Africa’s Wealth Dilemma: Confronting the Resource Curse

Imagine a continent endowed with an immense wealth of natural resources, from diamonds and gold to vast deposits of oil and gas. Africa, the world’s most resource-rich continent, has 30% of the world’s mineral reserves (Carmody, 2017). However, many of its countries are affected by poverty, conflict and slow economic growth. Why do nations blessed with such natural wealth often struggle more than countries with far less? This paradox, known as the resource curse, presents a complex challenge that has concerned economists and policy makers for decades. This article explores the mentioned paradox and examines how Africa’s rich endowment of natural resources has shaped its economic and social landscape, often in ways that contradict expectations.

Throughout Africa, the emergence of natural resources has often not been translated into positive economic growth and development. This counterintuitive phenomenon, known as the resource curse, was first noticed more than thirty years ago and it is exemplified by the negative impact of North Sea gas on the Dutch economy, originally referred to as the “Dutch disease” (Gelb, 1988). In this scenario, resource exports lead to an appreciation of a country’s currency, making other exports less competitive (Auty, 2002). However, the resource curse in the African context goes beyond the economic impact of the Dutch disease. It encompasses a range of political and social dynamics. Robinson et al. (2006) argue that the discovery of a resource in a country with weak institutions often leads to inefficient policies aimed at preserving political power and exploiting resource rents. This has been empirically linked to increased corruption (Vicente, 2010) and violent conflict (Angrist & Kugler, 2008; Berman et al., 2017) in various settings. In Mozambique, for example, the discovery of natural gas has led to increased corruption in the government and fueled civil conflict, as the country’s institutions are predominantly geared towards the extraction of raw materials and could benefit from more transparency (Freedom House, 2022). This pattern is not unique. In Nigeria, oil wealth is linked to persistent episodes of corruption and regional conflict, particularly in the Niger Delta (Watts, 2004). Similarly, the vast mineral wealth in the Democratic Republic of Congo, including resources such as coltan and cobalt, has not led to widespread economic prosperity, but has instead been a cause of the ongoing conflict and governance problems (Lalji, 2007). These examples underscore a broader trend on the continent, where resource wealth often does not lead to broad-based economic development. In fact, it frequently exacerbates existing vulnerabilities such as poor governance, corruption and conflict, increasing the cycle of underdevelopment despite abundant natural resources.

An Excursus on Commodity Prices and Conflict: Insights from Colombia’s Experience
An insightful study conducted by Dube and Vargas (2013) illustrates a specific mechanism of the resource curse. It analyses the context of Colombia, which provides valuable lessons. The relationship between income shocks from commodity prices and armed conflict in Colombia sheds light on a critical aspect of the resource curse: how natural resource wealth can inadvertently fuel violence. Colombian data reveals two contrasting effects of commodity price shocks on armed conflict, rooted in the nature of the commodities involved – agricultural goods like coffee, which are labor-intensive, and natural resources like oil, which are not. During the 1990s, a significant drop in coffee prices led to reduced wages and, consequently, increased violence in coffee-growing regions. This aligns with the ‘opportunity cost effect,’ where lower wages from agriculture made the labor supply for violent appropriation more attractive. Conversely, a surge in oil prices resulted in increased municipal revenue and heightened violence in oil-rich areas, illustrating the ‘rapacity effect,’ where the potential gains from appropriating resource wealth spurred conflict. This Colombian example is particularly relevant to Africa, where many economies are similarly dependent on a few key commodities. The fluctuating prices of agricultural products and natural resources can have profound impacts on local and national stability.

Overcoming the Resource Curse
While the resource curse poses major challenges, it is not an inevitable fate. Based on the findings of scholars such as Collier (2007), Collier & Laroche (2015) and Robinson et al. (2006), as well as successful examples from Botswana or Malaysia, we can identify key strategies for African countries to effectively manage their natural resources.
Improving transparency and information dissemination: Following the remarkable work by Armand et al. (2020), disseminating information about resource management to the public can increase citizen mobilization and reduce violence. This approach helps to reduce capture by elites and the profit motive.
Strengthening institutions: Building sound, transparent and accountable institutions is crucial for effective resource management. As Robinson et al. (2006) emphasize, this includes improving governance structures and the legal framework.
Introduction of a holistic management framework: Following the recommendations of Collier (2007, 2015), African states should consider a comprehensive approach to resource management. This includes fair procedures for resource discovery and contracting, prioritizing infrastructure for public benefit in exploitation, introducing transparent tax systems, and investing resource revenues in public and private sector capacity.

To summarize, the resource curse is a paradoxical challenge for Africa, a continent rich in natural resources and yet struggling with economic and social hurdles. As we have seen, the curse is not just about economic phenomena such as the ‘Dutch disease’, but also about deeper issues of governance, corruption and conflict, as evidenced in countries such as Mozambique, Nigeria and the Democratic Republic of Congo. However, the situation is not irreversible. Following the example of successful models such as the ones seen in Botswana and Malaysia, and taking into account the scientific findings of Collier, Robinson and other researchers, African states can embark on a path towards effective resource management. This would include improving transparency, strengthening institutions and taking a holistic approach to resource management.

Bibliography
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Written by: Marc Eigen, MSc in International Development and Public Policy at Nova SBE and NOVAFRICA