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Resource blessing should stimulate economic growth

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THE reasons why some countries with abundant natural resources are poor have to be unpacked and possible remedies explored. The trend has been that a country bestowed with immense natural resource wealth such as oil, diamonds and others, tends to over-rely on that resource and under-invests in other sectors of the economy. This exposes the country’s economy to the volatility of commodity prices. When commodity prices fall, revenues also fall and many extractive industry projects become less viable. In periods of high commodity prices there is a windfall – which has not always been put to productive use.
Currencies of resource-rich nations tend to strengthen, which is not good for exports from other sectors such as manufacturing. A strong currency means the exporting firm’s goods will be expensive to foreign buyers who may then look elsewhere for less costly sources. Again an out-sized reliance on natural resources often blunts innovation and productivity in other sectors of the economy. These negative effects are known as the Dutch disease. When benefits from resources flow into a few hands due to corruption or poor distribution, conflict usually ensues. Such pitfalls have been witnessed, in varying degrees, in many oil-rich countries such as Saudi Arabia, Iraq, Nigeria, Libya, Algeria, Sudan, Angola and Equatorial Guinea, among others.
Another pitfall is that the abundance of natural resources often attracts undesirable characters to politics according to University of Iceland’s professor Thovarldur Gyfason in the article “Oil-spill economics – a crude national curse” with reference to oil-rich nations. These include people who are corrupt and have political power. Such people are bent on siphoning state funds to enrich themselves at every available opportunity. Professor Gyfason singled out Norway as an exception which he referred to as the most successful oil-exporting country because it was already a fully-fledged democracy when it discovered oil in the late 60s. However, Norway also had a developed shipbuilding industry and tertiary education institutions which helped shorten the learning curve to develop oil industry skills. With a population of only 5 million people, Norway has one of the world’s largest sovereign wealth funds which is prudently invested in domestic companies and foreign markets.Advertisement

However, without dealing with corruption and lack of national vision, there will be poor investment decisions on resource proceeds leading to poverty, despondency and conflict in resource-rich nations. Institutionalizing good governance systems – i.e. well-defined government policies, clear rules and regulations, strong corporate governance structures at company level for all players including state-owned-enterprises (SOEs), stringent anti-corruption measures, appointments based on merit (skills, talent), among others, is imperative. This should help bring resource revenue into the mainstream economy. Many governments, through SOEs have significant or majority stakes in strategic mining companies and are therefore well placed to receive windfalls as production and commodity prices rise.
Part of resource proceeds and rents (taxes, royalties) should be transparently invested in a sovereign wealth fund. The other part should be deployed wisely to areas where they create the most sustainable national value. Focus areas include financial support to: – industry (including R&D in niche areas), small and medium-sized enterprises (SMEs), infrastructure, agriculture and increasing and capacitating tertiary and vocational education and training institutions that create skills for productive sectors (i.e. manufacturing, agriculture, mining, construction and tourism industries and SMEs).
All these will promote sustainable development as reliance on a volatile resource-revenue stream stifles economic growth. Risk is therefore prudently spread through promoting other sectors that have a greater impact on economic growth and employment creation. Local companies should increase productivity and build capacity to supply goods and services to mining companies. Additionally, resource-rich nations should work towards beneficiation of minerals before export as this has two advantages. Firstly, more and better paying jobs are created locally and secondly, greater export revenue will be realized compared to exporting unprocessed minerals.
To cap a successful resource governance regime, inclusiveness – a shared economic growth – should be prioritized. With respect to uplifting the poor and marginalized groups, the approach needed, as captured above, is three-pronged: provision of education and training (build schools and vocational training centres), health care (hospitals) and importantly, capital for their income generating projects or SMEs. Large mining companies operating in rural communities should consider this approach. The result will be an educated, skilled and healthy people earning a living in a sustainable way.
