Oil: Blessing or Curse?

A couple of years ago, Kenyans were very optimistic: they had found oil in the Northern part of the country! Last year, it looked like the country could become an exporter of oil. Right now, Kenya is benefiting from being a net energy importer. Is oil a blessing or a curse for a country’s economy?

Over-reliance on oil may hurt a country’s economy. Take Nigeria as an example. Roughly 2/3 of the government’s revenue come from oil and related industries. This is a curse to the country’s economy: the government doesn’t need other industries to bloom, and lacks incentives to create the infrastructural conditions necessary for development. Not that the problem is oil per se – rather, the problem is a historical combination of (1) easy-tax collection from oil, and (2) politicians who have cared more about themselves than about the well-being of their citizens. (You may learn more about this in a previous post on “Nigeria’s post-colonial impoverishment”).

Angola faces a similar situation. Even during the times of the civil war, the oil sector grew with vigor. Income from the industry contributed rebuilding the country’s infrastructure once the war was over. But the government failed to promote a more diversified economy, and the country is facing now the consequences of this. (You may learn about this at an article by Rebecca Engebretsen in African Arguments).

To Kenyans’ fortune, their discovery of oil came just as oil prices started going down the slope. They didn’t have time to become over-dependent on it. What’s more, as an energy net importer, the declining oil prices reduce their bill, and help boost exports from other industries.

So, to my question, what do you think? Is oil a blessing or a curse for a country’s economy? My own view: When a country enjoys an advantage such as being rich in oil, it’s easy to forget that it doesn’t suffice in the long run. But using that advantage to invest in infrastructure and education may help set the country in the launch ramp.