Download Challenges in Natural Resource Abundant Countries

Challenges in Natural
Resource Abundant Countries
Qatar’s Macro-fiscal Framework: A
Technical Workshop
23 to 25 January 2011, Qatar
Michael Lewin
 Many economists focus on a counter
intuitive notion of natural resource
abundance …..
 The resource curse …… and all that.
 In Qatar this idea probably not going to be
taken seriously and with good reason
 Still thinking – briefly - about how some
economists view this may yield some
insights
 Resource abundant countries vary in shapes and sizes
which makes comparison difficult: e.g. Norway and
Nigeria.
 “Curse” is also often not well defined. (eg. Book by
Gelb and others: “Oil Windfalls: Blessing or Curse?”
Question frequently not answered nor defined.)
 Refining the question: did the current generation
benefit while future ones did not? Growth rates and
levels – if growth slows is that bad? (Current
generation is usually the poorest.) Do countries lose
ground or just momentum? What is the correct
indicator of welfare – consumption rather than
income? (e.g. Botswana – consumption is currently
around 50% of GDP, so consumption could increase to
normal levels if income/capita remains constant)
 Empirical evidence not clear either (Sachs
and Warner key “resource curse”
proponents on basis of regression analysis.)
 Objections: 1.causality: many poor
countries are resource dependent because
they have failed to grow; 2. dependence
versus abundance – many resource
abundant countries are no longer
dependent because they have grown.
Recent work (some of it at WB) has given
much reason to doubt the S-W thesis.
 Nevertheless: some things stand out –
since WWII, no resource exporter among
miracle growth economies. Indeed (with
the exception of Botswana) fastest growing
countries were relatively resource poor:
Japan plus 4 (S.K, S, H.K. and T)
 So, even if resources are not a curse, many
countries may not have done as well as
they could have (should have……)
 What are the keys to success?
 Why would they be different from any other
(developing) country?
 E.g. Would policy prescription be different
for mineral or resource countries compared
to non-resource-abundant: fiscal
prudence? (Is this more important in
resource dependent countries?) trade
policy? The focus of public investment on
infrastructure, education, health, etc.?
Industrial policy? Financial sector
development? And so on.
 Critics raise the following arguments:
 Dutch disease: the real appreciation retards
industrialization of non-hydro traded goods.
Why is this bad? Externalities.
 Enclaves and linkages. Natural resources
don’t stimulate growth on non-resource
sectors.
 Not entirely persuasive – why doesn’t gov’t
investment raise productivity and why are
“linkages” more stimulating than linkages
stimulated by non-traded goods
expenditure (e.g. construction)?
 Two areas where there may be a case for
different policies:
 1. Volatility: are natural resource
economies more prone to boom and bust
cycles? This creates uncertainty via real
exchange rates and other variables (also
gov’t stop-go investment) (Declines of
industries difficult/costly to reverse.
Though, question de-industrialization
claim!)
 2. Exhaustibility: inter-generational
allocation
 Solution: expenditure smoothing or self-insurance.
(De-linking expenditure and current revenue.) Since
gov’t is the conduit of revenues via expenditure it
eliminates real appreciation; dampens the cycles;
and, transfers some wealth/income to the future.
(Aside, saving generally can be viewed as insurance
against short-run shocks (unforseen) and long-run
income loss (resource depletion.)
 Aside 2: a current account surplus means “undervalued” currency in the sense of what would balance
bop, which in turn means a transfer of
consumption/expenditure to future generations.
 Some difficult issues:
 Uncertainty: never easy to distinguish
“permanent” from “transitory” income. When is
a price rise/fall permanent? How risk averse
should a government be?
 How much weight should future generations be
given? What should be the target: a given level
of consumption (a minimum guaranteed)? a
given %ge of gdp? Or, the growth rate of
consumption? Many other issues in the
calculation of permanent income.
 No general answer to these questions: the
general policy (expenditure smoothing) is a
guide but the specifics depend on the country’s
choice.
 Related is the question of domestic versus
foreign investment – a portfolio question.
Where should the income be saved:
domestically or offshore? Usually a balance
determined by capacity constraints and
portfolio diversification.
 Conclusion: If economic policy is
beneficial it will be so in both
resource and non-resource dependent
economies.
 The exception: the case that the
government and the country as a
whole should be net savers (the twin
surpluses) is stronger in resource
abundant countries.