Economics Essays – Oil Developing Countries

Oil Developing States

1. Introduction

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Oil bring forthing provinces of the underdeveloped universe are presently sing the paradox of an unprecedented oil windfall and worsening per capita income. This crisis of administration calls for pressing reappraisals to guarantee that the window of chance the roar offers is non undermined by the entrenched corrupt patterns of the political and industry elite. The sense of urgency is informed by the volatility of international oil monetary values, and the finite nature of oil militias.

Gross Transparency in developing states rich in natural resources therefore assumes even greater significance as it is about important for development, good administration and planetary energy security. Given that the entrenched opacity of gross flows strains corruptness, a series of international enterprises aiming the extractive industries were established to guarantee gross transparence through public coverage. The premise being that, a civil society armed with such information, will keep its authorities to account and as a consequence goad development and societal equality.

This work appraises the efficaciousness of international NGO enterprises ( Global Witness, PWYP alliance ) , and enterprises led by many-sided administrations ( EITI, OECD/EU criterions ) , and the possible restraints posed by post-colonial Africa’s failure to construct strong democratic and legitimate establishments.

The undermentioned subdivision offers a theoretical analysis of current literature on the Resource Curse phenomenon and its effects on gross direction, government type and institutional character. The 3rd portion presents a brief overview of selected enterprises: the Global Witness, the Publish What You Pay run, the Extractive Industries Transparency Initiative, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the International Monetary Fund ( IMF ) ’s Guide on Resource Revenue Transparency. The last subdivision examines the interface between these international enterprises and the internal economic, political, and societal worlds in oil- rich states with hapless citizens.

While these enterprises have made great advancement in keeping host authoritiess, transnational oil companies, place authoritiess and so the international community to a new criterion of financial duty based on transparence and answerability, this work argues that their efficaciousness is slightly impaired due to the domestic constructions of administration in the mark states that aggravate the resource expletive and eventual province failure.

2.0 The Resource Curse

The ‘resource expletive ‘ is the phenomena whereby a state with an export-driven, natural resources sector, bring forthing big grosss for authorities, leads paradoxically to economic stagnancy and political instability. While analysts have put frontward many logical solutions, financial systems characterised by a high grade of opacity lack the cheques and balances needed to guarantee prudent public disbursement. The resource expletive literature encompasses several political economic system facets ; some of these are discussed in the undermentioned subdivisions.

2.1. Windfall Management

States who find themselves afloat with petro-dollars face the challenge of set uping an efficient financial system that caters for the developmental aspirations of her citizens.

The major economic defect revolves around the ‘Dutch Disease’ , which is the herding out of other sectors of the economic system occasioned by an unhealthy influx of foreign exchange. As the natural resource sector diverts capital and labor off from agribusiness and fabrication, an economic disruption occurs which consequences in higher costs, reduced fight, and fewer exports and balance of payment shortages.

Resource-rich states besides experience budgetary troubles. The volatility of oil monetary values in the international market means undermines government’s gross rhythm. It is therefore faced with issues such as how much to salvage for future coevalss, how to accomplish economic stableness in the face of unsure and widely fluctuating oil grosss and avoid “ boom-bust ” rhythms, and how to guarantee that disbursement is of high quality, whether in the signifier of subsidies, public ingestion, or big investing undertakings.

Such challenges have led to the clamor for the constitution of Natural Resource Funds. These have merely strengthened the enticement for swayers to plunder or for all the additions to be wiped out by the outgrowth of an imprudent authorities.

2.2. Rent Seeking and Democracy

Terry Lynn Karl and Ian Gary describeRent-seekingas “ …widespread behavior aimed at capturing petrodollars through unproductive and even corrupt agencies. ” The combination of unearned gross generated by oil development and wide-spread corruptness presents a farther challenge to the unity of the democratization procedure.

Collier identified two sets of regulations of democracy: how power is achieved, which is determined by elections, and how power is used, which is concerned with the cheques and balances the political system exerts on the authorities in a command to forestall the maltreatment of office. These regulations are routinely compromised as oil rents are employed for the double political backing intents of ballot purchasing and eroding of answerability.

