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The Resource Curse in Developing Countries

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“What is a house without food?” A report from the NGO Human Rights Watch poses this question straight from the lips of a resettled farmer in Mozambique. The report examines Mozambique’s coal mining boom due to foreign investment, documenting the resettling of farmers in resource-rich areas that causes food insecurity.

In Mozambique in particular, the mining companies Vale and Rio Tinto displaced local communities from 2009-2011, a move that majorly disrupted daily life for almost 1400 households. For many of these displaced families, the investment in natural resources that should have brought increased profits to the region and country instead jeopardized regular access to food, water, and income opportunities.

The Paradox of Plenty

Statistically, countries with a high amount of natural resources experience lower economic growth and a slower development rate than countries with less natural resources. This is known in economic theory as the “resource curse,” or the paradox of plenty. Multibillion dollar companies investing in these countries’ economies promise a “trickle-down” effect that rarely — if ever — improves the quality of life and average daily income.

A number of phenomena are linked to the “resource curse.” From a historical perspective, regions with visible high amounts of natural resources are seen as more attractive targets for conquest and imperialism. With this precedent of constant push and pull of conquering countries, the host region’s development of governance and infrastructure is stunted. These regions, while relatively stable in governance now, developed with a major disadvantage in the modern economic environment.

Another chief indicator of the “resource curse” is rampant corruption on both state and local level. Extractive industries often collude with corrupt governments to allow them mining or logging rights to land claimed by indigenous people. In the Indian state of Andhra Pradesh, indigenous communities who should have been protected by constitutional law from exploitation of their land were bypassed entirely when their state leaders covertly gave foreign companies leases to mine bauxite.

While corruption on the ground level could theoretically be bypassed entirely if a foreign company advocated for the rights of the people in the surrounding region, the “resource curse” is certainly not limited to an individual country’s ability to manage its own natural resources. While Rio Tinto and Vale did implement relocation plans approved by the Mozambican government, company representatives did acknowledge the poor arability of the land to which households were relocated.

Growth Poles

Even so, the World Economic Forum sees foreign investment in the natural resource sector as a key part of making Africa’s economies more globally competitive. Growth poles — simultaneous investments coordinated in many sectors to support self-sustaining industrialization — are posed in the Africa Competitiveness Report 2013 as a way to make investing in the host country profitable.

A WEF project entitled “The Madagascar Integrated Growth Poles Project” tested the concept of growth poles, partnering both public agencies and private corporations (including Rio Tinto) to develop infrastructure, provide skills education for both the engineering and hotel industries, and improve the process of business creation. These projects improved the overall business environment in Madagascar, according to the WEF. In 2005, private investment in Madagascar was US$84 million; this number increased to US$1045 million in two years.

What sets “growth poles” apart from isolated foreign investment is dedication to expanding the market in the host country. While the largest investments may initially be extraction of natural resources, they serve as profitability assurance for other firms to invest – both international and domestic.

Responsible Foreign Investment

The key to responsible foreign investment in a country experiencing the “resource curse,” is the balancing of the investor’s profits and economic development for the host country. Partnership of MNCs (multinational corporations) and NGOs hold the most promise, because while companies – both in-house and international – ultimately invest in natural resources for the bottom line, aid and development ventures can improve the standard of living in the communities most affected by natural resource development.

Furthermore, in order for foreign investments to improve developing countries, they should not be isolated or exploitative. These ventures must be planned so as to strengthen and not undermine existing enterprises in the host country. Foreign business investments that help host countries the most are ones that promote and supplement investment in all sectors.

Responsible implementation of foreign investment in Africa’s natural resources is rare. If WEF’s Growth Poles Project is any indicator, there are ways to improve a country’s chances against the “resource curse.” MNCs Rio Tinto and Vale certainly have the resources and precedent to face Mozambique’s mining backlash with an increased dedication to developing growth poles in the region, and in their other investments, to improve development.

