The Resource and Development Paradox: Are natural resources undermining development?

Why have resource-rich countries such as Norway and Australia developed while countries such as Nigeria and Angola have experienced poverty and conflict?

Countries such as Nigeria, Angola and Congo in Africa suffer from the ‘resource curse’. The ‘resource curse’, also known as the ‘governance curse’, refers to resource rich economies economically performing badly. The resource curse is explained by the occurrence of the Dutch disease (where local currency appreciates and the exchange rate depreciates), bad governance, conflict, excessive borrowing, inequality and volatility of resource prices, which in turn affects revenue flow.

Therefore, resources can be seen as an opportunity (Australia) and a threat to development (Nigeria).

Nigeria is the tenth largest producer of crude oil in the world and the fifth largest supplier of oil to the US. As of 2007, Nigeria had 36 billion barrels of proven oil reserves and conservative estimates suggest that to date Nigeria has earned about $650 billion in profits, but in terms of development, the country has little to show for it. About 70% of the 130 million Nigerians live on less than $1 a day with a life expectancy of 50 years. In fact, in the Niger Delta where most of the oil reserves are found, poverty levels are highest. Local rivers, once the main source of livelihoods, are polluted and agricultural activities have declined over the years. Conflicts occur as poverty and pollution have left local communities taking the law into their hands demanding their share of the wealth. Thus, social and environmental dimensions of the resources curse are mutually reinforcing. The social and environmental costs associated with the poor management of oil resources are manifested in the poor living conditions in Nigeria (see picture below).

Image 1: A Slum in Lagos

Yet, focusing on the negatives of the oil and gas industry does not give the full picture of the paradox that has characterised the resource industry over the years. Indeed, despite the failures of the development efforts, selected few, especially the political elites, have benefited from the revenue of oil and gas resources. The pictures below show the ‘other side’ of Lagos. Most of the development initiatives are concentrated in the urban areas where the elites live while the slums are neglected. To make matters worse, remaining resources are looted by politicians and their allies through corrupt practices or invested in projects which generate little return.

Image 2: The other side of Lagos, (wealth for the few)

Image 3: The wealthy side of Lagos

Sceptics believe that, it is not the abundance of natural resources that causes less development but instead the over dependence on the resource rent which have volatile prices, which affects economic policy and planning. Also, there appears to be consensus among researchers and policy makers that good governance and strong institutions will enable nations to check the corruption and the plundering associated with the discovery of natural resources like oil. Due to that, in order to better appreciate the dynamics of the resource curse, the political economy of the African states, where power and wealth seem to be mutually reinforcing, must be examined. This normally compels politicians to use oil resources to purchase patronage to consolidate their power.

Basically, it is suggested that ‘harnessing natural assets for sustained development depends upon a chain of decisions, and the outcome is only as good as the weakest link in that chain’ (Collier, 2010, p. 127). In Africa, it appears the weakest link is the revenue accruing from oil resources not being invested in structurally transforming investments but instead consumption and corruption dominate. Thus, in other to appreciate the dynamics of the resource curse, a comprehensive country-specific study focusing on the chain of decisions leading to the discovery, capture, marketing and investment options of that country must be carried out.

Authored by: Pius Siakwah, Postgraduate, TCD

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