Monday, November 16, 2009

Does Natural Resource Endowment Matter in Africa?

TUNIS, Tunisia, November 13, 2009/African Press Organization (APO)

Natural resource endowment offer great opportunities for achieving high levels of growth and development if properly managed. However, in the case of African countries, it is not clear whether resource-rich countries have been able to take full advantage of their potential wealth to promote development. In fact it appears that they have often been outperformed by their resource-poor counterparts in this regard.

According to a paper co-authored by AfDB’s Leonce Ndikumana, this could be due to several factors. The first possible reason is that these countries lack the capacity to design and negotiate exploration and exploitation contracts that maximize government’s rents without discouraging private investment in the commodity industry. African countries are short-changed in their dealings with international companies.

One recommendation is that resource-rich African countries should utilize the revenues from resource exports to invest in human capital development specifically aimed at the acquisition of specialized skills for the natural resource industry.

The second possible reason for the low revenue performance among resource-rich countries is the failure to take advantage of resource revenue to develop non-resource activities so as to broaden the taxation base. Indeed, developed countries endowed with natural resources were able to grow by diversifying their economies using proceeds from their natural resources.

Can Africa resource-rich countries follow this example?

SOURCE: african Development Bank (AfDB)