Curse of Natural Resources and Human Development
A New Perspective on Institutions
Victoria Federico - Campbell Prize
Abstract: It is well
established that natural resource abundance negatively impacts economic
growth. The resource curse literature is dominated by theories explaining
this negative economic effect. There is also, however, a negative
relationship between resource abundance and human development which receives
less attention. To explain this relationship, you must examine the
capacity and disposition of a state's institutions to foster human welfare, and
how resource abundance affects those aspects of institutions. Detailed
case studies on diamond rich countries Sierra Leone and Botswana are presented
here to provide greater insight into the relationship between resource
abundance, state institutions, and human development.
This is a shortened version of my original Honors Thesis for the Department
of International Relations, presented for submission to the Donald T. Campbell
Social Science Research Prize.
Each poor country
has its own unique set of disadvantages that steer it away from its path to
development. However, recent studies have shown that there is a subset of
developing countries that seem to have clear advantages, yet remain bogged down
by poverty. This group of countries has been plagued with what scholars
have come to call the "curse of natural resources." This is the paradox
that developing countries seemingly blessed with abundant natural resources -
specifically extractive resources - are cursed with stagnated economic growth
and underdevelopment. Abundant natural resources have helped many
developed countries reach the level of growth and development that they have
today. For example, it cannot be denied that resource abundance
contributed much to the development of the United States; the same can be said
for Norway. So then, the question is: why were natural resources a
blessing for these countries, but seem to be a curse for developing countries
Most of the study
of this conceptual puzzle is economically based - using economic logic to
explain economic outcomes. Today, however, it is clear that the focus of development
has shifted toward human welfare and basic human needs. For example,
through the United Nations Millennium Development Goals (MDGs) created at the
Millennium World Summit in 2000, the world has made a commitment to cooperate
in the battle against poverty. The MDGs target areas for improvement such
as malnutrition, education, healthcare, gender inequality, environmental
sustainability, and global cooperation. These goals serve to improve the
quality of life for all citizens of the world and eradicate extreme
poverty. The MDGs are indeed all encompassing when considering human
development as a whole and how to achieve it. However, for this paper, I
focus on the aspects most crucial and universal to human welfare and basic
human needs: poverty, education, and healthcare,
incorporating Goals 1, 2, 4, 5, and 6 that include indicators such as the
proportion of people whose income is below $1/day, net enrollment ratio in
primary education, literacy rates, child mortality, infant mortality, maternal
mortality, proportion of births attended by skilled personnel, HIV prevalence,
and prevalence of other diseases such as malaria and tuberculosis.
Therefore it is
crucial that we examine the effects of resource abundance on human development
in addition to economic development. To do this, a different theoretical
framework is necessary, one that is less economics-centric and that places
emphasis on institutions. It has been accepted by most scholars that examining
institutions is a necessity when studying development. Jameson (2006)
declares that "institutionalism has won the development debate." I plan
to exhibit that resource abundance has significant effects on a state's
institutions, specifically on the capacity and the disposition of the state to
promote human development. This paper is organized as follows: Section II
establishes the macroeconomic effects of resource abundance through the work of
Sachs and Warner, which is followed by an overview of the current literature
explaining the curse in Section III. Section IV statistically establishes
the negative relationship between resource abundance and human
development. Section V outlines a theoretical framework for explaining
the effect of resource abundance on institutions. Two diamond abundant
countries, Sierra Leone and Botswana, and the effect of resource abundance on
their institutions, are examined in Section VI. Section VII concludes.
II: Establishing the Macroeconomic
Effects of the Curse
The negative relationship between
natural resources and economic growth has been statistically proven by several
scholars in recent years. Jeffrey Sachs and Andrew Warner pioneered this
theory, producing robust empirical evidence for this relationship in several
works during the 1990s. Through statistical regression
they test the relationship between GDP growth and the ratio of primary product
exports to GDP in 1970 as a measure of resource wealth. Resource wealth
is shown to have a significant negative effect on GDP growth over a twenty year
period in their data set of 97 developing countries. Their
ground-breaking evidence is seen in their graph, Figure 1, below. The
strength of this relationship is tested through inclusion of several other
variables that effect economic growth, such as trade policy, quality of
bureaucracy, terms of trade, and the level of income inequality. After
accounting for all of these other factors, natural resource abundance still has
a significant negative effect on GDP growth.
