Institutional Design and Capacity to Enhance Effective Governance of Oil and Gas Wealth: The Case of Kurdistan Region

195 Pages·2017·4.57 MB·English

by  Khazal Abdullah Auzer (auth.)

Perspectives on Development in the Middle East
and North Africa (MENA) Region
Khazal Abdullah Auzer
Institutional Design
and Capacity to
Enhance Effective
Governance of
Oil and Gas Wealth:
The Case of
Kurdistan Region
Perspectives on Development in the Middle
East and North Africa (MENA) Region
Series editor
Almas Heshmati, Sogang University, Seoul, Korea (Republic of)
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Khazal Abdullah Auzer
Institutional Design
and Capacity to Enhance
Effective Governance of Oil
and Gas Wealth: The Case
of Kurdistan Region
123
Khazal AbdullahAuzer
KurdistanRegional Government
Kiel
Germany
ISSN 2520-1239 ISSN 2520-1247 (electronic)
Perspectives onDevelopment in theMiddle EastandNorth Africa(MENA) Region
ISBN978-981-10-4517-2 ISBN978-981-10-4518-9 (eBook)
DOI 10.1007/978-981-10-4518-9
LibraryofCongressControlNumber:2017937120
©SpringerNatureSingaporePteLtd.2017
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Foreword
The potential for natural resource-led development to promote economic growth
has been questioned since the 1990s. Between 1970 and 1990, many developing
countries in East Asia reduced their economic dependence on primary commodity
revenues through growth in manufactured exports. By contrast, the oil-exporting
countries in North Africa and the Middle East were unable to benefit from the
potentialofpetroleumwealthtodrivetheireconomicdevelopment,andtodaytheir
economies remain heavily dependent on petroleum revenues.
However,theemergenceofnewoil-andgas-producingstatesandregions,such
as Uganda, Mozambique, Ghana, Papua New Guinea, Suriname, SouthSudan and
Iraqi-Kurdistan, is triggering renewed debate about the potential for petroleum
wealth to drive economic development. This has driven the current research to
question what are the specific challenges associated with petroleum-led economic
development, and what are the potential constraints? More importantly, however,
under what conditions can oil- and gas-rich countries channel more of their rev-
enues into social capacity building, and how can they promote sustainable eco-
nomic development?
This book presents a ‘critical reappraisal’ of the so-called resource curse and
extends the analysis to consider the political and social dimensions, and thus the
importance of the structure of the petroleum sector’s governance model. Research
thathassoughttoexplainthereasonsbehindtheresourcecursesuffersfromcertain
limitations. Much of the resource curse literature consists only of cross-country
quantitativeanalysis,whichislimitedbytheobjectivityofresults,dataavailability
and quantification of variables, such as institutional quality and economic growth,
andmaynotoffersufficientlyrobustexplanations.Otherresearchhasuseddetailed
case studies that suffer from limitations of the generalisability of their findings to
the study population or community (Matveev 2002; Goldstein and Spiegelhalter
1996;Stiglitzetal.2009).Therefore,thisresearchadoptsatriangulationapproach,
using a cross-country quantitative data (econometric analysis), a cross-country
qualitative research (comparative case study analysis) and a single case study (in-
ductive thematic analysis) to examine issues from different perspectives.
Methodologically,thisresearchengagescriticallywiththeresourcecurseliterature.
v
vi Foreword
It also contributes to knowledge by investigating the causal factors that may pro-
mote or hinder the effective management of oil and gas resources in the Kurdistan
Region, which also has implications for the security of the wider region and for
global energy security. The project also seeks to generate lessons and policy
guidelines to help inform other new petroleum exporting countries and regions
abouthowbesttomanagetheirnew-foundwealth.Thisbookisthemostsystematic
analysisofmanagementoftheoilandgassectorinIraqi-Kurdistantodateanditis
suitable for audiences from academia, NGOs, policy makers, and stakeholders
(private and national oil and gas companies and Ministries and consultants) in oil-
and gas-exporting countries.
Michael Bradshaw
Professor of Global Energy
Warwick Business School
Coventry, UK
References
Goldstein H, Spiegelhalter DJ (1996) League tables and their limitations: statistical issues in
comparisons of institutional performance. J Roy Stat Soc Ser A (Statistics in Society)
159(3):385–443
Matveev AV (2002) The advantages of employing quantitative and qualitative methods in
interculturalresearch:practicalimplicationsfromthestudyoftheperceptionsofintercultural
communication competence byAmerican andRussian managers.Bull RussCommun Assoc
TheoryCommunApplCommun1:59–67
Stiglitz J, Sen A, Fitoussi JP (2009) The measurement of economic performance and social
progress revisited: reflections and overview. Commission on the Measurement of Economic
PerformanceandSocialProgress,Paris,France
Acknowledgements
I would especially like to thank Prof. Michael Bradshaw, Prof. Almas Heshmati,
Dr. Ana Galvao for their valuable suggestions for improving my book. Their
insightful advice, helpful guidance, inspirational criticism, and patient encourage-
