The economic promise of natural resource abundance has proven a bitter reality for countless nations around the world. Time after time, countries exporting resources such as oil and diamonds have seen enormous amounts of revenue pass through their hands, yet have emerged with fragile economies in which resource wealth has exacerbated the very problems it was envisioned to solve. This ‘resource curse’1 has shown some of its strongest manifestations in sub-Saharan Africa's petro-states. In Nigeria, over 30 years of oil exports and $350 billion in associated revenues have coincided with a 34% increase in the number of people living on less than $1 a day (Pegg, 2005:20). In Angola, Gabon, and Sudan, oil has not only induced economic instability, but also encouraged massive corruption and civil conflict (Pegg, 2005:2).
Despite these grim realities, the ‘resource curse’ is not an inherent feature of all natural resource exporters. Botswana, Malaysia, Indonesia, and Chile are some economies which have transformed their resource endowments into substantial growth and poverty reduction. Their success has fostered a growing belief among the international community that the ‘resource curse’ may ultimately be corrected, if not prevented, with the appropriate mix of economic policy and fiscal responsibility.
Africa's newest oil exporter, Chad, has served as the premier ‘test site’ in which the lessons of both successful and failed resource exporters have been synthesized into a set of ‘anti-resource curse’ policies. As one of the poorest countries in the world, Chad did not have the financial or institutional capacity to extract its landlocked oil reserves and bring them to market. Realising this situation, the World Bank and its lending agencies2 joined forces with a consortium of oil companies and international creditors in order to finance Chad's oil development, and to demonstrate that policy intervention3 could reverse the ‘resource curse’. Consequently, since its inception in 2000, the $4.2 billion Chad-Cameroon Petroleum Development and Pipeline Project (referred to hereafter as the CCPP) has represented not only the largest private sector investment in Africa, but also the single best case study of external policy management as a weapon against the ‘resource curse’ (Gary & Reisch, 2005:8).
The success or failure of the CCPP is therefore significant on several levels. On one level, the project is an application of economic theory to government policy. As such, its outcomes can reveal the potential challenges of imposing general policy models on countries with highly individualised political and economic characteristics. On another level, it embodies a foreign interference in the economic sovereignty of a nation, and thus offers insights into the interaction between powerful international lenders and small and impoverished borrowing nations.
In analysing these two levels, this article poses the following key questions: 1) to what extent has the World Bank followed best practice in its structuring of the Chad-Cameroon Pipeline Project? 2) what results has the Bank's intervention produced so far and 3) why have these early results occurred, and what do they reveal about the effectiveness of policy intervention against the ‘resource curse’?
This article finds that oil has not improved Chad's standard of living. The country remains plagued by a lack of basic infrastructure, energy, and health services, and the majority of people continue to live on less than $1 a day. Moreover, the persistence of such deplorable conditions has placed extreme strains on the CCPP, and has spawned a wave of threats and accusations amongst the project's principal actors. A consensus has emerged that these early CCPP failures are largely due to flaws in the World Bank's policy choices and project implementation (Pegg, 2005; Gary & Reisch, 2005; IAG, 2004, 2005). However, such arguments ignore the significance of the source of the intervention. By designing all the rules for revenue management, the World Bank stripped Chad of its oil sovereignty. The foreign ownership that resulted has proven to be a major source of the project's conflicts and continued renegotiation. This article therefore posits that the early success of the CCPP has been hindered more by the external nature of the World Bank's policy intervention than by any particular flaws in the substance and implementation of the project's policies. This argument proceeds as follows.
First, we outline the mechanisms which enable the ‘resource curse’, and then describe the best-practice policies the World Bank has chosen to address these mechanisms. After demonstrating that four years of oil flows under this policy structure have failed to improve the living conditions of Chad's people, we examine three potential factors underpinning the CCPP's shortcomings: institutional capacity constraints, socio-political incompatibilities, and subversive interactions between Chad and the project's external actors. Further analysis reveals that these three causal factors are all symptoms of the World Bank's external policy intervention. The limitations of external intervention therefore explain the discrepancy between a well-informed development project and its sub-par results. We conclude by considering plausible revisions to the CCPP, and by drawing implications for future projects of this nature.
The ‘Resource Curse’
The ‘resource curse’ is an extensively documented economic phenomenon. In a seminal study, Jeffrey Sachs and Andrew Warner (1995) used a sample of 95 developing countries from 1970-1990 to demonstrate a robust negative correlation between natural resource exports and economic growth. Richard Auty (2001) also found that between 1960 and 1990, resource abundant countries experienced GDP per capita growth rates that were two to three times lower than those of resource poor countries. These empirical realities raise the key question, ‘why have resource-rich countries have performed so poorly?’
The mechanisms that transform large resource revenues into poor economic performance can be grouped into two categories – economic and behavioural. Both affect the accumulation and distribution of wealth within a country, but the economic mechanisms stem from forces such as exchange rates and commodity prices, while behavioural mechanisms are mainly issues of governance and fiscal management.
