Links between Resource Extraction, Governance and Development: African Experience

Abstract

This ARI addresses the analytical and empirical links between resource extraction, governance and development, with a focus on the resource-curse thesis. The rent curse is rooted in policy failure, which the theory of rent cycling attributes to the impact of rent on elite incentives and also on development trajectory. The paper provides some examples of conditions that have facilitated this process in the context of Sub-Saharan Africa. The so-called resource curse is part of a broader rent curse that can be triggered by regulatory rent and foreign aid (geopolitical rent) as well as by natural resource rent. Although resource-driven growth challenges macro management due in part to commodity price volatility, the policies required to limit adverse impacts such as the Dutch disease effects are well known. Consequently, the rent curse is rooted in policy failure, which the theory of rent cycling attributes to the impact of rent on elite incentives and also the development trajectory. The theory argues that high rent incentivises the elite to deploy rent through patronage channels for immediate personal enrichment, but this represses markets and distorts the economy, which lowers investment efficiency and triggers a growth collapse that is protracted because rent recipients resist economic reform. The risk of the economy falling into this 'staple trap' development trajectory increases in the presence of point source resources (notably minerals), statist policies, ethnic tension and democracy that is youthful. This implies that initial conditions were unpropitious for most African countries (especially the mineral economies) at independence because they were typically ethnically-mixed, resource-rich, new democracies with a predilection for fashionable state control. Most African economies did experience protracted growth collapses from the 1970s but some, like the Ivory Coast and Kenya collapsed later than most. Just two economies, Botswana and Mauritius, evaded the curse. Botswana's conditions appear unique but Mauritius's pursuit of a dual-track growth strategy offers a useful model for other African governments.