The Natural Resource Curse

The Natural Resource Curse The natural resource curse affects countries with abundant natural resources. Studies done to investigate this phenomenon reveal several paradoxical issues relating the presence of natural resources in a country.Advertising We will write a custom essay sample on The Natural Resource Curse specifically for you for only $16.05 $11/page Learn More For instance, countries that rely on natural resources for budgetary financing seem to have an inverse economic growth in relation to the percentage of the national budget financed using natural wealth. This paper looks at the issue of the natural resource curse with a view of uncovering why some countries suffer from it, while others do not. Natural resources refer to endowments in mineral wealth, or naturally occurring plant and animal life. Mineral wealth in this case refers to mined substances such as precious metals, gemstones, or oil wealth. Some of these resources occur near the surface of the earth. In this ca se, the resource may not require mining in the conventional sense. Timber is one of the most valuable natural resources extracted from naturally occurring forests. The worldwide demand for timber is growing mainly because of increasing control and restriction on logging by authorities concerned with the conservation of nature. To a certain extent, the presence of animals such as elephants and rhinos makes a country vulnerable to natural resource issues related to the ivory trade. However, the significance of animal related natural wealth is reducing because of greater enforcement of animal protection legislation. The natural resource curse refers to the paradoxical situation where countries endowed with natural resources tend to suffer from poor economic growth, war, and poverty, more than countries not endowed with these resources. This is counter intuitive because the presence of natural resources should mean the availability of finances to bankroll development projects in a count ry. However, many countries that have vast amounts of natural resources tend to suffer from slow economic growth, resource wars, and disproportionate levels of corruption. Scholars present various reasons for this situation that range from corruption, to weak governance.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Why Some Countries Suffer From the Natural Resource Curse There are many reasons why many countries suffer from the natural resource curse. This section examines the role of corruption, resource dependence, weak central governments, and the international business environment surrounding trade in natural resources. The nature of natural wealth is such that it is difficult to track the exact quantities produced and then delivered to markets. In addition, after the sale of the resources, it is difficult to track with accuracy the exact amount of money that eventually en ds up in projects that are for the benefit of the country. Many times, governments do not control the actual mining or extraction operations of the natural resources in their territory. For instance, oil companies such as BP control mining operations in many territories around the world. This means that the governments cannot know with complete accuracy whether the quantities of oil mined by oil companies are the actual ones. It is also possible for a minister in charge of mining to collude with the company to defraud the country. Since the government trusts the minister to control and report on the operations of the company, the country ends up losing revenue. On the other end, after the mining companies extract and sell minerals in the international market, the money may not reach development projects in the country because of corruption within government. The second cause of the oil curse is resource dependence of countries endowed with natural resources. This especially affects oil-producing nations. A good example is Nigeria where the country relies on oil and gas exports to fund more than eighty percent of its recurrent expenses. This overreliance on mineral wealth makes it difficult for the government to develop a sustainable tax base. Studies show that countries that do not have an effective tax net also tend to lack the capacity to address social issues in the country. Nigeria’s reliance on its oil wealth is part of the causative factors of the social challenges espoused by the conflict in the Niger Delta. In addition, Nigeria is in no position to challenge the activities of oil companies when they fail to meet environmental stipulations simply because the government relies on these companies to generate its operating revenues.Advertising We will write a custom essay sample on The Natural Resource Curse specifically for you for only $16.05 $11/page Learn More This situation, compared to the America for instance is appa lling. America took strong action against BP after the Deep Water horizon oil spill. America does not rely on oil in the same terms as Nigeria. Therefore, it had the liberty to enforce its laws after the spill. Thirdly, weak governments amplify the negative effects of the resource curse. A weak government does not have the capacity to address the social ills in the country. This usually comes from ineffective planning, or inconsistent implementation. Any government that cannot guarantee the territorial integrity of the country, or does not have the power to manage social order, is weak. Countries with mineral wealth also tend to have rebel groups seeking to control mineral rich areas. For instance, rebellion in the Democratic Republic of Congo (DRC) takes place around mineral centers. No government in the DRC has gained control over the entire