Economic Mechanisms
The economic mechanism most closely associated with the ‘resource curse’ is the 'Dutch Disease,4 which distorts the domestic economy in two ways. First, the export of the country's resource leads to a large inflow of revenue which raises people's incomes and subsequently their demand for local goods and services. The increased demand for these products drives up prices in the local economy, and if oil revenues are not evenly distributed among the population, those at the bottom end of the distribution suffer an increase in their cost of living. Second, rising domestic prices mean that local goods become more expensive relative to foreign goods (Corden & Neary, 1982:830). This relative price change is an appreciation of the real exchange rate, and harms domestic exporters by making it harder for them to sell their goods abroad at competitive prices.5
The other major economic mechanism stems from the vulnerability of resource exporters to shocks in international commodity markets. The market prices of natural resources such as oil, gas, and minerals are very volatile in the global economy. Governments therefore frequently face inconsistent revenue streams, and find it difficult to follow disciplined fiscal policies and to plan long-term budgets. Public expenditures that are earmarked during boom periods cannot be sustained during bust periods unless massive deficits are incurred (Tsalik, 2003:7-8). As a result, resource-exporting economies often find themselves pressed for funds, and, amidst mounting debts, are unable to grow.
While these economic mechanisms create obvious hardships for resource exporters, not all countries have allowed these pressures to negatively impact their growth. Consequently, there seems to be a crucial intervening variable – governance6 – that determines the net effect of resource wealth on economic growth (Ross, 1999:5).
Behavioural Mechanisms
In turn, the second set of ‘resource curse’ mechanisms stem from the fiscal behaviour of governments. Resource wealth expands the horizons of governments and creates incentives for large expenditures. This spending tendency is reinforced by citizens' expectations for quick and substantial results. Consequently, governments tend to invest in grandiose infrastructure projects which, while impressing citizens and promising modernisation and development, often carry low returns (Yates, 1996:25). Evidence of this behaviour, such as a mountain-top resort in Venezuela and an extravagant new airport in Saudi Arabia, is abundant in resource-rich nations throughout the world (Gary & Karl, 2003:22).
Although these lavish investments quickly deplete public funds, societal pressures for spending and growth remain. As a result, governments begin to borrow heavily from abroad, and over time, find themselves buried in deficits and under fire from an unsatisfied populous.
In addition to boosting government's appetite for spending, resource windfalls also become the primary source of government revenue, and thus alter the fiscal structure of an economy. This concept is more well-known as ‘rentier state theory’, first advanced by Hossein Mahdavy (1970). Because governments receive a steady stream of external rent, they are relieved of the need to collect domestic revenue through taxes (Luciani, 1987; Yates, 1996:15). Freed from the fiscal transparency and responsibility that are normally demanded by taxpayers, these rentier states consequently become less accountable to their citizens (Yates, 1996:15).
Such an environment inevitably becomes a breeding ground for corruption7 and rent-seeking.8 Removed from any systems of transparency, public officials are free to extract favours and additional revenues by awarding import quotas, industrial licenses, or construction contracts (Gary & Karl, 2003:21). This behaviour leads to a systematic diversion of resources away from priority sectors such as health and education, and results in a general disregard for low-income groups in the population. It is no surprise, therefore, that natural resource exporting countries are ranked among the most corrupt in Transparency International's World Corruption Index (Gary & Karl, 2003:22).
| Economic | Behavioural |
|---|---|
| • Dutch Disease | • Increased Borrowing and Debt Accumulation |
| • Decreased Quality of Public Spending | |
| • Revenue Volatility | • Decreased Accountability to Citizens |
| • Promotion of Corruption and Rent Seeking | |
| Source: Author's own synthesis of the academic literature. |
In sum, the ‘resource curse’ results from a combination of economic distortions and fiscal mismanagement. The accrual of resource revenues leads to an appreciation of the real exchange rate, and not only hurts the international competitiveness of domestic producers, but also raises prices in the local economy, effectively increasing people's cost of living. The only way to offset these losses is to redistribute the resource wealth among the people, either through direct payments, increases in wages, or investments in their living standards (health, education, etc.). If this happens, then people acquire the financial means to potentially rise out of poverty. However, when a poorly managed and corrupt government hoards resource revenues, and invests in impractical low-return projects instead of its people's basic needs, then the country is often worse off than it was before its resource boom.
The Chad-Cameroon Pipeline Project
Chad has many of the textbook vulnerabilities that make a country susceptible to the ‘resource curse’: a primitive economy, political instability, fragile public institutions, and a history of financial mismanagement. Since winning its independence from France in 1960, Chad has been ravaged by decades of civil war between northern Islamic groups and southern Christian factions (Uriz, 2001:215). Frequently changing governments have seized power either through military coups or rigged elections, and have fostered an intolerant and bureaucratic environment in which any type of change is difficult, let alone widescale economic reform and policy restructuring. Since 1990, President Déby has ruled under the facade of ‘democracy’, even though civil society is powerless in preventing him from using resource revenues ‘to promote the interests of his (northern) clan rather than those of the nation’ (Uriz, 2001:218). All these factors have earned Chad the rank of the seventh most corrupt nation in the world, according to Transparency International (2006).