The ability of oil-rich provinces to keep low revenue enhancements and high backing therefore “ …weakens the footing for democracy by cut downing the public demand for accountable government. ” . In other words, resource rent negates the traditional societal contract between the province and the electorate. A authorities that relies on rent does non hold the same inducement to “ execute ” as a tax-receiving authorities.

Furthermore, Ross argues that an industrialized society creates an urban center category which in bend provides stableness for a country’s democratic establishments. In a state like Nigeria hence, where the oil industry has led to the disregard of the fabrication sector, the absence of the in-between category deprives the civil order of such needed ingredient.

Another characteristic of resource rent is its ability to pull politicians motivated, non by echt desire to function the people, but by unconditioned aspirations to hold “ a piece of the national bar ” via entree to the corridors of power. The inducement to win power at all costs encourages the political relations of backing, which is financed in bend by peculation of public financess, thereby worsening the job of public gross direction.

2.3. Rent Seeking and Corruptness

Analysts have drawn a correlativity between the presence of natural resources and corruptness occasioned by the rent seeking runs of authorities and the elite. For case, Tobias Kronenberg argues that the absence of rents eliminates corruptness as vested involvements lose the inducement to undermine reforms and keep the status-quo of rent protection. The enclave nature of the extractive industry frequently consequences in an illicit confederation between oil companies buttonholing for oil licences and the host authorities. A state of affairs where oil wealth is concentrated in the custodies of a few elect leads to fiscal maltreatment and which in bend, impacts negatively on the country’s economic fight.

2.3. Institutional Fictional character

The quality of establishments in developing states rich in natural resources comes under scrutinyhere due to the sensed failure of the authorities to interpret resource gift into political goods for its citizens.

An increasing figure of bookmans have attempted to explicate the self-contradictory state of affairs where the economic and political public presentations of a resource rich state are diametrically opposed to each other, as a map of the bing system of administration. Lederman Daniel and William F Maloney, for case, underlined the intrinsic neutrality of natural resources ; as being “ …neither curse nor destiny for developing states ” , and argued that what is required is the competent transmutation of these resources into economic growing.

Similarly, Acemoglu argues that theestablishments hypothesisbest explains the economic prosperity or otherwise of states. This hypothesis emphasises the function of good human influences in establishing a society conducive for economic investing and activity. Institutions, crucially, are besides to be relied upon for the just distribution of income amongst the assorted strata of society and restraining the surpluss of political elites.

3.0 International Enterprises

3.1. Global Witness

Established in 1993, Global Witness was the prime administration responsible for exposing the corrupt development of natural resources and international trade systems, to drive runs that end impunity, resource-linked struggle, and human rights and environmental maltreatments. It so takes recognition for the planetary focal point on the links between the development of natural resources, struggle and corruptness. Such attempts provided immense inducement for subsequent major international mechanisms and enterprises that have been established to turn to these issues.

Their probes and powerful protagonism are mostly informed by their house belief that interrupting the rhythm of poorness in Africa and other countries of the underdeveloped universe requires an international partnership of authoritiess and industry committed to transparency that ensures natural resources remain a benefit and non a expletive.

3.2 Publish What You Pay ( PWYP )

Started in 2002, The Publish What You Pay run is presently a alliance of over 300 NGOs. Its primary focal point is to advance good administration of natural resources by supplying citizens of resource-rich developing states with the gross information. The nonsubjective being that citizens will in bend, hold their authoritiess to the just direction of grosss from the extractive industries.

Grosss from the extractive industries have the possible to relieve poorness and excite economic development, instead than corruptness, struggle and societal divisiveness. Hence, PWYP calls for the compulsory revelation of the payments made by oil, gas and excavation companies to all authoritiess for the extraction of natural resources.

3.3 The Extractive Industries Transparency Initiative ( EITI )

The EITI, a alliance of authoritiess, companies, civil society groups, investors and international organisations, was established in 2002 by the authorities of British Prime Minister, Tony Blair under the protections of the Department for International Development ( DFID ) in acknowledgment of the huge benefits responsible administration and development of natural resources can convey to the about 3.5 billion citizens of states rich in oil, gas and minerals, peculiarly in accomplishing sustainable development and poorness decrease. This aim, it sought to realize via the instrumentality of advancing transparence and answerability of accruing grosss.

