© 2018 by Daniel Anthes

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The importance of natural resources for the global economy

Many countries in the world are rich in natural resources. And in most cases those natural resources constitute an important engine for the country’s economy, as well as a considerable source of fiscal revenues and foreign exchange. In fact, according to my own research a total of 83 countries and with that an aggregate population of 3.3 billion people can be considered resource-rich.* This is because resource exports, on average, account for more than 50 percent of overall exports, revenues derived from extractive resource exports make up for more than half of total government revenues, and rents** from extractive resources generate about 18 percent of gross domestic product (GDP).

 

 

(This article solely sheds light on the supply side and knowingly neglects demand factors).

 

In the beginning of 2008, before the world economy was agitated by the global financial crisis that resulted in the collapse of large financial institutions and the immense downturn in stock markets around the world, natural resource rents peaked at over seven percent of global GDP, thus accounting for more than four trillion US-Dollar in absolute terms. Two years later, after the global economy slowly started to recover, the sum of rents from oil, natural gas, coal, mineral and forest production again began to gradually increase, in 2010 making up more than four percent of global GDP and more than three trillion US-Dollar respectively. Most recent data shows that these numbers are still on the rise, with natural resource rents worth 3,7 trillion US-Dollar and with that 5,1 percent of global GDP in 2012 - hereby, oil rents take the lion's share by far (see Fig. 1) (World Bank 2013a) (see another article for sustainable rent management). 

 

Fig. 1: Composition of global natural resource rents contributing to GDP, 2012 (World Bank 2013a adapted by author)

 

If you would put these numbers in a geographic perspective, you would discover following picture equivalent to Map 1 below: Particularly the Middle East & North Africa, as well as Sub-Saharan Africa depend on their natural resource wealth, since in each case it contributes more than a fifth to the region's overall GDP. In this context, for instance, economies of countries such as Republic of Congo, Kuwait, Saudi Arabia, Equatorial Guinea, Iraq or Angola heavily rely on earnings from their resource riches and virtually generate all of their economic output and thus GDP through extractives.

 

Map 1: Regional contribution of natural resource rents to GDP, 2012 (World Bank 2013a adapted by author)***

 

Looking at global merchandise trade, the important role of natural resources, and extractive resources in particular, becomes equally obvious: Although the growth rate in world mer-chandise exports of fuel and mining products was relatively low (1,5 percent in volume terms in 2011) in comparison to agricultural and manufactured products due to high commodity prices, the share of those extractive resources in total merchandise trade remained signifi-cantly high, accounting for almost a quarter of global trade (see Tab. 1). At this, fuels matter by far for the most part, representing roughly a fifth of total merchandise trade and 56 percent of primary products trade worldwide. In 2011, this equaled a value of worldwide merchandise exports of fuels worth 3,171 billion US-Dollar (increased by 37 percent compared to the year before), followed by ores and other minerals worth 428 billion US-Dollar (increased by 25 percent) (World Trade Organization 2012: 35).

 

Tab. 1: Share of fuels and mining products in trade in total merchandise and primary products by region, 2011 (World Trade Organization 2012)

 

In Africa, fuel and mining products accounted for 64 percent in total exports in 2011, fuels alone standing for more than 50 percent thereof. Compared to the previous year, exports of extractive resources increased by 15 percent, with this relatively low (in comparison to, for instance, the Middle East with 46 percent or the CIS with 37 percent) due to crisis events in Libya that significantly reduced crude oil production and exports on the continent. The Middle East remains the leading export region of extractive resources, albeit fuels constitute almost for the whole extractive resources export basis (with 98 percent), thus making mining products rather insignificant (World Trade Organization 2012: 51).

 

Fig. 2: Oil production in thousand barrels per day by region, 1965-2011 (British Petroleum 2012 adapted by author)

 

Turning the focus on global oil production and putting this in a time-wise perspective (see Fig. 2), the results show a steadily increasing oil output worldwide. In 2011, despite already men-tioned outages in Libya and elsewhere, global oil production grew by 1.1 million barrel per day due to large increases in countries of the Middle East and other members from the Organization of Petroleum Exporting Countries (OPEC) – Saudi Arabia, United Arab Emirates (UAE) and Qatar recorded all-time highs in oil production. In just the last 50 years, Africa nearly quintupled its oil production, by this time being the fourth most important oil producing region in the world. With these words, Africa is yet ahead of South & Central America and Asia Pacific, thus having made a large number of developing countries joining the global oil producers club. At this point, Brahmbhatt et al. (2010: 2) justifiably say that “natural resource dependence remains a fact of life for a majority of developing countries”. (In a former blog entry I've already pointed out which countries in particular are to which extent dependent on natural resources.)

 

Although there are also developed countries that - at least to some extent - rely on natural resources for their economic wellbeing, particularly economies in the developing world simply couldn't survive without their natural resource riches. Often these countries generate the major part of their economic output through either oil, gas or minerals and thus are extremely reliant upon consequent rents. If not used wisely, and supporting current consumption rather than investing in new capital to replace natural resources being used up, those countries are borrowing against their future. 

 

 

References:

 

Foto: Oil drilling platform - clark395 (taken from flickr)

 

*I am referring to countries as resource-rich, where natural resources (and hereby primarily extractive resources) comprise at least 20 percent of overall merchandise exports, and/or 20 percent of total government revenues (of course in each case dependent on data availability). The term extractive resources relates to natural resources extracted from the ground. As defined by the World Bank with reference to the Standard International Trade classification (SITC) they comprise fuels, ores and metals referring to section 3 (mineral fuels), 27 (crude fertilizer, minerals), 28 (metalliferous ores, scarp) and 68 (non-ferrous metals) (see http://data.worldbank.org). I am thereafter referring to natural resources as resources of the non-renewable type. It should be noted, however, that the issues raised in this study are also, at least to some extent, relevant to countries dependent on the exploitation of renewable resources such as agriculture, forestry and fisheries. This is due to the fact that the over-exploitation of a stock of from the outset renewable resources may in turn become exhaustible.

 

**Referring to a definition from the World Bank (2013a and 2013b), earnings from natural resources often come in the form of economic rents - basically revenues above the cost of extracting the resources. Natural resources give rise to economic rents because they are not produced. Rents from non-renewable resources - fossil fuels and minerals - as well as rents from overharvesting of forests indicate the liquidation of a country's capital stock. 

 

***Working with World Bank (2013a and 2013b) data here the focus lies on developing countries, which is why the map, raising no claim to completeness, leaves out main industrialized countries (uncolored). Clearly there are also developed countries (e.g. Norway or Australia) that heavily depend on their natural resources for their economic wellbeing.

 

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