AFRICA’S big players in the oil industry met in Cape Town last week for the Africa Oil Week, at a time when the collapse in global oil prices have brought dire times for many economies, but also provide the opportunity for Africa’s oil exporters to wean themselves off their hydrocarbon addiction.
Countries like Angola and Nigeria have been hit particularly hard; Angola’s government has been forced to slash its budget by half, and GDP growth will only be 3% this year, down from an average of 11% since 2002.
Nigeria is also sweating – 90% of the country’s export earnings are from oil, and this year, government revenues are down 40%. But no-nonsense President Muhammadu Buhari is taking it as an opportunity to clean the Augean stables that are the National Petroleum Corporation, where the money “eaten” there is said to be in the neighbourhood of $50billion.
Still, not to be deterred by the global downturn, many African countries are still nursing oil dreams, if their starry eyes at the Africa Oil Week are anything to go by – reports from the conference indicated that newcomers such as Malawi and Zimbabwe were prowling the corridors, it is said, hoping to catch the eye of some investor.
Africa’s oil story has been one of the “resource curse”; where oil money captures the entire productive economy and sucks the life out of it – and entrenching a particularly pervasive and insidious form of corruption.
The solution that has been touted is of creating strong, forward-looking institutions, such as sovereign wealth funds, and increasing transparency, accountability and participation– the holy trinity of good governance.
Now, a new working paper from the the multinational research network Effective State and Inclusive Development Research Centre suggests that the classic understanding of good governance may not actually ring-fence a country’s oil fortunes against mismanagement, taking the example of two African countries – Uganda and Ghana, which both discovered oil around the same time (2006-2007) and at recoverable levels that were similar both in absolute terms and as a proportion of GDP.
But the study highlights that since then, “semi-authoritarian” Uganda seems to be governing oil somewhat more in line with its national interest as compared to “democratic” Ghana. Ghana has moved to commercial exploitation of oil, but Uganda has not yet, but has put in place a regulatory regime.
The difference comes in the nature of the political settlement in both countries – in Uganda, political power is dominated by the ruling party, the National Resistance Movement (NRM), and the president, Yoweri Museveni.
In this dominant party political settlement, there is relatively little prospect of power changing hands through a formal electoral process; Museveni has been known to refer to Uganda’s oil reserves as “my oil”.
But Ghana has seen power swapped back and forth between two parties – the National Democratic Congress (NDC) and the New Patriotic Party (NPP), in closely contested elections. That makes the political settlement in Ghana a competitive clientelist model, as there is a strong likelihood of ruling coalitions becoming displaced through electoral competition.
It means that in Uganda, a “pocket of effectiveness” was formed around the Petroleum Exploration and Production Department (PEPD), the main government dealing with oil matters, which – even before oil was discovered – was staffed with highly qualified technocrats; the department enjoys a level of political protection, which means that Uganda has been able to negotiate harder with international oil companies for better deals.
“The president places an unusually high degree of reliance and trust in their advice, deferring to their judgement on critical issues,” the report states: according to one oil technocrat quoted in the report, “In most cases, the president backs us and looks to us.”
By contrast, the Ghana National Petroleum Corporation (GNPC) has been subject to more political collusion and interference than Uganda’s PEPD, as the type of political settlement in Ghana means that the governing party is always nervous about losing power through an election.
It means that whoever power in Ghana is under more pressure to dish out the “fruits” of patronage, holding for the favour to be paid back in political support, which is why even though the two countries discovered oil at the same time, Ghana rushed to get oil flowing as quickly as possible – even at the expense of not getting the best possible deal – while Uganda has been more content with taking things slow.
Ghana has performed worse than Uganda in securing good deals. Ghana’s 38-50% government take, based on Jubilee Phase I at a price of $65 per barrel, is relatively low when compared to the government take of 43.5-66% for Uganda.
Moreover, Uganda’s deal for limiting the level of cost-recovery that can be claimed by international oil companies to 65% is better than the global average of 60%, while Ghana has not secured any limit. Uganda has a growing reputation for being able to drive tough bargains with oil companies that are perceived to be in the national interest.
In order to avoid the “resource curse” Ghana has been tried to channel oil revenues into other sectors of the economy. But the reality is that that actual expenditures have been spread thinly across multiple sectors and regions, in line with a pork-barrelling logic that enables politicians from all regions to claim that they have helped “bring development home”.
Ghana also made the classic mistake of using future oil revenues as collateral in order to received loans today – a move that pushed Nigeria to the brink of bankruptcy in the 1980s when oil prices collapsed then.
The same has happened to Ghana, where the slide in oil prices starting last year led to macroeconomic turmoil that was only stabilised by a loan from the International Monetary Fund (IMF).
These vignettes of different aspects of oil governance in Ghana and Uganda to date help illustrate the extent to which different kinds of political settlements can orient governments to act in ways that seem counter-intuitive to expectations, the researchers say.
In particular, they suggest that certain forms of freewheeling democracy may undermine prospects for the ‘good governance’ of oil, whereas a degree of executive dominance may offer a more propitious context for this.
The researches suggest that “pockets of effectiveness” are more likely to emerge and be protected where there is a strong head of state and a coherent elite, as in dominant party settlements, because their relative security may enable political elites to adopt a long-term vision for the country.
But this doesn’t necessarily mean that Uganda’s model is conclusively “better”, given historically prevalent rate of developmental failure of such regimes – and especially given the downturn in oil prices.
How to make a call between Uganda’s brand of economic nationalism and semi-authoritarian politics versus Ghana’s more liberal, footloose emerging democracy, will continue to keep Africa watchers awake for a while to come, it seems.
At the very least, the experience of oil governance in Uganda and Ghana should spark close investigations into how other “dominant party” settlements in Africa, such as Mozambique and Tanzania, are governing their new natural resource finds in comparison to other competitive settlements, such as Kenya.