Specific Cases: The Concept of Resource Curse in the Development of Africa’s Economies.

Investigations from the 1960s, principally, focusing on the cases of the third world countries in South America and Africa proved that a country with plenty of non-renewable resources, highly valued internationally, was less likely to succeed, and experience stagnant growth or even economic contraction. In the early 1990s, R.M Auty coincided the term resource curse, to describe the tough situation which was confronted by resource-rich nations. Those defects challenging many African countries possessing abundant resources include; economic fluctuations, with less specialisation on other industries, known as the Dutch economy, inequality of income distribution in the country, territorial and internal conflicts, low levels of democracy and an unpredictable government spending which can be disastrous, as far as economic crises are concerned. Equatorial Guinea, Angola and Nigeria are the top three producers of oil in Africa, and that has led them into corrupt and weak government institutions and many other problems associated with the resource and management. The following paper is delegated on showing, basing on African cases, how the resource curse theory is applicable to the current African situation and how the availability of highly demanded resources on the international market has crippled the potential development of many African countries.

Problems with reliance on oil industry

Many empirical observations have it that petrodollar is not always reliable to the country’s economy, but many African governments tend to specialise only in it without paying much attention to other industries. The result will be a defect called the Dutch economy, a country will suffer when the international market slumps. To illustrate, during the 1980s when the oil prices fell Nigerian economy suffered severely because there was no diversification. Similarly, from 2002 to 2008 Angola witnessed an economic boom, assuredly, because of ‘political stability’ and increased oil revenues, and this period of prosperity ended in 2009 when the world oil prices declined severely. Thus the country’s economy advances greatly, only, when the demand and the value of their commodity, that is the resource available for extraction, is higher at the international market and halt when the opposite is true. Lack of specialisation on other industries usually shifts professionalism, research and labour force to one activity like oil extracting. It will be only after realising that the resource which they were specialising on is no longer profitable it will be harder to switch over to any industrial sector, apparently, because of the lack craftsmen in that sector. In many cases, countries with poorly diversified economies suffer most, economically, than countries with a diversified economy.

Diversification in Equatorial Guinea

Countries like Equatorial Guinea managed to escape this defect, at least as they claim, through diversification and creating a country which Africa should recognise as a gateway to the African trade. Fisheries, agriculture projects, petroleum processing, tourism and hotel-wards, and hardwood timber exports became the centre of Equatorial Guinea’s development and revenue since 2009. Two large projects aiming at developing the regional connectivity were set; the ports of Malabo and Bata, capable of handling over 500 000 containers every year. An extensive road network will assure that countries in EMAC trading partnership, without a clear access to the sea, will use Equatorial Guinea as media and thus how the government will generate revenue. The ideas offered by the resource curse model advocates has led countries like Equatorial Guinea to be aware of the need to diversify the economy. Having all these said, however, Equatorial Guinea is not going to escape the ‘paradox of plenty’ and allegations related to it in this essay.

Overspending, overborrowing— higher salaries for government officials

On account of higher oil revenues the government tends to undertake expensive economic projects during the boom era, but after that economic boom is thwarted there will be no finances left in the government coffers. The government will take a second move to solve this situation, especially when its economy is not diversified, that is, taking a loan from the International Monetary Fund and the World Bank. There is an evidence that resource-rich countries over-borrow than deprived countries. Moreover, when it comes to granting loans, the IMF prefers countries that can possibly cover up both the principle and the interest in a short time, and oil producing and exporting countries are the most ideal. However, the fiscal spending is not only directed at the projects and infrastructure but on the government salaries. Oil and diamond producers in Africa has the highest paid politicians in the continent has ever heard of. In Angola, President dos Santos’ daughter is the richest woman in Africa, and, again she is a corrupt politician. In Equatorial Guinea, the third producer of oil in Africa, the Obiang Nguema’s first family and other government officials spent millions on their personal daily deals. In DRC, the country is remaining the poorest country and the most dangerous country to investors in Africa whilst every cobalt and diamond revenue is just helping a little to develop the country the government officials are ruining over 70% of the government’s earnings.

