1. FREEING AFRICA FROM THE RESOURCE CURSE: SOME OPTIONS
Ernest Aryeetey
ISSER, University of Ghana

2. OUTLINE 1. Introduction 2. Growing Demand for Africa’s NRs
3. Should NR Abundance be a Curse?
4. Institutions, Development and the Natural Resource Curse?
5. Freeing Countries from the Curse

3. 1. Introduction
 “How can one understand that during the last three decades, the frequent start-up of oil wells, always important, has not been accompanied by any visible sign of economic transformation or rectification of the social situation of our population? Our oil must be an instrument for the life and not the death of our people.”
Catholic Bishops of Rep. of Congo (1999)

4. Introduction (Contd)
Economic growth in Africa, until recently, has been relatively slow and erratic
But many African countries are far more endowed than other developing regions, leading to greater expectations of economic potential

5. Introduction (Contd)
Poor income growth <2.5% in SSA for two decades often stood in contrast with positive experiences elsewhere
Continued under-performance of resource rich countries led to suggestions of resource curse

6. Introduction (contd)
The last 5 years have seen more positive growth figures, influenced largely by the oil producing economies
The commodity booms and associated growth in some countries are leading to revisions of the resource curse literature

7. Top 10 and bottom 5 performers in Africa in 2006 (% annual growth) (ECA)

8. Introduction (Contd)
The dominance of oil-exporting economies is obvious (5)
So also is the significance of 2 mineral rich economies, (DRC and Mozambique)
Is the curse being exorcized? Not really. There are manageable challenges with the commodity boom

9. 2. Growing Demand for Africa’s NRs and Commodity Booms
Demand for NRs on the global market continues to rise
Expansion in the economies of China and India have significantly accounted for the expanded demand, but not solely
African economies have become even more prominent sources of NRs and new searches for NRs have been intensified

10. Growing Demand for Africa’s NRs (contd)
China National Petroleum Corporation (CNPC), owns a 40% stake in the Greater Nile Petroleum Operating Company. 
Sinopec (China Petroleum and Chemical Corporation) constructing 1500 km pipeline to boost oil exports through Port Sudan.
Prospecting work in Ethiopia, Mauritania, Equatorial Guinea, Nigeria ,etc.

11. 3. Should NR Abundance be a Curse?
Resource curse lit. suggests that NR-rich countries in general have grown slower than resource scarce countries; literature predicts negative effects from commodity booms.
Recent work on commodity booms suggest positive growth effects (Raddatz 2007)
Collier and Goderis (2007) suggest positive ST effects from commodity booms and negative LT effects

12. Should NR Abundance be a Curse? (contd)
NRs also appear to impact negatively on equity and distribution of wealth
The probability of civil conflicts has been higher in NR-rich countries
Oil and mineral wealth≠economic and social well-being for the majority of the population

13. Should NR Abundance be a Curse? (contd)
Six channels of resource curse:
Dutch disease
Governance
Conflict
Excessive borrowing
Inequality
Volatility

14. Should NR Abundance be a Curse? (contd)
Collier and Goderis (2007) find strong evidence of Dutch disease in panel data investigations for long term growth effects
High public and private consumption, low and inefficient investment are the main explanations for resource curse
Curse is strongest where institutions are weakest

15. 4. Institutions, Development and the Natural Resource Curse
LT development requires major public and private investments; may require large public consumption also
The development challenge is to make large investments and the necessary consumption without compromising macro stability

16. Institutions, Development and the NR Curse (Contd)
It is often the search for diversification that leads to inefficient expenditure choices
Weak institutions often lead to elite capture of the resource and its management

17. Institutions, Development and the NR Curse (Contd)
Country
Transparency and corruption (period average: )
Political and civil rights
(Period average: )
Botswana
5.9 out of 10
5.9 out of 7
Cameroon
2.0 out of 10
2.0 out of 7
Cote d'Ivoire
2.4 out of 10
2.6 out of 7
Ghana
3.5 out of 10
3.8 out of 7
Namibia
4.9 out of 10
5.5 out of 7
Nigeria
1.7 out of 10
3.2 out of 7

18. Institutions, Development and the NR Curse (Contd)
Comparing Corruption Perception in Botswana & Nigeria:

19. Institutions, Development and the NR Curse (Contd)
Comparing the Average Index of Political Rights and Civil Liberties:

20. Institutions, Development and the NR Curse (Contd)
In sum, NR dependence could lead to weak long term growth for the following reasons:
The promise of oil/mineral wealth creates a ‘boom mentality’
Public spending increases dramatically
The quality of public spending declines

21. Institutions, Development and the NR Curse (Contd)
Price volatility hinders growth, distribution of wealth and poverty alleviation
Booms encourage the loss of fiscal control
Foreign debt rises as governments borrow to cover shortfalls in expected resource revenues
Other sectors of the economy, such as manufacturing and agriculture, decline as a result of oil dependence

22. Institutions, Development and the NR Curse (Contd)
Thus Africa’s problem is not the curse of NRs but rather the problems associated with institutional failure
LT growth collapse is not inevitable just because of NR abundance
Redesigning and focusing the institutions should reduce the challenge

23. 5. Freeing Countries from the Curse
Example of Best Practice, Botswana:
On the average Botswana has grown at 7.3% between 1981 and 2006 (compared to 3.0% and 2.9% respectively by Namibia and Nigeria over the same period)
consistently reinvested most of its mineral revenues

24. Freeing Countries from the Curse (contd)
Botswana's success is attributed to:
sound institutions and good governance

25. Freeing Countries from the Curse (contd)

26. Freeing Countries from the Curse: Challenges for Africa
Countries require strategic plans for structural transformation/diversification
Continuing macroeconomic stability is crucial but not pursued in a dogmatic way
Diversification requires re-investment of natural resource wealth in new growth areas

27. Freeing Countries from the Curse: Challenges for Africa
New growth areas may include modernized agriculture linked to industrial development and services
Human capital development, bringing together education and skills development, health, and employment generation
Strategic human settlements development through effective decentralization

28. Freeing Countries from the Curse: Challenges for Africa (contd)
Strengthen public sector institutions and their links to the private sector:
Enhanced public expenditure management is key for efficiency
Greater transparency and accountability in use of public resources
Competitive politics must be regulated/code of ethics
Private participation in economy must be properly regulated

29. End
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