Key message 1 – Natural resources do not need to be a curse

The idea that countries with natural resources are subject to a ‘resource curse’ – the paradox that countries and regions with an abundance of non-renewable natural resources tend to have less economic growth and worse development outcomes than countries with fewer natural resources – is now commonplace, and widely accepted. The ‘resource curse’ as best known is about political dysfunction. The most important of those dysfunctions is that discovering natural resources often acts as a source of conflict between factions fighting for a share of the revenue (Klare 2002; Besley and Persson 2010). Another important dysfunction is that the revenues generated by the depletion of non-renewable resources, though unsustainable, are excessively devoted to consumption. Indeed, resource-rich countries actually accumulate less public capital than resource scarce-scarce ones at the same level of income (Collier and Venables 2011, Bhattacharyya and Collier 2014).

Whether natural resources are a blessing or a curse for a country is still debated among economists. Economic research is inconclusive (Collier 2010, p.39). It shows that resource-dependent countries grow slower on average, but this is due to outlier countries that grow fast and eventually move out of resource-dependence. Research also shows that natural resources tend to reduce the overall national economic output – countries end up producing less than they otherwise would have, even if what they produce – resources – is worth more. Overall, natural resources can help countries grow out of resource dependency, but they more often trigger an economic decline in other sectors of the economy.

The resource curse is not inevitable. Malaysia used its earnings from resource exports to diversify its economy. Botswana used its diamonds to become the fastest growing economy in the world. What needs to be understood is that the resource curse is optional – the consequence of policy errors. Properly managed, resource-driven development is the best growth opportunity for many favourably endowed African countries.

Known subsoil assets in sub-Saharan Africa are of about USD 45,000 per square km. As a comparison, known subsoil assets in the OECD at of USD 265,000 per square km.1 Despite these figures, Africa generally has the reputation of being resource-rich and it might well be. Indeed, what the above figures reflect is not Africa’s poor resource endowment, but rather the low intensity of prospecting that has taken place on the continent so far. By definition, undiscovered resources cannot be ‘known’, but a reasonable assumption over such a huge geographic area such as that of sub-Saharan Africa is that it has about as much natural resource wealth per square km as OECD countries, which have been more thoroughly prospected. What the figures above imply is that most of Africa’s subsoil assets have yet to be discovered. The potential revenue generated by those natural resources is enormous and represents a much needed inflow into national budgets. For this reason, we claim natural resources have the potential to be transformational for African economies.

Footnotes

  • 1 Data retrieved from World Bank, The Changing Wealth of Nations dataset. Authors’ own interpretation of the data displayed above.