Building stronger economies in resource rich countries
Professors Tony Venables and Rick van der Ploeg from the Oxford Centre for the Analysis of Resource Rich Economies (OxCARRE) in the Department of Economics help countries make the most of natural resource income.
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Natural resources power our world. From aluminium to zinc, our global community needs these commodities to continue to travel and trade, to communicate and cure. Countries with substantial resource wealth could be in strong economic positions: selling a limited good in international markets where demand is often high. However, very few countries have managed to convert the potential of natural resource discoveries into their economic goals of long term sustainable growth and development. Oxford University research is helping to change that.
Resource rich economies face challenges in securing investment in their resource sectors, getting an appropriate share of resource revenues, and in managing spending of these notoriously volatile revenues. Natural resource abundance creates problems for economic management and for governance more broadly. Seven years ago, BP funded the Oxford Centre for the Analysis of Resource Rich Economies (OxCARRE) in the Department of Economics. Professors Tony Venables and Rick van der Ploeg lead the team to help developing countries test the assumptions of traditional economic theory on natural resource management. This theory often doesn’t reflect the reality that many countries, particularly lower income ones, face. For a country to successfully manage a new income stream, their economic plans must reflect a constantly changing set of influencers.
One of the Centre’s areas of work has been on how countries can best spend revenues to benefit their citizens. Put simply, a country needs to decide how much to spend in three areas: current spending, domestic investment, and overseas investment. Many countries have wasted revenue on current spending, while some policy advice has been inappropriately conservative, urging countries to save funds offshore by making overseas investments. The Centre’s research has developed country specific principles for making these choices, highlighting the importance of domestic investment to get development going. These principles have been widely accepted and have altered the policy advice given by the IMF amongst others.
More broadly, OxCARRE’s work has influenced national and international policy makers’ approach to resource rich developing countries. It focuses on the domestic economy, long term investment in physical and human assets and on developing systems to protect the economy, and citizens, from volatile markets. In the context of developing countries, OxCARRE’s support and guidelines, and their commitment to working closely with stakeholders, reveal the benefits of using resource wealth for investment in domestic infrastructure.
OxCARRE provides the economic thinking that underpins the Natural Resource Charter, a global initiative designed by economists and policy experts to help the governments of resource rich developing countries manage their new found wealth in ways that are economically sustainable and that “provide a pathway out of poverty”. It works with countries to develop policies that unlock the benefits of their resources, and to avoid potential problems. The Charter has been endorsed by the World Bank, the IMF, Norway, Australia, Zimbabwe, the African Development Bank and the African Progress Panel. It constitutes three groups: one group focusing on the country’s domestic structures, how to manage resources in a sustainable way, and the interplay of national and international actors. Economics and politics sit comfortably together: The Charter requires transparency and accountability, which is often a big step for any state. Nigeria already benchmarks its performance against the Charter, more countries are likely to follow suit.