Figure 1: Resource
Abundance vs. Real GDP Growth
Source: Sachs and Warner, 2001
The robustness of
their finding has been tested extensively, yet this correlation remains
strong. When different measures of "resource wealth" are taken into
consideration, the relationship still appears. Sachs and Warner run the
same regression while changing only the measure of resource abundance, using
measures such as the ratio of primary product exports to GDP, the ratio of
primary product exports to total exports, mineral production as a percentage of
GDP, or arable land area per capita. With each alternative measure of
resource abundance, however, there remains a significant negative correlation
between resource wealth and growth. In one of Sachs and Warner's
most recent essays (2001), they test the robustness of their finding even
further by showing that it is not, as they call it, a "statistical mirage,"
meaning that this relationship appears simply because the natural resource
sector is the only surviving sector in countries with slow growth. However,
after controlling for previous growth rates and the constant variables of
geography and climate, natural resources remain a significant negative factor
Sachs and Warner's
work on the existence of the resource curse is accepted by many others working
in this field. Bulte, Damania, and Deacon (2005); Ding and Field (2005);
Hodler (2006); Mehlum, Moene, and Torvik (2006); Olsson (2004); Papyrakis and
Gerlagh (2004); Pegg (2005); Ross (1999); and Stijns (2006) all cite Sachs and
Warner to establish the existence of the curse in their own works.
However, it is important to note that Sachs and Warner's work only proves that
natural resources hinder macroeconomic growth. Natural resource
abundance has a significant negative effect on human development as
well, but there has been significantly less work done to explain why this
relationship exists. The negative effect of resource abundance on human
welfare has been examined, however the explanations for why and how this
relationship appears are much less well-developed than the explanations for
poor economic development. The goal of this paper is to contribute to the
progression of this aspect of the resource curse theory.
III: Current Theory Explaining the Resource Curse
Although this is a
relatively new issue, there exists a fairly well-developed literature
concerning the curse of natural resources that is expanding all the time.
There exists a major division in the literature over the ultimate negative
impact of the curse. Economists focus on the negative effects on GDP
growth (Ding and Field, 2005; Hodler, 2006; Isham et al, 2005; Mehlum et
al, 2006; Sachs and Warner, 1995, 1997, 2001), while political scientists
tend to emphasize the negative effect on human welfare (Bulte et al,
2005; Ross, April 2003; Stijns, 2006). However, economists have been much
more active in this field, emphasizing the economic effects of the resource
curse and leaving the effects on human welfare to be less understood.
Before going into
a more detailed analysis of the literature on the curse, it is important to
note several issues surrounding the definition of "natural resource abundance"
that should be kept in mind. There are some scholars that contend that it
is not natural resource abundance that matters, but the intensity with which
natural resources dominate an economy. Ding and Field (2005) make this
distinction by defining resource abundance as the total natural resource
capital per capita and resource dependence as natural resource capital per
total capital. However, most scholars seem to assume that abundance and
dependence come hand in hand.
One should also
make note of the distinction between agricultural resources and
mineral/extractive resources. Most scholars focus on fuel and mineral
resources (or "point resources" as Bulte et al describe them) because
they bring about most of the effects associated with the curse.
Agricultural resources have not been found to have the same negative impact on
development. Sala-i-Martin and Subramanian (2003) find in their
statistical analyses that when you separate natural resources into oil/minerals
and food/agriculture the negative relationship between oil/minerals and
economic growth becomes even more significant, and the results for food and
agricultural resources are generally insignificant. Bulte et al have
similar findings when examining the relationship between resource abundance and
human development. Their diffuse (food and agricultural) indicator often
switches signs and is insignificant, while their point resource indicator is
consistently negative and significant. This is due to the very different
nature of the two types of resources: "oil and minerals give rise to massive
rents in a way that food and agricultural resources do not" (Sala-i-Martin and
Subramanian, 2003). Additionally, extractive resources are
often capital intensive, while agricultural resources are labor and land
intensive; therefore the dynamics of each sector and their effects are quite
In addition to the
division over the ultimate impact of resource abundance, there are of course
different economic and political explanations that exist. Most of the
economic reasoning is centered on the Dutch Disease model, which has a
crowding-out sort of logic - emphasized by Sachs and Warner. Essentially
the argument is that high export-levels from the resource sector will cause the
exchange rate to appreciate, which leads to the reallocation of inputs.
The natural resource sector then attracts most of the inputs, pulling them away
from other sectors, like manufacturing. This underdevelops those
non-resource sectors and the country misses out on export-led growth.
