Oil and corruption - an experiment in West Africa

Many academics believe that the presence of natural resources is a curse for developing countries. The discovery of natural resources leads to an increase in corruption, which hampers economic growth and undermines democratic practices. It is crucial to understand how this might happen if countries are to realise the potential benefits of natural resources.

Research from the Global Poverty Research Group at the University of Oxford, UK, assesses whether natural resources have been a ‘curse’ in developing countries. The author does this by analysing the impact of the oil discovery announcements in São Tomé and Príncipe, West Africa, in 1997-1999. The author examines whether there is a direct link between natural resource discoveries and corrupt activities, and, if so, which sectors corruption first appears in.

The idea that natural resources are a curse is supported by the experiences of other oil-producing countries in West Africa, such as Gabon, Nigeria and Equatorial Guinea, and Caucasian nations such as Azerbaijan and Kazakhstan. These are amongst the most corrupt countries in the world. Studies have also found that economies in countries rich in natural resources have tended to grow more slowly than other developing countries.

São Tomé and Príncipe is the second smallest country in sub-Saharan Africa and one of the poorest in the world. The recent discovery of offshore oil allows for a natural experiment to be conducted on the public perception of corruption over time. To compare results, the author also carried out interviews in Cape Verde, which is similar to São Tomé and Príncipe in many respects, with the exception of a natural resource discovery.

The author finds that according to interviewees, corruption in São Tomé and Príncipe has increased by between 21 percent and 38 percent in several sectors since 1999. These include:

• Vote-buying: competition to become part of the political elite of the country has increased.
• Education and scholarships: this relates to future status and prospects, and competition is especially high for scholarships for overseas higher education.
• State jobs: competition to be part of the public administration elite has increased.
• Health care: the relation to oil discovery is less clear, though there is a link to neglect of this sector by politicians more interested in improving their position elsewhere.

These results imply that following discovery of natural resources, there are increased efforts to become part of the country’s elite, so as to be in a better position to profit from expected revenues. The results support the idea that natural resources may be harmful for governance.

To counter this trend, the author recommends:

• monitoring new resource-rich countries in the areas connected with political power
• improving accountability and transparency of oil revenues to reduce people’s expectations of profiting through illegal activities
• more quantitative analysis (as opposed to interviewee perceptions) of sector-specific corruption and the inefficiencies introduced by corruption
• using public surveys to measure the impact of changes or policies brought about by external or high-level political events.

Source(s):
‘Does Oil Corrupt? Evidence from a Natural Experiment in West Africa’, GPRG-WPS-054, Global Poverty Research Group: Oxford, by Pedro C. Vicente, 2006 (PDF) Full document.
‘Is vote buying effective? Evidence from a Randomized Experiment in West Africa’, GPRG-WPS-065, Global Poverty Research Group: Oxford, by Pedro C. Vicente, 2007 (PDF) Full document.

Funded by: Fundação para a Ciência e a Tecnologia (BD1215/2000); Henry Morgenthau Jr. Memorial Fund; Department of Economics at the University of Chicago; ESRC-funded Global Poverty Research Group

id21 Research Highlight: 17 April 2007

Further Information:
Pedro C. Vicente
Global Poverty Research Group
University of Oxford
Manor Road
Oxford, OX1 3UQ
UK

Tel: +44 (0)1865 284250
Fax: +44 (0)1865 281447
Contact the contributor: pedro.vicente@economics.ox.ac.uk

Global Poverty Research Group, UK

Other related links:
'Overcoming the ‘curse’ of mineral resources in Africa'

'Environmental impact assessments: encouraging collaboration between companies, communities and government'

'Reducing the adverse impacts of oil industries in Nigeria'

'Unsuccessful, undemocratic and unfair? How IMF and World Bank policies have undermined Zambia'