Economically, the situation is even more dismal. According to United Nations Human Development Index (HDI), Chad is the seventh poorest country in the world (UN, 2006), with a per capita income of $650 a year, and a population of 9.7 million people, 80% of which live on less than $1 a day (IMF, 2007c; World Bank, 2006b). Only three out of every ten people have access to clean water, and electricity is available to 1% of the population (World Bank, 2006b). The infant mortality rate is 124 out of every 1,000, and those who make it past childhood face a life expectancy of only 44 years, with one doctor for every 29,000 inhabitants (World Bank, 2006b; UN, 2006). Given the inefficiency and uncompetitiveness of Chad's agricultural export sectors – cotton and cattle – oil does indeed represent the only real hope for economic development (IMF, 2004:11).
Against this backdrop, the CCPP, signed and approved on 6 June 2000, aims to extract an estimated 1 billion barrels of oil from the Bolobo, Komé, and Miandoum oil fields in the Doba region of southern Chad. Due to country's landlocked nature, a 1,070 km pipeline was built in order to transport the oil from the Doba fields, through Cameroon, and into an export facility at the Cameroonian coast of Kribi (Figure 1 over). More than half of the CCPP's $4.2 billion cost9 was shouldered by a consortium of three oil companies – ExxonMobil, ChevronTexaco, and Petronas (Malaysia). The European Investment Bank and other credit agencies financed the rest, with the World Bank providing only $293 million in loans.
At a maximum production capacity of 225,000 barrels per day (bpd), the pipeline promises to bring $5 billion in oil revenues into Chad's economy over a 25-year period.10 Realising the transformative potential of such a sizeable sum, the World Bank made a concerted effort to design a Revenue Management Program (RMP) that would combat each mechanism of the ‘resource curse’ and channel oil revenues to the most impoverished sectors of the population.
The Structure of Intervention
With regards to the Dutch Disease, the most commonly advocated strategy for combating real exchange rate appreciation is to store revenue earned from oil exports in offshore accounts, and bring it into the domestic economy gradually (Stiglitz, 2004). This way, local producers and consumers have more time to adapt to ensuing changes in prices, output, and income.
Another recommendation is to save a portion of revenues that flow into the economy in order to minimise the other major economic mechanism – the vulnerability of oil exporters to fluctuating prices (Shaxson, 2005:319; Ross, 1999:306). In years when oil prices are high and revenues exceed expectations, surpluses should be deposited into a ‘stabilisation’ fund which can then be tapped in periods when low oil prices lead to revenues that are insufficient for predetermined budget allocations. This way, governments can smooth expenditures over time, and restrain their temptations to borrow.
With these policy models in mind, the World Bank stipulated that all direct oil revenues earned by Chad – both in the form of royalties and dividends – had to be stored in an offshore escrow account with Citibank in London. A key component of this account was a stabilisation fund, where any funds exceeding earmarked budget expenditures would be deposited.
With respect to the behavioural mechanisms of the ‘resource curse’, the Bank realised that a budget template would be necessary in order to prevent Chad from investing oil revenues in projects with little promise for poverty alleviation. As a result, the RMP called for 72% of Chad's direct revenues to be allocated to five major priority sectors – education, health and social services, rural development, infrastructure, and environmental and water resource management. Another 13.5% of these revenues were allocated to Chad's treasury for ‘discretionary spending’, while 4.5% were designated for the Doba oil-producing region. Finally, the remaining 10% went to a Future Generations Fund (FGF) in order to save for Chad's post-oil era (Gary & Reisch, 2005:98-100; World Bank, 2000).
The RMP's budget template, however, only set rules for the earmarking of oil revenues, and did not establish guidelines for how specific projects would be chosen, implemented, and monitored. For this separate function, the Bank formed a special oversight committee – the Collège de Contrôle et de Surveillance des Ressources Pétrolières (CCSRP) – comprised of Chadians from both government and civil society. To support the CCSRP's operations, and to foster a transparent environment for oil-financed projects, the World Bank also commissioned four external monitoring bodies: the International Advisory Group (IAG), which makes frequent field visits to Chad and identifies any weaknesses or abnormalities in the CCPP's implementation (IAG, 2006), the Inspection Panel, which serves as the public forum in which citizens harmed by the CCPP can file protests, and the External Compliance Monitoring Group (ECMG) and Comité Technique National de Suivi et de Contrôle (CTNSC), which monitor the oil consortium and hold it to strict social and environmental standards.11
Finally, in order to ensure that Chad had the institutional capacity to implement the RMP's policies, the Bank invested a total of $41.2 million in two capacity-building projects – the Management of the Petroleum Economy Project (MPEP), and the Petroleum Sector Management Capacity Building Project (PSMCBP). Both of these projects were designed to offer technical assistance and training to Chadian workers in order to facilitate the revenue management process (World Bank, 2006a). The RMP's legal and institutional elements demonstrate how closely the World Bank followed best practice in its structuring of the CCPP. In light of this seemingly bulletproof structure, the disappointing early results of the CCPP are rather counterintuitive.
