by Ahmed A. Hirsi
Sunday, July 10, 2011
Introduction
Recently various media outlets reported that Red Emperor a small and unknown Australian Oil & Gas Company claimed that it had signed a letter of intent with yet another unknown drilling subcontractor and expect the first well to be drilled in Dharoor, in 2011. [1]
Dharoor is located in Somalia's semi-autonomous region of Puntland. The efforts for resumption on this drilling will be the first of its kind undertaken in Somalia in over twenty years. The resumption for oil exploration and plans to install oil rigs in certain geographical locations in Somalia has been a subject of heated debate and a recipe for confrontation between the TFG and the State of Puntland. Moreover, it has been reported that the breakaway region of Somaliland has already exported minerals for the first time in over twenty years (Somaliland Press, 2011)[2]
The idea of exploring, producing and utilizing our natural resources in itself is not a bad idea, however, according to economists countries that have abundance of natural resources are more likely to suffer from less economic growthand worse development outcomes than countries with fewer natural resources. The reasons for this are many, these economist point the figure of blame on mismanagement of resources, or if the government is weak, ineffectual, unstable or corrupt institutions among other issues. I shall expand later on the co-relation between poverty and abundance of natural resources in many developing countries. So far only one country has managed to benefit from its vast natural resources, and that country is Norway.
In Somalia the oil factor and the debates that associate with it have been ongoing for many years. In that regard, I have had numerous discussions with a wide spectrum of Somali laymen, geologists, politicians and businessmen as to what would happen if ‘black gold ‘is pumped out of the Somali sands. Broadly speaking, the answers that I have extracted from these informal conversations could be divided into two categories: a) Optimists and b) pessimists.
The optimists would claim in the event of oil production: ‘Somalia will transform overnight and thus become like Dubai or like any other oil producing city or county’.
On the other hand the pessimists would paint a gloomy picture and predict an immediate civil war. Both narratives have certain grains of truth. But the truth is not that simplistic. In the light of those two narratives it would be attention-grabbing to examine the relationship between abundance of minerals and the onsets of civil wars through the use of the existing academic literature on this subject.
Discussions
In introducing my discussion numerous studies have been undertaken about the economics of war, crime and violence. One of these studies has been led by Paul Collier on behalf of the World Bank in 1990s. His study on this subject has taken an innovative and controversial approach to conflict analysis Shankleman, (2006: 38)[3]. However, the most influential empirical work on the causes of civil war was undertaken by Collier and Hoeffler (1998, 2001, 2002a, 2004, cited in Di John: 2007) who find that primary commodity exports increase the likelihood of the onset of civil war (Di John, 2007, Ross, 2004, Synder, 2006).[4]
Collier and Hoeffler study was extensive, since it covered 161 countries and 78 civil wars between 1960 and 1999, it claims that a state's dependence on natural resources - measured as the ratio of primary commodity exports to Gross Domestic Product- GDP - has a significant influence on the likelihood that a civil war will begin in the next five years.
Their data suggest that resource dependence has a non-linear effect: in other words, they argue that dependence on natural resources increases the likelihood of conflict until the resource-GDP ratio is 32 per cent; beyond this point it diminishes.
It will be therefore interesting to scrutinize the methodologies and arguments used by Collier and Hoeffler’s. Their study similar to any other given research is prone to criticism; as it’s difficult if not impossible to produce studies that are 100% accurate. Nevertheless, the use of ratio of exports to Gross Domestic Product GDP as a mode of measurement has its own limitations.
According to Ross, (2004) the causal arrow between natural resource exports as a fraction of GDP and the onset of civil war might run the other way[5]. In addition Collier and Hoeffler did not take a number of aspects into consideration, for example historical perspectives of the countries they have studied as well as political, social and spill-over from neighboring countries to mention a few.
Although Collier and Hoeffler and a number of other writers have shown in their data a strong association between lootable resources and political violence, scholars observe that loot-able wealth only fuels greed based insurgencies in the absence of functioning government or institutions.
