The Natural Resource Curse

Introduction

While having an abundance of natural resources is a desirable thing since it increases the likelihood of a nation becoming wealthy, these resources have been linked to negative outcomes such as poverty and conflict in some resource-rich countries. Some nations with abundant natural resources have failed to achieve the economic growth that their resources can promote. Instead, these countries have experienced conflict and instability due to corruption or civil strife as different factions fight over the natural resources available in the country. As such, the presence of resources has led to greater poverty and instability in the countries. This has led scholars to suggest that there is a natural resource curse. This paper will set out to describe this concept of natural resource curse and provide explanations of why some countries avoid it while others are unable to.

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The Natural Resource Curse

The resource curse is defined by the correlation between natural resources and negative socio-economic and political consequences in a country. In the case where a country falls into this resource curse, its economy and political performance are worse off to those of countries that do not have abundant natural resources. This paradox causes natural resources to be seen as a curse since they result in worse economic and political outcomes for some of the countries that are blessed with many resources. Countries such as Nigeria and Zambia are a good example of resource rich nations that have experienced slow economic growth over the decades.

The theory of the natural resource curse is strengthened by the strong relationship between natural resources and armed conflicts in some African and Asian countries. The armed conflicts are often initiated by the presence of the natural resources, therefore suggesting that the conflict could have been avoided if the country had limited natural resources. In addition to this, the conflicts in resource rich countries tend to be prolonged since the natural resources are exploited by the warring parties to further finance the conflict making it stretch for years or even decades. Natural resources therefore prove to be a curse since if a country has limited natural resources; the warring parties are often forced to come to a peaceful ending sooner due to the lack of means to continue financing the conflict.

Why Some Nations Experience the Curse

There are a number of reasons why some nations are unable to avoid the resource curse. Some countries are more likely to experience the natural resource curse due to overreliance on natural resources for economic prosperity. Countries that focus too much on their natural resources tends to shift resources away from other sectors that may have a high growth potential. Such countries concentrate too much on the natural resources and make little or no investment in other sectors of the economy. Sovacool declares that the countries that are most susceptible to the resource curse have “economies that are not diversified and remain heavily dependent on a few extractive industries” (231). For example, the discovery of oil in Nigeria transformed the country’s economy from dependency on agriculture to dependency on oil (Idemudia 6). This transformation made oil the central focus and other sectors were neglected hence making the country fall into the resource curse trap. Since the few extractive industries are not able to employ a significant portion of the country’s population, unemployment levels rise and the average income per capita in the country reduces.

Countries also fall into the resource curse then they overspend during the time when their natural resources have a high price on the market. Such an approach ignores the fact that the prices of natural resources tend to be volatile. Lundahl and Sjoholm observe that when a country overspends during the boom period, they have limited funds during the bust cycle leading to poor economic performances (73). During the bust cycle, the lenders to the country demand for their money and the country is often not able to repay. This plunges the country into debt and reduces its economic wellbeing. The country’s economic performance, therefore falls to levels below those of other nations that have fewer natural resources.

An abundance of natural resources leads to poor institutions, which subsequently result in poor growth performance. Studies reveal that the vast amount of profit from natural resources tends to corrupt the bureaucracy. The bureaucracy then becomes more focused on lobbying for economic rents from the natural resources of the country instead of delivering public services to the population. Lundahl and Sjoholm contend that many oil-rich countries are rife with corruption since oil is more related to corruption than any other line of business (73). Bureaucrats in countries such as Nigeria and Zambia have been known to seek ways of enriching themselves from the country’s resources.

Some countries are unable to avoid the resource curse since they manage their natural resources poorly giving rise to civil strife and social instability that might result in conflicts. Ross best articulates this by stating that “natural resources play a key role in triggering, prolonging, and financing conflicts” (17). In these cases, natural resource endowments contribute to rising income inequality as a small segment of the population benefits from the resources while the majority does not. When this occurs, people might engage in violent conflict in protest of the perceived injustice. Sovacool states that the presence of natural resources can incite and prolong violent conflict and even government failure (226).

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These resources based conflicts are very volatile since the participants benefit from the unstable conditions that exist. During the conflicts, participants have access to resources and they can engage in smuggling and covert trade in order to enrich themselves and finance their wars. For example, the diamond resources in the country fueled the civil war in Sierra Leone enabling it to last for many years. Incidents of resources fueling serious civil conflicts are not isolated to Sierra Leone with Sovacool documenting that between 1990 and 1999, 10 serious civil wars in Africa, Southeast Asia, and South America were directly fueled by natural resources (227).

Natural resources can be a curse when they cause economic consolidation or a rapid inflation of the local currency. When this happens, the exchange rate of local currency increases significantly therefore making the other exports in the country less competitive. This phenomenon, commonly referred to as the “Dutch Disease” leads to the primary resource crowding out the other sectors of the economy, which are rendered uncompetitive on the international market (Sovacool 231). This causes even more economic concentration therefore increasing the country’s dependence on the natural resources.

