Be Careful What You Wish For: Nascent Petro-states in Colombia and Ghana

We’re used to thinking of Resource Curse as what happens when oil is discovered and pumped in poor countries with few other economic options and systems of governance that are, at best, shaky. So what to make of Colombia’s impending oil boom – nudging a million barrels of oil a day and rising? Will the country’s long history of democracy, albeit amid turbulence, and its status as a middle-income economy with a strong middle class, insulate it against the most corrosive effects of oil wealth?

Is Colombia’s oil a tremendous and welcome boost to the economy just as the improved security environment sees investors flooding in? Or should we think of Colombia’s oil not as “black gold”, but rather as the “excremento del Diablo” (devil’s excrement) suggested by Juan Pablo Pérez Alfonzo, the architect of OPEC, back in 1976?

Having spent time in Colombia in 2008, the country I found was a far cry from the narco-state of Western media fantasy from the country’s darkest period in the 1990s. But the stories from Colombian friends were enough to understand the climate of fear and normalized violence that was part of daily life for so many years. Working in the anti-landmine sector –  a cruel legacy of the protracted battle between the state, guerrilla and paramilitary groups – only drove the point home.

With this in mind, when I began researching Colombia’s oil industry more closely I felt somewhat torn. Part of me wanted to share in the optimism that many ordinary Colombians might feel  when they see the stats promising $10 billion of Foreign Direct Investment in 2011 and  oil production figures nearing a million barrels per day (up from only 783,000 bpd in 2010).  Colombian officials have admitted aspirations to follow in the footsteps of the  Brazilian economic miracle, in which vast oil reserves have played no small part, that has turned global power relations on their head. Who could have thought twenty years ago that we would be speaking of Brazil’s role in helping the US emerge from a financial recession?

On the other hand when I put my “transparency” hat on, I am reminded of the trap of the  “resource curse” and the path littered with failed and corrupted petro-states. Colombia’s black gold  may initially look preferable to the nation’s more famous export, cocaine, but this could be short-sighted. Ryszard Kapuscinski sums up neatly the nature of oil as a “resource that anesthetizes thought, blurs vision, corrupts”  and dismisses it as little more than a “fairy tale”.

One theory of the Resource Curse is that it will kick in or not depending on the level of governance in a country when the industry is first developed. Thus many Middle Eastern countries had precious little civil society, not much state formation, no democracy and arguably no sovereignty when oil was developed there. The result was decades of autocracy driven by patronage petro-politics. Whereas Canada, Norway or Australia had all in abundance when their extractives were developed and so beat “the Curse”. So where would Colombia stand in this index?

There is of course a key difference between Colombia and the Arab sheikdoms. Regardless of its many democratic shortcomings, Colombia remains the longest-standing and most stable democracy in a South American neighbourhood plagued by power-hungry “caudillos”.  Democratic development has been interrupted just once over the last century by the military regime of Gustavo Rojas Pinilla between 1953-57.

We mustn’t get carried away with ourselves. Anyone having followed the ‘parapolitica’ scandal which undermined the Uribe administration in recent years will be well aware of the corruption culture that lingers at all levels of government. Colombia may well be an  “illiberal democracy”. However the basic elements are in place, at least formally, and the security environment is finally in place for investors who until now could not justify the political or economic risk.

In some ways Colombia is fortunate in that its oil boom is taking off at a time of increased attention to the pitfalls of resource-rich states. Industry architects can benefit from the hindsight of learning from the positive and negative examples of others . Yemen is a case in point. When it became the poster child of Arab democracy in the 1990s, it’s economy was dominated by expatriate remittances – hard to co-opt. But the expatriates were all kicked out of the rich Gulf countries wher it ended  up on the wrong side of the first Gulf War in 1991, oil was developed and by 2008 the country found itself dependent on oil revenues for 90% of exports — with fragile and compromised political structures. It is possible, in other words, that oil could make a country regress in political terms. Yemen’s experience should sound a warning bell. Although Colombia may have a history as a broadly stable political environment with a pluralistic society, history teaches us that governments who were previously responsive to their citizens all too often dissolve into systems of patronage once oil starts gushing.

Colombia can take comfort that it is not alone in this quandary. Ghana too is facing similar soul-searching as its own oil industry takes off, in a nation named by the World Bank as  ”the best performing democracy in Africa”. Ghana’s democratic development too has it limitations. Critics claim that economic growth has led to rising inequalities, and democracy has failed to lead to meaningful progress on corruption. But the fact that the country consistently gets the thumbs up not only for multinational headquarters, but from middle class British parents as a suitable Gap Year destination for their offspring,  sets it apart from neighbour Nigeria. Uganda, too, now faces development of an oil industry in fragile conditions.

Like Colombia and unlike many other African countries Ghana struck oil under democratic conditions, and predictions that reserve levels may reach 5 billion barrels by 2015 have brought optimistic Ghanaian emigrants flocking home for a piece of the action. Inspired by the Norwegian model of prudent resource management, the government has put in place plans to create its own sovereign wealth fund to protect the country’s energy windfall from the whims of those in power. Similar plans are afoot in Colombia.

The political, social and economic conditions underpinning oil-led development in the two countries differ significantly of course, and recommendations must differ accordingly. Different expectations must be overcome, working from very different starting points. Middle-income Colombia’s GDP-per-capita of $10,100 is more than three times the size of Ghana’s and life expectancy almost 14 years higher. Geologically, Ghana’s 270-million-barrel Jubilee oilfield has brought big majors like Shell sniffing around, whereas in Colombia a higher number of small fields are attracting more local, independent companies.

There are some promising noises coming from policy makers in Bogota. The 2007 part-privatization of formerly state-owned Ecopetrol and creation of independent regulatory body the  National Hydrocarbons Agency (ANH) do not make Colombia’s oil and gas industry immune to intervention, but go a long way towards creating a level playing field for all. Even more encouraging is that Colombia is one of only five countries in the global 2010 Revenue Watch Index to publish extractives contracts  in full, a step Ghana is yet to take.

However there are already creeping signs of disillusion from communities in oil-producing regions, who have seen little trickle-down wealth from the oil boom other than high food costs, spills and unwelcome tanker traffic. Unconfirmed allegations of corruption by the outgoing head of the ANH Armando Zamora also strike an alarming note.  Civil society participation and oversight of the management of revenues is a further area for improvement. Colombia is yet to join Peru in committing implement the EITI process, however encouragingly Toronto-based Pacific Rubiales has committed to taking a leading role in  promoting the initiative in the country.

“South America’s oldest democracy” looks to be making a decent start. However as much as I would like to believe Fareed Zakaria’s claim that “once rich, a democracy becomes immortal”,  the experience of those who have chased the oil fairytale in vain may tell a different story.

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