The major concerns sing the EITI focal point on the voluntary attack to set uping transparence in the extractive industry. Analysts observe that this provides room for industry histrions to besiege the procedure. The deficiency of enforcement mechanism besides encourages a free-rider outlook: non-compliant states can conceal under the pretense of being EITI implementing states, while prosecuting a government of non-transparency.

3.4. The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Minutess

In acknowledgment of the inauspicious deformations corruptness imposes on the economic developmental attempts of provinces, the OECD states embarked upon a vigorous anti-corruption government culminating in the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Coming into force in 1999, the Convention required its signers to outlaw and approve the graft of foreign public functionaries by both persons and companies, every bit good as confiscate any net incomes obtained through such patterns.

But as Collier observed, the enforcement scheme of OECD states presents a challenge. It is much easier to besiege the statute law by “ …dress ( ing ) up a payoff as a ‘facilitation payment’ . ” This stems from place authoritiess conflicted by a desire to vouch energy supplies and supply strategic advantages for their companies in an progressively competitory industry.

3.5. Steer on Resource Revenue Transparency ( GRRT )

The IMF Guide on Resource Revenue Transparency was designed to turn to “ …the alone set of jobs faced by states that derive a important portion of grosss from natural resources. ” The IMF, World Bank, and others supplying proficient support are of the position that the immense volume of resources translate into complex financial jobs owing to the monetary value volatility, and finite nature of the resources. Thus a Manual on Fiscal Transparency that enshrines a set of by and large recognized best patterns for transparence of resource gross direction is deemed necessary.

Resource wealth nevertheless affords target states the unsusceptibility from force per unit areas to present better financial patterns. For case, a Global Witness study asserts that the Angolan authorities has consistently failed to implement reforms sing transparence and answerability as stipulated by the IMF. Its policy of non-disclosure of basic payments to the province provides the phase for the persistent and widespread robbery of public gross presently being experienced in Angola.

As Auty and Le Billon observe, merely a limited figure of resource-dependent provinces adhered to the more general IMF Code of Good Practice in Fiscal Transparency and set about the Reports on the Observance of Standards and Codes ( ROSCs ) that gives the codification a step of efficaciousness. His appraisal therefore is that the GRRT may endure the same destiny, exactly because such provinces have no demand for loans from many-sided loaning bureaus, and the duties that frequently accompany them. He therefore argues for the compulsory execution of GRRT, greater civil society engagement and effectual publication of ROSCs.

4.0. Domestic Governance andInternational Morality

The international system is comprised of strong or empirical and failed or juridical provinces. Juridical provinces, harmonizing to Rotberg and Jackson, are merchandises of the “ international society of provinces ” , whose rank is limited to provinces and international administrations formed by provinces. Its cardinal subject of the philosophy of sovereignty nevertheless excludes non-governmental administrations and other private groups and, frequently conflicts with the philosophy of international human rights.

The quandary posed by the looking inability of juridical provinces to fulfill the political and economic aspirations of their citizens and therefore forestall the spread of anarchy across national boundary lines, hence provides the background to the clamor for a new criterion of international morality by international enterprises aiming the extractive industries.

Jackson identifies some curious properties of the juridical province:

… their authoritiess are frequently lacking in the political will, institutional authorization and organized power to protect human rights or supply socioeconomic public assistance. The concrete benefits which have historically justified the undeniable loads of autonomous statehood are frequently limited to reasonably narrow elites and non yet extended to the people at big whose lives may be barely improved by independency or even adversely affected by it. ”

Similarly, Terry Lynn Karl contrasts the “ stateness ” of European and developing provinces: while state-building in Europe involved dialogues between swayers and their citizens that resulted in a competent administrative setup anchored on the regulation of jurisprudence, meritocracy, just distribution of resources and citizens’ representation, the developing universe was a merchandise of unreal boundary lines, foreign use and a peripheral place in an international sphere already dominated by powerful provinces. These emerging provinces were accordingly bequeathed the doubtful qualities of non-transparency, failing and exposure to province gaining control by foreign and domestic involvements that persist to the present clip.

