Transcript The Political Economy of Natural Resource-Led

The Political Economy of Natural
Resource-Led Development
Anand Rajaram
Governance Practice Leader
Africa Region, The World Bank
February 3, 2013
Cape Town, South Africa
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.
Rich Countries,
Poor People:
The Politics and
Governance of
Africa’s
Natural Wealth
»
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Rents from Mining, Oil, and Gas are growing rapidlyand Africa is very much part of the new frontier
Africa
4.5
billion US$
trillion US$
World
4
300
250
3.5
200
3
2.5
150
2
1.5
100
1
50
0.5
Mining
Coal
Gas
Oil
Mining
Coal
Gas
2007
2008
2009
2010
2011
1999
2000
2001
2002
2003
2004
2005
2006
0
1995
1996
1997
1998
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
Oil
Source: World Bank Wealth of Nations Database 2012
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EI Rents Have Overtaken Aid in Many
Resource-Rich Countries (RRCs)
Sierra Leone
Guinea-Bissau
South Africa
Ethiopia
Botswana
Uganda
Central African…
Tanzania
Cote d'Ivoire
Burkina Faso
Mozambique
Cameroon
Ghana
Mali
Guinea
Zambia
Congo, Dem. Rep.
Nigeria
Chad
Angola
Equatorial Guinea
Gabon
Mauritania
Congo, Rep.
0
10
20
Total natural resources rents (% of GDP)
30
40
50
60
Percentage of GDP
Net ODA received (% of GNI)
Source: Wealth of Nation Database 2012; World Development Indicators. (Data for year 2010)
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Sub-Saharan Africa Is Still Under-Explored – so
this shift is likely to continue
Proven reserves
minerals, 2010
in
selected
Cobalt
Diamond Industrial
Zinc
Tin
Silver
Phosphate
Nickel
Lead
Iron
Gold
Copper
Bauxite
Coal
Gas
Oil
0%
20%
40%
Rest of the World
60%
80%
100%
Africa
Rents per Capita
Source: USGS 2011, Gelb, Kaiser, and Viñuela 2012.
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Many resource rich countries (RRCs) have done worse than those without natural endowments
» Nigeria is a middle income country (PCI $1280)
» Has had significant resource inflows since the discovery of oil in 1955
»
But … 68% of its population is still below the poverty line (only 36% in 1970)
»
And it is ranked 156th/187 on the Human Dev. Index
» Risk of maternal death is 3.4 (LIC ave. 1.8)
» Youth literacy is 72% (LIC ave. 74%)
Its infrastructure is not much better than a low income country
» Quality of Port infrastructure rated 2.8 (LIC ave. 3.3)
» Only 58% has access to safe water (LIC ave. 63%)
» Only 50% have access to electricity
Its Institutions of Public Management and Accountability are weaker than most middle
income countries
Similar statistics for many other RRCs – Angola, DRC, Niger, Ghana, Chad, Cameroon, Sierra Leone
So we should be concerned that the resource boom may leave people poor(er), without
improved access to education or basic services, without improved skills or employment, and the
society at greater risk of conflict in the RRC
»
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What differentiates countries that make effective use of
resource wealth from those that do not?
• The quality of institutions is often cited but this depends on … Politics
• Politics is the elephant in the room .…often not recognized or understood
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» One way to describe the politics is in terms of the
nature of relationships between key EI actors
State (Politicians, CS)
Developer
Society
˃ Ex. A government that is politically insecure may be more likely to strike a nontransparent, corrupt deal with shady extractive companies
˃ It may represent a narrow elite group and also be less trusted by citizens
˃ Civil servants may also seek to extract rents if political leadership is seen to be
self-interested
˃ The extractive company may then face a hostile public that believes resources
are being extracted at their expense
˃ Citizens may seek to elect another political party if given the opportunity
˃ Vicious cycle of conflict and unstable government may follow
˃ We could also identify a positive relationship where a virtuous cycle occurs
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How the political interactions are manifest in
the EI Value Chain adds another dimension
Generating
Resource Rents
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Distributing
Resource Rents
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Credibility of commitments
Less
I
n
c
l
u
s
i
v
i
t
y
L
e
s
s
M
o
r
e
#1
Poor revenue
generation, and use of
revenues to support
patronage, not public
goods
#3
Revenue generation is
weak, some public
good provision but also
clientilist private rent
distribution
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More
#2
Revenue generation
may be adequate but
state not inclusive in its
programs – limited
focus on public goods
provision
#4
Public goods provided
to citizens, credible
commitments to
developers/citizens
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Measuring Credibility of Commitments
- Governments often exercise discretion in changing the rules of the game –
re tax rates, royalty rates, length of contract.
- The relative bargaining power between governments and investors shifts
over the life cycle of extractive industry projects.
-One measure of credibility – it appears that Angola and Ghana do better
than Nigeria or the DRC.
Angola
4
3
Nigeria
Congo, Dem. Rep.
2
1
Niger
Ghana
Government Respect for Contracts
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In political science terms, patrimonial regimes do worse
than regimes that practice programmatic pluralism
Political
inclusiveness
Credibility of intertemporal commitment
Less credible / weaker enforcement
More credible / stronger enforcement
Patrimonial Rule
Hegemonic Government
Political instability with high contestation; emphasis on
Uncontested autocracy or one-party regime; either
private (elite) goods; exploitation of public resources for predatory or benevolent; emphasis on private (elite)
private gain
goods with some particularistic and public goods
Less inclusive

