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São Tomé And The Curse Of Oil

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When oil percolates to the earth’s surface, in addtion to newfound wealth, it can bring with it corruption, cynicism and greed. Over the last decade, the tiny African nation of São Tomé has learned that discovering oil can indeed be a mixed blessing.

By Gerard DeGroot for ISN Insights

In 2010, São Tomé and Príncipe, the tiny island republic situated in the Gulf of Guinea, was one of three countries that The Guardian failed to mention in its reportage during the course of the year. (The other two were Palau and Comoros.) Since newspapers are customarily packed with bad news, this might be taken as evidence that 2010 was a good year for São Tomé; no news, as they say, is good news. Rather ironically, the country’s good fortune has arisen precisely because its long-anticipated oil boom has failed to materialize.

São Tomé
São Tomé

Comprising just 964 square kilometers, São Tomé has a population of around 175,000 and a GDP per capita of $1,800. While the former Portuguese colony is poor, it has fared reasonably well relative to many of its African counterparts since gaining independence in 1975. The quality of social services is sorely lacking, but the people do not starve. There have been occasional coups, but São Tomé still holds regular elections that are conducted in an orderly fashion. The prospect of oil wealth, however, has undermined its precarious stability.

The Brunei of Africa?

In the late 1990s, prospectors speculated that perhaps six billion barrels of oil lie beneath the waters surrounding São Tomé. To put that into perspective, the Forties field, the largest in the North Sea, was estimated to contain 4.2 billion barrels when development began in 1975. With the price of oil at $27 per barrel in 2000, each resident of São Tomé theoretically had the potential to become a millionaire. That, at least, was the way they calculated their future. They dreamed of becoming the Brunei of Africa – another small, sparsely populated country that enjoys one of the highest standards of living in the world thanks to its large reserves of oil and gas. A few residents, however, were skeptical. “It will be heaven, hell or purgatory depending on the choices made by the political elite,” Carlos Tiny, a former health minister, warned in 2003.

When oil rises to the earth’s surface, it brings with it corruption, cynicism and greed. Among the first to sniff the oil were the Nigerians who immediately staked claim to São Tomé’s reserves and argued that they alone had the expertise to develop the field properly. Those who can recall the Biafran War of 1967-70 will understand that it is dangerous to trifle with the Nigerians when oil is at stake.

Close on the heels of the Nigerians came the Americans. At a meeting with African heads of state in the autumn of 2002, President George W Bush pounced when he suddenly heard President Fradique de Menezes announce that São Tomé “is strategically situated on the most important petroleum area in the world”. For Bush, São Tomé seemed a good way to decouple American oil demand from troublesome Middle Eastern politics. A few weeks after the meeting, the New Yorker heralded São Tomé as “Our New Best Friend”.

During the early days of the oil bonanza, São Tomé was like a lamb being led to slaughter. Over the years, De Menezes has struggled to renegotiate a series of extortionate agreements signed before he took office. “I couldn’t bring myself to squander the patrimony of my countrymen by allowing them to stand”, he remarked in 2003. “We are being offered ONE chance to transform our country from one of poverty to vitality. There will be no second chance.”

Trouble percolates like oil

The prospect of oil riches had a predictably unsettling effect on São Tomé. On 16 July 2003, while De Menezes was in Nigeria, a military coup led by Major Fernando Pereira toppled the government. “This is all a problem of oil”, the president told the BBC. “The oil is coming and people are smelling that. People want the money yesterday and not tomorrow.” On his return, De Menezes struck a deal with the junta, presumably by promising a generous redistribution of the spoils. Since the coup, he has remained in power, having been re-elected in July 2006. While he is not eligible for a third term (the next election is scheduled for July 2011), it remains to be seen whether all that oil tempts him to ignore constitutional restrictions.

Though De Menezes’ ten-year occupation of the presidential palace suggests political stability, that is an illusion. Since 2000, there have been seven changes of government and one foiled coup. Prime ministers and other cabinet members have lived a precarious life, often finding themselves summarily dismissed on charges of corruption levelled by De Menezes.

Various laws have been passed to combat oil-inspired corruption, but legal reform has not proved the equal of temptation. Nor has De Menezes, who markets himself as a crusader against corruption, managed to remain squeaky clean. In 2005, the attorney general reported that “serious procedural deficiencies and political manipulation” (in other words, bribes) were evident in the way extraction rights had been auctioned. One of the president’s top advisers was found to own shares in the Environmental Remediation Holding Corporation, a small Houston-based company which, back in 1997, was sold generous exploitation rights for just $5 million. Meanwhile, a $100,000 check from Chrome, a Nigerian oil firm bidding for extraction rights, ended up in the ledger of a company owned by De Menezes. He claimed it was a legitimate campaign contribution.

Iniquity, but so far no oil

Early in the game, São Tomé agreed to a Joint Development Zone (JDZ) with Nigeria, with the remainder of the field classified an Exclusive Economic Zone (EEZ). Unfortunately, the richest potential pickings were gathered in the JDZ, where Nigeria was granted a 60 percent share. In exchange for this generous settlement, Nigeria has promised to help São Tomé develop its oil production facilities and train engineers, but, so far, this assistance has not been forthcoming.

Meanwhile, the oil has yet to appear. Test drillings in the JDZ have proved dismal. That has caused the big operators – ConocoPhillips, Exxon-Mobil and Chevron – to get cold feet. They decided not to bid when blocs in the EEZ were auctioned off at the end of last year. “There was a lot of hype that this small, sparsely populated island nation could be transformed by oil riches to become the next big exporter, but the geology […] turned out not to be very promising,” said John Ghazvinian, author of Untapped: the Scramble for African Oil. “The companies had a closer look and decided it wasn’t worth it.”

“We have already seen everything that goes with an oil boom”, Rafael Branco, prime minister from 2008-2010, remarked with reference to the travails that São Tomé has experienced so far. “Everything, except a single drop of oil.” Perhaps that is a blessing in disguise. Oil has not, after all, markedly improved the fortunes of Equatorial Guinea, Nigeria or Gabon. As the Ugandan journalist Isaac Imaka writes in warning to his own country, when oil is discovered, “politicians become Draculas, the gods of wrath on a blood (oil) sucking splurge drink […] their countries dry”.

If the oil barons turn their back on São Tomé, perhaps the country can go back to being what it once was, namely a relatively poor but reasonably stable nation that produces some of the best chocolate in the world. As the Biafrans once discovered, sitting atop a huge pool of oil is not necessarily the definition of good fortune.

Dr Gerard DeGroot is Professor of Modern History at the University of St Andrews in Scotland and author of The Bomb: A Life. This article was published by International Relations and Security Network (ISN)


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ISN Security Watch

ISN Security Watch

The ISN is one of the world's leading open access information and knowledge hubs on IR and security issues, based at ETH Zürich, Switzerland.

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