Debating the real curse behind Africa’s resource wealth

Africa, with its 54 unique countries, is rich in natural resources. According to David Hale, economist and founder of David Hale Global Economics, the continent produces 74% of the world’s platinum, 62% of cobalt, 54% of diamonds and 11% of oil, to name a few.

However, despite this mineral wealth, Africa remains the poorest continent in the world. During last week’s Investing in African Mining Indaba in Cape Town, a number of economists, policy makers and mining companies discussed this contradiction, alongside the notion of a resource curse in Africa.

Economist and Rhodes University professor, Gavin Keeton, said a lot of the thinking surrounding the economic theory that a country’s resources can negatively impact its growth and development is based on a study by Jeffrey Sachs and Andrew Warner. In their economic article, Sachs and Warner made a comparison of per capita economic growth and natural resource endowment and found a negative relationship between these.

“And this was very quickly taken up in popular discourse and I think still feeds thinking today,” said Keeton.

Dr Duncan Clarke, founder of advisory firm Global Pacific & Partners and author of a number of books concerning resources and economics in Africa, argues against the existence of a resource curse. During a discussion with How we made it in Africa, Clarke said the idea that there is a resource curse in Africa is both arbitrary, and distracts from the real issues stunting the continent’s economic growth and development.

A curse of politics

Why do some of the world’s most resource rich countries have the poorest populations? According to Clarke, relating the existence of natural resources in a country to poverty lacks “empirical, historical and intellectual grounds”. He added that if there were no natural resources in Africa, even less would filter down to the poor.

“There is no resource curse in Africa. There is a curse of politics – institutions and politicians – and sometimes vested interests which block the arteries of economic growth… But economic growth, and high rates of economic growth over long, sustained periods of time, will [lead to] rising income… on the principle generally of rising tides raise all the boats. It also requires intelligent, sensible governance, institutions, others to help articulate it.”

Mike Roy, mining and metals director for Africa advisory services at EY, told How we made it in Africa he does not believe Africa has taken full advantage of the resources lying beneath its surface, compared to countries like Australia. He added that with country boundaries overlapping many mineral reserves, African governments should look to regional solutions, although “efforts to reach those are proving difficult”.

A curse of poor policies and reliance on resources

Africa is home to some of the world’s fastest growing economies, and much of this growth is from natural resources. One argument supporting a natural resource curse in Africa is that these countries are vulnerable to revenue volatility due to global commodity market swings.