Angola's Oil Curse

Angola's Oil Curse
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  !"#$%!&' $)% *+,'- .   Efe BULDUK / 100157687 Question: Ò You are a an NGO (Bill & Melinda Gates Foundation) resident representative in Angola. You headquarter is asking you to comment a post on the World Bank blog on the resource curse in Africa (http://blogs.worldbank.org/developmenttalk/was-resource-boom-more-akin-resource-curse-africa). Is Angola a good illustration of this resource curse? What can The Bill and Melinda Gates Foundation can do on the governance issue?Ó    / !"#$%!&' $)% *+,'-   ANGOLAÕS OIL CURSE Introduction Angola is one of the richest countries with the sixth highest GDP in Africa. Nevertheless, the country is also characterized by significant wealth inequality, under-development, and political instability. A leading theory to explain this paradox is the resource curse which, is the situation that natural resource abundance of a country leads to a poor economic performance, poor governance, growth collapses, high level of corruption or political violence. Even though the resource curse emerges in countries that depend heavily on natural resources like oil and gas for their budget and exports, it is necessary to indicate that it does not emerge in all resource-dependent countries. Canada, Norway, and Botswana are notable examples of developed and democratic countries that depend on natural resources. Rather the resource curse emerges in countries that have weak institutions at the time that resources are discovered. In Angola case, resources were discovered in the 1950s, during the struggle for colonial independence. In the ensuing 27 years of civil war, competing factions fought for control over resources. In the last decade BP, Exxon mobile, Chevron, Total and others have port billions into Angola. The country currently produces about 1.70 million barrels a day, which accounts for 45% of AngolaÕs state budget and 90% of its exports ("OPEC: Angola" 2017). The industry controlled by national oil company Sonangol and Ôauthoritarian leaderÕ Dos Santos who argues that the majority of oil rents are being used to rebuilt countryÕs infrastructure, which, shuttered by 3 decades of civil war. However, so far development has been limited to capital Luanda that is now one of the worldÕs most expensive cities, by contrast, AngolaÕs people remained extremely poor. Under these circumstances, it is evident that Angola lacked transparent institutions needed to ensure a fair allocation of resource wealth, which comes from the fast-growing oil sector. The political and economic systems were shaped to benefit a small elite that promotes corruption in order to sustain their wealth. The country also does not have strong, transparent institutions, which can produce efficient and accountable economic policies to use oil rents and diversify the economy by  promoting entrepreneurship. Consequently, since the country has almost all of the resource curse indicators, it can consider as one of the best examples of oil curse. Firstly, this report will be based on a secondary literature review, seeks to understand how the resource curse emerges and persists, in order to understand if it could be reversed in Angola. Secondly, it will argue that the Bill and Melinda Gate foundation can reverse the resource curse by converting institutions to be more transparent which can allocate resource revenues, promoting civil society participation and entrepreneurship in Angola. Lastly, it will suggest promoting necessary legal regulations to hold Sonangol accountable and in order to limit the volatility of oil market, it will suggest financing lobbying activities that support transparent oil agreements in global extent.  Why Angola has resource curse?   The existence of oil in Angola was known in mid-19th century (Thomas Spencer 1878) but in modern sense, oil was first discovered by Chevron near to the onshore Kwanza basin in 1955 and  production did not start until Chevron discovered the enormous oil reserves off the cost of Cabinda (Ramos 2012). When oil first started to be produced in Angola, there was a lack of established and transparent institutions to govern oil revenue in the country. Despite that, the production of oil has  became Angola's largest export commodity in 1973 (Ramos 2012, 5). While in the absence of democratic and transparent institutions, discovering abundant oil resources and having high oil revenues forced Angolan economy to grow faster than bureaucracy and institutions can control (Giroud 2009). As a result of this uncontrolled grow the economy has developed unilaterally,  !"#$%!