1 Licence to operate: CSR as a strategic tool of multinational oil companies Arne Wiig, Dr. Oecon. CMI Ivar Kolstad, Dr. Oecon. Angola seminar CMI June 2008

2 Action is needed. Also by firms? “Without improving their democratic institutions and administrative capacity, it is unlikely that African oil exporters will be able to use petrodollars to fuel poverty reduction; instead oil monies are more likely to make matters worse for the poor” –Catholic Relief Services (2003):Bottom of the Barrel. Africa’s Oil Boom and the Poor

3 Should oil companies address governance? ”..oil companies tend to be reluctant to contribute towards better governance, despite the fact that this would have greater developmental potential in the longer term than isolated charitable giving.” Frynas (2005). ”..[BP] risks having all corporate efforts to promote social and economic development undermined by the host country’s macroeconomic policies and lack of commitment to developing democratic and accountable political institutions” Gulbrandsen and Moe (2007).

4 Agenda What are the obligations of corporations? –The assigned responsibility approach The Angolan context: –Resource curse –Institutions as the key to the curse CSR activities of multinational oil companies in Angola –Governance? –Motivations and priorities

5 What are the obligations of corporations? Ethical theory: –Reasoned answers to right and wrong –Specify claims that people have: Consequentialism: Happiness, utility, welfare Duty ethics: Rights, not being treated as a means (Kant) Liberalism: Freedom Claims to imply claims against: –Obligations/responsibilities/duties –Against whom, and what kind? –Assigned responsibility approach Three types of obligations: –Negative: Not directly violate claims people have –Positive: Implementation: Secure claims people have Compliance: Not undermine the obligations of others

6 Implications for corporations Negative and positive compliance obligations are universal: –Also apply to companies Positive implementation obligations: –Division of moral labour –State has primary obligation for securing claims –If state defaults, others have secondary obligation to step in –Ultimately, obligation falls on corporations What companies should do depends on reason for government default: –Government is incapable: Direct implementation –Government is unwilling: Influence goverment

7 The Angolan context Resource curse: –Countries with oil on average have less growth, lower human development scores, worse income distributions Four explanations: –Dutch disease –Rent seeking –Patronage –Destruction of institutions Empirical evidence suggest rent-seeking and patronage main problems Key to resource curse: Improve institutions/governance

8 Social background: Middle income country but extreme income inequality and human suffering –UN HDI: (160 of 177 countries) –Gini coefficient: > 0,60 –60%< Poverty line; and 70% less than 2$ per day –Children underweight: 30-40% –Life expectancy is 41year –School enrollment is 56% Hard to find any improvement (but lack of data) Enclave economy; “200 families”, lack of trickle down and lack of prioritizing social sectors within public budget

9 Weak and non-improving governance

10 CSR activities by oil companies PSA social spending Dependent on production Mainly managed by Sonangol million USD per year (Amundsen and Wiig, 2008) Non transparent, no accountability Social bonuses Managed by Sonangol, but new partnership initiatives Huge amounts 200 mill. USD in each of the blocks 17 and 18 More transparent than previously Voluntary contributions Direct management NGOs Company Foundations –Ex: Chevron CDPA 1-5 mill. USD per year pr company

11 Lack of focus on governance Oil companies have played a minor role in challenging the government on transparency issues Lack of coordination among oil companies on governance issues Sector support but not support to governance issues –Health (Esso, Chevron, Total) –Education (Esso) –Local communitiy support (Chevron) –Water supply (StatiolHydro) Local content and training are key ingredients of CSR; but strictly needed for the companies Support to civil society for providing services – not for voice

12 Why are not the oil companies addressing governance issues (1) Might perceive that they do not have a responsibility to intervene But, survey among oil companies about motivation for being social responsible: Pressure or expectations from the government and companies’ internal rules are the primary motivations Risk reduction and dancing to the tune of Angolan government

13 Why are not oil companies addressing governance issues (2) Two out of three companies claimed that they had experienced situations in which CSR had played a role when contracts were awarded. Our assumption: Motivations for CSR policies influence the types of CSR activity companies would pursue. We therefore asked both government and company respondents to evaluate how different dimensions of CSR affect the likelihood of getting licences/contracts in Angola. Found a strong correlation between these factors and firms’ actual activities. See Table 2

14 Conclusion Angola faces resource curse problems unless governance issues are addressed The government does not address governance issues and it does not prioritize social sectors From an assigned responsibility perspective, firms have a responsibility to address governance The firms are not – rather target their CSR to specific social sectors. One important reason is that CSR is used strategically for gaining contracts.