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Report Summary December 20, 2011
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The Resource Curse
Does energy and mineral wealth hinder development?
By Jennifer Weeks

Ever since dozens of countries gained independence after World War II, scholars have been trying to understand why some new countries were able to grow and prosper while others stagnated. One prominent. . . .

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The Issues
  • Is there a resource curse?
  • Can transparency break the resource curse?
  • Is foreign aid the real curse?


Pro/Con
Will the resource curse stifle democracy in Libya?

Pro Pro
Paul Frijters
Professor of Economics, University of Queensland, Australia. Written for CQ Global Researcher, December 2011
Ian Vasquez
Director, Center for Global Liberty and Prosperity, Cato Institute, Washington, D.C.. Written for CQ Global Researcher, December 2011


Spotlight
Resource-rich role models focus on accountability and the long term.

Some countries with abundant resources have avoided the resource curse by using their wealth to promote economic growth and meet social needs. Although each country's situation is different, successful cases share some common elements: strong democratic institutions and a focus on the long-term future.

Norway earned most of its income from shipping and fishing before oil was discovered in its coastal waters in 1970. Today oil accounts for almost half of Norway's exports and more than 30 percent of state revenue. The nation's Government Pension Fund (actually a reserve for oil revenues) was valued at $560 billion as of mid-December 2011 — the second-largest such reserve in the world.Footnote 1

From the outset, observers say, Norway has managed its oil wealth with a focus on the future. The government awarded drilling permits slowly to stretch resources out over time, even as production declines, to generate funds for public pension costs as workers retire.Footnote 2 All revenues go into the oil trust fund. Only interest from the fund can be spent, while the principal is saved.Footnote 3

An oil platform in the vast Statfjord oil and gas field, about 125 miles off the coast of Norway (AFP/Getty Images/Oddvar Walle Jensen)
An oil platform in the vast Statfjord oil and gas field, about 125 miles off the coast of Norway, is partly owned by the Norwegian government. Norway is considered a model for wise management of oil wealth. (AFP/Getty Images/Oddvar Walle Jensen)

“We cannot spend this money now; it would be stealing from future generations,” said Norwegian economist Eirik Wekre in 2009, during the global recession.Footnote 4

Five thousand miles to the south in southern Africa, land-locked Botswana is another successful resource-rich country, but with a very different background. A British colony called Bechuanaland, it was one of the world's poorest countries when it became independent in 1966. But it also has diamond mines, which generate 70 to 80 percent of export earnings and about half of government revenues. And like Norway, Botswana has managed its earnings with discipline and a focus on the future. Today it is a middle-income country and is viewed as one of the best credit risks in Africa.Footnote 5

Many factors helped Botswana perform so well. Before and during its colonial period, the country had lower levels of ethnic conflict than many other parts of Africa. When it became independent, the government focused on building up health, education and infrastructure systems and worked to diversify the economy. And when diamond revenues began to flow, the government demanded 50 percent of the profits and invested them in long-term needs.Footnote 6

Importantly, Botswana also has strong democratic institutions such as regular and fair elections, independent courts and a free press — all of which help prevent corruption and hold government officials accountable.Footnote 7

“By and large Botswana's political elite has been frugal and accountable to the people,” writes Hippolyte Fofack, a fellow of the African Academy of Sciences in Nairobi, Kenya. “These attributes have enabled these leaders to withstand a culture of rampant greed that has done so much to undermine the development process in the rest of the continent.”Footnote 8 According to Transparency International, Botswana is perceived as the least corrupt country in Africa.Footnote 9

In Latin America, Chile has prospered from its copper wealth, even during several decades of political turmoil. Socialist President Salvador Allende nationalized the country's copper mines in 1971, but he was overthrown in a 1973 coup and replaced by a repressive military government that ruled until elections took place in 1990.

Although the military regime suppressed many democratic freedoms, it diversified Chile's economy and managed the copper industry effectively. Economic conditions improved further after the country transitioned to democracy.Footnote 10

Chile created a Copper Stabilization Fund in 1985 to invest copper revenues and help to insulate the country from fluctuating commodity markets. The fund is used to absorb excess revenues when copper prices are high and supplement the national budget when prices are low.Footnote 11 Currently, the fund is valued at $21.8 billion.

— Jennifer Weeks

[1] “Norway,” The World Factbook, Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook/geos/no.html; “Norway Government Pension Fund Global,” Sovereign Wealth Fund Institute, www.swfinstitute.org/swfs/norway-government-pension-fund-global/.

