Rex Tillerson, ExxonMobil and Africa: What to expect

Otavio Veras, Research Associate of the NTU-SBF Centre for African Studies

Synopsis

In the wake of controversial picks for Trump’s cabinet, the spotlight turns to his appointed choice for Secretary of State, the highest diplomatic rank in the United States government. After a brief interlude with Mitt Romney, which would certainly be a favourite pick among Republicans, Donald Trump showed that he would continue with his anti-establishment agenda and decided instead to recommend Rex Tillerson for the role.

Rex Tillerson is an experienced executive of the Oil and Gas industry. Having worked at ExxonMobil for 41 years, Tillerson rose from a production engineer role, when he joined the company in 1975, to vice-president of ExxonMobil by 1999, and finally to chairman and CEO by 2006. Tillerson’s work helped shape what became one of the largest companies in the world. To reach this size, ExxonMobil businesses expanded to some inhospitable places in the search for oil. The company pioneered oil and gas exploration and production in countries with questionable human rights records, creating ties with corrupt governments. Royalties originating from ExxonMobil’s oil and gas production became the main revenue source for some very poor countries. Examples include Chad, Equatorial Guinea and Libya.

The power and influence ExxonMobil amassed around the globe during Rex Tillerson’s leadership make him a well-connected ambassador for the United States. However, having had the corporation’s profit as his priority for so many years, makes his impartiality on dealing with foreign governments somewhat questionable. Will he have the United States best interests as his main goal? This article analyses how ExxonMobil, headed by Rex Tillerson, engaged in questionable practices when doing business in Chad, Equatorial Guinea and Nigeria. It also discusses what can be expected in terms of American policies on Africa during the Trump administration.

Historical Context

As the Cold War ended, the world saw the rise of corporate power. Globalization meant the giant corporations, such as ExxonMobil, could work in so many more places than before. Their sense of self changed. During the Cold War, they were part of a national system, waging an existential battle against an opposing doctrine. Companies were much more rooted in their own home countries.

After the Cold War, these corporations, especially the oil companies, became dispersed all over the globe, becoming more sovereign unto themselves and less loyal to their home countries[1]. They became international entities, owing only to their shareholders. The interest of these corporate behemoths lies on unbridled profit making. The concept of the home country became intangible and lost its relevance.

Another transformation that affected how oil companies expanded throughout the world, was the nationalisation movement that followed the end of the Second World War. Prior to this, Western oil corporations had easier access to oil-rich countries such as Venezuela, Iran and Saudi Arabia. An example of this intertwined relationship between private oil companies and local governments at that time, is the now defunct California-Arabian Standard Oil Company. This partnership between American and Arabian interests was later renamed as Arabia American Oil Company, or Aramco, which had American Standard Oil of New Jersey (later Exxon) and Socony Vacuum (later Mobil) as major shareholders. After consecutive share purchases by the Saudi Arabian government, the company became fully nationalized by 1980 and later was renamed as Saudi Aramco. The company has an estimated value of over US$ 2.5 trillion and constitutes the most valuable company in the world[2].

Private oil companies had to chase a different strategy. They started testing riskier boundaries, both technological and geopolitical. On challenging technological frontiers, oil companies started exploring areas that required the development of new technologies and where the risk and reward were higher: deep waters, harsh offshore environments, oil sands, etc. On the geopolitical side, these companies moved their focus towards weak and fragile states, countries that were too poor to explore their oil and gas reserves themselves. And it is in this context that we see the rise of ExxonMobil in Chad and Equatorial Guinea.

Chad

Chad is a Sub-Saharan African country, with a population of 14 million people, most of them living on less than a dollar per day. Chad ranks 185 out of 188 in the Human Development Index[3] and 159 out of 170 in the Corruption Perception Index[4]. As one of the poorest countries in the world, Chad’s economic development is challenged by its landlocked geography and the desert climate in the northern half of the state. Most of the population work in agriculture, often at the subsistence level.

The country has been governed since 1990 by an elected President, Idriss Deby. Political stability has been hindered by tensions between the Muslim population in the north and non-Muslim population in the south, as well as by conflicts within each population group.

Chad constitutes what can be classified as a geopolitical frontier state: an unstable country where corruption is widespread and the rule of law is ineffective or non-existent. However, the country is rich in valuable natural resources, including a large oil reserve. In 2000, the World Bank engaged in what was, at the time, the largest ever private sector investment in sub-Saharan Africa. It basically bet that with the right framework, Chad could unleash its oil wealth in a controlled way, beating the well-known resource curse, and grow into a stable and rich state. The oil money would be directed to the development of Chad’s poor population. Hospitals, schools and infrastructure would be built. More important than the amount of money the bank was lending, was its moral backing.

