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African Affairs, 103/413, 527546

DOI: 10.1093/afraf/adh085

Royal African Society 2004, all rights reserved



ABSTRACT In less than a decade, Equatorial Guinea has transformed itself from an African backwater into one of the worlds fastest growing economies and a sought-after political partner in the Gulf of Guinea. The sole reason for this transformation has been the discovery of oil and gas. This article outlines the rise of Equatorial Guinea as one of Africas leading oilproducing countries and investigates the political, economic and social effects of becoming a petro-state. The article is based on the authors eld research in Equatorial Guinea in the autumn of 2003 and interviews with senior oil company staff, government ofcials and staff of international organizations as well as secondary sources. This research demonstrates how reliance on oil and gas exports can lead to profound changes in a countrys political economy.

A DECADE AGO, EQUATORIAL GUINEA WAS CONSIDERED an African backwater, with a stagnating economy and an unsavoury reputation for human rights abuses and the involvement of government ofcials in criminal activities. In less than a decade, it has transformed itself into one of the worlds fastest growing economies and a sought-after political partner in the Gulf of Guinea. Its gross domestic product (GDP) is said to have grown by a staggering average of 41.6 percent per year between 1997 and 2001, the highest in the world, and is forecast to rise by a respectable 23 percent in 2004.1 The country has turned into one of the largest recipients of foreign direct investment in sub-Saharan Africa (about US$5 billion invested in 19982003). Up to 3,000 American expatriate workers live in Equatorial Guinea today and the United States re-opened its embassy in the capital
Jdrzej George Frynas is a Lecturer in International Management at the Department of Commerce, Birmingham Business School, University of Birmingham, Edgbaston, Birmingham B15 2TT, UK, e-mail: He would like to thank the Nufeld Foundation for its generous funding, which enabled him to travel to Equatorial Guinea. He is also grateful to Antony Goldman, and an anonymous reviewer for helpful comments on an earlier draft, and to Wood Mackenzie and Scott Mitchell for help in obtaining key data for this study. 1. Economist Intelligence Unit, EIU Country Prole 2002 (EIU, London, 2002), p. 55; and EIU Country Report Equatorial Guinea October 2003 (EIU, London, 2003), p.10. Even when the GDP growth rate was at its lowest in 2003 (10.2 percent), it was still considerably higher than in other petro-states in the region such as Gabon (1.2 percent), Angola (1.5 percent) and Cameroon (4.2 percent). Economist Intelligence Unit, EIU Country Prole 2004 (EIU, London, 2004), p. 20.




Malabo in late 2003.2 The sole reason for this transformation has been the discovery of oil and gas. This article outlines the rise of Equatorial Guinea as one of Africas leading oil-producing countries and the effect of oil production on the countrys political economy. The article is based on the authors eld research in Equatorial Guinea in the autumn of 2003, interviews with senior oil company staff, government ofcials and staff of international organizations as well as secondary sources. The making of a petro-state When Equatorial Guinea became independent from Spain in 1968, its economy centred on cocoa production, which provided 75 percent of GDP. The eleven-year rule by Francisco Macias Nguema (196879) turned the country into a pro-Soviet one-party state and led to a collapse of cocoa production (from some 28,000 tonnes in 196970 to 4,000 tonnes ten years later).3 In just over a decade, one-third of the population had either been killed or had left the country. A coup by Teodoro Obiang Nguema Mbasogo (Maciass nephew) in 1979 ended the reign of terror by his uncle, although essentially the same family stayed in power and Maciass police state continued in existence. Equatorial Guineas cocoa sector never recovered, despite government efforts, including the reintroduction of forced labour and the return of some former Spanish plantation owners. Obiangs hard currency earnings came to rely on activities as varied as foreign aid/loans, unsustainable logging activities and some more illicit practices (see Geoffrey Woods article in this issue).4 While the Presidents Esangui clan did rather well out of these activities, oil wealth has now provided the elite with access to greater nancial resources than ever before, and political legitimacy in the eyes of the West. Oil exploration had been undertaken in Equatorial Guinea during the colonial era but it proved unsuccessful. Ironically, the rst exploration success after independence was achieved by nationals of the former colonial power. In 1980, the Spanish oil rm Hispanoil formed a joint venture with Equatorial Guinea called Guineo-Espaola de Petroleos S.A. (GEPSA). In the early 1980s, GEPSA signed a production-sharing contract for the Alba
2. The embassy was closed in 1995 in a move seen as a protest against human rights abuses in Equatorial Guinea, following a tough stand on abuses by the US ambassador at the time. U.S. renews ties with Equatorial Guinea, Associated Press, 17 November 2003. Many observers believe that the pressure by US oil companies on the Bush administration led to the re-opening of the embassy. 3. Max Liniger-Goumaz, Small is Not Always Beautiful: The story of Equatorial Guinea (C. Hurst & Company, London, 1988), pp. 8990. 4. See also Janet Roitman and Grard Roso, Guine-quatoriale: tre off-shore pour rester national, Politique Africaine 81 (2001), pp. 12142.



acreage, returning to a eld rst probed by the US rm Mobil under colonial concessions in 1967. GEPSA drilled a successful Alba gas appraisal well in 1985 and the data indicated that the gas eld could potentially become the rst commercial hydrocarbon project in Equatorial Guinea. The Spanish withdrew in 1990 only because GEPSA failed to identify a suitable gas market at the time. Following Hispanoils withdrawal, the Equatoguinean government immediately opened the Alba area for bids from other foreign companies and a new contract was signed with Walter International, an afliate of Walter Oil & Gas, a creation of the outgoing US ambassador Chester Norris. In July 1990, Walter drilled a successful well near the original discovery. By December 1991, the Alba eld had started producing gas liquids.5 The production from the Alba eld was very modest and it was not until the mid-1990s that Equatorial Guinea joined the club of noteworthy oilproducing countries in West Africa. In March 1995, Mobil struck oil in its Zaro eld and, by August 1996, production had started at an initial 40,000 barrels/day and rose to 190,000 barrels/day within several years, a huge increase on the initial daily liquid production of 5,000 to 7,000 barrels from the Alba eld.6 The next major milestone in the making of the Equatoguinean petrostate was the discovery of the Ceiba oil eld by the small US oil company Triton in 1999. Up to then, GEPSAs and Mobils discoveries lay to the northwest of Bioko Island and to the south of the geological structures extending from the Niger Delta. In contrast, Ceiba was situated much further to the south, off the coast of Rio Muni (Equatorial Guineas mainland sandwiched between Cameroon and Gabon) in a largely unexplored area. Hailed as the most important African oil nd of 1999, the Ceiba eld started production in November 2000 with an output of just under 40,000 barrels/day.7 Mobils and Tritons successes spurred the interest of other oil companies and exploration increased sharply following the discoveries. At the same time, following Olusegun Obasanjos electoral victory in Nigeria in 1999, Equatorial Guinea and Nigeria were able to resolve a border dispute related to the ownership of the Zaro eld; this helped to alleviate some of the anxieties of foreign businessmen over investments in the country.