Pegg (2005) summarizes this logic quite succinctly: "The basic causal argument
here is that natural resource booms >
rising exchange rates > rising costs
for other sectors > uncompetitive
agricultural and manufacturing sectors >
poor economic performance." Sachs and Warner exhibit this effect on the
manufacturing sector by comparing resource abundance to growth of manufactures
in Figure 2 below. This graph shows a distinct negative relationship
between the level of natural resource exports and the growth of the
Related to this
idea is the explanation that there are poor economic linkages between the resource
sector and non-resource sectors. The lack of integration among sectors
prevents multiplier effects from appearing, resulting in low growth and
development of non-resource sectors. Backward and forward linkages do not
develop as they would with manufacturing production, that "leads to a more
complex division of labor and hence to a higher standard of living" (Sachs and
Figure 2: Resource
Abundance vs. Growth of Manufactures
Source: Sachs and Warner, 2001
economic analysis attributes slow growth to the instability of commodity
markets. Primary products tend to have unstable prices that fluctuate dramatically.
This volatility creates uncertainty which discourages investment in that
industry and prevents the government from having a stable budget and planning
for the future. Not only are commodity prices volatile but they are
actually declining over time. When you consider the inelasticity of
demand for many commodities, these falling real prices practically eliminate a
state's chances for sustained growth. Conversely, price trends in
manufactures are stable and steadily increasing. Figure 3 below shows
these trends in commodity and manufactures prices overtime.
Figure 3: Trends in
Manufactures Prices vs. Commodity Prices
It is then easy to see why resource
dependent countries, that - as seen in Figure 2 - have low growth in the
manufacturing sector, have experienced such slow GDP growth.
A frequently cited
political explanation - though perhaps more properly classified as social than
political - is that the curse appears in developing countries that experience
high levels of ethnic fractionalization. The windfall revenues from the
resource sector intensify tensions among rival groups as they fight for a
controlling position in the resource sector. Ron (2005) explains, using
simple utility maximization logic, that "when the perceived economic
opportunities from violence outweigh the perceived risks, armed revolt is more
likely." The group that controls the resource revenues has the most power
economically and politically, which allows them to suppress the other
groups. It is the fighting over this power that creates the instability
that slows productivity and economic growth and in many cases brings on civil
war. Hodler (2006) finds that in more homogenous countries resource
abundance can have a positive effect on income, but as ethnic diversity
increases, the effect on income becomes increasingly negative. He
points to a heightened insecurity of property rights from the intense fighting
among ethnic groups to explain poor economic performance.
However, the major
politically based explanations of the resource curse are usually centered
around the effect of, and on, institutions. In recent years the link
between institutions and development has been increasingly emphasized by
scholars, but there still seems to be little consensus on how institutions
effect development other than agreeing that they do in fact have an
effect. Jutting's review for the OECD Development Centre (2003)
highlights the difficulties encountered by scholars in analyzing institutions
because there are so many direct and indirect ways that institutions can effect
development outcomes and so many exogenous and endogenous factors that effect
the formation and actions of those institutions. These factors can
include exogenous institutions (which are factors such as social norms that are
embedded in society and unaffected by development outcomes),
incentives/disincentives, the distribution of power, and human actors. In
order to have a complete examination of the impact of institutions on
development, all of these factors need to be taken into account.
With respect to
the resource curse, the most frequently cited political explanation is the
deterioration of the quality of institutions through changes in incentives and
disincentives and the distribution of power - an argument commonly know as the
"rentier state" analysis. A "rentier state" in the context of the
resource curse is one that receives most of its revenues from natural resource
rents (in lieu of income tax revenue, for example). With less revenue
coming from the public, the government will be held less accountable for its
expenditure decisions by the public as it has less incentive to create mechanisms
for accountability and transparency. This increases the distribution of
power in favor of the state and away from the people. A lower level of
accountability will encourage corrupt activities and lead to inefficient
allocation of resources and slow economic growth (Sala-i-Martin and
Subramanian, 2003). Auty (2006) compares high rents that provide
"incentives to capture and redistribute wealth, because that confers immediate
personal and political benefits" to low rents which he explains encourage
"wealth creation [which ] is a long term process, whose benefits may
accrue to others." The rentier state has no need to invest to create new
wealth or to adopt macroeconomic policies that would encourage growth of other
sectors in the future (potentially bringing in government revenues) because it
already receives its revenues from the resource sector. Therefore its
expenditures can be more focused on personal and political gain.
