The Resource Curse: Violence, Corruption, and Dependency

Throughout human history, natural resources have been the bedrock of human development and commerce. In ancient times, civilizations flourished based on vast amounts of precious minerals or other valuable resources. Is it possible, however, that in modern times an abundance of natural resources can be as much a curse as a blessing to a nation state? This is not a brand new thesis, in fact many have covered it from academia to national publications and everything in between.

The concept has emerged again in recent times with the tough economic conditions throughout the emerging world, caused in large part by suppressed commodity prices. Most notably Brazil has entered a tough recession, with weakness since the start of 2014. Brazil’s troubles stem from falling commodity prices due to decreased demand in the developed world and more importantly China. Brazil, however, looks like a picture of excellence compared to some other resource rich countries. Countries rich in natural resources throughout have every day conditions that resemble despair rather than prosperity.

Regions such as Sub-Saharan Africa best exemplify the effects of the so called “Resource Curse”. Many times, discovery and commercialization of natural resources leads to criminal/rebel groups who seek to control the resources for power or monetary gain. In Sierra Leone, the mining trade, particularly in diamonds, makes up 30% of the country’s export trade. The corruption within the mining trade led to civil war and vicious practices carried out by criminal groups upon the citizens of the country. In Africa’s largest nation, Nigeria, similar problems arise due to an abundance of oil in the Niger Delta, where a militant group known as MEND (Movement for the Emancipation of the Niger Delta) constantly disrupts oil production. The issue isn’t wholly focused on rebel and sectarian violence however. Corruption in the government and private oil countries has siphoned off untold amounts of money from nationalized oil operations, in fact by the early 1980’s, over $100 Billion of oil money that was supposed to go Nigeria was lost to private accounts due to a lack of anything resembling regulation or administration. Despite this, however, there are several resource rich countries who have strong economies and are considered quite developed. This does not necessarily mean that those countries are stable or even avoid the resource curse.

The United Arab Emirates is by all accounts a beacon of light and peace in the Middle East. With huge sky scrapers and an uber rich citizenry, the UAE is typically thought off as having exclusively benefited from oil. The UAE’s economy, however, is almost completely dependent on oil at this time, and that provides massive uncertainty. In the past year, we have oil prices drop as much as 70%, with no clear indications we have hit a price bottom. This is a very troubling development for oil dependent nations such as the UAE, Qatar, Kuwait, etc. These nations need to focus on stronger economic diversification if they are to have long term viability as stable nation states. In fact, there is a country devoid of most major natural resources that is amongst the most prosperous on Earth, Japan. Japan has created a diversified economy, with a strong reliance on efficient manufacturing and a strong service sector, which has created one of the wealthiest nations on Earth, all without the help of oil, gold, diamonds, etc.

It is possible for countries rich in resources to succeed, look at Norway for example, a nation rich in oil with one of the highest measures of per capita income in the world. For success to happen, however, the country must not be totally dependent on natural resources, and they must have strong governance/management of the natural resource industries.