It can therefore be argued that the effectivity of these enterprises will be badly limited without a long drawn out procedure of nation-building affecting domestic authoritiess and their populations.

4.1. Democratizing the Decision-Making Procedure

The basic premiss of international enterprises is that supplying citizens with entree to gross information will authorise and startle them to action – keep their authoritiess to a higher criterion of administration. The world frequently times, is that the capacity of civil society and province establishments require strengthening, if it is to execute its function of supervising public budgets.

The “ engagement shortage ” , Karl argues, is entrenched by a rentier civilization which neutralises citizens’ sense of ownership of natural resources. A authorities reliant on foreign beginnings of support, Humphreys et al argue, creates weak linkages between the province and its citizens.

Harmonizing to Transparency In Nigeria, the Federal Inland Revenue Service should be empowered to non merely determine the exact crude oil net incomes revenue enhancement that each oil company operating in Nigeria should pay, but besides how much is being repatriated abroad.

4.2. Elite Interests

As has been noted, the political elite in resource rich states have a vested involvement in prolonging the rentier province and therefore resist reforms of the extractive sector. The sensed deficiency of political will to conform to ordinance and planetary criterions in the natural resource sector of a manufacturer state can be attributed to the demand to make an environment for maltreatment of public power to maximize their private net incomes.

In seeking to debar calls for improved transparence of oil grosss, the Angolan authorities argues that the struggle epoch had undermined the country’s capacity to account for future and past oil minutess. A Global Witness Report nevertheless, exposed the intricate and sophisticated mechanisms Sonangol employs to guarantee its gross remains offshore, and inquiries whether it’s really a instance of a“ deficiency of capacity or deficiency of application? ”Such thinkingillustrates the reluctance of host authoritiess to guarantee gross transparence occur where it is most needful, and therefore weaken EITI’s effectivity.

4.3. Unmasking Sovereignty and Secrecy

States wishing to work the opacity of oil grosss for private addition oftenclaim national sovereignty concerns. This statement is nevertheless specious ; a authorities that fails to dispatch its legitimate duties to its citizens efficaciously surrenders its right to sovereignty.

Such authoritiess are besides speedy to raise confidentiality and secrecy clauses in their contracts with oil companies. While the host authorities may therefore be free of the load of answerability and even embezzle grosss, the oil companies risk being viewed as confederates in the states’ administration and human-rights maltreatments. This has long term deductions for its corporate repute and return on investing.

4.4. Administration Contradictions

The prevailing forms of administration in these provinces normally involve a high grade of personalisation of formal political establishments and subsequent circumvention of constitutional commissariats ; film over the separation of powers between the executive and the bench, taking to mistreat of legitimate political power. Such conditions pervert the institutional ability of provinces to stay by the regulations of political behavior.

For case, Nigeria’s pledge to commit oil gross transparence, and the subsequent sign language into jurisprudence of The Nigeria Extractive Industries Transparency Initiative ( NEITI ) , under the guiding rules of the EITI, appears slightly contradictory. Indeed, the reform docket of former President Obasanjo is coming under intense examination owing to allegations he illicitly appointed himself as the Petroleum Resources Minister reverse to the 1999 Constitution and ne’er rendered histories of the oil gross to relevant bureaus like the Revenue Mobilisation, Allocation and Fiscal Commission ( RMAFC ) .

This is contrary to the aims of NEITI, which, harmonizing to the act set uping it, include to “guarantee due procedure and transparence in the payments made by all extractive industry companies to the federal authorities and statutory receivers, and to supervise and guarantee answerability in the gross grosss of the federal authorities from extractive industry companies. ”

Furthermore, closerscrutiny must besides be brought to bear upon national oil companies, as grounds has shown that the piece foreign oil companies may unwrap payments, national oil companies, who are frequently joint venture spouses, handily fall off the transparence radio detection and ranging. For case, the Conference of Nigerian Political Parties ( CNPP ) maintains that Nigeria lost over $ 130 billion unaccounted gross between 2000-2006, and that for eight old ages Obasanjo one-sidedly withdrew over N1 trillion from the Nigeria National Petroleum Corporation ( NNPC ) and the Federation Accounts.

