THE RESOURCE CURSE
The academic literature on the resource curse is vast (Ross 2015). Here, we examine three different dimensions of the resource curse which comprise a ‘political resource curse’ (Vicente 2010). First, oil-rich countries are unable to establish or consolidate democracy (Ross 2001, 2015; Jensen & Wantchekon 2004; Ramsay 2011; challenged by Haber & Menaldo 2011; Brooks & Kurtz 2016). Second, oil wealth has been found to increase the risk of inter-state war (Colgan 2013) and civil war (Collier & Hoeffler 1998; challenged by Brunnschweiler & Bulte 2008; Paine 2016) as well as lengthen the duration of civil conflicts (Lujala 2010). Finally, resource wealth is believed to have corrosive effects on the quality of political institutions and leads to increased corruption and rent-seeking (Leite & Weidmann 1999; Sala-i-Martin & Subramanian 2003; Shaxson 2007; Vicente 2010; challenged by Alexeev & Conrad 2009).
The so-called institutionalist turn in the resource curse literature (Mehlum et al. 2006; Smith 2007; Morrison 2013) arguing that natural resource wealth has conditional effects depending upon a country’s quality of institutions has undermined the view that the resource curse is inevitable. Increasingly, scholars believe, in Morrison’s (2013: 1122) phrasing, that ‘oil is less like a universal acid and more like a powerful tool, which can have good or bad effects depending on the circumstances’.
The resource curse literature is contested in all these areas. This article does not make a broader statement on the overall validity (or lack thereof) of the resource curse. Instead, it merely seeks to elucidate how the political resource curse might play out in Somaliland and why Somaliland is vulnerable to it.
Oil wealth is posited to impact democracy negatively through several channels but is most commonly attributed to a rentier logic where the ‘key mechanism linking authoritarian rule and resource dependence … is an incumbent’s discretion over the distribution of natural resource rents’ (Jensen & Wantchekon 2004: 821). As explained by Ross (2015: 246) ‘An abundant flow of oil revenues enables incumbents to both reduce taxes and increase patronage and public goods, making it possible for them to buy off a larger set of potential challengers and reduce dissent’. In sub-Saharan Africa, Jensen & Wantchekon (2004: 817) find that ‘executive discretion over resource rents leads to less political liberalization (transition of democracy) and a greater likelihood of democratic breakdown (consolidation of democracy)’. Importantly, for Somaliland, research suggests that ‘oil does greater damage to democracy in poor states than in rich ones’ (Ross 2001: 356).
The argument that oil-rich countries are at greater risk of conflict follows two different sets of causal arguments – one which focuses on states and the other which focuses on insurgents (Lujala 2010; Ross 2015; Paine 2016). The state argument suggests that ‘because resource-rich rulers do not have to build strong societal ties to raise revenues, oil-rich governments tend to have weak bureaucratic institutions relative to their country’s per capita income’ (Paine 2016: 748). Weak state institutions lead to elevated levels of citizen dissatisfaction, simultaneously increasing the demand for change and decreasing the state’s ability to neutralize it. The causal logic focusing on rebels essentially advances the two related arguments that natural resource rents ‘provide motivation and means for rebel uprisings’ (Lujala 2010: 15). In none of these arguments is oil the single explanation for violence. Rather, as Glaser (2013: 125) emphasizes, it ‘is one among a number of links in a chain that could lead to conflict’.
There are two main findings from this literature which suggest danger for Somaliland. First, although onshore and offshore oil production are both capable of generating significant revenues, only onshore oil production appears to affect the prospects for conflict. As explained by Ross (2015: 251), ‘When the oil is found offshore, it has no robust effect on a country’s conflict risk; when it is onshore, it appears to have a large effect’. Additionally, Lujala (2010: 16) finds that the presence of ‘hydrocarbons in the conflict zone more than doubles the conflict duration. Resources located outside the conflict region do not have a prolonging effect on the duration.’ While Somaliland may have offshore oil reserves, the Nugaal oil basin in eastern Somaliland stretches across territory that is also claimed by Puntland and Khaatumo State. Oil increases the value of territory which ‘increases the probability that crises over territory will lead to war instead of negotiated compromises, as states are more willing to run the risks of fighting’ (Glaser 2013: 123). Most ominously for unrecognized Somaliland, ‘oil is especially likely to generate conflict when territorial boundaries are contested’ (Glaser 2013: 123). Such conflicts are also more difficult to resolve because they are not just monetary disputes but rather are sovereignty disputes. Revenues can be split. Yet, as Voller (2013: 79) observes, if ‘control over oil is associated with sovereignty … It may render any peaceful solution to the conflict impossible’.
Second, onshore oil can have these effects even if it is not actually being produced. As Colgan (2013: 154) specifies, it ‘is perceived oil reserves that matter for resource wars, not actual oil reserves … resource wars can occur even when no oil exists’ (see also Lujala 2010: 23). Thus, Somaliland might not have commercially viable oil reserves, but it could still suffer increased risks of fighting in its eastern regions.
Early work on the resource curse found that capital-intensive or ‘point source’ natural resources like oil and minerals led to significant increases in corruption while food and agriculture did not (Leite & Weidmann 1999; Sala-i-Martin & Subramanian 2003). Later work has narrowed this finding to petroleum and excluded other mineral resources (Ross 2015: 248). As with democracy and conflict, there is debate over the causal logics that could explain this. In one influential formulation, ‘The pernicious access to easy money’ lowers financial discipline, leads to reckless budgetary practices, ‘preempts efforts to mobilize domestic resources through taxation, reduces tolerance for austerity and produces a dangerous reliance upon the state for the resolution of all problems’ (Karl 1999: 35). Other posited causal logics include politicians deliberately weakening institutions to increase their ability to misappropriate resource rents and revenues coming in faster than the institutional capacity to manage them can be created (Ross 2015: 249).
The institutionalist turn in the resource curse literature has established that ‘the effects of natural resources are largely determined by the institutional environment in which they are found’ (Morrison 2013: 1118). Put simply, one should expect different effects from an oil discovery in Norway than from an oil discovery in Chad. Smith (2007: 122) argues that resource booms do not occur in a vacuum but, rather, are incorporated into ‘pre-established institutions and patterns of decision-making’ with the result that ‘the windfall revenues merely magnified existing patterns’.
Oil wealth is mediated significantly by the institutional context it flows into but, in Mehlum et al.’s phrasing (2006: 3), ‘natural resources put the institutional arrangements to the test’. As is the case with the risk of conflict being increased even if oil is not actually produced, the same point holds true for oil putting institutions to the test. Interesting comparative work has documented increased corruption in São Tomé and Príncipe even though oil has yet to be produced there (Vicente 2010; Frynas et al. 2017). As discussed below, the nascent institutional arrangements in Somaliland are unlikely to pass this test.
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