Growth Without Gain
On a purely macroeconomic level, the CCPP has had a tremendous impact on Chad's headline indicators. Between 1990 (the year President Déby came into power) and 2000 (the year the CCPP was approved), Chad's real Gross Domestic Product (GDP) grew by an annual average of only 1.6%, with negative growth rates in four of those years.12 During the pipeline's construction between 2001 and 2003, however, average GDP growth jumped to 10% as the oil consortium built and renovated over 300 miles of roads and bridges and spent close to $500 million on local goods and services (Vesely, 2003:36). After the pipeline became operational in October 2003, the surge in oil production and exports prompted an astonishing 33.6% increase in GDP, giving Chad the highest growth rate in the world by the end of 2004 (Table 2 over).13
| Indicator | 2003 | 2004 | 2005 | 2006/E | 2007/P |
|---|---|---|---|---|---|
| Real GDP (annual % change) | 14.7 | 33.6 | 8.6 | 1.3 | −1.2 |
| CPI Inflation (annual % change) | −1.8 | −5.4 | 7.9 | 7.9 | 4.0 |
| Current Account Balance (% of GDP) | −47.4 | −4.8 | 1.1 | 1.8 | 5.3 |
| External Debt (% of GDP) | 50.2 | 35.0 | 27.0 | 20.5 | 24.1 |
| Source: International Monetary Fund (2007c); E = estimate, P = Projection. |
In addition to enlarging Chad's national income, booming oil exports have helped to swing the country's current account14 from a deficit of -47.4% of GDP in 2003 to a surplus of 1.8% in 2006. Furthermore, the revenues accruing to the government from these oil exports have lowered Chad's external debt from 50.2% of GDP in 2003, to 20.5% in 2006.
With regards to the Dutch Disease, Chad has largely insulated its real exchange rate from the pressures of large revenue inflows. Domestic prices (displayed in Table 2 as the inflation rate) have not shown any definitive increasing trend since 2003, and have fluctuated mostly on the basis of changes in food prices, which are determined primarily by Chad's harvest season as opposed to oil revenues (IMF, 2007b:1).15 Overall, Chad's real exchange rate (relative to the US dollar and US prices)16 appreciated roughly 2% during the peak oil export period of 2004-2005 – not nearly enough to seriously damage Chad's export competitiveness (IMF, 2007a:10).
Chad has also shielded itself from the volatility of world oil prices by adhering to the Bank's prescribed principles of precautionary saving. All oil revenue inflows exceeding the annual budget requirements have been deposited into a stabilisation fund (Gary & Reisch, 2005:72). In 2004 and 2005, these deposits amounted to $19.9 million, approximately 4.9% of the $399 million in gross oil revenues earned during that period.17 Additionally, Chad has exhibited fiscal discipline and transparency by complying with the expenditure provisions of the RMP. The government has used oil revenues to repay its debt to project lenders, and to invest the prescribed 10% in the Future Generations Fund and 4.5% in the Doba oil-producing region.18 After these deductions, Chad designated the remaining $67.7 million in 2004, and $178 million in 2005 for spending on the RMP's priority sectors (World Bank, 2005).
In this sense, the policy structure of the CCPP has been enforced by the Chadian government. The economic mechanisms of the ‘resource curse’ have been seemingly counteracted with strong GDP growth, a stable real exchange rate, and saving in the stabilisation fund, while the behavioural mechanisms have been mitigated by responsible public spending. Although this progress suggests a bright future for the project, the realities on the ground tell a different story.
Four years after the first outflows of oil, the majority of Chadians continue to live in mud huts with a minimal source of income, and little access to water and sanitation services. One of the World Bank's hopes was that the CCPP would generate new jobs for Chadians, and provide valuable training for the largely rural and unskilled population. However, even at the height of pipeline construction in 2002, the CCPP employed only 7,382 Chadians (EssoChad, 2005:56). Ever since the completion of the pipeline, this employment number has declined steadily, and at the end of 2006, only 6,436 Chadian nationals remained under contract with ExxonMobil (EssoChad, 2006:55).
At the same time that oil operations have failed to induce economic improvements, they have also exacerbated a host of pre-existing social ills. In particular, the influx of foreign workers spurred by the CCPP has resulted in significant increases in crime and prostitution (Pegg, 2005:15). Indeed, only three months after oil exports began, jobless immigrants flooded the Doba region, and robberies more than tripled, forcing local residents to start padlocking their huts (Wax, 2004). Furthermore, the increase in foreign workers boosted the potential for local women to profit off of prostitution. The consequent rise in commercial sex operations encouraged the spread of AIDS along the pipeline, and placed additional strains on Chad's primitive health care system. Since many Chadian project workers originated from outside Doba, there is now a heightened concern that they will return home and spread the disease to their local regions (Chesla, 2003).
As a whole, the early results of the CCPP present an interesting puzzle. A booming Chadian oil sector has brought high GDP growth and steady decreases in public debt, and yet these economic gains have not substantially improved living conditions. Although it is tempting to attribute these failures to the behavioural mechanisms of ‘the resource curse’, the World Bank's policy intervention has clearly forced Chad to invest oil revenues in priority sectors, and to do so through transparent processes and institutions. Why, then, has the Bank's intervention proven so powerless against ‘the resource curse’?
