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Latin America, Africa Partner on Managing Commodity Wealth

John Nash's picture

It's only fitting that a country largely built on mineral abundance has been the venue for a critical discussion on how to manage natural resource wealth.

A group of World Bank experts, including myself, met in Johannesburg last week with high-level policy makers, civil society representatives and academics, to exchange experiences and enhance our understanding of the theoretical and practical issues unique to resource-dependent economies. As a long-standing major commodity exporting region, Latin America has many lessons of experience – positive and negative -- to share with other developing regions on management of the wealth from natural resources.

As a matter of fact, our recent flagship report Natural Resources in Latin America and the Caribbean: Beyond Booms and Busts? served as the basis for the 'Africa-Latin America Conference on Managing Natural Resource Wealth: Sharing South- South Experience'.

As our report states, commodity markets experienced their most widespread and longest boom on record between 2001 and 2008 and after a brief interruption due to the financial crisis and recession have again reached record levels.

While prices may moderate, burgeoning demand in the high-growth economies (China's share of copper imports increased from 2% in 1988 to 35% in 2009, and is still going strong) leads us to think that for many years in the future they are likely to remain at levels considerably higher than in recent decades.

For most of the poor consumers of the world, high prices – particularly food prices – are a threat to their wellbeing. On the other hand, for the developing countries with significant natural resource wealth, this represents a golden opportunity if they can avoid the pitfalls that have on many occasions in the past turned such an apparent blessing into a "commodity curse".

On the policy front, governments must grapple with the dual challenges of cushioning the adverse impacts of high prices on the poor while managing both sectoral and macroeconomic policies so as to ensure that this boom is a blessing rather than a curse.

There is much to learn from the experience of other developing countries, particularly from the rich experience of Latin America. The region has tremendous potential as a supplier of knowledge to countries in other regions. Countries in Latin America have been at the forefront, designing safety net systems for poor consumers; enhancing food supply through innovations in technology, policy reform, and commercial practices; and improving policies and institutions to manage commodity price volatility.

The experience of the LAC countries with safety net systems is very well known as a result of the hundreds of impact evaluations of their programs, the transparency of their operations, richness of their websites, and their willingness to share in all sorts of global and South-South fora.

A number of countries –notably Mexico, but also Brazil, Colombia, Chile and Jamaica-- frequently host study tours from countries around the world. Brazil has a unique program for providing technical assistance to Africa, especially Lusophone Africa. Countries like Ghana, Mozambique, Senegal, Angola, and Zambia are developing and implementing Bank-supported poverty alleviation programs with technical advice from Brazilian counterparts.

Latin American countries can also assist in scaling up food production to meet growing demand and reduce world hunger. Thirty years ago, Brazil started an agriculture revolution that turned their most unproductive region (the dry area of the Cerrados) into one of the world's largest food reserves.

Because Brazil has a lot in common with Africa (geographical similarities in climate and soils), this revolution can be transferred to Africa if scientific and technical cooperation among both regions is facilitated. The Africa-Brazil Agricultural Innovation Marketplace is an initiative to enhance agricultural productivity in Africa by supporting the creation of partnerships between African and Brazilian organizations. The World Bank has been working closely with Brazil since the origination of this idea, which now is fully implemented by agriculture institutes in both regions. The Bank supports the initiative with a three year US$ 1.5 million grant, which in the first year has already leveraged three times as much from other donors.

The Bank has been accumulating experience in facilitating this kind of knowledge exchange, and going forward can do even more in its evolution from an institution focused on financial services to a provider of a more diversified package of development services to client countries.