Tuesday, November 26, 2013

Resource curse breaks bond of accountability

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26 Nov 2013 | Tony Leon | Original Publication:  BDlive
There are few, if any, developing democracies, which rely on oil and gas for the bulk of their exports, that have been certified as ‘free democracies’, writes Tony Leon

UNTIL fairly recently, residents of high-end Malibu in California and Clifton in Cape Town had something in common, in addition to occupying some of the most expensive property in their countries: both these beach-facing bolt holes for the super-rich provided grand shelters for Teodoro Nguema Obiang Mangue, son and heir apparent of Teodoro Obiang Nguema Mbasogo, who has ruled Equatorial Guinea since 1979.

The Malibu estate, priced at about $30m, was on a lavish scale in comparison to the Clifton "bungalow", which was purchased for R23.5m in 2004. The Californian dwelling comprised a 6.5ha property, with a palm-lined driveway leading to a mansion surrounded by swimming pools, tennis court and a four-hole golf course. Its garage housed more than two dozen cars including a $2m Ferrari and eight other Ferraris.

Obiang’s international property empire has another common provenance, well described by Larry Diamond, director of the Centre on Democracy Development and the Rule of Law at Stanford University: "What made these extravagant possessions all the more remarkable was that they belonged to a government worker from a small African country who was making an official salary of about $80,000 a year."

This was in October 2011, when the US department of justice obtained a court order to seize the Malibu property on the grounds that Obiang’s property riches were the result of corrupt practices such as "personal taxes" he levied against timber companies operating in his country, to wit a $28.80 tax for every log exported when he was minister of forestry. Earlier last year, French authorities seized his Parisian mansion worth about €100m.

Although his estates in California and France have diminished, his political career back home has flourished — he is now Equatorial Guinea’s second vice-president.

South Africa’s government lacks either the instruments or the appetite to attach Obiang’s local assets. Thus the residents of Clifton are, via the "Bungalow Owners Association", using municipal bylaws to have the rat-infested property declared "derelict".

Aside from providing a potential episode of Lifestyles of the Rich and Famous, the Obiang family provides a poster for the so-called resource curse, as even more than its abundant forests, the country is one of the most oil-rich in the world, having exported 400,000 barrels of oil a day for the past 18 years. Diamond and Jack Mosbacher, in a recently co-authored article in the journal Foreign Affairs, point to the cruel paradox of this bonanza. "The country is wealthier, in terms of GDP per capita, than France, Japan and the UK. Little of this wealth, however, has helped the vast majority of Equatorial Guinea’s 700,000 people: today three out of four Equatorial Guineans live on less than $2 a day, and infant mortality rates have barely budged since oil was first discovered there."

Depressingly, the authors make a wider point: although, in general, Africa has made impressive strides in improving governance over the past 20 years, according to the World Bank, the continent’s oil exporters rank in the bottom quintile globally in their ability to control corruption, formulate and implement effective policies, regulate private sector development and enforce the rule of law. And there are few, if any, developing democracies anywhere, which rely on oil and gas for the bulk of their exports, that have been certified as "free democracies". South Africa, for which minerals are its export mainstay, is something of a democratic outlier here, but oil and gas seem more problematic.

The economic distortions the "resource curse" inflicts on countries — from inflated exchange rates, to undermining manufacturing competitiveness — are well known.

Less explored but now of some moment in view of the slew of East and West African countries soon to emerge as new players on the oil and gas scene is the democratic deficit it creates. Oil revenues, in simple terms, are "rents", or unearned income in the hands of governing elites. Taxes, in contrast, from citizen to government create a democratic and accountable bond between government and people. The sale of natural resources "reduces government’s reliance on revenue from its people and thus weakens the incentive to serve them". When resource rents replace taxation as the primary revenue generator for the state, this incentivises the political elite to focus on the "private accumulation of wealth" and not on delivering public goods, such as roads and schools. Hence Malibu mansions and high infant mortality both come from the same source.

The key is to ensure that the people themselves receive the direct benefit of the resource revenue stream, as cash transfers into bank accounts and the government then taxes back a portion of it. This ingenuous scheme is elaborated by the authors. It’s a lot more "transformative", even revolutionary, than the recycling of stale ideas that often informs the debate on empowerment.

Leon is the author of The Accidental Ambassador (Pan Macmillan). Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA

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