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Monday, 8 September 2008

Escaping the resource curse...

This report (audio version here) by Wharton University carries an interesting comment on how Angola may now be better positioned to avoid the "resource curse" from higher oil prices because it has pursued significant investments in infrastructure and policies that focuses on "moving up from the value curve" :

Kacou, who has advised government and business leaders in Rwanda, Uganda, Nigeria, Sudan and Mali, referred the audience to a chart showing the inverse relationship between various countries' "wealth" in natural resources and their GDP. (With the exception of certain countries like Dubai, which has been successful at reinvesting its oil wealth, countries with the most natural resources tend to do poorly in terms of income.) With regard to natural resources such as oil, diamonds and beaches, "Africa is wealthy," he said, "but we need to distinguish between wealth you can see and social forms of wealth," including human resources, knowledge, functioning institutions and a cultural attitude that is open to innovation and takes into consideration how natural resources are deployed. "Without the second [kind of wealth], you can't do much with the first."

Historically, African nations have suffered from what is widely known as the "resource curse" -- an inability to capture the value of their abundant natural resources. Stephen Priestly, managing director at JPMorgan and head of investment banking for Sub-Saharan Africa, noted one example -- Angola -- that has begun to move away from a mindset that allows other countries to come in and extract its resources by "moving up the value curve." Whereas many African nations like Nigeria, the continent's largest oil producer, export raw materials and often need to import the refined product for local consumption, Angola has developed its own refining capacity and now produces two million barrels of oil a day as a member of OPEC.

The effects are wide-reaching, from increased employment to capital inflows from investors like the Export-Import Bank of China, which has given Angola a multi billion-dollar line of credit for infrastructure improvements in exchange for access to the country's offshore oil fields. (Angola is now China's largest supplier of oil, with Saudi Arabia in second place.) While the situation "may not be perfect" in everyone's view -- many are critical of China's dominant role in the country's oil industry and government corruption is still considered rampant following more than 25 years of civil war -- Priestly noted that the country stands apart from many others by "addressing fundamental barriers to growth through its oil proceeds."

The Angolan government's relaxing of foreign exchange limits has led to an increase in investments in other sectors, too, including banking and real estate. Despite a more open economy, however, the country still faces "absurd levels of poverty," Priestly says. Herring noted that Angola is a classic example of "imbalanced growth," where some sectors are growing much faster than others, but that these imbalances "are creating strong incentives for the private sector to jump in and help [Angola] catch up."

Indeed, priestly said that the rapid increase in business opportunities in Angola has highlighted some obvious areas for improvement. "Anyone who has tried to do business there knows that it is impossible to get a flight or find a hotel." Basic support infrastructure -- including ports, power stations and even employee housing -- is a key area for investment growth as commodity production increases, the panelists agreed.

1 comment:

  1. Actually it is the Wharton School of Business at the University of Pennsylvania.


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