Can Cambodia Avoid The Resource Curse? – Analysis

After the discovery of oil in Cambodia’s water territory by  Chevron, the US-based company, Cambodia could become one of the major petroleum exporting-countries as there are approximately 400 million barrels of oil reserve in Cambodia territory. However, due to the issue of revenue sharing, Chevron sold out Cambodia oil block toKris Energy, Singapore’s based Company in 2014 with the deal of $65 million. As the Kris Energy started its oil extraction in 2020 in Block A that covered an area of 3,083 square kilometers, Prime Minister Hun Sen applauded this as the milestone and achievement after leading the country for more than 30 years. Hun Sen also remarked that Cambodia oil is not a “curse”. It is a “blessing” for Cambodia. He furthered said, “Now we can start raising questions on how money from our oil resource will be spent. If this question is posed, I will say the money will be allocated mainly to the education and health sectors,” (Sao, 2020, para. 13).

Despite the assurance from Prime Minister Hun Sen, doubt remains, particularly regarding the accountability and the distribution of resources, whether the resource will help to diversify and strengthen the economy of this post-war country. Before envisaging whether Cambodia’s oil is a “curse” or a “blessing”, it is worth considering to the lesson about resource curses and resource blessing from other countries such as Venezuela and Norway.

How a blessing can become a curse 

Since 2001, there has been a lot of empirical evidence to support the prevalence of the resource curse in most resource rich countries with poor institution, particularly the countries in Africa and the Middle East. The natural resource can be the advantage to develop and boost economic development if the profit from it is well managed and allocated. However, it would be a curse that draws the country into conflict, corruption, poverty, and dictatorship. For instance, Nigeria is one of the largest oil producers in the world between 2015 and 2019, which produced 2.5 million barrels per day. However, a survey conducted in 2018-2019 by the National Bureau of Statistics  showed that around 86.9 million of the Nigerian populations live below the poverty line of $381 per year. 

According to many studies, the natural resource has close relation with the regime, it helps to strengthen the regime. The authoritarian regime would be more durable, thus transition to democracy would be less likely to happen. The regime could get profit from selling/renting oil to finance the regime by building up military force and oppressing dissidents. The profits from oil also allow the government to sufficiently support themselves which helps to ease the citizens’ burden of paying tax. No tax means no representative that the government doesn’t feel the need to hold accountability and transparency to its citizens. Thus, it makes it easy for the oil’s profit to fall into the top officials ‘pocket. Those who are in power would feel the need to protect their interests which include money and power that they could use to strengthen their political influence. 

The Case of Venezuela

Venezuela is a case in point since it is one of the largest oil reserves and was one of the largest oil producers in the world backed in 2017. It could produce two million barrels of oil per day. As the oil companies are owned by the state, it has allowed the Maduro regime to profit financially and be able to finance and hold a firm grip on the military to stay in power. The turmoil started when Nicolas Maduro, Venezuelan president, employed a policy of fear and a dead squad to win the election in 2018.

Maduro has earned the loyalties of the high ranking military men and security forces by rewarding them to control in the key industries and posts, which enabled him to use the military force to crackdown on the dissidents who rejected the election’s result. Consequently, the political crisis has turned Venezuela into the poorest country in Latin America and millions of people have fled the country. In 2020, approximately around 5 million Venezuelans fled to the neighboring countries. The National Survey of Living Conditions conducted in 2019-2020, found that 64.8 percent of Venezuela’s populations are living in multidimensional poverty, _ lack of food, poor living conditions, and under the constant threat of violence and abuse.

The growing profit from oil could also cause another problem which has been labeled as the ‘Dutch Disease’ by the economists. It is a phenomenon in which the income from the oil has shrunk other sectors to crowd in the oil sector that oil would become the main commodity for export. Thus, it makes the countries vulnerable to fluctuation of the international market. The country would face an economic downturn or recession when the price of oil drops on the international market.

Moreover, the flowing of oil to the international market means that the dollar is flowing into the country that could lead to the devaluation of the national currency. This is also one among the factors that lead to the economic crisis in Venezuela. Oil was made up of 99 percent of Venezuela export products, which oil played a dominant role in Venezuela economy. Venezuela started to experience an economic downturn in 2016 when oil priced dramatically dropped from $100 per barrel in 2014 to $40 per barrel in 2016, making Venezuela’ Gross Domestic Product decreased by 16.5 percent in 2016.

