A Second Hand Conjecture

Gas flaring in the Niger Delta (photo: Ellie)

John Ghazvinian is a journalist and historian of considerable insight into African affairs. He also happens to have written one of the best recent books on the emergent international struggle for African petroleum: Untapped: The Scramble for Africa’s Oil (the paperback edition is due out in April). Whilst being an enormously valuable investigation of a very serious issue, it is also a page-turning and literate adventure into exotic and dangerous places. Indeed, one that’s practically impossible to put down once you’ve picked it up.

As John writes therein, since 1990 the oil industry has invested $20 billion in oil exploration and production in Africa, with $50 billion more planned before 2010. Over the next five years Chevron alone is devoting $20 billion in investment for Africa. Taken collectively, this exercise represents the largest commercial investment in African history. But such a spectacular windfall for some of the world’s most impoverished countries can be a poisoned chalice, where the brutal economic forces of the so-called “resource curse” hollow out states, eviscerate agricultural economies and break traditional cultures.

Populous and promising Nigeria for example, is one of the oldest and most well established oil producing countries in Africa. But with the expansion of Nigeria’s oil extraction industry, she has seen only the systematic erosion of her economic and civil society. As well as witnessing the transformation of her oil bearing region in the Niger Delta (one of the richest in the world), into a vast social wasteland of extreme poverty, rapacious crime and guerrilla warfare. As John notes, “Nigeria” is now a shorthand expression in Africa for what everyone with oil desperately wants to avoid.

John took some time out of his morning yesterday to sit down with me for a telephone interview. We were able to discuss a variety of subjects related to issues raised in his book. Including among other things, US oil supply diversification, the political consequences of offshore exploration in the Gulf of Guinea, the resource curse and rentier states, instability and post-nationalist militancy in the Niger Delta, oil field subculture, the labor problem, Chinese energy strategy in Africa and the difficulty of talking about Africa “without lapsing into sanctimoniousness” (as John puts it in the preface of his book). As I did, I believe you’ll find this to be a rather rewarding and unconventional discussion.

Lee Garnett: Somewhat unexpectedly I found myself reading your book as a kind of adventure story. A story about a modern mercantile adventure that is taking place in Western Africa and particularly in the Gulf of Guinea. It’s something that most Americans would probably be surprised to discover their suburban neighbors in Houston fly off to every week. What is this new struggle for Africa all about?

John Ghazvinian: Well, I didn’t intend to write an adventure story. But I wanted to deal with this buzz and excitement over African oil and what it means politically, but in a way that was interesting and lively rather than dry, academic and factual, as these kind of things can easily become. Particularly when you’re dealing with a lot of countries that people aren’t necessarily very familiar with.

The idea behind the book is very simple. The United States today is getting 17% to 18% of its imported oil from Africa. More than we’re now getting from Saudi Arabia. That number is expected to go up to about 25% in the next few years. This is a part of the world that we’re increasingly reliant on for our energy needs and our very way of life. Yet I think that it’s very fair to say that even well informed Americans don’t necessarily know very much about the some of the countries that we’re getting our oil from. So, the idea is to bring this story to attention.

LG: There seems to be a great deal of uncertainty within the industry itself about exactly how much oil is available in Africa. What is your guess, enough to replace the Middle East? In the book you’re kind of dismissive of that.

JG: Yeah, I try to play down the idea that this is a new Middle East, because I think one should not build false optimism about these things. But it’s clearly an important region and it’s important for a number of reasons.

In terms of actual reserves, you’re probably talking about 10% of the world’s, which doesn’t sound like very much, but it’s important because the quality of the oil is very good. It’s a light sweet crude, the oil man’s oil. Cheap and easy to refine, it’s instant added value that just makes the oil that much more valuable than it is on paper. The transportation links make it very easy to ship to the United States and Europe, because you don’t have to go through the Suez Canal or anything like that. You just take it right off the west coast of Africa straight onto a boat. A lot of it is deep-water offshore oil, so it’s shielded from political vulnerabilities and volatilities.