High discount rate

Low discount rate

Risk avoidance

Risk taking

Narrow distribution of rents

Narrow distribution of rents
DRC, Niger
More inclusive
Angola
Clientelist Pluralism
Programmatic Pluralism
Political competition based on extensive use of
clientelism; provision of particularistic goods; low
horizontal accountability
Electoral competition based on programs geared toward
collective welfare enhancement; provision of public
goods; horizontal and vertical democratic accountability

High discount rate

Low discount rate

Risk avoidance

Risk taking

Broader distribution of rents

Broader distribution of rents
Nigeria, Ghana
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Botswana
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So what can be done to support development in
RRCs?
• We can think about ways to improve incentives and information for
better outcomes -
• Extend time horizons, enhancing intertemporal credibility
– Simple, non-discretionary regulatory framework can help to
minimize investor uncertainty and ensure policy compacts
– Enhancing transparency builds greater credibility and lowers risk
• Enable collective action, increasing inclusiveness
– Empower third-party audit and oversight (international, local levels)
to ease information asymmetries across the value chain
– Build in checks and balances and foster cooperation across agencies
• Enclave institutions and capacity, building limited functionality in
natural resource management, complemented with contracting-in
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» Recognize that citizens (current and future
generations) are the true owners of the natural
resources and must benefit from their extraction
» Transparency, accountability and citizen participation
are good principles for resource use but should be
designed to fit political circumstances
» Recognizing the political context through analysis can
strengthen domestic and international efforts for
incentive-compatible efforts to improve
development outcomes
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Links to Reference Book and Materials
Book:
Rents to riches? The political economy of natural resource-led development
http://www.scribd.com/doc/80624044/Rents-to-Riches
Policy Notes:
Rents to riches? Factoring in the political economy of natural resource-led development
http://documents.worldbank.org/curated/en/2012/01/16442797/rents-riches-factoring-politicaleconomy-natural-resource-led-development
The political economy of extracting resource wealth : natural resource sector organization and
ownership
http://documents.worldbank.org/curated/en/2012/01/16447383/political-economy-extractingresource-wealth-natural-resource-sector-organization-ownership
The political economy of natural resource taxation : building credibility and investing in tax
administration capacity
http://documents.worldbank.org/curated/en/2012/01/16442782/political-economy-naturalresource-taxation-building-credibility-investing-tax-administration-capacity
The political economy of investing resource wealth : transforming rents into productive physical
infrastructure
http://documents.worldbank.org/curated/en/2012/01/16447447/political-economy-investingresource-wealth-transforming-rents-productive-physical-infrastructure
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