Can Corporate Power Positively Transform Angola and Equatorial Guinea?

Can Corporate Power Positively Transform Angola and Equatorial Guinea? Published in Wayne Visser ed. Corporate Citizenship in Africa. Greenleaf Publications, UK, 2006. Authors: Jose A. Puppim de Oliveira Brazilian School of Public and Business Administration – EBAPE Getulio Vargas Foundation – FGV Praia de Botafogo 190, room 507 CEP: 22253-900, Rio de Janeiro - RJ, BRAZIL Phone: (55-21) 2559-5737 Fax: (55-21) 2559-5710 e-mail: [email protected] & Saleem H. Ali Rubenstein School of Environment and Natural Resources University of Vermont 153 S. Prospect St., Burlington VT, 05452, USA Ph: 802-656-0173 Fx: 802-656-8015 Email: [email protected] 1 ABSTRACT While there is considerable literature on the adverse effects of oil development on developing economies through “Dutch Disease” or “Resource Curse” hypotheses, studies have neglected to pose the question in terms of positive causal factors that certain kinds of oil development might produce. We do not dispute the potential for negative effects of certain kinds of oil development but rather propose that some of the negative causality can be managed and transformed to lead to positive outcomes. Using a comparative study of oil company behavior in Angola and Equatorial Guinea, the research detects three main factors that have affected the behavior of oil companies since the Earth Summit in 1992. First, there is a growing movement of corporate social responsibility in businesses due to changes in leadership and corporate culture. Second, the ‘globalization’ of environmental movements has affected the behavior of companies through threats of litigation and stakeholder action. Third, governments in Africa have increasingly become stricter in regulating companies for environmental and social issues due to a transformation of domestic norms and international requirements. The research tries to understand these three factors and how they are affecting different multinational oil companies in the emerging oil markets in Africa. The comparison between Angola and Equatorial Guinea is particularly compelling because in the Angolan case, the country also has many alternative development paths (diamonds, agriculture, timber), whereas with Equatorial Guinea the only alternative development path in terms of comparable returns appears to be large-scale tourism. How companies and governments leverage these opportunity costs is particularly important to understand in the context of African development. 2 1) INTRODUCTION: Oil production has been a major source of export revenues for many African countries, and yet has played a questionable role in the development of sub-Saharan Africa. Multinational companies in the oil sector have established operations in the continent for several decades, despite many operational difficulties. In some countries, they endured an institutional environment that was not particularly attractive to business, such as civil wars, famine, lack of safety, disease and widespread corruption. On the other hand, once they were established, they could operate with limited government regulation or social control from civil society, especially with respect to environmental and social standards. Allegations of bribery, environmental degradation, social conflict and lack of integration with the local economy have historically plagued the behavior of corporations in Africa (Bayart et al, 1999). Recently, however, there appears to be some positive movement towards responsible management of African oil revenues that is gaining attention (Katz et al., 2004). Our research examines the changes in some aspects of corporate social responsibility of multinational oil companies in Africa, particularly in the new markets of Angola, and Equatorial Guinea. We attempt to analyze positive contributions of certain kinds of oil development in African countries beyond the “Dutch Disease” or “Resource Curse” hypotheses (Karl, 1997, Ross, 2001, Le-Billon, 2003), while recognizing the perils of a mismanaged oil sector. The comparison between Angola and Equatorial Guinea is particularly compelling because in the Angolan case, the country also has many alternative development paths (diamonds, agriculture, timber), whereas with Equatorial Guinea the only alternative development path in terms of comparable returns appears to be large-scale tourism. How companies and governments leverage these opportunity costs is particularly important to understand in the context of African development. 2) BACKGROUND ON OIL IN AFRICA Oil has become one of the main sources of revenues for countries in Sub-Saharan Africa (Table 1). Several countries have turned into oil exporters in the last decade: Nigeria, Angola, Congo-Brazzaville, Gabon, Equatorial Guinea, Cameroon, Chad, the Democratic Republic of Congo and Sudan. Many others are exploring their subsoil in search of the “black gold”, such as Sierra Leone, Mauritania, Niger and Uganda. The estimates for Sub-Saharan Africa run around 7% of the world’s reserves of oil. Fields in the Gulf of Guinea alone contain an estimate of 24 billion barrels. There is a trend of increase in these values, as most of the new discoveries of oil reserves happen in the region. In 2001, the fields of West and Central Africa’s Atlantic coast accounted for 7 billion out of 8 billion barrels of new crude oil reserves found around the world (CRS, 2003). 