Dimensions of the Oil Curse A Framework for Assessing Africa’s New Resource Producers Dr. Robert Looney Naval Postgraduate School relooney@nps.edu

Oil Curse Overview Several generalizations are possible concerning the oil or resource curse Economic performance among those with oil, mineral or agricultural resources Tends to be no better than among those without, And often worse Long run patterns suggest that more often than not when fuels, ores and metals exports increase as a proportion of merchandise exports, GDP growth declines This pattern is not inevitable, with many countries finding oil/resources to be a blessing rather than a curse. A good analogy is the lottery winner. In the past many African countries have had many symptoms of the oil curse – not inevitable that this phenomenon will characterize the future.

Patterns of Long-Run Growth

Channels of the Oil Curse At least four main channels through which the resource curse has harmed an economy. The African countries under consideration have, at one time or another, experienced each: Pro-cyclical fiscal and monetary policies Crowding out of manufacturing High volatility of commodity prices Deterioration of governance and supporting institutions All or combinations of these factors can lead to: Unsustainable growth – bubble economy Wasteful public investment programs An over expansion of the public sector Destruction of the agricultural sector Lack of competitiveness outside the oil sector Underdevelopment of the private sector High levels of chronic unemployment

Variants of the Oil Curse Main element separating the oil curse and oil blessing countries is the relative level of governance Many aspects of the oil curse are captured in the Legatum Institute’s Prosperity index which has eight dimensions Two of these dimensions separate the oil countries into three separate environments: Economy Five year growth rate (2000) Confidence in financial institutions (% yes) Satisfaction with living standards (% yes) Governance Confidence in the government (% yes) Confidence in the judiciary (% yes) Government Effectiveness (World Bank)

Diversity of Oil Economies

Oil Economies: Patterns of Governance

Oil Economies: Diversification