Tuesday, November 22, 2011

OIL AND CORRUPTION:ISSUES AND CHALLENGES FOR UGANDA


 

Introduction

At the onset of this paper, it has to be stated that discovering natural resources in Africa does not necessarily create a platform for development because resources are siphoned off relentlessly and almost with impunity. At worst, resources have been seen to fuel insurgency that has condemned African economies into perpetual economic malaise.


 

To address these concerns, the paper will define corruption with a nexus of oil exploration; shed light on the history of oil in Africa; identify the vices that are systemic in nature, which spur the emergency of corruption in oil reach African countries; enlist the lessons Uganda can draw from the experiences of oil rich countries, and finally crown the presentation with a conclusion.


 

Definition of Corruption

Corruption is a common parlance with different definition and meaning—cloaked with ambiguities about its causes, effects, extent and solutions. Legal definitions of corruption tend to be less precise and narrower than its economic, social and political subtext. Its attributes pervade across sectors and boundaries, and are manifested in practices such as theft, fraud, bribery, extortion, nepotism, patronage, and laundering of illicit proceeds.


 

The National Strategy to Fight Corruption and Rebuild Ethics and Integrity in Public Office 2004-2007 defines corruption as "the abuse of public office for private gain and includes but is not limited to embezzlement, bribery, nepotism, influence peddling, theft of public Funds or assets, fraud, forgery, causing financial loss or property loss or false accounting in public affairs" This definition however is inadequate in a sense that it restricts corruption only to public office


 

Typology of corruption


 

Grand Corruption:

This involves big business and high placed officials, resulting in state capture. State capture refers to the actions of individuals, groups, or firms to influence the formulation of laws, regulations, decrees, and other government policies, up-stream in the process, by offering illicit benefits to decision makers, for the purpose of extracting rent from the state for personal benefit. Grand corruption thrives where economic power is concentrated, accountability mechanisms are weak, and countervailing social forces (civil society, private sector) are underdeveloped.


 

Bureaucratic or Administrative corruption:

This type is practiced by low-mid level civil servants while implementing existing laws and is characterized by smaller transactions of bribes and "grease payments" in exchange for favour. Common forms of administrative corruption include bribes to gain licenses, to avoid tax obligations, circumvent customs procedures and to win public contracts.


 

Corruption is the mortal enemy of both capitalism and democracy. A corrupt government promotes corrupt business, and corrupt business promotes corrupt government. This inexorable logic means that citizens and investors everywhere have a public and private interest in combating corruption. The reality is that corruption is a systemic problem and in this particular case, the system casts companies as de facto fencers of oil and other natural resources.


A 2002 report by the African Union estimates that corruption costs African economies in excess of 148billion US dollars per year. The estimate includes both direct and indirect costs of corruption, i.e. resources diverted by corrupt acts and resources withheld or deterred due to the existence of the same.


 

A survey of businesses by the Ugandan Private Sector Foundation and the World Bank also found that 81 of the firms surveyed had been involved in bribe paying; and reported paying an average of 7.9 of their total cost in bribery, compared to 6.3 for fuel and 6.8 for loan interest. Also 70% of respondents reported higher bribe payments than corporate income tax.


 

Corruption in Oil Exploration

From Houston to Luanda, London to Lagos, Washington to Baghdad, or wherever else oil is found or sold, the nexus of oil, cash, and politics poses a fundamental challenge to democratic accountability. Although campaigns for greater openness, including the global Publish What You Pay campaign, are making some headway, there is still strong resistance to transparency in oil exploration business.


 

Many of the poorest developing African countries have significant natural resources, and the income from these resources should ideally be used to support growth and development. But all too often this income is misappropriated by corrupt officials. Moreover, corruption often fuels internal grievances that cause conflict and civil war. This pattern is widely referred to as the "natural resource curse".


 

Lack of Transparency

Lack of transparency facilitates corruption. When oil and mining companies fail to disclose payments to governments, it is easier for government officials to steal and difficult for citizens to hold officials accountable. The Publish What You Pay campaign as I mentioned earlier, seeks to make the information public so that governments will be accountable. In doing so, it can help break the "natural resource curse."

Oil producing African Countries

Oil producing countries are some of the most corrupt and most miserable in the world. Oil-rich Angola, Chad, Libya, Nigeria and Sudan have all been faring poorly on Transparency International's Corruption Perceptions Indices since 2004. In these countries, public contracting in the oil sector is plagued by revenues vanishing into the pockets of local officials, middlemen and foreign oil executives.

Equatorial Guinea

Equatorial Guinea began exporting oil in 1991. With an estimated potential of 500 million barrels of oil and a population of about 521,000 people only, you would imagine that every body in that country is driving a Mercedes Benz, but no. Its nationals rate among the poorest and most miserable peoples of this world.

Nigeria

Similar allegations of graft plague Nigeria where oil revenue accounts for 90% of the foreign exchange earnings. The late dictator Sani Abacha is reported to have stolen 2.2 billion dollars between 1993 and 1998. Some of this money was banked in Switzerland, which has returned 290 million dollars of the looted funds to Nigeria. Another 168 million dollars is expected to be transferred in the coming months.

Swiss authorities had wanted the World Bank to monitor the repatriated funds, to ensure that they did not get siphoned off yet again by corrupt officials so that the money should go directly to education, health and infrastructure projects. While the bank declined to do this, it is clear that oil money has not trickled down to the ordinary citizens of Nigeria.

