IMF Survey: Resource-rich Countries Can Learn from History, Says Collier
IMF News, September 27, 2011
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- Published: September 27, 2011
Natural resource revenues — historical risks and opportunities
- Low-income countries rich in natural resources have historically performed worse economically than might have been expected, falling prey to conflict, corruption, or overdependency on a single resource.
- History of resource extraction in Africa described as “a history of plunder”; societies can avoid repeating mistakes through “social learning.”
- Commodity prices are high, and “over the next decade that will trigger a lot of natural resource discovery in Africa.” Capturing and harnessing those revenues could allow Africa “to finance its own development.”
Policy instruments and fiscal management
- Recommendation to smooth spending to avoid booms followed by crashes:
- Save in good times and pull money into consumption in bad times.
- Create institutions that “ride the tiger of commodity prices.”
- Proposed funds:
- “Sovereign resilience funds”: put money in when there is plenty; withdraw when there is not.
- “Sovereign development fund”: finances schools, ports, hospitals, roads, power stations to build a more productive future.
- Emphasis on allocating substantial resources to building productive infrastructure; Africa has been “starved of economic infrastructure.”
Diversification and investment strategies — country examples
- Botswana:
- Has done “a splendid job of riding the tiger.”
- Experienced “two episodes where its revenues from its only export—which are diamonds—fell pretty well to zero.”
- Because Botswana built up “a big financial cushion,” it could ride through shocks, even though “for several months there was no revenue.”
- Is attempting to diversify within the diamond value chain by “trying to break into the market for cutting and trading diamonds as well as just digging them out of the ground.”
- Malaysia:
- Forty years ago Malaysia “looked just like Africa”: resource rich with social problems.
- Harnessed resource revenues to invest and diversify (example: investing in Penang to transform it into “a world-beating electronics center” by building physical and social infrastructure to attract skilled people and industry).
Strategic guidance and practical considerations
- No single country to copy:
- Most rich countries were never natural resource rich; their development strategies differ.
- Canada and Australia are not good guides for Africa because they “save their money abroad” having already accumulated large capital stocks; Africa needs to “save its money at home” and invest within Africa.
- Distinctive challenges require distinctive policies; guidance source mentioned:
- The Natural Resource Charter (naturalresourcecharter.org) is cited as independent guidance on the decision chain from discovery and taxation to investment and saving.
- The Charter’s board is described as “entirely southern” and headed by Ernesto Zedillo.
Key takeaways (bullet points Collier emphasized)
- Find a balance between present consumption needs and future investment.
- Smooth public spending across commodity cycles through resilience and development funds.
- Allocate substantial resource revenues to building productive infrastructure.
- Use resource revenues to diversify the economy where feasible and context-appropriate.
- Recognize country-specific constraints (e.g., landlocked status) when designing diversification strategies.
IMF Survey online, September 27, 2011 — Interview with Paul Collier