A rich resource endowment is generally a blessing. Problems arise where there are weak governance systems. Reports of cases where senior state officials received kickbacks for granting of mining permits and governments being fleeced through shady deals have made headlines in many resource-rich countries. It can be argued that it is a leadership curse – as characterized by mismanaging anything good – that bedevils many resource-rich countries. However, many governments of resource-rich nations are cleaning up their acts as citizens demand transparency and economic growth.
Now, in nearly all provinces in Zimbabwe, there are mining activities, including small-scale and artisanal, taking place. An historical indelible mark which is present in all these areas, some of which is now buried under overburden, is some old disused gold mine shafts, built and mined by Germans probably a century ago. The Portuguese, indigenous people and others also had mining operations in some of these areas centuries ago, but not at the scale and sophistication of the Germans. Local people have knowledge of this history passed down through generations. That said, the clever lot filled their coffers with our bullion years back. And like their colonial British counterparts, they invested their loot wisely back home – in research institutions of science and engineering, universities, industrial parks, businesses and superb infrastructure and have never looked back. This, however, is now in history’s dust bin.
What should seize our mindsets now as Africans and Zimbabweans in particular is how to navigate the current and future choppy waters of economic advancement and bring prosperity to our nations, having learned from humanity’s past shortfalls and successes. Resource-rich Africa will bring even bigger and better benefits to its people through improved resources development, governance and prudent investments. But herein lies the dangers:
(1) In many instances, lack of visionary leadership on the economic development front and
(2) Foreigners and others who, out of self-interest, tirelessly want to control or influence resource-rich nations.
Examples of the latter include unwarranted negative publicity blitz to spook investors and tourists, vexatious economic sanctions and clandestinely supporting warring bandits and rebel militias like Renamo (Mozambique) and M23 and others (DRC). The preoccupation of these groups is to destabilize governance of those countries and loot minerals, while committing hideous crimes e.g. raping women and causing untold suffering, poverty and loss of life.
All that said, we have to move a notch up in our thought processes as Zimbabweans. Now is the time to develop robust capabilities to relentlessly advance our economic transformation, fully embracing technology, good governance systems and investor-friendly policies. In the process, dumping all legacy self-defeating tendencies of corruption, obsession with self-preservation, lack of self-esteem and a low national pride, while instilling values of strong work ethic, merit, self-belief and national pride.  A relentless drive for beneficiation and productivity in our primary industries – mining, agriculture and forestry – should lead to setting up of domestic processing and manufacturing plants.
However, overtime government should rationally re-evaluate the indigenization policy’s limit on foreign ownership in large capital intensive projects. This could be based on the value of investment capital attracted to the country under this policy compared to capital flows to other SADC countries. Informed by such an unbiased evaluation, pragmatic policy adjustments, if necessary, can be made as the objective is to have outcomes with broader and better benefits for the populace i.e. massive employment creation and economic growth. There is need to beef up the Geological Survey Department or Zimbabwe Mining Development Corporation (ZMDC) so that they can efficiently carry out the long overdue mineral exploration across the country employing the best talent and technology available.
The resource sector is cyclical, with periods of high and low commodity prices resulting in windfalls and possible losses as the cycle runs. Our best talents should be attracted and employed to drive the exploration, development and production of our resources both in State and privately- owned mining enterprises. And, through competitive government policies, we can attract further foreign direct investment. Only then can higher values be captured through rents (taxes and royalties) and dividends from SOEs, for meaningful investments, including sovereign wealth fund, to take place. A competitive and thriving resource sector will be a major boost for the Zim Asset program.
Examples of success stories include Norway (effective resource development, value capture and deployment to achieve sustainable development) and South Korea (from a rice-growing champion to an industrial giant and world technological leader). Roughly, only forty-five years ago, these countries where probably behind what Zimbabwe is today in terms of economic development. Leap-frogging is the art to master. Our ability to achieve greatness as a nation is interlocked with our vision. Vision is always tested by a deluge of tribulations. Our (economic) vision will come to pass. This is an indisputable success principle given to us by God!
Noel T Ngangira is a consultant with a focus on the resource sector and corporate finance. He can be contacted at ntngangira@gmail.com