5. Wood Mackenzie, Stepping on the gas a Marathon for Equatorial Guinea, West Africa Upstream Report, December 2001. Natural gas is a hydrocarbon substance close in chemical composition to crude oil; it is found sometimes on its own and sometimes in the same reservoir as crude oil. Gas can contain various hydrocarbons which can be extracted as liquids during processing; gas with signicant amounts of such hydrocarbons is called wet. The Alba eld initially produced only gas liquids but within ten years, it also started producing gas. 6. Petroleum Economist (various). 7. Ceiba Field a dream come true, Oil & Gas Investor, September 2001.



In the meantime, the ownership of Equatoguinean oil elds has undergone major changes, which in itself reects the keen interest of investors in Equatorial Guineas potential: In August 2001, Triton was taken over by another US rm, Amerada Hess, for over US$3 billion.8 In November 2001, the US company Marathon Oil acquired a majority share in the Alba eld from CMS Oil & Gas (which had previously acquired rights to the eld from Walter Oil & Gas and other smaller partners).9 Unrelated to Equatorial Guinea developments, Mobil decided to merge with Exxon to form ExxonMobil in late 1998.10 As a result of these ownership changes, the oil and gas industry of Equatorial Guinea is now dominated by three US companies: the worlds largest oil company ExxonMobil, followed by Amerada Hess and Marathon Oil. For all three companies, Equatorial Guinea is an important asset, albeit to a varying extent. Devon Energy, Noble Energy (both US rms) and Energy Africa (a South African rm) also have important ownership stakes in the current oil output, but they do not operate the oil concessions. ExxonMobil, Amerada Hess and Marathon run the day-to-day operations (compare Tables 1 and 2). While various other foreign rms continue to explore for oil in Equatorial Guinea, notable is the absence of the two British giants Royal Dutch/Shell and BP. Like elsewhere in the developing world, the government of Equatorial Guinea was keen on obtaining an active stake in the countrys oil development through the creation of a national oil corporation GEPetrol in 2001. It has acquired ownership stakes in all three producing oil elds 5 percent ownership of Block B (encompassing the Zaro eld), 3 percent ownership in the Alba oil concession and a 5 percent carried interest in the oil output from the Ceiba eld (see Table 1). At the same time, GEPetrol launched a number of small joint ventures, including the GESeis joint venture with the tiny oil-servicing company Terra Energy, a joint venture with the Swiss-based oil trading rm Glencore to conduct exploration, and the Sonagesa airline, a joint venture with Sonair Servico Areo (an arm of the Angolan national oil corporation) to operate direct ights for American oil workers between Malabo and Houston.11 So far, the governments venture into the oil business has been very modest, especially when compared with the achievements by other African

8. Amerada Hess to buy Triton Energy, Alexanders Gas & Oil Connections, 14 August 2001. 9. Wood Mackenzie, Stepping on the gas. 10. Exxon and Mobil seal $75bn deal, Financial Times, 2 December 1998. 11. Interview with a senior ofcial of the oil ministry (Malabo, August 2003).



Table 1. Ownership and oil production of the main oil concessions in Equatorial Guinea
Concession block Alba block (encompassing Alba eld) Block B (encompassing Zaro eld) Block Gb (encompassing Ceiba eld) Field ownership Marathon Oila (63.3%) Noble (33.7%) Equatorial Guinea (3%) ExxonMobila (71.25%) Devon (23.75%) Equatorial Guinea (5%) Amerada Hessa (85%) Energy Africa (15%) Forecast production 2005 ca.70,000 barrels/dayc

ca.300,000 barrels/day

ca. 55,000 barrels/day

Notes: a Operator of the block. b The government has a 5% carried interest in the blocks prot oil. c Production from condensates and liqueed petroleum gas. Sources: African Business (January 2004); Martin Quinlan, Nigeria Equatorial Guinea So Tom e Prncipe: Gulf of Guineas Golden Triangle, Petroleum Economist (May 2004).

Table 2. Forecast of company share of oil production (barrels/day)a, 20047

2004 ExxonMobil Devon Energy Amerada Hess Marathon GEPetrol/Equatorial Guinea Noble Energy Energy Africa Total

2005 217,300 72,400 46,000 42,900 23,000 22,900 8,100 432,600

2006 184,700 61,600 106,600 42,900 24,500 22,900 18,800 462,000

2007 157,000 52,300 116,400 42,900 23,100 22,900 20,500 435,100

217,300 72,400 46,000 37,800 22,800 20,200 8,100 424,600

Includes production from condensates and liqueed petroleum gas. Source: adapted from data provided by Wood Mackenzie.

