Review of African Political Economy

By Lee Wengraf

A tidal wave of change has been unleashed on African economies and worldwide: a sharp dive in primary commodity prices globally, including oil, and a decline in the strength of the Chinese economy have produced major budget crises in oil-producing nations. African governments have imposed devastating budget cuts: Nigeria reported a N3 trillion (US$15 billion) budget shortfall in early 2016, in the face of the weakest GDP growth – 2.8 percent – since 1999. Angola cut its budget for 2016 by approximately US$15 billion, with a 2016 GDP forecast of 3.3 percent, its lowest since 2009, prompting job cuts and postponing of government projects. Despite promises in early 2017 of a rebound, a crisis of over-production plagues the global system, fueled by a glut in the capacity of raw materials, particularly in the world’s largest economy, China.[1]

Ample evidence substantiates this crisis of overproduction, yet other theories abound to “explain” the propensity for crisis and the failures of development. A dominant explanation among policy-makers, think tanks, and community development advocates for the relationship between poverty and natural resources is a theory called the “resource curse.” The “resource curse” intends to describe the phenomenon where a massive inflow of foreign currency from natural resources creates a distorting impact on other sectors of those nation’s economies and, more broadly, social conditions as a whole. The economic mechanism explaining this distortion is sometimes referred to as the “Dutch disease” – coined by the Economist magazine in 1977 and defined by the Financial Times as “the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The currency inflows lead to currency appreciation making the country’s other products less price competitive on the export impact.” Nigeria’s currency, for example, leaped in price from the early 1970s to the mid-1980s in the context of a jump in oil prices.[2]

The “resource curse” theory is often associated with the works of development economists and policymakers such as Paul Collier, Michael Rodd and Humphreys et al. to explain low levels of industrialization and development overall, alongside persistent poverty, in nations with high levels of natural resources. Nicholas Shaxson, writing in 2009, outlines the idea’s origins:

[T]he so-called ‘resource curse’ thesis is relatively new: the notion that mineral resources, like oil, can actually harm countries that produce them (or, at the very least, contribute to their failure to reach their apparent potential) only started to emerge into mainstream academic forums in the mid-1990s, and into the popular mainstream about five years later. Early landmark studies such as Natural Resource Abundance and Economic Growth, a paper by Jeffrey Sachs and Andrew Warner, or Terry Lynn Karl’s The Paradox of Plenty, emerged in 1995 and 1997 respectively; Global Witness’ December 1999 report A Crude Awakening, focusing on Angola, was also a landmark in terms of popularizing the problem, although specialist publications such as Africa Confidential had been pursuing these issues for some time.[3]

The concept is common in literature on oil and Africa, corresponding to a boom in the “good governance” and “transparency” efforts, despite much evidence questioning their efficacy. Roger Southall and Alex Comninos root this approach to African economies in the post-independence period, characterizing the framework where “The emergent bourgeoisie, managerial rather than capitalist, was therefore from this perspective pursuing rent rather than profit, so the key intercontinental relationships were not just those of aid and trade, but even more between multinational corporations and politicians and bureaucrats.”[4]

According to the “resource curse” theory, a key characteristic of these lopsided economies are states that disproportionately rely on “rents,” that is, revenues accruing through licensing of drilling and mining rights. This dynamic ostensibly produces what Shaxson has described as “misplaced lines of accountability,” where the state is overly-reliant on a centralized source of income from multinationals in the extractive and related industries over which it exercises disproportionate control over, rather than its own citizenry. “When a country’s wealth arises from an endowment of natural resources, however, investment in a skilled workforce is not necessary for the realization current income.” Thus, the “resource industry is hardwired for corruption.” [5] Macartan Humphreys et al describe the “enclave” characteristics of natural resources: because resource extraction does not require high labour participation, and can proceed without political agreement, so the argument goes, there are few limits to “rent-seeking behavior,” meaning the hijacking of the process by corrupt elites.[6]

Padraig Carmody also discusses the “paradox of plenty” concept, essentially another angle on the resource curse idea that disproportionately emphasizes the benefits to African elites of the extractive industries. The notion that there is a “curse,” however “counter-intuitive” such a concept may be, finds some material basis in the overall economic picture, he argues, writing that “studies suggest that real GDP and the population’s standard of living nearly always decline where oil is discovered. Between 1970 and 1993, for example, countries without oil saw their economies grow four times faster than those of countries with oil.”[7]

