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Remarks of Bennett Freeman
Principal, Sustainable Investment Strategies
Conference on the Growing Importance of African Oil
Co-Sponsored by the
U.S. Department of State and the National Intelligence Council
Carnegie Endowment for International Peace
March 17, 2003
Washington, DC
I want to thank the State Department for inviting me to address
this important and timely conference. With all eyes around
the world focusing on the environs of the Persian Gulf, not
the Gulf of Guinea, it is heartening but even more sobering
that we are focusing on African oil in Washington today.
I am reminded of the first major speech on U.S. policy toward
Africa given in the previous Administration, by Secretary
of State Christopher in May 1993. He observed that "during
the long Cold War period, policies toward Africa were often
determined not by how they affected Africa, but by whether
they brought advantage or disadvantage to Washington or Moscow."
He went on to declare that "Thankfully, we have moved
beyond the point of adopting policies based on how they might
affect the shipping lanes next to Africa rather than the people
in Africa. And that's an improvement."
My point ten years later is that if the United States Government
adopts policies toward Africa based on how they might affect
the security of oil supply, then those policies must be based
fundamentally on how they affect the people of Africa. The
Gulf of Guinea will be no more stable than the Persian Gulf,
and probably far less so, if we fail to put the greatest emphasis
on promoting accountable, transparent governance and development.
Security of African oil supply depends on addressing the aspirations
of millions of African people, not just on bringing billions
of barrels of oil to market.
It is essential to remind ourselves that the durable foundations
of access to and supply of oil are governments which are accountable
to their own peoples, including to the peoples of their oil-producing
regions. Without such accountability, the legitimacy and even
stability of those governments are open to challenge. Then
the cycle unfolds of local community unrest and even violent
strife, complicated by tensions among ethnic groups; attacks
on oil pipelines and facilities; production shutdowns and
disruptions of supply. The Niger Delta has experienced that
scenario in repeating cycles now for a decade, cresting in
the mid-Nineties and then resuming in the late Nineties. After
nearly several relatively quiet years, non-violent protests
last summer against ChevronTexaco as well as Shell were serious
enough to interrupt production.
Fortunately, the U.S. Government recognizes the importance
of addressing the fundamentals of African governance, but
it must strengthen that commitment now that African oil is
on its strategic agenda. If the United States is serious about
reform both for its own sake and in the interest of security
of oil supply, there are several building blocks which must
be reinforced now:
- The African Growth and Opportunity Act (AGOA) now encompasses
38 sub-Saharan countries, offering tariff preferences in
recognition of progress toward economic and governance reform
as well as strengthening workers' rights and the rule of
law. The eligibility criteria should remain stringent and
sharpen its focus with respect to human rights.
- The Millennium Challenge Account links a substantial amount
of U.S. foreign assistance to governance reform and anti-corruption
efforts as essential to development. But even after the
significant commitment made at last year's Monterrey Summit,
U.S. foreign assistance to Africa and the rest of the world
remains unacceptably low relative both to the needs which
are in our national security interest to address and to
other donors measured as a percentage of GDP.
- The pledge made by President Bush in his State of the
Union address to commit $15 billion (including $10 billion
in new money) over the next five years to fight HIV/AIDs
in Africa and around the world is an historic step forward.
Now the difficult challenge is to get the full appropriation
through Congress in the face of the Iraq war and against
the backdrop of rising budget deficits.
- The Bush Administration has carried forward the Voluntary
Principles on Security and Human Rights, the standard negotiated
with oil and mining companies together with international
human rights NGOs to guide company interactions with security
forces in countries such as Nigeria, Indonesia and Columbia.
Now that standard must focus on gaining the full support
of host country governments and security forces, especially
in Nigeria but also in Chad, Cameroon, Equatorial Guinea
as well as Angola.
Security of supply for the United States depends on good
governance and sustainable development for the oil-producing
countries of Africa. It also depends on sustainable investment
for the oil companies themselves. Sustainable investment is
confidence in a business environment which is secure, stable
and profitable because it is underpinned by good governance,
the rule of law and respect for human rights; which is maintained
through dialogue and partnership with the local communities
where the companies operate; and which is connected to a balanced
development strategy backed by revenue transparency. Another
way to define sustainable investment is simpler: the degree
of confidence that a company like Shell has when it commits
upwards of $6 billion as it has to new investment to the Niger
Delta, and that other companies have when making investment
decisions of whatever magnitude in Nigeria and elsewhere.
