The Resource Curse

Striking gold or discovering oil would seem to guarantee instant fortune. Instead, it often leads to conflict, corruption and poverty. History is full of examples of countries whose natural-resource wealth led to less economic success. Revenue from extracting raw materials might be mismanaged or embezzled by government officials, or siphoned off by foreign corporations. The bonanza might crowd out investment in other parts of the economy and make goods and services more expensive. And the country’s fiscal and economic fate might hang on volatile global commodity prices, especially for smaller and less diverse economies. All told, local populations can be left with little to show for their resources except a degraded environment. Economists and social scientists call this phenomenon “the resource curse.” Many countries are trying to determine how to prevent or reverse it.

For a decade, momentum has been building behind international efforts to prevent corruption and improve management of natural-resource wealth through greater transparency. Fifty-one countries are in various stages of adopting a voluntary system that involves auditing corporate payments to make sure they match government revenue. In the U.S., however, President Donald Trump is headed in the opposite direction: In February, he signed a measure revoking a U.S. Securities and Exchange Commission rule that would have required publicly traded energy and mining companies to disclose payments made to governments for access to natural resources. Trump's secretary of state, Rex Tillerson, had personally lobbied against the regulation as head of Exxon Mobil Corp. Canada and the European Union have adopted similar rules, aimed at uncovering the corrupt practices that can keep citizens from sharing in the wealth of their countries' resources. The average incomes of African countries, including Angola, Nigeria and Sudan, are low and their health indicators are poor, despite their abundance of oil, diamonds and other precious minerals. While oil exports prop up extensive welfare spending in Middle Eastern petro-states, they remain vulnerable to price swings and their people subject to undemocratic regimes. Brazil continues to grapple with corruption and vast, dangerous slums, though it's rich in resources as varied as oil, iron ore, coffee and soybeans.