Advocates of the resource curse explanation cite national budgets disproportionately allocated to the military at the expense of social spending along with indicators of “poor governance”: corruption, authoritarianism, rigged elections, resource-based violence and conflicts, and the like. So according to this theory, over-reliance on natural resources not only leads to weaker-than-expected economic development but also to what is sometimes termed a “democracy deficit.” According to the resource curse literature, at its most extreme, the resource curse and democracy deficits engender “failed states,” where many functions of governance and civil society have been dwarfed by the disproportionate role of the rentier system so that other sectors cease to adequately function. So Humphreys et al. argue that “the resource curse results not only in militarization but also in civil war.”[8] Collier uses a term called the “survival of the fattest” to describe how resources thwart democratic functioning: that states based on resource rents will inevitably facilitate patronage politics and the undermining of democratic “checks and balances,” or “restraints,” in Collier’s terminology. In a nutshell, “voters are bribed with public money.”[9] For Collier, natural resources are one of several “traps,” along with conflict and geography that function to limit economic growth and democratic participation. Advocates of this narrow perspective cite correlations such as World Bank figures on West Africa stating that the region experiences 70 per cent of the continent’s military coups.[10]

Yet a correlation is not the same as causation, and in fact this distinction is critical for understanding the actual roots of inequality. The Tax Justice Network-Africa has written: “Though some say a resource curse is innate to Africa, this is simply false. The continent’s creativity and adaptability are not doomed to be ‘cursed’; the root cause is elsewhere, in structures of ‘maldevelopment’…. Maldevelopment has been packaged as behavioral, rooted in the abuse of political power chiefly located at the state level in developing countries rich in resources.”[11] Carmody makes a similar point that the prospects for explaining development lie in historical accounts, not behavioral ones. He writes: “[C]olonialism opened markets around the world enabling economies of scale to be realized in the colonizing countries. Can (under)developing countries now compete, particularly under a liberal economic regime which institutionalizes the advantages of first movers over late comers…? The implication is that they can, but the reason they have not done so to date is because these countries have poor politics and policies…. But this neglects the fact that most of the countries of the ‘bottom billion’ (Collier 2007) have been implementing the policies of unmediated integration promoted the Washington-based international financial institutions for the last few decades.”[12]

A chief underlying premise of the “resource curse” framework is the assumption that natural resources, especially oil, have intrinsic properties capable of impacting economic and social development. Glaringly absent from many of these approaches is a systemic analysis of the root causes of economic inequality and underdevelopment in Africa and elsewhere in the so-called Third World: the historical impact of colonialism, imperialism and neoliberal policy. In fact, the resource curse approach is plagued by a dehistoricized method and what Marx termed commodity fetishism, that is, ascribing oil and other natural resources independent and unique attributes as an unmediated entity that simply emerges out of the soil. Shaxson’s account, for example, claims that “[O]il and gas companies are different. Oil provides rents …money not earned by innovation and hard work but that comes out of the ground as if a gift from God.”[13] Geographer Michael Watts, who has written extensively on Nigeria and “petro-states,” has offered a sustained critique of the “resource curse” thesis:

Oil comes to mark a particular epoch (like the age of coal or steam) and to this extent is not only a bearer of particular relations of production but it is equally a source of enormous political and economic power and therefore it carriers a set of ideological and cultural valences as is implied in the moniker of ‘black gold’ or ‘petro-dollars’ (it is both a commodity and a commodity fetish). In this account oil (and other key resources) has causal powers: it is a purveyor of corruption, it undermines democracy, promotes civil and inter-state wars (‘blood for oil’), is the mother forms of corporate power (‘Big Oil’) and condemns oil-rich states to devastating economic, political and social pathologies (oil is the ‘devil’s excrement’ as a former head of OPEC once put it).[14]

In his review of Collier’s widely-read The Bottom Billion, Watts extends this analysis with a critique of how this approach obfuscates an analysis of the roots of conflict and inequality:

Collier’s book speaks to a wider interest taken by economists (and political scientists) in what seems like a challenge to economic orthodoxy: namely that resources wealth (as a source of comparative advantage) turns out to be a ‘curse’:… whether emphasizing poor economic performance, state failure (oil breeds corruption) or “resource rents make democracy malfunction” … or the onset of civil violence (blood diamonds, oil succession and so on). In this account oil has been invested with almost Olympian transformative powers. Oil distorts the organic, natural course of development. Oil wealth ushers in an economy of hyper-consumption and spectacular excess. Others like Michael Ross (1999, 2003, 2004) argue that “oil hinders democracy” (as if copper might promote constitutionalism) and hampers gender equality; oil revenues permit low taxes and encourage patronage (thereby dampening pressures for democracy); it endorses despotic rule through bloated militaries, and it creates a class of state dependents employed in modern industrial and service sector who are less likely to push for democracy.[15]

Cyril Obi also offers an important critique of the resource curse thesis and its limited explanatory power, stating that the framework is unable to explain conflicts in resource-poor countries, and that its assumptions ignore structural and historical explanations for how scarcity and inequity are produced. Ignoring international forces outside local states.[16] To counter an exclusive focus in the literature on “African corruption” historian Kairn A. Klieman likewise argues that “resource curse theory has become deterministic, failing to take into account specific historical eras, cultures, and locales.” Her account of the relationship between U.S. oil firms and the Nigerian oil economy reveals the actual historical production of their “non-public” proceedings in the conjuncture of the 1960s oil boom, and the maneuvering by and heightened competition between African elites, exploding in the Nigerian civil war of 1967-1970. Thus, “opacity was a characteristic of both Nigerian and independent oil company (IOC) practices, shaping the way they interacted over time.” [17]