national oil corporations such as the Nigerian National Petroleum Corporation and Sonangol in Angola. This underlines both the relative newness of the oil concessions in Equatorial Guinea and the governments relative inexperience with oil matters. This inexperience forced the government to rely on various foreign advisers, including a British-based oil consultancy rm ECL (which resides permanently as advisers within the Ministry of Mines and Energy, the de facto oil ministry), and left Equatorial Guinea



with less favourable deals with oil companies than most other countries in the Gulf of Guinea, despite a major renegotiation of production-sharing contracts in 1998.12 The scal terms set out in production-sharing contracts with oil companies are very favourable to foreign oil companies, as compared with most petro-states in the region, perhaps with the exception of neighbouring So Tom e Prncipe. But even compared with So Tom e Prncipe, Equatoguinean terms are still good enough to attract plenty of investor interest (see Table 3).13 A broader comparison of how much the government actually earns from the oil is more striking: Equatorial Guineas government is reported to obtain a mere 39 percent of the revenues raised from oil (in a typical contract), compared with 78.4 percent in Gabon, 76 percent in the Democratic Republic of Congo (offshore areas) and 70.2 percent in Nigeria (for deepwater areas comparable to those in Equatorial Guinea) (see Table 4).14 This government take will increase in future years as the cumulative oil output increases, although even then the Equatoguinean terms will be comparable with those of other states in the Gulf of Guinea. Equatorial Guineas further attractions to investors were relatively low signature bonuses (down payments for the initial award of oil licences), which varied between US$500,000 and US$1 million, compared with tens
12. The ECL contract runs until at least 2005, with a possible two-year extension. The remit of ECLs work is very broad, including advice on drafting legislation and overseeing non-oil mining sectors. (Interview with a senior ofcial of the oil ministry, Malabo, August 2003). The Equatoguinean government has also been assisted by various US actors such as the major US law rm LeBoeuf, Lamb, Greene & MacRae (which helped, amongst other things, in discussions related to boundary disputes with Nigeria and Gabon, and in setting up GEPetrol and, more recently, advised GEPetrol on issues such as the planned LNG plant) and specic personalities, notably Chester Norris (US ambassador to Equatorial Guinea 198891 and a Texan oil man) who is Obiangs personal friend and one of the principal pro-Obiang lobbyists in the United States. 13. Some of the scal terms in So Tom e Prncipe are more favourable, especially the royalty rates. However, corporation tax in Equatorial Guinea is much lower at 25 percent, compared with 50 percent in So Tom e Prncipe, while signature payments have been much lower than those in So Tom e Prncipe in the past. Furthermore, oil production has not yet started in So Tom e Prncipe and experience shows that governments tend to increase oil rents once the oil starts owing. On contract terms, see also Wood Mackenzie, Equatorial Guinea restructures PSC, West Africa Upstream Report, June 1998 and Martin Quinlan, Nigeria Equatorial Guinea So Tom e Prncipe: Gulf of Guineas Golden Triangle, Petroleum Economist (May 2004). 14. The overall government take in Nigeria is even higher because a large proportion of the oil revenues is derived from old contracts for onshore and shallow water areas which are much more favourable to the government. These contracts were negotiated many years or even decades ago, and the respective companies have already recouped most of their initial investments by now. Above all, the Nigerian government is under little pressure to provide better terms to investors since they are less dependent on new investment in onshore and shallow water areas. In contrast, deepwater areas in Nigeria, Angola, and So Tom e Prncipe as well as Equatorial Guinea require vast new foreign investment, so the contracts governing deepwater areas are much more favourable to investors in all of these countries. Therefore, scal terms for deepwater areas allow for the most appropriate method of comparison.



Table 3. Comparison of licence terms for deepwater oil production in Equatorial Guinea and So Tom e Prncipe
Equatorial Guinea Royalty rate Starts at 10% for elds producing up to 25,000 barrels/day (b/d); rises progressively to 16% for elds with 100,000 b/d or above Up to 70% of remaining production 25% Joint Development Zone (So Tom e Prncipe/Nigeria) 0% at 20,000 b/d or below; rises progressively to a maximum royalty of 5% for elds producing 70,000 b/d or above up to 80% of remaining production 50%

Cost recovery (after royalty payments) Income tax Prot oil

The private contractors the private contractors share starts at 90% for share starts at 80%; the rst 50 million barrels declines progressively to of production; declines 25% (according to a progressively to 40% formula related to (above 200 million barrels post-tax oil eld of cumulative production) protability) Government share in each licence reduces the companies prot shares; but low signature bonuses limit initial investment

Other inuences on rm protability

Source: Martin Quinlan, Nigeria Equatorial Guinea So Tom e Prncipe: Gulf of Guineas Golden Triangle, Petroleum Economist (May 2004); data provided by Wood Mackenzie.

of millions elsewhere in the Gulf of Guinea and hundreds of millions in Angolas deepwater. The attractive scal terms were accompanied by relatively low operational costs for the oil companies. Furthermore, audits by the World Bank in 2001 have revealed discrepancies between what the companies were supposed to pay and how much they actually paid to the government; a 2003 report by the International Monetary Fund stated that the oil companies (including ExxonMobil) had to repay US$88 million (amounting to an estimated 3 percent of GDP) reclaimed by the government from audits for the period 19962001.15 So long as the government does not place excessive demands on oil companies in the future, the terms offered by the Equatoguineans will therefore continue to attract investors.


Global Witness, Time for Transparency (London, March 2004).



Table 4. Comparison of government take from oil revenues in West Africa

Equatorial Guinea <50m. <100m <200m >200m barrels barrels barrels barrels Gross revenue 100 Less Royalty 10 Government share 9 Participation tax Corporation/ 20 petroleum tax NNPCs share prot at 35% Company take 61 Marginal government 39 take 100 12 18 18 100 14 34 13 100 16 50 8 100 20 58.4 100 12.5 43.7 Gabon Congo-B. (onshore) CongoDRC (offshore) Nigeria (deepwater)

100 52 24

100 4 48

53 47

39 61

25 75

21.6 78.4

43.7 56.2

24 76

18.2 29.8 70.2

Source: adapted from data provided by Wood Mackenzie.