Related to this
logic, though separate from an economic analysis of the resource curse, is the
argument that these encouraged corrupt activities have anti-democratic
effects. Bratton and Chang (2006) emphasize that "the emergence of
democracy depends importantly on a state whose capacity and legitimacy derive
from a rule of law." Bulte et al (2005) establish that resource
abundance has a negative effect on the rule of law in that country, which in
turn decreases the level of human development. Kaufmann et al
(2003) measure rule of law with indicators that measure the "extent to which
agents have confidence in and abide by the rules of society." This effect
comes from the corruption, simply defined as public resources being used for
private benefit, promoted by the deteriorating accountability from rentier
effects. If natural resource abundance promotes corruption, and
presumably lowers the level of rule of law, then the level of democracy will
deteriorate; and, it has been widely accepted that high levels of democracy
correlate with higher levels of development than other forms of government
(Moon and Dixon, 1985; Frey and Al-Roumi, 1999).
recent years, most of the analysis of the resource curse as explained through
institutions has been performed by economists. However, the orthodox view
of state institutions tends to be very narrow - often defined as "good" or
"bad" for growth. "Good" institutions according to economists are ones
that promote entrepreneurial activity, have open trade policies, and often have
little government intervention. Conversely, "bad" institutions have
closed protectionist trade policies and large governments. Mehlum et
al (2006) make this "good- bad" distinction as "producer-friendly
institutions" and "grabber-friendly institutions" where producer-friendly
institutions "attract entrepreneurs into production" and grabber-friendly
institutions attract "scarce entrepreneurial resources out of production and
into unproductive activities." De Rato (2006) defines "good institutions"
as ones that accept principles such as allowing private actors to be the
dominant economic actors, ensuring a stable macroeconomic environment, and
enforcing openness to international trade. These are certainly not
frivolous things to consider when examining institutions, but are in no way the
only factors that should be considered. Sachs and Warner (1997) also
promote openness as an appropriate trade policy for resource abundant
countries, stating "it would be a mistake to conclude that countries should
subsidize or protect non-resource based as a strategy for growth....there are
simpler and more basic policies that can be followed to raise national growth
rates, especially open trade." Not only is this binary view narrow
in its singular goal of efficient economic growth through orthodox economics,
but it is also narrow in that it prescribes a "one-size-fits-all" model that
ignores the complexities of existing conditions and of the institutions
themselves. A different set of institutions can be more appropriate for
the development of one state than another. Particularly in special cases
such as natural resource abundant states - a set of institutions that work for
very diverse economies will most likely not be very compatible with resource
dominated economies. For example, open trade policies can certainly promote
economic growth in already diversified economies. However, in single
sector dominated economies, like resource abundant ones, a completely free
market economy may actually intensify the dependence on that sector rather than
promote diversification. Institutions with policies that promote the
diversification of the economy and the development of other industries are more
suitable for these cases. "There are no bags of policy tricks that work
regardless of context," (Shapiro and Taylor, 1990). "'Local knowledge'
should become part of any development process and should take precedence over
the imposition of some blueprint from development" (Jameson, 2006 citing
Rodrik, 2000). In addition to this difference in simply economic
conditions, policies that facilitate economic growth are not necessarily the
same ones that could promote human welfare. Jameson (2006) criticizes
this "institutions for markets" mentality emphasizing that "the human
dimensions of development must always be kept in the forefront, and policies
that sacrifice the welfare of some for some future benefit, for example the
increase in inequality necessary to allow markets to function widely, should be
This overview of current literature certainly highlights the need for a more in
depth analysis of the effect of resource abundance on human development.
To do this a more comprehensive perspective of institutions - how they are
affected by resource abundance and how they effect human development - is also necessary.
At the conclusion of his literature review, Ross (1999) makes a
similar observation: "We still know little, however, about the politics of the
resource curse - why resource-exporting governments respond perversely or
ineffectively to these and other hardships." Economically based
explanation offer little to directly explain poor human welfare
performance. The study of state institutions, which are the only entities
that can directly foster human development, is the important next step in the
literature of the resource curse.