territory of the country. The fact that natural resources tend to occur in one region makes the resource rich areas easy targets of armed gro ups since they are easy to seize and control. Finally, the resource curse is a product of tilted international trading terms. For instance, OECD countries encourage the importation of raw material such as crude oil, but it discourages the importation of processed products. Importing processed products to the OECD is difficult because of a raft of tariff and non-tariff barriers. The net effect is that any country that wants to sell its natural resources to the OECD countries cannot establish a strong local manufacturing sector. The result is that the country remains dependent on the export of natural resources, while it imports equipment and finished products from its natural resource export destinations. How Countries Avoid the Natural Resource Curse Despite the strong indication that natural resources tend to bring more problems for some countries that solutions, there are examples of countries that seem to have avoided the curse. In this section, we look at three factors that cont ribute to avoiding the natural resource curse. These factors are the presence of a strong central government, diversified economies, and diversified markets. Saudi Arabia is one of the largest oil producers in the world. Oil accounts for about fifty percent of its national budget, and is responsible for about ninety percent of its export revenues. As such, Saudi Arabia should be suffering from the oil curse. This is not the case. The country has one of the most stable governments in the Middle East.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More It did not suffer during the Arab spring and it does not have any formidable rebel groups operating within its territory. Its only exposure is from terrorists who loath the presence of American bases in the country. This is an ideological issue, rather than a resource one. The case of Saudi Arabia shows that a strong central government can avert the resource curse. The ability of the government to maintain territorial integrity is a key part of the process of avoiding the natural resource curse. It is also instructive to note that Saudi Arabia is not a western democracy. Rather it is a monarchy. Its laws are some of the harshest in the world especially in regards to issues of social harmony. The point here is that avoiding the resource curse is not a question of the type of government in place. Rather it is a factor of how strong the government is in the management of the country. The second way in which countries can avert the natural resource curse is by diversifying their economi es. A good case in point is Dubai, which is part of the UAE. Dubai struck oil in the mid twentieth century. The rulers of the city-state soon recognized that while the oil wealth was a great resource for the country, reliance on oil was not sustainable. This led to the development of economic plans that sought to transfer the oil wealth to other sectors of the economy. The goal of this move was to diversify the economic base of the country. The result of this is that Dubai is now an international trade hub, known more for its free port that for its oil. Oil is still an important part of the economic mix of the country, but even if the oil sector collapsed, the country will still be operational. Apart from its famous free port, Dubai is becoming a financial capital, a tourism hub, and a transport hub. Emirates Airlines, which is currently one of the largest airlines in the world operates from the United Arab Emirates (UAE). Apart from the diversification of the economic base of the c ountry, the UAE makes efforts to maintain social stability by ensuring all the citizens have access to quality education and healthcare. The third pillar in the effort to avoid the natural resource curse is diversifying the markets for the primary natural wealth. Diversifying the market for a country’s natural wealth makes it possible for the country to develop other sectors of the economy, and to control the prices of the natural wealth. Instead of relying on exports to regions with many tariff and non-tariff barriers, it is better to develop new markets for finished products to create jobs locally. Kenya exports processed oil to its neighbors after importing crude from the Middle East. If Kenya had its own oil, then it would have the full benefits of oil extraction. In conclusion, the natural resource curse is not impossible to deal with. However, it takes strong leadership on the part of the country endowed with natural wealth to deal with the associated issues. In this se nse, the natural resource curse is really the product of bad leadership in the midst of abundance. Bannon, Ian and Paul Collier. Natural Resources and Conflict: What We Can Do. Bannon, Ian and Paul Collier. Natural Resources and Violent Conflict: Options and Actions. Washington DC: The World Bank, 2003. 1-16. Print. Chapin, Rosemary. Social Policy for Effective Practice: A Strengths Approach. New York: Francis Taylor, 2010. Print. Deloitte. 2011 Survey of the UAE Healthcare Sector Opportunities and Challenges for Private Providers. Survey Report. London: Deloitte, 2011. Print. Mwanika, Phillip Arthur Njuguna. Natural Resources Conflict. ISS Paper 216 September 2010: 1-12. Print. Ross, Michaeal. The Natural Resource Curse: How Wealth Can Make You Poor. Bannon, Ian and Paul Collier. Natural Resources and Violent Conflicts: Options and Actions. Washington DC: World Bank, 2003. 17-42. Print. Schnurr, Matthew A and Larry A Swatuk. Natural Resources and Social Conflict: Towards Critical Environmental Security. New York: Palgrave Macmillan, 2012. Print.