Revenue Transparency: The Heart of the Matter
Extractive revenue management and transparency are really
the heart of the matter: the problems and opportunities they
present are at the nexus of security of supply for the U.S.;
accountable government and sustainable development for the
people of the oil-producing countries; and sustainable investment
for the companies.
Opaque and inequitable revenue distribution is usually due
to a combination of raw political calculation, gross corruption,
and sheer mismanagement. These factors are hardly unique to
Africa; they have converged in varying combinations in Indonesia
and more recently in the Caspian region with similarly distorting
effects on governance and development. Yet their effects in
the oil producing countries of Africa are now deeply entrenched.
The squandering of public revenue skews patterns of investment
and further enriches elites; it corrupts governance and erodes
the rule of law; it exacerbates regional conflicts and threatens
national unity; it deprives local communities of their right
to development and condemns them to poverty. Companies' bottom
lines may not be affected in any one year, but the cumulative
squandering of revenues takes its toll: it challenges their
social license to operate; endangers their local operations;
and threatens their global reputations. It does so by stoking
tensions between oil-producing communities and the companies
operating amidst or in close proximity to them. It puts companies
in the unwanted position of acting as de facto surrogate governments,
due both to the default of the real government authorities
and to the sometimes violent demands of the local communities.
And it can make the companies appear complicit in human rights
abuses committed by security forces called in to quell local
unrest and disruption of oil operations.
If revenue management and transparency are the heart of
the matter, Nigeria is where these issues matter most at the
heart of West Africa. That nation has mostly squandered some
$30 billion in oil revenue over the last three decades, and
to its credit the democratic government of President Obasanjo
is addressing the problem through a plan to share oil revenue
with the oil producing states of the Niger Delta. But the
implementation of that plan has faced delay and drift, and
few tangible benefits have been delivered to satisfy the expectations
of the long-impoverished communities of the Delta. Yet at
least there is a blueprint for action. Now it will take renewed
political will in Abuja and greater governance capacity at
all levels to make good on the commitment to the Delta states,
while meeting the broader challenges of maintaining national
unity and consolidating Nigerian democracy after the upcoming
election. The U.S. Government shares a common stake with the
government of Nigeria, the states and communities of the Delta,
and the oil companies in a more stable and prosperous future
for the Niger Delta. It is particularly encouraging that the
State Department is sharpening the focus of the Embassy in
Abuja, including the USAID mission, to work more closely with
the government, communities and especially the companies to
advance this objective.
At the same time, the U.S. Government has an immediate opportunity
to lend its voice and weight to the goal of revenue transparency
across the African oil-producing countries. It should embrace
the Extractive Industries Transparency Initiative (EITI) spearheaded
by British Prime Minister Blair. This broad-based, globally-focused
initiative stems from the "Publish what you pay"
campaign launched last June by the Open Society Institute,
Global Witness and an international coalition of NGOs. EITI's
objective is to achieve "greater transparency in payments
and contributions made by companies and revenues received
by governments for natural resource extraction."
The U.S. Government can help forge a consensus with American
companies in support of this voluntary initiative, if it can
address reasonable concerns that companies committing to such
transparency are not put at competitive disadvantage. It can
help ensure a level playing field in at least two ways: first,
by urging the support of host country governments, including
those of the key African oil-producing countries; second,
by building support on the part of the home country governments
of state-owned oil companies such as PetroChina and Petronas
which are also taking stakes in African oil. The U.S. should
advance this initiative together with the UK and other like-minded
governments through the G-8 and OECD, as well as in conjunction
with NEPAD and other initiatives beyond Africa, to build support
for revenue transparency as a global standard.
Equatorial Guinea: Focus Now Before It's Too Late
As the two dominant sub-Saharan African oil producers, Nigeria
and Angola appropriately command the greatest attention at
this conference. Despite their immense natural and human resources,
the complexity of the governance problems which each country
faces should keep us clear-eyed about the challenges they
present to the U.S. in its search for security of supply,
and to the companies in their quest for sustainable investment.
But another country along the wide arc of the Gulf of Guinea
should also command our attention to a much greater extent
than it has so far: Equatorial Guinea.
Until the late Nineties, Equatorial Guinea was only really
known internationally among the real cognoscenti. Some read
about it as Robert Klitgaard's laboratory for the frustrations
of structural development in Tropical Gangsters; others recognize
it as the setting for Frederic Forsythe's thriller The Dogs
of War, as a place where foreign mercenaries could find employment
opportunities in the freelance coup business.