IV. Establishing the Human Welfare
effects of the Curse
In this section I
will establish that a negative relationship exists between natural resource
abundance and performance in human development, as embodied in the MDGs, through
statistical analysis. Focusing mainly on measures of education and health
that indicate the level of basic human needs, I try to improve upon previous
analyses of this relationship. Bulte et al's 2005 study produces a
negative correlation between resource abundance and a country's performance in
the Human Development Index (HDI) - which includes measures of life expectancy,
literacy rates, enrollment levels, and GDP per capita. Their analysis
included indicators for HDI in 2001, GDP per capita in 1970 (lGDPea70),
investment price in 1970 (lpip 70), percent of the population that is English
speaking (EnglFr), percent of the population that is European language speaking
(EurFr), and resource abundance (ExpPctFM). Their results are seen below
in Column 1.
Table 1: Results
with original data from Bulte et al (2005)
After replicating their
analysis, I tested the strength of this relationship with several different
specifications and country samples. It has been established that natural
resource abundance has a strong negative effect on GDP growth and because my
goal is to emphasize the impact on human development, not economic, I want to
ensure that their findings were not driven by inclusion of GDP per capita in
HDI. Using all of their original
data, the regression showed that most of the effect on HDI from resource
abundance is driven by the negative effect on GDP per capita (see Column
2). A negative (but not significant) relationship did appear with respect
to the other aspects of HDI - namely education (literacy and enrollment) and
life expectancy (see Columns 3 and 4).
Next, I substituted their natural resource data - fuel and mineral exports as a
percentage of total exports in 1970 - with more recent data from 2000 that also
includes mineral resources such as diamonds, which were not included in their
data but have been known to produce significant resource curse effects.
Using this updated data as a dummy variable (and omitting the language
indicators which overall were not significant and in the end only reduced the
number of cases) increased the number of country cases to 114. Running
the same regressions with the more recent resource data, the effect of resource
abundance on HDI became even more significant and is no longer only driven by
GDP per capita, producing significant effects on both the education and life
expectancy aspects of HDI.
Table 2: Results
with updated data
This result does not seem to show that
natural resource countries will under-perform in education and life
expectancy measures with respect to what is expected at their GDP per capita.
Significant under-performance however was observed for infant and child
mortality measures, with resource abundance measures showing negative and
significant t-values of -3.05 and -2.66 respectively. It
is clear from these results that natural resource abundance has a significant
negative effect on measures of human development.
V. Theoretical Hypothesis - The Effect of Resource Abundance
on State Institutions
literature mostly offers explanations only applicable to poor economic growth
outcomes. Explanations using Dutch Disease logic have long dominated the literature,
yet nowhere in the Dutch Disease analysis is there anything that can directly
explain the negative effect on human welfare that was established in the
previous section. At best orthodox economists could say that 'poor
economic performance' decreases the per capita income and therefore standard of
living, but this is a very indirect way to explain low human development.
Economic growth can only improve human welfare if the increased income is put
towards an increase in the provision of public services like education and
healthcare (Anand and Ravallion, 1993). State institutions are the only
entities that can directly promote human welfare, and "since few theorists
expect other institutions to either provide basic human needs directly or create
the preconditions necessary for their provision, a strong state is seen as a necessary
condition for satisfaction of needs" (Moon and Dixon, 1985). For example,
you cannot expect private actors to ensure that basic human needs are
met. Public goods are not economically profitable for a private actor to
provide. It is the responsibility of state institutions to provide for
those needs. Therefore, to explain the negative relationship between
human welfare performance and resource abundance statistically established in
the previous section, you must examine the effect of resource abundance on the
This must be a
broader, more comprehensive sense of institutions that goes deeper than the
narrow economic view, including analysis of factors and indicators such as rule
of law, government effectiveness, corruption, level of democracy, and exogenous
factors like social norms and the state of previously existing institutions,
not just economic policies. Moon in a later work (1991) expands on
his emphasis of the necessity of a strong state: "even though a strong and
competent state is usually seen as a necessary condition for needs
satisfaction, we must seek a theoretical defense of the proposition that states
actually will act in the way they are capable of acting."
(emphasis his). To effectively promote human development a state must have
the institutional capacity and disposition to do so. Resource abundance has
a significant impact on both the capacity and disposition of state institutions
directly and indirectly through the above listed factors; therefore to explain
poor human welfare performance, you must look to those two characteristics of
abundance has potential to both negatively and positively affect a state's
capacity to promote human welfare. If the state is unable to secure a
large stake in the resource sector, its capacity will decrease significantly.
