Resource Curse Thesis is a thesis to explain why high levels of endowment in resources such as crude oil, natural gas, rubber, minerals, or other rare commodities do not necessarily translate to logical levels of growth/development. (In the past, these resources may differ. For example, sugar used to be called white gold, spices and salt were rare in Europe.) This may also be known as the paradox of the plentiful. For many less developed countries, resource wealth has been an obstacle to prosperity instead of its foundation.
Less developed countries that gain a large portion of their national incomes from these extractive resources are subject to three overlapping “curses.” First, they are more prone to authoritarian governments. Second, they are at a higher risk for civil war and coup attempts. Third, they exhibit lower rates of growth.
As seen in Dubai, which is virtually “tax-free.”
For example, Pol Pot supported the Khmer Rouge army by capturing a strip of Cambodian territory rich in rubies and sapphires; and Sassou of Congo-Brazzaville sold future drilling rights to a French oil company to support his private militia.
For example, the conflict in the Democratic Republic of Congo (DRC) in 1998-2002, which caused approximately 3.3 million deaths.
Reasons for Resource Curse
Reliance on expat specialist labour to operate imported technologies
Limited job creation due to highly mechanised production techniques
E
Limited local production linkages
E
Economic leakage due to repatriation of revenue earnt
E
Squalor due to squandering on splendor*
Failure to invest revenues, or at least save it into a stabilisation or sovereign wealth fund, some countries even waste the income on consumption through imports, and on pristiege such as through white elephant projects.
For example, the Second World Festival of Black Arts (FESTAC'77), held in Nigeria, was a Nigerian project in which N1.5 billion (7.5 million USD) was spent to announce to the world that Nigeria was an up-to-date country in the mid 1970s, and to lay claim to the title of being the world's foremost black/ African nation. Another example would include the First World Festival of Black (or Negro) Arts (FESMAN'66).
Examples: Under the Resource Curse
https://www.youtube.com/watch?v=sG3beOhbFao<
https://www.youtube.com/watch?v=DOSziZtpzS8<
Something with lots of diamonds
Nigeria and Equatorial Guinea with oil
Zimbabwe Marange Mines
Case Study:
Nigeria, Africa’s largest oil exporter, has a population of over 130 million (larger than Britain and France combined). Between 1965 and 2000 Nigeria received a very substantial percentage of its GDP from oil revenues that totaled about $350 billion. However in the 30 years after 1970 the percentage of Nigerians living in extreme poverty ($1/day) increased from 36 percent to almost 70 percent—from 19 million to 90 million people. All of the oil revenue contributed nothing to the average standard of living, and indeed the period of oil exploitation saw a decline in living standards. Moreover inequality in Nigeria simultaneously skyrocketed. In 1970 the total income of th2000 the top 2 percent made as much as the bottom 55 percent.18 Meanwhile corruption was everywhere evident in the Nigerian government, and most strikingly at the top. For instance, in just four years in power General Sani Abacha and his family embezzled around $3 billion.19 In the 1980s the corrupt government of Sierra Leone embarked on disastrous economic policies and lost control over the armed gangs that were overseeing the exploitation of the country’s rich diamond fields. In 1991 a small group of insurgents launched an extraordinary brutal campaign of terror (including random shootings, rape, and chopping off hands) to gain control of these regions, recruiting child soldiers and enslaving locals to work the diamond pits. With the money they received from selling these diamonds (so-called “Blood Diamonds”) abroad, the insurgents bought enough weapons nearly to topple the government. The government was only able to defeat the rebels by trading diamond mining futures for the services of a South African mercenary force. The decade-long civil war in Sierra Leone cost about 50,000 lives, and displaced one third of the population. Sierra Leone now ranks 176th out of 177 countries on the UN Human Development Index.20 During the vicious civil war in Angola resource wealth funded large arms purchases on both sides. The rebel UNITA movement sold off the country’s diamond wealth to fund their army, while the government used large oil revenues to pay forces to resist the rebels.21 The government remained astonishingly corrupt, but eventually prevailed. By the late 1990s, three-quarters of Angolans were living on less than a dollar a day, life expectancy was 45 years, and over ose in the top 2 percent of the distribution was equal the