Black Gold

By Simon Robinson Sunday, Dec. 15, 2002
    • The sleepy tropical island city of Malabo had hardly changed in years. The capital of Equatorial Guinea, a tiny West African nation of fewer than 500,000 people, consisted of little more than some moldering Spanish colonial buildings, a few palm-lined plazas and the tightly packed shantytowns that en circle most African settlements. Its one claim to fame was that Frederick Forsyth lived there while he wrote his military thriller The Dogs of War. But in recent years, Malabo has been transformed. Office buildings have shot up, hotels and banks have opened, and foreigners, once a novelty, now cram the town's fancy new restaurants. There's so much construction, joke the locals, that if you stick out your tongue, someone is likely to build on it.

    The source of this economic boom can be found buried beneath the nearby ocean floor, where foreign oil companies have found at least 500 million bbl. of high-grade crude oil. Production has jumped from just 17,000 bbl. a day in 1996 to more than 220,000 bbl. a day, and could grow an additional 50% within three years. The oil boom has fueled fantastic economic growth--65% last year, down to an estimated 25% this year — and pushed annual per capita income from $800 seven years ago to more than $2,000 today. The bonanza in Equatorial Guinea is being repeated across the region. Chad, one of the world's poorest countries, will soon start pumping more than 200,000 bbl. a day through a $3.7 billion, 660-mile pipeline — one of Africa's biggest-ever infrastructure projects — that crosses Cameroon.

    The island nation of Sao Tome and Principe, which sits on perhaps 4 billion bbl. of crude, is also attracting foreign oilmen. These upstart oil-exporting nations join such established giants as Nigeria, which plans to increase its daily output from 1.9 million bbl. to more than 3 million bbl.; Angola, which wants to double its almost 1 million bbl. daily output; and Gabon, which is encouraging more deepwater exploration to prop up declining production. All this action makes the waters off West Africa one of the hottest places for oil exploration in the world. Says Al Stanton, an oil analyst with Deutsche Bank: "The opportunities for expansion are tremendous."

    Driving the oil rush are the prospect of higher prices and Washington's search for reliable oil suppliers outside the Middle East. European companies such as TotalFinaElf and Royal Dutch/Shell have long been players in the region but leading the new charge are U.S. giants ExxonMobil and ChevronTexaco and independents such as Amerada Hess, based in New York.

    West African oil is low in sulphur, which makes it easy to refine. Because most of it lies offshore, foreign oil companies don't have to deal much with locals beyond a few government officials and hired labor. Transport is easy too, with no pesky Persian Gulf or Suez Canal to navigate. Recent fighting in Ivory Coast is a symbol of West Africa's volatility, "but it is not as dangerous as the Middle East," says George Ayittey, of the African Oil Policy Initiative Group, a lobbying group based in Washington. The National Intelligence Council, a Washington think tank, expects Africa's share of the U.S. market to grow from 15% today to 25% by 2015.

    Oil-company boosters say impoverished West Africa will make billions of dollars, which it can spend on improving health, education and infrastructure. "There's incredible opportunity for wealth creation for local people," says Amerada Hess spokesman Carl Tursi. But skeptics wonder whether U.S. oil money will help prop up corrupt ruling cliques and eventually engender the type of enmity the U.S. faces in much of the Middle East.

    Case in point: Nigeria, which has exported more than $320 billion worth of high-grade crude over the past 30 years, but has little to show for it beyond some decaying freeways and sports stadiums. One of the country's last military rulers, General Sani Abacha, whose death in 1998 led to a return to democratic rule, is believed to have stolen more than $4 billion. A recent report by the International Monetary Fund (IMF) found that about the same amount has disappeared from Angola's budget over the past five years. In Chad the government spent $4.5 million of an initial $25 million World Bank grant meant for health care on weapons for its war against secessionists.

    In Equatorial Guinea the ruling party and its leader, President Teodoro Obiang Nguema, show no sign of giving up control. The IMF has cut off several aid programs, citing official corruption, and has called for improvements in management of oil resources in Equatorial Guinea. Until that happens, oil-company investments in the region risk making America's new sources of fuel as volatile as its old ones.