The political crisis in 2018 also trapped Venezuela into economic crisis and instability as the US, which was the largest market for Venezuela’s oil export, has imposed sanction on Venezuela government. Venezuela is experiencing the supplies shortage, which leads to the higher price of the imported products. Currently, Venezuela is the poorest country in Latin America. According to the National Survey of Living Conditions of 2019–2020, 96 percent of Venezuelan are living in poverty while 70 percent are in dire poverty.

The Case of Norway

Norway is one of the largest oil producers in the world which produced 2 million barrels per day. Unlike most resource-abundant countries, Norway does not experience or show the tendency of tilling toward the resource course. On the contrary, Norway could take advantage of oil to develop its economy and become one of the strongest economic performances in the world. In 2017 and 2018, it was ranked top of the world best inclusive economy. 

Norway’s ability to transform oil into economic development is not an accident, but it is through the establishment of strong institutional government that is transparent, accountable and has zero tolerance for corruption. It has been ranked as the world’s most democratic country since 2011 until now. With this political institution, it has prevented politicians from plundering the country like other resource-rich countries.

Moreover, Norway also has three distinguished bodies to control the oil. First, the national company is responsible for oil operation within the country, which ensures that the oil revenue would flow to the government budget. Second, the Ministry of Petroleum and Energy of Norway helps to coordinate and enact policy options and strategies that ensure the efficient utilization of oil revenue. The third body plays a technical and regulatory role which help to compile the document of oil extraction within the country. With this unique platform that based on transparency and high performance, it has helped Norway to manage its oil and help transform its economy.

Lessons for Cambodia 

The experience of Venezuela (resource curse) and Norway (resource blessing) demonstrates that the resource in itself is not a curse. However, poor management, corruption, and patron-client are the factors that turn natural resource to be a curse. By observing the trend of resource management from Norway and Venezuela, it is best for Cambodia to develop a more inclusive political system that are transparent and accountability.

Currently, the accountability within the Cambodian government remains a major problem as the government continues to put pressure on civil society organization, opposition parties, and independent media, which are the means to ensure transparency and accountability in the country. According to Human Right Watch, many journalists and independent medias have been harassed by the Cambodian government after the dissolution of the largest opposition party, Cambodia National Rescue Party (CNRP), in 2017 and the crackdown on independent media leading to the closure of the Cambodia Daily. 

Corruption also remains a prevalent issue in Cambodia as well, which makes it easier to recruit the family members into the important posts and position. The Corruption Index released by Transparency International in 2020 showed that Cambodia was ranked 160 out of 180 countries, indicating that Cambodia is one among the most corrupted countries in the world alongside North Korea and Afghanistan. As noted by Bhatacharya & Hodler in 2010, the associate professors at the university of Sussex and Melbourne, the rampant of corruption is closely aligned with the weak institution that the state budget could flow into the pocket of the politicians. This could be a major problem as well how the government could efficiently manage the oil revenue.

In this sense, in order for Cambodia to avoid plague of resource curses, Cambodia government needs to put a strong hand on corruption. Moreover, transparency and accountability are also very crucial as well, particularly on the Cambodian National Petroleum Authority, the body that controls the oil resource in Cambodia would play a crucial in managing oil and its profit in Cambodia. If the Cambodian government could not address the corruption issues and make the institution more accountable and transparent, Cambodia could face no different fate regarding the resources curse experienced by Venezuela and other countries. Corruption would make it possible for the revenue from oil extraction to fall into the hands of individuals or groups, not the state.

The natural resource is good in itself. It can give less-developed countries like Cambodia the advantage to develop without depending too much on foreign assistance and aid. The natural resources could be turned into a resource curse when the political institutions are corrupted, transparency and accountability are missing, and the patron-client systems are prevalent. However, the natural resources could be a blessing, helping the countries to develop economically if the political institution is operated under the rule of law, democratic value, and transparency. Norway is a country that successfully avoids the resource curse. It other less-developed countries such as Cambodia should learn from the Norwegian lesson to avoid the fate of the resource curse.

*About the Author: Sokvy Rim is an intern at Cambodian Education Forum. He has a bachelor’s degree in International Relations from the Department of International Studies, Royal University of Phnom Penh, Cambodia.