Sustainable development in Africa
Figure 1 shows how the exchange rate is increasing over time due to a booming resource sector. 1 As a result, other sectors like manufacturing and agriculture, become less competitive. This further leads to economic differences which can halt growth in other areas of the economy (Corden 1982). Politically speaking, this resource curse can lead to poorly structured institutions and increased corruption levels because the revenue generated is often kept by elites for
Figure 1 - Dutch Disease
their own personal gain, reducing incentive to build stronger institutions (Mehlum 2006). This further leads to a lack of transparency which can spark inefficient resource management and lead to widespread corruption which in some cases can cause civil wars, as in Sierra Leone. On the other hand, Norway, a higher income country located in Europe has successfully managed its oil through robust governmental institutions. They implemented a government pension fund that ensures all revenue generated via oil is saved and invested for future generations. This shows us that with the appropriate management, the resource curse can be avoided (Humphreys 2007).
In summary so far, although the resource curse can present challenges, these are not inevitable. With the help of good governance, diversification of the economy and better management of natural resources, countries can use their wealth of resources towards achieving sustainable development.
Nigeria is known for being one of the largest oil producers across the world but also acts as a standard example of the resource curse. Despite being wealthy in oil, the country has still from time to time struggled with economic instability, corruption and a lack of development. Also, a lack of robust infrastructure regarding the management of their oil has led to crises, such as the infamous Bodo oil spill, which occurred in 2008 when a Shell pipeline spilled around 560,000 barrels of oil onto the land. 2 Nigeria is heavily reliant on oil making them more vulnerable to disasters like these. Also, when there are fluctuations in global oil prices this also affects their economy, leading to volatility (Ross 2012). Widespread corruption has also played a part with the oil revenues not being managed appropriately and money being diverted away from key public sectors like education, healthcare and infrastructure, instead going into the pockets of elites. (Collier 2010). Economically, Nigeria’s resource curse can be explained using the Dutch Disease Model, as shown in figure 1. An over-reliance on oil revenues has led to the Nigerian Naira (their national currency) appreciating, making other key sectors like agriculture and manufacturing less competitive. This has halted diversification in the economy and is a key role of Nigeria heavily depending on oil (Auty 2001). This helps us visualize the importance of diversifying the economy so there is less or no dependence on just one resource – this resource could become scarce and pose problems for the economy. Without
1 PPT - Dutch Disease, Ecotourism and Development Funding. PowerPoint Presentation - ID:3342446 (slideserve.com). 2 International case study - Shell | Leigh Day.
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