But over the last several years, Equatorial Guinea has assumed
a new and much higher profile as it has emerged as the third
largest oil producer in sub-Saharan Africa- following only
Nigeria and Angola. Major offshore oil and gas finds since
the mid-Nineties have pushed output to more than 200,000 barrels
a day, with official reserves estimated at 2 billion barrels-enough
to sustain astronomical annual growth rates of up to or even
over 50% for a country with a population of about half a million.
Suddenly Equatorial Guinea is on the map in ways unrecognizable
to readers of Klitgaard and Forsythe- as what some call the
next "Kuwait of Africa."
Equatorial Guinea has also been on the U.S. Government's
map since investment there on the part of American companies
reached $5 billion in 2000; the country is now the fourth
largest destination for overall U.S. investment in sub-Saharan
Africa (following Nigeria, Angola and South Africa). Several
American companies have established a substantial presence
so far: Marathon Oil, which acquired the Equatorial Guinea
assets of CMS; Amerada Hess, which acquired those of Triton;
ExxonMobil; ChevronTexaco and Vanco. It is basically an American
game; only TotalElfFina of France and Petronas of Malaysia
are non-American companies with significant footholds.
This rapid development comes against a backdrop of poor
governance and grave human rights abuses, together with serious
ethnic tensions. Even with an official transition to multi-party
democracy, Equatorial Guinea is still essentially a family
and clan-based dictatorship. There is no doubt that Equatorial
Guinea has come a long away from its killing fields years
of the Seventies, when the Nguema regime murdered thousands
of opponents and compelled about one-quarter of the population
to flee the country before the coup led by current President
Obiang in 1979; nor is there any doubt that Equatorial Guinea
is still (according to the State Department Country Reports
on Human Rights and NGO reports alike) a country where human
rights are not respected, impunity prevails, and governance
remains fundamentally undemocratic and unaccountable.
Moreover, governance is undermined by corruption and a lack
of capacity to direct the substantial oil revenue that began
to flow two years ago (after most revenue in previous years
went to the companies to defray their initial investment costs).
Revenue management remains opaque and uncoordinated, without
an overall development plan for using and safeguarding the
country's oil revenue for public purposes rather than private
gain. The government's development priorities are unclear,
and its ability to deliver basic services to the population
is very limited. Although the oil companies are beginning
to fund some commendable community development and infrastructure
projects, these do not appear to be linked to an overall development
strategy. Although the World Bank is beginning to focus, it
has not yet reached an agreement with the government or committed
resources.
Yet resource development in Equatorial Guinea represents an
opportunity as well as a problem; it is too early to write
off Equatorial Guinea as an irreversible governance, human
rights and development disaster. Although the clock is ticking
and time may well run out, there may be grounds for optimism
for at least three reasons. First, oil development is still
at a relatively early stage; the development model and its
governance underpinnings are not necessarily unalterable.
Second, there are useful lessons to absorb and perhaps apply
from elsewhere in Africa, not only from Angola and Nigeria
but also from the promising aspects of the Chad-Cameroon process
guided by the World Bank. Finally, two key sets of actors
with commercial and strategic stakes in Equatorial Guinea
also share an interest in addressing the implications of operating
in such a repressive environment with such little governance
capacity or apparent political will so far to change.
The American companies on the ground in Equatorial Guinea
should be concerned about the risks to reputation that may
develop over the next few years if the revenue flows continue
to accelerate without accountability and transparency, and
the human rights and labor rights situation remains bleak.
If the companies disregard these risks, no doubt some of the
international NGOs that are beginning to focus on Equatorial
Guinea will be prepared to help them focus. The U.S. Government
should also recognize its interest not only in safeguarding
the reputations of its companies operating abroad, but also
in not identifying itself too closely with such a repressive
regime in its strategic search for stable oil supply in West
Africa.
Fortunately, there are encouraging indications that the
U.S. Government is recognizing this interest and focusing
on ways that it might engage more closely with the government
as well as with the companies. The consulate to be opened
in Malabo will finally provide a platform to work on both
political and commercial matters on the ground in Equatorial
Guinea. But that platform must be backed by a clear policy
commitment in Washington for the relevant bureaus at the State
Department (along with USAID) to sharpen and coordinate their
focus on governance and human rights issues together with
the development challenges. There are also encouraging indications
that the American companies with a stake in the country are
discussing their concerns through the Corporate Council on
Africa's new working group on Equatorial Guinea.