3 Table 1 – Weight of Oil in Some African Economies (2002 estimates) Country %GDP %Exports %Govt. Revenue Nigeria 40 95 83 Angola 45 90 90 Congo-Brazzaville 67 94 80 Equatorial Guinea 86 90 61 Gabon 73 81 60 Cameroon 4.9 60 20 Source: Data from the World Bank, IMF, CIA World Factbook 2002, U.S. Department of State, U.S.Energy Information Administration. Sub-Saharan oil is attractive to the main oil markets of the United States (USA) and European Union (EU) because of several technical factors, such as its high quality crude (low sulfur content) and the proximity to the main markets. However, the region’s socio- political factors are even more appealing as compared to other regions. Sub-Saharan countries are more open to foreign companies than countries in the Middle-east or Latin America, whose oil reserves are mostly in the hands of State companies. Moreover, Nigeria is the only country affiliated to the Organization of Petroleum Exporting Countries (OPEC). 3. CASE OVERVIEWS AND METHODOLOGY We follow a comparative case research methodology to understand the patterns of corporate influence on development trajectories in Angola and Equatorial Guinea. This study is not meant to be a detailed ethnography of the cases and instead uses a prospective methodology. Our aim is to develop an argument with stipulated assumptions that could potentially be considered in policy formulation. 3.1 THE ANGOLAN CASE Since its independence in 1975 from Portugal until 2002, the established Angolan government and the rebel group UNITA fought a ruthless war that killed thousands and left more than 4 million displaced, out of a total population of approximately 11 million (estimated in 2004 according to EIA, 2005). Angola is the largest oil producer in Southern Africa, and second in Sub-Saharan Africa, only behind of Nigeria. Crude oil production reached over 900,000 barrels per day in 2003 (see Figure 1). More than half of the oil is found in the Cabinda province, an 4 enclave north of the country and separated from the rest of the country by a sixty kilometers of Congolese (DRC) territory. In 2008, it is estimated that the production goes over 2 billion barrels a day, as the new deep-water sites are expected to operate at full capacity. According to table 1, in Angola, oil accounts for 90 percent of total exports, more than 90 percent of government revenues and 45 percent of the country’s GDP. The low operating costs and large reserves attract most of the large oil companies to the country, including Chevron-Texaco, ExxonMobil and Occidental (Angola Embassy in the UK, 2004). Chevron (now Chevron-Texaco) has the largest operations in the country and a long history, with more than 40 years of operational experience. The company produces more than 500,000 barrels a day in Angola (Chevron, 2005). In the 1990s, Chevron developed deep-water oil fields in the country, increasing its production capacity. It has also invested in the production of natural gas. Figure 1 – Oil Production in Angola (from EIA, 2005). There are a series of issues involving oil business and Corporate Social Responsibility (CSR) issues in Angola. First, oil production has always been linked to supporting conflicts in the country. Oil revenues, from the activities of multinational oil companies, undoubtedly helped the government war structure, and the diamonds, on the other hand were helping the rebel group UNITA (Cilliers and Dietrich, 2000). The war is over, but other conflicts remain, such as the separatist movement in Cabinda, Angola’s prime oil production region. In production terms, Cabinda generates about 60 percent of the country's oil, but it has a tiny population (around 170,000, compared to the country 15 million). Cabinda has a separatist movement since the independence, and claims oil money keeps the repression over their claims of freedom. Second, there is a large imbalance in the relation between the huge oil companies and national governments of Africa, and Angola in particular. For example, ExxonMobil’s profits of $15 billion in 2001, are almost double of Angola’s GDP of $8.8 billion (in 5 2000) and more than tenfold greater than the $1.4 billion GDP of Chad in 2001 (CRS, 2004). The differences in resources lead to a huge asymmetry of power in negotiations with governments. Third, there are claims that some of the government money from oil goes unaccounted. For example, a total of $4.22 billion (or approximately 9 % of the GDP) was unaccounted between 1997 and 2002 from Angolan accounting books, according to an analysis by Human Rights Watch (HRW, 2004). Corruption suspicions were also raised when the International Monetary Fund set up a Staff Monitored Program (SMP), which found out that revenues from oil had been diverted to the presidency and the state company Sonangol.

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