The project was spearheaded by ExxonMobil and included the construction of a US$ 4.2 billion, 1,070km long pipeline, connecting landlocked Chad to Cameroon’s coast on the Atlantic (see Figure 1). The World Bank financed a small portion of this amount and gave the much needed credibility to a project that was seen as highly risky by private investors.

The framework that assured that the oil revenue would be spent in the development of Chad’s population, postulated that 85% of the oil royalties would be spent on the construction of the country’s infrastructure. The amount was expected to reach US$ 1.4 billion per year, which would certainly hasten the pace of development of one of the poorest countries in the world.

In addition to that, a further 10% of the royalties would have to be saved for future generations. The safeguards were considered crucial given the reserves were only expected to last 30 years; the oil bonanza was Chad’s one chance at rapid development[5]. An independent oversight board was to approve or deny spending projects based on their prospects for reducing poverty[6].

The oil started flowing in 2003, but 2 years later, the board found that a large portion of the money was being wasted. Infrastructure projects were paid for, but not completed, school and hospital equipment was being bought at inflated prices, etc. Finally, by 2008, after several attempts to fix the situation, the World Bank quietly pulled out of the deal. Chad, with its bank accounts inflated with billions of dollars from royalties paid by ExxonMobil, easily repaid its US$ 65.7 million loan to the World Bank, ahead of schedule and was free to do whatever it wanted with the revenue coming from the oil production.

In its Project Assessment Report, the World Bank concludes what looks obvious in hindsight: “it is imperative to design projects in light of the institutional and administrative capacity realities”[7]. Interestingly, the World Bank currently has near US$ 200 million in active loans to Chad, approved in the past 3 years[8].

By the time Chad broke the deal with the World Bank, the US embassy in Chad was delivering total aid of no more than US$ 10 million per year. The royalties from oil tax that ExxonMobil was paying Idriss Deby’s regime was in excess of US$ 500 million a year. With these figures in mind, it is not difficult to understand which alliance would be stronger from Chad’s government point of view. ExxonMobil had more influence in that country than the most powerful nation in the world.

Chad’s revenue grew from about US$ 112 million in 2000 to over US$ 2 billion in 2008, almost 90% of it from oil. The revenue to Chad was much larger than what had been envisaged, owing to the much higher oil price at the time oil production started. However, between 2000 and 2007, while Africa as a whole showed slight improvement in many social indexes, Chad experienced a marked deterioration against all major governance indicators, with the decline especially sharp in the rule of law, control of corruption, and government effectiveness.

Severe weaknesses still characterize the government institutions responsible for the petroleum sector in Chad, and there is no independent monitoring on behalf of Chad of the environmental and social aspects of the petroleum investments and Exxon’s operations[9].

Essentially, ExxonMobil was financing an authoritarian regime through the royalties of its oil exploration operations, and there was no effective third party agent to oversee the use of this money. Being CEO of ExxonMobil from 2006 onwards, Rex Tillerson was aware of how Chad was spending the oil royalties. A small and powerful elite was being enriched while the remainder of the population lived in misery. In a fragile state like Chad, the money from the dark gold becomes a prize. There is no opportunity to become wealthy other than through political power and, consequently, through the prize of oil.

The vast majority of the population, so naively enthusiastic at the beginning of the project, with hopes that the oil would bring them a better future or at least a job, remained marginalized and subjugated. The government also used the oil money to buy weapons used to enforce its side in the ongoing civil war, which killed over 4,000 people since 2003 [10].

Equatorial Guinea

Also in West Africa, Equatorial Guinea is a small piece of land squeezed between Cameroon and Gabon. Populated by less than 1 million people, this country is ruled by dictator Obiang Nguema since he seized power in 1979.

Oil was first discovered in 1995 and was a great contributor to drive the country into a spiral of corruption, wealth concentration in the hands of the powerful, and deterioration of the already poor democratic principles. Equatorial Guinea became a stark example of the infamous resource curse. The nation’s reserves total 1.1 billion barrels of oil and 1.3 trillion cubic feet of natural gas[11].

Oil and gas became the main sources of revenue to the country since production started. Equatorial Guinea’s economy could not be less diversified: oil and gas revenues account for 90% of GDP, 87% of fiscal revenues and 89% of exports[12].

