An abundance of natural resources is both an opportunity and a challenge for developing countries. A number of resource-rich, low-income countries receive amounts of foreign aid that are similar to or larger than their actual or potential revenues from natural resources. A new policy research working paper by Octave Keutiben and me develops a growth model to look at some ways in which the donors may help governments of such countries to use their resource revenues productively and minimize the magnitude of risks created by resource rents. The paper’s key conclusion is that making aid countercyclical helps to achieve higher economic growth, and so does conditioning disbursements on enhancement of public capital.
Travelling across Africa these days you are likely to run into increasing numbers of mining, oil, and gas industry personnel engaged in exploration, drilling, and extraction across the continent. Although commodity prices are moderating, the discoveries being made in Africa offer the real prospect of significant revenue to many cash-poor, aid-dependent governments in the decade ahead. If you care about development, the question is whether these revenues will catalyze broad economic development and whether they will benefit the poor in Africa.
Imagine you are a leader of an African country and your entire government budget for the year is $1.2 billion.
That same year, an investor sells 51 percent of their stake in a huge iron ore mine in your country for $2.5 billion — more than double your annual government budget.
And imagine having ordered a review into mining licenses granted by previous regimes and knowing that the investor who made the $2.5 billion sale had been granted a mining license in your country for free.
It's what happened in Guinea. It's a story I heard Guinea's president, Alpha Condé tell the G8's trade, transparency and taxation conference in London. And it's a story I thought well worth sharing at the UN Security Council's meeting on fragile states and natural resources last week.
Many resource-rich countries are looking to diversify their economies, in anticipation of the day their natural wealth runs out. Resource extraction is extremely costly and employs only a fraction of the workforce. After the recent turmoil in the Middle East, policy makers have begun focusing more on the need to create jobs, provide for inclusion, and increase public participation in government decision-making. There are several examples of countries that have used their resource wealth to share prosperity, including the United States, Norway, and Australia.
But is there a blueprint for diversification and economic prosperity?
The extent to which local communities benefit from commodity booms has been subject to wide but inconclusive investigations. This paper draws from a new district-level database to investigate the local impact on socioeconomic outcomes of mining activity in Peru, which grew almost twentyfold in the last two decades. The authors find evidence that producing districts have better average living standards than otherwise similar districts: larger household consumption, lower poverty rate, and higher literacy. However, the positive impacts from mining decrease significantly with administrative and geographic distance from the mine, while district-level consumption inequality increases in all districts belonging to a producing province. The inequalizing impact of mining activity, both across and within districts, may explain part of the current social discontent with mining activities in the country, even despite its enormous revenues.
Read the working paper to know more.
A number of years ago, I started a journey with seven poor communities located about 380 kilometres southwest of Addis Ababa, by a mountain called Humbo. The idea was to allow a degraded mountain to regenerate, and the communities would earn carbon credits for their efforts.
I still hear this phrase echoing in my ears: “With the meager amount of resources they have, this is an impossible agenda”. But the communities were stubborn and dedicated, and last week, the project was issued 73,339 carbon credits (temporary Certified Emission Reductions, tCERs) for their efforts. Similar payments will add up to $700,000 over the next 10 years from the BioCarbon Fund.
The Humbo communities wanted to see a transformation because they knew that their lands had been stripped as a result of unregulated cattle grazing and massive clearance of vegetation to meet their excessive demand for timber, firewood and charcoal. Soil erosion and flooding had intensified as a result. They could see their farmlands increasingly covered with silt, cobbles and boulders. Above all, they could attest that their farmlands were losing fertility, becoming unproductive and yields were down.
These are some of the views and reports relevant to our readers that caught our attention this week.
Global Voices Advocacy
Netizen Report: Raise Your Voice Edition
“Internet activists in India are fuming over the country’s sweeping new Internet restrictions on objectionable content, and are beginning to take extreme action to combat the law. This week we recognize Aseem Trivedi and Alok Dixit from Save Your Voice, who have begun a hunger strike in protest of the ‘Information Technology (Intermediaries Guidelines) Rules 2011’ which were quietly issued by the Ministry of Communications and Information Technology in April 2011.
One of the flaws of the new rules is that they mandate that website or domain owners must take down material within 36 hours when a third party issues a complaint, without giving a chance for content owners to defend the material. The Bangalore-based advocacy group Centre for Internet & Society also pointed out that the rule leads to a general chilling effect on freedom of expression over the Internet.” READ MORE
Commodity prices are experiencing a lot of volatility right now, with food and oil prices nearing record highs. But what about the medium-term? The answer is fundamental for developing countries as commodity prices will be the key external variable for them to watch—perhaps even more than interest rates. Commodity prices are expected to stay high until at least 2015, before supply responses and lower relative demand by a burgeoning global middle-class moderate them.