total income of those in the bottom 17 percent. By three million civilians had been displaced.22 The UN reports that today almost half of Angola’s children are severely malnourished, and less than half of adults can read and write.23 Equatorial Guinea deserves special attention, as it is such a pure case of a country currently stricken by the resource curse. Equatorial Guinea is in central Africa, bordered by Gabon and Cameroon. Since 1979 it has been ruled by President Theodoro Obiang. Obiang is the kind of ruler that has not shied from having political opposition jailed, tortured, and killed, or from having himself officially proclaimed as a god who is “in permanent contact with the Almighty.”24 In the 1990’s quite large deposits of oil were discovered in the Bay of Guinea. This discovery, at a time when Western countries were searching for sources of oil outside of the Middle East, brought the country from obscurity to the attention of international markets. In a very short time, Equatorial Guinea has become the third-largest oil exporter in Africa. Because of this huge influx of oil money, Equatorial Guinea now has the third-highest per-capita income in the world: 20% higher than the per-capita income of the United States.25 Yet the people have yet to partake in this prosperity. As the US Department of Energy reports:26 Since 1995, oil exports (currently 97 percent of total export earnings) have caused the Equatoguinean economy to grow rapidly… Despite the rapid growth in real GDP, allegations abound over how the Equatoguinean government has misappropriated its oil revenues. While the government has made some infrastructure improvements to bolster the oil industry, the average Equatoguinean has yet to experience a higher standard of living from the oil revenues.
Forbes Magazine recently listed President Obiang as one of the richest leaders in the world, with an estimated personal wealth of $600 million.29 The prospect of capturing this kind of wealth from offshore oil sales has attracted coup attempts, which have so far failed.30 And there is little doubt that the oil money has fueled significant corruption. Transparency International’s latest Corruptions Perceptions Index ranks the country as tied for 152nd place out of the 159 countries surveyed.31 Instead of using his country’s remarkable oil windfall to benefit the people, Obiang has captured the new wealth and used it to consolidate his personal power. The Freedom House report gives a fuller idea of what political life is like in Equatorial Guinea at present: Citizens of Equatorial Guinea cannot change their government democratically, and the country has never held a credible election. [Obiang] holds broad powers and limits public participation in the policy-making process. The 100 members of the unicameral House of People's Representatives are elected to five-year terms but wield little power… Press freedom is constitutionally guaranteed, but the government restricts this right in practice. The 1992 press law authorizes government censorship of all publications, and nearly all print and broadcast media are state run and tightly controlled. A few private newspapers and underground pamphlets are published irregularly. Criticism of the country's leadership is not tolerated, and self-censorship is widespread. Publications that irk the government are banned from the newsstands without explanation… Equatorial Guinea has one internet provider affiliated with the government telephone monopoly, and there were unconfirmed reports that the government monitored citizens using the internet. Freedom of association and assembly is restricted. Authorization must be obtained for any gathering of 10 or more people for purposes deemed political. There are no effective domestic human rights organizations, and the few international nongovernmental organizations operating in Equatorial Guinea are prohibited from promoting or defending human rights. Dozens of opposition activists remain in prison. The judiciary is not independent, and laws on search and seizure—as well as detention—are routinely ignored. Amnesty International and the International Bar Association allege that the trials for two separate groups of alleged coup plotters were marked by flagrant human rights abuses, including torture and forced confessions. Unlawful arrests are common, and government security forces routinely act with impunity, using torture and excessive force. Civil cases rarely go to trial. A military tribunal handles cases tied to national security. Prison conditions, especially in the notorious Black Beach prison, are often life-threatening. Constitutional and legal protections of equality for women are largely ignored, and violence against women is widespread… Few women have educational opportunities or are able to participate in the formal economy or government.