Perhaps most importantly it’s another part of the world where we get our oil from. What the United States cares about is not just reducing its dependence on foreign oil, but also diversifying its supply of foreign oil. So if there’s a problem in the Middle East, Venezuela, or in the Caspian, there’s one more place that we can go to for oil. I think that’s where you get a lot of the interest and excitement. Plus, it’s just a booming region. The oil industry is very excited about Africa because there have been massive discoveries made in recent years.

LG: You’re somewhat skeptical in the book that offshore oil is genuinely politically insulated. Particularly in locations like Cabinda, where the offshore oil is to an extent distorting the political situation on the shore [in Angola]. Is it realistic to expect that massive drilling operations off the west coast of Africa are not going to seriously manipulate and affect the onshore political cultures in these societies?

JG: That’s a fair point, you’re right I do kind of go on about that. The industry gets excited because we’re talking about offshore deep water and ultra-deep water oil. You’re talking about thousands of feet below sea level; oil thats a good hundred miles offshore sometimes. The reason they like that, if you’re familiar with Nigeria, when you drill offshore you don’t have to deal with angry villagers and militants and so forth disrupting what you’re doing. So, the industry likes that.

However, as I try to argue, this is a little bit of a deceptive story. What does happen even in the offshore situation, is you get all kinds of economic and political problems on a macro scale. You have the Dutch Disease, which economists like to talk about, where the country’s currency appreciates and it becomes impossible to diversify the economy. You also have the rentier trap, which is basically where the country becomes a sort of landlord, gets lazy and sits there collecting oil money.

It’s actually not rocket science. If you have a poor struggling African country with very little capacity and very immature institutions, and you throw very large amounts of dollars into that country overnight…it’s going to create problems. It’s not going to make things better. That’s the ‘curse of oil‘ that people talk about.

LG: Nigeria and the Niger Delta in particular is an interesting situation. Reading that part of the “adventure,” it seems somewhat miraculous that you survived [touring it]. Reports out of the Delta can be quite harrowing these days.

But what seems kind of interesting to me is that in the Cabinda situation you have a somewhat traditional or conventional ethnic nationalist movement for independence, but in the Niger Delta you have a kind of a post-nationalist movement where these groups that are pilfering oil (illegal bunkering) and organizing militias — groups like the Movement for the Emancipation of the Niger Delta — are not in effect seeking independence, but rather seeking to establish a kind of pirate autonomy, where the oil companies confer legitimacy on them through Memorandums of Understanding (MoUs). Is this the future?

JG: I think that’s a fair characterization of the conflict. It’s very hard to see where this goes in the future, although things seem to have been relatively quiet in the last few months since the new administration took office in Nigeria. How that will continue to be the case is anyone’s guess. But what you have obviously is a very volatile situation in the Niger Delta and endemic –you might even structural– problems that are not going to lend themselves to any easy solution at this point.

I think that the oil industry’s last best hope is ironically enough offshore. The most excitement is about things like the Bonga concession that Shell is developing. Although we’ve seen some negative news out of Nigeria for Shell with this memo that was leaked to the Financial Times. It’s an internal memo written from a couple of months ago at Shell, that suggests they’re not getting the financing they need from the Nigerian government, which is yet more bad news for Shell and really calls into question their Bonga concession, which they’re so excited about. This concession is offshore in Nigeria and of course they like that for obvious reasons: they don’t have to deal with all the onshore conflicts.

But the larger story here with Nigeria, as your readers will be aware, is this is a troubled place and a very difficult place to drill for oil. A place that I think increasingly the international oil industry does not really want to be if they can help it, unless things change or improve significantly. It’s a dangerous operating environment. They’ve pulled all the employees they can pull out of there and still do their job. They operate with intense levels of security, because there’s been about 200 international oil workers kidnapped over the last couple of years.

LG: Is the Dutch Disease avoidable in your opinion?

JG: That is the six million dollar question. I’m not an economist, so perhaps I should duck that question on some level. I don’t know whether it’s avoidable. What I do know is that it has proven very intractable. There are structural problems. Basically, when you have large amounts of foreign currency coming into your economy in dollars, it’s obviously going to artificially inflate the value of your own currency and that is going to make imports cheaper. It’s going to take away any incentive you have to develop your own domestic traditional manufacturing base, traditional agriculture, or small-scale cottage industries. That’s happened again and again across Africa in commodity dependent countries.

