Saturday, September 26, 2009

Resource Curse

Resource Curse


Natural resource is a curse, especially the mineral resources particularly when these are exploited by large foreign mining interests for export purposes without any linkage to the local host economy. Royalties of 2-4% are a mere pittance, as compared to the environmental degradation that is caused to local lands often depriving the poor communities of their livelihood. Resources have typically invited occupations, invasions and colonialism. Mineral resources generate local conflict and instability by promoting unrealistic dreams and ideologies bordering secession from other federating political entities. The empirical evidence is abundant. Only a few countries have positively benefited from mineral resources; which are Chile, Botswana and Malaysia etc. On the other hand, there is a long list of failed states and near-failed states that have mineral based economies. Do countries like Angola, Bolivia, Congo, Zaire, Mali, Chad and Sudan have an image of prosperity, growth and development; far from it?


A resource rich Kuwait invited aggression from greedy Saddam of Iraq, which many argue was done to keep oil supplies intact. Iraq is on course to dismemberment, as oil rich Kurdish areas want to go it alone with their oil and have already started exporting oil without central government’s concurrence. Late Mujibur-Rehman laid the foundations of Bengali nationalism on “jute” once considered golden fiber and now forgotten as a dirty and course item, resulting in much repressive and retrogressive regimes of Major Zia as similar to Zia-ul-Haque of the parent country Pakistan. Nigeria was divided under factional fights. Almost all African mineral countries are suffering from one or the other kind of factional fight largely originated by quarrels over the exaggerated perceptions of mineral incomes and benefits.


Europe benefited from its coal, because it utilized its coal and fired its industry and power plants on it. Had they exported coal and depended on its export revenue, the face of Europe would have been different. Similar is the story of Australia and the USA. China and India consumed their iron and coal in an integrated industry with forward and back ward linkages. In the colonial period, the two countries were commodity exporters.


Economists have discovered many other side-effects of the resource- disease. One of it is Dutch effect. The steady stream of commodity exports, strengthen the currency and thus discourages exports of competitive local products, which require a continuously depreciating and competing currency. The non-resource sector suffers and does not develop. Based on new found wealth, in the form of oil price increase in 1973, Shah of Iran entered into a hasty and unprecedented militarization consuming petrodollars in weapons purchase. His lopsided economic policies and accompanied repression resulted in a revolution which again pursued un-economic policies due to resource abundance with the result of a bad economy, high inflation, stunted growth and persisting poverty. Similar is the case of other oil rich states of Arabia.


In Pakistan, people think that Pakistan is a resource abundant country. In the hey days of communism, the popular myth was that the foreign countries were stealing our wealth. In the more enlightened period that followed and now, the myth is that Pakistan is a rich country but its rulers have looted it and do not let the country benefit from its resource richness. Far from truth, Pakistan is a poor country in terms of resource endowment. Water and land two basic resources are highly limited. Half the area is covered by troubled Balochistan where only 8 million people live, and on the remaining half bulk of the population of 180 million is cramped. Baloch nationalists harp the mantra of exploitation, when Pakistan has not emerged on the map as a mineral country. There is very little mineral activity. Only Sui gas has been produced. In Saindak Copper project where GOP lost a lot of money and had to beg Chinese to take it over. Balochistan resources would benefit Balochistan and rest of Pakistan due to the utilization of these resources in Pakistan economy creating jobs and skills for both Balochies and other Pakistanis. Other wise it would be the same as happened to rich Africa. I would strongly urge the GOP to arrange trips and visits of our nationalists leaders to Bolivia, Angola, Zaire, Congo and other mineral rich countries so that they can vividly the worth of so called natural or mineral resources.


The perception of income from resource is ill founded. As mentioned earlier 2-4% royalty is a pittance. The market is structured around this pittance; you cannot insist on more, in view of prevailing competitive price and the over eagerness of host countries and their leadership, tribal and national, for easy money and the loot that usually follows.


However there is a pending case of correcting the gas royalty situation of Balochistan and paying the royalty arrears due to unrealistically low well head prices that were applied to Sui gas. I have made a strong case in favor of Balochistan in a separate particle.

1 comment:

  1. Nice blog. Informative & impressive content.
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