THE BOTTOM BILLION

WHY THE POOREST COUNTRIES ARE FAILING AND WHAT CAN BE DONE ABOUT IT

PAUL COLLIER

OXFORD UNIVERSITY PRESS              2007

PART 1V

PART 2: THE TRAPS

 

Chapter 3: The Natural Resource Trap

Conflict is not the only trap. A much more paradoxical trap has been the discovery of valuable natural resources in the context of poverty. You would hope that the discovery of natural resource wealth would be a catalyst to prosperity, and sometimes it is. But these are the exceptions. Sometimes resource wealth has contributed to the conflict trap. But even where a country stays at peace it typically fails to grow; indeed, the surplus from natural resource exports significantly reduces growth. Economists term the excess revenues over all costs including normal profit margins “rent”, and rents seem to be damaging. Over time, countries with large resource discoveries can end up poorer, with the lost growth more than offsetting the one-off gain in income provided by the rents.

Curses, curses …

Why do resource surpluses mess up politics?

So is it back to autocracy?

Why is natural resource abundance a trap?

Why it matters for G8 policy

Citizens of the G8 are less likely to think “so what?” about the natural resource trap than about the conflict trap. Very obviously, failures in resource-rich countries impinge on the rest of us – Iraq is certainly an example of that. They also represent a massive waste of the money that we are paying these countries to buy their resources. As I will discuss in Chapter 7, the payments are far larger than aid, and they are far less effective in generating economic development.

Even if you do not care about the money being wasted as long as can buy the natural resources, you need to worry about the resource curse. It is commonplace that the rich world wants to shift its dependence away from the Middle East. That is where Africa and Central Asia come in. Yet it is also a commonplace that one reason why the Middle East is in such difficulties is that it has had such large oil revenues. Shifting our source of supply will not work as a security measure if the resource curse shifts with it. Becoming reliant upon the bottom billion for natural resources sounds to me like Middle East 2. Fortunately, precisely because we are intimately involved in the resource trap as its paymasters, we have instruments ready at hand to break it; we just have not got around to using them. I am going to argue in Chapter 9 that it is not mere chance that we have not tried to fix the problem; the resource trap has two ends, and we are stuck at one end of them. Each rich, resource-hungry country is locked into a prisoner’s dilemma of inaction. But first I will turn to another trap.

Chapter 4: Landlocked with Bad Neighbors

One day, while I was director of the research department of the World Bank, a young Ghanaian came to see me. He was working in the Central African Republic as the economic advisor to the prime minister. That alone tells you something about the Central African Republic – the prime minister could not find a national to be his economic advisor. The country had produced scarcely any educated people, and years of bad governance had induced these few to flee. Even the prime minister was a returned exile. Anyway, this serious-minded young man had read my work and wanted advice on what the country could possibly do to get out of stagnation. Eventually, in 2002, I paid a visit to the country, where at the airport I was met by a crew from the national television station as if I were a celebrity. That also tells you something – that nobody visits the Central African Republic. When I settled into discussion with the government, I asked them a question that I always ask when advising a government, because it forces people to get concrete and also serves as a measure of ambition: which country did they wish to be like in 20 years time? The group of government ministers discussed it among themselves for a while, then turned back to me with the answer: Burkina Faso. Burkina Faso! In fact, it was not a foolish answer by any means. The two countries share some important characteristics, and Burkina Faso has been doing about as well as possible given those conditions. But it remains dirt poor. That the realistic horizon of ambition for the Central African Republic in 20 years should be to get where Burkina Faso now is speaks of despair.

This chapter is going to be about one aspect of geography that matters for development and which condemns the Central African Republic and Burkina Faso to the slow lane. Among economists there has been a realization over the past decade that geography matters. There have been two pioneering lines of analysis in researching the importance of geography, completely different and complementary. One looks at geographic differences between places, and the scholar who pioneered this was Jeff Sachs. The other line of analysis, less intuitively, poses the question of what happens if countries all start out at the same level but some countries get in first on various opportunities. The scholars who led this work were Paul Krugman and Tony Venables. Both these sets of ideas matter a lot for understanding the problems of the bottom billion. One is going to be the subject of this chapter, and the other features in Part 3.

Sach’s work suggests that being landlocked clipped around half a percentage point off the growth rate. The standard slick response to Jeff’s concerns was to point to Switzerland, Austria, or Luxembourg – or, in Africa, to Botswana, for a long time the fastest-growing country in the world. It is true that being landlocked does not necessarily condemn a country either to poverty or to slow growth, but 38% of the people living in bottom-billion societies are in countries that are landlocked – and, as you will see, it is overwhelmingly an African problem. Because Africa’s problems are usually ascribed to its being Africa, and the rest of the world hasn’t got the problem of being landlocked, the difficulties that it generates have been underplayed.

Neigbors matter

So what can a landlocked country do?

Strategy 1: Increase neighborhood growth spillovers

Strategy 2: Improve neighbors’ economic policies

Strategy 3: Improve coastal access

Strategy 4: Become a haven for the region

Strategy 5: Don’t be air-locked or E-locked

Strategy 6: Encourage remittances

Strategy 7: Create a transparent and investor-friendly environment for resource prospecting

Strategy 8: Rural development

Strategy 9: try to attract aid

Why it matters for G8 policy

As you will have noticed, most of these strategies are not under the full control of a country’s government. It is dependent upon its neighbors, or upon international actors such as donors. Still, a good government can most surely make a difference in a landlocked resource-scarce country, even with bad neighbors. For example, governments in Uganda and Burkina Faso have sustained decent growth rates for over a decade, though some of this was recovery from damage of terrible predecessors. But I can find no example of a landlocked, resource-scarce country with bad neighbors that has made it to middle-income status. They will be stuck in poverty unless we help them far more than we have to date. How to help them is one of the questions I address in Part 4.

Chapter 5: Bad Governance in a Small Country