There’s a lot of people working on this and trying to find ways around it. Sometimes it feels like a lot of wishful thinking. I just got back a couple of days ago from a conference at the United Nations in Geneva about this very question: how commodities can be used to promote development in extremely poor countries. I have to tell you I’m not seeing a lot of light at the end of the tunnel, despite a lot of good intentions. It’s not just a question of good leadership. Sometimes these things are just difficult.

Even if you want to promote traditional agriculture, if you’re in a highly impoverished and heavily indebted country where the Industrial Revolution has kind of passed you over, what are you going to do? Are you going to give thousands of dollars to a goat farmer with a couple of goats in the middle of the bush? What is he actually going to do with that? Anyone in his position is going to spend that on beer.

There’s no really obvious way to spend a massive foreign currency cash windfall in some of these countries. So inevitably people end up investing that money in offshore accounts or spending it on prestige projects, or bloating their national bureaucracies. All of which are not particularly healthy directions for the countries economically.

LG: What seems to be lacking then are the instruments for reinvestment? They just don’t exist.

JG: Yeah, I suppose you could say that.

LG: To get to the endgame of this Dutch Disease, one of the most striking quotes you have in the book is when the Congolese opposition leader [Joseph Kia Mboungou] tells you that when the oil runs out, his country will commit “collective suicide.” Is that the ultimate fate of Western Africa? How pessimistic are you?

JG: I hope not. I try to be as optimistic as I can. I don’t want to be an afro-pessimist, but it’s hard not to be a little bit pessimistic. When the oil runs out…these countries have not diversified their economies. Even the most successful oil exporters like Gabon, with a relatively high per capita income, are not particularly well situated to deal with either a crash in the price of oil or the inevitable peak in their oil production.

Take a country like Cameroon that is now well past its peak. They’ve been managing reasonably well because they have a fairly diversified economy, but they have other commodities they rely upon like logging and cocoa. It’s just not a particularly optimistic scenario.

LG: There’s a part in the book where you get into the strange postcolonial subcultures emerging in the oil cities. What is “oilfield trash”?

JG: This is a term I use in quotes because it is a term that is used by these people themselves in a kind of ironic way. It’s certainly not a term I’d use myself. Basically oil rig workers, who are usually English speaking, from all over the world and who go off and work on rigs. They’re usually white men in their thirties, forties, or twenties, from the States, Canada, or UK and often from Scotland. They will go on contract labor to some of these countries. I talk about them because they are an interesting subculture.

They’re all guys and they all live in these compounds in these very, very impoverished countries, behind these high razor wire walls. They have these fantastic compounds with air conditioning and all the amnenities. They have cable TV, tennis courts, swimming pools and so forth. Then on the other side of these walls you have people with no running water, who have to walk miles twice a day in blistering heat to collect water at a pump. The contrast is pretty extraordinary. Of course these people often come into town and you have lots of problems with prostitution and so forth. There’s a real gulf in living standards. It doesn’t always create friction, but certainly an interesting dynamic.

LG: Are the Chinese going to be the next generation of “oilfield trash”?

JG: Certainly the Chinese are a very big part of this story, and became a very big part of this story even while I was doing this book. As I think everyone is now aware, China is clearly an up and coming power in Africa. Perhaps more than just up and coming. They are aggressively moving in.

One of the points I make in the book is that just as five or ten years ago some of the big European multinationals –which had grown used to thinking of Africa as kind of their natural backyard– just as they had to make room for upstart American independents, now many of those American companies are having to make room for the Chinese, for the Malaysians, for the Indians, and for companies from frankly all parts of the world. Brazilians are increasingly waking up to the fact that their offshore experience makes them very well positioned here. Australian independents have been a very big part of the African oil story.

This is why I talk about the new scramble for Africa in a way. I think you can push that analogy too far, but clearly you have people from all over the world who are trying to get in on the action here.

LG: The scale of Chinese investment in Africa is pretty monumental in relative terms. What is their strategy and why are Western governments so concerned about it?

