Can Cambodia avoid the resource curse?

Photo from Ministry of Mines and Enegy
  • Rim Sokvy
  • February 9, 2021 11:34 AM

After the discovery of oil in Cambodia’s territorial waters by US-based Chevron, Cambodia could become a major petroleum-exporting country. There are approximately 400 million barrels of oil reserves in Cambodian territory.

For revenue-sharing reasons, Chevron sold its Cambodian oil block to Singapore-based Kris Energy in 2014 in a $65 million deal.

When Kris Energy started oil extraction in 2020 in Block A that covered 3,083 square kilometers, Prime Minister Hun Sen applauded this as a milestone and achievement after leading the country for more than 30 years.

Hun Sen said Cambodian oil was not a “curse”. It was a “blessing” for Cambodia.

“Now we can start raising questions on how money from our oil resource will be spent,” he said.

“If this question is posed, I will say the money will be allocated mainly to the education and health sectors,” (Sao, 2020, para. 13).

Despite the assurance from Hun Sen, doubt remains, particularly regarding the accountability and distribution of resources, and whether the resource will help to diversify and strengthen the economy of this post-war country.

Before envisaging whether Cambodia’s oil is a “curse” or a “blessing”, it is worth considering the lessons about resource curses and blessings from countries such as Venezuela and Norway.

How a blessing can turn to be a curse

Since 2001, there has been a lot of empirical evidence to support the prevalence of the resource curse in most resource-rich countries with poor institutions, particularly in Africa and the Middle East.

Natural resources can boost economic development if the profit is well managed and allocated. However, it could be a curse that draws the country into conflict, corruption, poverty, and dictatorship.

For instance, Nigeria was one of the largest oil producers in the world between 2015 and 2019, producing 2.5 million barrels per day. However, a survey in 2018-2019 by the National Bureau of Statistics  showed that around 86.9 million of the Nigerian population live below the poverty line of $381 per year.

According to many studies, natural resources have close relations with regimes and help to strengthen them. The authoritarian regime becomes more durable, thus a transition to democracy would be less likely.

Regimes profit from selling the resource and using the money to build up military forces and oppress dissidents.

Profits from oil also allow governments to help support themselves which helps to ease the citizens’ burden of paying tax.

No tax means the government does not feel the need for representatives to be held accountable and transparent to its citizens. Thus, it makes it easy for oil profits to fall into the top officials’ ‘pocket.

Those in power feel the need to protect their interests. This includes using money and power to strengthen their political influence.

The case of Venezuela

Venezuela is a case in point since it has one of the largest oil reserves and was one of the largest oil producers in the world in 2017. It could produce two million barrels of oil per day. As the oil companies are owned by the state, it has allowed the Maduro regime to profit financially and be able to finance and hold a firm grip on the military to stay in power.

The turmoil started when President Nicolas Maduro used a policy of fear and death squads to win the election in 2018. Maduro earned the loyalty of high-ranking military men and security forces by rewarding them with control of key industries and posts, which enabled him to use the military to crackdown on dissidents who rejected the election result.

The political crisis has turned Venezuela into the poorest nation in Latin America and millions of people have fled the country. In 2020, approximately around 5 million Venezuelans fled to neighboring countries. The National Survey of Living Conditions conducted in 2019-2020 found that 64.8 percent of Venezuela's population were living in multidimensional poverty – lack of food, poor living conditions, and under the constant threat of violence and abuse.

The growing profit from oil could also cause another problem which has been labeled as the ‘Dutch Disease’ by economists. It is a phenomenon in which income from oil has shrunk other sectors, making oil the main commodity for export.

Thus, it makes countries vulnerable to fluctuation of the international market. The country would face an economic downturn or recession when the price of oil drops on the international market.

Moreover, the flow of oil to the international market means that dollars flow into the country that could lead to the devaluation of the national currency. This is also one of the factors that led to the economic crisis in Venezuela. Oil made up 99 percent of Venezuelan exports, which played a dominant role in its economy.

