Maximizing the Gains from Natural Resources

Abstract

Africa is rich in natural resources. The region boasts of over 10% of world reserves of oil, about 40% of gold, 90% of chromium and the platinum group of minerals, extensive fisheries, forests, as well as vast tourism resources which can support economic development. Evidence on the role of natural resources in fostering sustainable development is mixed: While some resource-rich countries have succeeded, some have not yielded the full benefits of natural resources. In the case of Africa, benefits from natural resources have remained rather below potential, with resource-rich countries failing to sustain strong growth rates for longer durations. This has raised some questions about the prospects of Africa’s development paradigm in light of its resource abundance. What needs to be done to maximize the benefits of natural resources for sustainable economic development? This chapter analyzes the potential role of natural resources in fostering economic development in Africa. We argue that natural resources can foster economic development if right strategies and policies are implemented throughout the value chain of natural resources: from discovery of natural resources, extraction, and management of natural resource rents. Using evidence of some countries which have benefited from natural resources, we argue that successful leveraging of natural resources for sustainable economic development requires development of strong institutions for efficient and effective exploitation of natural resources; sound fiscal policy management including fiscal expenditure rules; as well as establishment of resource funds, particularly sovereign wealth funds. Policies supporting economic development in Africa have to account for the relative rich presence of natural resources.