Are natural resources, especially metals, oil and natural gas, a blessing or a curse, economically and politically? The simple, quick answer is: a blessing.Wherever the national income increases, there is always the opportunity of improving the living standards and bringing about a great economic revival, depending on the revenues generated from exporting these natural resources, especially if they were abundantly available and are sold for high prices on the world market.
Certainly, the abundance of natural resources can be a motivation to boost public consent and satisfaction, and consequently constitute a base for political stability. However, this outlook doesn’t present the full picture.
The rise of domestic and regional conflicts
The first group of obstacles is represented in the eruption of conflicts on all levels regarding the distribution of revenues from these natural resources.Throughout the pasttwo decades and due to the increase of world demand on primary commodities, African natural resources (metals, oil, natural gas, water, pastures and forests) became factorsthat contributedto the eruption of conflicts within countries and between them.
Generally, from a relatively long time, it has been observed that the sudden flow of large sums of revenuesto any country resulting from its exports of natural resources leads to the creation of conflicts and disputes on the national or regional levels, or it may exacerbate these conflicts and disputes if they doalready exist before discovering and exporting the natural resources. There is a long list of civil, regional and international wars that erupted due to conflict over the ownership of resourcesor means of distributing their revenues among different regions or on different strata of theirinhabitants, whether they are different ethnically, linguistically or religiously.
The UN Economic Commission forAfrica said in a report, “Although the continental and regional institutions dealing with the border-crossing resources are widespread, conflict on these resources has been instigated due to the interest of middle-income countries and the other startup economies. During the past two decades, Africa witnessed unprecedented rush towards the exploration andextraction of its natural resources. This, in its turn, resulted in the flow of large volumes of investments, which changed to a great extent the economic prospects of some countries. The border disputes, some of which were dormant since the departure of the colonial powers, have become rife recently leading to demands and counter demands from countries sharing in the border-crossing resources over these resources ownership.”
African natural resources are primarily viewed as important incentives for economic development and reform. If well managed, revenues from exporting natural resources can help the African continent to shift from exporting primary commodities to economies relying on labour-intensive transformative industries with high-added value.
However, theview of several economists and multiple world experiences have shown that natural resources can play a negative role. This has become widely known among researchersas the “natural resources curse”. They identified the aspects of this curse according to studies conducted on several countrieswhere natural resources were discovered.
First there is the “Dutch Disease”, that is when a country exports natural resources andreceives large sums ofrevenues in the form of foreign cash flows, leading to a quick rise in the local currency value against international currencies. This weakens the capability of the productive sectors – especially the industrial and agricultural ones – to competein foreign and local market, because the highexchange rate of the local currency limits the competitive ability of the product of such country in the international market. In addition, the prices of importsare, in most cases, cheaper than thoseof the local products. This phenomenon was called the Dutch Disease because the characteristics were monitored at first in the Netherlands following the discovery of large quantities of natural gas that were exported. After a short period, this led to the weakening of the rest of the country’s productive sectors. The phenomenon was monitored in a large number of countries exporting natural resources, on top of which were the oil-rich countries. The findings weresummed up in a study reporting that “there exists aninverse relationship between economic growth and the availability of natural resources, especially metals and oil”.
Perhaps the most important aspect is that the curse works through destroying the local economy and political institutions, for the discovery of oil or metals leads to the emergence of a behaviorthat induces corruption. This negatively affects the investment and growth climate. All these factors didn’t only contribute to weakening the rates of growth, but caused destruction of the entire experience of development.
In addition, there is the political aspect, or the emergence of what is called the “rentier state”.This is a state with four significant features. The first is that it has an abundance of mineral and mining resources and the ownership of these lies in the hands of the state only. Second, this state gains huge revenues from exporting natural resources and the value of exporting them constitutes the predominant percentage of the total exports. It also gains a huge rent from them, which is calculated by the level of surplus resulting from the increase in export prices above the cost of production and the prevailing average profit. Thus, as long as the prices of the exported natural resources rise, the rent level flow increaseswithout exerting any effort. In addition, the exploitation of natural resources is done through capital and technology-intensive methods. Hence, it employs a limited number of the national labour force.
Finally, it is a state that its exports of natural resourcesare the biggest source of revenue for the general budget. All the previous factors – according to the theory – mean that the rentier state practically is in no need for broadening the taxation base on the local economic activities. Consequently, the political participation is weak. For there was a slogan in Europe that says “No taxation without representation”, and some researchers point out that the slogan that prevails in the rentier state case is “No taxation, no representation”.
The curse of natural resources might lead to weakening the economy’s productive sectors. It may also cause the surfacing of several disputes that may lead to institutional weakness and the prevalence of a behavior seeking rent and the widespread of corruption, and eventually it results in a weak political life.Apparently, it is an inescapable fate. In fact, there are several reservations that respond to this dark fate, such as:
– The decline of the productive sectors in what’s called the Dutch Disease seems to be a structural process that is impossible to change. That’s not true, for the Netherlandsitself doesn’t suffer from this disease anymore. There are several other examples where countries succeeded in developing their productive sectors in spite of having abundant natural resources.
– It can’t be ignored that the fluctuation of the export prices of natural resources leads to consecutive cycles of prosperity and depression in the countries relying on these revenues. Of course, when there is a prosperity cycle there is no problem. But when the prices decrease, financial problems in the government economic sector ensue. This is logical, since the financial policy in countries relying on exporting natural resources plays a greater role than in other countries because of its significance in the economic activity as a whole.
Towards possible settlements of the disputes
It is relatively difficult to intervene in the cases of disputesover natural resources within a country, unless they exacerbate and border on civil war. Intervening in settling disputes around cross-border natural resources – shared by more than one country –is the duty of the African Union (AU). There is also a shared resource which is water and some demand the sharing of pastoral rights in border areas–a tradition that has prevailed for hundreds of years.
This article was first published in: Egyptian Center for Strategic Studies, Africa 2019… Equilibrium Severs … Promising Future, Cairo, March 2019.