A Lesson in Corruption: São Tomé

Stephen DeAngelis

July 06, 2007

I have never underestimated how difficult it is to help an undeveloped nation break free of poverty’s grasp. The term Development-in-a-Box™ has given some critics the idea that I believe otherwise. I selected the term because I wanted to convey the understanding that many of the activities that undeveloped countries must embrace need not be reinvented by each state. In fact, to move from the Gap to the Core these countries need to embrace accepted standards so that they generate the trust necessary to attract foreign direct investment. São Tomé presents an interesting case study in just how difficult it is get people to adopt appropriate standards and practices, even when they know that doing so will improve the lives of those living there. São Tomé’s story is the focus of an article by Barry Meier and Jad Mouawad [“No Oil Yet, but Tiny African Isle Finds Slippery Dealings,” New York Times, 2 July 2007]. They write:

“A decade ago, geologists found signs that one of Africa’s least-known countries, the tiny island nation of São Tomé and Principe, might hold a king’s ransom in oil. The first drop of oil has yet to be produced. But these days, little São Tomé may have attracted ample supplies of something else, federal investigators suspect — oil-related corruption. All of this might not seem unusual in Africa, where oil and corruption often go hand in hand. However, São Tomé, a former Portuguese colony off the coast of Nigeria, was supposed to be different. In recent years, a steady stream of activists like the Columbia University economist Jeffrey D. Sachs have gone there to try to make sure that any energy boom would benefit its 150,000 people, rather than politicians and companies. ‘Oil can be a blessing or a bane for a country,’ Mr. Sachs said. ‘The theory was to help São Tomé avoid the resource curse.’ Things, however, have not quite worked out that way.”

Corruption has always topped the list of things that make the “resource curse” a sure way for a country to remain impoverished. Blinded by riches, leaders work feverishly to remain in power and sock away as much looted cash as they can. In the meantime, fellow countrymen remain in poverty’s grip, struggling to find enough food to eat and potable water to drink. Where corruption is the order of the day, infrastructure goes unbuilt, social services go unprovided, and jobs remain wanting. The saddest part of São Tomé’s story may be that the corruption is not confined to leaders on that small island. The disgraced Congressman William J. Jefferson (D-LA) has been indicted for soliciting bribes from a company seeking help in an oil-related dispute involving São Tomé.

“Separately, federal authorities are investigating a small Houston-based company whose only assets are large holdings in São Tomé to determine if it bribed the country’s officials. On another front, a powerful Nigerian businessman who is the chairman of the Houston company, ERHC Energy, is under investigation in his country for possible insider oil dealings. All those involved — Mr. Jefferson, ERHC, and that company’s chairman, Emeka Offor — deny that they did anything wrong.”

When the possibility that oil reserves belonging to São Tomé was raised, there was great hope that the follies of the past could be avoided. Helping São Tomé chart a productive course for the future attracted others in addition to Sachs.

“Along with Mr. Sachs, those who sought to help included George Soros, the billionaire turned philanthropist, and a high-powered Washington lawyer, Gregory B. Craig, who defended President Bill Clinton during the Monica Lewinsky scandal. ‘In West Africa, the scent of oil alone may be enough’ to produce corruption, said Joseph C. Bell, another Washington lawyer who has traveled to São Tomé to work on new oil laws.”

São Tomé could use the oil revenue if ever materializes. Currently it makes most of its money “selling cocoa and commemorative stamps featuring celebrities like Elvis Presley and Brigitte Bardot.” The one thing that Development-in-a-Box™ cannot address is human nature. Its stress on standards and best practices are aimed at helping modify inappropriate (i.e., corrupt) behavior, but it can’t make bad men good. The problem with São Tomé, according to Meier and Mouawad, is that corruption raced ahead of those desiring to do the right thing. When they arrived, it seems to have been too late.