Given attractive scal terms and promising geological conditions, investor interest in Equatorial Guineas oil sector is likely to continue. While production predictions tended to be unreliable in the past, the consultancy rm Wood Mackenzie has forecast that the countrys output could rise to 462,000 barrels per day of oil equivalent by 2006 (see Tables 1 and 2). Above all, ExxonMobil has increased the production capacity in the Zaro eld to some 300,000 barrels/day following a US$1 billion expansion project in 20023. Amerada Hess hoped to increase production to as much as 90,000 barrels/day by 2005, and production from further oil elds is already on the drawing board, although Ameradas new developments have recently experienced political and technical delays.16 Marathon Oils liquid production from the Alba eld is expected to rise to about 70,000 barrels/day. At the same time, Marathon has concluded an agreement with the government for a plant to produce liqueed natural gas (LNG) (gas which will be exported in liquid form on specially built tankers, to be regasied at a US terminal in Louisiana) with an annual production capacity of 3.4 million tonnes. The project encountered major problems in 2003, which apparently surfaced during GEPetrols negotiations with Marathon,17 but the two sides appeared to have resolved their problems in early 2004 and a joint venture called EG Gaz Natural was formed between Marathon and GEPetrol to build and operate the US$1.4 billion LNG plant at the
16. The estimates are taken from African Business, Special Country Report Equatorial Guinea (January 2004) and Petroleum Economist (various). 17. Marathon encounters problems in Equatorial Guinea, Energy Compass, 26 February 2004.



Punta Europa site on Bioko Island.18 The rst LNG cargo is not expected until at least 2007, but Marathon is already considering a further expansion of the project.19 Nonetheless, the current enthusiasm about Equatorial Guineas future prospects as a petro-state should be treated with some caution. The Ceiba eld may not be as productive as was previously thought, and there have been few signicant oil and gas discoveries in recent years. The French oil rm Total has withdrawn from Equatorial Guinea following disappointing oil exploration, while ChevronTexaco was also considering a withdrawal for the same reasons. In the words of Antony Goldman of the Economist Intelligence Unit: Of course, for the government, the money is still brilliant, but Zaros life is 1015 years, after which EG may be waking up to something of a hangover.20 Unless Equatorial Guinea makes some major oil and gas discoveries during the next few years, there is a possibility that it will follow the fate of Gabon, which is running out of oil, rather than Angola, which is increasing production. This uncertainty about the future, which is ultimately down to the vagaries of the geological formation of the planet, underlines the dangers of a countrys over-reliance on oil exports. For now, Equatorial Guinea is enjoying oil sector growth and oil wealth is changing the face of the country. The political impact of oil Ones assessment of the signicance of Equatorial Guineas oil depends at least partly on ones subjective view. From the perspective of the global oil industry, Equatorial Guineas proven oil reserves of just over 1 billion barrels are dwarfed by Nigeria, Libya or the United States, whose reserves are in turn dwarfed by those of Saudi Arabia, Iraq or Iran.21 In terms of oil output, Equatorial Guinea is not even in the top 30 oil-producing nations in the world. However, from an African perspective, its oil industry is highly signicant. Equatorial Guinea has quickly risen to become a middle-sized oil-producing country in Africa (see Table 5). Owing to expanded output in late 2003/early 2004, the country has now become the
18. Equatorial Guinea all sweetness and light, Africa Energy Intelligence, 7 April 2004; Marathon Oils LNG project in Equatorial Guinea moving ahead, Natural Gas Week, 25 June 2004. 19. Marathon already mulling second train at LNG plant in Equatorial Guinea, Platts Oilgram News, 3 December 2003. 20. Antony Goldman, pers. comm. May 2004. The author is grateful to Antony Goldman for pointing out these important issues. 21. In 2002, the proven oil reserves of Nigeria, Libya and the United States were estimated at 24 billion, 29.5 billion and 30.4 billion barrels respectively. In comparison, the reserves of Saudi Arabia, Iraq and Iran were 261.8 billion, 112.5 billion and 89.7 billion respectively (BP Statistical Review of World Energy, June 2003). Nonetheless, some estimates suggest that Equatorial Guineas current reserves stand at some 34 billion.



Table 5. African oil production by country, 19932003 (thousand barrels/day)a

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Algeria 1329 1324 1327 1386 1421 1461 1515 1578 1562 1681 1857 Angola 504 557 633 716 741 731 745 746 742 905 885 Benin 3 2 2 2 1 1 1 1 1 Cameroon 130 115 106 110 124 105 95 88 80 72 68 Chad 40 Congo-Brazzaville 185 185 180 200 225 264 293 275 271 259 243 Congo (DRC) 25 25 28 30 28 26 24 25 24 23 22 Egypt 941 921 924 894 873 857 827 781 758 753 750 Equatorial Guinea 5 5 7 17 60 83 100 113 181 237 249 Gabon 305 337 356 365 364 337 340 327 301 295 240 Ghana 6 6 7 5 5 6 6 6 6 6 Ivory Coast 6 16 14 10 10 7 5 10 20 Libya 1402 1431 1439 1452 1489 1480 1425 1475 1425 1376 1488 Morocco ^ ^ ^ ^ ^ ^ ^ ^ 3 ^ ^ Nigeria 1985 1988 1998 2138 2303 2163 2028 2104 2199 2013 2185 Senegal ^ ^ ^ ^ ^ ^ ^ ^ n/a n/a n/a South Africa 8 9 9 8 15 15 32 32 23 20 16 Sudan 2 2 2 5 9 12 63 174 211 233 255 Tunisia 99 93 90 89 81 83 84 78 71 73 66

Includes crude oil, shale oil, oil sands and natural gas liquids; excludes liquid fuels from other sources, especially the sizeable coal-to-liquids production in South Africa. ^ Less than 0.5. Sources: compiled largely from data supplied directly to the author by the senior BP manager in charge of BP Annual Statistical Review; some 20013 data for the smaller producers are from Oil and Gas Journal (various).

