Echoes: Norway, Nigeria and the Lessons of Oil

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By John Campbell

When I was serving in Nigeria as U.S. ambassador, I once asked a Norwegian diplomat a seemingly simple question: Who became rich from oil in his country? He replied, "Nobody and everybody."

He then described how Norwegians use oil revenue to lift all boats over the long term. I asked him where rich Norwegians actually made their money. He replied, "Oh, shipping, banking and timber -- you know, the modern economy."

Norway developed prudent strategies and institutions to avoid injecting oil revenue directly into its economy. And, apropos of this week's discussion on the Echoes blog, they offer some economic lessons that the Arab Spring countries might heed as they transition toward democracy.

Norway, like most Middle Eastern countries, has a sovereign wealth fund, called the Government Pension Fund of Norway. Unlike some other sovereign funds, Norway's is characterized by a high degree of transparency and its managers are directly accountable to democratic institutions. Norway has also led the global effort to increase transparency in natural-resource economies. In 2010, it became the first country in the Organization for Economic Cooperation and Development to publish its oil-revenue figures as part of the Extractive Industries Transparency Initiative, a coalition of governments, companies and civil groups that aims to strengthen governance in the natural-resources industry.

This success has been underpinned by political will, the rule of law and developed democratic institutions. As a result, Norway has climbed to the top of the human-development indexes -- and avoided the "Dutch disease" at the same time.

Certainly the experience of Norway can't be exactly replicated elsewhere, especially since it benefitted from having strong democratic institutions long before oil was discovered. Nevertheless, the Middle East and other "oil curse" states might be able to adopt its political and economic strategies, in particular its emphasis on revenue transparency, diversified investment for long-term goals, and public accountability.

By contrast, Nigeria is a cautionary example of the oil curse's destructive impact. When it became independent in 1960, Nigeria had a level of development that was often compared to that of Thailand or Malaysia. It was the breadbasket of West Africa with a vibrant manufacturing industry. But an overemphasis on the oil sector, as well as widespread corruption, starved other parts of the economy. Now Nigeria imports food and gasoline, its manufacturing sector is mostly moribund and it has fallen almost to the bottom of most development indexes.

At the end of the 1967-70 civil war, Nigeria's oil came on stream in a big way, generating state revenue of previously unimaginable proportions, but without the public and private institutions necessary to control it. Alas, coups and the war had militarized governance. Since oil belonged to the state, holding public office became the route to riches. This confluence of the militarization of political life and the arrival of oil riches fostered a dysfunctional political economy that has endured.

Norway’s example would suggest that countries in the Middle East and Persian Gulf can avoid Nigeria’s situation by increased transparency in the conduct of their national oil companies and the establishment of mechanisms by which the entire population -- including immigrants and guest workers -- would benefit from resource revenue over the long term.

That way, nobody and everybody benefits.

(John Campbell is the Ralph Bunche senior fellow for Africa policy studies at the Council on Foreign Relations, and the former United States ambassador to Nigeria. He is the author of "Nigeria: Dancing on the Brink.")

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-0- May/27/2011 11:16 GMT