Book review: “Beyond the Curse”

We know the narrative: Foreign wildcatter shows up in dirt-poor country; said wildcatter discovers gusher; country becomes the beneficiary of untold wealth; dictator and family steals wealth; country and its populace are blighted by retarded growth. Known variously as the resource curse and the paradox of plenty, this fashionable malaise is said to be responsible for the troubled economies of places like Chad, Equatorial Guinea and Nigeria.

It’s plausible logic — and not just in the case of oil, but across commodity classes. Yet when the roustabouts show up to drill, what we typically fail to ask is this chicken and egg question: Did the curse arrive with the resource, or were the conditions already ripe for economic hell? A quick glance at the institutional successes surrounding resource finds in the North Sea in the 1960 and the 1970s, and one starts to question the assumptions underlying the storyline.

With hard (and soft) commodities trading at remarkably high benchmarks, the resource curse is back in style over at the International Monetary Fund, which fleshes out the subject in Beyond the Curse: Policies to Harness the Power of Natural Resources, a volume of essays edited by Rabah Arezki, Thorvaldur Gulfason and Amadou Sy. The rationale behind continuing to study curse theory is valid enough: Again and again we find producer states failing to work out how to cash in on the bonanza flooding their coffers without skewing and contorting their economies. The puzzle applies as much to a politically beleaguered but oil-rich Middle East as it does to a chronically underdeveloped but resource-laden Africa, not to mention recently liberated Libya. It confronts developed economies in Europe, learning to manage the wealth from dwindling resources more carefully; BRIC states like Brazil and Russia’s Vladimir Putin, who is challenged to do better the second time around to enrich the Russian people — not just the oligarchs – along with the rising behemoth China, which is viewed with suspicion for its investment in resource-rich states. A natural gas boom in Australia has people coping with the effects of an overpriced Kangaroo dollar.

The book takes us on a tour of states with symptoms of the affliction, all with the aim of keeping it from striking one of the world’s hottest new boom regions — the lower two-thirds of the African continent. Case studies draw on Botswana, Chile, Malaysia, Mexico and Norway among others to distil past experiences into a coherent message for sub-Saharan Africa. Considering how many petro-rich countries have squandered their wealth, the answer, say these scholars, is not very complicated: Carefully manage your money with a balance of domestic spending, long-term investment and savings. Oh, and it is best if all of this is handled by the private sector.

Yet is it all so clear? While delivering that consensus message, the authors proceed to add detail to the picture with a disorienting montage of fiscal, monetary and exchange rate policies, involving volatility buffers, economic diversification and institution building — all pushed as potential inbox issues. These can be implemented (or tinkered with) across African ministries — in theoretical terms. Unlike the simpler prescription seemed, they are considerably harder to get right in practice.

Indeed, when economists begin parsing the conditions, the reasons for the resource curse become less clear, as do any prospective solutions. For starters, the prospect of applying Norwegian experiences to Africa seems far-fetched. Africa’s underlying political stability is lacking, diversification is far easier said than done, and shocks from outside events are hard to manage, as is economic instability arising from with sudden windfalls of wealth. Striking an equitable balance between private and public ownership and production of resources inevitably ends in tears. Telling African states not to splash newfound commodity cash on restive (low income) populations is an easy gospel to preach from afar, but not a sermon that many will want to hear. Even Middle East states aren’t falling for that one. The likes of Venezuela, Bolivia, Mexico and indeed Central Asian players are no different as far as flittered oil receipts from the 2000s are concerned. More perceived political risk is normally the end result.

Whether you’d even want to translate lessons from Algeria to sub-Saharan Africa, as Mohammed Laksaci (Governor, Bank of Algeria) suggests in one chapter, is another question. The state-owned oil company Sonatrach is hardly a shining example of transparency or anti-corruption measures, nor indeed a bastion of contractual stability (a recurrent theme noted here as a smart African move). Thus Laksaci’s contribution stands out as a weak link. His corresponding number, Chile’s José De Gregorio, makes a better fist of explaining copper management in Santiago.      

This collection marks a welcome addition to the growing body of resource curse literature, but it’s likely to remain just that. There is no united narrative, and amid the twists and turns of well- researched cases, the book lacks the serious policy or political punch that get policymakers agitated, or indeed recommendations that can be carried forward into practice. While it’s eminently true that there is no simple explanation nor answer to what makes resources a blessing rather than a curse, Beyond the Curse doesn’t really get us any closer to what critically needs to be done to accomplish the goal of its subtitle. The authors seem aware that they are mixing policy apples with political pears in Africa, with their guarded and sometimes academic language, and theory-driven case studies that never quite translate into practical political advice.

At this point in the history of the curse theory,  we would have liked to see a serious re-examination of its precepts. Here, the fixation is always on what goes wrong once natural resources are found and institutional stability slips, and so the resource becomes the trigger for the curse. Corrupt practices and resource mismanagement play out accordingly, and "institutions that limit rent-seeking behavior then need to be put in place," one author writes.

Yet what if that institutional instability was inherent before resources were found and contracts signed? It’s pretty simple: If institutions were duds in the first place, then structural dependency will only worsen once commodities take pride of place in economic structures. I.E., the causality here may very well be not from dependence on poor institutions, but from poor institutions on greater structural dependence. Human flaws will always flourish where institutions don’t work; commodities merely add (or subtract) to the numbers entailed.

Such an inquiry might yield very different — and potentially disturbing — policy answers down the line. Get it wrong, and new resource-holders in East Africa will rapidly resemble West African players. The same could befall OECD and non-OECD states with vast swathes of unconventional resources. In that case, forget being beyond the curse.

Matthew Hulbert and Bas Percival are researchers at the Clingendael International Energy Programme in The Hague