third largest oil producer in sub-Saharan Africa and the sixth largest oil producer in Africa behind Nigeria, Algeria, Libya, Angola and Egypt. Equatorial Guineas oil production has overtaken that of the more traditional regional players, Gabon, Congo (Brazzaville) and Cameroon, which has in itself become a source of tension with President Bongo of Gabon and President Biya of Cameroon over the countries respective maritime boundaries. But, whatever perspective one takes, the international status of Equatorial Guinea has been much enhanced as a result of its oil riches. Like other petro-states with expanding oil production such as Angola and Nigeria, Equatorial Guineas oil revenues make it less reliant on foreign donors, as compared with non-oil rich states. The actual oil revenues are much larger than the alternative foreign development assistance (the biggest bargaining weapon of foreign donors) and can be spent without strings being attached. In addition, the prospect of future oil revenues allows the government to obtain oil-backed loans (that is, loans against future oil



output), as demonstrated by GEPetrols ability to negotiate a $400 million oil-backed loan from a syndicate led by Deutsche Bank.22 In comparison, the International Monetary Fund had relatively little to offer and, not surprisingly, President Obiang has been able to resist calls by the IMF for major macroeconomic reforms for years.23 The IMF and the World Bank have had only limited involvement in Equatorial Guinea since the beginning of the oil boom. The last project funded by the World Banks International Development Association (IDA) a health improvement project closed in 1999 and there has been no new Bank lending programme for the country since then. Perhaps surprisingly, given that Equatorial Guinea no longer depends on the nancial assistance of international institutions and Western donors, the regime is eager to cultivate friendly relations with donors and international organizations. While nancial assistance is not an important issue, President Obiang seeks international legitimacy, which is conferred through high-level diplomatic relationships (such as meetings with senior US ofcials). At the same time, the discontinuity brought about by the oil boom appears to have caused some concern recently within the ruling elite about possible social upheavals; in this context, foreign technical assistance is regarded as a means of improving the functioning of the state, so that future social upheavals can be prevented.24 As an illustration of this new trend, the President has appealed personally to British government ofcials for the establishment of a permanent ambassador in the country, has called privately for British technical assistance (such as assistance to improve the workings of government ministries and other arms of the state administration) and has even expressed an interest in the Extractive Industries Transparency Initiative/EITI (a British government initiative to increase transparency over payments by mining and oil companies to host

22. Equatorial Guinea: Deutsche Banks advisers, Africa Energy Intelligence, 26 November 2003. The loan was intended to fund the governments share of the LNG plant. However, the package put together by Deutsche Bank was frozen in early 2004, GEPetrols Director Domingo Mba Esono (who had held the post since GEPetrols inception in 2001) lost his job in the process and the government stated its intention to fund its share of the LNG plant from its own sources. Nonetheless, the willingness of foreign nancial institutions to lend to Equatorial Guinea demonstrates the ease with which Obiang can obtain vast sums of money. See Africa Energy Intelligence, 10 March, 25 February and 11 February 2004; also see Marathon encounters problems in Equatorial Guinea, Energy Compass, 26 February 2004. 23. A three-year structural adjustment facility starting in 1993 was suspended in 1995 amidst IMF criticism of the countrys scal policy, just before Equatorial Guinea had developed the Zaro eld to provide alternative sources of revenue. The government also failed to act on World Bank recommendations for economic reforms, including those suggested by a World Bank mission in October 2001. 24. Indeed, the main attraction of the IMF, World Bank and other foreign donors to Equatoguinean decision-makers today is technical assistance, for instance in areas such as agricultural policy and the management of oil revenues.



governments).25 In 2003, the government formally requested technical assistance from the World Bank for the management of the oil sector, for public investment planning and for the creation of a poverty reduction strategy; amongst other developments, the Bank has agreed to provide training to ofcials of the Ministry of Mines and Energy and GEPetrol. Also in 2003, the Equatoguinean government and the IMF participated in a so-called Article IV consultation, with the IMF expressing much less criticism of government policy than in previous reports.26 Obiangs desire for international legitimacy and for technical assistance to strengthen his regime helps to explain why Equatorial Guinea has continued to cooperate with the IMF and has made an effort (albeit largely cosmetic) to improve its human rights image. Nonetheless, Obiang can have more condence in dealing with the outside world, as foreign governments are keen not to jeopardize the chances of their nationals obtaining business opportunities in Equatorial Guinea. The United States keen to diversify its oil supplies and to please its oil industry lobby has re-opened its embassy and provided limited assistance (for example, scholarships for Equatoguineans to study at US universities). Spain keen to promote business opportunities for the Spanish oil company Repsol and other Spanish rms wrote off 60 percent of Equatorial Guineas US$134 million debt in July 2003, has supported its claims in the boundary dispute with Gabon, and has made little protest at the killing of a Spanish national by an Equatoguinean soldier at a checkpoint.27 Equatorial Guineas human rights abuses and inequitable government policies still cause some concern to certain Western governments, especially in terms of potential adverse publicity over closer ties with the regime, but criticism of government policy has become more muted as a result of the oil discoveries.
25. However, the British interests in Equatorial Guinea are restricted and there are currently no plans to establish a permanent embassy or to provide major technical assistance. British presence in Malabo is largely limited to the posting of a commercial attach (Interview with an ofcial at Britains Foreign Ofce, London, February 2004). 26. IMF, Republic of Equatorial Guinea: 2003 Article IV Consultation (Washington DC, December 2003), p. 33 and Appendix. 27. Economist Intelligence Unit, EIU Country Report Gabon and Equatorial Guinea October 2002 (EIU, London, 2002), p.40 and EIU Country Report Equatorial Guinea October 2003, p. 12. Interestingly, despite some of these steps, relations with the United States and Spain have soured as a result of somewhat erroneous perceptions in Malabo that both countries have undermined Equatorial Guineas interests. Equatoguinean government ofcials seem to believe that investigations into irregularities with the Riggs Bank accounts in Washington (which implicate Equatorial Guinea and could theoretically lead to an indictment of President Obiang on money-laundering charges) have been politically motivated; this followed hostile media coverage of the country in the United States (especially a special report on the country on CBSs high-prole 60 Minutes TV show in November 2003). Ofcials also expressed public criticism of Spain, which granted asylum to Severo Moto (exiled opposition leader linked by Equatoguinean ofcials to the March 2004 coup attempt) and criticized the irregularities in the legislative elections in April (which gave the Presidents party and its allies 98 of the 100 seats in the new parliament). Economist Intelligence Unit, EIU Country Report Gabon and Equatorial Guinea May 2004 (EIU, London, 2004), pp. 30 and 357.



