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Rising China and Africa's development: oil
Rising China and Africa's development: oil

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4 More than an institutional fix: politics matter

The resource curse thesis focuses on both economic and political factors, but the prescribed solutions are generally political and institutional. Rooted in the logic of ‘good governance’ they are loosely fashioned around the experience of Norway, whose governance of its own oil is held up as a model of best practice. While such a model has been questioned, the more recent policies derived from it as part of a package to avoid the resource curse includes separation of the national oil company’s operational role from the wider regulation of the sector, establishing transparent institutions for developing oil strategy, and setting up a sovereign wealth fund to accumulate oil rents for national programmes of investment.

For countries in the global South, like Nigeria, these institutional fixes are seen as a way of enhancing the transparency of the sector and, so the logic goes, if oil contracting and revenue spending are achieved in the public gaze then they are more likely to enhance national development. Such policy prescriptions have much appeal and should theoretically be encouraged, but it is virtually impossible to take one country’s particular institutional history and transplant it into another country. Prescribing ‘good’ governance fails to account for the embedded politics in the producer country such that any suggested solution is negotiated, contested and reworked. Moreover, powerful vested interests who benefit from the resource curse can seemingly follow good governance procedures while all the time subverting such prescriptions. One example that will be discussed in this and next session is the issue of ‘fronting’, whereby the laws of Ghana and Nigeria state that indigenous firms should have a stake in a joint venture with an IOC, but in practice this is simply a paper exercise with silent partners acting as ‘fronts’ for what are essentially external investments.

In these cases, the governance arrangements on paper are perfectly good, but in practice they are subverted through informal institutional mechanisms, often linked to questions of political patronage. This section looks at how we understand these informal political institutions and how they shape oil governance.