The country embarked upon a hydrocarbon boom around the turn of the millennium that turned it into Sub-Saharan Africa’s third largest oil exporter and the wealthiest country in the region in terms of per capita income. While extensive investment has helped to put in place substantial infrastructure, Equatorial Guinea’s social indicators remain among the worst globally. The country scores 138 out of 188 in the Human Development Index and has a life expectancy at birth of 57.6 years[13]. While the vast majority of the population live in extreme poverty, it is clear where the oil money goes to. In 2006, Forbes estimated that Obiang Nguema’s net worth was US$ 600 million[14]. This figure has certainly increased since then.

Equatorial Guinea’s hydrocarbon bonanza started waning by 2009 when the oil and gas reserves plateaued. The economy stagnated, and in 2015 the country’s GDP contracted by 8.3% [15]. With the dependency on hydrocarbons as main exporting products, Equatorial Guinea faces a gloom future and its economy is set to keep tightening throughout the next decade[16].

ExxonMobil is at the centre of this issue. It is the operator of the deep water offshore Zafiro field, first and most prolific oil field in Equatorial Guinea, which started producing in 1996. In 2004, a US Senate investigation found that, since 1995, a series of payments from American corporations to Equatorial Guinean accounts at the Riggs Bank in Washington were being made to accounts controlled personally by President Obiang and his close associates. The US Senate released a report that had proof showing that most of the payments were made by the main three US oil companies operating in Equatorial Guinea: Amerada Hess, Marathon, and ExxonMobil.

The Equatorial Guinean government had about US$ 700 million in cash and investment accounts at the Riggs Bank. The US Senate report exposed the extent of the connections between ExxonMobil and Obiang. One example was that ExxonMobil started an oil distribution firm in Equatorial Guinea in 1998, 15% of which was owned by Abayak S.A., a company controlled by Obiang[17].

The oil companies made payments of more than US$ 4 million to support more than 100 students from Equatorial Guinea studying abroad, most of whom were relatives of wealthy or powerful officials.

A subsidiary of Exxon Mobil leased buildings and land from the president’s wife. The leases were later changed to the name of Obiang’s company, Abayak S.A.

Two companies – Hess and a subsidiary of Exxon Mobil – paid a total of nearly US$ 1 million for security services from a company owned by the president’s brother, Armengol Ondo Nguema, who has been accused of human rights abuses[18].

The investigation also highlighted the extent to which US oil companies felt obliged to pay senior figures in the regime millions of dollars for land purchases, accommodation rental and security services in order to be allowed to operate in Equatorial Guinea.

According to the IMF, in 1998 the government of Equatorial Guinea received US$ 130 million in oil revenues, of which US$ 96 million went directly to Obiang’s personal accounts. Although three out of four Equatorial Guineans suffer malnutrition, between 1997 and 2002 Obiang spent just over one percent of his budget on health[19].

Obiang and his family used the oil money to buy real estate in Malibu and Paris, as well as life-size statues of Michael Jackson. One of the president’s sons, Teodorin Obiang, is accused of money laundering in France and Switzerland, where the authorities seized 11 luxury cars valued at about US$ 2 million and a US$ 180 million mansion in Paris. Teodorin, who was named Vice President of Equatorial Guinea in a manoeuvre to try to get diplomatic immunity for his crimes, spent US$ 315 million on properties and luxury goods from 2004 to 2011 [20],[21],[22].

By doing business in Equatorial Guinea in such a shady manner, ExxonMobil gave the money, and consequently the power, to a government that violated several human rights and did next to nothing to raise the living standards of its people. Although the funnelling of oil money into Equatorial Guinea’s president’s pockets started before Rex Tillerson’s tenure at ExxonMobil, the practice continued well over his period as CEO of the oil giant.

Nigeria

The Nigerian commission for economic and financial crimes is investigating a deal struck between ExxonMobil and the Nigerian government back in 2009. The bid secured ExxonMobil a 20-year extension of the leasing rights for 4 of the most prolific offshore oil fiends in Nigeria. The Oso, Ekpe, Edop and Ubit oil fields produce about 580,000 barrels of oil per day, close to a third of Nigeria’s crude oil production.

The sketchy part of the transaction was that ExxonMobil was not the highest bidder. While Chinese National Offshore Oil Corporation (CNOOC), bid US$ 3.75 billion for the same rights, ExxonMobil won the contract spending only US$ 1.5 billion.

The transaction was reported to the Nigerian authorities by a local anti-corruption activist and chairman of the Civil Society Network Against Corruption with the help of international watchdog group Global Witness. ExxonMobil stands by its innocence, denying any wrongdoing. The case is still under investigation[23],[24],[25].

