The resource curse

Abstract A generous endowment of natural resources should favour rapid economic and social development. The experience of countries like Angola and Iraq, however, suggests that resource wealth often proves a curse rather than a blessing. Billions of dollars from resource exploitation benefit repressive regimes and rebel groups, at a massive cost for local populations. This Adelphi Paper analyses the economic and political vulnerability of resource-dependent countries; assesses how resources influence the likelihood and course of conflicts; and discusses current initiatives to improve resource governance in the interest of peace. It concludes that long-term stability in resource-exporting regions will depend on their developmental outcomes, and calls for a broad reform agenda prioritising the basic needs and security of local populations. Acknowledgements The author gratefully acknowledges support and comments from Richard Auty, Karen Bakker, Mats Berdal, Paul Collier, Charmian Gooch, Terry Karl, Morlai Kamara, David Keen, Eric Leinberger, Mike Moore, Gilberto Neto, Jenny Pearce, Michael Ross and Jonathan Stevenson. Notes 1 Jeffrey D. Sachs and Andrew M. Warner, 'Natural Resources and Economic Development. The Curse of Natural Resources', European Economic Review, vol. 45, 2001, pp. 827-38; Richard M. Auty (ed.), Resource Abundance and Economic Development (Oxford: Oxford University Press, 2001). 2 Michael L. Ross, Extractive Sectors and the Poor, Oxfam America Report (New York: Oxfam, 2001), p.16. 3 About 20% of the population receives 59% of the national income and annual diamond public revenues account for about $1,000 per capita. See Ralph Hazleton, Diamonds Forever, or Diamonds for Good? The Economic Impact of Diamonds in Southern Africa (Ottawa: Partnership Africa Canada, 2002), pp. 3-8. 4 Carlos Leite and Jens Weidmann, 'Does Mother Nature Corrupt? Natural Resources, Corruption, and Economic Growth', IMF Working Paper WP/99/85 (Washington DC: IMF, 1999); Philippe Le Billon, 'Fuelling War or Buying Peace: The Role of Corruption in Armed Conflicts', Journal of International Development, vol. 15, no. 4, 2003, pp. 413-26. 5 John Mason, 'Abacha to Return $1bn in Funds to Nigeria', Financial Times, 17 April 2002. 6 Michael L. Ross, 'Does Oil Hinder Democracy?', World Politics, vol. 53, April 2001, pp. 325-41; Terry L. Karl, The Paradox of Plenty: Oil Booms, Venezuela, and other Petro-states (Berkeley, CA: University of California Press, 1997). 7 Paul Collier and Anke Hoeffler, Greed and Grievance in Civil War (Washington DC: World Bank, October 2001). This data set includes 52 wars taking place between 1960 and 1999. 8 Indra de Soysa, 'The Resource Curse: Are Civil Wars Driven by Rapacity or Paucity?', in Mats Berdal and David Malone, Greed and Grievance: Economic Agendas in Civil Wars (Boulder, CO: Lynne Rienner, 2000), pp. 113-35. The data set includes conflict over 25 battle-deaths between 1989 and 1998. 9 Michael L. Ross, 'What Do We Know About Natural Resources and Civil War', Journal of Peace Research, vol. 41, no. 3, 2004, pp. 337-56. 10 See for example Graham A. Davis, 'Learning to Love the Dutch Disease: Evidence from the Mineral Economies', World Development, vol. 23, no. 10, 1995, pp. 1765-79. On average fuel producers economically outperformed non-mineral economies, but this historical analysis of economic success among mineral exporters however is only based on two years (1970 and 1991) and exclude several countries affected by conflicts. 11 Richard Auty, 'Industrial Policy Reform in Six Newly Industrializing Countries: The Resource Curse Thesis', World Development, vol. 22, no.1, January 1994, p. 12. 12 Charles Tripp, A History of Iraq (Cambridge: Cambridge University Press, 2000), p. 281. 13 Abbas Alnaswari, The Economy of Iraq: Oil, Wars, Destruction of Development and Prospects, 1950-2010 (Westport, CT: Greenwood Press, 1994); Jahangir Amuzegar, Managing the Oil Wealth: OPEC's Windfalls and Pitfalls (London: Tauris, 1999). 14 Financial obligationsincludedebt($127bn), war reparations ($199bn) and pending contracts ($57bn). This amount does not include about $100bn war compensation claims by Iran. See Frederick D. Barton and Bathsheba N. Crocker, A Wiser Peace: An Action Strategy for a Post-Conflict Iraq (Washington DC: Center for Strategic and International Studies, January 2003). 15 Statement by Dr Isam al Khafaji Before the US Senate Foreign Relations Committee, 24 September 2003, p. 2. 16 Iraq Backgrounder: What Lies Beneath, Middle East Report 6 (Brussels: International Crisis Group, 1 October 2002). 17 The Oil-for-Food Programme itself generated $65bn dollars, of which $4.4bn would represent in illicit surcharges on oil sales and after-sales charges on suppliers. About $5.7bn worth of oil was also smuggled out of Iraq. See 'Recovering Iraq's Assets: Preliminary Observations on U.S Efforts and Challenges', GAO-04-579T, General Accounting Office, 18 March 2004; C Rosett, 'The Oil-for-Food Scam: What Did Kofi Annan Know, and When Did He Know It?', Commentary Magazine, 16 April 2004. 