INTERNATIONAL POLICY CONFERENCE “COMPETITIVENESS & DIVERSIFICATION: STRATEGIC CHALLENGES IN A PETROLEUM- RICH ECONOMY” Managing Natural Resources for Development 14 – 15 march 2011, Accra, Ghana Kamil Kamaluddeen

United Nations Development Programme

Structure I. Avoiding the Resource Curse II. Investing for Human Development III. Learning and Developing Capacity

The “resource curse?” Or a double- edged sword? Source: Pineda, J., & Rodriguez, F. (2010). Curse or Blessing? Natural Resources and Human Development. HDRO background papers..

Source: Own elaboration based on WEO data. Largest growth “accelerations” in Africa.

Avoiding the resource curse- I Break away from the “conflict trap" Break away from the “conflict trap" Strengthen governance and institutions to constrain patronage and to improve the management of public spending Strengthen governance and institutions to constrain patronage and to improve the management of public spending Mitigate the “Dutch Disease” Mitigate the “Dutch Disease”  Promote and support tradable sectors affected by appreciation of the real exchange rate. Especially agriculture.  Invest to increase the productivity of the economy, consistent with absorption capacity, and increase the import content of public spending – spending in infrastructure would do both.

Costs of volatility in Africa: collapses in growth led to income stagnation. Source: Adapted from Jorge Arbache and John Page “More Growth or Fewer Collapses? A New Look at Long Run Growth in Sub-Saharan Africa.” Policy Research Working Paper 4384.

Avoiding the resource curse- II Mitigate boom and bust cycles Mitigate boom and bust cycles  Institutionalize “stabilization funds” (e.g. Chile);  Index prices in sales to foreign companies to the international price  Consider indexing sovereign debt to the international price  Use derivatives to hedge against commodity price volatility (e.g. Mexico)

Hedging brought stability – and a windfall gain – to Mexico’s oil revenues. Source: Financial Times.

Investing for human development General principle: ensure that total wealth does not diminish – weak sustainability (e.g. Botswana) General principle: ensure that total wealth does not diminish – weak sustainability (e.g. Botswana) Distribute resources to “three pots”: Distribute resources to “three pots”:  i) physical and human capital (infrastructure; basic social services)  ii) social protection/transfers  iii) “future generations” fund

Different priorities for different levels of development Poorer countries: focus on spending consistent with absorptive capacity: might require an “investment fund” to park part of the money until capacity exists Richer countries: focus on savings to enhance welfare of future generations (e.g. Norway). i)physical and human capital (infrastructure; basic social services ii) social protection/transfers iii) “future generations” fund

Learning from other countries Shared goals of preserving social stability and accelerating economic growth; Shared goals of preserving social stability and accelerating economic growth; Credible and stable cadre of “technocrats” that interact and influence political leaders; Credible and stable cadre of “technocrats” that interact and influence political leaders; Strong constituencies outside of the natural resource sector that push for prudent and effective spending; Strong constituencies outside of the natural resource sector that push for prudent and effective spending; Link investments to explicit objectives of economic and social progress, helping citizens to understand the allocation decisions: the potential of the MDGs. Link investments to explicit objectives of economic and social progress, helping citizens to understand the allocation decisions: the potential of the MDGs. Source: Gelb, Alan and Sina Grasmann “How Should Oil Exporters Spend their Rents?” CGD Working Paper 221. Washington, D.C.: Center for Global Development..

UNDP’s contribution: developing capacity and sharing information Developing capacity to manage the technical aspects of natural resource management (regional program on negotiations already exists) Developing capacity to manage the technical aspects of natural resource management (regional program on negotiations already exists) Developing capacity to plan and implement effective spending plans (on health, education, social protection) – augment “absorption capacity” Developing capacity to plan and implement effective spending plans (on health, education, social protection) – augment “absorption capacity” Enhance information of citizens in general and especially those outside of the natural resource sector Enhance information of citizens in general and especially those outside of the natural resource sector Establish links between spending and progress towards the MDGs Establish links between spending and progress towards the MDGs

United Nations Development Programme

Importance of natural resources in Africa declining but still highest. Source: Ploeg, Frederick van der (2008) Challenges And Opportunities For Resource Rich Economies. Working Paper. OxCarre.

Investing for human development-II Different priorities for different levels of development: Different priorities for different levels of development:  Poorer countries: focus on spending to meet basic needs (water, food, and basic education and health services), basic infrastructure (roads, power, communication networks), and social protection – consistent with absorptive capacity: might require an “investment fund” to park part of the money until capacity exists.  Richer countries: focus on savings to enhance welfare of future generations (e.g. Norway).