Chad - oil - World Bank

The oil curse, part 2

Friday 10 October 2008

The World Bank's decision in 2000 to issue Chad a loan for an oil pipeline against the promise that it would use its revenues to fight poverty was recently overturned. Read how a blue print for Africa's development became a World Bank embarrassment.

Read part 1 of FRANCE 24’s report “The oil curse”.

Chad’s repayment of a $66 million pipeline-related debt to the World Bank last month signaled the end of what some economists had hailed as ‘a blue print for development in Africa.’ But Chad’s intrinsic difficulties aside, the Bank’s reasoning was flawed, critics say.

As contributors to the International Financial Law Review wrote in 2001, “the use of environmental, and revenue management programmes in this region, on this scale, and in this level of detail, was unique.”

In 2000, the World Bank agreed to issue Chad a loan for the construction of a pipeline to transport oil from Chad to the Gulf of Guinea via Cameroon. In exchange, the Chad government committed to using 80% of its revenues to fight poverty.

The experiment may have been unique but for it, Chad was no more than a testing ground. “Through this project, the World Bank tested a model of public-private partnership and tried to enforce principles of good governance,” says Gilbert Maoundonodji, who heads a N’djamena-based group that monitors the Chad-Cameroon pipeline.

But it was naive, critics say. Already in 1999, international NGOs questioned whether President Idriss Deby, who seized power in a 1990 coup, would make a reliable partner in a country teetering on the brink of civil war. They also asked whether the project wasn’t just a cover to make a commercial deal with the oil companies responsible for the pipeline more acceptable to the Bank’s board.

Dutch Disease

From the beginning, development experts had challenged the idea that oil, gas or any other mining resources could ever be instruments to fight poverty in Chad and elsewhere in Africa.

They had warned about the risk that of ‘Dutch Disease’ if oil became the main axis of development. The term ‘Dutch Disease’ was coined in the late 1970s to describe the link between the discovery of natural gas off the Dutch coast in the 1960s and the subsequent decline of the manufacturing sector in the Netherlands.

In Chad as in other developing countries, there were worries that exporting oil would not make the population better off because as revenues increase, it becomes easier and cheaper to import food than to maintain agricultural system that caters to the needs of the local population.

“If you look at the world’s biggest oil producers, you realize that they can’t produce anything beside oil,” says Philippe Copinschi, an oil economist who teaches at the Paris-based Political Science Institute.

Ironically enough, a 2000 World Bank study by British economist Paul Collier - released at about the same time as the Bank’s board was approving the loan to Chad – stressed the correlation between the economic dependency on raw commodity exports and civil wars.

Collier’s projections suggest that countries in which commodity exports account for more than a quarter of the gross domestic product may be 20 times more likely to fall victim to civil war than ones that don’t export commodities. As a matter of fact, a fairer redistribution of the oil wealth is one of the main grievances of the various Chadian rebel movements.

The problem is not oil, but what you do with it

Michel Wormser, head of Africa for the World Bank, stands by the experiment. “A growing number of countries turn to the World Bank to ask for advice on how to exploit their natural resources in a way that results in development outcomes, like Botswana for instance, which was a very poor country that managed to transform its economy thanks to its mining resources over the following three decades,” he says. But “such an agreement can only succeed if the country shows a real commitment.”

“The problem is not oil in itself but how you manage it,” agrees Copinschi. But for the partnership to work, “you need institutional capacities and a political will that the Chadian state doesn’t have.”

This could be a significant lesson for the World Bank, he adds. “They’re starting to realize that to develop a country you need the support of a state structure that’s already in place.” This, he says, is a significant change compared to the 1980s World Bank policy of streamlining state structures in developing countries on the grounds that the market should define education and health structures.