To underpin this critique Synder, (2006) argues that if rulers are able to forge institutions of extraction that give them control over revenues generated by loot-able resources, then these resources can contribute to political order by providing the income with which to govern[6] . In other words states with stronger armies can easily repress rebellions. More recently we have seen how Saudi- Arabia and Bahrain crushed demonstrators effectively.
Snyder goes on to argue that the absence of institutions will enhance the risk of civil war, since breakdown or shall I say a meltdown or weakening of institutions will make easier for rebels in a given geographical area to organize themselves. However, weak governments can easily lose their monopoly of violence, like it is the case in Somalia which has various militias, private armies, freelance criminals of different affiliations and ideologies, private or shadow economy that is not linked to any financial institution and free-market economy that is based on zero taxation.
Snyder’s arguments seems to be strong, simply because some of the countries Collier and Hoeffler studied had been previously ruled by dictators such as Mobutu in the Democratic Republic of Congo for longer periods of time without eruption of civil wars. Similarly both Liberia and Sierra Leone had endured many years of dictatorship without civil wars. Collier and Hoeffler are only telling us why civil wars happened at a given time, without telling us why it didn’t happen before. One of the main reasons as to why countless dictators remained in power for so long without rebellion could be attributed to the collaboration between the ruling elites and the military, in countries such as Indonesia, Saudi Arabia Di John, (2009).[7]
Writers such as (Cramer, 2002, Gutierrez 2003, and Keen, 2001, cited in (Chabal et al, 2005: 23) have argued that Collier and Hoeffler’s work has serious empirical as well as conceptual problems, mainly in the way indirect variables or proxies were selected to calculate observations of greed and grievances. For example, both the prevalence of primary commodity exports in GDP and the level of educational attainment may produce either greed, the occurrence of loot-able commodities and the comparative advantage of violence for the poor or the frustrations that may arise due to the failed government policies. & nbsp;
In addition some writers have different opinions and they argue that issues such as ethnicity, economic mismanagement,and weak governments can explain large-scale conflicts. According to (Twose, 1991, cited in Nafziger et al, 2000) environmental impoverishment may contribute to conflict over resources. He goes on to argue that marginalization or rural people, social and political unrest, displacement and uncontrolled migration could be a recipe for further conflict and outbreak of wars[8].
Ironically, Collier, (2000) argues that inequality, whether measured in terms of income or landownership, has no effect on the risk of conflict, I shall explain further Collier’s argument on the notion of ethnicity and its correlation to risk of conflict.
Nevertheless, Twose’s argument could be categorized as Neo-Malthusian. Malthus, (1766-1834) had predicted in his population theory that unchecked overpopulation might lead to poverty, starvation disease, infant mortality rate, famine and war. A number of writers tend to link Rwanda into Malthus prophecy.
Though this kind of argument does not go far to unravel the historical, social and power relations between different subscribers in Rwanda. At the same time we shouldn’t forget that Malthus was heavily criticized for his population theory. Some of his critics meant that he had underestimated the technological advances in agriculture as well as food production. Also Andrè and Platteau, (2007) argue in what they termed as‘ ‘Malthusian trap’ that overpopulation is capable of producing bitter tensions within families, intra-community hatreds and violence, and they argue that overpopulation was one of many factors that caused the horrifying bloodshed the world witnessed in Rwanda during 1994 civil war.
On the question of the link between ethnicity and outbreaks of civil wars Collier, (2000) states that countries with different ethnic group composition are more stable than those with one ethnic, since mobilizing different ethnic groups is more difficult, due variety of barriers such as language, religion, interests and the problem of free- riding. In other words collective action cannot be created if there is a lack of incentives Olson, (1997) [9]
But for Collier oil and minerals can solve the problem of both free-riding by giving the rebel incentives to fight. That is why we have seen endless wars in mineral rich countries such as Democratic Republic of Congo- DRC, Angola , and Liberia.
My personal view is that the aforementioned example on the link between ethnicity and war seem to be strong. For example our native country Somalia is almost homogenous, and yet devastated by a long civil war while countries such as, Tanzania and Ghana consist of different ethnic groups and despite these odds they are much safer than Somalia.
