It’s quite baffling to notice that resource-rich countries have an abysmal rate of growth. There is a huge paradox out here. At a time when natural resources are scarce and invaluable, how can such an irony exist? Let’s find out.
To everyone’s surprise, the development ratios are found to be the worst in countries with huge natural resource banks. Over the years, it has been proven that,
“The more natural resources a country had and exported, the lower was their economic growth.”
Countries with feeble natural resources surprisingly grew the fastest. Countries like Japan and Korea are world class steel producers despite their complete dependence on iron ore imports.( Source: Spoonsandooks)
With the help of examples, let us understand the ‘The resource curse phenomenon’ also called as ‘Dutch Disease Syndrome’.
Venezuela has one of the largest oil reserves in the world. Yet, its economy has dwindled considerably and has one of the highest inflation rates in the world. It is one of the largest oil exporters in the world with 96% of export earnings coming from oil.
The economy has time and again become highly vulnerable to the smallest changes in oil prices. Rising oil prices springs up the economy while a fall signals doom. Currently, due to adverse oil prices, bad economic policies, unchecked corruption, Venezuela’s economy is at its nadir.
1. Overexploitation and exhaustible nature of resources
It has been noticed that the concerned countries overexploit their natural resources and fail to realize that sooner or later, they will be over.
Nauru, an island country exemplifies this point. In 1970’s, it had an ever-growing phosphate industry in which almost all the people were employed and stable. They were considered to be among the richest persons in the world. Unfortunately, it resulted in zero innovation. As years passed by, the phosphate reserves exhausted and they had nothing to fall back upon. As of now, the unemployment rate is one of the highest in the world.(Source:Vox)
2. Political dysfunction
As per official figures, there are about 23 countries in the world that earn around 60% of their export earnings from oil and gas and sadly, none of them is a democracy. This usually results in corrupt governments which fail to pursue sustainable growth strategies and further do not reinvest resource wealth into productive investments thus leading to a complete failure.
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3. Lack of Entrepreneurship
A booming natural resource sector gives way to higher wages in this sector. Thus, people prefer to have a secure job than venture into starting one’s own business. This ultimately leads to the death of innovation and entrepreneurship which further leads to a decreased overall growth and a feeble economy.
4. Lack of alternative sources of Income
The common problem existing in all the resource-rich economies is the absence of strong alternative sector. The countries are so satisfied with the money getting minted through export of natural resources that other sectors get neglected which is the primary reason for doom.
For example, Trinidad and Tobago is a small nation rich in oil reserves. Due to the boom in the oil industry, it became more lucrative to work in the oil sector as it offered higher wages than sectors like agriculture and manufacturing.
The country currently imports about one billion dollars of food per year. This shows how some countries focus only on a particular sector thus leading to lack of alternative sources of income.
All the resource-rich countries nations suffer from this phenomenon at some point or the other but the extent is what varies. It depends on such economies whether to use their natural resources as a boon or a bane. To keep such problems at bay, other sectors must be looked after properly and not merely neglected. One definitely doesn’t wish to become a Brazil or Nepal.
Image Credits- Google, Vox
