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Chapter 2. Is There a Resource Curse in Sub-Saharan Africa?

Author(s):
Charlotte Lundgren, Alun Thomas, and Robert York
Published Date:
August 2013
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With both a long history of natural resource extraction in sub-Saharan Africa (SSA) and—until recently—relatively poor economic performance, it is fair to ask if the region has suffered under a “resource curse.” The resource curse—that countries and regions with an abundance of natural resources tend to have slower economic growth, weaker development outcomes, and more instability than resource-scarce countries—has been a prominent and recurring theme in the academic literature on natural resource management, and especially those concerned with Africa (see, for example, Sachs and Warner, 1995, 1997, and 2001). Data from the subregion suggests that such a curse has been present to some degree but has diminished since 2000, although the broad economic and social indicators point to continued weaknesses that could be attributed to poor natural resource management. Consider some stylized facts:

  • Natural resources—mainly minerals, and oil and gas—provide significant export earnings for almost half of the economies in SSA (resource-rich economies are defined as those whose exports of these resources exceeded one-fourth of total goods exports in 2005–10; Figure 2.1 and Box 2.1). Real GDP per capita growth for these economies has been higher than for other SSA countries since 2000, although the translation of resource rents into higher living standards for the populations as a whole has been slow. The significance of natural resource exports—in relation to merchandise exports and to nonresource GDP—is highest for oil exporters, with the value of resource exports exceeding the size of nonresource GDP in several countries (Table 2.1).
  • Of the 20 resource-rich countries, half are fiscally dependent on budget revenue derived from natural resource extraction. This group is defined as countries with resource revenue that exceeds 20 percent of total revenue and includes the seven oil exporters (see Table 2.1) plus Botswana, the Democratic Republic of the Congo (DRC), and Guinea. All other resource exporters receive less than 15 percent of budgetary revenue from natural resources, and only two of these countries (Niger and Zambia) are projected to markedly increase their revenue take from this sector in the medium term.
  • For several countries, the prospective public revenue possible from existing resource wealth is sizable compared with current nonresource GDP, although with significant variation across countries. To provide an understanding of the magnitude of the resource revenue, net present value calculations for resource wealth are estimated in Table 2.1 based on projected natural resource reserves, the resource depletion rate, resource prices, and the discount rate.1 Countries that can expect large future revenue flows from the identified resource base include the main oil exporters, Botswana (although its resource revenues are likely to decline in the future as a share of nonmineral output), and the DRC. In addition, based on recently discovered resources, several countries (Ghana, Liberia, Mozambique, Niger, Tanzania, and Uganda) can anticipate sizable revenue inflows in the future, provided that appropriately structured tax policy frameworks are in place. These estimates are based on currently known natural resources; the bulk of exploitable natural resources in SSA likely remain to be discovered. However, the price outlook for commodities is very uncertain and the current high prices may not last, which would have adverse consequences for the value of wealth.
  • Oil exporters in SSA spend considerably less as a share of GDP on public education and health than other countries. In 2006–09, the median expenditure ratio on public education and health was 3 percent of GDP for oil exporters compared with more than 8 percent of GDP for middle-income countries, and about 6 percent of GDP for non-resource-rich low-income countries. In the oil exporter group, however, substantial cross-country variation occurs. Angola had considerably increased expenditures on health and education through 2009 to more than 8 percent of GDP, but expenditures have fallen off subsequently. Consistent with this increased expenditure, Angola’s human development index rose most rapidly among oil exporters during 2005–10.

Figure 2.1.Sub-Saharan Africa: Major Nonrenewable Exports

Source: IMF, African Department database.

