Are Zimbabweans justified for their hesitant hopes of redemption from oil? Years of corruption, political turmoil and instability create the perfect environment for an “oil curse.” What can they do right about their black gold prospects?
By The African Exponent
Zimbabweans have undoubtedly been holding their breath since late last year when it was announced that it was hopeful about oil prospects in its Northern region. On one end, the dead hopes of economic redemption from diamond extraction in the Manicaland province are still fresh, on the other hand, they really want and hope that the script plays different this time around.
A recent report by Invictus Energy, an Australian listed company, reported that the latest findings strongly support the possible existence of 1,3 billion barrels of oil equivalent (BOE) or alternatively an estimated resource of 206 billion litres of oil in the Cahora Bassa Basin in Muzarabani.
This has raised the hopes of a government embattled with the task of reviving an ailing economy which is deep in debt and lacking production capacity.
Most Zimbabweans have fingers crossed hoping that their success story could mirror that of the Middle East kingdoms which have been rapidly transformed by the “black gold.” A few small oil-rich countries such as Qatar, Brunei and Kuwait have managed to attain higher living standards for much of their population, but they’re the exception; in general, there’s a correlation between oil resources and widespread poverty (conflict comes as an added bonus).
Coming closer to home, and taking a look at the surrounding oil-producing countries will make one realise that the oil is only a recipe for disaster and state failure. Indeed, instability, corruption and violence are features of the resource curse. Democracy and civil rights are at threat where oil is found. International interference in political affairs is also high. This is quite evident in the Middle East, where the region has been engulfed in war for the greater part of the last 3 decades.
In the 2000s Zimbabweans thought they had seen it all with their fight for land, however, it’s just a glimpse of what happens in the conflict for oil. Stories coming out of Middle East conflicts are like scenes from a Bond movie. These include tales of economic hitmen who are assigned to stir up economic discontent and eventually creating the perfect environment for uprisings.
The Belfer Centre cited that between one-quarter and one-half of interstate wars since 1973 have been connected to one or more oil-related causal mechanisms. No other commodity has had such an impact on international security.
The best example of the oil curse is unarguably Africa’s largest economy. Nigeria is the eighth largest exporter of petroleum in the world, yet the majority of Nigerians live in grinding poverty as profits bypass locals and feed corrupt politicians and multinational oil corporations. Zimbabwe seems to be on its way to follow these footsteps of the benefits accruing more to elites than locals.
The area’s “vast oil wealth has barely touched people’s lives,” noted the UN Development Programme (UNDP) in a July 2006 report on human development in the Niger Delta.
First, the Muzarabani grant is held by an Australian listed entity, Invictus Energy. The company holds 80% of the venture whilst only a paltry 20% is held by a local company. A look at its publications shows that the project is its only asset. Being a little bit more sceptical, are these not the characteristics of a special investment vehicle set up to leverage Zimbabwe’s resources?
If there is sincerity from the government about moving toward economic independence, then it should be demonstrated through this project.
First, it can be the starting point of setting up a sovereign wealth fund that will be crucial in supporting future welfare and infrastructure programmes considering the myriad of problems plaguing the country. This will reduce its reliance on Bretton Woods institutions that bring stringent conditions that restrict public policy independence.
For instance, Norway has set up a fund worth over a trillion dollars with revenues from North Sea oil. The fund’s capital is invested abroad, to avoid overheating the Norwegian economy and to shield it from the effects of oil price fluctuations. It has a broad range of investments in international equity and fixed-income markets and real estate. One-fifth of income in the state’s budgets is covered by the Fund, financing generous welfare services and (when the conservatives are in power) tax relief.
However, with rampant corruption and lack of central bank independence will this model work in one of the world’s most corrupt regions? In sharp contrast to Norway’s success, there is the story of Zimbabwe’s SADC counterpart Angola. Its own fund which started off with a US $5 billion investment in 2011 has been marred with controversy. A 2017 BBC investigation into the Paradise Papers revealed that a $41 million payout had been made to firm managing the fund in just four months. The then Angolan President Eduardo dos Santos’ son, 39-year-old Jose Filomeno, was appointed to head up the fund at the time.
Another issue of concern is whether the firm cannot have a Zimbabwe listing to allow Zimbabweans to participate in the corporation? An 80% stake is definitely too high a portion for a foreign entity in such a strategic national resource. Having a local listing of the company will allow more local private investors to have a role in the company.
The impact local companies such as Econet Wireless have had on the economy of the country has been impressive. It can be largely attributed to the retention of profits rather than the repatriation that foreign companies practise.
The government has been battling local platinum producers to establish refineries in the country for the greater half of the last decade. It has been a huge cat and mouse game with many delays and excuses coming up. On the other hand, they have not had to read the riot act for local companies such as Econet or OK Zimbabwe to increase their investment in Zimbabwe.
Once the honeymoon is over, it’s only a matter of years down the line before the issue of a refinery comes up in the discussions between the government and Invictus. Just like we have learnt from another ASX-listed company, platinum miner Zimplats, it will likely bear no result as their interests and Zimbabwe’s interests are not necessarily aligned.
Zimbabwe cannot stand to lose out on another one of its resources. Botswana has considerably done well from her diamonds and seems to be on the right path. It is a model worth emulating and making the right decisions that can birth an economic miracle.