&' $)% *+,'- 0   economic sectors mismanaged and corruption has increased in state level, which laid the foundations of the Angolan resource curse. Moreover, as argued by Dunning (2008), abundant oil revenues that controlled by non-transparent institutions created a Òdirect authoritarian effectÓ because it increased the control of Angolan elites on oil rents and eventually decreased the attraction of democracy for the policy elites. Mutually, high oil revenues also relatively reduced the need for tax that collected from society and thus annihilate the need to have Òrepresentative bargain with citizens and thereby hinder the emergence of democracyÓ (Dunning 2008, 53). Drifting away of the society from politics and decrease of state accountability expedite the mismanaging of economic sectors, increased the spread of corruption and the country fall into the resource curse more deeply. Later, since the leaders of the country with feeble institutions are more likely to be overthrown, they purposely increased corruption in order to further increase their assets and consolidated their governance (Giroud 2009, 2) which eventually led to the deepening of the resource curse. Furthermore, corruption also deepen resource curse with decreasing entrepreneurship. By causing entrepreneurs to fear that they cannot get a return to their investments and that they cannot compete on an equal footing.   The decline in entrepreneurship in the country has caused the society and business people to concentrate on oil, which is already the most attractive and popular sector. Consequently,   Angola's economy has become one-sided, vulnerable to fluctuations in oil prices and resource curse emerged. What to do to reverse resource curse? As institutions are fundamental to the emergence of the resource curse, they can also be used to reverse it. In order to obtain fair allocation of oil rents, the Bill and Melinda Gates Foundation can finance projects to promote public discussion and civic engagement on the transparency of national oil company Sonangol. First, such attempts may open a space for civil society participation and by increasing the public awareness about oil revenues; it can promote society to call for a fair distribution of oil revenues. Second, it may increase the advocacy of civil society and eventually will pursue government to make investment on sustainable development, which Òprioritizes the fair distribution of revenues and the investment of these revenues in income and employment generating sectors, like agriculture, to diversify the economy,Ó (Ramos 2012, 35). Last but not least, as Acemoglu (2003, 86) asserts, good institutions foster investments and developments by ensuring entrepreneurs that there is a fair trade opportunity in a country and endeavors are not restricted to small elites. Since Sonagol provide main share of the government budget, it has an extraordinary economical and political influence in the country, which makes it difficult for the country to get rid of resource curse. On contrary to the separation of power, the company both manages and regulates the oil sector (Ramos 2012, 35). This situation creates serious conflict of interest and limits the accountability of the company. Even though foreign institutions such as the IMF has been recommended to form an impartial regulatory body to Angola, due to the lack of internal push, it wasnÕt enough to create an independent regulator for the Angolan oil industry. With the support of IMF, the Bill and Melinda Gates Foundation can organize a campaign to explain the importance of independent regulator for the Angolan oil industry to the society. After increasing the public  pressure, the IMF could step in and by using Òstand-by arrangement loanÓ, it can pressurize the company and the state to create independent regulator for the oil sector.  Non-transparent oil agreements and secrecy in oil sector create serious problems both in local and global levels. Firstly, these kinds of agreements that determine oil rents break the absolute essential relationship between taxation, representation and accountability, which is an essential link  1 !"#$%!&' $)% *+,'-   that drives efficient countries. Since people have no idea about how much of the oil rent goes to country or how government spend the oil revenues, covert agreements preclude accountability and create huge distrust problems. Moreover, secrecy preventing the market from functioning properly and when market canÕt function correctly, it get extremely volatile. ThatÕs why oil market is one of the most volatile markets in the world (Karl 2010). Oil price volatility also makes it very difficult for countries and for governments to actually spend money wisely in development because they donÕt know what they have from year to year so planning goes out the window even if they want to make good and reliable economic policy planning. Moreover, all of these secrecy that caused by confidential oil agreements, creates a kind of rumor mongering and