Conflicts and tensions

Resources like oil do not only attract Direct Foreign Investment (FDI) but international powers and tensions. This issue, however, it is always imperfect to present it secondly since they are many reasons leading to these international tensions. For the case of Libya, setting aside the inevitable Arab Spring, the Western powers intervened because Gaddafi was increasingly becoming an international threat, offering loans and donations to other countries instead of raising his own, and aiming to make himself a regional superpower, among all Islamist nations. But, this code of foreign conduct was because of high revenues generated from exporting oil. Gaddafi failed to realise that if he does not offend the West they will never bother him. Plots and false allegations were created over him; being charged with going against the human rights became the daily headings of the New York Times.

Incontrovertible it is, however, an unimaginable government spending and ‘dictatorship’ is as a result of the vast revenues generated through oil revenue. At most, 30% of military regimes and rebels in Africa have been bred by natural resources and due to resources, dictators are becoming the order of the day in Africa, ruling a shaky government and this resulted in the downfall of the Libyan rising economic castle.

Angola witnessed a rebel group with some delusion of grandeur seeking to entertain its own motives; diamonds were now used to fund the war and never to develop the nation. However, the right-wing party, MPLA, can be blamed for not willing to share the political harmony with the other political groups like the rebellious UNITA because of its own fanatism based on Marxism. The Cold War politics was another powerful external force on Angola. A leaked CIA file indicated that the USA got involved, and while pushing South Africa further, with a motive of creating a second North Atlantic Treaty Organisation sequel codenamed SATO. This Southern military bloc would comprise of Angola and other South American countries but Angola possessed oil which is a necessary resource for powering warships. The Soviet bloc had the same intentions of increasing its Warsaw Pact membership but all of these were centred on the availability of oil especially when the Western politics are concerned. All over Africa, there are a plethora of civil wars that have been funded through diamonds, thus increasing armed conflict; In Sierra Leone, diamonds anathematized the people. Each group keeps an eye on the resources and this is threatening to both the government and the national peace. Furthermore, earnings per head will remain low and quality of life stagnant, and internationally decreasing export participation because the extraction and transportation of minerals are limited in conflict zones.

Can resources account for all these problems— in Africa?

Whilst arguing that conflicts are as a result of resources, countries like Botswana and Gabon never witnessed such defects. This has led some scholars, through their empirical findings, to conclude that, the “curse” does not inevitably materialise or happen but it is merely a probability. Each country tends to have a different mechanism and paradoxes leading to its own ‘fate’. In Botswana, diamond revenues are leading to economic development and cases of corruption are very few. Scholars like Pfefferle identified that a curse in many countries is not an outcome of resource abundance and the resource curse concept is by chance an ill-convinced attempt to offer a heuristic rule in order to understand broader development challenges. Countries like Burundi and Rwanda have witnessed conflicts and destabilisation as a result of a mixed bag of reasons. Postcolonial governments like that of Sierra Leone and Uganda never preferred democracy which many have been waiting for before independence. Apparently, this has led to coups and conflicts, and in these countries, and the Liberian case is on the same deck. These coups, however, never addressed an issue of democracy, thus further exacerbating the situation. Following the conflict trap channel, conflicts keep recurring and ‘a nation once in conflict tends to be in conflict for a longer time’. When a weak institution has developed it takes a long time to resolve it, regimes will remain evil for decades and decades.