Table 2.1.Resource-Intensive Countries: Selected Resource Indicators, 2010(Percent of nonresource GDP, unless otherwise noted)
Resource exportsResource revenueResource revenue (percent of total revenue)GDP per capita (U.S. dollars)GNI per capita (U.S. dollars)Subterranean wealth1State partnership in resource extraction (percent of total)Extractive Industries Transparency Initiative (EITI) status2
Oil exporters
Angola110.659.875.94,4233,9401,121.467.0
Cameroon10.54.826.61,1431,180167.045.0Candidate
Chad60.226.167.6676620357.50Candidate
Congo, Republic of224.192.079.02,9432,1501,548.10Compliant
Equatorial Guinea171.666.488.119,99814,540141.4Partial
Gabon116.331.653.98,6437,740919.725.0–35.0Compliant
Nigeria54.327.272.21,2221,180772.3PartialCompliant
Other fiscally dependent countries
Botswana38.213.431.37,4036,790199.350.0
Congo, Democratic Republic of the68.65.526.5199180135.930.0Candidate
Guinea33.65.024.845240044.030.0Candidate
Other countries
Central African Republic2.80.98.0457470n.a.0Compliant
Ghana12.00.53.71,2831,23049.10Compliant
Mali16.83.317.160260075.60Compliant
Namibia17.41.85.85,3304,50014.450.0
Niger11.01.711.835837026.215.0–40.0Compliant
Sierra Leone11.10.32.4325340n.a.0Candidate
South Africa8.60.62.07,2756,090n.a.Small
Tanzania7.2n.a.n.a.527530n.a.0Compliant
Zambia51.72.710.91,2531,07031.415.0–20.0Compliant
Zimbabwe24.40.82.5595460n.a.Partial
Sources: Mbendi.com; U.S. Geological Surveys; World Bank, World Development Indicators; IMF, African Department database; and IMF staff estimates and calculations.Note: n.a. = not available. Based on nonrenewable natural resources.

Subterranean wealth is defined as the net present value of resource wealth times the implicit tax rate (ratio of resource revenues to resource exports, 2005–10).

Burkina Faso, Liberia, and Mozambique are EITI compliant but are not included in the group of resource exporters. EITI status is as of March 2013. See Box 7.3 for a more detailed explanation of “candidate” and “compliant.”

Sources: Mbendi.com; U.S. Geological Surveys; World Bank, World Development Indicators; IMF, African Department database; and IMF staff estimates and calculations.Note: n.a. = not available. Based on nonrenewable natural resources.

Subterranean wealth is defined as the net present value of resource wealth times the implicit tax rate (ratio of resource revenues to resource exports, 2005–10).

Burkina Faso, Liberia, and Mozambique are EITI compliant but are not included in the group of resource exporters. EITI status is as of March 2013. See Box 7.3 for a more detailed explanation of “candidate” and “compliant.”

Box 2.1.The Distribution of Nonrenewable Natural Resources in Sub-Saharan Africa

Nearly 10 percent of the annual output of SSA countries and 50 percent of their exports come from nonrenewable natural resources. Natural resources are a major export in about 20 of the 45 countries in the region (Figure 2.1.1). Seven of these countries are oil exporters, accounting for more than half of the region’s natural resource exports. The other 13 resource-rich economies receive at least a quarter of their export proceeds from mining. The threshold used to define resource-rich countries is 25 percent of total exports derived from natural resources.

Figure 2.1.1.Sub-Saharan Africa: Resource Exports, Average 2005–101

Source: IMF, African Department database.

1Data for Côte d’Ivoire and Senegal exclude re-exports of refined oil products.

Gold, diamonds, and other precious stones are the major commodity exports of most of the region’s non-oil resource-rich economies. A few, however, depend heavily on base metals and uranium (Niger and Zambia) or benefit from a broad mixture of products (DRC, Guinea, Namibia, and Sierra Leone).

Given wide variations in the costs of exploiting different nonrenewable resources and in the ability of tax regimes to harness the associated rents, government revenue from natural resource exploitation differs substantially among countries (Figure 2.1.2). Although much of this analysis focuses on the 20 SSA natural resource exporters, special attention is also paid to the 10 economies deemed fiscally dependent on natural resources.

Figure 2.1.2.Sub-Saharan African Resource-Intensive Countries: Resource Revenue, Average 2005–10

Source: IMF, African Department database.

Some countries currently listed as non-resource-rich nonetheless have significant resource export potential. For instance, Mozambique, Sāo Tomé and Príncipe, and Uganda are among several countries seeking to exploit oil and gas reserves; prospects for offshore oil deposits in Liberia look promising; and Malawi has potentially large uranium deposits. Some resource exporters, such as Ghana (oil), Sierra Leone (iron ore), and Tanzania (gas), are also broadening the spectrum of their commodity exports. As Collier (2011) has pointed out, it is likely that the bulk of exploitable natural resources remain to be revealed, because the identified level of such resources in SSA is currently far below that of other world regions.