JG: Well, you hear a lot of talk about the fact that the Chinese don’t ask a lot of questions about human rights and transparency and so forth. I think some of this is a little overplayed.

In terms of their strategy, obviously the Chinese don’t have anything like the kind of experience and expertise with oil drilling that some of the Western multinationals do. That’s not something you can get overnight, although the Chinese are very good at picking that up very quickly and they are doing it.

Their strategy has been multi-pronged. On the one hand it’s been to form consortiums with Western multinationals and quickly learn how the business works, so that they can make really attractive bids when future contracts come up and say, “look, we have the expertise now.” Partly it’s been to flock to declining fields and marginal fields that the Western multinationals aren’t really interested in, because they’re not seen as commercially viable. The Chinese operate with lower overheads and much longer time frame. The Chinese don’t have nervous shareholders biting at their ankles all the time because they’re obviously backed by the state. And they’re in it for the long term.They’re in it because they are an arm of the Chinese state, which is very much interested in securing its long term energy needs.

And then the other part of the Chinese strategy is to throw around big investment projects, to offer to build railways, roads and desperately needed infrastructure. Even refineries, downstream infrastructure that Western multinationals have not been able to offer in that kind of package, because they’re not as closely allied to their governments.

It’s been working very well. It worked very well in Angola a couple of years ago when Total, the French multinational, had one of its licenses not renewed. The Chinese put in a big bid offering a $2 billion credit line to the Angolan government in exchange for this very lucrative oil block. They’ve now been rebuilding some of Angola’s infrastructure, which is very important because Angola suffered a twenty-seven year civil war and has a lot of very serious infrastructure needs. The Chinese are doing that, they’re doing it quickly and they’re doing it cheaply. Which is one thing the Chinese are very good at doing. We all know that, because we all have Chinese electronics in our homes and we know that the one thing the Chinese can do is build stuff cheaply and well. They’re doing that now with roads, bridges, airports, you name it.

LG: Do you see China as kind of filling the void in Africa left by the Soviet aid model? Where they would routinely dump tons of money into regimes to buy influence and often not get an equitable return.

JG: Only partially, because the Soviet model was a political project. That is not the case with the Chinese, it’s completely a matter of business. It’s a matter of getting the concessions and getting the oil. Getting the energy and copper and whatever else they need out of these countries.

We’re not in a cold war and they’re not trying to win African states around to some sort of ideological project. And the big difference of course, is that they’re not selling arms. They’re just trying to do business and they’re not interested in getting dragged into any kind of political issues either way. They’re not trying to convert African countries to their point of view. By the same token they’re not trying to put pressure on people like Mugabe to reform or change their ways. The Chinese are just interested in doing business and it’s a model that is very attractive in Africa, to African politicians and the political elite. But also it has a certain resonance because the Chinese don’t come in and lecture countries on how they should run their affairs.

Now look, I’m not advocating that necessarily, because obviously I think in countries like Zimbabwe there are things that need to change. But the Chinese approach is to say look, this Washington Consensus of liberalizing your economies and doing this and doing that hasn’t necessarily worked. Now people joke about the “Beijing Consensus,” this idea that you just leave countries alone to run their affairs the way they see fit and do business. It seems to have served China well.

China is an inspiring model to a lot of Africans. Here’s a country that hasn’t taken the bitter medicine from the West, the IMF and the World Bank, and has built this booming economy on its own terms. That has a really strong resonance in African countries that are maybe a little bit sick of being told how to run their economies by the West.

LG: That’s a perspective that’s obviously radically different from the options we have in the United States. One of the interesting aspects of the book was how dismissive you were of the political reaction to this in the US, to the extent that there’s any at all. On the neoconservative right you have somewhat malign geostrategic intentions, and on the Left you have what I believe you called “glib sloganeering,” or largely uninterest. Are we seeing a kind of replication of the politics of bad ideas vs the politics of no ideas?

JG: Boy, I don’t know how to answer that.

LG: If there is a policy solution that’s available that appropriately deals with this situation, feel free to expound on that. It just seems to me that you cast an eye over what people were saying in Washington on this, and thought no one really had the right perspective.