Tracing the Fault Lines
Capacity Building & Two-Speed Development
The first potential explanation stems from the observation that the CCPP was actually two different projects being conducted simultaneously. One project was purely physical, and involved the construction of the pipeline, as well as the infrastructure needed to maintain its functionality: roads, supply depots, and repair facilities. The second project was institutional, and focused on building Chad's oil revenue management capacity through improved regulatory frameworks, administrative training programmes, and technical and legal supervisory bodies. While these two projects seem complementary in nature, when the World Bank was first conceptualizing their implementation, it stressed the need for them to occur sequentially, and for ‘capacity to be in place prior to the beginning of the (CCPP's) major infrastructure works and long before the first projected oil’ (Gary & Reisch, 2005:81).
In reality, however, pipeline construction began a mere four months after project approval, with oil flowing to international markets a full year ahead of schedule. The unexpected acceleration of the CCPP's physical components has led to what the Bank's primary external monitoring group, the IAG, has called the ‘two-speed nature’ of the CCPP (IAG, 2001:3).
This sequencing failure has placed negative pressures on Chad's institutions in two major ways. First, key organisations such as the CCSRP have been forced to assume their roles with only limited functional capacity. In May of 2004, Therese Mekombe, vice president of the CCRSP, publicly complained about how her oversight committee was ‘understaffed, underfunded, and deprived of information by the Chadian government and the oil consortium’ (Doyle, 2004). Indeed, up until late 2003, the CCSRP didn't even have an office facility, let alone the computer and internet access needed to monitor the Citibank escrow account once oil started flowing (Gary & Reisch, 2005:55). Despite such technical deficiencies, the CCSRP was placed in the position of carrying the full weight of a booming oil economy in July 2004.
Second, the failure of new institutions such as the CCSRP to develop on time has placed an added strain on Chad's existing institutions which have been pushed beyond their area of comfort and expertise, and burdened with management operations that were not present in Chad's pre-oil economy. In 2002, for example, Dinanko Ngomibe, the budget director in Chad's Ministry of Finance, voiced his complaints that ‘in terms of human capacity, we're not ready [to handle the work load]’. ‘Less than 25% of [my] colleagues in the civil service know how to use computers, even when the electricity works’ (Delescluse, 2004:47). Without the help of a fully functioning CCSRP, the Ministry has been virtually powerless with largescale budget allocations and electronic revenue transactions.
To the extent that the World Bank overwhelmed Chad with complex regulatory frameworks and management processes without first strengthening institutional capacity, the CCPP's poor results can be partially attributed to a failure of sequencing. While this critique implicates the World Bank's hubris and poor management skills, it also highlights the fact that Chad's civil society and institutions were severely weak and inexperienced to begin with. The notion that Chad had built-in impediments to a successful economic agenda serves as the basis for the next potential cause of the CCPP's shortcomings.
State Characteristics: Economic Ideology & Social Cohesion
Although so far, Chad has demonstrated a poor ability to transform its oil wealth into poverty reduction, Paul Stevens (2003a) has demonstrated that other natural resource exporters such as Botswana, Malaysia, Indonesia, and Chile have achieved drastically greater success. Stevens argues that these four nations were ‘developmental states’ which avoided turning into ‘predatory states’ (Stevens, 2003a:18; Evans, 1995). The developmental state is one in which the ruling elite derive their legitimacy not from a de facto claim to power, but from a demonstrated ability to deliver economic growth (Stevens, 2003a:19). The developmental state thus imposes on itself institutions which encourage transparent policy making and restrain the abuse of power (Stevens, 2003a:19). In contrast, the predatory state is one in which the ruling elite exploit the national economy for the sake of their own personal enrichment (Stevens, 2003b:17).
Stevens cites Botswana as a developmental state that has exhibited model fiscal discipline in managing its diamond revenues over the past 40 years. By curbing its expenditures through a revenue stabilisation fund, and creating an anti-corruption directorate, Botswana has ‘deliberately constrain(ed) its freedom in order to limit temptations arising from (large inflows of) revenue’ (Stevens, 2003a:10; Sarraf & Jiwanji, 2001:10-11). Chile and Indonesia have demonstrated similar fiscal restraint in managing their resources, and have also promoted trade liberalisation with the intent of diversifying their economies and encouraging competitiveness among domestic producers (Stevens, 2003a:18).
On the surface, the policies adopted by these ‘success story’ nations are similar to those outlined in Chad's revenue management programme – namely the stabilisation fund and the corruption-monitoring CCSRP. However, the crucial difference is that these policies were imposed and administered from within, and not by an external entity such as the World Bank. Moreover, these four nations seemed to have ‘strong elements of frugality built into their psyche’, something which was noticeably absent in Chad's leadership (Stevens, 2003a:18). In consultations with the Chadian government in 2004, for example, the IMF reported that officials showed extreme reluctance in saving revenues as part of a stabilisation mechanism (IMF, 2004:14).
Although Chad's ineffectiveness in administering economy policy was partly due to this lack of discipline, it also reflected a lack of cohesion within Chad. Botswana benefited from a ‘small and largely homogenous’ population, which promoted unity in the country's developmental orientation, especially among government officials (Stevens, 2003a:11). This is clearly not the case in Chad, where decades of civil war have left a legacy of North-South tensions and ethnically-charged rebel movements.