The behaviour of foreign investors in resource-rich countries

Foreign Investors are not always committed to addressing the welfare of the people around their bases of operation. In the Katanga region Ha you cobalt, a Chinese firm, is directly involved as both a buyer and extractor of cobalt. But selfishness has led the company not to realise that children should be moved off the mines. Commenting on the Chinese actions in Africa, Wenjie Chen and his team admitted that the Chinese investors do not dissociate themselves with corrupt and poor governments in Africa, unlike the Westerners who are always in fear of being affected by property rights and unjustified rent-seizing. Amnesty International have exposed; from the age of four, without protective clothing, children are growing in the mines and yet the World Health Organisation clarified that direct contact with cobalt can cause a harm to human health.| Amnesty International tried to clarify that in DRC, Ha you cobalt can get cobalt as cheap as $2 from a sleepless three-day work of some people, whilst making a multi-million dollar deal with LG Chem lithium battery manufacturers. Resources are extracted and no one pays attention that the local people need a clean environment, water systems and other day-to-day life essentials. Most of the foreign investors will never consider conveyance or shift people off the mining region and relocate them elsewhere, and thus how resources are becoming a curse to Africa.

The tax model— the source of government revenue and its impact on the government spending

Still on the welfare of the people, a resource tax model developed by NRGI, in Fig 1.1, states that a country with much resources tend to earn all the revenue needed to run the state from corporate tax paid to them by Foreign investors and neglect any form of taxation from the citizens, and such a country is known as a rentier state. This gives the government influxes of income, free from the power of the majority because it is not the people who had contributed to the government’s earning. No one can demonstrate or go against the government spending and corrupt actions and the people can become enslaved to the economy. Thus how poor and corrupt institutions develop faster in resource-rich countries than in poor ones which rely on the tax taxes from the people than Foreign Investors. Foreign Investors will thus gain a power in the country and attain a state changing deciding platform. In the case of Nigeria, Chevron working with the state offered military equipment to suppress strikes. Over the years higher incomes out of oil extraction made the government’s imperfect action invisible, albeit anti-corruption agencies are playing a part. Practically, corruption will never be visible in much in a country with higher revenue than in a country with lower revenues. In Equatorial Guinea, oil revenue is considered as the as the state secret and no one in the country should know about it. Thus how 85% of the country’s wealth is under the control of only 5% of the total population.

Fig 1.1

Poor education in resource-rich countries

Advocates of the resource curse theory used several cases, including Angola, Mozambique, Nigeria and DRC to demonstrate how an abundance of resources can deprive the capability of the education sectors. Countries focusing much on the exportation of oil, and diamonds are said to be fairly literate; less than non-resource based nations. In DRC child labour is at its peak and this leads to poor education potential of the nation. However, this view produces mixed insights. One of the greatest importers of oil, Equatorial Guinea, is the second literate country following Zimbabwe. Equatorial Guinea is also currently embarking on one of the most expensive University projects in Africa. However, still on Equatorial Guinea, inland people outside the coastal reach are severely marginalised, and information on their literacy is misleading. Despite mixed opinions on this view, most resource rich countries have the income to built infrastructure and declare education, mostly at primary level, free, but they never lead ahead of non-resource based countries in these rankings. Thus it becomes clear that education is receiving a little attention in most resource-rich countries, less than presupposed.

Unfair income distribution across gender

Lastly, too much reliance on the income and employment generated through natural resource extraction alienate women from the economic ecosystem. The tracer project which was developed under the University of Zambia findings indicated that there is a higher percentage of an unemployed population in the copper belt than any other part of Zambia. Gender imbalances arise because it is believed that the industrial environment such as copper extraction suits men perfectly better than women, whilst some employers specifies, directly, before accepting a job application that their vacancies are strictly for men. This generates gender income inequalities, whereby women earn less and men earn more and more. This situation is further exacerbated by the lack of diversification; a curse originating from abundance.

In conclusion, the paper managed to offer the evidence of the ‘curses’ brought by an abundance of resources in Africa. The components of the resource curse model, such as conflicts, lack of diversified economy and among others, each with its examples, have been proven right or wrong with an inclusion of the debates around it. It is practical for one to conclude that the resource curse model is a very lively approach explaining the current African economic situation.

Sources and annotations

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