An African Microstate Confronts the Curse of Oil
Sao Tomé and Principe
by Stanley A. Weiss

SAO TOMÉ -- Visiting the tropical paradise of Sao Tomé and Principe, it is hard to imagine that this two-island microstate in the Gulf of Guinea, off the coast of West Africa, is the epicenter of the world's next oil boom.

The 140,000 citizens here, mostly fisherman and cocoa farmers, are among the poorest people in the world. Most subsist on the equivalent of less than $1 a day and live in shanties with no electricity or running water. Malaria is rampant. The government, virtually bankrupt and crippled by foreign debt, can do little.

Yet President Fradique de Menezes looks at the surrounding equatorial waters and dreams of the four billion barrels of oil that may lie beneath, which could give his country one of the world's highest per capita incomes.

"We have come late to the oil business," he recently told a group of American business executives visiting the region. But Menezes imagines this former Portuguese colony as Dubai, Taiwan and Diego Garcia wrapped into one.

Like Dubai, Sao Tomé could become a regional trade hub. Like Taiwan, it is an island nation that could become an economic engine by reinvesting in its people.

Like Diego Garcia in the Indian Ocean, the strategically positioned Sao Tomé could be vital as Washington increasingly deals with what General James Jones, the commander of U.S. European Command, which covers most of Africa, calls the continent's "large ungoverned regions." Jones's deputy, General Charles Wald, says Sao Tomé could be an ideal site for a so-called temporary Forward Operating Location from which U.S. forces could jump to regional hot spots like Sierra Leone, Ivory Coast and Liberia.

The United States already projects itself across Africa through a Voice of America transmission station on Sao Tomé. The Americans are studying how to expand the tiny airport and dredge a deep water port. Menezes, who was briefly deposed in a bloodless coup last year, makes no secret of his desire for a U.S. security umbrella. "We are a tiny island with big neighbors," he says. "We welcome the Americans."

The Americans could not come too soon. With its shorter, safer Atlantic routes to Western markets, West Africa already provides 15 percent of U.S. crude imports, which should increase to 25 percent within 10 years.

But lots of oil with little security is an invitation for turmoil. Nigerian waters are now the world's most dangerous, with rebel militias and smugglers stealing 100,000 barrels of oil worth $1.5 million every day. Insurgents succeeded in temporarily shutting down nearly half of the country's oil production last year. Osama bin Laden has declared that Nigeria, Africa's most populous country with 120 million people, half of them Muslim, is "ready for liberation."

So how can Sao Tomé and its gulf neighbors seize the potential and avoid the perils of their oil boom?

First, security. "If you don't protect your wealth, you are not safe," General Wald tells regional leaders. The United States is already training African forces in counterterrorism and peacekeeping, but West Africa's small navies are dilapidated. The Nigerian Navy was embarrassed recently when a 12,000-ton tanker seized for smuggling, ironically named the African Pride, simply vanished from a Nigerian port.

Nigerian President Olusegun Obasanjo calls Abuja and Washington "joint guarantors" of the Gulf of Guinea. U.S.-Nigerian naval exercises in September, part of a new African Coastal Security Program, should be the beginning of a major U.S. effort to train and equip local defense forces. To ensure professional militaries, funding for International Military Education and Training should be increased. With American help, gulf countries should establish a regional coast guard to protect offshore rigs and shipping routes.

Second, ensure petrodollars benefit the people. Angola, Nigeria and Equatorial Guinea, all dependent on oil, are case studies in how corrupt elites have enriched themselves while the masses live in poverty.

A more promising approach is the $3.7 billion Chad-Cameroon pipeline, which Cameroon Prime Minister Peter Mafany Musonge described to our delegation as a "successful model" for the region. Under the watchful eyes of the World Bank, an independent consortium will set aside 80 percent of oil profits for health, education and economic development.

Governments should open their books to public scrutiny, and oil companies should be required to publish what they pay countries for exploration and drilling rights. Sao Tomé and Nigeria are leading the way by pledging that all such payments will be made public and audited. The anti-corruption efforts of Nigeria's Obasanjo give hope that, as National Security Advisor Ali Muhammed told us, "transparency and democracy are here to stay."

Third, diversify. The more a country relies on natural resources, the lower its growth rate. To ensure that the lure of oil profits does not wipe out investment in other sectors, Africa's oil states should reinvest oil revenues in other sectors. By diversifying its economy, the oil-rich United Arab Emirates last year generated more revenue from tourism than oil.

Finally, reward reform. By meeting specific thresholds of good governance, Cameroon and Sao Tomé have received significant debt relief under the International Monetary Fund's and World Bank's Heavily Indebted Poor Countries initiative. Last weekend's IMF-World Bank meetings set the stage for a major expansion in debt relief for nations that continue to reform.

Back on tranquil Sao Tome, Menezes insists that his island nation is "determined to avoid the past mistakes of other oil countries." With security, stability and geography on his side, the oil era he dreams of should prove a blessing, not a curse.