue management, and can supplement loans withconsiderable grant money from e.g. trust funds. The two Bretton Woodsinstitutions have cooperated closely in recent regional oil revenue managementseminars in Gabon and Nigeria respectively. Their biggest and common challengein this policy areas is, as stressed above, how to gain and hold on to leverage overoil-rich governments once revenues. Their analytical competencies, however,which go unrivalled among multilaterals, and can be crucial in setting agendasand moving policy-makers in the absence of more formal channels of influence

(cf. the seminal Nigeria oil management report quoted above).

The African Development Bank (AfDB) is a major development finance player inthe region. Its private sector arm has invested in a major LNG project in Nigeria,and it features a fairly comprehensive governance portfolio across Africa. It isdwarfed by the World Bank in terms of both governance and private sectoroperations in Africa, however, and it has no specific oil managementcompetencies in-house. The United Nations Development Programme (UNDP) isgenerally the most relevant among the operative UN organisations, and plays animportant role in the global discourse on governance-related issues through itsannual Human Development Report. Among its comparative edges is its virtually


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universal presence across the developing world, and its related close and oftencooperative relationship with national authorities. That can also be a liability,though, as close connections of this kind can easily translate into dependency andcooptation. UNDP runs quite comprehensive governance programmes, andaddresses key governance challenges in countries such as Nigeria, Angola andSo Tom e Prncipe. UNDP is gearing up its focus on oil revenue management

challenges more specifically, while as of present (2004) it does not feature oilsector and revenue management competence on par with the World Bank andIMF.

Finally, quite some of the overall political energy going into oil governance issuesis generated in more flexible policy processes such as the Extractive IndustriesTransparency Initiative (EITI). This is an interesting precedent in that it showshow policy positions generated by NGOs gain momentum and rapidly translateinto global official policy agendas. EITI is currently an ad hoc multi-stakeholderinitiative led by the UK government, but might soon take on more formalmultilateral traits especially if it is allowed by the parties to take on regulatoryteeth (see above and companion report for more detail).

7.2 Proposed input to Norwegianmultilateral strategies

The following are brief reflections on how Norway can help address pressing oilmanagement challenges in West Africa through multilateral institutions:

Capitalise on and consolidate the considerable global goodwill stemmingfrom Norways active and generous support of multilateral institutions. Thatprovides access at highest levels within the different bodies, and also withgovernments and other stakeholders. In short, Norway has a promising

starting point for either initiating or joining initiatives that promotesustainable oil management in West Africa and beyond.

Continue and expand funding of catalytic initiatives and organisations.Norway already funds oil management and related activities e.g. through theWorld Bank private sector trust fund mentioned above, and through supportto a new trust fund under the EITI. Norway also co-funds governance-related projects with UNDP in Angola and Nigeria, although not linkedexplicitly to oil issues. There is significant interest across multilateralinstitutions for expanded cooperation with Norway in these areas.

Encourage further development and improved organisation of Norwegianexpertise on different aspects of Norways oil and gas experience. While

multilaterals enjoy funding without strings attached, they also display keeninterest in substantive input from partners like Norway particularly inareas where Norway features relevant experience. As of today, multilateralsgenerally face difficulties in terms of how to approach Norwegian oil andgas competence, and in how to link cooperation with such partners withexisting funding arrangements.

Encourage relevant multilaterals to increase their efforts to address resourcecurse and oil management issues through their respective mechanisms. Thismeans more resources, more staff and more comprehensive programmes tobolster policy dialogue and capacity building in West African countries and


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beyond. More resources are also needed to sustain the necessarycompetence for expanding interfaces with international oil companies.Leverage is not a static entity. The key role that the multilaterals can play infostering more responsible oil management is not an automatic function ofpresent policies, it needs targeted engagement and from concernedstakeholders.

When selecting multilateral partners, priority should be given to thosealready commanding an edge in terms of competence and potential forleverage. In short that means the World Bank and IMF, in addition to highprofile flexible initiatives such as EITI. UNDP has in many regards aninteresting starting point for engaging in oil management and relatedgovernance issues, but critical scrutiny is needed both globally and on acountry-by-country basis in order to avoid parallel and overlappingstructures between different multilateral players.