To the extent that there has been a “resource curse” in SSA, weaknesses in natural resource and macroeconomic management and poor governance seem to have played a prominent role. Relatively poor macroeconomic performance has been linked to rent seeking because national politics are oriented toward capturing the rents accruing from the natural resource extraction, typically benefiting only a small group of elites or vested interests, leaving the masses largely excluded from the benefits of growth and resulting in a sharply skewed income distribution. The notion of a “resource curse” also reflects the view that forward and backward linkages from primary exports to the rest of the economy are weak and that upward pressure from a surge in resource receipts on the nominal exchange rate and on prices leads to a broader loss of international competitiveness and, as a result, a reduction in manufacturing output and employment (i.e., the so-called Dutch disease). Sizable natural resource wealth can also lead to instability in macroeconomic aggregates because of the volatility in resource prices.

The sustained resource price boom since the middle of the first decade of the 2000s has contributed to an improvement in the performance of resource exporters, but it is too early to tell whether this improvement will be maintained. Since 2000, real GDP per capita growth has, on average, been higher in resource exporters than in other SSA countries and higher still in the fiscally dependent subsample (Figure 2.2, left panel). This growth reflects the combination of favorable commodity-price developments, new resource discoveries (Angola, Equatorial Guinea, Tanzania), and strong improvement in the nonresource economy.

Figure 2.2.Sub-Saharan African Resource-Intensive Countries: Real Resource and Nonresource GDP Growth

Sources: IMF, World Economic Outlook database; IMF, African Department database.

However, the direct contribution of natural resource production to GDP growth varies markedly across countries, from being the dominant contributor to output growth in Equatorial Guinea and the DRC to the more modest contributions observed in South Africa and Zambia (Figure 2.2, right panel). At the same time, in many countries, the role of the natural resource sector in driving growth is significantly understated by looking only at production-side measures of the sectoral contribution. Indeed, deviations from trend of nonresource growth are highly correlated with annual variations in commodity prices (Figure 2.3), suggesting that commodity prices also have a strong positive effect on nonresource activities. Moreover, resource and nonresource growth are significantly positively correlated, suggesting the existence of interlinkages between sectors, for example, more goods and services provided to the resource sector and demand effects in the nonresource sectors from resource revenue.

Figure 2.3.Sub-Saharan African Resource-Intensive Countries: Nonresource Growth Gap and Commodity Price Index

Sources: IMF, World Economic Outlook database; and IMF African Department database.

It should also be emphasized that GDP per capita can be a misleading measure of the income accruing to nationals in resource-rich economies, with gross national income (GNI) providing a somewhat different picture. Natural resource extraction typically involves foreign-owned firms, capital, and skilled personnel, with the consequence that a significant share of the value of resource output accrues to foreigners rather than nationals. As Figure 2.4 illustrates, the disparity between GDP and GNI is relatively large for the oil-producing countries, but much less noticeable in other resource exporters or non-resource-intensive economies.2

Figure 2.4.Sub-Saharan Africa: GDP per Capita Minus GNI per Capita, Selected Years

Source: World Bank, World Development Indicators.

Although GNI per capita in SSA is, on average, higher in natural resource exporters than in nonresource exporters, this income advantage is typically not reflected in a corresponding disparity on the Human Development Index (HDI) or international measures of welfare (Figure 2.5). This outcome is especially true of oil exporters with GNI levels far above other resource exporters. Although faster growth among the natural resource exporters has been accompanied in some countries by larger improvements in some areas of health care (e.g., immunization), literacy and infant mortality rates are only slightly better among resource-rich countries, and school enrollment rates are considerably worse compared with nonresource economies (Figure 2.6). Aggregate cross-country comparisons should be interpreted cautiously because of the high variability in income levels across groups, but the broad averages go some way toward explaining the concerns frequently expressed about income inequality and the lack of inclusive growth in resource-rich economies.3

Figure 2.5.Sub-Saharan Africa: Selected Development Indicators, 2010

Source: World Bank, World Development Indicators.

Note: PPP = purchasing power parity.

Figure 2.6.Sub-Saharan Africa: Social Indicators and Resource Abundance, 2000–09

Source: World Bank, World Development Indicators.

Recommended Reading

The historical view on the weak growth effects of the resource curse as documented in the work of Sachs and Warner (1995, 1997) and Gylfason, Herbertson, and Zoega (1999) has recently been called into question. In particular, Brunnschweiler and Bulte (2008) show that once resource abundance is proxied by a measure of natural resource wealth (net present value of resource wealth) rather than resource dependence (the ratio of resource exports to output), the effect of natural resources on growth performance is positive. Moreover, van der Ploeg and Poelhekke (2009) show that per capita growth is significantly adversely affected by the volatility of unanticipated growth but, having controlled for this factor, the effects of resources on growth become positive. A number of other studies have found mixed results on the effects of natural resource abundance on economic growth (Stijns, 2005; Collier and Hoeffler, 2009).

