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The curse of treasure in fragile states

Nicholas van Praag's picture
    Bless them.   Photo source Wikipedia.

As people return from the holiday break in early January, the citizens of south Sudan will be voting in a long-awaited referendum.  Polls suggest there will be a big majority in favor of southern independence. Boosting people’s hopes for the new state are its oil reserves worth some $2 billion a year.

Sorting out how the North and South will divvy up the benefits of oil is not clear.  While most of the oil is in the South, the export and refining infrastructure is in the North. Revenues are currently shared roughly 50-50 but there is no agreement yet over the fate of Abyei, a significant oil producing region on the North/South border.

Still, the prospect of oil revenues is central to southern thinking about financing its way to a better future. Assuming the problems with the north are sorted out, are they right to see their natural resource endowment as the basis for future prosperity?

History teaches us that natural resources can be a mixed blessing. In the 1970s, commodities were often associated with the curse of poverty because of volatile terms of trade and perennially low prices. 

The United Nations Conference on Trade and Development spent years trying to negotiate a deal to stabilize prices through a series of commodity agreements supported by a Common Fund.

Today, prices remain volatile but they are at the other end of the spectrum as instability of supply caused by weather, politics and strong demand raise prices for everything from food to metals to energy. 

The rich pickings offered by natural resource endowments are now associated with a different type of resource curse as often violent groups vie for their control.

The movie Blood Diamond and news stories from around the conflict-affected world have built a public perception that an abundance of natural resources—especially ones that are easily ‘lootable’—are at the root of violent conflict.

Starting in the 1990s, a growing body of research pointed to a ‘paradox of plenty’.  This holds that the mineral and other natural riches of many poor developing countries are key drivers of their descent into violent conflict.  Their extraction economies create bloody rivalries as groups compete for the power and money that comes with control of these lucrative assets while ordinary people are impoverished and brutalized in the scramble.

There is plenty of evidence—from the Democratic Republic of Congo and Colombia to Sierra Leone and Liberia—that illegally traded minerals and other natural resources are the fuel behind many gruesome conflicts.

The World Development Report 2011, which is delving into the causes and correlates of violent conflict, asked John-Andrew McNeish of CMI in Norway to take a fresh look at the subject of resource conflict.

McNeish charts the ebb and flow of conventional wisdom on the topic.  In the 1980s, resource abundance was seen as a boon for development.  By the mid-1990s the exact opposite view came to hold sway,  with resources described as a ‘curse’ that can provoke inhuman behaviors in people driven by greed to line their pockets and maintain their dominance—with the people, of course, the losers.

There is plenty of evidence that natural resource abundance is associated with the onset of civil war—and with its intensity and duration.  It can also complicate the process of peace-making, with opposing sides in resource-rich places taking longer to agree to end civil wars than protagonists in places that don’t have valuable natural resources. 

Resource rivalries are as potent in sub-regional and cross-border conflicts as they are in civil wars. In Eastern Congo, for example, minerals did not spark conflict but competition for natural resources exacerbates tensions and prolongs the misery for millions of people. 

It all sounds quite commonsensical: greedy people in lawless countries maximizing their interests at the expense of the masses—often with international actors in cahoots.  But McNeish’s study goes beyond this simple logic.  While there is a lot of evidence of linkages between resource abundance and conflict, the evidence is not conclusive, he says.

He calls for more focus on the specific circumstances that, in the context of natural resources, may or may not lead to conflict.  This means much greater attention to the historical, social, political and other contextual dynamics.  He also urges us to look beyond the greed-based analytical framework of the ‘resource curse’ and focus more on historical grievances, as well the complications caused by religion, ethnicity, identity and ideology.

As South Sudan prepares to vote in January’s referendum, its energy reserves offer both the promise of financial security and the risk of increased stress as it grapples with internal rivalries, interest from resource-hungry outsiders, and a new oil deal with the North.