Other economists have been also active into finding answers with regards to abundance of natural resources and economic failures of many developing countries that are unable to make use of their natural resources wealth. They argue that the so called ‘Dutch Disease’, a process whereby new discoveries or favorable price changes in one sector of the economy for example, petroleum may have an effect in other sectors of the economy for example agriculture or manufacturing. Although this argument cannot be ruled out, yet Kerry, (1997: 5) argues that persistent Dutch Disease provokes a rapid, even, distorted, growth of services, transportation, and other non-tradable while simultaneously discouraging industrialization and agriculture[10]. However, she doesn’t mean Dutch Disease alone should be blamed; she uses a number of other factors which I shall be addressing this issue later on.
Collier, (2000) who statistically investigated the global pattern of large-scale civil war found out that economic agendas being central to understanding why civil wars start. He argues that civil wars were more likely to be caused by economic opportunities than let’s say grievances. Somalia could be used as an example, when the central government disintegrated militias who used to claim to be fighting injustice committed more injustices and enriched themselves. So it could be argued that they were greed driven rather than grievances. My central argument is that extraction of minerals in Somalia is more likely to cause instability since the existing Somali institutions are very weak and they are not in a position to either fully understand or prevent the environmental implications that are associated with large scale mining and issues such as property rights and resource sharing.
With regards to Dutch Disease Kerry, (1997) argues that oil-exporting developing countries although they had experienced the largest transfer of wealth ever to occur without war, suffered from economic deterioration and political decay. These failures are mostly attributed to poor governance, lack of sound economic performance combined with debt dependence. Resultantly, many oil producing countries in the developing world are economically much worse than in the pre-bonanza years. The most amazing fact being that in her study, although Kerry studied countries that were different from each other in terms of regime types as well as social structures, geostrategic locations, cultures, and sizes as Venezuela, Iran, Nigeria, Algeria, and Indonesia, they were same. They were same in the sense that they had abundance of natural resources and they did not profit from their wealth.
Numerous theories and approaches have been used into explaining why many developing countries did not profit from their natural resources. Some writers blame the complexities that are involved in certain industries such as the oil industry. According to Shankleman, (2006) a flow of oil is predictable up to forty years, its magnitude is highly volatile and subject to changes such as fluctuation of oil prices and in the volume of output, which makes management of oil revenues a nightmare for oil producing countries. Only Norway as I have mentioned before has been able to successfully utilize its wealth as a basis for transforming its economy as well as society. This brings in an interesting aspect into the discussion.
According to my understanding Norway has succeed in benefiting from its oil wealth due to its political, economical, and social structures that were strong prior to the discovery of oil. Another worth mention aspect being that although many countries are resource rich but they are not resource dependent. Countries such as Norway, Australia and Canada are not mineral dependent although minerals have contributed to their industrialization. In other words we need to distinguish between these variables when we are looking at the correlation between resource abundance and large-scale conflicts.
To reinforce this argument Shankleman, (2006) states that the effects of natural resource revenue on economies and governments, in the absence of appropriate policies for economic management and good governance are well documented in the economics and political science literature. Dependence on natural resources revenues makes government spending on ‘white elephant projects’; and that the revenue can actively weaken non oil economy by raising the value of the domestic currency and reducing competiveness. Libya could be used as classical example.
Some writers argue that dependence on one commodity may have negative ramification for other sectors of the economy as I have mentioned before. However, the question we need to ask ourselves is that is diversification of the economy alone enough?
My personal view in form of a crude answer is that diversification of the economy alone is not enough? A good example is Dubai World which is a United Arab Emirates global Investment Company that operates in a highly diversified spectrum of industrial segments almost collapsed Smith, (2009).[11]
Conclusion
In concluding, abundance of mineral and fuel on its own cannot be blamed for large –scale violent conflicts. There is a wide agreement among many writers who have studied conflicts that certain primary commodities might contribute to finance civil wars like it was the case in Angola, Democratic Republic of Congo due to the values attached to them.
