Hello, Chevron. (Will Liberia Fall to the Oil Curse?)

Last summer, Chevron announced that it would begin offshore oil exploration in Liberian waters. Merely a year later, Chevron’s CEO is in Liberia to announce that drilling would begin later this year. Chevron is among a handful of companies that have been seeking new opportunities in Liberia, a country rich in mineral and natural resources. Prior to the civil war, Liberia’s economy was kept afloat by forestry and rubber exports. Mining – for iron, for example – was also a key economic driver. By 2003, when the war ended, Liberia’s natural resource exports had all but ground to a halt.

The prospect of the “oil curse” and the abuse and corruption that often seem to accompany natural resource exploitation in low-income countries hovers over Liberia. But the country had the opportunity to strengthen its governance and its institutions prior to major foreign investments in oil and mining coming online.

Among the many, many priorities that Ellen Johnson-Sirleaf’s government is focusing on, Liberia committed to the Extractive Industry Transparency Initiative (EITI) in 2006, and became fully compliant in 2009 – in fact, it was the first African country to become EITI compliant. As part of their EITI commitment, Liberia must regularly publish independently audited statements of revenues from natural resource exploitation. The hope is that by making this information available to the public, the government and natural resource companies will be held accountable for the wealth generated by their activities. Liberia has been noted for its leadership as an EITI country, having formed a strong group at the country level to manage EITI implementation. Not only does LEITI (Liberia – EITI) cover oil and mining, but also the forestry and agriculture sectors, which aren’t part of the international standards. Analysts have said that, through these confidence building measures, Liberia is hoping to demarcate itself as an attractive place for (badly needed) foreign investment.

The Chevron deal is not the only major one. In 2005, Arcelor Mittal signed a 900 million dollar deal with Liberia to mine iron ore, and production is scheduled to begin shortly. The agreements negotiated by Liberia include provisions regarding corporate social responsibility (CSR) and job creation, and are in line with EITI standards. Both Chevron and Arcelor Mittal have provided funds for hospitals, schools, etc – as per the CSR “tradition” of sending dollars to highly visible projects that satisfy local communities. However, it’s too early to say whether these deals will benefit Liberia broadly.

First of all, government revenues from natural resource exploitation need to be invested back into communities wisely and efficiently, which, in and of itself, is a tall order for a country that still has limited institutional capacity. Second, natural resource companies are not known for their morality – what matters is the bottom line. Liberia will have to be extremely vigilant to ensure that the country benefits not just from more revenues, but also that foreign companies operate with respect for the environment and for Liberians.

Chevron was very recently involved in a major scandal in Ecuador, where their company’s careless management of toxic waste and complete failure to rehabilitate land left tens of thousands of people with their livelihoods and their health destroyed (an estimated 18 billion gallons of toxic waste were dumped into rivers and water sources – I highly recommend checking out CRUDE, an award-winning documentary that offers an in-depth look at this issue.) Finally, and this is not just regarding Liberia, while oil companies derive huge financial benefits from their activities, local communities can really suffer. The way in which oil production is managed in the Niger delta in Nigeria is possibly the most egregious example of corruption, mismanagement and disregard for the well-being of communities directly affected by oil operations.

It’s imperative that Liberia maintain its diligence, transparency and accountability to the Liberian people, first and foremost. I have faith that Ellen Johnson-Sirleaf and her government are serious about ensuring that any windfall from mining and natural resource exploitation benefits Liberia broadly, but it won’t be easy. Companies like Chevron and Arcelor Mittal are far bigger and more powerful than the Liberian government: Chevron posted $19 billion in profits in 2010 – Liberia’s annual budget last year was $369 million.

Photo credit: Tsuda’s Flickr stream