Cambodia welcomes its oil wealth, but will it do more harm than good?

from The Guardian


Cambodia welcomes its oil wealth, but will it do more harm than good?

Aid workers fear resource bonanza offers new potential for corruption

Ian MacKinnon in Sihanoukville

Behind the tall fences and taller cranes of Cambodia's sole deep-water port lurks a compound filled with rusty pipes and drilling equipment. Unlikely as it seems, this collection of shipping containers represents the best hope in years for the impoverished country still recovering from decades of war.

The base in sleepy Sihanoukville is US oil giant Chevron's springboard for operations 100 miles off shore. It struck "significant" oil and gas deposits, and is confirming the discovery's scale. The initial find, estimated by the World Bank and United Nations' Development Programme to be 400m to 500m barrels of oil, has already sparked something of a "black gold" rush with Chinese, Japanese, French and Korean companies battling for lucrative rights.

Yet international donors whose aid propped up Cambodia for years fear that a bonanza pumping up to $4.6bn (£2.5bn) into the nation's coffers every year for the next two decades could make things worse. They warn that Cambodia could be blighted by the "resource curse" that has dogged so many developing nations.

Newly oil-rich countries with fragile state institutions have repeatedly fallen victim to sluggish growth despite vast earnings, leaving the poor worse off. The UN Development Programme points to Nigeria, highlighting how it grew more slowly than nations which had no resource windfall. Today 70% of Nigerians live on less than $1 a day despite $450bn in oil revenues in the past 35 years.

Corruption

Diplomats fret that Cambodia, with endemic corruption and weak institutions that are the legacy of the murderous Khmer Rouge regime, could slide into the mire of a full-blown kleptocracy. "At this stage we're all rather nervous," said one senior Western diplomat. "Suddenly there's going to be this avalanche of cash. There's endemic corruption and a weak system of governance with few checks and balances on which these huge revenues will be imposed. We've only got two or three years' leverage."

Oil revenues offer huge new potential for corruption in a country that cleaves to its communist traditions of secrecy. Most oil contracts have been signed by the powerful deputy prime minister, Sok An, a close ally of the prime minister, Hun Sen, with the senior bureaucrats and even the finance ministry out of the loop. Aid workers wryly look forward to the days of "Lagos on the Mekong" in a nation of 14m that is already "run like an episode of The Sopranos" because everyone gets their cut. "Cambodia's like a pyramid scheme of corruption," said one development staffer in Phnom Penh.

Energy-hungry China is keen to get its hands on the oil. It matched international donors' cash with a "no-strings" $600m gift last year as two global Chinese oil firms compete for contracts.

"My concern is, the government sees these revenues and think they've won the lottery," said one international aid worker. "Right now they're saying, 'bring it on, it's going to save Cambodia'. They don't understand our caution."

The argument reached such a pitch that Hun Sen was forced to address the concerns recently. "We will make sure oil is a blessing, not a curse," he said.

He pledged that the money would bolster long-term growth and cut poverty in a country where half the children fail to finish primary school and 35% of people live on less than 25p a day. It is the poor who will continue to suffer if the prime minister does not make good on his pledges. "The signs aren't great," said Warwick Browne, East Asia programme officer of Oxfam America. "But the future doesn't have to be determined by past bad practices. If we look at the past we're worried, but if we look forward there are encouraging signs."

Pitfalls

Even without kickbacks being pocketed by Phnom Penh's elite, the pitfalls remain enormous. Huge revenues rolling into government coffers will make it less reliant on the meagre tax earnings, isolating it from the people it serves and exacerbating authoritarian tendencies, all too evident in Cambodia even now.

The final threat of the "resource curse" is that the revenues trigger inflation and drive up the price of Cambodia's currency, the riel, robbing fledgling export industries of their competitive edge. The garment industry churning out cheap clothes for the west and is vulnerable to the so-called "Dutch disease", after the fate of the Netherlands following its 1960s oil bonanza. Cambodia's rag trade was partly responsible for last year's 13.7% growth.

International donors worry that their conditional aid could be swamped by the oil money. Last year development aid was $601m , but initial oil revenues could reach $1bn. Time is running out.

Backstory

Cambodia was only fully under the iron grip of Pol Pot's genocidal Khmer Rouge regime for less than four years, from 1975 to 1979. But the effects are still being felt. The country remains one of the world's poorest, with GDP per head barely $300 (£154). The economy is largely agrarian and more than 30% of people live below the poverty line. The average government spending on health services annually is just £1-£2 per person. Hun Sen, below, a long-time prime minister whose Cambodian People's Party has governed since the restoration of multi-party democracy in 1993, is the dominant political figure, consolidating his hold on power following electoral victory in 2003.