in return it causes price spikes, currency changes, geopolitical fears and as a result, oil exporting countries get a vicious cycle between oil volatility on the one hand and volatile markets, poorer development outcomes, clear propensity to conflict, more and more militarization and authoritarian rule on the other hand. These things are all linked together and they make it extremely difficult for oil exporting country or government that is trying to manage the economy and country in a good way. As a solution, the Bill and Melinda Gates Foundation can financee lobbying activities that support transparent oil agreements in global extent because a move for transparency would begin to settle this incredible speeding up volatile situation. It would also begin to show what certain agreements might look like and help to provide more just and more efficient distribution of oil rents  between companies and countries on the one hand and within countries on the other. To not confront wit the same situation that BP 1  had in Angola, the only way to change this is to level the whole oil market so that all of the companies have to report their payments. Any oil company that wants to be listed in the Security and Exchange Commission or want to be listed on stock markets such as London Stock Markets, NASDAQ, NY Stock Exchange has to publish what they pay to governments. Conclusion In conclusion, as a country that has resource curse, Angola lacks transparent institutions along with political and economic systems to distribute the wealth derivers from oil. There are mainly three reasons why Angola has resource curse. First, fast grown oil revenues with absence of strong and transparent institutions is the main reason. Secondly, lack of accountability due to the oil rents and covert oil contracts makes Angola one of the countries that have resource course. Third reason is the rampant corruption promoted by political leaders and finally, one-sided economy and lack of entrepreneurship are the reasons why Angola has resource curse. As a solution to reverse this picture, Bill and Melinda Gate foundation should start with the most obvious one, which is the transition and changes in the institutions such as Ministry of Petroleum and Sonangol in terms of transparency. Lobbying activities in this parallel to make Sonangol more accountable and to decrease the vulnerability of the oil sector. It may seem unlikely that those in power who benefit from the current system would implement such changes. However, as Angolans continue to see the success of oil without experiencing the political, economic and social benefits, the cost of continued oppression continues. As the cost of maintaining current system becomes greater than the cost of further democratization it is possible that political elites will be incentivized to implement the institutions needed to reverse the curse in Angola.   1  BP published for the first times their payments to the government of Angola. They assumed the other companies were going to come along and do the some thing but they were actually mistaken because none of the companies did it. Consequently Angolan government suspended its agreement with BP   !"#$%!&' $)% *+,'- 2   Bibliography Acemoglu, D., Johnson, S., & Robinson, J. (2003). An African Success Story: Botswana. In D. Rodrik (Ed.), In Search of Prosperity: Analytic Narratives on Economic Growth. Princeton,  New Jersey: Princeton University Press. Baynes, T. Spencer, ed. 1878. ÒAngolaÓ.  Encyclop¾dia Britannica  (9th ed.) New York: Charles ScribnerÕs Sons. p. 45. Do Vale, Helder. "Angola's Oil Curse." Political Insight 4, no. 2 (2013): 16-17. Dunning, T. (2008). Crude democracy: Natural resource wealth and political regimes. Cambridge,  New York: Cambridge University Press. Girod, D. (2009, March 13). Can Governments Avoid the Resource Curse? Retrieved October 21, 2015, from http://fsi.stanford.edu/sites/default/files/evnts/media//MEMO_Girod.pdf   International Monetary Fund. 2016. "Regional Economic Outlook". World Economic And Financial Surveys. Washington, DC: International Monetary Fund, Publication Services. Karl, Terry Lynn. 2010. The Paradox Of Plenty. Berkeley, Calif. [u.a.]: Univ. of California Press. "OPEC : Angola". 2017. Opec.Org  . http://www.opec.org/opec_web/en/about_us/147.htm.   Ramos, Maria Lya. 2012. "Angola's Oil Indsutry Operation". Open Society Initiative for Africa (OSISA). http://www.osisa.org/sites/default/files/angola_oil_english_final_less_photos.pdf.   Sachs, Jeffrey D., and Andrew M. Warner. 2001. "The Curse Of Natural Resources". European Economic Review 45 (4-6): 827-838. doi:10.1016/s0014-2921(01)00125-8. Thomas Spencer, Baynes,. 1878. "Angola".  Encyclop¾dia Britannica . New York: Charles ScribnerÕs Sons. p. 45-47.
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