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Are resource-cursed nations like Nigeria doomed forever?

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Are resource-cursed nations like Nigeria doomed forever?

In an ideal world, there will be no good reason why an oil-rich country like Nigeria would be the poverty capital of the world or be grappling with socio-economic and ethno-religious conflicts as is the case today. However, the world is far from ideal, and Nigeria – despite having struck “black gold” nearly 40 years ago, is the poverty capital of the world and not only that, the nation is dealing with severe insecurity across its six zones.

That’s what social scientist call the resource curse – a state of things where despite having abundant natural resources, a nation is unable to develop and grow its economy.

History Class: British economist, Richard Auty, was the first to use the term ‘resource curse’ to describe the phenomenon in 1993.

The blessing and the curse

Resource curse has been attributed to several factors, including the fact that, upon discovery of an abundant natural resource, other industries in a nation’s economy suffer due to under-investment. This leads to economic vulnerability as over-dependence on one sector alone usually proves insufficient for economic growth and development.

Conflicts caused by natural resources have also been attributed as causal factors for resource curse. Particularly, natural resources can trigger violent conflict by serving as either motives or opportunity for conflicts to thrive within nations. As can be expected, economic activities that spur growth and development are often affected and thwarted in conflict-ridden areas.

Corruption, something Nigerians might be keenly aware of, is another factor which creates resource curse. High revenues flowing into resource rich nation can be and have been siphoned by officials for personal gains rather than for the growth and development of the nation. In Nigeria, the diversion of oil revenue has been so deplorable that revenue from oil has not even been used to develop the oil sector such that 40 years after we struck oil we are still unable to process crude oil.

Another factor that fosters resource curse is economic crises due to instability in revenues received from the production of natural resources. This is particularly the case when over-dependence on the resource rich sector is also a factor at play. This was recently the case when Nigeria was thrown into recession as a result of a fall in oil prices. Countries that are dependent on one sector like Nigeria is on oil, are often trapped in boom-bust cycles where government spending, and the lives of people in such nations are drastically affected by either a rise or fall in the commodity which they are dependent on.

Doomed to be cursed forever?

It seems unfair that nations blessed with an abundance of resources also have to deal with many socio-economic and political ills as a result of having those resources, however, this is the case. But are these countries doomed to be cursed forever? More than ever, it seems that they are not. After all, there are resource rich countries (Canada, Chile, Botswana, etc.) that are not facing the phenomenon but have rather been able to transform their countries with the wealth stemming from natural resources.

Transparency has been highlighted as an important factor in reversing resource curse. Particularly, initiatives which support disclosure of information about revenues, expenditures, and other aspects of government and business operations, are important for holding government and transnational companies accountable. Over the years the international community has taken several steps to ensure that it implements efforts geared towards transparency.

These are evident through several initiatives including the Extractive Industries Transparency Initiative which is aimed at improving revenue management in resource-rich countries, including Nigeria; and the Open Government Partnership aimed at fighting corruption by fortifying national action plans against corruption, an initiative which Nigeria is also a part of. Other initiatives in addition to these include Publish What You Pay, Equator Principles, etc.

Other approaches to ward off resource curse –even though deemed controversial and likely to destroy the natural resource sector, include, price control (as was the case in Venezuela); restrictions on foreign direct investment; and placing a cap on exports in order to protect local industry players. Additionally, diversification of the economy is just as crucial, particularly in dealing with price and revenue instability related to over-dependence on a sector.  However, as seen in the case of Chile, a resource rich country, success can be achieved by placing rules, such as limits on government spending, so that the economy is not overly affected by boom-bust cycles.

Simply, nations that are examples of resource curse are not doomed to remain that way. With thoughtful and effective planning and strategizing, such nations can slowly begin to find their way out of the curse so that they can fully enjoy the blessing.

Go Deeper: Waziri Adio: Recession as opportunity for reversing resource curse

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