Chad's ongoing civil conflicts are also in contrast to Malaysia, which governed under a ‘plural society model’, and made a conscious effort to unite different ethnic groups and empower indigenous peoples such as the Bumiputera (Shamsul, 1997:243; Stevens, 2003a:16). Because this group constituted close to 55% of the population, investments in their welfare stimulated growth and development throughout the economy, especially in the rural sector (Abidin, 2004; Stevens 2003a:16).
In Chad, this kind of mentality has not been present, and apart from a provision calling for the representatives in the CCSRP to be from both Muslim and Christian communities, ethnic and religious diversity was not seriously taken into account in the CCPP's design (Delescluse, 2004:48). Since Chad's oil reserves are concentrated in the country's southern Christian region, and Déby's government is composed primarily of northern Muslims, this oversight was an open invitation to conflict and nepotism. Indeed, once Chad received the World Bank's first set of loans for capacity building, the government distributed the funds in such a way that the majority of people receiving technical assistance and training belonged to Déby's northern ethnic group (Delescluse, 2004:48).
On the whole, going into the CCPP, Chad was maladapted to a natural resourcedriven economy, and not only incapable of responsibly managing large revenue inflows, but also somewhat unwilling. Consequently, the World Bank was placed in the difficult position of trying to constrain ‘predation’ by persuading Chad's ruling elite into a ‘developmental’ mindset (Stevens, 2003a:19). This process required a large degree of interference in Chad's sovereignty, and the tensions resulting from this intervention are perhaps the most significant factor contributing to the CCPP's early failures.
Clashing Sovereignties & Subversive Interactions
As altruistic as the World Bank's intervention in Chad appears, it has imposed numerous demands on Chad's government while offering few concessions. It is no surprise then that the CCPP's elaborate regulations and supervision have provoked resentments among Chadian officials, and heightened their incentives to exploit project loopholes and attempt to regain leverage in the revenue management process. There are several revealing examples of Chad's government being guided by these incentives. In December 2000, only six months after the CCPP had been officially approved, President Déby used $4.5 million of a $25 million signing bonus from the oil consortium in order to purchase weapons. Bonuses and indirect revenues are not covered by the CCPP's revenue management framework, and Déby exploited this loophole in an attempt to assert his position on Chad's national priorities. ‘Without security there can be no development programs’, Déby stated at the time, referring to the violent unrest and pressures he faced from rebel groups in the north and south of the country (Runyan, 2001). Although he eventually agreed to repay the $4.5 million from the national budget, his actions cast early doubts over the goodwill of the Chadian government. These doubts were reignited in January 2006, when he amended the CCPP's revenue management law (Law 001) to eliminate the Future Generations Fund and allow for more discretionary government spending and weapons purchases. The World Bank was outraged at this breach of the CCPP's poverty-reducing mission, and suspended the project indefinitely (cutting off Chad's access to oil revenues in the process) until finally reaching a compromise in July 2006.
Déby's resistance against the World Bank's intervention has also extended into the institutional realm, where he has attempted to control the composition of the CCSRP. In February 2004, he appointed his brother-in-law Idriss Ahmet Idriss to the post of Director of Chad's Central Bank,19 automatically giving him a spot on the CCSRP. Given the fact that in Chad, the separation of power between the executive, judiciary, and legislative branches is not highly pronounced, the four other CCSRP members from these branches of government can also be viewed as being uncomfortably close to Déby (Massey & May, 2005:259).
The oil consortium and its royalty contracts with Chad were yet another factor constraining Deby's influence over oil policy. Chad's original 1988 contract with the oil consortium entitled the government to only 12.5% of royalties. In 2004, however, international prices for Brent20 crude oil were soaring above $50 per barrel, while Chadian crude, due to its greater impurities and higher transportation costs, was selling at a discounted rate of only $20 per barrel. Frustrated by his government's ultimate share of revenues, Déby lashed out at the oil companies, accusing the consortium of ‘swindling, opacity, and fraud’, and of intending to ‘bleed the Chadian economy dry’ (Massey & May, 2005:272). More recently, in August 2006, Déby ordered two of the consortium's members – Chevron and Petronas – to cease operations in Chad and leave the country, claiming that they failed to pay $450 million in overdue taxes (Walters & Faucon, 2006).
The fact that Déby has felt the need to rebel against his foreign financiers, and to undermine the cooperation that is essential to a development project of this nature, suggests that the CCPP has embodied a fundamental failure of external intervention. Nearly seven years into the project and four years since the first batch of oil exports, Chad, the World Bank, and the oil consortium are still trying to negotiate the rules and mechanisms for calculating and distributing oil revenues. Given this fragile regulatory framework, it is not surprising that the institutions designed to assist with the CCPP's implementation have not been able to operate effectively.
External Intervention: The Common Denominator
At this point, it should become clear that none of the three causal factors examined blame the substance of the CCPP's policies for Chad's poor development results. Instead, the overarching culprit seems to be the World Bank's attempt to implement these policies externally, and to create political will and institutional capacity in a country mired by nepotism, civil conflict, and corruption. Each casual factor is therefore largely a symptom of the Bank's external intervention.
The two-speed nature of the CCPP resulted from the World Bank's insistence that oil exports commence even when critical institutions such as the CCSRP were not yet fully operational. Because the RMP was structured and imposed externally, Chad felt that it could allow the World Bank to compensate for any domestic institutional deficiencies once revenue inflows began. This over-reliance on the World Bank would likely not have occurred had Chad been allowed ownership of the revenue management process from the beginning.
