East Africa has become the latest hotspot for oil-and-gas discoveries, but the reserves are located in countries characterized by weak state institutions and social unrest.
The Algerian military increased security at the In Aménas plant following the terror attack.
Photo: Uncredited/AP via NRK.no
A number of African countries – several of them with significant Norwegian assistance – are on the threshold of becoming major producers of oil and gas. Does this mean that Norwegian companies are contributing to increase the risk of civil war in these countries?
Weak state institutions and social unrest
Two years ago, on 16 January 2013, an armed Islamist group attacked the Statoil- and BP-run gas plant at In Amenas in Algeria. For almost three days, the world watched the unfolding drama amid complete uncertainty about the fate of the hostages being held at the plant, among whom were 12 Norwegian citizens.
Exactly two years later, Norwegian oil companies – with Statoil at the helm – are operating in a number of high-risk countries. East Africa has become the latest hotspot for oil-and-gas discoveries, but the reserves are located in countries characterized by weak state institutions and social unrest.
Norway is very actively involved in the exploitation of African oil resources. A survey (in Norwegian) conducted by Norway’s largest environmental organization, The Future in Our Hands [Framtiden i våre hender], shows that over 60 Norwegian companies have joined the African oil adventure.
At the same time, it is a recognized fact that oil-rich countries often share a number of negative characteristics, including, for example, weak economic growth and a lack of democracy.
Angola, a major focus of Statoil’s international operations, is a horrifying example of how massive oil revenues may enrich only a tiny elite, leaving the population in general to live in deep poverty.
Increasing levels of conflict
Within the field of conflict research, several studies have confirmed that oil revenues make the outbreak of armed civil conflict more likely. While many explanations have been put forward for this finding, they point in different directions.
On the one hand, some researchers suggest that oil wealth encourages rebellion for two primary reasons: it increases the motivation of would-be rebels to become involved in armed uprisings (either by encouraging greed, or by engendering real or perceived inequalities and grievances); and it provides a potential source of financing for such activities (in the form of ransoms for kidnapped oil workers and/or “protection money” from oil companies that are operating in a particular region).
On the other hand, other researchers claim that oil increases the risk of conflict primarily by precluding the development of state institutions that promote peace, including strong bureaucracies and redistributive institutions such as health-, educational and judicial systems, which may enhance the legitimacy of the state vis-à-vis the public.
There is a flaw common to all these explanations, however: none of them explains why some oil-rich countries become mired in long-lasting and destructive armed conflicts, while others escape this fate.
Not only “obvious” candidates such as Norway and Canada have avoided armed conflict; diverse countries such as Cameroon, Ecuador, Benin and Jordan, have also remained largely free of conflict during their times as petroleum producers.
If we cannot explain why some oil-rich nations descend into armed conflict, while others do not, how can we prevent newly established oil nations from doing so?
Different risks
Different oil-rich nations may have different risks of conflict depending on the strength or weakness of their state institutions at the time when the oil reserves were discovered.
The quality of a country’s state institutions when oil is discovered may reasonably be expected to affect the subsequent development of those institutions once the oil revenues start to flow, giving rise to different risks of armed conflict.
In countries where state institutions were weak to start with, access to oil revenues may hinder the development of peace-promoting state institutions, thus increasing the risk of conflict.
This is because oil wealth makes the government less dependent on taxation, and taxation is widely believed to be a key incentive for the development of administrative agencies and other institutions that will increase the legitimacy of the state.
Such institutions are particularly important for managing the increased political pressure that oil revenues will bring.
In countries that have already developed strong state institutions, it is precisely these institutions that can help ensure that the oil revenues are managed in a way that addresses heightened expectations concerning redistribution of wealth. Simultaneously, the existence of stronger bureaucratic control is assumed to reduce both incentives and opportunities for rebellion.
An unpromising future
A statistical study of conflict outbreaks in 170 oil-producing and non-oil-producing countries during the period 1961-2000, supports the hypothesis that the status of a country’s state institutions is decisive in determining its risk of civil war following the discovery of oil.
In countries with weak state institutions during their first year of oil production (measured both in terms of bureaucratic strength and in terms of the country’s ability to educate its population), oil revenues increase the risk of conflict considerably more than in countries with strong state institutions measured at the same point in time
What do these findings say about the likelihood of armed conflict in the nascent African oil countries, including, among others, Ghana, Tanzania, Liberia, Mali, Senegal and Uganda? If we accept the theoretical argument above, these countries’ futures are not particularly promising.
In Tanzania, for example, which until now has been an exceptionally peaceful country compared with its neighbours, the above-mentioned state institutions are operating at a critically low level. For example, education provision in Tanzania scores below the 10th percentile for education provision among countries included in the study.
The thirst for oil
Following discoveries of natural gas in the southern Tanzanian regions of Mtwara and Lindi, violent demonstrations and protests have broken out. Statoil has recently made major gas discoveries off the coasts of these regions, and has ambitious plans to build a plant to produce liquefied natural gas.
One might conclude that the best alternative for these countries would be to leave the oil untouched. This is also the least likely alternative as long as the world’s thirst for oil continues.
The hostage crisis at In Amenas ended in tragedy. When the smoke settled after a two-day-long attack by Algerian forces to re-establish control over the area, 40 workers at the gas plant were dead, including five Norwegians.
The crisis at In Amenas shows that Norwegian companies’ investment and presence in corrupt and undemocratic states with weak state institutions is not without risk, even when the companies are operating within the strictest ethical guidelines.
Increased efforts to establish the state institutions that will ensure that oil revenues are managed in a way that benefits everyone will be essential in order to avoid the natural resources becoming a curse both for the oil-rich countries and for the oil companies.
This text was first published in Norwegian in Aftenposten 16 Jan 2015: Bidrar norske oljeselskaper til å øke risikoen for borgerkrig?
Translation from Norwegian: Fidotext