As these patterns are at discrepancy with the rules of EITI implementing states, critics have argued that the chief inducement for fall ining EITI has been for authoritiess and companies to debar unfavorable judgment and addition domestic and international legitimacy. Unless robust execution / conformity and answerability processs are put in topographic point, Oli Brown argues, the EITI stands the hazard of compromising its repute.

4.5. Towards an Ethical International Banking System

Given the steady flow of illicit financess from developing states into the world’s fiscal Centres of London, New York, Switzerland and other revenue enhancement oasiss, Nicholas Shaxson has argued for the enlargement of the corruptness argument to include the revenue enhancement oasiss and the international fiscal system that facilitates the supply side of corruptness.

It is hence non plenty to place or even condemn public functionaries who steal from their citizens ; OECD states must deter these patterns by actively denying corrupt functionaries entry and safe oasis for their assets: investings, luxury goods, existent estates, yachts, private jets, and besides assist states in retrieving and repatriating stolen financess.

5. Decision

In decision, international enterprises aiming the extractive industries must be commended for advancing the transparence and monitoring of oil grosss. However, these enterprises are possibly non every bit effectual as they should in battling corruptness, struggle and wretchedness. Of peculiar concern is the challenge posed by faulty democratic institutional agreements and administrative incapacity of the underdeveloped universe.

A system devoid of the necessary cheques and balances imposed by transparence, answerability and equity does non breed good administration but on the contrary, serves the vested involvements of an elect few that net income, non from effectual extractive industry reform, but from intrenching the position quo.

The transmutation of a country’s natural resource into a approval requires a planetary committedness to a new financial contract that ensures the just allotment of natural resources’ grosss for the benefit of citizens.


1. Secondary Beginning

1.1 Books

1.Auty, Richard and Philippe Le Billon,Pull offing Grosss from Natural Resources and Help, Chapter 6 in: Brown, Oli et Al ( explosive detection systems ) : Trade, Aid and Security, An Agenda for Peace and Development, ( London: Earthscan, 2007 )

2. Collier, Paul, The Natural Resource Trap, Chapter 3 in: The Bottom Billion. : Why the Poorest States are Failing and What Can Be Done About It, ( Oxford, Oxford University Press, 2007 )

3. Gelb, A.H. , Oil Windfall: Blessing or Curse? ( New York: Oxford University Press, 1988 )

4. Humphreys M, J D. Sachs and J. E. Stiglitz,What is the job with Natural Resource Wealth?, Chapter 1 in: Humphreys Macartan, Jeffrey D Sachs and Joseph Stiglitz ( explosive detection systems ) Escaping the Resource Curse, ( New York, Columbia University Press, 2007 )

5. Karl, Terry Lynn ( 2007 ) :Guaranting Fairness. The Case for a Transparent Fiscal Social Contract, Chapter 10 in: Humphreys M, J D. Sachs and J. E. Stiglitz ( explosive detection systems. ) , Escaping the Resource Curse, ( New York, Columbia University Press, 2007 )

6. Lederman, Daniel and William F Maloney,Neither Curse nor Destiny

Introduction to Natural Resources and Development, Chapter 1 in: Daniel Lederman and

William F. Maloney ( explosive detection systems. ) , Natural Resources: Neither Curse nor Destiny ( Palo Alto,

Calcium: Stanford University Press ; Washington, DC: World Bank, 2007 )

7. Robert Jackson, Quasi-states: Sovereignty, International Relations and the Third World ( Cambridge: Cambridge University Press, 1993 )

1.2 Articles

1. Auty, Richard,The Political Economy of Resource-Driven Growth, European Economic Review, Vol. 45, ( 2001 ) pp. 839-846.

