‘Resource curse’ – for many African countries, these two words sound both ominous and inescapable. They also provide a logical explanation for a paradox that remains inexplicable and intolerable for many observers: ‘Why is it that African nations endowed with many natural resources such as the Democratic Republic of Congo, Nigeria or Madagascar to name a few are also plagued with endemic poverty?’
The resource curse is a complex concept that strives to explain the mechanisms that drive regions rich in natural resources into long term poverty. In a recent article, Nobel laureate economist Joseph Stiglitz provided the following primer on the resource curse concept:
On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect […] Three of the curse’s economic ingredients are well known:
- Resource-rich countries tend to have strong currencies, which impede other exports;
- Because resource extraction often entails little job creation, unemployment rises;
- Volatile resource prices cause growth to be unstable, aided by international banks that rush in when commodity prices are high and rush out in the downturns (reflecting the time-honored principle that bankers lend only to those who do not need their money).
Moreover, resource-rich countries often do not pursue sustainable growth strategies. They fail to recognize that if they do not reinvest their resource wealth into productive investments above ground, they are actually becoming poorer. Political dysfunction exacerbates the problem, as conflict over access to resource rents gives rise to corrupt and undemocratic governments.
The list above could describe the situation of many countries, the majority of them on the African continent. The question on many citizens’ and scholars’ minds is, what are the solutions?
Nigeria covers 923,768 kilometres square and possesses oil reserves estimated at 35 billion barrels (5.6×109 m3) and natural gas reserves well over 100 trillion cubic feet (2,800 km3).
Nigeria is the United States’ largest trading partner in Sub-Saharan Africa and supplies a fifth of its oil (11% of oil imports). Nigeria is currently experiencing a major economic boom but was for a while was the poster nation for misuse of natural resources.
In the book ‘The Political Economy of Poverty, Equity and Growth: Nigeria and Indonesia‘, economists David Bevan, Paul Collier and Jan Willem Gunning examine the diverging economic fortunes of Indonesia and Nigeria between the 1950s and the late 1990s:
They emphasize a variety of factors related to these countries respective economic, political and social structures. The ﬁrst is the fact that Indonesia was more vulnerable to ﬂuctuations in world food prices than Nigeria from the 1950s to the 1980s because it was a major importer of rice. This made the Indonesian government more concerned about promoting agricultural development than the Nigerian government. The second is that the Indonesian government was more responsive to the poor because the Indonesian army, saw itself as having a ‘dual function’ – that is, a responsibility for socio-political as well as military tasks. The third is the fact that Indonesia’s commercial elite was predominantly ethnic Chinese, a factor that made it politically vulnerable, while Nigeria’s commercial elite was from the south of the country where the main opposition to the ruling elite was based. This meant that the two countries’ ruling elites had different incentives in relation to economic liberalization.
Economist Paul Collier on the consequences of exporting natural resources for Africa. Video by Carnegie Council
Nigeria has now embraced economic liberalization and put the emphasis on the development of the private sector to boost its economy and has shown a steady 8% growth for the past six years. However, many natural resources such as natural gas, coal, bauxite, tantalite, gold, tin, iron ore, limestone, niobium, lead and zinc are still underexploited.
Liberalization certainly cannot solve on its own the resource curse. For waste of resources to be further alleviated, other measures must be considered, as academics Subramanian and Martin argue:
- Nigerian citizens are to have access to an equal share of oil proceeds.
- Creating a Fund or distributing current revenues
- Debt relief
- Cooperation by foreign oil companies
Madagascar is one of the poorest countries of the world and despite its many natural resources (including raffia, fishing and forestry) , it is mainly known for its mismanagement of arable lands. Marc Bellemare wrote in recent paper (July 2012) on land rights in Madagascar:
Because untitled and uncultivated lands officially belong to the state, half a million requests to obtain government lands are pending. (..) The central government agency in charge of land tenure is overwhelmed. The land titling system is bankrupt and that many landowners feel insecure on their own lands. Furthermore, land conflicts occur frequently, acquiring a land title is practically impossible without bribing the relevant authority figures, and landowners appear to have little to no incentive to invest in their own plots.
Such a system is prone to invite corruption, a major factor in the further development of the resource curse. Solutions to prevent the resource curse were discussed by the Extractive Industry Transparency Initiative (EITI) back in 2007:
Madagascar was committed to transparency in managing revenues from Madagascar's resources.The GOM emphasized its continued interest in combating corruption and guaranteeing transparency in order to meet development objectives. Representatives from five mining companies made official public “declarations” for EITI: Rio Tinto / QMM (ilmenite); ExxonMobil (offshore oil); Dynatech/Sherritt (nickel/cobalt); Madagascar Oil (onshore oil); and KROAMA (chrome). In response to a question, an industry representative explained that company reported payments and government reported revenues would be aggregated and compared by an independent body.
The regime change in 2009 brought all those resolutions to a halt and it is unclear where Madagascar stands on the transparency issue for its mineral wealth. A World Bank report in 2010 notes that transparency on mining deals are still very tenuous, especially under the transition government:
Under the transition government, the mining cadastre has allegedly been stripped of its core function, with decisions on new permit allocation being made at the discretion of politicians. With growing demand for mining rights in Madagascar, this temptation is likely to increase. If widespread, such rent-seeking will risk undermining investments in exploration and thus the valuation of Madagascar’s mining potential in the long-term. [..] There is a risk that political elites will seek to renege on the fiscal framework for large-scale mining companies. Since dominant coalitions of ruling elites are fluid and continue to change, a short-term ‘survival’ strategy is encouraged. Especially when under fiscal strain, political elites may thus place their short-term interests to extract rents from industrial mining companies rather than the long-term goal of attracting future investment through credible commitments.
For Africa to move past corruption and the resource curse, it will clearly take several measures and sustainable efforts from several major actors, both from the private and the public sector. However fragile growth might be, it is very tangible for a few African nations rich with natural resources like Nigeria. This is a lead the lesser developed nations, such as Madagascar, could get inspiration from.