“At the center of the São Tomé story stands ERHC, a tiny company whose ranks have included a collection of characters and politically connected entrepreneurs like Mr. Offor. According to a 2005 report by the attorney general of São Tomé, Mr. Offor is one of the largest donors to Nigeria’s ruling political party and a close ally of Olusegun Obasanjo, who until recently was Nigeria’s president. São Tomé’s unusual journey through the backwaters of the oil industry traces back to the mid-1990s, when ERHC arrived there. Large underwater oil deposits had been found nearby, off the coast of Nigeria, and ERHC believed that the tiny island might be the next big prize in west Africa. At that time, the Texas company was owned by some wildcatters and an enterprising Florida businesswoman named Noreen Wilson. Over the years, she has been involved with several penny stock companies including a short-lived enterprise called Pizza Group Inc. In 1997, Ms. Wilson signed a $5 million contract that gave ERHC, which was then known as the Environmental Remediation Holding Corporation, exploration rights in São Tomé for 25 years. The contract was soon described by some outside experts as extremely lopsided. Soon afterward, Ms. Wilson resigned from ERHC during an investigation of the company by the Securities and Exchange Commission. But she appeared to retain an interest in the island’s future; in 2001, for instance, she apparently reached out to Mr. Jefferson for help there, his indictment suggests. At that time, São Tomé’s new president was threatening to break a number of oil-related deals, including ERHC’s. … Meanwhile, wheels were already spinning in São Tomé when activists like Mr. Sachs, the economist, arrived. Their mission: To prevent it from following in footsteps of other African countries where corruption and waste typically follow oil. In Nigeria, the continent’s largest producer, most people live on less than $2 a day while politicians have stolen or squandered billions.”

The challenge is what to do now that corruption is entrenched. Is it too late to act? I’m an optimist and hope not, but the challenge is daunting.

“Initially, hopes were high. Soon after his election as president, Fradique de Menezes, a cocoa plantation owner, vowed that his country would be different. And he turned for help to outsiders like Mr. Craig, the Washington lawyer who represented President Clinton during his impeachment trial. But Mr. Craig, like others who followed him, found himself facing some powerful adversaries: Nigeria and Mr. Offor. In 2001, Nigeria had jumped in the picture when it signed an agreement with São Tomé to share oil revenues from waters between the two nations. Mr. Offor, the ally of Nigeria’s president, bought ERHC, which was then near bankruptcy, just a few days before that agreement was signed. Mr. Craig said that while he successfully renegotiated contracts with other oil companies in São Tomé, Mr. Offor would not budge. ‘The metaphor of David versus Goliath doesn’t quite capture the relation between São Tomé and Nigeria,’ he said. ‘It’s more like an ant.’ In time, ERHC did agree to some changes in its contract, but the company retained extremely favorable terms, including the right to choose among the b
est oil blocks without paying the type of special one-time fee that governments typically demanded.”

The problem with greed is that the solution is often worse than the disease. São Tomé could resort to the kind of tactics that Robert Mugabe and Hugo Chavez have used in their countries, but the results there speak for themselves. Reason continues to be blinded by greed.

“Mr. de Menezes continued to seek assistance; in 2003, for instance, he reached out to Mr. Sachs. ‘He called and said, “Look we’ve found some oil and the sharks are swimming around us now, and I’d like some help to manage this properly,”‘ Mr. Sachs recalled in a recent interview. As part of that effort, a Columbia University team and others helped draft a new oil law that contained safeguards to make sure São Tomé spent its oil-related revenue properly. The team then traveled around the country, holding meetings on cocoa plantations and in churches, where they explained to residents how the new statute would protect their interests. ‘Imagine what would happen if there was a big flood that hit us,’ stated a cartoon-like booklet that they handed out to residents. ‘The oil law creates a dam.’ By late 2005, however, a report by the attorney general of São Tomé delivered a dose of reality. Among other things, it found that some companies that won blocs in the zone controlled jointly by São Tomé and its neighbor were headed by Nigerian businessmen with political ties but no oil experience.”

Meier and Mouawad imply that Mr. Mendes, the country’s president, may have even thrown in the towel and turned to the dark side. In the meantime, oil has been hard to find.

“Despite earlier predictions of vast oil finds, it is unclear whether waters off São Tomé will ever produce oil in commercial quantities. Last year, Chevron drilled the first exploration well there but failed to find much oil and, for the moment, has no immediate plans to drill again. ERHC said that it and a partner planned to drill next year. The new oil and anticorruption statutes drafted by consultants like Mr. Bell, the Washington lawyer, have become law. But with all the obscurity and intrigue that has now descended onto São Tomé, he, like others, question if it will make any difference. ‘The game is not lost yet,’ Mr. Bell said. ‘But it is a very uphill game.'”

If oil isn’t found, São Tomé’s soul may be saved but its people will remain impoverished. There appears to be a lot of blame to go around. Greed is the motivating factor and corruption is the facilitator. Exposing corruption is not enough. Programs need to be put in place that help develop leaders with integrity as well as vision. Education is the key to enlarging the pool of candidates for such training. Imagine the hope that could be generated throughout the African continent if Nigeria, its most populous state were governed properly and its oil revenues invested wisely in infrastructure, social services, and job creation. The old proverb is certainly true that where there is no vision the people perish. The reason that Tom Barnett and I continue to press towards the edges of globalization is that we want to help support those who have the vision necessary to make this a better world.