7.3 Bilateral options and scope of action

Norway is a small country, wields only very limited influence internationally anda lot of the Norwegian/West African interface is purely commercial. Still, WestAfrican oil poses increasing challenges to a range of Norwegian policies andinterests in West Africa: foreign policy, development cooperation policy,international industrial/business promotion policy, international petroleum policyand international environmental policy. Quite something is going on already, butfacing up to the challenges identified in ECONs West Africa & oil projectrequires more resources and further strategic thinking within and across theministries and directorates involved in Norwegian West Africa policy.17

There are a number of key foreign policy challenges emerging from the WestAfrican oil boom. It is an important part of the growing global geopolitical &

energy security agenda, where quite a lot is expected of Norway as a major oilexporter and potential bridge between the OPEC and IEA blocs, and also ofNorway as an active global environmentalist aiming to merge topicalenvironment and energy agendas. The conflict potential in the region is rife, evenif a number of the oil-related conflicts seem to be manageable at the moment.Albeit largely unwillingly, many of the countries are likely to host members ofglobal terrorist networks. Some of the countries are also increasingly active inregional and global policy arenas of high priority to Norway. Official Norwegianpresence in the region is limited and not on par with the challenges identified inthis report. Back at home, there are important policy coordination tasks at thetable of the Ministry of Foreign Affairs, even if the bulk of operational action isdelegated to other official players (see below).

Narrowly defined the industrial policy/business promotion challenges may not bevery far-reaching, given that many of the Norwegian companies in the region arelarge and generally do seldom request official assistance. Still, there are issues toaddress, and a key reason why many companies to not request official assistancemay be the paucity of people and institutions to talk to. The general official

17 In brief, the most relevant official players are the Ministry of Foreign Affairs, NORAD, Norfund, theMinistry of Oil and Energy, the National Petroleum Directorate, Petrad, INTSOK (partly private), theMinistry of Trade and Industry, Innovation Norwaay and the Ministry of Environment.


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international industry promotion system has just been restructured, and InnovationNorways toolbox and its relation to aid-financed mechanisms are not settled yet.Moreover, some of the important tasks to take on such as the need to sustain adynamic industrial development around the oil complex challenge conventionalboundaries between business promotion and development cooperation, and thuscall for innovative approaches and close cooperation across ministries and

industry groups. Certain holy cows may be up for slaughter.

Development cooperation is the hallmark of Norways relations with Africa, andalso consumes the bulk of day-to-day attention of Norwegian representations inour sample of West African countries. Norwegian aid policies in the region arealready focussing on oil management challenges, while the resource curse can beaddressed more forcefully through a combination of the following: i) an overallincrease in resources to the region, justified by the unique nature of the countriesoil-related predicament and the relevance of Norwegian responses; ii) a sharpenedfocus on generic (political- and economic) governance challenges (reflecting the(obvious) case for addressing the cause and not only symptoms of the resourcecurse), iii) higher priority to Norwegian capacity-building efforts in the countries

oil sectors, iv) more focus on how different (aid and non-aid) public and privateNorwegian players can work together in support of enhanced local content anddomestic oil-related industrialisation, including a consideration of more officialfunding of INTSOK activities in this particular area v) through encouragingexpanded Norwegian NGO interface with counterparts in the fledgling civilsocieties in the region.

Whilst the policy goals of these three branches of government differ markedly(national interest, commercial interest, furthering economic and social well-beingin West Africa), the potential for Norwegian influence in the region issignificantly deflated if the three do not work closely together. The present picturein this regard is mixed, with positive signals in the strategic frameworks that have

been developed for Norwegian Angola policy. But the coherence cracks inNorwegian West Africa policy are bound to get more pronounced if the proposed

scaling up of Norwegian action vis--vis the region is not matched by a major

effort to harmonise foreign, trade and aid interfaces with West African countries.For example, while development cooperation interests are eager to shield aidresources from undue commercialisation and politicisation, it is imperative thatlegitimate concerns with aid quality do not automatically block catalytic (oftenmulti-stakeholder) efforts address West Africas resource curse.

