Lifting the Resource Curse? The World Bank and Oil Revenue Distribution in Chad

Abstract

In 2005, Chad became the latest arrival to the booming ranks of African oil producers. Two years later, it had exported crude oil worth nearly $2 billion and its remaining reserves were worth well in excess of $110 billion. These are truly staggering figures for a country that has been mired in a perpetual cycle of war, state weakness and chronic poverty ever since gaining independence in 1960. Against this background, the Chad-Cameroon Pipeline Project was to usher in a new approach to resource development in politically fragile environments. It combined the construction of oil production infrastructure with a detailed plan for oil revenue allocation and government capacity building. One of the largest private sector investment projects in Africa, the pipeline was conceived as public-private partnership between the governments of Chad and Cameroon, multinational oil companies and the World Bank Group. With its relatively small equity holding, the World Bank’s main roles in the project were to mitigate risk and to ensure that oil revenues benefit broad-based socioeconomic development and poverty reduction objectives. The chapter explores the extent to which this undertaking has been successful. To date, the evidence is not encouraging. In 2008, the Project was declared a failure, with the World Bank’s complete withdrawal, citing its inability to oversee the allocation of oil revenues. Prior to the Bank’s withdrawal, the Government of Chad had continued to use oil resources for overtly political and military objectives. In essence, therefore, the project has provided hardware infrastructure for oil exports, but little of the governance mechanisms associated with the attempt to overcome the resource curse. The challenges created by rapid oil revenue inflows in Chad are now the same as in any other poor oil-exporting country with weak governance institutions. The chapter is structured as follows: First, it discusses the various challenges associated with managing oil revenues in fragile states. Second, it outlines the specific mechanisms contained in the Chad-Cameroon Pipeline Project to overcome these challenges. Third, it reviews the available evidence on the impact of these measures. Fourth, it asks how multilateral institutions, such as the World Bank, can prevent the resource curse.