© 2018 by Daniel Anthes

  • Black LinkedIn Icon
  • Black Facebook Icon
  • Black Twitter Icon
  • Black YouTube Icon
  • Black Instagram Icon

Who's rich in natural resources?

Geological processes have the result that extractive resources are unevenly spread around the world, leading to the fact that some countries are richly endowed while others do not have any significant amounts of resources at their disposal. Focusing on countries that are endowed with extractive resources, it is of fundamental importance to differ between resource abundance and resource dependence. What are the implications for the government, the population and the country as a whole?

 

 

Resource abundance

Resource abundance refers to the actual subsoil wealth of a given country that is defined by the sum of its available and thus exhaustible deposits of oil, gas, and minerals below the ground. This abundance can be measured by e.g. the annual rate of resource production per capita. According to Collier & Venables (2008: 1) the average square kilometer in Africa has known subsoil assets of around 25,000 US-Dollar beneath it, whereas the corresponding figure for landmass in the OECD countries is five times as high, in fact ca. 125,000 US-Dollar per square kilometer. Because of few investments in exploitation in developing countries, it is likely that those regions can be characterized by a considerable under-discovery and therefore have a high potential for new findings, most probably in sum exceeding the ones from the richer countries. This is particularly presumable since constantly rising demand for natural resources and increasing prices for oil and other minerals are forcing extractive companies to evermore invest in exploration activities in developing countries.

 

Resource Dependence

On the other hand, resource dependence refers to the fact that current consumption levels mainly rely on natural resource production and export. It hereby reveals the extent to which a country’s economy depends on rents derived from natural resources. Common measures are the share of resource exports of overall merchandise exports, the proportion of natural resource rents to GDP or the fraction of total government revenues.

 

Map 1: Extractive resource rents per capita, 2010 (World Bank 2013 adapted by author)

 

Map 1 presents rents from extractive resources per capita on a country basis for the year 2010, and map 2 further depicts the extractive industries share of overall merchandise exports on a country level for the year 2010 as well, since this year provides the most recent and compre-hensive data. Looking at both maps simultaneously, it becomes clear that most leaders in resource production are also the ones most fiscally dependent, since they heavily rely on extractive resources within their general export structure. Developing countries such as Angola, Venezuela, Azerbaijan, Democratic Republic of Congo or Nigeria are just a few good examples in this context for countries, where extractive resources make up for more than 80 percent of overall merchandise exports. There are countries, notably in SSA, which are highly dependent on natural resources, while at the same time not having a high rents per capita level. Of all resource-dependent countries worldwide, roughly a third is located in SSA. The Democratic Republic of Congo is probably the most striking example, heavily depending on natural resources with regard to the country’s export base, while at the same time accounting for resource rents per capita of under 50 US-Dollar. This indicates that fiscal regimes, particularly with regard to revenue taxation, may be inappropriate for capturing an adequate share of rents in the context of rising commodity prices. On the other hand, there are developed and thus richer countries such as Norway, Australia, Canada and the USA that although they have high rents per capita do not rely on their natural resource wealth to the extent of developing countries, because their economies are much more diversified as can be seen by the comparably low importance of fuels, ores and metals for overall merchandise exports.

 

Map 2: Fuels, ores and metal exports as percent of total merchandise exports, 2010 (World Bank 2013 adapted by author)

 

Government revenues derived from natural resources as a share of total government revenues and thus the state’s fiscal dependence on e.g. extractive industries also vary significantly on a global scale. As fig. 1 shows, countries that heavily rely on natural resources for their exports, most often do so likewise in the context of mobilizing domestic revenues. For instance, in Equatorial Guinea, Libya, Iraq and the Republic of Congo natural resource revenues account for more than 80 percent of total government revenues. Overall, in 24 countries worldwide more than half of government revenues is derived from natural resource exports. This has important implications for the political economy of natural resource governance (see article about potential transmission channels of the resource curse).

 

Fig. 1: Resource revenues as percent of total government revenues for selected countries, 2006-2010 (International Monetary Fund 2012: 48ff. adapted by author)

 

As can be seen by looking at fig. 2, the lion share (almost three quarter) of the world’s natural resource rents is captured in richer country settings, in fact high income countries (both OECD and non-OECD) and upper middle income countries. Being more precisely with regard to the regional context, the Middle East because of its petroleum wealth maintains its leading position regarding natural resource rents captured. The OECD region is to be found shortly after, followed by the East Asia and Pacific (EAP) region, whose share of natural resource rents increased from 9 to 17 percent since 2000. However, poorer settings from lower middle income countries and low income countries are increasingly becoming significant rent capturers as well, currently accounting for more than a quarter of global rents. SSA is a main driver of this development, having raised its natural resource rents sixfold since 2000, with oil rents accounting for over two thirds of the total increase. This trend is most likely to intensify, since, as already mentioned above, demand for natural resources is growing, and in response to historically high commodity prices the push for new discoveries and expanding extraction has moved into frontier areas of the developing world, particularly in SSA (Barma et al. 2011: 23 f.).

 

Fig. 2: Rents from extractive industries by income level (Barma et al. 2011: 23 adapted by author)

 

Clearly, most of resource rents still accrue in high-income and with this most often already industrialized countries. However, there is obviously a considerable under-discovery in developing countries, particularly in SSA, which in the light of currently high commodity prices implies a high potential for new findings. Ghana discovering oil serves just as an example of a developing country that is now confronted with how to manage its newly found natural resource wealth for the benefit of its citizens. Basically this should be good news, but the country is undoubtedly facing several common challenges in order to make the best out of it. Clearly these developments are spurring the fundamental debate about whether natural resources are a curse or a blessing and could provide further gainings in knowledge.

 

 

References:

  • Barma, N., K. Kaiser, T. M. Le & L. Vinuela (2011): Rents to Riches? The Political Economy of Natural Resource-Led Development. Washington, D. C.

  • Collier, P. & A. J. Venables (2008): Managing Resource Revenues: Lessons for Low Income Countries. OxCarre Research Paper No. 2008-12. Internet: http://www.oxcarre.ox.ac.uk/images/stories/papers/ ResearchPapers/oxcarrerp200812.pdf.

  • International Monetary Fund (2012): Macroeconomic Policy Frameworks for Resource-Rich Developing Countries. Internet: http://www.imf.org/external/np/pp/eng/2012/ 082412.pdf.

  • World Bank (2013f): World Development Indicators. Internet: http://data.worldbank.org/data-catalog/world-development-indicators

Please reload