New approaches to volatility: dealing with the 'resource curse' in sub-Saharan Africa

Much attention has been given in recent years to the paradoxical fact that huge flows of money from petroleum appear not to have brought prosperity to the African countries that produce it, but may instead have helped cause poverty, economic decline and conflict. Issues such as human rights abuses near oil installations and environmental damage have often captured the headlines, but these, while important, are peripheral to the main problems: the Dutch Disease, whereby an influx of oil money causes real exchange rates to appreciate, making local industry and agriculture uncompetitive; the damage that petroleum money causes to institutions, incentives and overall governance; and the volatility of oil prices and revenues. This article will look at the volatility problem, and how oil contracts tend to make matters even worse. They are like this for long-established technical, political and historical reasons, and there is consequently a widespread belief in the industry that change is not possible. This defeatist attitude needs to be vigorously challenged.