At the same time as oil revenues have improved the governments position vis--vis international organizations and foreign governments, oil has strengthened its hand vis--vis domestic constituencies. Oil revenues allowed the government to buy greater security protection (such as hiring a foreign security rm and paying higher salaries to security forces) and the oil business provided more avenues for patronage to members of the ruling elite (such as the provision of private security services to foreign companies by the private rm Sonavi, linked to Obiangs brother Armengol, or the use of job agencies by oil companies see below).28 In other words, oil has strengthened the basis of authority for Obiang, who may later this year celebrate 25 years in ofce. Indeed, it is no coincidence that Africas leading petro-states have some of the continents longest serving heads of state, including Bongo in Gabon, Dos Santos in Angola and Gadaf in Libya. The oil boom has led to tensions within the Presidents Esangui clan over the distribution of the newly found wealth. But the domestic political impact of the boom has been modest, in the sense that there have been relatively few changes in the way the Esangui clan rules the country. It has continued to be run by the President and his brothers and sons as well as various other members of the family and close associates such as the current oil minister Cristobal Menana Ela. The oil boom has merely led to an incorporation of oil rents into the existing power structures by placing key family and associates into positions where they can benet from the new riches. For instance, the Presidents second son Gabriel Mbega Obiang Lima became deputy oil minister, while his rst son Teodorn (a likely presidential successor) obtained the infrastructure portfolio in a reshufe in early 2003, in addition to the lucrative forestry portfolio.29 The underlying political structures did not change. The economic impact of oil It can safely be said that oil has transformed Equatorial Guineas economy. According to 2002 estimates by the Economist Intelligence Unit (EIU), oil and methanol exports accounted for 92 and 6 percent of the countrys export earnings respectively, while wood and cocoa exports accounted for some 2 and less than 0.1 percent respectively.30 The oil share is likely to
28. Interviews in Malabo, August 2003. 29. Economist Intelligence Unit, EIU Country Report Gabon and Equatorial Guinea April 2003 (EIU, London, 2003), p. 31. With the inow of oil revenues, the countrys infrastructure has already received a boost in funding and infrastructure projects can be lucrative opportunities for rent-seeking. 30. Economist Intelligence Unit, EIU Country Report Equatorial Guinea October 2003, p. 4. Methanol is processed in a plant in the capital Malabo (Marathon and Noble have a 45 percent equity share each, with the remaining share owned by the state), with gas supplied from the Marathon-operated Alba eld.



remain at this high level, as production has expanded further since 2002, and contractual income from the Zaro eld was set to rise in 2004.31 According to IMF gures, the inow of oil revenues helped to raise Equatorial Guineas GDP from 39,500 million CFA francs in 1990 to 1,509,800 million CFA francs in 2002, a staggering 38-fold increase.32 GDP per capita was estimated at US$5,310 in 2003, one of the highest in Africa, although the real gure could be lower.33 As perhaps the most visible economic impact, the development of oil has encouraged a construction boom in the capital Malabo, the oil town of Luba on Bioko Island and Bata on the mainland. But, in the words of Roitman and Roso, GDP gures are an illusory description of the national wealth and the staggering increases on paper stand for little in the real world.34 Equatorial Guineas wealth is concentrated in the hands of a tiny elite, so oil revenues do not benet the majority and do not stimulate the economy as a whole. The oil industry itself has generated few linkages to the local economy, as most supplies, including even basic foodstuffs and prefabricated buildings for expatriate compounds, are imported into the country. A report by the US Department of Energy stated:
Despite rapid growth in real GDP, there is strong evidence of government misappropriation of oil revenues, in particular, for lavish personal expenditures. Furthermore, the failure of the government to inject oil revenues into the countrys economy, especially to fund much-needed improvements in the countrys infrastructure, has meant little improvement in the economic and social welfare of most Equatoguineans.35

Jobs in the oil industry are relatively well paid by Guinean standards, as local cleaners can earn from about US$300 per month while secretaries and translators can earn between US$1,200 and $1,300.36 However, the oil industry has very limited impact on employment creation by its very nature. It is highly capital-intensive, which means that large amounts of capital and equipment but few workers are required. It is difcult to estimate the number of workers in the industry, but it is far below 10,000. The vast majority are expatriates and migrants, including Americans, Cameroonians,
31. Having recovered the cost of its initial investment, ExxonMobil and its partners are due to start paying the governments share of prot oil in 2004 (Interview with a senior ofcial of the oil ministry, Malabo, August 2003). Nonetheless, any increases in oil revenues could be potentially moderated by lower oil prices and an appreciation of the CFA franc. 32. IMF, International Financial Statistics, various. 33. Economist Intelligence Unit, EIU Country Prole 2004, p. 22. GDP per capita was estimated based on a population gure of about 0.5 million. If the recent census data of 1 million are used, the GDP per capita is halved. 34. Roitman and Roso, Guine-quatoriale, p. 131. 35. US Department of Energy website at (accessed 2 December 2003). 36. Agustin Velloso, From cocoa elds to oil in Equatorial Guinea, Counter Punch, 1 November 2003.



Nigerians and even Filipinos hired by Marathon Oil. If one observers gures are to be believed, ExxonMobil employs only 200 locals, while Amerada Hess employs some 180 and Marathon 250.37 Given the lack of specialized skills locally for jobs such as electricians and welders, most locals working for the oil companies are unskilled labourers such as cleaners, drivers and security guards. But even the few available jobs are used by the government for patronage purposes through the use of job agencies, a peculiar feature of the Equatoguinean oil industry. Such job agencies provide unskilled and semiskilled local workers to oil companies. Foreign oil companies are not obliged to use them. But the use of agencies enables rms to avoid red tape and managers see agencies as a means of social control. As one expatriate human resources manager said to the author: If you use an agency, they will deal with a worker if they do not work hard or do not come to work.38 Job agencies have proliferated in recent years but they are far from providing job opportunities to the general population. The agencies are owned and controlled by the Presidents family and associates, and potential oil workers need to present the ruling PDGEs party membership card in order to be enrolled.39 The economic benets of employment for the population are further limited, as agencies retain a sizeable portion of a workers salary as income tax and other deductions. The example of job agencies demonstrates how the development of the oil industry has been integrated into the existing political structures and has limited economic opportunities. Job agencies limit access to oil-related job opportunities for the broader population, but more worryingly the development of the oil industry has led to negative effects for the rest of the economy. Like other petrostates, Equatorial Guinea appears to suffer from the phenomenon known as the resource curse. Rather than leading to a better economic climate, the oil riches have fostered economic underdevelopment and political mismanagement.40 One effect of the oil boom was the appreciation of the
37. Ibid. According to Velloso, total gures for local oil workers may be in the range of between 1,100 and 1,500, whilst oil companies employ an estimated 6,000 expatriate workers. But all these gures should be treated with great caution, as gures from different sources do not match and it is often unclear whether they include/exclude contractors and (depending on when the data were collected) whether they include contractors involved in construction work (when employment gures are at their peak). For instance, ExxonMobil claims that it has 100 employees in Equatorial Guinea (including 15 resident expatriates and 40 Equatoguineans) but the company employs a further 500 contractors (Pers. comm., senior ExxonMobil staff, January 2004). 38. Interview with a senior staff member of a British rm, Malabo, August 2003. 39. For instance, the main agency in Malabo APEGESA is reportedly linked to the former oil minister Juanolo and the rst lady. Other agencies in Malabo (e.g. ATSIGE and MTT) are also reportedly owned by Esangui clan members and there are still other agencies in Bata on the mainland. (Interviews in Malabo, August 2003). 40. For a review, see M. L. Ross, The political economy of the resource curse, World Politics 51 (1999), pp. 297322.



