Why Liberia’s Oil won’t be a curse: Analysis of drilling in Liberia

Africa’s oil deposit has been dubbed a deadly disease responsible for much of the wretchedness befalling the continent.  Most oil-rich countries, if not all, are plunged into civil unrest, political instability, economic downturn and social biases encouraging pillage of major state assets thereby leaving the general masses to suffer and wither in abject poverty.

Consequently, experts have attributed these devastations to the presence of oil in those countries. Whether the problems have other sources, it has been widely perceived and even researched that “oil boom” is a recipe for destabilization. With all the prospects and high economic value of oil, the question still comes to mind as why many oil rich African countries are poor economically and unstable politically? Let’s examine the reasons for considering oil in Africa synonymous to disaster and discouragement and why Liberia’s oil should not be placed within such category.

Oil was first discovered in Africa in 1956 when Nigeria and Algeria took the lead in onshore exploration and, subsequently, production activities. Before then, most of the countries in West Africa were either under British rule or France imperialism. Other African countries, including Gabon (which is just on the border with Central and West Africa) and Equatorial Guinea, followed suit in the latter years of the 20th century. Although Obasanjo once said “Nigeria would be amongst the leading 10 global nations by the end of the 20th century,” Nigerians are still considered some of the poorest people in the world. For countries with 21st century discovery, oil project is complex and crude starts flowing years after initial discovery. This complexity in oil production and the realization of the economic benefits put the entire industry in a critical position to the extent that most expert now consider petroleum resources as a curse.

Economic Implication of oil discovery

Countries endowed with oil resources globally are economically stable. While Sacs and Warner (1997) research shows that oil rich countries grow more slowly than their peers do, yet the progress with African oil rich countries and their peers is far too small to consider. From the Arab economic giants including Saudi Arabia, Qatar, Abu Dhabi, Kuwait, to the western oil power house such as Norway, Russia, Scotland, etc, the actual benefit of the resources have been felt because these players wisely channel the revenue to the appropriate responsible agencies/entities. Conversely, in Africa, the discovery of oil is disproportionate to economic development. There are two factors for this contradiction in oil production within Africa. One reason is attributed to what experts normally called the “Dutch Disease.” When oil is found, most citizens tend to leave their work in different sectors and opt for a more lucrative job within the oil industry. Because oil controls or at least directs most of the business activities within an area or country, this poses setback and neglect to other sector especially agriculture. Prices of locally made products begin to skyrocket leaving the ordinary man to suffer and put the entire economy in a stagnated or downward position on the economic recovery/improvement trajectory. This effect from oil was first noticed in the Netherlands in 1960 when the Dutch discovery natural gas. Everybody chose to work in the oil industry thereby creating a labor gap within the other sectors. The economy severely and drastically crumbled creating rising inflation and downturn in economic activities. Another case in point is Nigeria, whom, before the oil boom, was 2nd producer of cocoa globally. But between 1975-1978 total cultivation area fell by 60%.  By 1970, Shaxson (2008) narrates that in Gabon; over 40% of the population lived in towns or cities. With 3 billion barrel production later, over 80% now live in cities thus crippling the agriculture sector.

The other reason for lack of economic improvement after oil discovery is the unwillingness to foster sustained and inclusive economic growth and unscrupulous actions of those directing the affairs of oil revenue. This selfish and unpatriotic practice has left many below the poverty margin.

Critics have already started raising doubt over the process of negotiating Petroleum Sharing Contracts (PSCs) claiming that this will benefit a few Liberians but leave most of the poverty-stricken masses in their quagmire. The only one thing these critics fail to understand is that the National Oil Company of Liberia (NOCAL) and the government are doing all to ensure that the benefit from oil boons will be equitably distributed across the diverse segments of the country. In fact, currently there are 5 blocks of the initial 17 blocks which are yet to be offered for bids with hope that Liberians can partner with international companies to develop those blocks. With this, we create our own millionaires. Also, the financial accountability system being established and the level of institutional reform already happening indicate that Liberians are preparing for the oil benefit. Our local content development strategy, when completed, will pave the way for a meaningful participation of Liberian small business into the oil market. All these will ensure that Liberians are part of the development of oil and gas as well as partakers of its huge economic benefits.

The Oil Curse-Blessing Phenomenon

Petroleum resources, particularly oil, are abundant in Africa but with disproportionate boons. The reason for this “resource curse” theory stems from the glaring reality of immense suffering and destitution on the continent particularly amongst countries endowed with this precious resource. African oil, although has proven to be a curse, yet, can be a blessing. The oil-curse-blessing phenomenon is anchored on two justifications.

During the middle part of the 20th century when the oil boom started, few African Countries, blessed with petroleum resources, were not fully prepared for the benefits and consequences. Nicholas Shaxson (2008) notes, “Producing oil is like taking in Cocaine; if you’re healthy it might invigorate you but if you are sick, like most Africans, it might harm you.” This is one reason why most African countries suffer today as a result of the oil blessing that has transformed into a dire tragedy. The unreadiness, which included political instability, nascent democracy and governing systems, poor social and educational structures, as well as emerging independence, allowed oil discovery to weaken African Countries more than strengthen the desire to grow and shine as the rising stars within the continent.

The other reason why African Countries are facing a quagmire from oil discovery is imbedded in the principle of “finding-the-resources-before-engaging-into-civil-insurrection.” All African Countries that discovered oil before being plunged into civil war and insurgency are prone to constant destabilization and unrest. Oil has been seen as a major driver of conflict in countries where it was discovered before political instability or civil revolution. Even those few countries that discovered oil but have not tasted the diabolical hands of war (political uprising) tend to not use the oil rental fees wisely.  A broader perspective of some scenarios around the continent is mentioned below.

