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Committee: GA 2 - Economic and Financial Council (ECOFIN)
Head Chair: 김연우 Younwoo Kim
Deputy Chair: 신나래 Narae Shin
Agenda 1: Economic diversification of natural resource dependent nations
1. Introduction
On April 25th, 2016, Mohammed bin Salman, the Deputy Crown Prince of Saudi
Arabia, announced the "Saudi Vision 2030" project, declaring the country's intent to move
towards sustainable development. As the world's second largest oil producer, Saudi Arabia
had reserved over 2,665.7 billion barrels (approximately 18% of world oil reserves) in 2014.
Yet, despite its abundance of natural resources, the country had declared to reform its
oil-dependent industrial structure. This recent declaration underscores two important issues.
First, the lack of natural resources. Natural resources are inevitably limited in
quantity, and as the world has become more industrialized and modern technology requires
more resources, depletion has accelerated as well. This phenomenon is an urgent problem
to both the countries dependent on natural resources and the countries that are heavy
consumers of said resources. As oil produces more than 70,000 goods, including (but not
limited to) plastic, acrylic, cosmetics, medicines, and clothes, a lack of resources itself can
directly result in the lack of goods that we use in our daily lives.
Second, the development of newer industries. As resource-producing countries that
depend on fossil fuels to sustain their economy are failing to protect their resources, we
must urge the development of new, sustainable alternatives that can replace their original
methods. According to the RGI (Resource Governance Index - an index used to observe
effectiveness, transparency, and accurate usage of natural resources within supplying
countries) among the 58 countries that account for 85% of oil production, 90% of diamond
production, and 80% of copper production, 9 countries are almost completely dependent on
their natural resources. This fact demonstrates that the managing of natural resources is not
effective within many countries and thus calls for an alternative.
A few months ago, the world economy was extremely unstable because of the most
recent Oil Shock. As many oil dependent countries had a significant role in this chaos, we
should consider implementing a diverse range of national policies to address this issue.
Also, we should acknowledge this problem as not just a region-specific issue, but as a
global problem as well.
2. History: Case of resource-dependent countries - NAURU
“Many resources that we are using now are all borrowed from future generations.”
-1968, Garret Hardin
While the status quo of resource usage is grave, many people don’t realize its
seriousness. The case of Nauru, a small island in East Oceania warns us about the
importance of solving this problem. Placed between Australia and Hawaii, Nauru is the 3rd
smallest country in the world after Vatican City and Monaco. While its entire population is
smaller than 10,000, it had, at one point, a higher per capita income than the United States
due to its phosphate ore production (a valuable component of crop fertilizers). The citizens
of Nauru did not need to pay taxes, house expenses, school expenses, hospital bills as they
were all provided by the country.
However, as the quantity of phosphate ore began to deplete in the 1990s, Nauru faced
a severe economic bust. While the government attempted to maintain its economy by
creating a harbor and developing the fishery industry, the citizens were unable to provide
the labor needed because they had never actually worked in their lives. The small island of
Nauru was unable to grow crops due of its excessive mining, and as government corruption
and failed overseas investment led the economy to plummet even further, Nauru, which
was once the country that was the wealthiest in the world with 20,000~30,000 dollars of
income per citizen, has now become a country with an unemployment rate of 90%, and a
2,500 dollar per capita income. Furthermore, the excessive phosphate ore mining has
increased the possibility of the island being flooded by the ocean and sinking under sea
level. If the country's horrible economic performance, along with the worldwide trend of
climate change, continues, Nauru is likely to become a relic of the past.
3. Previous actions from each country
As natural resource dependency is the main obstacle of long-term economic growth,
economic diversification policies are vital for many countries. However, many resourcerich nations are failing to produce new income sources besides the oil, gas and mining
resources they already produce.
Rapid price swings, public anxiety, macroeconomic
stability, and the crowding out effect within the domestic industry are all problems that
arise from natural resource dependency.
The following list shows polices that were adopted by a number of resourcedependent countries to combat this problem and their effectiveness.
•
Bolivia
Bolivia attempted to develop industries other than gas and mining through legislative
measures. However, due to massive financial costs and political resistance, the
government has stopped promoting the policy.
•
Botswana
The government of Botswana emphasized the distribution of private sector activities.
However, the private sector is still comprised of many underdeveloped industries. The
economy still depends only on mining, and public expenditures are used to develop the
private sector, which only gives more burden to the nation.
•
Chile
Chile is also one of the most resource-abundant countries in the world. Chile's exports
are affected by high copper prices and currency appreciation. Diversification and more
sophisticated levels of efforts are still required in Chile's economy.
•
Ecuador
Ecuador is already trying to diversify its exporting commodities. However, key exports
are still limited to a small number of goods and products.
•
Indonesia
Indonesia is striving to develop other business industries by reinforcing local capacity
and upgrading infrastructure. Furthermore, the business sector is aiming to cooperate
with the government by engaging with the institutions under it.
•
Kazakhstan
Kazakhstan is known for its poor financial regulation, weak institutions, inappropriate
economic policies and the disadvantages of its geographical location. These four
problems make the country unable to properly diversify its economy.
•
Mexico
Mexico, the largest oil producing country in Latin America, has promoted greater
diversity in export commodities. However, Mexico's other exports have yet to outgrow
the profit it gains from its natural resources..
•
Peru
While Peru has experienced rapid economic growth and a decline in severe poverty, its
economy is still centered on mining.
4. Definition of key terms & points

Natural resource dependent countries
Natural resource dependent countries are countries that heavily depend on natural
resources, more specifically, when natural resources account for more than half of
their countries’ economy.
•
Comparative advantage
A country has a comparative advantage at producing something if it can produce it at
lower cost than anyone other country. One does not compare the monetary costs of
production or even the resource costs (labor needed per unit of output) of production.
Instead, one must compare the opportunity costs of producing goods across countries.
This term can be useful in explaining relationships between trading countries.
•
Economic diversification
Creating diverse resources to sustain a country's economic growth rather than
depending on only one resource.
•
Resource dependency-theory
Resource dependence theory (RDT) is the study of how the resources of organizations
affect the behavior of the organization.
•
Resource curses
Ironically, countries that have abundant energy or resources also tend to have slower
economic growth and lower standards of quality of life. This phenomenon is caused
by the unfair distribution of the wealth gained by exporting natural resources.
5. Possible solution & Conclusion
Post-oil era
Ever since the Industrial Revolution of the 18th century, the world economy has
experienced both rapid economic development and exponential population growth.
Because of this trend, however, main crops such as wheat and rice are severely depleting
and the amount of natural resources needed will only continue to increase. Therefore, as a
solution to the lack of resources, resource-dependent countries are searching for
alternative industries to sustain their economy and build a greener environment. This
modern era is now known as the “Post-oil era”, and while we still have many obstacles to
overcome, we should consider them as global problems and cooperate to find a solution.
•
Bibliography
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http://www.resourcegovernance.org/sites/default/files/documents/rwi_
econ_diversification_intro1.pdf
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http://www.resourcegovernance.org/analysistools/publications/diversification-resource-dependent-countries
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http://www.resourcegovernance.org/blog/will-oil-rich-libya-gobankrupt-less-four-years
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http://www.dailymail.co.uk/news/article-3251567/Photographerdocuments-life-Nauru-bottle-milk-costs-20-children-head-cock-fightsschool.html