2. Eifert, B, A Gelb and N B Tallroth ( 2003 ) : Pull offing Oil Wealth. The political economic system of oil-exporting states – why some of them have done so ill, Finance & A ; Development, Volume 40 ( 1 ) hypertext transfer protocol: // ( Last visited 22 January, 2008 )

3. Michael L. Ross,Nigeria’s Oil Sector and the Poor

hypertext transfer protocol: // ( Last visited 22 January, 2008 )

4. Nicholas Shaxson,Oil, Corruption and the Resource Curse, International Affairs, Volume 83 Issue 6 ( 2007 ) pp.1123–1140.

5. Robert H. Jackson ; Carl G. Rosberg, Why Africa ‘s Weak States Persist: The Empirical and the Juridical in Statehood World Politics, Vol. 35 ( 1 ) . ( Oct. , 1982 ) , pp. 1-24.

6. Andrew Rosser,Escaping the Resource Curse, New Political Economy, Vol. 11 ( 4 ) , ( 2006 ) pp.557-570.

7. Scott Pegg,Can Policy Intervention Beat the Resource Curse? Evidence from the Chad–Cameroon Pipeline Project,African Affairs, Volume 105, Number 418, ( Jan 2006 ) pp. 1-25

8. Tobias Kronenberg,The Curse of Natural Resources in the Passage Economies, Economicss of Transition, Volume 12 ( 3 ) 2004, 399–426.

1.3 Internet Beginnings

1. Acemoglu, Daron, Root Causes: A Historical Approach to Measuring the Role of Institutions in Economic Development, Finance & A ; Development, June 2003. hypertext transfer protocol: // ( last visited on November 5, 2006 )

2. Cynthia Williams, Civil Society Initiatives and “ Soft Law ” in the Oil and Gas Industry

hypertext transfer protocol: //

( Last visited on January 20, 2008 )

3. Ian Gary and Terry Lynn Karl. Bottom of the Barrel: Africa’s Oil Boom and the Poor ( Catholic Relief Services, June 2003 ) : 1-110

hypertext transfer protocol: //

( Last visited on January 22, 2008 )

4. IMF ( 2007 ) :Guide on Resource Revenue Transparency,

hypertext transfer protocol: //

5. Mining Environment Management ( 2006 ) :NGOs Special: the runs and challenges

hypertext transfer protocol: // % 20journal % 20july % 2006.pdf

( Last visited on January 22, 2008 )

6. Robert Rotberg Failed States, Collapsed States, Weak States: Causes and Indexs

hypertext transfer protocol: //


NGO Reports

  • Global Witness ( 2007 ) : Oil Revenue Transparency. A Strategic Component of US Energy Security and Anti-Corruption Policy, available at: hypertext transfer protocol: // ( Last visited on January 21, 2007 )
  • Global Witness ( 2004 ) : Gross Transparency: A Precedence for Good Governance and Energy Security. hypertext transfer protocol: // ( Last visited on January 21, 2007 )

3. Global Witness ( 2004 ) : Time for Transparency Coming Clean on Oil, Mining and Gas Revenues.

  • Open Society/Revenue Watch Institute ( 2005 ) :Follow the Money. A Guide to Monitoring Budgets and Oil and Gas Revenues, Open Society Institute, New York hypertext transfer protocol: // ( Last visited January 22, 2008 )
  • Salvage the Children ( 2005 ) : Beyond the Rhetoric. Measuring Revenue Transparency. Home authorities demands for revelation in the oil and gas industries. hypertext transfer protocol: //

Extractive Industry Transparency Initiative:

1. EITI Sourcebook and Validation Guide hypertext transfer protocol: // ( Last visited on November 6, 2007 )

  • Nigeria EITI – The Executive Summary hypertext transfer protocol: // % 20audit % 20reports/Executive % 20Summary % 20Final % 2031Dec06 % 20v6.pdf ( Last visited on November 6, 2007 )

Industry Standards

OECD Guidelines for Multinational Enterprises hypertext transfer protocol: //,2688, en_2649_34889_1_1_1_1_1,00.html ( Last visited on January 20, 2008 )

3. The OECD battles foreign graft

hypertext transfer protocol: //

( Last visited on January 20, 2008 )

1.4 Other Beginnings

1. The Sun Newspaper, December 30, 2007

hypertext transfer protocol: //


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