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From mineral resources to cash

Maniza Naqvi's picture

It's a place of darkness. People are poor and hail from tribes and clans. They live in basic shelters in remote villages, with no running water or electricity, and no access to clinics. Subsisting on seasonal work, hunting and fishing to stock up food for the lean months, they worship nature's beauty. They consider themselves hardy, descendants of those who suffered war, famine, and religious persecution. They resent that their part of the earth gets attention only through the prism of movies or when natural or manmade disasters strike. Then oil is found and they are blessed.

Nope, this isn't one of the many countries we all associate with poverty. It is not a "fragile state" the term often used for the richest in oil and gas and other mineral resources countries in Africa with the poorest citizens affected by the curse of resources: foreign meddling, conflict, war, corruption and autocratic dictators. This is Prudhoe Bay, Alaska, in the 1970s.

In 1975 the Alaska legislature asked itself: Was it morally acceptable or ethical for the generation whose presence in Alaska coincided with the oil boom to get all the benefits, leaving the following generations to deal with the decline and fall? No said the majority who thought the Alaskans of the future should have a nest egg and be allowed to share in a temporary windfall from the finite oil resource.

Alaska set up the Alaska Permanent Fund Corporation (APF). In 1987, the APF was worth US$11 billion, and by 1997 it was US$24 billion, exceeding total state oil and gas revenues. As of March 2013 it was US$45.5 billion. The lesson is that managed professionally, a national asset can grow into the future beyond the finite resource. You can read the whole case study by Steve Cowper, a former Alaska Governor (no, not that one), in a book edited by the World Bank's Jennifer Johnson Calari. In neighboring Alberta in Canada the Alberta Heritage Fund had been set up a year earlier.

Iran's Citizen Income Scheme, along the lines of the APF, is the largest in the world providing cash transfers to all its citizens, universally from its oil revenues. Per capita $500 is transferred to over 75.3 million citizens costing about $45 billion a year and will amount to 15 percent of national income, while Alaska's average is 3-4 percent .



If ever there was a notion of a perfect nationalization then this would be it, to give to the people in a country what belongs to the Nation, its wealth earnings while making sure that the earnings keep growing for future generations. This is redistribution and growth of wealth. Other examples of such funds: The Future Generations Funds in Kuwait (here and here); Norway , the Pula Fund in Botswana and Wyoming's Permanent Wyoming Mineral Trust Fund .

In countries with aging demographics pensions are the priority and Funds choose to save for the future. For young populations the priority would be to spend now while keeping the Fund growing.

Putting a twist on countries sources of wealth, rent seeking and transfers, Todd Moss proposes that countries have "strategic rents" and can use these as transfers to all citizens. Egypt could rent out the usage of the Suez Canal, he suggests. Listen up Pakistan and others "strategically placed!

Today there are a couple of interesting trends in the world, you tell me there's a huge number of these cash transfers programs that are funded by aid sprouting all over the place---and then we see that there are new oil fields and mines being discovered over and above what's already there. A huge windfall of wealth.

Where such wealth-based funds are not yet operating, cash transfers based on budget, revenues and aid, target the poorest citizens in 70 countries including 35 in Africa. These include Mexico's Oportunidades; Brazil's Bolsa Familia, Argentina's the Universal Child Allowance (AUH), Pakistan's Benazir Income Support Program (BISP), Ethiopia's Productive Safety Nets Program (PSNP) and even New York City's Opportunities pilot. The widespread use of targeting, biometrics, national identification cards, unified registries, and mobile banking is making cash transfers easier, faster, cheaper every day, everywhere.

Could Africa's new mineral wealth be shared with all Africans? Could this become the way forward in mineral-rich countries where the majority of citizens remain poor, without access to good education and health services? Could aid be tied directly to the transparent and accountable functioning of such funds? What are the impediments? Why should this not be policy option for Government in the countries in Africa? Most countries now have elected Governments. So what if the rulers are autocratic. Why should aid not be tied directly to the transparent and accountable functioning of such funds? Why not indeed? What are impediments? Corruption, Corporations, Criminality? Kleptocracy?
 
Writing about the impediments the authors of Rents To Riches? Political Economy Of Natural Resource–Led Development (Naazneen H. Barma, Kai Kaiser, Tuan Minh Le, Lorena Vinuela, 2011 put it more politely and provide technical reasoning and solutions: "Where intertemporal credibility is weak and political inclusiveness low, political economic elites are able to siphon resource rents away from developmentally oriented outcomes. The implications for engagement are clear: lengthening time horizons enhances the ability of governments to increase potential rent generation, and improving political inclusiveness supports the orientation of rent distribution toward the collective good."

It is a tantalizing prospect. Picture this: even a small fraction of today's mineral wealth targeted to the poor could end poverty in those countries not in decades from now—but in the next five years. That's tomorrow. Poverty and aid could be a thing of the past. Perhaps, so could war.

Comments

Submitted by Mariam Denise Brain on

Maniza, this was a real eye opener and a great read. Thank you :)

Submitted by Stan Siyomana on

Thanks for the list of all those countries where the citizens can have their share of the proceeds from the mineral resources.
For the case of Botswana, I think it should be the Pula Fund "built on earnings from the sale of diamonds..."(instead of the Diamond Empowerment Fund). The pula is the currency of Botswana.
(Timothy Taylor: the natural resources curse, http://conversableeconomist.blogspot.com, 27 October 2011).
The Diamond Empowerment Fund is described as "an international non-profit organization supporting education initiatives in diamond producing countries..." (not just in Botswana!).
(www.diamondempowerment.org/education).
Thanks.

Submitted by Maniza on

@Stan. Thank you. You are correct. It is called the Pula Fund.
http://www.bankofbotswana.bw/content/2009103013033-pula-fund

Submitted by Aidan on

The story of the dreaded resource curse undone, intentionally. These little snippets of good news provides hope for many countries battered by massive expectations following discovery of rich endowments. Thank you for sharing and spreading hope.

Submitted by Andrew Ocero on

That was a fantastic intro. I am impressed with the empowerment funds given to citizens of even the most vilified of nations! Given the recent discoveries of oil and minerals in Africa, it should remain a global concern and responsibility to ensure that the new found wealth is appropriately utilised to improve the lives of the citizenry...or else the cycle of poverty and dependency continues.

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