There are two other grounds for optimism. One is the willingness
of UNDP to work directly with the government of Equatorial
Guinea on an overall strategy for advancing social and economic
development in conjunction with the country's new oil wealth.
The other is the fact that several meetings have taken place
to address these issues which might be the basis for a more
structured dialogue. Twice in the last four months, interested
NGOs have met in London under the auspices of Chatham House
with a senior figure in the government of Equatorial Guinea
together with oil company representatives: the first meeting
focused largely on human rights issues, the second mostly
on revenue transparency and management; apparently both were
frank and substantive discussions. And here in Washington
several months ago, the Fund for Peace brought together the
companies and NGOs to discuss the issues at stake for the
first time on this side of the Atlantic.
The most immediate challenge is to coordinate these developments,
and put together a comprehensive process of engagement which
can lead to tangible commitments. Such commitments should
address the human rights situation and governance environment
in Equatorial Guinea in ways which will first and foremost
benefit the people of the country, but also advance the U.S.
Government interest in diversity and security of oil supply,
and the companies' interest in sustainable investment. The
process should be based on appropriate roles and responsibilities:
the companies can focus most constructively and comfortably
on broad business environment issues such as the rule of law,
infrastructure priorities and community development initiatives;
the U.S. Government should address the more sensitive human
rights, governance, corruption and revenue transparency issues,
while taking both NGO and company concerns into account. Policy
recommendations in these areas could be coupled with capacity-building
commitments so that technical assistance from institutions
such as the UNDP, World Bank, and the ILO (as well as USAID)
can contribute to an overall strategy. The New Partnership
for Africa's Development (NEPAD) initiative might also be
a useful framework both for convening a policy dialogue and
for mobilizing technical assistance.
Of course there is an issue as to whether the U.S. Government
and the international institutions have real leverage with
a regime suddenly awash in oil revenues. To be sure, the government
of Equatorial Guinea no longer needs financial assistance.
But it does need technical assistance to build its infrastructure
and develop its governance capacity, both to support a workable
business environment for the companies and to meet the aspirations
of its people. International institutions, especially the
UNDP and the World Bank, are indispensable to meeting those
challenges. It would be reasonable at least for the World
Bank to impose conditionality for its assistance. Such conditionality
could link technical and other capacity-building assistance
to clear commitments and measurable progress on the part of
the government of Equatorial Guinea, with respect to human
rights and labor rights as well as revenue transparency.
As a stakeholder in the World Bank, the U.S. Government
can press for such a conditional approach. Moreover, the U.S.
Government has the leverage to determine the level and quality
of its diplomatic relations with other governments, not least
when official visits are requested. It should not hesitate
to use that perhaps intangible but nonetheless powerful asset
in its relations with the Government of Equatorial Guinea.
The test need not be the transformation of the country overnight,
but instead a willingness to engage on these governance issues
and make concrete commitments to reform.
It would be a tragedy if the people of Equatorial Guinea
are unable to benefit from the oil boom that has accelerated
so suddenly. It would be an unacceptable outcome, not least
after so many lessons have been learned about the misuse of
oil wealth, the fundamental importance of governance to development,
and the key contribution that corporate responsibility can
make both to good governance and sustainable development.
The U.S. Government and American companies have an opportunity
to focus now before it is too late.
Conclusion
Of course there must be African solutions to African problems,
and there will be; NEPAD is a potentially promising initiative
largely because it takes responsibility for finding those
African solutions to African problems. But at a time when
the shifting of the geopolitical tectonic plates has put Africa's
oil in a new light, when the U.S. Government and our companies
view it as a strategic interest and commercial prize, then
we share that responsibility.
We can avoid making a false choice between ensuring the
security of African oil supply and pressing for the reform
of African governance. We should recognize that reform will
be our best security, and act accordingly.
Bennett Freeman is Principal of Sustainable Investment Strategies,
a Washington DC-based consultancy advising multinational corporations,
international institutions and NGOs on corporate responsibility
and human rights. As U.S. Deputy Assistant Secretary of State
for Democracy, Human Rights and Labor, he led the multistakeholder
dialogue culminating in the Voluntary Principles on Security
and Human Rights and Labor, the first human rights standard
developed by companies and NGOs for the extractive sector.
He also developed a U.S. Government initiative announced by
President Clinton in August 2000 to work with oil companies
and local communities on governance and human rights issues
in the Niger Delta.
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