We present below a range of policy proposals that are meant to reflect the policythrust of ECONs West Africa project. The proposals build on the considerableactivities already in place, and we intend to take into account both the potential

and possible limitations stemming from present decision-making structures recent reorganisations included. We start out by a number of challenges to theMinistry of Foreign Affairs, before expanding the remit to other Norwegianstakeholders.18

18 The geographical focus remains on the seven countries under scrutiny in ECONs West Africa project,while many if not most of the recommendations should be relevant for a range of other existing oremerging oil countries worldwide (including other West African countries producing or exploring for oilat the moment, such as the Ivory Coast, Mauritania, Senegal, Liberia and Congo Brazzaville.


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Make the necessary steps to sustain a more proactive Norwegian presence inWest Africa commensurate with its regional/global significance and thelevel of interest among Norwegian companies, and in so doing encouragefurther Norwegian investments in the region.

Expand, generally, the overall foreign policy focus on West Africas oil andthe high stakes involved in its management. Upgrade the status and

competence on salient petroleum issues (geopolitical as well as oilmanagement/resource curse) in the Ministry of Foreign Affairs, in order forthe ministry to be able to take on important catalytic and coordination roles.

Upgrade the diplomatic presence in oil-rich West & Central Africa byestablishing diplomatic relations with Chad and Equatorial Guinea. Enhancethe opportunity of the home-based ambassador for a range of smaller WestAfrican countries to tap into the wealth of relevant Norwegian oil and gasmanagement experience, and strive to develop effective communicationchannels through which that experience can be conveyed/transferred (seebelow).

Enhance the credibility of Norwegian participation in EITI and related oilsector transparency programmes by doing the EITI homework. This meansproducing and editing information about revenue flows into Norwegiancoffers according to EITI formats. While this may be seen by the relevantNorwegian authorities as time-consuming and superfluous given robustNorwegian systems, failing to do it might undermine Norwegian credibilityin common international efforts to convince developing countrygovernments to do the same.

Upgrade the present capacity to deal with (cross-cutting) oil managementissues in Norwegian embassies in Luanda and Abuja. Consider establishingoil & energy councillor posts either in both (our preferred option) or one ofthe embassies. The mandates of these posts should be comparable although

not identical to similar posts in Moscow and Washington. Their mainmission (more than 50 per cent) would be to service and interface withNorwegian companies in the region, while a key aim would also be tointegrate foreign, industrial and development of the petroleum agenda. Aclose dialogue with multilateral players in this regard should be animportant priority.

Establish an inter-ministerial task force with solid industry participation, orfind other means by which to refine, systematise and streamline the variouselements/building blocks of Norwegian oil and gas experience, and make itavailable for/in different bilateral and multilateral contexts. The task forceshould be led by either the Ministry of Foreign Affairs of the Ministry of

Petroleum and Energy, and in either case be closely coordinated betweenthe two.

Based on the work of such a task force (or other related initiatives), continueto develop practical Norwegian capacity-building and knowledge transferprogrammes like those managed by the Norwegian Petroleum Directorate(NPD) and Petrad in relation to Angola and Nigeria. Use the task force workto ensure that Norwegian policies and efforts in this regard are wellcoordinated, and encourage increased involvement of Norwegian oilcompanies (widely defined) in these exercises.


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Capitalise on the valuable work INTSOK has initiated on local content in aNigerian context, and encourage intensified multi-stakeholder exploration ofhow Norway can contribute to this increasingly topical but also complexdiscourse internationally and within countries such as Nigeria and Angola.Explore also opportunities for Norway to work catalytically in thesecountries to foster cooperation between oil companies, national authorities

and donor agencies on enhancing the local content of oil sector training andeducation programmes. Reduce the barriers INTSOK and relatedcommercial players currently meet in terms of gaining official support forprojects in this topical area.

Use the increasing international attention to resource curse issues as apretext to focus more of Norways general pol

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