A Tragic Blessing: Developing Countries and the Resource Curse


Written by Leanne George

Throughout history, the struggle for control of natural resources has triggered conflict across the world. Nowhere is this truer than in developing countries.

It is rare that the populations of developing countries with abundant natural resources reap the benefits of these riches. Whether it is vast oil or mineral reserves, water, or a conducive climate for cultivating cash crops such as coffee and cocoa, many resource-rich developing countries end up being far worse off than countries without. This is the ‘resource curse‘:  wasted wealth and problems that plague poor countries with a plethora of natural resources.

Corruption

Corruption is perhaps the best known problem that low income, resource-rich countries face. In many such countries, politicians and private businesses line their own pockets at the expense of the wider population. This can lead to conflict, but not always extreme physical violence. For example, Brazil’s Petrobras scandal saw senior political figures secretly divert funds from the state oil company. Similarly, the governor of the Nigerian Central bank accused those in power of stealing millions of dollars in oil. Often corruption is closely associated with autocratic regimes, but the case of Brazil demonstrates that corruption exists in democratic states.

As a result, siphoning money from public companies means that there is insufficient money to fund public services. This can affect the provision of healthcare, for example.

War

In extreme cases, the struggle for control of natural resources can lead to civil war. Sierra Leone is a good example. In this country, struggle for control of the country’s alluvial diamond fields helped trigger the civil war, and financed the parties engaged in the conflict. More recently, commentators allege that control of oil deposits helped spark a civil war in Sudan, which led to the country’s division in 2011. What’s more, conflict over oil reserves in the newly formed South Sudan persists.

Similarly, natural resources have triggered international wars. Iraq’s invasion of Kuwait in the 1980s led to the First Gulf War. What’s more, many people believe that oil was a key motivating factor in the Second Gulf War. Furthermore, the fragility of these states, lax security, and mismanagement of natural resources are responsibile for contributing to the outbreak of war in these countries.

The DRC: a special example

The Democratic Republic of Congo (DRC) is a sobering example of the ‘resource curse’. It has large reserves of copper, diamonds, coltan, petroleum, cobalt, gold and silver. Nevertheless, this immense wealth has not benefited the majority of the DRC’s population. Since World War II, six million DRC residents have died, as a result of war, malnutrition and disease. What’s more, the country has experienced immense political turmoil and anarchy. These can be linked to a corrupt and weakening authoritarian regime, and persistent ethnic tensions. Furthermore, the presence of international businesses in the DRC has fuelled the country’s instability.

Demand from Western consumers and the DRC

The demand of western consumers is a major incentive for businesses to continue exploiting the DRC’s natural wealth. The mineral, coltan, is used to produce electronic devices such as laptops and mobile phones. 85% of the world’s coltan reserves exist in the DRC.

The extraction of coltan has had a catastrophic impact on the DRC. First of all, irresponsible extraction creates several health hazards for those living near the mines. What’s more, businesses involved in extracting minerals have engaged in deals with local leaders who are often warlords. As a result, our demand for the latest smartphone is filling the coffers of various factions in the country’s ongoing civil war. However, due to high demand for tech products in the West, companies have little incentive to change their behaviour. Consequently, their activities help fuel conflict in the DRC.

Challenges

The last decade has seen a wave of natural resource discoveries. Factors such as population growth, urbanisation and rising consumption levels have provided their incentive. The advent of new technologies for extracting and processing natural resources has also been a contributing factor. Furthermore, countries such as Mali, the DRC, and South Sudan have experienced resource demand.

As a result, effective resource management is a major challenge. To ensure that the wider population can benefit from resource wealth, local governments need to implement robust policies. For example,  some governments have used ‘stabilisation’ policies. When oil prices are high, governments set revenues aside; when prices fall, governments use the funds to cushion the blow. Furthermore, businesses who involved in extraction need to invest in local communities.

Conclusion

Natural resources in developing countries can spur conflict, fuel corruption, and increase social inequality. Unless there is a sea change not only in the political and social culture of the countries themselves, but also in the attitude of businesses and consumers, developing countries with abundant natural wealth will continue to experience the ‘resource curse’.