Angola

Because of wars, dictatorships, and thieves, Angola and other oil-rich African nations have failed so far to turn their natural wealth into better lives for their citizens. As with Nigeria, Angola's oil revenues are also shrouded in secrecy. The government could do anything with the money: buy arms, hire mercenaries or steal it. The question at stake today is how much do Ugandans know thus far about Hardman Resources and Mputa-1, Mputa-2 or Waraga-1 wells where oil of commercial value has been discovered? We also do know that immediately the news of oil discovery hit the Australian Stock Exchange where Hardman Resources is listed, its shares rose markedly, trading 1.4 per cent higher.


 

Chad

In Chad the discovery of oil wealth only brought about complex ethnic ties that transcend borders and ambitious presidents aiming to stay in power longer than their constitutions originally allowed in order to continue ripping the proceeds from oil. The report estimates that billions of dollars are lost to bribery in public purchasing, citing the oil sector in many nations as a particular problem.

The people who inhabit oil rich land

The Ogoni people in the Niger delta, where the bulk of Nigeria's oil is produced, live in abject poverty. In Sudan, parallels are emerging between the country's Nuers, who inhabit the vast oil fields in the south. According to a statement by the Union of Nuer Community in North America, it is an undisputed fact that 80 percent of Sudanese oil is located in Nuerland. They view the marginalisation of the Nuer as a deliberate act to preclude the Nuer politicians from participating in decisions that are connected to oil wealth-sharing.

It remains to be established whether the Banyoro people in Uganda will live any differently. Uganda has made positive strides in fighting corruption although we still see public contracting in Uganda as one of most vulnerable areas for corruption. Yes, the Access to Information Law is in place but attempts by ACCU in the last couple of weeks to access details of the contracts made between government and Hardman Resources thus far are yet to bear result.


 

Civil Society Intervention

NGO's such as Global Witness, Transparency International, and, more recently, billionaire financier George Soros, have been pressuring oil companies to publish what they pay since at least the late 1990's. They have published exposés, such as "the entire President's Men," by Global Witness, on the looting of state revenue in the war-torn Sub-Saharan nation of Angola. Implicated parties include Angolan President Jose Eduardo Dos Santos, French President Jacques Chirac, complicit multinational oil companies, international banks, and an eclectic coterie of other characters from arms dealers to members of the US Administration.
In Angola, Global Witness even managed to pressure British Petroleum into disclosing its signature bonuses. As a result of pressure from anti corruption activist in Nigeria, the government is now planning to open its oil industry to greater scrutiny.


 

Individually, oil companies will not voluntarily publish what they pay around the world, unless they are forced to do so universally. The prospect of universal regulation is very slim, but worth exploring, especially the prospect of global cooperation between securities commissions to implement consistent disclosure rules for resource extraction companies


 

Intuitively, one might think oil companies would benefit if transparency and accounting standards were monitored and enforced universally. The current undisclosed signing bonuses would lose their allure as the amounts would be public knowledge and citizens would have access to crucial information, namely state revenue. They could then be in a better position to hold their government accountable for where and how it spends their money.


 

Challenges of corruption in Oil


 

Political corruption:

This often described as a higher form of grand corruption, is worthy of particular mention. It is essentially linked to access and control of power and the way in which such power is exercised. As with other forms of corrupt behaviours, political corruption covers a spectrum, ranging from outright buying of political support (patronage) and tampering with election outcomes to granting favours and preferential access to political allies and remains a big challenge.


 

Political will versus civic activism: Uganda boasts of an elaborate legal and policy framework to fight corruption but no high profile official has ever been successfully prosecuted so as to change public opinion and show a measure of political will. On the other hand reports of corruption are yet to spur anger within the citizenry and hence trigger the demand for political will. Such a situation will only make corruption worse now that oil of commercial value has been discovered.


 

Public Procurement:

Procurement is a hotspot and remains highly prone to greater incidence and scope of corruption. Experiences from Uganda suggest that the large sums of money involved in procurement and the range of activities it encompasses. For example does any of us gathered here today duly unformed of the bidding process that resulted in the contracting of companies like Hardman Resources to explore oil?


 

Culture:

In Uganda, social culture and traditional practices/norms of gift-giving and reciprocity are cited to argue the inescapability of corruption. However culture should not be used as an excuse for not taking strong action against it.


 

Secrecy:

Corruption is secretive transaction by nature and, as mentioned earlier, difficult if not impossible to measure reliably and with any precision. The cost of corruption comprises not only the sum of resources lost, squandered, or devoted to suboptimal use. It also includes other social, economic and political costs.


 

The media

The media in Uganda is yet to invest adequately in investigative journalism to expose corruption. The few times media has exposed corruption scandals, such exposes have not been followed up adequately as to spur activism within the citizenry. Besides a good number of media organisations are dependent on government for advertising business and will think twice before exposing a corruption scandal involving a senior cabinet minister or political official.

An independent media must work together with an independent Judiciary to deter corruption in oil exploration in Uganda.


 

Conclusion


 

An effective strategy against corruption has to address the broader governance and institutional raison d'être that give rise to the problem in the first instance. At the individual level, it must address the elements of rational choice which rationalizes corrupt practices as low-risk high-gain endeavors rather than the other way around. More broadly, there is need for an effective anti-corruption strategy which is oil-specific, but also based on internationally accepted norms and standards.

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This paper was co-authored and delivered by ACCU in 2006. The Oil curse is coming as predicted. On oil scandals watch this space

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