Footnote:
1. “Norway,” The World Factbook, Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook/geos/no.html; “Norway Government Pension Fund Global,” Sovereign Wealth Fund Institute, www.swfinstitute.org/swfs/norway-government-pension-fund-global/.

[2] “Norway Government Pension Fund Global,” ibid.

Footnote:
2. “Norway Government Pension Fund Global,” ibid.

[3] Alex Blumberg, “How to Avoid the Oil Curse,” NPR, Sept. 6, 2011, www.npr.org/blogs/money/2011/09/06/140110346/how-to-avoid-the-oil-curse.

Footnote:
3. Alex Blumberg, “How to Avoid the Oil Curse,” NPR, Sept. 6, 2011, www.npr.org/blogs/money/2011/09/06/140110346/how-to-avoid-the-oil-curse.

[4] Landon Thomas, Jr., “Thriving Norway Provides an Economics Lesson,” The New York Times, May 14, 2009, www.nytimes.com/2009/05/14/business/global/14frugal.html.

Footnote:
4. Landon Thomas, Jr., “Thriving Norway Provides an Economics Lesson,” The New York Times, May 14, 2009, www.nytimes.com/2009/05/14/business/global/14frugal.html.

[5] “Botswana,” The World Factbook, Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook/geos/bc.html.

Footnote:
5. “Botswana,” The World Factbook, Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook/geos/bc.html.

[6] Daron Acemoglu, Simon Johnson and James A. Robinson, “An African Success Story: Botswana,” July 11, 2001, pp. 9–17, www.colby.edu/economics/faculty/jmlong/ec479/AJR.pdf.

Footnote:
6. Daron Acemoglu, Simon Johnson and James A. Robinson, “An African Success Story: Botswana,” July 11, 2001, pp. 9–17, www.colby.edu/economics/faculty/jmlong/ec479/AJR.pdf.

[7] “Avoiding the Resource Curse: What Can We Learn from the Case of Botswana?” Transparency International, (undated), http://eadi.org/gc2005/confweb/papersps/Peter_Eigen.pdf.

Footnote:
7. “Avoiding the Resource Curse: What Can We Learn from the Case of Botswana?” Transparency International, (undated), http://eadi.org/gc2005/confweb/papersps/Peter_Eigen.pdf.

[8] Hippolyte Fofack, “How Botswana Avoided the ‘Resource Curse,’” African Business, February 2009, http://findarticles.com/p/articles/mi_qa5327/is_350/ai_n31377446/?tag=content;col1.

Footnote:
8. Hippolyte Fofack, “How Botswana Avoided the ‘Resource Curse,’” African Business, February 2009, http://findarticles.com/p/articles/mi_qa5327/is_350/ai_n31377446/?tag=content;col1.

[9] “Transparency International Corruption Perception Index 2011,” Transparency International, http://cpi.transparency.org/cpi2011/results.

Footnote:
9. “Transparency International Corruption Perception Index 2011,” Transparency International, http://cpi.transparency.org/cpi2011/results.

[10] Goril Havro and Javier Santiso, “Benefiting the Resource Rich: How Can International Development Policy Help Tame the Resource Curse?” Institute of Development Studies, University of Sussex, January 2011, pp. 22–27, www.acp-eu-trade.org/library/files/Havro%20&%20Santiso_EN_090211_IDS_Benefiting%20the%20Resource%20Rich.pdf.

Footnote:
10. Goril Havro and Javier Santiso, “Benefiting the Resource Rich: How Can International Development Policy Help Tame the Resource Curse?” Institute of Development Studies, University of Sussex, January 2011, pp. 22–27, www.acp-eu-trade.org/library/files/Havro%20&%20Santiso_EN_090211_IDS_Benefiting%20the%20Resource%20Rich.pdf.

[11] “Social and Economic Stabilization Fund,” Sovereign Wealth Fund Institute, www.swfinstitute.org/swfs/social-and-economic-stabilization-fund/.

Footnote:
11. “Social and Economic Stabilization Fund,” Sovereign Wealth Fund Institute, www.swfinstitute.org/swfs/social-and-economic-stabilization-fund/.


Document Citation
Weeks, J. (2011, December 20). The resource curse. CQ Global Researcher, 5, 597-622. Retrieved from http://library.cqpress.com/globalresearcher/
Document ID: cqrglobal2011122000
Document URL: http://library.cqpress.com/globalresearcher/cqrglobal2011122000


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