Avoiding social unrest in new oil producers

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Avoiding social unrest in new oil producers

Most Americans are puzzled by the fact that oil-rich countries could be so poor. By all rational standards these countries should have excellent education, excellent health care, excellent infrastructure, and excellent manufacturing and trade, rather than being merely the spawning ground for hatred of the United States. The 911 Commission Report mentions five factors that usually seem to be involved, and which are causally different from social factors in other areas with more-normal economies.

• As oil wealth appears, an attempt is made to bypass the decades of development needed for a people to intellectually and psychologically modernize. Infrastructure is developed, and subsidized industry and social welfare programs are put in place, shoring up unprofitable ventures. • Population expands as wealth increases.

• These programs create a sense of entitlement for the expanding population.

• When oil prices drop, entitlement programs become unsustainable, causing great resentment, especially when huge amounts of money went into the pockets of the country’s rulers, their families, and their friends.

• There is a large, and increasing, cadre of young people (in Muslim countries this is generally only young men, as half the country’s intellectual resources are isolated from the workforce), often well educated (albeit with no emotional or psychological connection to the modernized world), and increasingly cranky at having no reasonable expectation of ever having suitable or stable employment.

This is, historically, a recipe for social disaster.

Unfortunately, it is something that we in the West rarely observe until late in the game. It is also something we rarely get to observe unaffected by a host of other factors in normal economies, such as some dominant ethnic minority that dominates the economy. We now have, however, a natural laboratory in which to watch this process at work: A homogenous ethnic majority, widespread poverty, and a sudden influx of wealth to the country. Equatorial Guinea is a tiny West-African nation, somewhat smaller than the state of Maryland, with a population of about half a million souls. The area is largely deforested, and the people are relatively poor. A democracy – we note that on19 April 2002, “Human Rights Watch sounded an urgent alarm at today’s votes by the world’s highest human rights body, which chose one by one to ignore severe human rights violations in several countries on its agenda, such as Russia/Chechnya, Zimbabwe, and Equatorial Guinea.” – the current president (the general who overthrew his uncle in 1979) gets over 97% of the popular vote at election time!

Because of theU.S.stated desire to free itself from dependence on Middle Eastern petroleum sources, there has been a lot of exploration in many parts of the world. One that has paid off has been in Equatorial Guinea, where we found the perfect combination of proven (2002 figures) oil reserves of 563.5 million barrels (with estimated reserves of 1.1 billion barrels, and natural gas reserves of 20 million cubic meters) and relative un-sophistication. Whereas we understand that in most countries the government keeps 60 percent of the oil revenues, with the oil company taking 40 percent, rumor has it that in Equatorial Guinea the division is 16 percent for the government and 84 percent going to the oil companies. This is a great deal for the U.S. And while 16 percent is not as good a deal as 60 percent, it is still a lot of money for the ruling family.

At the moment, the Equatorial Guinean government is dealing with the issue of overly rapid population growth and infrastructure growth via the traditional African approach. They are keeping it all for the ruling family and their friends.

So far this looks like a win-win situation for everyone: The U.S. gets oil. Islamists aren’t angry because Islamic natural resources are being exploited. Local leaders get money. Citizens don’t face disappointment from unfulfilled social and economic expectations. But three bad things could happen.

The first is that the president of the country would decide to spend some of the money on the country itself. Now, we have had a long interest in Africa– family tradition says that this editor’s great-great-granduncle was a chief of the Zulu – and our gut feeling tells us that this isn’t going to happen. But if it did happen, it would create the same problems that we have seen in other suddenly rich countries, including the eventual likelihood of population increase, social unrest, and anti-American activity.

The second is that the population, or some competing leader, may try to overthrow the government. We deem this unlikely, as there doesn’t appear to be either the funds or the political structure to go against the government. In any case, this would not really be bothersome for the West. While it might, for a time, disrupt the flow of oil, there are, at the moment, no leaders of stature in sub-Saharan Africa– actually anywhere in Africa– and whichever dictator took over would soon go back to business as usual. In this case, no matter what happened short-term, the status quo is likely to be maintained over the long haul by killing or jailing political dissidents, and there will be a low probability of social unrest and anti-American activity.

The third is that the country, like so many in Africa (and other places) will continue to be kept from globalization. There are a couple of downsides to this. One is that it is simply unjust, and the role of the United States should be one of spreading justice, not encouraging injustice.

Another is that peoples condemned to poverty tend to be a breeding ground for people who resent the fact that others support bad governments. This resentment, combined with recognition that there is no future, tends, these days, to spill over into our world.

The combination of a desire for justice and the recognition that sub-Saharan Africa could become a problem area make this a particularly interesting case. The ability to see and analyze, real time, the interaction of competing social and economic forces in Equatorial Guinea will provide a fascinating study for those concerned with the geopolitical implications of exploitation of natural resources, and the spread of globalization.

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