The resource curse refers to a paradox: countries that are naturally endowed with an abundance of natural resources are often unable to effectively use these resources to achieve economic development.
Classic examples are that of Nigeria, Angola and Venezuela that have failed to achieve sustained economic growth and poverty reduction despite ample oil reserves. Conversely, relatively resource-poor countries—South Korea, Taiwan, Japan and Singapore—have managed to achieve high rates of growth.
Norway is an excellent example of a resource rich country that has very effectively utilised its petroleum revenues for overall societal well-being. Following the discovery of considerable off-shore oil reserves in the late 1960s, it went on to establish an oil fund—the Government Pension Fund Global. There has been broad political consensus on how the fund should be managed and the importance of spending only a fraction of the revenues generated while saving the rest for the future. Norway now has one of the world’s largest sovereign wealth funds, and owns almost 1.5 percent of all shares in the world’s listed companies.
The deposits of revenue from oil and gas production constitute less than half the value of the fund. Indeed, most of the earnings are generated by investing in equities, fixed income and real estate. The key characteristic features of the Norwegian experience have been strong and competent institutions, a reliance on solid technical knowledge, and an effective regulatory mechanism that takes into account environmental, health and safety concerns.
How, why and when do resources become a curse rather than a blessing? The typical explanations of the resource curse include ineffective administrative capacity, high levels of corruption, conflict and foreign ownership. Following requests from several countries for advice in managing their petroleum resources, the Norwegian government established the Oil for Development programme in 2005, which targets four key components of petroleum sector management: resource, environment, safety and revenue management.
The goal is to help establish a sound legal and regulatory framework, strengthen institutional capacity, enhance transparency and promote greater accountability. Many Norwegian public institutions such as the Petroleum Directorate, the Oil Taxation Office, the Environment Agency as well as Statistics Norway have partnered with corresponding institutions in partner countries as well as civil society organisations.
But while the programme emphasizes transparent processes involving national legislatures, the offices of the auditor general, media and civil society, it does not, naturally enough, provide advice on how revenues should be spent or distributed.
It is here that some of the major challenges arise when companies and local political and business elites capture the benefits accruing from petroleum or other natural resources. Thus, addressing problems of governance remain key in combating the resource curse effectively.
Discussion about this post