The short life of the Dodd-Frank Act

In a move to curb American oil corporations from engaging in business with corrupt foreign governments, in 2010 then President Obama signed the Dodd-Frank Act. Section 1504 of this act targets corruption in the global oil, gas and mining industries. The law would cover more than 1,000 US and foreign companies, including state-owned firms from China and Brazil.

Section 1504 required all US-listed extractive companies to publish how much they paid governments for international projects, reducing the scope for officials to pocket the proceeds of drilling, mining and logging rights.

The law faced strong opposition from the oil industry. Headed by the American Petroleum Institute (API) and ExxonMobil, the movement managed to stall the progress on enacting the act for 6 years. Although the oil transparency act ultimately hurts all oil companies, ExxonMobil was especially prominent in criticizing the law[26]. One of the arguments, ardently put on by Ken Cohen, now retired vice president of Public and Government Affairs in ExxonMobil, was that the law “threatens the competitiveness of U.S. companies” as “the rules will only apply to companies listed on U.S. exchanges. Unlisted foreign-owned competitors will not be bound by these requirements”[27].

The requirements imposed by Section 1504 of the Dodd-Frank Act reflect an evolution of the law in the US. Similar avenues are being pursued in many other developed countries as well. Between 2013 and 2014, laws towards the same transparency goals were passed in Norway, European Union and Canada[28].

The long-thought bipartisan law was short-lived though. Seven months after being approved, on February 1st 2017, using the little-known Congressional Review Act, the Republican majority House of Representatives voted to kill Section 1504 of the Dodd-Frank Act. Trump’s presidency has been showing unmatched efficiency in dismantling every brick of Obama’s administration legacy.

The American democratic beacon swung back to a less regulatory preference, which uses the discourse of removing the crippling burdens that red tape places on everyday people. However, less regulation also means more freedom for corporations to engage in dodgy practices. Also, starkly symbolic to pass unnoticed, is the fact that the repealing of this law happened on the same day the US Senate confirmed Rex Tillerson as Secretary of State.

American Policies on Africa – What to expect

The White House’s policies towards Africa have usually been of bipartisan consensus. In 2003, during the first term of George W. Bush, the US started a governmental initiative to address the HIV/AIDS epidemic, tuberculosis and malaria, with a primary focus on Africa. The programme was renewed 3 times and still remains active[29].

In 2010, President Obama launched the Young African Leaders Initiative (YALI), which provides education and networking opportunities to African students with leadership potential. The programme includes a fellowship to study in the US for six weeks, follow-up resources, and student exchange programmes[30].

Obama also launched the Power Africa programme. The US$ 9.7 billion initiative started in 2013 with the goal to add 30,000 megawatts of power and supply electricity to 60 million households until 2030. The programme aims to bridge the private sector and governments. However, until July 2015, only US$ 131.5 million was provided. The slow-down in growth of many African countries where Power Africa is planned to take place, also made private investors more risk-averse and less likely to engage in the enterprise[31]. The project is facing delays and, with a Trump administration focused on “America First”, there is a good chance that it may end up getting cancelled all together.

Another policy that may find some bumps along the next years, is the African Growth and Opportunity Act (AGOA). Set up by Congress in 2000 and renewed until 2025, AGOA is a nonreciprocal trade preference programme that provides duty-free treatment to US imports from 39 Sub-Saharan African countries.

Imports from the countries under AGOA represent slightly more than 1% of total US imports and are largely concentrated in energy-related products, with oil accounting for 68% of US imports from AGOA beneficiary countries in 2014[32]. In the current scenario of growing oil and gas production within the US and less dependence on petroleum imports, the main product Africa was offering through the AGOA becomes less relevant.

Although President Trump is not allowed to fully cancel this law, he can dictate which countries are eligible to participate in the agreement and, to some extent, which products are included in the trade benefit list. What was planned to become a stepping stone for bilateral trade agreements between the US and Sub-Saharan African countries, may fall short on this objective. The isolationist direction Trump is setting to America will very likely create tougher conditions for the African counterparts. Trump may try to instate a more balanced agreement, with reduced benefits for the trading partners.

However, most evident changes in the relationship between African countries and the US are likely to emerge on the democracy and security aspects of US foreign policy. The recent immigration ban on 7 countries of Muslim majority, 3 of them in Africa (Libya, Sudan and Somalia), is a clear example of this change in focus. The war on terror seems to have gained new and more destructive proportions in the current Trump administration.

Rex Tillerson will carry the message of an increasingly isolated America. Given the various times Trump changed his mind or contradicted himself, it would be wiser for countries dealing with the US to think more on short-term strategies rather than long-term commitments.