Nigeria, for example, discovered oil within the Niger Delta in 1956 few years before the Biafra War of the late 60s. The Biafra State, proclaimed in 1967 and inhabited chiefly by the Ibo people, sought independence from the rest of Nigeria. In the ensuing civil war the new state’s troops were overwhelmed by numerically superior forces and, by 1970, it had ceased to exist. While the war lasted briefly, it took over 30,000 Ibo lives. The cascading effects on the oil industry and the general economy still loom around in present day Nigeria.

When oil was first discovered in Congo-Brazzaville around 1980, which is now Republic of Congo, Africa cheered that a new day had come for the Maxist-Leninist single party state. Unfortunately, politics of the oil drove the country into a 2-year civil conflict from June 1997-December 1999. The people of that country are still trying to rebuild their lives following the gross neglect of the basic principles enshrined in the United Nations Declaration of Human Rights.

Up the North of Africa, oil was discovered as early as 1956 in Algeria with the fossil fuels energy sector being the backbone of the country’s economy, accounting for roughly 60% of budget revenues, 30% of GDP, and over 95% of export earnings2. Although numerous uprisings and protest occurred in Algeria following the discovery of the precious resource (oil), it was not until 1991 that the armed conflict between the government and the rebels broke out. The Algerian Civil War ended in 2002 and took over 200,000 lives including the destruction of millions of dollars’ worth of properties and infrastructures.

Despite having the fastest growing economy in Africa and one of the fastest in the world, with an average GDP growth of 20 percent between 2005 and 2007, oil was first discovered in Angola in 1955, but production did not really start to climb until the discovery of oil offshore Cabinda in the 1960. From discovery in 1955 to the ushering of high economic resuscitation in 2001, Angola suffered protracted civil conflict. The civil war started 15 years after the production of oil in 1975 and continued until 2002 when Jonas Savimbi died and the rebel group UNITA (União Nacional para a Independencia Total de Angola) gave up arms and formed a major opposition political party. Currently, Angola is doing all it can to witness small progress economically. During 2001-2010, Angola had the world’s biggest Annual average GDP growth at 11.1 percent.

While some countries including Equatorial Guinea and Gabon did not show any sign of civil conflict before the discovery of oil, their stability is still fragile with great neglect for social inclusion and political participation of all. These countries are classed with the poorest and most corrupt nations in the world. One reason for this is because the oil is pushing people for the cash since there is huge mismanagement and misappropriation in the governing system, while, at the same time, they are being pulled together because they are from the same patrimony.

As it shows in the cases above, oil was greatly responsible for most part of the desolation and wreckage of the continent. Countries that discovered oil before civil havoc were susceptible to continuous and perpetual insurgency and instability. Even those countries, Gabon and Equatorial Guinea for example, who did not experience any civil revolution since the discovery of petroleum resources, are far behind in the development race while its people are the bottom-liners on the poverty ladder. The push-pull effect of the oil boom has played a pivotal role in this mayhem. Oil resources tend to push people away trying to fight for the cash while at the same time bring them together in a spirit of connectedness as citizens of a particular nation. This was clearly evident within the Federal system in Nigeria especially during the Biafra war.

Justification for Liberia’s Oil Blessing

Civil strife has a dangerous, but unforgettable, way of sending messages to governments and even the ordinary citizens of any country or region. Liberia’s 24 years civil strife and 14 years civil war has thought ordinary Liberians and the leadership of the country that war only destroys but cannot rebuild. While many criticize the prolonged war, which resulted in half a million dead and destruction of the entire infrastructural as well as basic, values of the country, few supporters of the mayhem agree that the war set the stage for Liberians to holistically participate in the development of the country. The war supporters also believe, as evident in present day Liberia, that the long-lasting segregation between the Americo-Liberians and the indigenous as well as the educated and the illiterate is now broken. In current day Liberia, ascendency to key positions in government is largely based on the basis of competence rather than connection. Liberians channel their disagreement using a more civilized and non-violent approach such as on talks shows, in the local dailies, in town hall meetings and even directly to the president. The youngest Liberians are even afraid to ever revert to violent uprising. The peace Liberians enjoy today, although fragile, will continue because of the indelible messages sent by the war to everyone.

Finding Oil in Liberia will not be a curse but rather a bonus to the presence of huge iron ore deposit, forest, and bountiful land. The civil war presented a clear picture and understanding of the danger of using such approach to seek redress and because all Liberians, including the hierarchy, understand this, the likelihood of violent protest for oil resources will be slim. Liberians have learned how to adopt a better method of making the government listen to its plight rather than forcefully trying to topple a particular regime. On the other hand, the government is espousing a culture of openness and integrating concerns by locals into development strategies. All these things are indicative of less political rift, public outbursts, and pipeline disruptions. While Liberia is in the process of oil exploration, Sierra Leone has just found its first reservoir and Ghana, with the Jubilee field, is producing thousands of barrels daily. Ghana total reserve could possibly be the third largest in Africa to Nigeria. These three count (Liberia Sierra Leone and Ghana) will showcase a perfect example of countries whose discovery after civil and political unrest will avoid the resource curse phenomenon.

CONCLUSION

From analysis carried out on selected African oil rich countries, it shows that countries which discovery oil before ushering of civil conflict or national political uprising are prone to experience such devastation with the oil being the principal driver. Countries such as Nigeria, Angola, Algeria, Congo, etc are all cases where our theory was proven. Instead of hoisting the countries out of poverty, the oil resources became a national disease damaging all fabric of the society.

Countries, such as Liberia, Sierra Leone and Ghana who had major political uprising and civil unrest before the discovery of oil resources are more likely to use the oil boons wisely then their counterpart. In this case, the oil will drive economic development and not otherwise as in the former.

By Urias S. Goll
Environmental Economist
National Oil Company of Liberia (NOCAL)