Strategies to develop resource-rich countries
Exceptions to the Resource Curse:
Case Study: Canada
Canada has lots of natural resources, is major net exporter of coal and natural gas, If one considers Alberta oil sands, country is estimated to hold world's second largest oil reserves. Major mining power, with lots of minerals. third largest producer of (primary) Aluminium, diamonds, and within the top five for cadium, molybednum, nickel, platinum group metals, salt, titanium concentrates, elemental sulfur, and uranium. Good regulations and planning is implemented and practiced. Most of royalties, taxes, incentives, permits, and
licensing for oil and natural gas are done through provincial bodies, while a federal National Energy Board oversees regulation and is partnered with respective provinces in offshore drilling. The NEB also reports to the Parliament.
Chile has rich mineral deposits, number one copper producer, controlling 20% of world's copper reserves, accounting for 11% of global copper production. While its economic dependence on copper exports does cause a certain susceptibility to rises and falls in copper prices, Chile has managed to overcome many issues related to non-renewable resource wealth. Chile has benefited from high degree of transparency, Information on operations and revenues are published on a regular basis by the finance ministry, as well as comprehensive checks on royalties, taxes, mining export values, and production volumes. The Chilean Commission on Copper and the Mining Ministry further publishes information regularly, which includes environmental assessments and licensing petitions. However, it does not publish information on mining contracts.
Norway has vast reserves of oil and gas, and the Norwegian government embarked on a good approach to non-renewable resource wealth for the long term rather than the short term. Good existing structures allowed it to set aside 100% of its oil earnings for its massive sovereign wealth fund, 4% of this oil earnings is withdrawn annually to be utilised for public services. Columbia and Chile hopes to adopt similar measures to prevent wealth concentration, currency appreciation, and mismanagement and corruption by public officials
Botswana is world's largest producer of diamonds. Unlike many of its African neighbours who are resource rich but prone to conflict and corruption, Botswana has managed to avoid the resource curse. Given that minerals account for 3/4 of its exports and over 40% of its GDP, this is a remarkable feat. Botswana has managed to greatly diversify its economy, one of the least corrupt in the continent, and relatively conflict-free. Stable and good governance has encouraged business growth, regional investment, and FDI.
According to African Development Bank, it's 3 pronged approach is successful, as Botswana pursued economic diversification, divested revenues to make its economy less susceptible to global markets, and finally, it invested surplus revenue.
Other possible case studies: Ghana
Source: http://globalriskinsights.com/2014/04/four-countries-that-beat-the-resource-curse/
globalriskinsights.com is actually a very good website for understanding global issues.
Fighting the Resource Curse: Oil-To-Cash
https://www.youtube.com/watch?v=b8f7MSOLMRk</
Additional Materials:
http://siteresources.worldbank.org/INTDECINEQ/Resources/PropertyRights.pdf
Some people believe the resource curse doesn't exist, only the leadership curse.
Reasons for Resource Curse
Reliance on expat specialist labour to operate imported technologies
Limited job creation due to highly mechanised production techniques
E
Limited local production linkages
E
Economic leakage due to repatriation of revenue earnt
E
Squalor due to squandering on splendor*
Failure to invest revenues, or at least save it into a stabilisation or sovereign wealth fund, some countries even waste the income on consumption through imports, and on pristiege such as through white elephant projects.
For example, the Second World Festival of Black Arts (FESTAC'77), held in Nigeria, was a Nigerian project in which N1.5 billion (7.5 million USD) was spent to announce to the world that Nigeria was an up-to-date country in the mid 1970s, and to lay claim to the title of being the world's foremost black/ African nation. Another example would include the First World Festival of Black (or Negro) Arts (FESMAN'66).
