From Curse to Purse: Making Extractive Resources work for Development

Extractive resources have shaped, to a large extent, the economic trajectories of most resource-rich countries. For a privileged few, these extractive resources have been transformative, putting their host countries on a new development path. But for many, they have not succeeded in stimulating sustainable and inclusive development outcomes, experiencing instead increasing income inequality, weakened governance structures and conflicts in the worst cases. This phenomenon is better known as the resource curse.

Most countries in Africa are richly endowed with extractive resources. Recent discoveries have raised the profile of many Africa, putting to light the immense opportunities that could be derived from these extractive resources, but also ringing the alarm bell on the potential challenges that it could equally entail. So how can this resource curse be avoided? And how can extractive resources work for development?

Key Purpose of ECDPM Study

While no one has yet found the miracle recipe to administer to inoculate resource-rich countries against a potential resource curse, there are nevertheless some foundational factors worth considering in an attempt to avoid the resource curse and to make extractive resources work for development. This paper aimed to outline these factors by looking at extractive resources in Africa, against the background of recent mineral discoveries and good economic prospects in the last decade.

Key Findings ECDPM

• Whether the resource curse can be avoided, will depend largely on governments’ political will and dynamics, on the extent to which politics is intertwined with the capture of rents and on the relationship with all actors of society.

• Complementary to this, there should be transparency and good enough governance as overarching principles in debates at the resource-rich country’s level, home countries of extractive industries, at companies’ level and in the banking and financial system.

• A set of reforms and policies is required to avoid the resource curse. This includes 1) defining consistent economic policies that include extractive sectors in the “broader economy” and proper policy sequencing, 2) mobilising sufficient domestic revenues from extractive sectors, 3) managing resources effectively, and 4) finding the right balance to reconcile competing claims for revenues from extractive industries with longer-term objectives of sustainable development and stabilisation goals.

• All partners need to be involved to work together in a more coherent, constructive and coordinated way.

Read Discussion Paper 136