The Curse of Natural Resources!

Introduction

Natural resources can be referred to as substances that occur naturally and in most cases are unmodified. They are normally considered valuable. Its value is the demand for it and the amount of material available. They are classified into non-renewable and renewable resources. Renewable ones include forests, coffee and fish. This paper is dealing with the curse of natural resources.

It explains why so many countries rich in natural resources are very poor. It shows the conditions of these countries like Russia and Africa. There is further elaboration of the possibilities of curtailing the curse and how Canada and Norway managed to do this. This paper explains the mechanisms that were put in place to curtail the natural resource curse in these nations. (Auty, 1994)

Research shows that countries that are rich in natural resources are not in apposition of using their assets to enhance their economies. They in fact have low economic growth than the countries that lack profuse natural resources. Many studies carried out in the early eighties reveal a link between copious natural resources and low or poor growth in the economy. This is very evident in countries that produce oil. There are various reasons that explain why countries with natural resources are poor. (Gylfason, 2001)

One of them is that natural resources normally provoke conflicts within societies. These result in fighting of people in relation to these resources. This was the situation in Angola which is a nation that is very rich in oil. These conflicts normally occur in more hidden form. They include fights between departments that allocate funds and government ministries. Research reveals that natural resources have links with armed conflicts in many nations. This is most cases occur because of exploitation and the control of the natural resources and revenue allocation. When belligerents access these natural resources it results in increase in vulnerability of conflicts. These conflicts normally affect the produce of the country and therefore make the nation not to benefit from the natural resources in the long run.

Nations that are not endowed with natural resources normally tax the citizens and they in turn want a responsive and efficient government. This normally creates a mutual relationship between the subjects and rulers. On the other hand the nation that has natural resources, citizens is not taxed because of the income from natural resources. The relationship between the subjects and rulers therefore is deteriorated. The rules therefore take advantage of this and give poor service to citizens. Corruption becomes rampant as individuals seek to benefit from the natural resources and fail to focus o the nation as a whole. Corruption is one of the diseases that consume the economy of these nations and therefore they end up becoming very poor and they don’t benefit from the natural resources that exist therein. (Ascher, 1999)

Nations that are rich in natural resources just allocate resources to some constituents that are favored only. The policies are not economic growth oriented and in most cases they are not well regulated. Most of the finances that come from natural resources are used for carrying out corruption in the political arena. This makes the government not to see the need of regulating the economy and building up of institutional infrastructure. Tax therein is not well regulated and this plays a big role in making the economy undeveloped. There normally exist offshore tax havens that give corrupt politicians the wide opportunity to hide their wealth stolen from citizens.

This is the situation in Africa and in Russia. Though these nations have abundant natural resources, their economies grow at a very slow pace when compared to the nations that do not have such resources. Nations like Venezuela, Nigeria and Russia experience growth that is of mediocre magnitude. This is the case comparing to nations like Korea, Switzerland, Singapore, Hong Kong and Japan.

These nations experience high economic growth rates and yet they are not that developed. The reason as to why Russia and African countries are poor is because the sudden increase in income emanating from natural resource led to the governments having less sound economic management. This actually gave these nations some false sense of security and they failed to put in place strategies that would enhance economic growth. There is less benefit from economic spillovers. (Krueger, 1974)

Norway was one of the poorest nations in Europe in the year 1900. Research indicates that this nation is one of the richest not just in Europe but in the world. This nation is endowed with natural resources like natural gas, oil, hydroelectric power and fish. Canada and Norway managed their natural resources very well such that these resources were converted to prosperity therein. Research reveals that Norway never avoided recession for some few years. (Gylfason, 2001)

Looking at it in the present times, there is good exploitation of its natural wealth because of planned development. Research carried out in the year 2006 indicates that this nation’s eighty percent of its oil rents are normally collected through fees and taxes that are channeled or invested in foreign securities. This helps in protecting the economy from enormous and abrupt increase in income. This then results in fair division of oil rent among generations. On the other hand, Canada managed to use its natural resources also and channeled it to prosperity.

The income from natural resources was used for developing various sectors in the nation. They include; health, telecommunication systems and the construction of roads. This made this nation to benefit from its natural resources.

These are the mechanisms that were used in these nations to curtail the curse. This shows that it is possible to curtail this curse also in other nations. One factor that is very evident in Norway and Canada is that they never gave a chance to corruption but they ensured that the income from natural resources was well utilized such that the economy developed. Another mechanism that is evident in these two nations is that both of them carried out diversification such that they just did not depend on the natural resources only. The policies therein were well formulated. The policies aim at protecting the natural resources from exploitation. (Leite, 1999)

It is very possible for nations like Russia, Kenya, Saudi Arabia, Zambia and Nigeria among others to put in place mechanisms that will enable them to benefit from natural resources so that they become a blessing and not curse. One of them is simply enacting policies that will help protect the natural resources therein from private people who may be out to exploit the natural resources. The policies should encourage transparency in the way the natural resources are utilized. Any income from natural resources has to be accounted for. This is because looking at these nations, corruption is so rampant and the lack of proper policies makes the rulers or rather political leaders to misuse the natural resources therein. One mechanism that can work for this nation is allowing external experts to manage the natural resources.

Lack of proper technology is also one of the reasons that make nations that are endowed with natural resources to remain poor. These nations need to invest in proper technology that will help them to make proper use of their natural resources. There are many African nations that have gold but because of the lack of proper technology, they remain poor.

When proper technology is used, these nations can make good use of their natural resources and shift from poverty to prosperity. This will see the economic growth of these nations than what is currently happening. Other institutions within the nations need to be well placed for economic growth to occur. These include the banking sector, transport and communication among other sectors. The very fact that Canada and Norway managed to have economic growth from natural resources shows that it is very possible for countries that presently have the curse to prevent them in the future by implementing the recommendations illustrated above. (Krueger, 1974)

Conclusion

Natural resources are substances that occur naturally and are not modified. These resources are normally valuable. Research indicates that many countries that are rich in natural resources have got very low economic growth and are generally poor. This is because of various reasons including corruption among others. Nations that do not have these resources are even richer. Nations like Norway and Canada managed to boost their economy using natural resources because they focused on building institutions and key sectors in the nation. These sectors include; transport, telecommunication and the health sectors. Nations that endowed with natural resources need to put in place mechanism that will help in boosting the economy. This includes enacting proper policies that will protect natural resources from corrupt individuals.