INTERNATIONAL POLICY CONFERENCE

“COMPETITIVENESS & DIVERSIFICATION: STRATEGIC CHALLENGES IN A PETROLEUM-

RICH ECONOMY”

Managing Natural Resources for Development

14 – 15 march 2011, Accra, Ghana

Kamil Kamaluddeen

Structure

I.I. Avoiding the Resource CurseAvoiding the Resource Curse

II.II. Investing for Human DevelopmentInvesting for Human Development

III.III. Learning and Developing CapacityLearning and Developing Capacity

The “resource curse?” Or a double-edged sword?

Source: Pineda, J., & Rodriguez, F. (2010). Curse or Blessing? Natural Resources and Human Development. HDRO background papers..

Source: Own elaboration based on WEO data.

Largest growth “accelerations” in Africa.

-10% -5% 0% 5% 10% 15%

South Africa

Kenya

Cameroon

Republic of Congo

Niger

Tanzania

São Tomé and Príncipe

Chad

Burundi

Ethiopia

Zambia

Nigeria

Rwanda

DRC

Angola

Sierra Leone

Real Annual Average GDP Growth

2000s

1990s

Avoiding the resource curse- I

Break away from the “conflict trap"Break away from the “conflict trap" Strengthen governance and institutions to Strengthen governance and institutions to

constrain patronage and to improve the constrain patronage and to improve the management of public spendingmanagement of public spending

Mitigate the “Dutch Disease”Mitigate the “Dutch Disease” Promote and support tradable sectors affected by Promote and support tradable sectors affected by

appreciation of the real exchange rate. Especially appreciation of the real exchange rate. Especially agriculture.agriculture.

Invest to increase the productivity of the economy, Invest to increase the productivity of the economy, consistent with absorption capacity, and increase consistent with absorption capacity, and increase the import content of public spending – spending in the import content of public spending – spending in infrastructure would do both.infrastructure would do both.

Costs of volatility in Africa: collapses in growth led to income stagnation.

Source: Adapted from Jorge Arbache and John Page. 2007. “More Growth or Fewer Collapses? A New Look at Long Run Growth in Sub-Saharan Africa.” Policy Research Working Paper 4384.

0

100

200

300

400

500

600

700

800

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

GDP per capita (constant 2000 US$) AFRICA

GDP per capita (constant 2000 US$) without growth collapses (illustrative simulation)

Avoiding the resource curse- II

Mitigate boom and bust cyclesMitigate boom and bust cycles Institutionalize “stabilization funds” (e.g. Chile);Institutionalize “stabilization funds” (e.g. Chile); Index prices in sales to foreign companies to the Index prices in sales to foreign companies to the

international priceinternational price Consider indexing sovereign debt to the Consider indexing sovereign debt to the

international priceinternational price Use derivatives to hedge against commodity price Use derivatives to hedge against commodity price

volatility (e.g. Mexico)volatility (e.g. Mexico)

Hedging brought stability – and a windfall gain – to Mexico’s oil revenues.

Source: Financial Times.

Investing for human development

General principle: ensure that total wealth General principle: ensure that total wealth does not diminish – weak sustainability (e.g. does not diminish – weak sustainability (e.g. Botswana)Botswana)

Distribute resources to “three pots”:Distribute resources to “three pots”: i) physical and human capital (infrastructure; basic i) physical and human capital (infrastructure; basic

social services)social services) ii) social protection/transfersii) social protection/transfers iii) “future generations” fundiii) “future generations” fund

Different priorities for different levels of development

Poorer countries: focus on spending consistent with absorptive capacity: might require an “investment fund” to park part of the money until capacity exists

Richer countries: focus on savings to enhance welfare of future generations (e.g.

Norway).

i) physical and human capital(infrastructure; basic social services

ii) social protection/transfers

iii) “future generations” fund

Learning from other countries

Shared goals of preserving social stability Shared goals of preserving social stability and accelerating economic growth;and accelerating economic growth;

Credible and stable cadre of “technocrats” Credible and stable cadre of “technocrats” that interact and influence political leaders;that interact and influence political leaders;

Strong constituencies outside of the natural Strong constituencies outside of the natural resource sector that push for prudent and resource sector that push for prudent and effective spending;effective spending;

Link investments to explicit objectives of Link investments to explicit objectives of economic and social progress, helping economic and social progress, helping citizens to understand the allocation citizens to understand the allocation decisions: the potential of the MDGs.decisions: the potential of the MDGs.

Source: Gelb, Alan and Sina Grasmann. 2010. “How Should Oil Exporters Spend their Rents?” CGD Working Paper 221. Washington, D.C.: Center for Global Development..

UNDP’s contribution: developing capacity and sharing information

Developing capacity to manage the technical Developing capacity to manage the technical aspects of natural resource management aspects of natural resource management (regional program on negotiations already exists)(regional program on negotiations already exists)

Developing capacity to plan and implement Developing capacity to plan and implement effective spending plans (on health, education, effective spending plans (on health, education, social protection) – augment “absorption capacity”social protection) – augment “absorption capacity”

Enhance information of citizens in general and Enhance information of citizens in general and especially those outside of the natural resource especially those outside of the natural resource sectorsector

Establish links between spending and progress Establish links between spending and progress towards the MDGstowards the MDGs

Importance of natural resources in Africa declining but still highest.

Source: Ploeg, Frederick van der (2008) Challenges And Opportunities For Resource Rich Economies. Working Paper. OxCarre.

Investing for human development-II

Different priorities for different levels of Different priorities for different levels of development:development: Poorer countries: focus on spending to meet basic Poorer countries: focus on spending to meet basic

needs (water, food, and basic education and needs (water, food, and basic education and health services), basic infrastructure (roads, health services), basic infrastructure (roads, power, communication networks), and social power, communication networks), and social protection – consistent with absorptive capacity: protection – consistent with absorptive capacity: might require an “investment fund” to park part of might require an “investment fund” to park part of the money until capacity exists. the money until capacity exists.

Richer countries: focus on savings to enhance Richer countries: focus on savings to enhance welfare of future generations (e.g. Norway).welfare of future generations (e.g. Norway).