New Partnerships for Economic Growth in Oil-Dependent Countries

By David J. O'Reilly, Chairman and CEO
ChevronTexaco Corporation

Oxford Energy Seminar

Oxford, England, September 11, 2003

Today, of course, we remember what happened two years ago and those who were lost. Events since September 11 continue to underscore the challenges we face in the world.

I believe the issue of poverty and the meeting of basic human needs to be the defining challenge of the 21st century, one that is at the source of many of our most pressing challenges.

Globalization is generally a force for good but still leaves too many people behind. We all know the facts. According to the World Bank, of the 6 billion people on our planet, 3 billion live on less than $2 a day. Within 15 years, that is expected to rise to 4 billion.

Almost all the net growth in global population is occurring in the developing world. Good things have happened in the past 20 years, with tens of millions of people in China and India lifted into a new middle class. But in too many places, too many people are falling further behind.

We need determination to address the root cause of poverty. Those people who live in poverty are unlikely to experience a reasonable quality of life unless there is a concerted effort by all to tackle this issue. So we need renewed determination to address the root causes of poverty. I believe that we need to do this through global partnerships and collaborative approaches that will help create sustainable economic growth while also making sure the benefits of this growth are widely shared.

Addressing the issue of poverty is an immense challenge, which may be one reason we shift focus to other seemingly more solvable problems. The fact is, I believe, we will never really solve these problems unless we tackle and resolve the issue of poverty.

I want to talk about how to achieve this collaborative approach and the role that governments, financial institutions, civil society and companies such as ours can play by working together.

In many ways, our industry's future is bound up in the future of economic development. As you all know, much has been said and written about the so-called paradox of plenty and the belief that the extractive industries can stunt the economic growth of developing nations.

Many nongovernmental organizations (NGOs) and even some policy-makers in developing nations worry that there is somehow an unbreakable, unavoidable "curse of oil." Is oil part of the problem or part of the solution?

An unbreakable curse is something for Harry Potter books, not for the real world. But just as I don't think oil is inevitably a curse for these nations, I know the economic benefits of oil development can be squandered. There is a choice.

Simply put, all of us must work to make oil a blessing and not a curse for the countries that have it. This would help the people of those countries with oil and gas and would benefit our industry, as well as enhance stability, ensure a continuing and uninterrupted world market for energy and diminish the hostility so routinely directed our way.

Let's begin by understanding the origins of the "curse of oil" argument. The extractive industries provide clear benefits to resource-rich nations, including the potential for economic growth, jobs growth, higher levels of education and a greater quality of life. But we also acknowledge what can happen when wealth is wasted or misused, for we have seen it too often to ignore or deny it. We have seen how the sudden increase in revenues from oil can distort long-term growth. It is naturally tempting for host governments to increase spending unsustainably and to direct funds toward projects that yield narrow benefits. Often, too little revenue flows down to the communities where the resources originate. Non-oil growth – especially in the rural agricultural sector, which should be fueled by energy development – can wither instead. This is certainly true in a number of the world's poorest nations.

How do we address this issue? Certainly, we must identify those steps critical to broad-based growth in developing nations. We need progress on many fronts: debt relief, trade reform, human capacity building and the improved delivery of development aid. There isn't the time to elaborate on these in detail today. There are changes we need to make to support improved governance and institutional change so that the benefits of growth flow to people in need.

Today, I want to focus on creating the environment in which these changes can flourish, building new partnerships, and finding new approaches to create a more positive context for the growth we all want. I will address the roles of the key players: governments, companies, multinational institutions and NGOs.

First and most important, governments must take the lead in reforming themselves. I believe they increasingly know and recognize this. In many cases, improvements in governance could help set the stage for more sustained growth.

Many critics have been frustrated by what they see as slow progress. In this frustration, some turned their focus to the oil industry. We are in many ways an easier target than governments, easier to find, easier to try to influence and easier to demonize. While I think this is largely unfair, we do recognize we have a role to play in conjunction with public sector leaders.

Still, there are basic needs only governments can meet. And I believe that leaders of many oil-producing nations recognize the importance of reform to their own future. Calls for increasing transparency of oil revenues are a real and positive change; they should be acknowledged and welcomed. I was pleased, for example, by the reaction to Prime Minister Blair's Extractive Industry Transparency Initiative.

But let's remember that transparency is not an end in itself. Broadly shared growth depends on far more than transparency.

Nations that are failing will succeed only if they develop responsible overall policies, including the rule of law, sound monetary and budgetary policies, functioning markets, rights to land ownership, and, with these improvements, more equitable distribution of wealth.

And developing nations must act to make sure their own people can participate in that growth, especially through democratic processes, widespread education and improved health delivery systems.

Second, business – especially the oil industry – must show leadership. Our primary task must be to do what we do well. We are not sources of aid or charity. We cannot be the main driver of improved governance, but we should be an engine for sustainable and environmentally sound growth. We must meet our core business objectives and do so in a way that supports the communities where we operate, empowers employees and helps create entrepreneurial activity where we operate.

Enlightened leaders have argued that trade matters more than aid. The notion that we should help the people who live in emerging economies by pulling back on investment is self-defeating, to put it mildly.

Third, international institutions such as the International Monetary Fund, World Bank ... World Trade Organization and others need to play their role, especially in helping those nations find the right policy mix to help their people. All who recognize the benefit of trade must continue to press for trade liberalization, especially in the agricultural sector, that will let the poorest countries sell to the rest of the world and to their neighbors. Too many people in the wealthiest countries speak loudly about free trade, but when given a chance to practice it, they turn away, especially in the agricultural sector.

Trade flows are a major engine for economic growth. The agreement earlier this month to allow low-cost drugs to be sold in the developing world is a very positive development. I hope it marks the start of more progress on building on the commitments made in the Doha, Qatar, round.

At the same time, we should applaud those efforts already made for responsible debt relief. This requires care, with complex questions to be answered. But deeper debt relief is needed.

Fourth and finally, NGOs have a role. It must be constructive, and often it has been. That may sound funny coming from an oil company executive. It is never pleasant to have your actions scrutinized or called into question, even when they might need to be.

We in the oil industry must acknowledge that often the issues NGOs raise are legitimate and that greater awareness is in all our interest. We should remember the adage of Benjamin Franklin: "Our critics are our friends, for they show us our faults."

But too often, some NGOs appear to have given in to the temptation of the easy headline or the broad generalization. They must recognize they can have an important role moving forward, but they have to choose. I hope they choose to be constructive and act responsibly.

So each sector has a distinct role. But that does not mean we must stand at arm's length from one another – the best length, I might add, for pointing fingers. I feel strongly we must all work together more, creating partnerships where we learn from each other's experiences and strengths.

There is no simple model for these new partnerships. Some are bilateral, some are multilateral. But the benefits are plain. I am seeing new initiatives with government agencies and NGOs to create private-public partnerships in which each participant brings a special set of skills that when combined can be much more effective than acting alone in order to bring about positive change.

That is what we are trying to do, for example, in our $50 million Partnership Initiative with USAID, UNDP. And the government of Angola is encouraging economic progress on a broad basis. The only way forward is through effective partnerships.

I would like to end by committing my company's support to this effort. ChevronTexaco has capital, knowledge and experience. We cannot be an aid agency, a government or an NGO. But working with these groups, we can greatly enhance our own impact and make it felt where it counts – on the ground. Our experience teaches: Neglect is not an answer; dictating our view is not an option. The only way to move forward is in partnership.

True change will come when we work together. All of us.

Thank you.

Updated: September 2003