Examples: Under the Resource Curse
https://www.youtube.com/watch?v=sG3beOhbFao<
https://www.youtube.com/watch?v=DOSziZtpzS8<
Something with lots of diamonds
Nigeria and Equatorial Guinea with oil
Zimbabwe Marange Mines
Case Study:
Nigeria, Africa’s largest oil exporter, has a population of over 130 million (larger than Britain and France combined). Between 1965 and 2000 Nigeria received a very substantial percentage of its GDP from oil revenues that totaled about $350 billion. However in the 30 years after 1970 the percentage of Nigerians living in extreme poverty ($1/day) increased from 36 percent to almost 70 percent—from 19 million to 90 million people. All of the oil revenue contributed nothing to the average standard of living, and indeed the period of oil exploitation saw a decline in living standards. Moreover inequality in Nigeria simultaneously skyrocketed. In 1970 the total income of th2000 the top 2 percent made as much as the bottom 55 percent.18 Meanwhile corruption was everywhere evident in the Nigerian government, and most strikingly at the top. For instance, in just four years in power General Sani Abacha and his family embezzled around $3 billion.19 In the 1980s the corrupt government of Sierra Leone embarked on disastrous economic policies and lost control over the armed gangs that were overseeing the exploitation of the country’s rich diamond fields. In 1991 a small group of insurgents launched an extraordinary brutal campaign of terror (including random shootings, rape, and chopping off hands) to gain control of these regions, recruiting child soldiers and enslaving locals to work the diamond pits. With the money they received from selling these diamonds (so-called “Blood Diamonds”) abroad, the insurgents bought enough weapons nearly to topple the government. The government was only able to defeat the rebels by trading diamond mining futures for the services of a South African mercenary force. The decade-long civil war in Sierra Leone cost about 50,000 lives, and displaced one third of the population. Sierra Leone now ranks 176th out of 177 countries on the UN Human Development Index.20 During the vicious civil war in Angola resource wealth funded large arms purchases on both sides. The rebel UNITA movement sold off the country’s diamond wealth to fund their army, while the government used large oil revenues to pay forces to resist the rebels.21 The government remained astonishingly corrupt, but eventually prevailed. By the late 1990s, three-quarters of Angolans were living on less than a dollar a day, life expectancy was 45 years, and over ose in the top 2 percent of the distribution was equal the total income of those in the bottom 17 percent. By three million civilians had been displaced.22 The UN reports that today almost half of Angola’s children are severely malnourished, and less than half of adults can read and write.23 Equatorial Guinea deserves special attention, as it is such a pure case of a country currently stricken by the resource curse. Equatorial Guinea is in central Africa, bordered by Gabon and Cameroon. Since 1979 it has been ruled by President Theodoro Obiang. Obiang is the kind of ruler that has not shied from having political opposition jailed, tortured, and killed, or from having himself officially proclaimed as a god who is “in permanent contact with the Almighty.”24 In the 1990’s quite large deposits of oil were discovered in the Bay of Guinea. This discovery, at a time when Western countries were searching for sources of oil outside of the Middle East, brought the country from obscurity to the attention of international markets. In a very short time, Equatorial Guinea has become the third-largest oil exporter in Africa. Because of this huge influx of oil money, Equatorial Guinea now has the third-highest per-capita income in the world: 20% higher than the per-capita income of the United States.25 Yet the people have yet to partake in this prosperity. As the US Department of Energy reports:26 Since 1995, oil exports (currently 97 percent of total export earnings) have caused the Equatoguinean economy to grow rapidly… Despite the rapid growth in real GDP, allegations abound over how the Equatoguinean government has misappropriated its oil revenues. While the government has made some infrastructure improvements to bolster the oil industry, the average Equatoguinean has yet to experience a higher standard of living from the oil revenues.
