The Oil Curse
International Business
Assignment 3
A Pipeline of good Intentions 1- What is the “oil curse”? Why do you think it develops?
The oil curse (Paradox of Plenty) refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities).
2- Why was the World Bank’s participation in the Chad-Cameroon pipeline critical?
While the Bank’s share of the $4.1billion was small, almost 10%, its participation in the deal was critical. Because the World Bank had other loans to Chad, Exxon Mobile and the other oil companies believed that the World Bank’s participation would lower their political risks, for Chad would be unlikely to jeopardize its relationship with the World Bank.
3- Does the World Bank have a right to demand that sovereign countries like Chad spend their oil revenues in ways the World Bank deems appropriate?
Transparency International a nongovernmental organization that annually conducts surveys of corruption ranks Chad’s government as one of the most corrupt in Africa. Facilitating corruption was the lack of accountability and transparency in the use of oil revenues by many governments. And the revenues generated by the pipeline would provide sufficient temptation: Over its estimated 25-year life, the project is expected
Assignment 3
A Pipeline of good Intentions 1- What is the “oil curse”? Why do you think it develops?
The oil curse (Paradox of Plenty) refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities).
2- Why was the World Bank’s participation in the Chad-Cameroon pipeline critical?
While the Bank’s share of the $4.1billion was small, almost 10%, its participation in the deal was critical. Because the World Bank had other loans to Chad, Exxon Mobile and the other oil companies believed that the World Bank’s participation would lower their political risks, for Chad would be unlikely to jeopardize its relationship with the World Bank.
3- Does the World Bank have a right to demand that sovereign countries like Chad spend their oil revenues in ways the World Bank deems appropriate?
Transparency International a nongovernmental organization that annually conducts surveys of corruption ranks Chad’s government as one of the most corrupt in Africa. Facilitating corruption was the lack of accountability and transparency in the use of oil revenues by many governments. And the revenues generated by the pipeline would provide sufficient temptation: Over its estimated 25-year life, the project is expected