ment assisted the writing of this book in numerous ways. I also would like to take
this opportunity to express my gratitude to the Ministry of Natural Resources, the
Parliament of the Kurdistan Region, and all those who have been influentialin the
preparation and completion of this book.
I dedicate this book to thememory ofmy father,Abudllah Auzer Hostani,who
firmly established in me a sense of moral and ethical thinking, to my mother who
gave me the love of life, and to my beloved Kurdistan.
vii
Contents
1 Overview .. .... .... .... ..... .... .... .... .... .... ..... .... 1
1.1 Introduction .... .... ..... .... .... .... .... .... ..... .... 1
1.2 The Kurdistan Region. ..... .... .... .... .... .... ..... .... 2
1.2.1 The Kurdistan Region’s Political System . .... ..... .... 2
1.2.2 The Kurdistan Region’s Oil and Gas Sector... ..... .... 3
1.3 Aims and Objectives.. ..... .... .... .... .... .... ..... .... 5
1.4 Methods of Study.... ..... .... .... .... .... .... ..... .... 5
1.5 Book Outline ... .... ..... .... .... .... .... .... ..... .... 7
References.. .... .... .... ..... .... .... .... .... .... ..... .... 7
2 Challenges in Petroleum Rich Countries.. .... .... .... ..... .... 9
2.1 Introduction .... .... ..... .... .... .... .... .... ..... .... 9
2.2 Economic Aspects of the ‘Resource Curse’ . .... .... ..... .... 10
2.2.1 Dutch Disease. ..... .... .... .... .... .... ..... .... 10
2.2.2 Oil Price Volatility .. .... .... .... .... .... ..... .... 13
2.2.3 Oil Dependence Versus Diversification... .... ..... .... 17
2.3 Political Economic Aspects of ‘Resource Curse’ . .... ..... .... 21
2.3.1 Governance and Institutions ... .... .... .... ..... .... 22
2.3.2 Institutions and Natural Resources .. .... .... ..... .... 22
2.3.3 Rent Seeking.. ..... .... .... .... .... .... ..... .... 24
2.3.4 Corruption.... ..... .... .... .... .... .... ..... .... 24
2.3.5 Patronage .... ..... .... .... .... .... .... ..... .... 25
2.3.6 Other Political Economic Explanations... .... ..... .... 26
2.3.7 Accountability and Transparency ... .... .... ..... .... 27
2.4 Conclusions .... .... ..... .... .... .... .... .... ..... .... 27
References.. .... .... .... ..... .... .... .... .... .... ..... .... 28
3 Transmission Channels of the ‘Resource Curse’ Reappraised.. .... 33
3.1 Introduction .... .... ..... .... .... .... .... .... ..... .... 33
3.2 Econometric Model .. ..... .... .... .... .... .... ..... .... 34
ix
x Contents
3.3 Sample and Data Availability.... .... .... .... .... ..... .... 34
3.3.1 Control Variables ... .... .... .... .... .... ..... .... 37
3.3.2 Measure of Resource Dependence... .... .... ..... .... 41
3.3.3 Different Types of Natural Resource. .... .... ..... .... 41
3.3.4 Cross-Sectional Model Versus Panel Data Model.... .... 41
3.4 Cross-Sectional OLS Regression . .... .... .... .... ..... .... 42
3.4.1 Marginal Effect of Natural Resources on Economic
Growth .. .... ..... .... .... .... .... .... ..... .... 46
3.4.2 High Fuel-Dependent Economies ... .... .... ..... .... 47
3.5 The Dynamic Econometric Model .... .... .... .... ..... .... 50
3.5.1 Estimation Results... .... .... .... .... .... ..... .... 55
3.5.2 Long-Term Effect of Natural Resource Exports on
Growth .. .... ..... .... .... .... .... .... ..... .... 59
3.5.3 Fuel-Dependent Countries. .... .... .... .... ..... .... 61
3.6 Conclusion. .... .... ..... .... .... .... .... .... ..... .... 63
Appendix 1: Institutional Indices Definition . .... .... .... ..... .... 65
References.. .... .... .... ..... .... .... .... .... .... ..... .... 65
4 Lessons from Other Petroleum-Rich States.... .... .... ..... .... 67
4.1 Introduction .... .... ..... .... .... .... .... .... ..... .... 67
4.2 Institutional Policy: The Role of Institutional Design and
Frameworks in Petroleum Sector Governance.... .... ..... .... 69
4.2.1 Norway.. .... ..... .... .... .... .... .... ..... .... 70
4.2.2 Kuwait .. .... ..... .... .... .... .... .... ..... .... 73
4.2.3 Azerbaijan.... ..... .... .... .... .... .... ..... .... 76
4.2.4 Nigeria .. .... ..... .... .... .... .... .... ..... .... 78
4.3 Capacity-Building Policy: Role of Human Resource
Development in Petroleum-Exporting Countries.. .... ..... .... 81
4.3.1 Norway.. .... ..... .... .... .... .... .... ..... .... 81
4.3.2 Kuwait .. .... ..... .... .... .... .... .... ..... .... 82
4.3.3 Azerbaijan.... ..... .... .... .... .... .... ..... .... 82
4.3.4 Nigeria .. .... ..... .... .... .... .... .... ..... .... 83
4.4 Economic Policy: To Maintain Macroeconomic Sustainability
and Long-Term Economic Development ... .... .... ..... .... 84
4.4.1 Norway.. .... ..... .... .... .... .... .... ..... .... 84
4.4.2 Kuwait .. .... ..... .... .... .... .... .... ..... .... 86
4.4.3 Azerbaijan.... ..... .... .... .... .... .... ..... .... 88
4.4.4 Nigeria .. .... ..... .... .... .... .... .... ..... .... 89
4.5 Assessment. .... .... ..... .... .... .... .... .... ..... .... 91
4.5.1 Institutional Design.. .... .... .... .... .... ..... .... 91
4.5.2 Developing Human Resource Capital .... .... ..... .... 93
4.5.3 Revenue Management.... .... .... .... .... ..... .... 94
4.6 Conclusions .... .... ..... .... .... .... .... .... ..... .... 95
References.. .... .... .... ..... .... .... .... .... .... ..... .... 100