18 Oil revenue was $26bn in current dollars in 1980, equivalent to about $52bn in 2004, while the population has nearly doubled from 13 million in 1980 to 25m in 2004. Ahmed Jiyad, 'The Economic Debt Trap: Iraq's Debt, 1980-2020', Arab Studies Quarterly, vol. 23, no. 4, 2001, pp. 15-58. 19 Relatively similar economic situations prevail for most of the population of West African oil producing countries, see Ian Garry and Terry Karl, Bottom of the Barrel: Africa's Oil Boom and the Poor (Baltimore, MD: Catholic Relief Service, June 2003). The main difference with African countries is that Iraqis did enjoy a higher level of welfare prior to the mid-1980s. 20 Michael D. Shafer, Winners and Losers: How Sectors Shape the Development Prospects of States (Ithaca, NY: Cornell University Press, 1994); Karl, The Paradox of Plenty, p. 15. 21 Jan Dehn, 'The Effects on Growth of Commodity Price Uncertainty and Shocks', mimeo, Working Paper 2455 (Washington DC: World Bank, 2000); Michael Renner, The Anatomy of Resource Wars (Washington DC: Worldwatch Institute, 2002). 22 Paul Cashin, C. John McDermott and Alasdair Scott, 'Booms and Slumps in World Commodity Prices', Reserve Bank of New Zealand Discussion Paper No. G99/8, December 1999. 23 Osmel Manzano and Roberto Rigobon, 'Resource Curse or Debt Overhang?', NBER working paper no. w8390, July 2001. 24 Crude oil US 1stpurchase price (wellhead) in 1996 $, www.wtrg.com. 25 Net hydrocarbon revenue per capita had fallen from a peak of $613 in 1981 to $172 in 1988, see Ali Aïssaoui, Algeria. The Political Economy of Oil and Gas (Oxford: Oxford University Press, 2001), pp. 8-9, 15. 26 Martine-Renée Galloy and Marc-Éric Gruénais, 'Fighting for Power in the Congo', Le Monde Diplomatique, November 1997. 27 William Reno, Corruption and State Politics in Sierra Leone (Cambridge: Cambridge University Press, 1995). 28 Peter Uvin, 'Rwanda: the Social Roots of Genocide', in E. Wayne Nafziger, Frances Stewart and Raimo Vayrynen (eds), Weak States and Vulnerable Economies: Humanitarian Emergencies in Developing Countries vol. 2 (Oxford: Oxford University Press, 2000), pp. 175-6. 29 Kevin M. Murphy, Andrei Shleifer and Robert W. Vishny, 'The Allocation of Talent: Implications for Growth', The Quarterly Journal of Economics, vol. 106, May 1991, pp. 503-30. 30 Mick Moore, 'Political Underdevelopment: What Causes Bad Governance?', Public Management Review, vol. 3, no. 3, 2001, p. 389. 31 Ross, 'Does Oil Hinder Democracy', pp. 356-7. 32 Philip Lane and Aaron Tornell, 'The Voracity Effect', American Economic Review, vol. 89, March 1999, pp. 22-46. 33 Michael L. Ross, Timber Booms and Institutional Breakdown in Southeast Asia (Cambridge: Cambridge University Press, 2001). 34 Ross, Extractive Sectors and the Poor, p. 15. 35 Times (London), 21 November 1996, p. 31, cited in Kenneth A. Rodman, Sanctions Beyond Borders: Multinational Corporations and U.S. Economic Statecraft (Lanham, MD: Rowman & Littlefield, 2001). 36 Jean-François Médard, 'Oil and War: Elf and "Françafrique" in the Gulf of Guinea', mimeo, 2002. 37 Håvard Hegre, Tanja Ellingsen, Scott G. Gates and Nils Petter Gleditsch, 'Toward a Democratic Civil Peace? Democracy, Political Change and Civil War, 1816- 1992', American Journal of Political Science Review, vol. 95, no. 1, 2001, pp. 33-48. 38 Xavier Sala-i-Martin and Arvind Subramanian, 'Addressing the Natural Resource Curse: An Illustration from Nigeria', WP/03/139 (Washington DC: International Monetary Fund, 2003). 39 Michael Watts, 'Antinomies of Community: Some Thoughts on Geography, Resources and Empire', Transactions of the Institute of British Geographers, vol. 29, no. 2, 2004, p. 204. 40 John Connell, 'The Panguna Mine Impact', in Peter Polomka (ed.), 'Bougainville Perspectives on a Crisis', Canberra Papers on Strategy and Defence, no. 66, p. 43. 41 Charlie Pye-Smith and Bernice Lee, 'Armed Conflict and Natural Resources: The Case of the Minerals Sector', workshop report, MMSD/IISS, London, 11 July 2001, p. 4. 42 Sudan: The Human Price of Oil, Report no. AFR 54/01/00 (Washington DC: Amnesty International, 2000). 43 Hugues Leclerc, 'Le rôle economique du diamant dans le conflict Congolais', in Laurent Monnier, Bogumil Jewsiewicki, and Gauthier de Villers (eds), Chasse au Diamant au Congo/Zaire (Paris: L'Harmattan, 2001), p. 60. 44 Michael Watts,'Petro-Violence:Community, Extraction, and Political Ecology of a Mythic Commodity', in Nancy L. Peluso and Michael Watts (eds), Violent Environments (Ithaca, NY: Cornell University Press, 2001); pp. 189-212. 45 James C. Scott, Weapons of the Weak: Everyday Forms of Peasant Resistance (New Haven, CT: Yale University Press). 46 Neil Harvey, The Chiapas Rebellion: The Struggle for Land and Democracy (Durham, NC: Duke University Press, 1998). Additional informationNotes on contributorsPhilippe Le Billon Philippe Le Billon is Assistant Professor at the University of British Columbia with the Department of Geography and the Liu Institute for Global Issues. He wrote this paper while a Research Associate at the IISS in 2001–02. The Ford Foundation provided funding for the project.

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