Africa's Oil Deposits and Despots: Black Gold or a Curse?

Africa is awash with black gold. Across the continent Algeria, Angola, Egypt, Equatorial Guinea, Gabon, Libya, Nigeria and Sudan all hold sizable oil deposits. And most of the continent’s discovered oil lies in the Gulf of Guinea.

Despite this already sizeable bounty, the list, it seems, is still growing following the recent discovery of lakes of crude oil in Ghana and Uganda. According to a recent Time magazine article (Africa’s New Oil Riddle published in the May 3, 2010 edition), when Tullow Oil – an oil giant based in the United Kingdom – drilled its first test wells in Uganda’s Lake Albert in 2006, it discovered oil in 26 out of 27 wells. In January 2009, the company’s partner, Heritage Oil, announced that it had discovered in Uganda one of the biggest onshore deposits of crude oil in Africa. Similarly, following the discovery of oil in Ghana in 2007, the country currently holds an estimated 800 million bbl. in oil reserves, a prize that is expected to net Ghana annual revenues of some US$ 1 billion between 2011 and 2029.

Despite this, the historical proclivity of most of Africa’s oil-rich states to fall under the “oil curse” has taught us to welcome such discoveries with a measure of caution. Almost universally, the plight of oil-rich African states has been marred by the scourge of corruption. In most cases, weak and ineffective governance has continually hampered the development of oil industries in these resource rich African economies. Nowhere is this more clearly evident than in Nigeria, one of the world’s biggest oil producers and home to nearly 3 percent of global oil deposits. Given this status, the frequent oil shortages in Nigeria present a startling example of just how corruption and the scramble for riches have beset the country’s oil industry.


Given this historical precedent, it is unsurprising that the doomsayers have predicted that Ghana and Uganda will too fall victim to the resource curse. For instance, in Uganda the concern has been expounded that President Museveni’s government will utilise the revenue generated from the newfound crude oil deposits to strengthen its grip on power and, according to the country’s opposition leader, Kizza Besigye, “operate without the encumbrances imposed by donors”.

However, the initial signs in both Uganda and Ghana may just suggest the opposite. In Uganda, President Museveni has set about putting in place strong measures to govern the handling of the oil deposits and the billons of dollars that they are expected to generate. These have included dispatching officials to study the oil industries in Cuba, Malaysia, Nigeria, Norway and Trinidad and Tobago in order to learn lessons from the ways (good or bad) that the revenues generated from the oil industries have been handled in these economies. Moreover, the Ugandan government has promulgated a new law to regulate the country’s oil industry and enshrine good management practices. Similarly, according to Time magazine, “there is hope that Ghana can handle its new riches well – or at least much better than West African neighbour Nigeria”. This hope is spearheaded by the creation of new laws on extractive industries that are designed to ensure that all transactions are concluded in a transparent manner. Ghana has also leaned heavily on Norway, a country in which the discovery of oil in the 1960s has spearheaded an economic boom, to assist in an advisory capacity and help the government to handle its newfound oil riches.

If they can get this right, for Ghana and Uganda the traditional fears of the African “oil curse” may just give way to a feeling that they have, indeed, struck gold. And this time it is black gold.

Neil Balchin
Senior Researcher and Consultant
Mthente Research and Consulting Services (Pty) Ltd