The discovery of new non-renewable natural resources, such as oil, natural gas, and minerals, has often been viewed as a sure-fire foundation for national development. Those countries lucky enough to strike black gold, or gold itself, see themselves as having taken the first important step on the road to prosperity. Therefore, it is not surprising that many have placed their hopes in resource exploitation as the means for lifting out of poverty a large proportion of the 2.7 billion people (nearly half of the world’s population) who live on less than US$2 per day.

Natural resource deposits have undeniably brought prosperity to countries such as Norway and Iceland. Unfortunately, most resource-rich countries do not see economic development follow their natural wealth. Rather, relatively resource-poor regions such as East Asia have grown much faster than countries in Latin America, Africa, and the Middle East that have considerable deposits of oil, natural gas, and minerals. Recent studies show that even after controlling for income and other factors, oil- and mineral-dependent countries generally have higher poverty rates, income inequality, child mortality, and child malnutrition than those that are not dependent on such income sources. These countries, identified by their high ratio of exports of a single commodity to total exports, also spend less on healthcare, have lower enrollment in primary and secondary schools, and have a higher incidence of political corruption. They are more likely to have authoritarian governments, large sovereign debts, high military spending, and civil wars than countries without significant natural resources. Finally, there is a growing consensus among economists that in all but the most transparent and industrialized nations, the discovery of natural resources has tended to have a negative impact on growth. Juan Pablo Pérez Alfonso, a founder of the Organization of Petroleum Exporting Countries (OPEC), summed up these trends when he said, “I call petroleum the devil’s excrement. It brings trouble. Look around you. Look at this locura [madness]—waste, corruption, consumption, our public services falling apart. And debt, we shall have debt for years.”

However, the achievement of high human development indicators in some countries, such as Norway, has been enabled by services funded in part through natural resource exploitation. Human development is defined by expanded capabilities of individuals to make choices about the life they wish to lead, and indicators of human development include not just gross domestic product (GDP) but also measures such as life expectancy, literacy rates, and political freedom. Access to education, healthcare, and discursive political processes raises these indicators. Nevertheless, most oil- and mineral-dependent countries have, in fact, not fared well by human development indices. As the accompanying figure shows, many of these countries have very low Human Development Index (HDI) rankings. The HDI, developed by the United Nations Development Programme, combines data on per capita income with data on healthcare and education and is available for 174 countries. In a recent study, even after controlling for per capita income, a five-point gain in mineral dependence resulted in a 3.1-point decrease in the HDI rank.

Abundance in oil and mineral resources is associated, to a substantial degree, with low human development indicators, high income inequality and poverty rates, and depressed rates of economic growth, because the discovery of oil and mineral resources often fuels internal corruption and conflict, encourages unethical corporate behavior, leads to the violation of human rights, and results in environmental degradation. These trends do not mean that oil and mineral wealth necessarily lowers human welfare. The opposite can be true if the following requirements are met: first, those who are affected by resource exploitation must be consulted; second, successful resource exploitation must tangibly benefit citizens; third, a pre-determined set of environmental criteria must be met; fourth, all transactions must be transparent; and fifth, efforts must be made to promote democracy if the previous four criteria are to be consistently achieved. While advances have been made, there remains much room for further progress.

Internal Corruption and Instability

The tendency of oil and mineral resource discovery to fuel internal instability and corruption is what has led some to term these resources as a “curse.” This assertion seems justified, as the list of states—both semi-democratic and authoritarian—that have declined substantially after discovering oil or mineral resources is nearly as long as the list of those that are resource rich. Of course, not all countries face decline after this discovery, but the list of those afflicted includes Nigeria, Venezuela, Equatorial Guinea, Gabon, Angola, Algeria, Congo-Brazzaville, Kazakhstan, Yemen, Saudi Arabia, Liberia, Papua New Guinea, and Sierra Leone. This paradox can be explained in a number of ways.

One explanation is what economists term “Dutch disease” after a phenomenon observed in the Netherlands following the discovery of natural gas, whereby natural resource discovery leads to deindustrialization and dependency on a single commodity. Some have argued that the trade policies of developed nations contribute to this phenomenon—while unfinished products often have no tariffs, finished products that could be created from mineral resources or oil, namely plastic, often face prohibitively high tariffs. This prevents the creation of local industries that add value to raw materials, which in turn prohibits export diversification and economic growth.

However, economic decline can also be ascribed to the irresponsible and corrupt state practices that often occur after natural resource discovery, not just to Dutch disease and the trade policy of developed nations. For example, resource discovery tends to upset budgets by creating the perception that the state is richer than it really is. Oil discovery led to the extravagant construction of Nigeria’s artificial capital city and to the maintenance of more than 20,000 expensive Saudi princes. Such practices are not sustainable during cyclical slumps, yet prove difficult to cut back for political reasons. Thus, they lead ultimately to substantial external debt.

Moreover, oil or mineral resource discovery generally increases incentives for state corruption. Since the death of Nigerian President Sani Abacha in 1998, authorities have seized more than US$2 billion wrongfully gained dollars from the Abacha family, along with 34 mansions and 54 luxury cars. Meanwhile, Nigeria remains among the poorest countries in the world. Corrupt rulers, including those in semi-democratic states, may also use resource moneys to placate the army and bribe opposition, as has been the practice of Venezuelan President Hugo Chávez.