It is likely that fewer philanthropic programmes will be started during Trump’s term. The steps Trump took in his first two weeks in office, show that America under Trump is marching towards isolationism, with a really short sight on ramifications that will arise from this new position. Trump will cut down or try to postpone any welfare programme that does not clearly benefit the US at first, regardless of possible long-term gains for his country.

The ties Tillerson has in Africa through his previous role as ExxonMobil’s CEO, will always cast a shadow of doubt on where his interests lie. Any foreign agreement crafted by him will carry this footnote: is he striking this deal to benefit his country or the company he helped shape into a global private empire? Tillerson is likely to be the least transparent Secretary of State of the modern era US. The track record of dealings between ExxonMobil and corrupt states in Africa make a strong case for this assumption.

African nations will find a position of strength by working together, as economic blocs. That gives more leverage to African countries in trading negotiations with the United States, as they will act as a larger market pursuing common interests. As economic blocs, African nations will force the US to strike multilateral deals rather than broker agreements with self-interested states.

The author, Otavio Veras, is a Research Associate of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. Otavio can be reached at overas@ntu.edu.sg.  

[1] Private Empire: ExxonMobil and American Power (book by Steve Coll, May 2012)

[2] Too Big to Value: Why Saudi Aramco Is in a League of Its Own (Bloomberg, Jan 2016)

[3] Human Development Reports (United Nations Development Programme, 2015)

[4] Corruption Perception Index (Transparency International, 2016)

[5] World Bank cancels pipeline deal with Chad after revenues misspent (The Guardian, Sep 2008)

[6] World Bank Ends Effort to Help Chad Ease Poverty (The New York Times, Sep 2008)

[7] Chad and Cameroon – Petroleum Development and Pipeline Project; Cameroon – Petroleum Capacity Enhancement Project; Chad – Petroleum Sector Management Capacity-Building Project; and Chad – Petroleum Economy Management Project (English) (World Bank, Sep 2009)

[8] Chad – Projects & Programs (World Bank database)

[9] The World Bank Group Program of Support for the Chadcameroon Petroleum Development and Pipeline Construction – Program Performance Assessment Report (World Bank, Sep 2009)

[10] Uppsala Conflict Data Program (Department of Peace and Conflict Research)

[11] Equatorial Guinea (US Energy Information Administration – EIA, Apr 2015)

[12] Equatorial Guinea Economic Outlook (African Development Bank, 2016)

[13] Human Development Indicators – Equatorial Guinea (United Nations Development Programme)

[14] Teodoro Obiang Nguema Mbasogo (Forbes, 2006)

[15] World Bank data

[16] IMF Survey : Equatorial Guinea Seeks to Adjust to Lower Oil Prices (International Monetary Fund, Sep 2015)

[17] U.S. Investigates Payments to Equatorial Guinea (The New York Times, Aug 2004)

[18] U.S. Oil Firms Entwined in Equatorial Guinea Deals (Washington Post, Sep 2004)

[19] US Senate probe reveals massive theft of oil revenue (IRIN, The Inside Story on Emergencies, Jul 2004)

[20] A French Shift on Africa Strips a Dictator’s Son of His Abundant Treasures (The New York Times, Aug 2012)

[21] Under Rex Tillerson, Exxon Mobil Forged Its Own Path Abroad (The New York Times, Dec 2016)

[22] French trial reveals vast wealth of Equatorial Guinean president’s son (The Guardian, Jan 2017)

[23] ExxonMobil under investigation over lucrative Nigerian oil deal (The Guardian, Jun 2016)

[24] Global Witness Report Sheds Light on Exxonmobil’s Questionable Dealings in Nigeria (Global Witness, Jun 2016)

[25] Probe into Murky Exxonmobil Deal Shows Why Strong U.S. Transparency Rules are Needed for Oil Companies (Global Witness, Jun 2016)

[26] Dodd-Frank’s bid to clean up extractive industries stymied by oil business (The Guardian, Jul 2015)

[27] Misguided SEC transparency rules only hurt American companies (ExxonMobil Perspectives, Oct 2012)

[28] Enhancing the Transparency of Resource Extraction Revenue Payments (U.S. Securities and Exchange Commission, Dec 2015)

[29] The United States President’s Emergency Plan for AIDS Relief website

[30] Young African Leaders Initiative (YALI) website

[31] Obama’s Africa Power Plan Falls Short, Leaving Continent in Dark (Bloomberg, Sep 2016)

[32] African Growth and Opportunity Act (AGOA): Background and Reauthorization (Congressional Research Service, Apr 2015)

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