exchange rate, a phenomenon known as the Dutch Disease. As a result of rising ination (see below), the real effective exchange rate appreciated by 15 percent between the end of 2001 and mid-2003 alone, which has made Equatoguinean exports of non-oil goods more costly and therefore eroded the competitiveness of the non-oil sectors of the economy. This loss of competitiveness was reected in the decline of non-oil exports by 30 percent, just as non-oil imports increased by a staggering 189 percent.41 At the same time, resources such as capital and labour have shifted into the oil sector and into the production of domestic goods to meet the surging domestic demand, which has further undermined the traditional export sectors. While the effects of Dutch Disease could be potentially curbed through prudent government action, the oil boom has had negative consequences for an already opaque system of governance. Since non-oil taxes are of little importance, the ruling elite has less incentive to nurture other economic sectors. Above all, there are no serious attempts to modernize the agricultural sector which could generate many more jobs than the oil industry, as agriculture still provides well over half of employment in Equatorial Guinea. Social impact The oil boom has triggered urban migration, with the growth of the urban population estimated at 5.2 percent per annum in the period 19952000.42 However, real growth may have been much higher, as Equatoguinean exiles, Nigerians, Cameroonians and others have ocked to Equatorial Guinea in search of work and business opportunities. According to the latest census in 2002, the population has doubled from an estimated 0.5 million in 1994 to about 1 million, although it has been alleged that the gures may have been manipulated for political purposes.43 This increase has put pressure on the existing urban infrastructure and created its own peculiar problems including increased prostitution in the service of oil workers. Based on the authors eld visit to Equatorial Guinea, it would appear that the key social impact has been generated by ination, caused by the growing oil industry through spending on labour, food, housing, etc., and increases in government spending (fuelled by oil revenues), coupled with an underdeveloped commercial environment. According to the Economist Intelligence Unit, the annual ination rate has been in single digits (4.6
41. IMF, Republic of Equatorial Guinea: 2003 Article IV Consultation, p. 20. 42. Economist Intelligence Unit, EIU Country Prole 2002, p. 49. 43. Economist Intelligence Unit, EIU Country Report Gabon and Equatorial Guinea October 2002 (EIU, London, 2002), p. 39. The EIU stated that it is possible that the authorities are planning to use the results to inuence the size of the electoral roll and to create phantom voters, although the scale of the scam may be less than the opposition parties claim.



percent in 2000, 8.8 percent in 2001, 7.6 percent in 2002, 6.0 percent in 2003).44 But, judging by anecdotal evidence on price increases, the real gures may have been much higher, and some unofcial estimates have put ination rates at more than 50 percent. Oil development and the neglect of agriculture have further contributed to import dependency; even many basic foodstuffs are now imported from Cameroon and elsewhere, and the prices of some basic commodities have more than doubled. Obviously, Equatorial Guinea relied heavily on imports before, but the oil boom has made the situation even worse. Living standards for the majority have therefore fallen despite a huge rise in GDP per capita. At the same time as living standards have worsened, foreign assistance has dropped from $30.8 million to $21.3 million in the period 19962000.45 On the one hand, foreign donors such as the IMF and the European Union have been disappointed with the lack of progress with regard to political and economic reform. On the other hand, there has been a growing feeling that Equatorial Guinea no longer requires as much foreign assistance in view of its abundant oil revenues. As a consequence, the country will benet less from some of its most worthwhile social projects. To give one example, the UN AIDS programme provided an AIDS testing lab in the Malabo hospital but there is now no money for basic equipment including syringes.46 The government has set aside some funds for welfare improvements and there have been slight improvements in health and education indicators since the mid-1990s. Life expectancy is said to have increased by about 2 years to 51 years in 19952001, while there has been a signicant drop in the pupil-teacher ratio and adult illiteracy rates.47 But the Equatoguinean government has generally been very slow to invest the rising oil revenues in areas such as health and education, while setting aside tens of millions of dollars for projects such as a new capital, Malabo 2, new roads and two new ports (Luba Freeport and K-5).48 IMF gures suggest that Equatorial Guineas government expenditure on health and education is much lower than elsewhere in Africa, even in comparison with other petro-states. In 19972002, the country spent a mere 1.23 percent of its government expenditure on health, while Cameroon spent 3.4 percent, Nigeria 5.95 percent, Mozambique 10.6 percent and South Africa 12.1 percent. Equatorial Guinea spent 1.67 percent on education, compared with 4.9 percent
44. Economist Intelligence Unit, EIU Country Report Equatorial Guinea October 2003, p. 4. 45. Economist Intelligence Unit, EIU Country Prole 2002, p. 73. 46. Interviews in Malabo, August 2003. 47. IMF, Republic of Equatorial Guinea: 2003 Article IV Consultation, pp. 13 and 37. 48. Most of these infrastructure projects will serve the oil industrys needs either directly or indirectly. Luba and K-5 ports will act as service centres for the oil companies. The improved transport links including roads linking Malabo and Bata with their respective airports and a new airport terminal in Malabo also serve primarily the needs of oil rms and the countrys elite.



