Escaping the Resource Curse


By Mauricio Villafuerte

(Version in عربي)

It reads like a script for a Hollywood movie—a poor protagonist happens upon an opportunity that has the potential of bestowing riches, but an evil curse threatens to spoil it all.

Unfortunately, it’s not a movie script. The scenario plays out repeatedly in many parts of the real world all the time. For many developing countries, managing natural resources and the increased revenues they bring is a tough haul.

Cue the extensive literature on the “resource curse” and the lack of consensus on how to run fiscal policy and manage budgets in resource-rich countries.

In some respects, this is like the “all-too-similar” sequel, because the tribulations associated with how to best manage natural resources, such as oil, minerals, and gas, seem to endure so that resource-rich developing countries are never quite free of them.

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Africa and the Global Economic Crisis: Weathering the Storm


By Antoinette Sayeh

Last week, my colleague Hugh Bredenkamp talked about how the IMF is helping the low-income countries overcome the global  economic crisis. This week, I want to follow this theme, but hone in more on sub-Saharan Africa. I know this region reasonably well, both from current and past vantage points. In my present role, I am the director of the IMF’s African department. Previously, I was minister of finance in Liberia and, before that, I spent a significant part of my long World Bank career working on African countries. Grappling with the kinds of economic challenges that affect the lives of millions of Africans is a passion for me.

In this first post, I want to talk about growth prospects for Africa. Let’s take a step backwards. Before the global recession, sub-Saharan Africa was generally booming. Output grew by about 6½ percent a year between 2002 and 2007—the highest rate in more than 30 years. This acceleration was broader than ever before, going beyond the typical short-lived commodity driven booms and touching many more countries. Hopes were high that the region was slowly but surely turning the corner.

Workers making footwear in Nigeria at a factory funded by Hong Kong investment. (photo: Qiu Jun/Xinhua)

Workers making footwear in Nigeria at a factory funded by Hong Kong investment. (photo: Qiu Jun/Xinhua)

Then, in a great reversal of fortune, the global economy went into a tail-spin. Initially, we hoped that the fallout in Africa would be limited. And, indeed, when the global financial tsunami made landfall, it first hit the relatively small number of countries with well-developed financial linkages to international capital markets. South Africa in particular faced difficult challenges as portfolio outflows spiked. Together with Ghana, Uganda and several other frontier markets, its currency plunged, confidence dipped, and foreign direct investment slowed.

But the impact didn’t stop there.  Falling export demand and commodity prices battered economic activity in many more countries, including oil exporters in western and central Africa, causing fiscal and external balances to deteriorate significantly. Remittances from the diaspora shrank and credit dried up. The result, in many countries, was stalled growth.

 

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