– Naomi Doraisamy

Source: BBC,Human Rights Watch,World Economic Forum,World Watch
Photo: AEFJN

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Neglecting Environment Prolongs Global Poverty

Neglecting Environment Prolongs Global Poverty

The actions and decisions of humans have had negative effects on the environment and the world’s natural resources. However, research suggests not all humans deplete resources unnecessarily; the poor are often best at sustaining the environment because they recognize its direct connection to their survival. According to The Centre for Science and Environment, wealthier nations are to blame. The Centre speculates that if impoverished nations developed and consumed at the rate of the West, two more planet Earths would be needed to produce enough resources and absorb the waste.

So, if wealthy nations are consuming at an alarming rate while poorer nations excel at sustaining their environment, why is the latter suffering economically?

The answer is simple, but sad; industry frequently exploits less developed countries. They send their most environmentally unfriendly ventures to the Third World to circumvent the high cost of doing such work in the developed world. As a result, large-scale deforestation occurs to make land available for lease to international companies. Prime agricultural land is damaged by harsh pesticides and fertilizers to produce cash crops for wealthier countries and ten times the amount of water a typical Indian family should consume in one day, if they get water at all, is used for meat breeding for richer nations.

Disregarding the environment when addressing poverty leads to an incomplete solution because the two are directly related. The natural resources needed to lift people out of poverty, though sustainable, are not unlimited. Thus the environment can only sustain us for as long as we sustain it.

– Dana Johnson

Source: Global Issues
Photo: UN

Development in Africa According to the UN

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A new report from the United Nations Economic Commission for Africa (ECA) and the African Union says the key to long-term development in Africa is commodity-based industrialization. The study collected data mostly from nine African countries and the continent’s five sub-regions. Those countries are Algeria, Cameroon, Egypt, Ethiopia, Ghana, Kenya, Nigeria, South Africa and Zambia.

The report urges African nations to take advantage of their abundance of natural resources by using a commodity-based industrialization strategy. Each nation should frame its own specific policy for commodity-based industrialization so that it can direct its own development.  This is necessary to address poverty and gender disparities, youth unemployment, and other challenges African nations faces. The report states that “massive industrialization based on commodities in Africa is imperative, possible, and beneficial.”

Instead of African nations shipping raw materials to foreign nations to make commodities which are of higher value, the report recommends adding value to raw materials locally. Not only does this increase the profit to African nations but also fosters diversification of technological capabilities, an expansion of an advantageous skills base, and deepened industrial infrastructures in individual countries.

Case studies were prepared for Algeria, Cameroon, Egypt, Ethiopia, Ghana, Kenya, Nigeria, South Africa and Zambia.

– Essee Oruma

Source: UN News Centre

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Innovative Means of Development

AllAfrica
As the world continues to deal with economic financial crises, there is still a need for global contribution and aid to countries of extreme poverty. With the amounts of Western foreign aid decreasing, there is a need for new and innovative means of development to lift people out of poverty. The main themes that are the current focus include taxing, gender equality laws, inclusive growth and regional integration.

The Chief Economist and Vice President of the African Development Bank, Mthuli Ncube, urged the need for transparency between investors and the African people. He points out that it is problematic how even when commodity prices increase, African governments’ revenues do not follow the pattern. He suggests that international investments in African natural resources should be monitored so that they “benefit the African people through job creation, protecting the environment, developing African entrepreneurs,” and then using all the resulted revenues to create a diverse African economy.

The Organization for Economic Cooperation and Development (OECD) has stated that there has been a shift in aid from extremely poor countries to those of middle-income, and it emphasizes the point that in order to meet the U.N. Millennium Goals by 2015, this shift must be reversed to prioritize and address the extremely poor countries. A professor of Development Policy and Practice at the University of Warwick in the U.K., Franklyn Lisk, discussed how African countries suffer from an irony where their natural resources have not been giving them any returns on improving human development. He argues for tax justice, citing that there are many extranational companies who enter developing nations “paying little or no taxes, through manipulation and connivance with corrupt regimes.” With taxation, Lisk says, revenue would increase to 6 times the amount of total aid.

In 2012, 9 members of the Development Assistance Committee increased their aid, and those members are: Australia, Iceland, Austria, Korea, Luxembourg, Canada, Norway, Switzerland, with other donors including Poland, Turkey, and the United Arab Emirates.

– Leen Abdallah

Source: All Africa
Photo: National Geographic