Venezuela started to experience an economic downturn in 2016 when the oil price dramatically dropped from $100 per barrel in 2014 to $40 per barrel in 2016, making Venezuela’ Gross Domestic Product decrease by 16.5 percent in 2016. The political crisis in 2018 also trapped Venezuela into an economic crisis and instability as the US, which was the largest market for Venezuela’s oil export, imposed sanctions on the Venezuelan government.

Venezuela is experiencing a supplies shortage, which leads to higher prices of imported products. According to the National Survey of Living Conditions of 2019–2020, 96 percent of Venezuelan are living in poverty while 70 percent are in dire poverty.

The case of Norway

Norway is one of the largest oil producers in the world which produced 2 million barrels per day. Unlike most resource-abundant countries, Norway does not experience or show a tendency to the resource curse. On the contrary, Norway took advantage of oil to develop its economy and become one of the strongest economic performers in the world. In 2017 and 2018, it was ranked top of the world best inclusive economy.

Norway’s ability to transform oil into economic development is not an accident, but it is through the establishment of strong institutional government that is transparent, accountable and has zero tolerance for corruption.

It has been ranked as the world’s most democratic country since 2011. With this political institution, it has prevented politicians from plundering the country like other resource-rich countries.

Moreover, Norway also has three distinguished bodies to control the oil. First, the national company is responsible for oil operation within the country, which ensures that the oil revenue flows to the government budget.

Second, the Ministry of Petroleum and Energy of Norway helps to coordinate and enact policy options and strategies that ensure the efficient utilization of oil revenue. The third body plays a technical and regulatory role which helps to compile the document of oil extraction within the country. This unique platform, based on transparency and high performance, has helped Norway to manage its oil and transform its economy.

Lessons for Cambodia

The experience of Venezuela (resource curse) and Norway (resource blessing) demonstrates that the resource in itself is not a curse. However, poor management, corruption, and patron-client are the factors that turn natural resource into a curse. By observing the trend of resource management from Norway and Venezuela, it is best for Cambodia to develop a more inclusive political system that is transparent and accountable.

Currently, accountability within the Cambodian government remains a major problem as the government continues to put pressure on civil society organizations, opposition parties, and independent media, which are the means to ensure transparency and accountability. According to Human Right Watch, many journalists and independent medias have been harassed by the Cambodian government after the dissolution of the largest opposition party, Cambodia National Rescue Party (CNRP), in 2017 and the crackdown on independent media leading to the closure of the Cambodia Daily.

Corruption also remains a prevalent issue in Cambodia as well, which makes it easy to recruit family members into important positions. The Corruption Index released by Transparency International in 2020 showed that Cambodia was ranked 160 out of 180 countries, indicating that Cambodia is one among the most corrupted countries in the world alongside North Korea and Afghanistan.

As noted by Bhatacharya & Hodler in 2010, associate professors at the universities of Sussex and Melbourne, rampant of corruption is closely aligned with weak institutions letting the state budget flow into the pockets of politicians. This could be a major problem for the government to efficiently manage oil revenue.

For Cambodia to avoid the resource curse, the government needs to put a strong hand on corruption. Transparency and accountability are also crucial, particularly in the Cambodian National Petroleum Authority, the body that controls the oil resource and plays a key role in managing the oil and its profit.

If the government does not address the corruption issues and make the institutions more accountable and transparent, Cambodia could face no different fate regarding the resources curse experienced by Venezuela and other countries. Corruption would make it possible for the revenue from oil to fall into the hands of individuals or groups, not the state.

The natural resource is good in itself. It can give less-developed countries like Cambodia the advantage to develop without depending too much on foreign assistance and aid.

Natural resources could be a curse when political institutions are corrupted, transparency and accountability are missing, and patron-client systems are prevalent. However, the natural resources could be a blessing, helping countries to develop economically if the political institutions operate under the rule of law, democratic values, and transparency. Norway is a country that successfully avoids the resource curse. Other less-developed countries such as Cambodia should learn from the Norwegian lesson to avoid the fate of the resource curse.

Sokvy Rim is an intern at Cambodian Education Forum. He has a bachelor’s degree in International Relations from the Department of International Studies, Royal University of Phnom Penh, Cambodia.

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