Oil is never the bearer of glad tidings. OPEC countries throw a fit, and you consider buying a Tesla Roadster. Oilrig blows up, and you have to reschedule your spring break.
It turns out that oil is also bad news for African citizens who hope for democracy, according to Luc Désiré Omgba of the Centre d’Études et de Recherches sur le Développement International (CERDI) of the Université d’Auvergne. Omgba presented his Ph.D. thesis, On the Duration of Political Power in Africa: The Role of Oil Rents, at the Center for Global Development on Wednesday, August 18. In a nutshell, he argues that oil has a stabilizing effect on political regimes in Africa.
Omgba began by explaining the resource curse and its three detrimental effects. The first two are purely economical and have been studied extensively; the Dutch Disease syndrome, which renders non-oil industries less competitive (see diagram below) and the volatility effect on commodity prices. The last effect concerns oil’s effect on political regimes, namely, its longevity.
Omgba conducted an econometric analysis relating the duration in office to oil rents and mineral rents. He found that oil stabilized the executive by undermining electoral competition through rampant corruption; however, mineral-rich countries did not present the same results.
Why are rulers of oil-exporting countries in power longer?
Omgba believes that oil extraction requires long-term financial investments and thus investors have an incentive to support the incumbent. Furthermore, the international community—such an all-encompassing euphemism—is very sensitive to and affected by oil prices and thus has less of an incentive to call for a change in leadership.
He ended by discussing policy implications. By December 2010, twenty-some sub-Saharan African countries will have held regional as well as national elections of considerable importance. (Countries that have already held elections: Burundi, Guinea, Ethiopia, Rwanda, ampersand after ampersand…)
Omgba maintained that elections would remain a superficial attempt at democracy in oil-exporting countries unless there was more transparency around oil revenues around how oil revenues are spent in order to prevent the political elite from absorbing all the revenue.
(CGD senior fellow Alan Gelb, who was also in attendance, has a new working paper out on how oil rents should be spent. He contends that policymakers must make the benefits of prudent spending clear to the general public and consider the whole gamut of options for rent spending, including indirect transfers to citizens such as reducing non-oil taxation and direct transfers such as conditional cash transfers. He also suggests diversifying the economy by investing in technology, infrastructure or agriculture—Indonesia was able to fully take advantage of the Green Revolution in the 70s and 80s because it siphoned oil income to develop natural gas resources that acted as fertilizer inputs. Alan Gelb has been studying oil rents for quite some time; his book Oil Windfalls: Blessing or Curse? published in1988 where he noted that Indonesia was able to spend their oil windfall more prudently due to its central, stable government, as opposed to those of Nigeria and Ecuador. It’s all kind of an egg first or chicken first conundrum. But we digress.)
A large part of the discussion that followed Omgba’s presentation focused on additional research questions, such as colonial history (Françafrique: blessing or curse?), the oil company (Total v. BP), legal tenure of the executive, membership in oil cartels (e.g., OPEC), oblique regime changes (i.e., within the same political party or family) and a comparison with non-oil countries characterized by political longevity (e.g., Côte d’Ivoire).
One participant phrased it nicely: this is “fertile ground for further research.” She also noted that it would be interesting to investigate the ramifications of Section 1504 of the Dodd-Frank Financial Reform Act, which requires that “resource extraction issuers” (e.g., oil, gold, diamonds) disclose how much they pay foreign governments in an annual report to the U.S. Securities and Exchange Commission.
We will end with a Karl Marx quote on the fetishism of commodities: “A commodity appears at first sign, a very trivial thing, and easily understood. Its analysis shows that it is, in reality, a very queer thing, abounding in metaphysical subtleties and theological niceties.”
Oil may not be something a warlord uses to seduce supermodels, but it does not lack in metaphysical subtleties or topics for research on political regime change.