Ethics and social responsibility in international business

Ethics and Social Responsibility

What is the "oil curse"? Why do you think it develops?

The term "oil curse" refers to the fact that many countries that are rich in natural resources continue to remain underdeveloped and unstable. This problem develops in country's such as Chad that are corrupt and that lack democracy. Chad, for instance, is noted as the most corrupt country in Africa and is under the rule of a dictatorship. Controls to encourage development often fail because oil consortiums want access to the oil regardless of whether the country keeps its commitments to address poverty.

Why was the World Bank's participation in the Chad-Cameroon pipeline critical?

Certainly, financing is one of the reasons why the Word Bank is needed, but the issues extends much further. Consortiums try to control political risks through the relationships the borrowing countries have with the World Bank. The portfolio of loans that countries have with the World Bank could vanish should a country fail to obey its obligations with the World Bank. Further, the World Bank can broker agreements that are intended to help foster economic stability such as enactment of the Petroleum Revenue Management Law in Chad.

3) Does the World Bank have a right to demand that sovereign countries like Chad spend their oil revenues in ways the World Bank deems appropriate?

Yes, the World Bank does have a right to demand that sovereign countries like Chad spend their oil revenues in ways the World Bank deems appropriate. This organization can require that revenues are managed in a certain way as conditions of the loan. In the instance of the Chad loan, the World Bank required the enactment of the Petroleum Revenue Management Law.

4) if the World Bank and Chad's government fail to settle their dispute over amendments to the Petroleum Revenue Management Law, what should the consortium do? Should they make funds available to Chad's government in defiance of the World Bank's wishes?

The consortium was the primary investor in the project and the case reveals no agreement between consortium members and the World Bank to help enforce the Petroleum Revenue Management Law. Thus, from a financial and legal perspective, the consortium should make funds available to Chad's government. However, from a corporate social responsibility perspective, the consortium should not make the funds available, but should instead back the World Bank. This move would help to protect other international interests and corporate reputations. These factors, in the long-term, could more than compensate the oil companies for lost revenues in Chad.

5) Subsequent to the signing of the pipeline agreement, world oil prices have increased substantially. Given the abject poverty of Chad, should the oil companies offer to increase the royalties paid to Chad's government once its dispute with the World Bank is settled?