by Julia

The concept of the ‘resource curse’ and how resource-rich countries, particularly in Africa, struggle with economic performance. Learn about the impact of capital flows, inequality, and the COVID-19 pandemic in exacerbating global disparities.

What is the resource curse?

An abundance of resources is something any country would be grateful for. After all, valuable natural and human resources are what sustain our economies. Yet, there is a troubling pattern in which resource-rich countries—many of them in Africa—struggle economically, with a large percentage of their populations living below the poverty line. In 1993, British economist Richard Auty coined the term “resource curse” in his book Sustaining Development in Mineral Economies to explain this phenomenon. The resource curse, also known as the paradox of plenty, is a paradoxical situation where countries with abundant natural resources experience poor economic performance. In contrast, countries with fewer natural resources often thrive.

Some scholars explain this through the dependency theory, which posits that capital flows from poor to rich countries, causing the rich to become richer while the poor continue to grow poorer. This theory was starkly highlighted by the COVID-19 pandemic, which exposed the glaring inequalities in our world. In January 2022, Oxfam International reported that developing countries were denied access to sufficient vaccines due to wealthier governments prioritizing the monopolies of pharmaceutical corporations. As a result, these countries were forced to slash social spending as their debt levels soared, facing the prospect of austerity measures. Consequently, the number of people who died from COVID-19 in developing countries was roughly double the death toll in wealthier nations.

Not A Myth; Why Does it Happen?

Contrary to popular belief, the resource curse is not a myth, as there is significant evidence pointing to the fact that several countries, while rich in non-renewable valuable natural resources, experience the slowest rate of economic growth.

The concerning nature of this inequality prompts us to ask why developing nations experience the slowest rate of economic growth despite boasting an abundance of natural resources, and what it could mean for the pursuit of sustainable growth and development. According to Jason Fernando, the resource curse is typically brought on by an excessive concentration of the nation’s labour force and capital on a small number of resource-dependent businesses. They in turn experience long-term economic underperformance from non-investment in other sectors, making them susceptible to drops in commodity prices on the global market. Our attention then falls on Angola and Saudi Arabia, both countries suffering from the resource curse. However, evidence suggests that Saudi Arabia has had success diversifying in recent years. Generally speaking, the majority of developing countries have difficulty investing in more economy-strengthening sectors like manufacturing and packaging not because of a lack of human resources or technical know-how, but because they are “particularly vulnerable to sudden external shocks, as the pandemic-induced disruption of tourism and oil-dependent economies has illustrated”. (Usman & Landry, 2021)

Is Sustainable Development an Unattainable Goal?

Not unexpectedly, suffering from the resource curse means that the sustainable development efforts of these countries are more difficult to realise. The lack of economic diversification “exposes these countries to the “boom and bust” cycles, where windfall gains during periods of high commodity prices are not efficiently invested for long-term development, contributing instead to economic volatility”. (Usman & Landry, 2021) Typically, sustainable development requires that a country be economically stable and diversified, with investments in crucial aspects of the economy such as health, infrastructure, and education. Thus, the burden of the resource curse implies that a large percentage of the population of these countries lives in poverty, with general access to amenities being very limited. By taking focus and resources away from these vital sectors, the resource curse tends to maintain a cycle of reliance on limited resources and prevents the development of a more robust and sustainable economic base.

We can correctly deduce that the solution to this curse that could kickstart the journey to sustainable development is economic diversification. In their paper, Usman and Landry explore a third dimension to economic diversification apart from GDP (gross domestic product) and export diversification. It entails expanding government revenue sources and public expenditure targets and aiding in the stimulation of broader economic transformation through the increase of activity in particular industries and sectors. (Usman & Landry, 2021)

While the realization of sustainable development for countries affected by the resource curse proves difficult, it is not impossible. With collective and conscious effort, we can turn the resource curse into a resource blessing.

REFERENCES

Fernando, J. (2022, September 29) Resource Curse: Definition, Overview and Examples. Investopedia. Retrieved from Resource Curse: Definition, Overview and Examples

Ten richest men double their fortunes in pandemic while incomes of 99 percent of humanity fall. (2022, January 17) Retrieved from Ten richest men double their fortunes in pandemic while incomes of 99 percent of humanity fall | Oxfam International

Usman, Z., Landry, D. (2021, April 30) Economic Diversification in Africa: How and Why It Matters. Carnegie Endowment for International Peace. Retrieved from Economic Diversification in Africa: How and Why It Matters | Carnegie Endowment for International Peace