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Natural resources and wealth creation

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By Peter Osalor

Many nations of the world are profusely blessed with natural resources, both mineral and agricultural in nature. This does not ensure against poverty in these countries. Developed as well as developing counties are alike in war against poverty.

Nigerian youths
Nigerian youths

This begs the question, why are nations with natural resources still poor?

Natural resources in a country or community do not equal automatic wealth for the people. A perfect example of this is Nigeria, with the oil rich Niger Delta region which has been besought with crises and clashes that have resulted due to grievances from locals against the governments and multinationals. This has not only led to loss of lives and valuable properties.

This has also caused underdevelopment in these areas. In some quarters, natural resources have been described as a curse rather than a blessing.

The idea that natural resources might be more of an economic curse than blessing began to emerge in the 1980s.

The term resources curse thesis was first used by Richard Auty in 1993 to describe how counties rich in natural resources were unable to use that wealth to boost their economies and how , counter intuitively, these countries had lower economic growth than countries without an abundance of natural resources.

Natural resource deposits have undeniably brought prosperity to counties such as Norway and Iceland. Unfortunately, most resource rich counties do not see economic development following their natural wealth. Rather, relatively resource poor- nation such as East Asia have grown much faster than countries in Latin America, Africa, and the Middle East that have considerable deposit of oil, natural gas and minerals. Recent studies show that even after controlling for income and other factors, oil and mineral – dependent countries generally have higher poverty rates, income inequality, child mortality, and child malnutrition than those that are not dependent on such income sources.

These counties, identified by their high ratio of experts of a single commodity to total exports, also spend less on healthcare, have lower enrolment in primary and secondary schools, and have a higher incidence of political corruption.

The tendency of oil and mineral resource discovery to fuel internal instability and corruption is what has led some to term these resources as a “curse.” This assertion seems justified, as the list of states, both semi- democratic and authoritarian that have declined substantially after discovering oil or mineral resources is nearly as long as the list of those that are resource rich.

Looking at some of the severe cases, the “benefits” of resources can indeed be questioned. Take the democratic Republic of Congo for example. It is the world’s largest producer of cobalt (49% of the world production in 2009) and industrial diamonds (30%), it is also a large producer of gemstone diamonds (6%), it has around 2/3 of the world’s deposits of coltan and significant deposits of copper and tin. At the same time, it has the world’s worst growth rate and the 8th lowest GDP per capita over the last 40 years.

The picture for Sierra Leone and Liberia is very similar. They possess immense natural wealth. Yet they are found among the worst performers both in terms of economic growth and GDP per capita. While the experiences of countries such as Bolivia and Venezuela are not as extreme as their resources wealth in terms of natural gas and oil respectively seem to have brought serious problems in terms of low growth, increased inequality and corruption.

When one, on top of this, adds that some of the world’s fastest growing economies over the past decades, such as Hong Kong, South Korea and Singapore, have no natural wealth, the picture that emerges is that resources seem to be negative for development.

Of course, not all countries face decline after this discovery, but the list of those afflicted includes Nigeria, Venezuela, Equitorial Guinea, Gabon, Angola, Algeria, Congo – Brazaville, Kazakhastan, Yemen, Saudi Arabia, Liberia, Papua New Guinea, and Sierra Leone.

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