8. Having Rich Resources can be a Curse
I used to think that the way out of the doldrums for the Philippines is to hit a huge oil or mineral jackpot. Not any more.
The problem, I learned, is not that why so much of the world’s oil is in unstable regions. The problem is that the potential for large gains from the natural resources is what makes these countries unstable.
When you put 10 people in the room, they have a good chance of working together. Put an additional diamond in the room, and you will have perpetual quarrel, arguments, and even murder.
The diamonds of Sierra Leone is shown graphically in the movie Blood Diamond where a civil war raged because of the diamonds have turned it into one of the most violent and poor nation on earth. Tens of thousands have died for these little gemstones.
When the country is resource rich, in diamonds, copper, gold or oil, the ruler tend to be autocratic. After all, he does not have to depend on the people to create wealth, and obviously he wants to share as little of it with them.
It is no coincidence that four of the longest lasting autocrats in Africa are in oil producing zones, nor that many oil producing states in the Middle East are not democracies. When the ruler sells the resource, the first thing he does is buy weapons, raise an army, and deposits the money elsewhere. After that, the last thing in his mind is to hold elections, and pass his wealth and power to somebody else.
In a democracy, the leader gains the position through the will of the people and advances by their cooperation and hard work. In a resource rich country, the dictator uses strength and weapons to remain in power.
High dependence on natural resources is what will give macroeconomic instability. Corruption can also be rampant as people try to get concessions or monopolies in cornering the resource.
The curse of Africa as to why it is poor and perpetually at war, is not that it does not have natural resources, but that it was too rich.
Dependence on a single resource can also be a boom-bust syndrome. Feast when the boom is there, suffer when the boom disappears. Toledo, Cebu was host to a huge copper mine, and it was boomtown in the 1970s. In the 1990s, copper went down, and it became an almost dead town. Only the last 2 years when copper prices were up was there a semblance of economic activity again.
The low oil prices in the mid 1980s was what practically did the Soviet Union in. The low oil prices of the late 1990s was what triggered a major Russian financial crisis in 1998. The reason Russia is so strong the last few years, is because of high oil prices.
The only way to sustainable growth is to manage the resources to benefit all, and to rely on our people’s skills and industry.
It takes a lot of vigilance and discipline to turn natural resource to good use. Norway is an example where oil fund has been independently manage to further increase the country’s reserves. Sovereign funds from some countries in the Middle East as well as Singapore do independent investments to insure that income from today can be tapped for the generations to come.
Botswana is a great example of putting the diamonds to good use. When it became independent in 1966, the whole country which is landlocked inside Africa, had only a few kilometers of road, and 21 college graduates. But they were able to negotiate properly with DeBeers on a partnership to mine the diamonds, the proceeds of which would be shared with the people. This single act of statesmanship insured that for the next 30 years, Botswana would grow by an average of 9% a year, and currently has a GDP of over 13,000 US dollars, which puts it not only miles ahead of its war torn neighbors, but almost at league with Mexico and Turkey.
Natural resources can be a curse, a source of corruption, or properly harnessed, a source of wealth for its people.
May 19th, 2010 at 2:57 am
This is a good one. Very insightful. Are there examples of how other resource-rich countries managed their resources to achieve its greater good potential? What resources do we have that we can actually sell worldwide and help our economy? Natural gas? Minerals?
May 20th, 2010 at 3:03 am
maybe the reason Mindanao has never had such peace is because they also have rich natural resources.
May 20th, 2010 at 3:04 am
For the last 30 years, Nigeria has exported a total of $350 billion worth of oil. There are still 80 million people there below poverty. All the money is gone — probably in Swiss Banks, or in politicians pockets.
May 20th, 2010 at 4:24 am
Australia raised the taxes on mining companies to 40%. This is to insure that the state will benefit from the mineral extraction from the land that is owned by the australian people.
May 21st, 2010 at 8:54 am
I would like to add another cause to the “cause of Africa”: the colonial years, and the abrupt departure of these colonial powers. The colonial powers drew up arbitrary territorial boundaries based on (1) the principle of divide and conquer (where opposing tribes were joined together in a single territory to allow the colonizers to utilize the natural tensions), and (2) the location of these rich resources. When the colonizing powers suddenly left, the natural tribal tensions and autocratic predisposition created chaos.
May 30th, 2010 at 4:48 am
i would like to promote that the reason we have juan tamad is due to the rich natural resource of the land which is food. anything grows in our country and to a point it has made the people indolent and forgiving. starvation in the countryside is not a reality (averse to the urban poor that live as squatters, under bridges, etc.) tomake matters worse in the countryside it is okay for the people to wait for the rain and have one crop rather than till the soil and build irrigation means to improve their productivity.
the natural resource of the land we must maintain and improve with technology and the learned few, money is not really an issue, its a culture we need to reform
May 30th, 2010 at 1:18 pm
Hi Harry, Thanks for your comments. I am thinking the reason Mindanao has problems is because also of natural resources.
That being said, I am also inclined to think that the reason we are little bit indolent is really the weather. If you look at most tropical countries, it is really behind. IN fact, I read that on the countries considered in the tropics, only Singapore ( and it is a very small country) can be considered as truly developed. Most developed countries are in the temperate zone.
It is just so hard to be hard working when it is 35 centigrades. Hopefully aircon can help….
June 6th, 2010 at 3:05 am
Think of Del Monte, Dole, Nestle, Colgate-Palmolive, McDonalds, Holcim, etc. They draw natural resources to depletion and bring the profit back to the mother country…
That is not their fault – Philippine laws do not allow these companies to have retained earnings here in the Philippines that is why they will declare all as dividends and comes the next business cycle – they will just borrow money from local banks to finance operation for another resource depleting activity.
July 19th, 2010 at 11:16 am
This article is telling us that too much of blessings, can be a curse. In this article, Sierra Leone , have lots of natural resources especially diamonds. It is said in the article that Africa met different wars, it is because of its rich resources. There are really many examples that could have the same situation with this one but I hope that the country with natural resources may use it wisely so that it can also avoid from any conflicts.