The curse of oil and gas

One notable exception is Norway, which foresaw this problem, avoided the momentary spending splurge of similar countries with large natural resources.
by Dan Azzi

21 April 2019 | 11:38

Source: by Annahar

  • by Dan Azzi
  • Source: Annahar
  • Last update: 21 April 2019 | 11:38

This Dec. 14, 2008 file photo shows the Krechba gas plant in Algeria's Sahara Desert, about 1,200 kilometers (720 miles) south of the capital, Algiers. (AP Photo)

BEIRUT: Imagine the Arabian deserts, centuries ago, before the first oil field was struck. People had to hike for hours in the scorching sun, foraging for food and water, with nothing to protect them from the elements, but a handmade piece of cloth covering their sunburnt head and face.

A camel was designed to survive in the desert by regurgitating and eating its food twice. A marvelous adaptation of nature, notwithstanding the cliché thrown out at business conferences in Europe or America: “A camel is a horse designed by committee.” A witty but superficial judgment derived from favoring esthetics over function. From a Darwinian perspective, just like the camel, those Arabs were unquestionably some of the toughest and bravest human beings, physically and mentally.

Desert Arabs had to be slim, fit, and able to brave the elements in the harshest environment on the planet, with a remarkable ability to withstand torturous conditions, and possessing an unmatched resilience, leading them to conquer a large chunk of the old world.

Then came the Twentieth Century. The discovery of oil provided sudden and extreme wealth, increasing standards of living to one of the highest in the world, to the extent that they were able to outsource most of the medial, and not so medial, jobs to foreigners.

It also allowed an existence the exact opposite of previous centuries and suspended reality. You could now have stuff that simply doesn’t belong in that ecosystem and cannot exist without a tremendous expenditure of resources.

Air-conditioned zoos, indoor ski range on man-made snow, with outside temperatures upwards of 45 degrees Celsius. Artificial islands, and canals with Italian gondolas rowing through them. But behind that apparent utopia lurks another story. An obesity epidemic as high as 70% among male citizens, very high unemployment or underemployment, a bloated public sector, unmet and excessive expectations, a majority of foreign labor, sometimes including mercenary police and military, with a massive potential social problem when the faucet runs dry.

If we go outside Arabia, most other countries with huge oil discoveries, like Nigeria or Venezuela, didn’t fare so well, either. The trouble is that countries set budgets assuming current market prices and production, and they become dependent, thus when oil revenue drops precipitously, catastrophe ensues. Like Colombia in 2015.

One notable exception is Norway, which foresaw this problem, avoided the momentary spending splurge of similar countries with large natural resources. It set up the Norwegian sovereign wealth fund, which, at $1 trillion, is the largest in the world, with $200,000 for every man, woman, and child, making every family virtually a millionaire, in a country with the same population as ours.

Some of the leadership in the Gulf has wisely recognized this problem, with several trying to diversify away from oil and gas. Probably the most successful is Dubai, despite some mishaps along the way. It now has an economy effectively independent of oil and one of the most attractive destination for expats. In fact, for any global company deciding on the selection of a location for its headquarters in the Middle East, Dubai is the number one choice.

30-40 years ago, when my dad’s generation worked in the Gulf, there wasn’t much to spend on, so they would save most of their income, sometimes up to 80%, which they sent back to their countries, like Lebanon. Today, my younger friends working in Dubai, get enticed by Cavalli Club or Nikki Beach or Zuma, and their discretionary income is eaten up before it ever gets into their savings account. A friend of mine making $250,000 a year, a handsome tax-free sum by any measure, saves nothing, quite typical of many expats there. This design now traps funds and they remain in Dubai, thereby helping their economy grow even bigger and better.

In Lebanon, where we had no natural resources to sell, this forced us to rely on education to “get us out of the hood.” We had one of the best high school and college education systems in the world, equipping us to find lucrative jobs, especially overseas. This was a major source of income for our country, pumping over $7 billion per year into the economy, around half of which is from the Gulf.

Many people are hanging high hopes on our offshore gas “discovery.” Assuming we find it, and that it doesn’t get robbed or wasted like everything else in the country, is this a good thing or will this cause us to go the way of other countries that got into a drunken stupor?

I remember the silly billboard ads 10 years ago promising all kinds of benefits for the people from oil and gas, but our track record hasn’t been great.

-------

Dan Azzi is a regular contributor to Annahar. He has recently been invited to be an Advanced Leadership Initiative Fellow at Harvard University, a program for senior executives to leverage their experience and apply it to a problem with social impact. Dan’s research focus at Harvard will be economic and political reform in a hypothetical small country riddled with corruption and negligence. Previously, he was the Chairman and CEO of Standard Chartered Bank Lebanon.

Show Comments

An-Nahar is not responsible for the comments that users post below. We kindly ask you to keep this space a clean and respectful forum for discussion.