In terms of socio-economic characteristics, Chad had neither the developmental mindset to enforce economic policy in a booming oil sector, nor the social unity and counterbalancing centres of authority to prevent Déby from hoarding oil revenues or favouring certain social groups. Through external intervention, the World Bank hoped to serve as both a behavioural modifier and a regulator of corruption. However, it is painfully clear that World Bank economists are not a viable substitute to domestic bureaucrats – they are, after all, only policy advisors and not policy implementers.
Finally, the World Bank's desire to see the RMP successfully implemented led to an insistence that Chad sacrifice its oil sovereignty. By placing Chad's royalties in an offshore bank account and limiting their use to Bank-specified priority sectors, the World Bank fostered an atmosphere of mistrust and begrudging cooperation. The dynamics of this relationship made Déby more preoccupied with regaining leverage over the project than with pursuing compromise and ensuring that Chad's oil wealth was successfully transferred to the poor. It is doubtful that his attempts to undermine the RMP would have occurred with such frequency had the Bank allowed the Chadian government more input into the revenue management programme.
Changing Interdependence & the Future of the Chad-Cameroon Pipeline Project
In many ways, the tensions created by the World Bank's control of Chad's economic policies have transformed the CCPP from a joint development initiative into a fundamentally counterproductive struggle for authority. Not only does this atmosphere continue to impede the strengthening of local institutions, but it also raises serious doubts as to whether Chad and the World Bank can constructively share long-term control of the CCPP.
Now that Chad's oil infrastructure is in place, and the pipeline is fully operational, the dependence dynamic between Chad and the World Bank has changed significantly. With oil revenues rapidly flowing into Chad, the World Bank's leverage as a financial donor is slowly waning. As Chad edges closer to paying off its debt, it can afford to move away from compliance with the World Bank's policies and to install its own regulatory institutions and policies (Gary & Reisch, 2005:86).
In this context, the World Bank is in extreme danger of dropping out as an actor in the CCPP. If the 2004 dispute over oil prices between Chad and the oil consortium is any indication, Chad is gaining negotiating power on the basis of its rising oil income, and is becoming more confident in its ability to confront the oil companies and bargain for a higher share of royalties (Eriksson & Hagströmer, 2005:59). Déby's government has already demonstrated its intent to challenge the oil consortium by establishing a new state oil company – the Société Tchadienne des Hydrocarbures – and by threatening to hand Chevron and Petronas's shares to this company (Africa Confidential, 2006:4). These aggressive inclinations foreshadow the emergence of a two-actor scenario in which the long-term details of the CCPP are settled solely between Chad and the oil consortium.
The threat of this two-actor scenario makes the World Bank's recent suspension of funds to Chad (in January 2006) an even more crucial crossroads. The standoff can be viewed as a desperate attempt by the Bank to maintain a stake in the CCPP because, as Eriksson and Hagströmer (2005:61) argue, the public will most likely blame the Bank, and not the oil companies, if the project were to fail. The Bank's desperation is reflected in the memorandum signed with Chad in July 2006 to end the CCPP's suspension. The resolution is a seeming concession on the part of the Bank since the only major difference from the original project agreement is that previously, Chad had to pledge 72% of all direct oil revenues to poverty-reducing sectors, while now, it must allocate 70% of both direct and indirect revenues. Granted, this revision is not trivial, since in 2007, indirect revenues will amount to an estimated $1.3 billion (Africa Confidential, 2006). However, the Bank has given Chad a full year to develop a new budgetary framework before the new spending regulations are signed into law. In the meantime, direct revenues continue to accumulate, and once indirect revenues start flowing, there is no guarantee that Déby will not once again renege on his promises.
Ultimately, the ongoing renegotiation of the CCPP's regulatory structure has also forced the oil consortium to decide whether to honour its royalty contract with Chad, or support the World Bank's accusations that Chad's behaviour compromises the CCPP's poverty-reducing nature. So far, the oil consortium seems to have wilted to Chadian pressures. After Déby accused Chevron and Petronas of tax evasion, both companies agreed to pay undisclosed compensation sums in order to ensure their continued presence in Chad's oil fields (Africa Confidential, 2006:4). Therefore, it appears that the CCPP's central goal of improving Chadian living standards will continue to remain obscured – not only by political and legal disputes between Chad and the World Bank, but also by the profit-seeking behaviour of the oil companies.
Conclusion
Despite all the international optimism that the CCPP initially evoked, it is now clear that Chad's dream of oil wealth and poverty alleviation, and the World Bank's hope of defeating the ‘resource curse’, will have to be put on hold. Granted, after only four years of oil flows, it is ultimately too early to deem the project a complete failure. Nevertheless, it is particularly distressing that the majority of conflicts have concerned the principles which are most crucial to the CCPP's long-term effectiveness – cooperation and synergies between the Chad and the World Bank, enforcement of priority sector budget spending, impartiality of the CCSRP, and transparent contracts with oil companies. Without a substantial strengthening of these fundamental issues, the overarching goal of economic growth and poverty reduction will be increasingly difficult to achieve.
