18 June 2010

West Africa: The BP Oil Spill Spells Disaster for Region

The BP oil spill is an environmental catastrophe for the US, but its consequences will move far beyond the Gulf of Mexico and into the heart of West Africa.

If the US places stronger regulations on domestic oil production, the world will look to exploit offshore drilling in West Africa. In weak economies however, oil is often more of a curse than a gift.

Steven Cohen, Executive Director of The Earth Institute of Columbia University told MediaGlobal, "The world is addicted to fossil fuels. This disaster will serve as the clearest evidence of that addiction." Experts believe stricter US regulation of offshore drilling is inevitable and West Africa, a developing region where regulations are sparse and opportunities for exploitation are great, will serve as the solution for the world's oil addiction.

The oil industry has had its eye on Africa since 1956, when oil was first discovered in the Niger River Basin. Not only was the cost of production cheaper, but, according to the Council on Foreign Relations, the type of oil discovered in Africa was actually lighter, sweeter, and easier to refine. Because the oil discovered was offshore, African oil was both easier to transport and cheaper to produce than oil from the Middle East.

Despite the boom in African oil production, oil profits mysteriously vanished. Transparency International, a corruption watchdog, sited Nigeria as having lost nearly 40 percent of its wealth to a mismanaged government. Oil, first hailed as a gift to lift Nigeria out of poverty, became popularly referred to as a curse creating further conflict and economic disparity between the rich and the poor.

Within the current geographic shift, fueled by BP's spill, Africa is set to receive even more attention from foreign bidders. The US National Intelligence Council reported that by 2015, America will receive over 25 percent of it oil from offshore drilling in West Africa.

Ghana will be the first to step into this drilling limelight. According to Todd Moss, Vice President of Corporate Affairs for the Center for Global Development, "Ghana is scheduled to start drilling in early 2011. Within two years, its oil revenue will bypass both gold and cocoa, which have been the staple products for centuries." If Africa's past serves as an indicator of its future, the implications of Ghana's shift from cocoa and gold to oil could mean a repeat of Nigeria's "oil curse."

"Large oil revenues are universally associated with exploitation and corruption," said Moss. There is no doubt that, in developing countries like those of West Africa, oil will continue to complicate already fragile political issues." The main complication stems from a lack of revenue monitoring. In weak governments, there are very few mechanisms in place to make sure that oil profits go to a country's people rather than the country's elite.

But does a history of corruption mean emerging countries should be blocked from using their resources to compete in a global market that, now more than ever, is calling upon them to do so? Moss added, "You want these countries to exploit oil in a positive way and the opportunity is there to use the money to the benefit of their people. But their track record [for monitoring revenue] is bad, so it's a very tricky situation."

As a possible solution to keeping track of oil revenue and avoid corruption, The Extractive Industry Transparency Initiative (EITI) was launched in 2002 by Tony Blair, former Prime Minister of the United Kingdom. EITI aims to create overall transparency of revenue flow between companies and governments.

It operates mainly as a system of checks and balances. Companies report their payments and governments report their receipt of payments to a board of International stake holders. The board is comprised of multiple civil society members, government heads, and company representatives. In monitoring the exchanges between companies and governments, there is less room for money to fall into the wrong hands.

EITI's weakness lies in the fact that it solves only one tier of the multilayered oil issue. The governments of these countries still need help with initial oil contracts, budgeting, effecting spending, and feedback mechanisms. EITI is just one piece of what needs to be a very large monitoring mechanism for these emerging oil markets.

"The circulatory system of the global economy is fossil fuel," said Cohen. Indeed, oil is the basis of modern life and it courses deeply through the veins of the world. But such a vital resource comes with a price, and until multifaceted solutions are implemented to monitor profits, oil will continue to seep into unsuspecting ecosystems and precarious economies.

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