Forbes Magazine recently listed President Obiang as one of the richest leaders in the world, with an estimated personal wealth of $600 million.29 The prospect of capturing this kind of wealth from offshore oil sales has attracted coup attempts, which have so far failed.30 And there is little doubt that the oil money has fueled significant corruption. Transparency International’s latest Corruptions Perceptions Index ranks the country as tied for 152nd place out of the 159 countries surveyed.31 Instead of using his country’s remarkable oil windfall to benefit the people, Obiang has captured the new wealth and used it to consolidate his personal power. The Freedom House report gives a fuller idea of what political life is like in Equatorial Guinea at present: Citizens of Equatorial Guinea cannot change their government democratically, and the country has never held a credible election. [Obiang] holds broad powers and limits public participation in the policy-making process. The 100 members of the unicameral House of People's Representatives are elected to five-year terms but wield little power… Press freedom is constitutionally guaranteed, but the government restricts this right in practice. The 1992 press law authorizes government censorship of all publications, and nearly all print and broadcast media are state run and tightly controlled. A few private newspapers and underground pamphlets are published irregularly. Criticism of the country's leadership is not tolerated, and self-censorship is widespread. Publications that irk the government are banned from the newsstands without explanation… Equatorial Guinea has one internet provider affiliated with the government telephone monopoly, and there were unconfirmed reports that the government monitored citizens using the internet. Freedom of association and assembly is restricted. Authorization must be obtained for any gathering of 10 or more people for purposes deemed political. There are no effective domestic human rights organizations, and the few international nongovernmental organizations operating in Equatorial Guinea are prohibited from promoting or defending human rights. Dozens of opposition activists remain in prison. The judiciary is not independent, and laws on search and seizure—as well as detention—are routinely ignored. Amnesty International and the International Bar Association allege that the trials for two separate groups of alleged coup plotters were marked by flagrant human rights abuses, including torture and forced confessions. Unlawful arrests are common, and government security forces routinely act with impunity, using torture and excessive force. Civil cases rarely go to trial. A military tribunal handles cases tied to national security. Prison conditions, especially in the notorious Black Beach prison, are often life-threatening. Constitutional and legal protections of equality for women are largely ignored, and violence against women is widespread… Few women have educational opportunities or are able to participate in the formal economy or government.
Strategies to develop resource-rich countries
Exceptions to the Resource Curse:
Case Study: Canada
Canada has lots of natural resources, is major net exporter of coal and natural gas, If one considers Alberta oil sands, country is estimated to hold world's second largest oil reserves. Major mining power, with lots of minerals. third largest producer of (primary) Aluminium, diamonds, and within the top five for cadium, molybednum, nickel, platinum group metals, salt, titanium concentrates, elemental sulfur, and uranium. Good regulations and planning is implemented and practiced. Most of royalties, taxes, incentives, permits, and
licensing for oil and natural gas are done through provincial bodies, while a federal National Energy Board oversees regulation and is partnered with respective provinces in offshore drilling. The NEB also reports to the Parliament.
Chile has rich mineral deposits, number one copper producer, controlling 20% of world's copper reserves, accounting for 11% of global copper production. While its economic dependence on copper exports does cause a certain susceptibility to rises and falls in copper prices, Chile has managed to overcome many issues related to non-renewable resource wealth. Chile has benefited from high degree of transparency, Information on operations and revenues are published on a regular basis by the finance ministry, as well as comprehensive checks on royalties, taxes, mining export values, and production volumes. The Chilean Commission on Copper and the Mining Ministry further publishes information regularly, which includes environmental assessments and licensing petitions. However, it does not publish information on mining contracts.
Norway has vast reserves of oil and gas, and the Norwegian government embarked on a good approach to non-renewable resource wealth for the long term rather than the short term. Good existing structures allowed it to set aside 100% of its oil earnings for its massive sovereign wealth fund, 4% of this oil earnings is withdrawn annually to be utilised for public services. Columbia and Chile hopes to adopt similar measures to prevent wealth concentration, currency appreciation, and mismanagement and corruption by public officials
Botswana is world's largest producer of diamonds. Unlike many of its African neighbours who are resource rich but prone to conflict and corruption, Botswana has managed to avoid the resource curse. Given that minerals account for 3/4 of its exports and over 40% of its GDP, this is a remarkable feat. Botswana has managed to greatly diversify its economy, one of the least corrupt in the continent, and relatively conflict-free. Stable and good governance has encouraged business growth, regional investment, and FDI.
According to African Development Bank, it's 3 pronged approach is successful, as Botswana pursued economic diversification, divested revenues to make its economy less susceptible to global markets, and finally, it invested surplus revenue.
Other possible case studies: Ghana
Source: http://globalriskinsights.com/2014/04/four-countries-that-beat-the-resource-curse/
globalriskinsights.com is actually a very good website for understanding global issues.
Fighting the Resource Curse: Oil-To-Cash
https://www.youtube.com/watch?v=b8f7MSOLMRk</
Additional Materials:
http://siteresources.worldbank.org/INTDECINEQ/Resources/PropertyRights.pdf
Some people believe the resource curse doesn't exist, only the leadership curse.