Much of this focus on governance, however, is profoundly hypocritical in overlooking the distortions of structural adjustment that created lopsided economies in the first place and the corporate contracts that maintain them through bloated signing bonuses and provisions that allow them to sidestep even minimal social accountability. As Nigerian environmentalist Nnimmo Bassey has put it, “the so-called resource curse can be traced not only to the corrupt, despicable dictators, whose spirited-abroad wealth often exceeded their countries’ national external debt, but also to neo-colonial relations. Blaming a resource curse purely on dictators, as do some Western politicians, is a refusal to admit that the colonial pillage of Africa continues, driven on the same tracks that were set in those dark days by transnational corporations, trade rules, bilateral and multilateral arrangements, powerful international agencies such as the World Bank and the International Monetary Fund.”[18]

Herein lies key insights into the relentless chiding from the West about African corruption: a narrative that reinforces the refusal that Bassey cites, in which resource wars are transformed into “curses” for which African economies and policy are solely responsible. Yet as the insights of Bassey, Obi, Watts and others have shown, another perspective – grounded in a systemic and historical analysis – is possible.

Lee Wengraf writes on Africa for the International Socialist Review, Counterpunch, Pambazuka News and AllAfrica.com. Her new book Extracting Profit: Neoliberalism, Imperialism and the New Scramble for Africa will be published by Haymarket in 2017.

Notes

[1] Shawn Donnan, “Rebound in commodity-exporting nations set to boost global growth,” Financial Times, January 11, 2017

[2] Tom Burgis. 2015. The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa’s Wealth. New York: PubicAffairs, p. 76

[3] Nicholas Shaxson, “Nigeria’s Extractive Industries Transparency Initiative: Just a Glorious Audit? Chatham House report, November 2009. https://eiti.org/files/NEITI%20Chatham%20house_0.pdf

[4] Roger Southall and Alex Comninos, “The Scramble for Africa and the Marginalisation of African Capital,” in Roger Southall and Henning Melber, eds. 2009. A New Scramble for Africa?: Imperialism, Investment and Development. Scottsville, South Africa: University of KwaZulu-Natal Press, p. 363

[5] Macartan Humphreys, Jeffrey D. Sachs, Joseph E. Stiglitz (eds.). 2007. Escaping the Resource Curse. New York Columbia University Press, p. 10

[6] Macartan Humphreys, Jeffrey D. Sachs, Joseph E. Stiglitz (eds.). 2007. Escaping the Resource Curse. New York Columbia University Press, p. 4

[7] Padraig Carmody. 2011. The New Scramble for Africa. Cambridge and Malden, MA: Polity, p. 95

[8] Macartan Humphreys, Jeffrey D. Sachs, Joseph E. Stiglitz (eds.). 2007. Escaping the Resource Curse. New York Columbia University Press, p. 14

[9] Paul Collier. 2008. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. Oxford: Oxford University Press, pp. 42-46

[10] Cited in Tax Justice Network-Africa, Tax Us If You Can: Why Africa Should Stand up for Tax Justice, p. 20

[11] Tax Justice Network-Africa, Tax Us If You Can: Why Africa Should Stand up for Tax Justice, p. 18-19

[12] Padraig Carmody. 2011. The New Scramble for Africa. Cambridge and Malden, MA: Polity, p. 24.

[13] Nicholas Shaxson. 2008. Poisoned Wells: The Dirty Politics of African Oil. New York and Basingstoke: Palgrave Macmillan

[14] Michael Watts, “Crude Politics: Life and Death on the Nigerian Oil Fields,” Niger Delta Economies of Violence, Working Paper No. 18, http://geog.berkeley.edu/ProjectsResources/ND%20Website/NigerDelta/WP/Watts_25.pdf

[15] Michael Watts, “Oil, Development, and the Politics of the Bottom Billion,” Macalester International Vol. 24, Summer 2009

[16] Cyril I. Obi, “Scrambling for Oil in West Africa,” in Roger Southall and Henning Melber, eds. 2009. A New Scramble for Africa?: Imperialism, Investment and Development. Scottsville, South Africa: University of KwaZulu-Natal Press, p. 199

[17] Kairn A. Klieman, “U.S. Oil Companies, The Nigerian Civil War, and the Origins of Opacity in the Nigerian Oil Industry, 1964-1971,” Journal of American History, vol. 99, no. 1, June 2012, pp. 155-165.

[18] Nnimmo Bassey. 2012. To Cook a Continent: Destructive Extraction and the Climate Crisis in Africa. Nairobi and Oxford: Fahamu Books & Pambazuka Press, p. 12