Many authors argue that the absence of strong, transparent and credible public institutions- civil service, police, and judiciary should be blamed for lack of development and wars in many countries. Issues such as political institutions, secure personal liberty, private property and contractual rights, enforced rule of law have been blamed by many scholars as main causes of wars rather than minerals and fuel on their own.
As a final point, issues such as the strength of the army in a particular country, the interaction between the elites and businessmen, the number of rent-seekers, the level of education in a given population, inequality, the number of young men between the ages of 15-24 and finally supply and demand of certain commodities are more likely to cause wars, in the absence of strong institutions that can manage all these complex issues. Some countries have bad combination of certain attributes likely to cause civil wars than others. Sadly, Somalia lacks strong institutions.
At the same time Somalia has every possible attribute that is likely to cause a civil war with or without the prospect of oil production. Oil and minerals on its own cannot cause civil war and oil will be of no use if the country lacks trained man power, institutions and other economic sectors. Somalia is already experiencing a devastating civil war in the absence of oil. To a certain degree oil revenues if used wisely could help build institutions and strong army and police force that are competent on enforcing the rule of law and defend the country internally as well as externally.
Oil in Somalia might cause environmental disaster like it’s the case the Ogoniland in Nigeria. The oil companies and western writers will not tell these problems to the Africans. In addition, the oil industry lacks transparency, for example no one knows how much oil Nigeria sells to the world. So, it could be also argued that oil breeds corruption. To complicate things further oil wealth is more likely to weaken democracy and the notion of social contract.
In illustrating this example in countries whereby citizens pay taxes, politicians are more likely to be responsive to their citizen’s demands, since the governments survival and its existence depends for the most part on taxes and revenues . However, in oil rich countries, governments have access to vast amount of oil money and they do not care much about citizens that do not provide the government with any tangible financial input.
Somalis know nothing about oil industry. Even they cannot estimate the number of barrels they produce. As I have mentioned before oil and minerals will dramatically increase the internal strife that already exist in Somalia.
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Ahmed A Hirsi
Upper Edmonton London , UK
Cross-Cultural Consultant
Marc Levin Consult (Human Development Challenges)
http://web.mac.com/marclevin1/MarcLevin/Home-.html
E-mail: [email protected]
[1] Yahoo. (2011). Red Emperor flotation offers strong leverage into Range Resources’ exploration portfolio. Available:
http://uk.finance.yahoo.com/news/Red-Emperor-flotation-offers-stockopedia-1693369417.html?x=0&.v=1. Last accessed 8.6.2011.
[2] Guled, Mo. (2011). Somaliland Exports Important Minerals to Europe First Time over 20 years.. Available:
http://somalilandpress.com/somaliland-exports-important-minerals-to-europe-first-time-over-20-years-22910Last accessed 7.7.2011.
[3] Shankleman, J. (2006), Oil Profits, and Peace, Washington: United States Institute of Peace Press.
[4] Di John, J. (2007), Oil abundance and violent political conflict: A critical Review. Journal of Development Studies. 43 (6), 961-986.
[5] Rose, L. M. (2004), What Do We Know About Natural Resources And Civil War?. Journal of Peace Research. 41 (3), 337-356.
[6] Synder, R. (2006), Does Lootable Wealth Bread Disorder? A Political Economy of Extraction Framework. Comparative Political Studies. 39, 943.[7]
[8] Nafziger, E. W., Stewart, F and Väyrynen (eds.) (2000), War, Hunger and Displacement. Vol. 1. Oxford: Oxford University Press.
[9] Olson, M (1997), “The New Institutional Economics: The Collective Choice Approach to Economic Development, “in Christopher Clague ed. Institutions and Economic Development: Growth and Governance in Less Developed and Post- Socialist Countries, Baltimore: The John Hopkins University Press, pp.37-66.
[10] Karl, T. (1997), The Paradox of Plenty: Oil Booms and Petro-States, Berkeley: University of California Press.
[11] Smith, R.P. (December 1 2009). Dubai World Too Big To Fail?. Available: http://richesamongtheruins.com/blog/2009/12/dubai-world-too-big-to-fail/.Last accessed 1.12.2009.