African Oil: Its Strategic Significance, Emerging Issues and American Policy

Moderator Schneidman set the stage for the panel discussion by noting the high stakes in African oil development in the next ten years, with a projected rapid expansion of exports and therefore of revenues to the oil-producing countries. Asking, "Is it a blessing or a curse?" he suggested that the challenge was to insure the realization of more of the "blessing." He observed that there is an increasing demand for accountability – both to make oil interests more responsive to development, and to deepen commercial ties between the U.S. and Africa.

Ian Gary summarized the highlights of his co-authored report Bottom of the Barrel, launched last week to coincide with the Extractive Industries Transparency Initiative conference in London. The coming investment in African oil and gas will be the largest private investment in African history, and yet the past track record makes it all but certain that without improvements in capacity and accountability these investments will result in even worse conditions of life for the populations in African oil producing countries. Bottom of the Barrel calls for a "big push" on transparency and accountability by all parties, and advocates a collective and coordinated action to create the requisite institutions and to ensure fiscally and socially responsible government management of oil revenues.

CIA Analyst Gordon depicted the strategic importance of African oil for the U.S. It is likely to account for 65% of the increase in U.S. oil imports from now to the end of this decade. The $30 billion of projects already in the pipeline in Africa can meet 25% of the world consumption increase over the same period. In terms of geology (identified resources) and geography (ease of transport), Africa oil holds significant potential for the American economy. However, African oil is more problematic politically, due to risks to commercial operations, the dangers of corruption and the politicization of resource issues. About 20% of production in Nigeria is lost as a result of direct or indirect security problems, either through production disruptions because of civil strife or bunkering (theft and deversion). Unless Africa can turn this around, future investments are in doubt.

Ibrahim Gambari emphasized problems on the supply side, that is, arising from the industry itself. These include the negative implications of Dutch Disease for diversification, the debt trap, and enclave oil economies. Interactions with national dynamics have resulted in corruption, social agitation, repression, pollution and controversies over the sharing of oil revenues. The "old producers" who have suffered these effects should be at the forefront of reform efforts. Citing Kofi Annan's Global Compact, he stressed the importance of all the affected parties – the African governments, the oil companies and the home governments of the companies -- developing effective partnerships to insure that oil exploitation will not serve only a privileged few but will benefit the population-at-large.

Assistant Secretary Wayne affirmed the U.S. interest in African oil, as part of a national energy policy that stresses the importance of diversifying America's energy resources. He spoke of the importance of flexible investment regimes in Africa that were hospitable to foreign direct investment. Good governance is key, he said, noting that a series of recent initiatives offer good examples of partnership possibilities: the G-8 plan on transparency (with its compacts with pilot countries), discussions directed to the establishment of voluntary principles on corporate responsibility and human rights, the Chad-Cameroon Pipeline project (with its revenue control provisions), and the West Africa Gas Pipeline (as a public-private project). These are complex endeavors that demand continuous effort. The new oil-producers coming on line in Africa have the opportunity to learn from the mistakes of the past, and to develop a new model.

The panel discussion that followed the initial presentations centered on two sets of issues:

1) The identification of key places, projects and issues to insure that conditions are in place to permit the realization of the African oil potential. Panelists stressed the urgent importance of African governments dealing with the security situation at all levels, and particularly with illegal sales. The observation that extractive industries have traditionally been secretive and competitive led to a discussion of the pro's and con's of mandatory versus voluntary transparency. Bottom of the Barrel warns against inconsistency in the advocacy of good governance and transparency initiatives when major oil importers find their hard strategic interests are at play. States and international institutions can be influential in these matters, because of their ability to confer (or deny) legitimacy to African actors.

2) The appropriate weight and sequencing of spending for consumption (e.g., poverty reduction) versus spending on investment (e.g ., for basic infrastructure). External advice now tends to emphasize consumption but there is also a need to remain attentive to basic infrastructural requirements. It was also noted that countries with mobilized civil societies and strong economic interest groups may find budget priorities to be more seriously contested.

Howard Wolpe, Director, Africa Project, 202 691 4097
Jane Guyer, Rapporteur