Without the revenue from the resource sector economic, political and social
conditions can deteriorate rapidly. Snyder states that
"if rulers are able to forge
institutions of extraction that give them control of revenue generated by
lootable resources, these resources can actually contribute to the maintenance
of order by providing the income with which to govern. In contrast, the
breakdown or absence of such institutions can produce instability in two ways:
first, by causing a fiscal crisis that renders the state vulnerable to
collapse, and second, by making it easier for rebels to organize" (2006, 946-947)
Without the increased fiscal
capacity from control of resource rents, the overall capacity of the state can
decrease even further due to a lower level of rule of law. If all of the
revenues from the resource sector fall into the hands of private actors, or the
private bank accounts of the governing elite, the distribution of power shifts
away from the state, tremendously decreasing its capacity to maintain
order. Often a state's capacity is also measured by its competence in
implementing effective policies. However, it seems clear that with a
decreased ability to preserve order and stability, the implementation of
effective policies, particularly ones focusing on social welfare, will also be
a difficult challenge. Bulte et al (2005) provide support for this
relationship, showing that resource abundance deteriorates the level of rule of
law and government effectiveness.
potential for disorder is a large concern for resource abundant states, in a
majority of cases resource abundance will actually increase the capacity of
states. In most cases the public sector in resource abundant countries is
able to maintain a large stake in the resource industry which is seen in Table
3. As described above, the state has several compelling reasons to
protect its stake in the resource sector including revenue needs, maintenance
of order, prevention - or at least mitigation of - black market activities
(with more lootable resources, like diamonds), and simply rent-seeking on the
part of the government. Essentially, the state is motivated to control
these significant revenues because if they are not in control, somebody else
is, giving them the resources to challenge the state's authority.
from the resource sector are very important to the capacity of state
institutions. Typically, high levels of taxes and royalties from the
resource sector constitute a large percentage of total government revenues. It
is clear from Table 3 below that in most of the major resource abundant countries
in Africa and the Middle East, revenue from the resource sector is an integral
part of fiscal revenues. There is an augmentation of the institutional
capacity and thus, the state's potential to promote economic and human
development. Sierra Leone is a clear outlier in this group of resource
abundant countries, and I will address why the government receives so little
revenue from the resource sector in the next section.
Abundant Countries in Africa and the Middle East
Resource Revenue, % of total Government Revenue
Congo, Rep of
Table 3: Resource Revenue as a percentage of
Source: IMF, June 2005; Data from 2002-2003
a: Bank of Sierra Leone Annual Report, 2005
Since it would
seem that natural resource abundant countries in most cases should have a
higher capacity to promote development from the influx of revenues, to explain their
poor development performance, another dimension of institutions must be
examined. The ability to harness resource rents is no guarantee for
successful development. The disposition of institutions, or their
inclination and motivation, to use their capacity to increase human welfare or
foster human development is equally, if not more, important to analyzing the
effect of the resource curse on institutions.
negatively effects a state's disposition to improve human welfare. It
emphasizes the sole incentives of preservation of power and securing a stake in
future wealth influxes, providing little motivation to promote human
development. Auty (2006) notes an important characteristic of resource
rents: "[they] can be detached from the economic activity that generates
[them], so that [they] can, in theory, be allocated anywhere in the economy
(and also into bank accounts abroad)." This property of resource rents is
what encourages competition to control them. Recall his comparison
of high rents that provide "incentives to capture and redistribute wealth" and
low rents that encourage "wealth creation" which requires long term investment
and provision of public goods. This explains why low rents "tend to engender
developmental political states" or states that have strive to promote social
welfare in the long term. These types of incentives can also appear in
states where the government is unable to secure a stake in the resource
sector. These acts of preservation of power and competition for rents are
simply seen in the private sector. In fact, when the state is not in
control, it has all the more incentive to behave in a competitive manner and
the competition is much fiercer. We will observe this in the case study
on Sierra Leone in the following section.
The level of
democracy is also an important determinant of a state's disposition to foster
human development, and the effect which resource abundance has on that
disposition. Participatory governments have a greater sense of accountability
to their citizens and in return the citizens view the government as more
legitimate. This accountability is what can motivate the state to take
initiative to provide basic human needs. "Political participation helps
in the identification of basic needs, promotes the organizational basis for
mobilizing resources to meet basic needs, improves the distribution of basic
goods and services, and may satisfy 'people's desires to participate in
decisions which affect their lives'" (Frey and Al-Roumi 1999).
Rodrik (2000) supports this claim stating that "democracy helps build better
institutions" which focus on the needs of the local population. However,
as discussed earlier, these dispositional effects of resource abundance,
commonly known as "rentier" effects, deteriorate the accountability of the
government and can lower the level of democracy.