in Angola, 12.1 percent in Nigeria, 12.3 percent in Cameroon and 21.9 percent in South Africa. Indeed, Equatorial Guineas share has markedly decreased since the development of oil; education spending dropped from 6.43 to 1.67 percent in the period 19926.49 As a result, health and education indicators for Equatorial Guinea are far lower than in countries with comparable GDP per capita levels. The oil companies have engaged in some philanthropic activities, notably Marathon Oils multi-million anti-malaria programme and, more typically, small sporadic donations of items such as school books for children. However, eld research suggests that philanthropic activities have not been able to offset the negative impact of oil or ll the gap created by inadequate government and foreign donor expenditure. Indeed, evidence so far indicates that the vast majority of corporate development projects are driven by the public relations requirements of the rms, and their effectiveness is strictly limited. Even more worryingly, some philanthropic efforts have done little more than improve government-company relations and helped in fostering patronage networks. One example was ExxonMobils donation of mosquito nets to the health ministry, aimed at combating malaria; the ministry then sold the nets, partly to Cameroon.50 Obviously, the very desirability of corporate-driven development projects is a matter of debate; this article merely suggests that the current wave of corporate initiatives cannot ll the void left by the state. The future? Political instability could potentially hinder the development of oil. Equatorial Guinea has unresolved boundary disputes with Gabon and Cameroon. Presidents Obiang and Bongo ofcially accepted United Nations mediation in January 2004, with Yves Fortier, Canadas former UN ambassador, as mediator.51 But a resolution could still take many years and neither Equatorial Guinea nor Gabon seems willing to make the necessary concessions for serious negotiations to begin; as the matter remains unresolved, oil concessions previously awarded to the US company Vanco and Malaysias Petronas may yet be affected. In the meantime, little progress has been made on resolving the dispute with Cameroon.52
49. African producers hold off on social spending, Energy Compass, 18 September 2003. 50. Interviews in Malabo, August 2003. 51. Equatorial Guinea-Gabon: UN mediates dispute over Corisco Bay islands, All Africa, 25 January 2004. 52. The author is grateful to Antony Goldman for pointing out these important issues. The expulsion of hundreds of Cameroonians in the wake of the March 2004 coup attempt, which led to the Cameroonian ambassador to Equatorial Guinea being recalled, has further strained the relationship between the two countries. The dispute was also not helped by the April 2004 award of Block O adjoining the countrys maritime boundary with Cameroon.



Another potential source of instability is the uncertain succession to the countrys leadership. President Obiang is said to have suffered from health problems for years, but there are tensions within the Esangui clan over the possible succession, as various key gures are opposed to Obiangs preferred successor his son Teodorn. This seems to have led, amongst other things, to the arrest and alleged torture of the Presidents half-brother, General Agustn Ndong On, a Teodorn rival for the succession until he was marginalized with other senior gures in December 2003.53 A security clampdown after reports of a coup attempt in early March 2004 suggests that internal inghting is continuing. In more general terms, the oil boom has increased the likelihood of political instability, as access to oil revenues has undoubtedly caused frictions in the ruling elite and has become a major attraction to any potential coup plotters and their partners, including foreign businessmen and mercenaries. Indeed, it is perhaps less than a coincidence that the prospect of petro-dollars coincided with coup attempts in both Equatorial Guinea and neighbouring So Tom e Prncipe within a space of twelve months. In addition to the prospect of political instability, the oil companies can also expect the government to become more assertive and more skilful in its dealings with them. The government is likely to ask for better terms in production-sharing contracts, mandatory training schemes for local workers and a sizeable government equity share in future developments. Employment of local workers and the transfer of technical knowledge have become crucial requirements in recent negotiations of new contracts and projects, as Amerada Hess has already experienced in its protracted negotiations over the development of the Okume and Oveng elds in 2003.54 The government has also demanded higher equity stakes in negotiations in the last two to three years, including a 15 percent share in the Petronasoperated Block N, 25 percent in Marathons LNG plant and, most recently, 30 percent in Block O awarded to Noble Energy and Glencore in early April 2004 (this compares with a 3 percent share in the Alba eld and 5 percent in the Zaro eld).55 Indeed, it is not inconceivable that the government could even demand a majority shareholding in future.

53. Equatorial Guinea: hotspot in hot water, Energy Compass, 18 March 2004. 54. Past contracts included a xed annual training budget available for training local personnel with typical payments of US$100,000 per annum during the exploration phase, rising to US$200,000 per annum during the production phase. These programmes were relatively modest and even these low costs could be recovered by the oil companies for tax purposes. Future contractual obligations are likely to be much higher. 55. The recent award of Block O also represents the rst time that GEPetrol has assumed operatorship of an oil licence, although the much more experienced Noble Energy (the technical operator with a 45 percent stake in the block) is likely to run the day-to-day operations.



Nonetheless, from the perspective of the oil companies, Equatorial Guinea has proved more stable and rewarding than other African petrostates, especially since the contractual terms with the companies have proved very stable over the last 56 years. The companies nd it easier to negotiate with the Equatorial Guinea authorities than elsewhere, as political power is highly centralized, and once a deal is struck and the government is committed, operations can proceed quickly without much red tape. This was notably exemplied by the rapid development of the Ceiba eld: Triton began production 14 months after the discovery of oil which was a record time for a deepwater eld by any standards. In the words of one British manager, Equatorial Guinea is a good place to do business, especially if compared with neighbouring countries like Nigeria (beset by instability) or So Tom e Prncipe (where the government re-negotiated oil deals in 2003).56 But not all Equatoguineans will agree with this positive assessment, just as the recent political turmoil has tempered the previous optimism amongst some expatriates.

56. Interview with a senior staff member of a British rm (Malabo, August 2003). On Nigeria, see Jdrzej George Frynas, Oil in Nigeria: Conict and litigation between oil companies and village communities (LIT Verlag/Transaction Publishers, Hamburg/New Brunswick, NJ/London, 2000). On So Tom e Prncipe, see Jdrzej George Frynas, Geoffrey Wood and R. M. S. Soares de Oliveira, Business and politics in So Tom e Prncipe: from cocoa monoculture to petro-state, African Affairs 102, 406(2003), pp. 5180.