    AkitobyBernardin and SharminiCooreyeds. 2012Oil Wealth in Central Africa: Policies for Inclusive Growth (Washington: International Monetary Fund). ISBN: 9781616353766. www.imf.org/external/pubs/cat/longres.aspx?sk=25682.0.

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    ArezkiRabahThorvaldurGylfason and AmadouSyeds.2011Beyond the Curse: Policies to Harness the Power of Natural Resources (Washington: International Monetary Fund). ISBN: 9781616351458. www.imf.org/external/pubs/cat/longres.cfm?sk=24843.0.

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    ArezkiRabahCatherinPattilloMarcQuintyn and MinZhueds.2012Commodity Price Volatility and Inclusive Growth in Low-Income Countries (Washington: International Monetary Fund). ISBN: 9781616353797. www.imf.org/external/pubs/cat/longres.aspx?sk=25718.0.

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    BrunnschweilerChrista N. and ErwinH. Bulte2008The Natural Resource Curse Revised and Revisited: A Tale of Paradoxes and Red Herrings,Journal of Environmental Economics and Management Vol. 55 pp. 24864. DOI: http://dx.doi.org/10.1016/j.jeem.2007.08.004.

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    CollierPaul2011Savings and Investment Decisions in Low-Income Resource Exporters Centre for the Study of African Economies (Oxford: Oxford University). www.bcplp.org/pt-PT.

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    CollierPaul and AnkeHoeffler2009Testing the Neocon Agenda: Democracy in Resource-Rich Societies,European Economic Review Vol. 53 No. 3 pp. 293308. www.sciencedirect.com/science/article/B6V64-4SR7181-1/2/4f76cd0b936c82db6c7a23a6bb3a5b00.

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    GylfassonThorvaldurTryggviHerbertsson and GylfiZoega1999A Mixed Blessing: Natural Resources and Economic Growth,Macroeconomic Dynamics Vol. 3 pp. 204225. www.econ.ku.dk/epru/files/wp/WEB-blaa-2001-02.pdf.

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    HumphreysMacartanJeffreyD. Sachs and JosephE. Stiglitzeds. 2007Escaping the Resource Curse (New York: Columbia University). ISBN: 978-0-231-14196-3. www.gobookee.net/escaping-the-resources-curse-sachs/.

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    RossMichael L.2012The Oil Curse: How Petroleum Wealth Shapes the Development of Nations (Princeton, New Jersey: Princeton University Press). ISBN: 9781400841929.

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    SachsJeffrey D. and AndrewM. Warner1995Natural Resource Abundance and Economic Growth,NBER Working Paper No. 5398 (Cambridge, MA: National Bureau of Economic Research). www.nber.org/papers/w5398.

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    SachsJeffrey D. and AndrewM. Warner1997Fundamental Sources of Long-Run Growth,American Economic Review: Papers and Proceedings Vol. 87 pp. 18488. www.jstor.org/stable/2950910.

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    SachsJeffrey D. and AndrewM. Warner2001The Curse of Natural Resources,European Economic Review Vol. 45 Nos. 4–6 pp. 82738. DOI: http://dx.doi.org/10.1016/S0014-2921(01)00125-8.

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    StijnsJean-Philippe C.2005Natural Resource Abundance and Economic Growth Revisited,Resources Policy Vol. 30 No. 2 pp. 107130. DOI: http://dx.doi.org/10.1016/j.resourpol.2005.05.001.

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    Van der PloegFrederick and StevenPoelhekke2009Volatility and the Natural Resource Curse,Oxford Economic Papers Vol. 61 pp. 727760. DOI: 10.1093/oep/gpp027.

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1

Reserves and extraction rates are based on various data sources (see Table 2.1). The IMF’s World Economic Outlook provides projections for most resource prices and for these, a five-year average price for 2012–16 is used; for the other resource prices, the 2011 price is used. The real discount rate is assumed to be 4 percent.

2

Significant disparities between GDP and GNI also can occur for reasons unrelated to resources; for example, a large stock of public foreign debt or a large stock of foreign assets owned by nationals.

3

For example, the poor performance of Angola compared with Ghana on the HDI score, despite a large income advantage, could be seen as the legacy of decades of civil war, but this may not be unrelated to the availability of natural resources.

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