Ross (2003) explains that "in the absence of taxes, people are less likely to
demand accountability from their government...[this is also done] through
spending: greater patronage can also dampen latent pressures for
democratization." Not surprisingly, it has been seen that the ruling
elite in resource abundant countries tend to resist democratization - or
"political diversification," (Gylfalson, 2006) - because it would reduce their
share of the political power and wealth. The potential gains
from the resource sector intensify competition for political control,
discouraging rulers to promote democratization and encouraging them to use
those rents to solidify their position of power.
Rulers of an
undemocratic state do not see the public (or the voter) as an empowering
entity, meaning that there is no fear of losing an election. Therefore
steps taken to preserve their power are not centered on ensuring the
satisfaction of the public. This would explain why, if the ruling elite
is acting to secure their position of power, it is not necessary for them to
invest in social services. In short, deterioration of the democratic
accountability of the ruling elite will make the state institutions much less
welfare-oriented. It is also crucial note the conditions of pre-existing
institutions that could significantly influence how resource abundance affects
the development of current institutions. Robinson et al (2006)
emphasize that "countries with institutions that promote accountability and
state competence will tend to benefit from resource booms since these
institutions ameliorate the perverse political incentives that such booms
create." A strong pre-existing democratic culture can resist these
"perverse political incentives" to use the resource rents for private gain and
to preserve political power because the political power is allocated (and taken
away) by the public. The state of pre-existing institutions can play an
important role in determining the extent to which resource abundance does have
negative effects on disposition.
It is not always
straight forward to determine the disposition of state institutions to actively
promote human development, but it is clear from the above explanation that
examining the level of democracy would be indicative of the government's
disposition. Measures of voice and accountability such as freedom of
press and civil liberties are a good place to start to gage the level of
democratic representation. Kaufmann et al (1999) use some of the
following indicators to aggregate a measure of voice and accountability: the
transparency and fairness of the legal systems; civil liberties; political
rights like free and fair elections, representative legislative and political
parties; free press; the responsiveness of the government to its people
(democratic accountability). Figure 4 highlights resource abundant
countries and exhibits the negative relationship between
Figure 4: Voice and Accountability Scores for Resource
Abundant Countries, 2005
Source: "Governance Matters V: Governance
Indicators for 1996-2005 " by Daniel Kaufmann, Aart Kraay and Massimo
Kaufmann et al Disclaimer:
The governance indicators presented here reflect the statistical compilation of
responses on the quality of governance given by a large number of enterprise,
citizen and expert survey respondents in industrial and developing countries,
as reported by a number of survey institutes, think tanks, non-governmental
organizations, and international organizations. The aggregate indicators in no
way reflect the official position of the World Bank, its Executive Directors,
or the countries they represent. As discussed in detail in the accompanying
papers, countries' relative positions on these indicators are subject to
margins of error that are clearly indicated. Consequently, precise country
rankings should not be inferred from this data.
resource abundance and the level of
democracy. Most of the resource abundant countries place quite low on the
voice and accountability index.
An examination of
the fiscal expenditures is one of the clearest indicators of a state's
disposition. What portion of the government revenues are put towards
need-based welfare expenditures, such as health-care, education, sanitation, or
infrastructure? How effective are the expenditures in their
purpose? Robinson et al (2006) observe an increase in military
spending and an inflation of the public sector as a whole in resource abundant
countries. They explain that the ruling elite offer employment in the
public sector to their patronage to guarantee their support. This, along
with increases in military spending, will help maintain their position of
power, indicating once again the divergence of the state disposition away from
Analyses of the
effect of resource abundance on state institutions' capacity and disposition
are by no means mutually exclusive or absolute. For example, a decrease
in democracy from the rentier effects will not only negatively effect the
state's disposition to promote human welfare but also decreased the state's
capacity to implement policies that will promote human welfare. Bratton and
Chang (2006) explain, with the support of empirical evidence, that "the
strength of states (or their stateness) is related, powerfully and
positively, to the level of democracy." This negative effect on capacity
could counter the large increase in capacity from the influx of resource
rents. In general, however, resource abundant countries will experience
an increased fiscal capacity from the influx of resource rents and a decrease
disposition to use that capacity to promote human development as a result of
rentier effects. In cases where the state fails to control rents and
experience the increase in fiscal capacity, its disposition will still be
shifted away from a focus on human development towards more immediate goals
such as restoration of their power and wealth.
