Oil Speculation in São Tomé How to Rob an African Nation

The residents of a tiny African island nation have been dreaming of great wealth since oil was discovered in their territorial waters. Companies, foreign powers and corrupt politicians are scrambling for drilling licenses in hopes of striking it rich.

By in São Tomé and Príncipe

Ready for an oil boom? The island nation of São Tomé and Príncipe has survived on fish for centuries.

Ready for an oil boom? The island nation of São Tomé and Príncipe has survived on fish for centuries.

The lobby of the Hotel Miramar in São Tomé would be the perfect set for a tropical spy thriller. It is the best hotel in town, which doesn't mean much, but its air-conditioned lobby, complete with colorful sofas and green potted plants, has become an important meeting place for everyone who has some sort of business on this curious island: profiteers and their assistants, representatives of foreign governments and international organizations and a host of shady characters. Good and bad people congregate in the lobby of the Hotel Miramar, but telling them apart isn't easy.

There are the US Navy troops who march through the lobby every morning and board a bus outside to build a radar station (as everyone knows). In the breakfast room, two women and a man stare silently at their laptops; they're members of a World Bank delegation in São Tomé to meet with government ministers. Then there are the men in faded T-shirts who people say are CIA agents, although that isn't necessarily true. Rumors are commonplace.

The islands of São Tomé and Príncipe make up a single sovereign country, population 160,000. Until a few years ago the islands' only claim to fame were Marilyn Monroe postage stamps, fraudulent sex hotlines and a key export crop, cacao.

That was until oil was discovered under the sea floor off the country's coast. It could be a blessing or a curse for this tiny nation; and it seems to have made everyone crazy.

The Paradox of Plenty

On the world map, São Tomé and Príncipe are two barely detectable spots in the Gulf of Guinea, almost exactly on the equator, 200 kilometers (124 miles) off the coast of Gabon. The nation is peaceful and democratic and desperately poor. Its inhabitants survive on foreign aid and international loans. Aside from a small cacao crop, the country has no significant products.

The São Toméans could hardly believe their luck when seismic studies completed in the 1990s revealed an enormous reserve of 11 billion barrels of oil just off their coast. They were rich! São Toméans could suddenly dream of becoming a sort of African Brunei, a rich and tiny nation where people could lead carefree lives. Manna from heaven!

Graphic: Oil in a tough neighborhood

Graphic: Oil in a tough neighborhood

Then the rest of the world clued in. Companies from the United States, China, Norway and Canada sent teams to the islands, and foreign governments -- in particular the United States and São Tomé's big neighbor, Nigeria -- began to show interest.

A wealth of natural resources isn't always good for a poor country. It's called the "paradox of plenty," and unfortunate examples proliferate in São Tomé's immediate neighborhood. One is Nigeria, a major oil producer ruled by the corrupt regime of President Olusegun Obasanjo until 2007. Then there's Equatorial Guinea, whose brutal dictator Teodoro Obiang Nguema keeps his people in poverty; and Gabon, where the upper class has almost completely squandered the country's oil wealth; and, of course, Angola, still suffering from the effects of its long civil war.

When São Toméan President Fradique Melo de Menezes took office in 2001, he vowed to keep his country free of such problems. Fradique is a short, muscular man with a large moustache -- a cacao merchant who everyone calls by his first name. He impressed the international community when he spoke of wanting to use the oil wealth to help his country.

Fradique turned to Jeffrey Sachs of New York's Columbia University, the famous American expert on development aid, for advice and support. Sachs has advised governments around the world, and he has written a book called "The End of Poverty." He saw an opportunity to turn São Tomé into a model case, and he took his best teams to investigate the country firsthand. Their goals were to help all São Toméans share in the new wealth while avoiding the error of depending entirely on oil. It was to be a country without violent conflicts.

And thanks to Sachs, São Tomé has a new oil law that may be the best of its kind in the world. It requires oil revenues to be deposited directly into an account with the Federal Reserve Bank in New York. Only a small share of that money can be reinserted into the budget; the remainder has to be saved for the future. Control of the oil itself belongs to a commission made of São Toméans from across the country's political spectrum.

That, at least, is how it should work. But the commission doesn't exist yet. And no one has seen the oil companies' contracts, which were to be made public. This is not exactly surprising, given that politicians in São Tomé have not always abided by the law.

But can São Tomé become a role model for the world? Does the oil even exist?

'The World's Most Important Oil Region'

When President Fradique de Menezes came to power more than six years ago, he impressed both the experts and US President George W. Bush. The New Yorker wrote: "Who needs Saudi Arabia when you have São Tomé?" Bush met with Fradique and 10 other African heads of state in September 2002, and while the others bored the president with speeches in French, Fradique reportedly spoke "eloquently, in nice, only slightly accented English, about the shared interests of São Tomé and the United States." Bush even quit playing with his pencil.

Fradique reminded his listeners of "the tragic attacks on the World Trade Center and Pentagon" and stressed the importance of alternative sources of oil outside the politically volatile Middle East. His country, he said, lies in a "strategic location in the world's most important oil region -- in the deep sea off Africa's west coast."

It was a smart move on Fradique's part, because oil from this region has driven the Americans nuts. They now import 13 percent of their oil from sub-Saharan Africa; that figure is expected to increase to 25 percent within a few years. African oil is sought-after because of its low sulfur content and its typically offshore reserves, where it can be loaded onto tankers without setting foot on a given country's soil.


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