INITIATORS
i.
Calvin Elias Lyakurwa (PG202101682)
ii.
Mohamed Omar Mpita (PG202001063)
Are natural resources a "curse" or a "blessing"? Literature evidences suggests that either
outcome is possible. As some countries benefit and others lose from the presence of natural
resources. Of which we agree as well.
Resource curse is the notion that countries with abundant natural resources do not perform well
economically as those without (Tran, 2012). That is, ‘resource curse’ refers to the idea that
some countries possess abundant natural resources but has not helped them attain economic
success, instead the resources have been the major source of their conflicts and political
instabilities. For instance, many African countries are increasingly rich in oil, precious stones,
fertile agricultural lands, and abundant wildlife that support wildlife-based tourism but these
countries continue to experience low levels of economic growth and development.
Additionally, the decline in poverty rates in these resource-rich countries has generally lagged
those of non-resource rich countries (Tran, 2012).
Natural resources have been a blessing to some countries, as these natural resources provides
a valuable source of foreign currency through the export business for many countries in the
world and has helped them boost their economy. For instance, The United Arab Emirates
(UAE); account for close to 10% of the world’s crude oil and 4% of the world’s natural gas
reserves (W.D.R, 2020). UAE policy makers were able to design comprehensive economic
policies for utilizing these natural resources as a tool to stimulate economic growth and
improve financial development in the country.
Furthermore, some 30 years ago, Indonesia and Nigeria had comparable per capita incomes,
and both were heavily dependent on oil revenues. Today, Indonesia’s per capita income is four
times that of Nigeria’s. Nigeria’s per capita income has actually fallen, from US$302.75 in
1973 to US$254.26 in 2002. Both Sierra Leone and Botswana are rich in diamonds. Botswana
has had an average growth rate of 5.2 percent between 1974 and 2002, but Sierra Leone has
plunged into civil strife over control of its diamond riches (Stiglitz, n.d.).
However, it has been observed for some decades that the possession of oil, natural gas, or other
valuable mineral deposits or natural resources does not necessarily confer economic success.
Therefore, termed as a curse for some African countries such as Angola, Nigeria, Sudan, and
the Congo who are rich in oil, diamonds, or other minerals, and yet their peoples continue to
experience low per capita income and low quality of life (Frankel, 2010). As many revenues
from these natural resources are misappropriated by corrupt political elites. Meanwhile, the
East Asian economies like those of Japan, Korea, Taiwan, Singapore and Hong Kong have
achieved western-level standards of living despite being rocky islands (or peninsulas) with
virtually no exportable natural resources (Frankel, 2010).
Other factors that have contributed to the abundance of hydrocarbon deposits, or other mineral
and agricultural products, be a curse to some of these developing countries include: First, prices
of such commodities could be subject to secular decline on world markets. Second, natural
resources could be dead-end sectors in another sense: they may crowd out manufacturing, and
the latter sector might be the one to offer dynamic benefits and spill overs that are good for
growth. (It does not sound implausible that “industrialization” could be the essence of
economic development.) Third, the volatility of world prices of energy and other mineral and
agricultural commodities, which is known to be especially high, could be problematic. Fourth,
countries where physical command of oil deposits or other resources by the government or a
hereditary elite automatically confers wealth on the holders may be less likely to develop the
institutions, such as rule of law and decentralization of decision-making, that are conducive to
economic development than in countries where moderate taxation of a thriving market
economy is the only way to finance the government. Fifth – such countries could have a
proclivity for armed conflict, which is inimical to economic growth. Sixth – swings in
commodity prices could engender excessive macroeconomic instability, via the real exchange
rate and government spending, imposing unnecessary costs (Frankel, 2010).
Conclusively, Natural resources should be a blessing and not a curse as it provides a positive
role to financial development. As income from natural resources can lead to accumulation of
savings which provides the basis to domestic financial sector. Along with financial sector can
act as an intermediary to channel these savings to the best and efficient sectors of domestic and
global economy. This connection between natural resources and financial development also
has crucial policy implications in terms of natural resources management as well as their role
in financial development. It would require to use natural resource revenues wisely and
cautiously, and also facilitate the development of financial sector which can accommodate
these revenues in the up and down swings in natural resources price and revenues.
Reference:
Frankel, J. A. (2010). NBER WORKING PAPER SERIES THE NATURAL RESOURCE
CURSE: A SURVEY. http://www.nber.org/papers/w15836
Stiglitz, J. E. (n.d.). . Making Natural Resources into a Blessing rather than a Curse.
Tran, M. (2012). What is the resource curse? https://www.theguardian.com/globaldevelopment/2012/oct/25/natural-resources-blessing-curse-developing-countries
W.D.R. (2020). World Development Report 2020: Trading for Development in the Age of
Global Value Chains. Washington, DC: World Bank. https://doi.org/10.1596/978-14648-1457-0