Is Africa resource rich?

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I took this photo while interviewing gold miners in Liberia this summer. They are literally pulling this stuff out of the ground in the thousands. The fellow on the left is sifting out his weekly income (read: drinking money)–a few grams of gold dust.

OECD nations have $123,000 worth of wealth under the average square kilometer of soil, in spite of the fact that they’ve been pulling wealth out of the ground for 200 years.

Now turn to Africa, the new cradle of diamond, gold and oil wealth. What would your guess be? More or fewer sub-soil resources?

That’s the question Paul Collier put to the audience last night at the opening of Growth Week. (To the credit of LSE, they have already posted Collier’s talk as an MP3. Check it out.)

To Collier’s question, 95 percent of the audience voted ‘more’, and 95 percent (including a large number of prominent development economists) were wrong.

The average wealth per square kilometer in Africa: closer to $23,000.

As Collier pointed out, we weren’t completely in error. The $23,000 figure comes from known resource wealth. This suggests that another $100,000 is probably lying under the average square kilometer in Africa.

That’s right. Think the ‘resource curse’ is bad now? Wait until known resources multiply by six.

He relates a conversation with the Sierra Leone government last week, days after the sudden discovery of oil. “Now you have diamonds and oil,” he said. “You can be like Angola!”

What’s a nation like Sierra Leone to do? Collier outlines several steps: discover your resources before the private companies do, design your tax policy to capture the profits for the public, invest the profits in capital and infrastructure, and try not to screw up the macroeconomy.

Easier said than done. But some nations–Botswana comes to mind–have managed the task.

For concrete options, Collier points us to the Natural Resource Charter, the product of a number of prominent operators and academics. Worth checking out.

14 Responses

  1. The thing that is never discussed, is how much mineral wealth is actually under African soil per square km, that can be mined/extracted easily, as compared to other areas, for example Europe. I think a lot of people are fooled by the geometry of Africa, because it is so huge and the way it is shaped, to think there must be more resources there than is the case.

    It may be resource rich in total terms, but is it the case in relative terms, too?

    I would like further study done on this. Africa will certainly have trouble bringing freshwater to the interior zones [landlocked and no navigable rivers]. Water supply is crucial for most types of industry. There is a lot more to sustainable infrastructure development than simply land space.

  3. I think it’s important to understand that nations need advice as to how to best use the resources they have as well as discover the ones they don’t even know that they have. A small investment and a little advice can go a long way towards making a brighter future for a lot of people as well as a profit to go with it. I know I may sound a bit idealistic, but I think that is the way to a better future for all.

  6. Ghana is centre stage right now for how an African nation will handle it’s newly discovered oil.

    The Nigerian example is dismal, the Botswanan example better. But on the ground in Ghana there is not much hope that the populace will benefit in any significant way. Will the money be used to build roads, hospitals and better equip schools? If not, everything is academic as it won’t help.

    Sierra Leone with it’s volatile history has even less chance of harnessing this resource for the benefit of it’s citizens…

    Sorry to be so negative – but time will tell…
    Cheers
    Holli in Ghana

  7. The moral of Collier’s question is that clever people ask silly questions and try to base silly points on them.

    I am struggling to see the point. Maybe because I’m from one of the countries of the bottom billion.

    I would have thought that the conclusion to be made from Africa having fewer natural resources than the OECD, is that this might explain why the countries are poor anyway.

    There’s a tendency to quote, for example, how much Nigeria has received from oil in 50 years, always giving the impression that it’s an astronomical sum of money.

    That’s amazing to me, because the sums of money involved are patently low. Paul Collier commented in his talk that about Sierra Leone that the country had received so much from diamonds and remained poor.

    Maybe, just maybe Herr Collier, it might be because the money the country has received is meagre compared to how much would guarantee bounteous life for the Sierra Leonian populace.

  8. An econ prof I had once told us that the U.S. does have large oil supplies aside from those in Alaska.

    They just happen to be under Manhattan.

  11. I was there, and I think an interesting point was raised by the ghanaian economist about how they were consulting norway on its investment model. This is despite what paul collier is saying about how resource revenues should be invested on income and productivity generating activities, rather than international financial investments. Ghana had recognised this, but still followed the norwegian model, because that’s what everyone else did. Which I think exemplifies one of the problems of political change that is always encountered.

  13. Were you at his talk in London? How did you like it? “Easier said than done” puts it very mildly… where was the political economic side of it? Does Collier really think African countries don’t KNOW that consuming resource rents is not optimal? Is the issue really how much to save and whether to save it outside the country or invest inside (if government were ever successful at that)? Isn’t it rather a rational choice not to act that way by those that are in charge?

    To me, Collier left out these much more important aspects. Then again, the audience was maybe the public and politicians that need a pointer to the problem in general.

    I found it interesting that the Ghanaian discussant said that the countries in Africa should 1. discuss these issues with their own people rather than external experts and the public in the developed world, 2. move beyond “symbolism” like EITI (and I add: the Natural Resource Charter).

    1. There is a robust civil society movement across Africa (supported by one of the Charter drafters, the Revenue Watch Institute) and other oil, gas and mineral producing regions called the Publish What You Pay campaign–www.publishwhatyoupay.org. PWYP activists have been pushing for greater transparency, accountability and economic management in resource rich countries for more than seven years, and EITI–with its mandatory requirement for civil society participation–has been one of their most successful vehicles for forcing authoritarian governments and western companies to sit at the same table with them for the first time ever in places like Kazakhstan and Gabon, and listen to their concerns. It is by no means a perfect initiative, but there is strong interest and demand emanating from these countries–not just the developed world–to use EITI as a toehold into broader public debates about resource governance and mismanagement. One of the biggest obstacles for activists in places like Ghana where people want to effectively participate in dialogues with government on natural resource governance and management is that the subject matter is highly technical and work to establish global best practice beyond Norway’s almost sui generis model is scant. The resource charter is one of the first attempts to assess what works and what doesn’t from the perspective of a developing country with weak institutions and low capacity. Activists, economists and academics from producing countries around the world are being consulted in its creation, and the point of the charter is exactly to enable the kind of informed, locally based, participatory discussion being suggested. There is surprisingly little literature or case study material available looking at questions like how to assess rates of return in a post-conflict resource rich country like Liberia or Angola versus how you would assess in a more developed case like Mexico or Indonesia. Political will and rational choice are factors, but so are better informed solutions than sock your money away in an SWF invested abroad and only focus on inflation rates staying below 10% to measure how well you’re doing. The IMF and others have not been very creative in their advice to date, which is why efforts like the Charter are so important. Moving beyond symbolism requires both doing the hard work of building informed political pressure for change in these countries, and having concrete solutions at hand when policymakers in countries from Timor, Uganda, Sierra Leone and elsewhere begin reaching out for advice.