With these shortcomings in mind, it seems logical to revisit one of the major questions posed at the beginning of this article: can policy intervention prevent the ‘resource curse’? Given the article's central argument, the tentative answer is ‘yes’, but only in the presence of three conditions: 1) the intervention comes from within the resource exporting country; 2) the institutions administering economic policy have the prerequisite capacity to manage large-scale financial flows; 3) all political actors demonstrate a sustained commitment to transparency and accountability.
These conditions are highly idealised, and indeed, that is why they run contrary to some of the more realist arguments made by other scholars. Stephen Krasner (2004:12), for example, reasons that an appropriate remedy for the CCPP is for the World Bank to intrude even more on Chad's oil sovereignty, and to personally appoint the members of the CCSRP (Pegg, 2005:20). However, Krasner's rationale seems rather tenuous because the World Bank's intrusion and conditionalities have themselves been a major driving force of the CCPP's conflicts and failures. Even before oil flows from Chad began, development experts such as Ahmedou Ould Abdallah, the United Nations Special Representative for West Africa, contended that overloading poor countries with ‘too many regulations and conditionalities’… kill(s) the potential for local institutional growth and ‘develop(s) conditions for corrupt practices’ (US House of Representatives, 2002).
A more extreme revision to the CCPP is proposed by Sala-i-Martin and Subramanian (2003:18), who argue for the creation of a ‘virtual’ non-oil economy where the World Bank transfers oil rents directly to citizens, and prevents revenues from reaching the hands of corrupt officials (Pegg, 2005:24); this approach is also fairly unreasonable. If Chad's government lacks the institutional capacity to properly manage oil revenues (as the early experiences of the CCPP demonstrate), then it seems unlikely that an uneducated population would be able to handle such large sums of money. Indeed, during the construction phase of the CCPP, rural farmers who had their land damaged by the pipeline and were compensated by the oil consortium, tended to spend their rewards on alcohol, prostitutes, and overnight stays in N'Djamena's hotels (Eriksson & Hagströmer, 2005:51).
The shortcomings of Krasner's and Sala-i-Martin and Subramanian's alternatives underline the practical obstacles to using external intervention as an ‘anti-resource curse’ strategy. Corruption and weak institutional capacity can only be addressed by governments that take ownership of their policies, and understand not only their own technical limitations, but also the social landscape within which they operate. The successes of Malaysia, Botswana, Indonesia, and Chile are a strong testament to this assertion.
In the end, these conclusions offer important insights into the role that external actors can realistically play in promoting the development of resource-abundant nations. While Scott Pegg (2005) claims that the CCPP was a ‘one-off’ event that came about as a result of unique circumstances, the reality is that new resource booms are likely to occur in many developing countries in the near future. In light of the increasing scarcity of oil, as well as the growing global demand for energy, industrialised nations have embarked on searches for new sources of oil. With hydrocarbon riches constantly being discovered in Africa, the continent has become the centre of this new ‘energy scramble’. The US, in particular, has repeatedly expressed an intent to diversify its oil supplies away from the Middle East, and has increased its purchases of African oil from 13% of its total oil imports in 2002 to nearly 20% at the end of 2006 (Volman, 2003; Gary & Reisch, 2005:5).22
The global tilt towards African oil means that the continent will soon be swarmed by oil companies from India and China, many of whom tend to invest without any apparent concern for the environment or for corruption and human rights.21 Given recent increases in world oil prices, these companies will expect larger returns on their investments, and will be more willing to set up extraction facilities in Africa's poor and politically unstable countries without seeking the risk mitigation services of international financial institutions (IFI's) such as the World Bank (Pegg, 2005:22).
In this sense, it becomes even more important for new natural resource exporters to handle resource revenues on their own terms, and to actively implement sound economic and fiscal policies. Although these countries may suffer from technical and institutional weaknesses similar to Chad's, they are not powerless in managing natural resource economies.
Indeed, despite all its troubles and setbacks, Chad has shown some promising signs of progress. A recent IAG report observes that the different sectors of government have begun to align their supervisory and monitoring operations, and that ‘priority ministries (now) have a better understanding of budget execution procedures’ (IAG, 2005:iii). The CCSRP, in particular, has made significant strides in its ability to distribute oil revenues and ensure their proper use. In the Doba oil-producing region, a new modern school has recently been constructed, along with two water towers that will expand the region's drinking water supply (World Bank, 2007). Institutional capacity building, it seems, is a slow and delicate process that cannot be forcefully accelerated by external actors. Countries must instead be allowed to calibrate their institutions to a resource-driven economy through internal reform.
For Chad, this adaptation may have already been irreversibly damaged by the World Bank's external pressures. However, as this article has argued, a successful prevention of the ‘resource curse’ for future natural resource exporters is not out of reach. Theoretical knowledge and policy prescriptions are available in the public realm from a variety of IFI's, academic economists, and NGO's. Countries simply have to be willing to use this information without having it forced upon them by external actors. In the end, World Bank failure to understand this concept is the main reason why the Chad-Cameroon Pipeline Project remains a hopeful model as opposed to a successful reality.
Nikola Kojucharov, Board of Governors of the US Federal Reserve System; nikolaidikojucharov@123456frb.gov