I can’t believe it’s already the last weekend of August! That’s depressing. Anyway, for those of you that have managed to fit one last beach weekend into your summer plans, here’s a nice primer on managing resource rents that I think will make for some nice beach reading.
The paper is entitled “How Should Oil Exporters Spend Their Rents?” and is written by Alan Gelb and Sina Grasmann. The authors tease out some very high level prescriptions for countries looking to avoid the resource curse. They take the following as given:
“Research on the resource curse has reached a broad consensus. The likely impact of rich natural resource capital on development depends on the levels of two complementary assets: governance or institutional capital and human capital…Where these are abundant, resource wealth is likely to be a positive factor, where they are scarce, the outcomes from resource finds are likely to be poor.”
Instead, the authors focus their effort on answering the following three questions:
“First, how prudent should spending levels be over a resource boom, considering the extreme uncertainty of future oil prices? Second, how should countries consider the range of spending options, as well as policies to diversify the economy? Third, what political economy and structural factors seem to have helped some developing countries to manage resource wealth better than others?”
Spoiler alert! Here’s how they answered the last question:
“These cases suggest some common elements in success. They include a widely shared concern to preserve social and economic stability as well as to grow rapidly; a credible and stable technocracy that engages closely with leaders and elected officials; and influential non-oil export sectors conscious of the dangers posed by unrestrained boom spending out of oil income. It has also sometimes been useful to identify savings with an explicit objective, to help citizens to better understand the need for it. ”
In sum, you need technocrats that can stabilize and smooth revenues, while also convincing the general public of the need to sequester assets for the purpose of development. Hey, that doesn’t sound too hard!