Natural resource curse refers to the contradiction that exists where nations which posses naturally occurring natural resources especially those that cannot be reused such as minerals are usually lagging behind on economic growth and development compared to nations with less natural resources.
Such countries are always faced with sub standard performance on economic growth. Quite often, such countries tend to focus more on producing the resource rather than creating job opportunities for its people. This creates a situation where a nation is rich but its people are poor with many of them living below the poverty line.
For this reason, natural resources should be well managed economically. Failure to extensively explore the natural resources by a country is another great risk towards the curse. Poor use of the asset may also put the nation at the risk of economically failing in the future. Studies have supported all this as many countries in possession of such reserves as oil have been found to have low income indexes and other effects on the country such as corruption cases.
Another very common characteristic of a country facing the natural resource curse is repeated occurrence of violence. Much blame for this curse has been put on the government and other corrupt leaders who misappropriate the natural resources to their benefit instead of using them towards achieving national economic growth and development.
Many countries have been faced with the curse. For instance, Angola which is an oil rich country has not been growing its economy over the past few years yet the revenue obtained from the oil has not been accounted for.
In other countries such as Nigeria and Congo, the wealth from oil has only resulted to corruption rather than economic development. Another very good example is Sudan which has long time conflicts on the oil reserves something which has forced the country to separate into southern and northern entities due to generation of violence on the control of the oil reserves (Palley 1).
Effects of natural resource curse
Many countries in possession of natural resources are at the risk of conflicting within themselves as every group in the society fights to get its cut of the revenue obtained from the export of those natural resources. These conflicts are more common within the government as different ministries and other departments related to trade fight over the control and of the resource exploitation as well as its distribution because most leaders embezzle money through allocation of revenues obtained from the resources especially within the nation itself.
These conflicts often tend to affect the government’s administrative abilities negatively which, of course, leads to poor economic performance. The more a country exports its resources, the more it is faced with conflicts opposed to countries that have little exports. Many countries which depend on natural resources to obtain revenues do not need to tax their people something which results to poor governance since the citizens do not put pressure on the government in its expenditure.
On the other hand, in countries which are resource-independent, all citizens are taxed and they therefore form the main source of revenue for such nations. As a result, the tax payers are always concerned on how the government spends money something which puts pressure on the government to manage its finances well and deliver effectively to the citizens.
Another very dangerous effect of the natural resource curse is the increase in rates of foreign exchange as well other government expenditures, a phenomenon referred to as the Dutch disease. Any country obtaining revenues from exportation of its natural resources tends to increase its expenditure in almost all sectors including health and military spending. International rates of exchange are increased as well as the wages within the country. Prices of basic commodities are, too, raised.
The increase in all these expenditures is what leaves the country with no adequate finances to facilitate economic growth and/or development. Countries that depend entirely on natural resources for revenue are faced with the risk of revenue unpredictability in case of price changes in the international markets. Debt accumulation is also a very common effect in governments which receive a lot of revenues from natural resource exports.
The main reason for this behavior is the expectation of receiving more income in the future from the exports from which they expect to pay off their debts. Such countries have easy access to loans because their natural resources can be used by the lending financial institutions as collateral. The problem sets in when the prices of the resources as well as the exchange rates fall leaving the country with less funds with which to pay off their debts. When this happens, the country’s arrears increases and the debts grow even bigger.
It is so obvious that a country with large income flow from its natural resources will have corrupt deals especially in the allocation of revenue where government authorities tend to favor some constituents. This leaves the less favored citizens poor with inability to access the basic needs such as water, adequate food and even infrastructure. The fact that such countries do not impose taxes on all income earners, gives a great opportunity for the corrupt government officials to hide their income because their income sources will not be known.
Extension of investments by such countries may not be exercised or if there are attempts to invest elsewhere, they may fail because the government does not give much attention to such like it does to the natural resource which without the government’s knowledge, keeps of depleting with time. In times of crisis, for instance if the resource gets depleted, the country is left with no source to obtain revenue from.
The only effort that such governments make is to initiate public projects which end up failing due to mismanagement of funds assigned to such projects. Diversification of investments is made even harder when the government compares the profitability of the natural resource to that of the intended investment.
This results to dependence by natural resource rich countries on certain industries which use their exports. This situation worsens the risk of price drops especially when such countries fall. Despite the fact that natural resources generate large amounts of income to a country, they do not offer enough job opportunities to the people.
Another effect of the natural resource curse may set in where the government, due to the high revenue obtained, offers high payments for its employees and this may affect other sectors of the economy especially the private sector by obtaining the best skilled personnel at the expense of the other employers who offer lower salaries. Importance of education in natural resource nations may not be emphasized compared to countries which lack natural resources (Palley 1).
Why some countries avoid the curse while others don’t
Despite the knowledge that most governments have on the negative effects of dependence on natural resources, some of them do not make any efforts to avoid the curse. This could be attributed to poor governance where the leaders of the natural resources rich country are selfish and they only care about benefiting themselves using their authoritative roles at the expense of the country’s citizens.
Such leaders use their political positions to control the exploitation of such resources and more importantly, the allocation of funds obtained from the resources’ exports. Most political leaders have been using their country’s natural resources to obtain wealth for themselves.
Since the government is the only body that can control a country’s economy, either positively or negatively, they neglect all measures aimed at preventing the curse so that the leaders can continue stealing the country’s wealth. However, in countries where good governance is deep rooted, political leaders try all they can to avoid the effects of the curse because as long as the natural resources are within any country’s possession, the risks of the effects of the curse are always present.
A government with leaders who are dedicated to serving its citizens will put all efforts to avoid the curse. The first step to take towards avoiding the effects of the natural resource curse should be a transparent and very efficient management team for the resource. Exploitation of the resource, should it be oil, minerals or even timber, should be well planned and controlled to avoid exploiting too much of it which would encourage embezzlement and other corrupt dealings.
A lot of precautions should be taken to make sure that all exports are done by the legal government body which is authorized to do so. Another very crucial step in avoiding the curse caused by presence of natural resources is proper management and allocation of the revenue obtained from the exported resources. Allocation should as well be done equally to all constituents within the country to avoid a situation where certain parts are better developed than others.
A country rich in natural resources should ensure that its economy is diversified by expanding its investments within the country through infrastructure and other projects and also investing in international markets to avoid certain risks in case the resource gets depleted or its prices drops. Investing in infrastructure could also be helpful in creating job opportunities for citizens and this helps prevent extreme poverty in country members (Palley 1).
Possession of natural resources such as oil, minerals like god and silver, timber is such a blessing to the country in possession of the resource, only if it is well managed. It means that the country will have steady revenue for its citizens and projects, something which reduces the country’s rate of borrowing money. In addition, citizens of such countries need not to pay taxes as the government has a revenue source in place.
However, the availability of such resources in a country where the system of governance is poor brings such negative effects such that the resource may be described as a curse. It is therefore very important that countries with natural resources manage them well because it is the only way that any country can enjoy the benefits of such resources. Failure to do so such countries suffer economically and even socially compared to those without.
Palley, Thomas. “Lifting the Natural Resource Curse”. 2003 – February 20, 2011 <https://www.globalpolicy.org/component/content/article/198/40112.html>