JG: I’m the first to admit that this book is short on solutions. It wasn’t really the point. What I was trying to do was suggest that these are stories that we ought to be paying more attention to. I don’t know what the answer is.

I do think that both Left and Right have both failed Africa. I do think that when we talk about Africa there’s a lot of not so much misinformation, as you get in other parts of the world, but just lack of awareness. This desire to see it through a certain ideological prism, certainly. But also just naiveté on both Right and Left. This is a continent of 54 countries, 2,000 languages, 3,000 ethnic groups…this idea that people like to talk about Africa in these simplistic terms “oh we just need more aid” or “we need less aid,” or what-have-you…this is a very complex story and I think it defies easy solutions. I think ultimately any solution has to come from Africa itself. I think that’s very important to underscore.

Oil, as I keep trying to say to people, is not by itself something evil. It’s just a black substance that comes out of the ground. It’s what we do with it. What I try to point out in this book is that there are a lot of reasons why it makes life more difficult in struggling African countries. The first step is awareness of what some of those issues are. How we actually resolve those? I’ll be the first to throw up my hands and say I don’t know.

One of the things I’ve been talking about a lot as I talk about with the book, is the importance of job creation and the importance of creating stakeholder economies in the same way we have in the West around the oil boom. The real tragedy of oil exploration is that it’s capital intensive and skills intensive, but it’s not labor intensive. It doesn’t create a lot of jobs. Even the few jobs it does create are generally done by expats.

I don’t understand why the multinational oil companies –at least the Western ones that claim to want to help– don’t come together and create something like an African oil university somewhere in Nigeria or Angola, where they can train locals to become petroleum engineers. One of the really interesting things about the oil industry is that they are constantly complaining about a shortage of skilled petroleum engineers. This is an aging industry, most petroleum engineers are now in their fifties, they’re not being replaced quickly. They desperately need skilled labor and it seems like a very obvious place to try to train some of that labor would be in Africa.

LG: I think that you wrote that out of the billions that have been invested by Western companies in African oil exploration and exploitation, only 5% has actually been spent on the continent.

JG: Yeah.

LG: That’s fairly staggering. Talk a little bit about the solution for offshore development in the Gulf of Guinea, where you have floating barges, which is a relatively new technique.

JG: This is an enclave industry as you say quite rightly. It exists often dozens of miles out to sea. It’s not even seen by the people, not even by the government really. You mention the Floating Production Storage and Offloading vessels (FPSOs). These are just these massive, massive barges that are several football fields in length. The oil gets pumped through pipelines onto these FPSOs, it gets stored there for awhile and then when a couple of million barrels get piled up, it gets offloaded onto a regular oil tanker and sent off to America, Europe or China.

No one ever sees any of this happening. It’s no longer the old wellheads and pipelines and so forth, the complicated machinery. It’s all on this big barge out to sea.

LG: So it seems then that we’re moving even further away from involving African labor. When you need to build networks of pipe, there’s certainly construction opportunities and that sort of thing. Are we seeing a further disengagement from the continent?

JG: Possibly, although there’s a question mark over some of the newer oil producing countries. This is just since the book was finished, but we’re talking now about countries like Uganda that are landlocked, where pipelines will have to be built. We have the experience in Chad, which isn’t terribly positive. So, I don’t think it’s going to be purely an offshore story. There’s still a lot of unexplored acreage in Africa that’s landlocked so pipelines are still going to have to part of this picture.

This is probably the last frontier in terms of conventional sources of oil. People talk about the oil sands in Alberta and shale, or drilling in the Arctic. But Africa is the last place on Earth where there are still massive exploration blocks that have not really been parceled off. Places where people have not really drilled and explored properly, that could still be developed with conventional means. With a little bit of political stability, there’s no reason why this can’t happen. And with a little bit of awareness about some of the risks about the curse of oil, this could actually end up relatively good in some places. I’m relatively optimistic about countries like Uganda and Ghana which are probably future oil producers.

LG: Very strong interview John, thank you for your time.

John’s book can be purchased here in hardcover. Or preordered here in paperback. The book is highly recommended by ASHC.

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