Many resource rich developing nations fall into the resource trap since the resource rent allows the rulers to act without political restraint. Since the government is financially independent of society, it might choose to act in an authoritarian manner and disregard the opinions of the citizens. Reeves demonstrates that financial independence from society removes incentives for the leaders to enact transparent and accountable policies (171). Some resource rich countries even resort to authoritarian forms of leadership since the government can exist without the revenue of its citizenry. Such governments often lack the support of their citizenry leading to instability.

Why Some Nations Avoid the Curse

The resource curse does not apply to all countries and a number of resource-rich nations have been able to achieve significant economic growth and increase the standards of living for their populations. Countries that avoid falling into the resource curse trap view their natural resources as depletable assets that should be carefully managed. The government officials in this country therefore avoid viewing their country’s resources as a mechanism to create immediate wealth. The resources are used in a sustainable manner and they serve the public interest. Good resource management ensures that the income from the natural resources is shared in an equitable manner. This ensures that no group in the country feels left out or marginalized therefore reducing the risk of conflicts. The significance of inclusion and equitability in avoiding the resource curse trap is highlighted by Ross who clarifies that natural resources are never the sole cause of conflicts; complex set of events including poverty and ethnic grievances contribute to these conflicts (19).

Countries with well and efficient legal service, tax authority, and legal system are less likely to fall into the resource curse. Such countries often have democratically elected leaders who are accountable to their citizens. The leaders are less likely to engage in the rampant pillaging of their nation’s resources. Countries that have a functioning democracy have transparent policies in place. Revenue transparency and accountability are integral to avoiding the resource curse that currently afflicts many resource rich third world countries.

Speaking of Nigeria, a country that has gained worldwide notoriety due to its high corruption rates, Idemudia asserts, “the main reason for persistent widespread poverty in Nigeria is lack of transparency and accountability” (2). Good governance structure and proper appropriation of the revenues generated from the resources will prevent a country from suffering from the resource curse. Idemudia contends that in addition to the presence of the natural resources, the governance structure around the resource processing also contributes to the resource curse (3). As such, countries that are committed to using the revenue generated from the resources to foster sustainable development will avoid the resource curse.

Countries that avoid the resource curse have diversified economies that are characterized by many industries. Despite being mineral rich, these countries do not depend heavily on a few extractive industries. This approach ensures that the country has low unemployment levels since the people are employed in the other industries available in the country. In addition to this, when the price of these few resources fluctuates widely, efforts of state planning are not affected since the country’s economy is diversified. Such countries are therefore able to enjoy the wealth created by their natural resources without suffering from the adverse effects of the volatile resource prices.

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Some nations avoid the resource curse since they are already wealthy and therefore have well-established institutions in place. This statement is confirmed by the fact that poor resource-rich nations are the once often submerged in the resource curse trap. For such countries, the discovery of resources does not harbor the creation or perpetration of good institutions since effective institutions that ensure future development are already in place. The vast natural resources do not impede on the establishment of effective institutions and there is no competition for rent from the natural resources among the institutions. The well-established institutions are used to channel the natural resource revenue into areas that benefit the general population.

Conclusion

This paper set out to describe the natural resource curse and provide explanations of why some countries avoid it while others do not. The paper begun by acknowledging that the theory of the resource curse has proven true for many developing countries that have large caches of natural resources. Most of these countries have experienced economic troubles, social instability, and conflicts as a direct result of their dependence on their natural resources. This paper has demonstrated that natural resources abundance increases the risk of armed conflict in third world countries. However, the paper has also demonstrated that abundant natural resources can be a blessing for the state enabling the government to fundamentally transform society for the better. The paper has highlighted how some counties avoid falling into the resource curse trap and enjoy prosperity because of their vast resources. From these discussions, it can be suggested that countries rich in natural resources should engage in good management and accountability, avoid overreliance on their natural resources, and equitably distribute the revenue obtained from the natural resources in order to positively benefit from the natural resources.

Works Cited

Idemudia, Uwafiokun. “The Quest for the Effective Use of Natural Resource Revenue in Africa: Beyond Transparency and the Need for Compatible Cultural Democracy in Nigeria”. Africa Today 56.2 (2009): 2-24. Web.

Lundahl, Mats and Sjoholm Fredrik. “The oil resources of Timor-Leste: curse or blessing?”. The Pacific Review 21.1 (2008): 67–86. Web.

Reeves, Jeffrey. “Resources, Sovereignty, and Governance: Can Mongolia Avoid the ‘Resource Curse’?”. Asian Journal of Political Science 19.2 (2011): 170-185. Web.

Ross, Michael, “The Natural Resource Curse: How Wealth Can Make you Poor,” pp. 17-42, in I. Bannon and P. Collier (eds) in Natural Resources and Violent Conflict: Options and Actions, 2003,Washington D.C: World Bank. Print.

Sovacool, Benjamin. “The political economy of oil and gas in Southeast Asia: heading towards the natural resource curse?”. The Pacific Review 23.2 (2010): 225–259. Print.

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