VI: Extreme Success and Failure, Botswana and Sierra
Leone: Case Studies
ever-growing literature on the curse of natural resources, Sierra Leone and
Botswana are frequently cited as the prime example of the curse and the
exception to that curse, respectively. Sierra Leone, though endowed with
a large diamond reserve, in addition to many other natural resources, has a
history marred with corruption, civil war, and poverty. Botswana, on the
other hand, has the longest-lasting multiparty constitutional democracy in
Africa and has experienced one of the highest per-capita income growth rates in
the world for over three decades, making it a shining example that natural
resources need not be a curse.
Sierra Leone and
Botswana were chosen for this case study because they are at two opposite
extremes in the resource curse literature, yet they share very similar
characteristics. Both are well-endowed in diamonds - alluvial and
kimberlite. Ross (August 2003) lists Botswana and Sierra Leone as the top
two non-fuel mineral dependent states, with Botswana in the first position with
35.1% of GDP made up of non-fuel mineral exports and Sierra Leone in the second
position with 28.9%. While it is commonly known
that commodity prices can be quite volatile which could contribute to poor
economic performance, diamond prices have remained stable throughout the years
due to DeBeers' monopoly over the industry. DeBeers is able to keep
diamond prices stable and inflated "by purchasing excess supplies when that is
needed to avoid price increases" to "maintain the notion that diamonds are a
scarce commodity" (Kretschmer, 1998). Additionally, both countries were
British colonies that peacefully gained independence in the 1960s (Sierra Leone
1961, Botswana 1966).
countries with very similar starting points and conditions, however, took very
different paths. In 1975 Sierra Leone's GDP (ppp) was more than double
the GDP of Botswana. Now, Botswana's GDP is almost six times that of
Sierra Leone and its GDP per capita is more than ten times greater. Not only has Botswana
outperformed Sierra Leone economically, but in several indicators of human
development as well. The adult literacy rate in Botswana is approximately
94% (92.1% male, 95.6% female) - a great feat considering Botswana had
practically no education system to speak of at independence. Conversely,
Sierra Leone at independence was considered to be the educational center of
West Africa with the European style Fourah Bay College. Yet, currently
its adult literacy rate is only 47.6% (59.1% male, 37.2% female). In 1991
the net primary enrollment ratio in Sierra Leone was a low 43% and almost
double that in Botswana.
Despite having the
second highest HIV prevalence rate in the world (37.3%), Botswana surpasses
Sierra Leone in several measures of health standards.
The infant mortality rate in Botswana is a third of that in Sierra Leone
(53/1000 Botswana, 160/1000 Sierra Leone).
The HIV/AIDS epidemic, especially in a country with a rate as high as Botswana,
often has significant effects on indicators like infant mortality, and this
indicator has in fact risen in the past 10 years for Botswana. However,
the fact that Botswana significantly outperforms Sierra Leone is indicative of
a superior health system even in the face of the HIV/AIDS epidemic. Other
health indicators pointing to higher health standards in Botswana would be a
much lower maternal mortality rate (100/100,000 in Botswana, 2000/100,000 in
Sierra Leone), a higher measles immunization rate (90% in Botswana, 67% in
Sierra Leone), and a significantly greater proportion of births attended by
skilled personnel (94.2% in Botswana, 41.7% in Sierra Leone).
Sierra Leone does surpass Botswana in life expectancy, 40 years compared to 33
years, but before HIV took its toll, Botswana had a very respectable life
expectancy of 62.5 years in 1993. The
government has taken many initiatives, promoting some of the most comprehensive
programs for dealing with the disease, including free anti-retroviral treatment
and a nationwide Prevention of Mother-to-Child Transmission program.
Public health expenditure per capita in Botswana for 2003 was $375 and only $34
in Sierra Leone.
Where and why does
this divergence take place? As outlined in Section V, a state needs both
the capacity and disposition to promote human development, and natural resource
abundance greatly affects both. After a short historical review I will
discuss how the capacity of each state is affected by resource abundance
through examining the role of the government in the diamond sector, the level
of diamond revenues flowing to the government, and the level of rule of law and
government effectiveness. Then I will move on to the disposition of each
state and how it was affected through an examination of government
expenditures, pre-existing institutions, and the level of democracy. Ultimately
this section will exhibit that
1. Sierra Leone's
poor welfare performance is due to the negative effects of diamond abundance on
the disposition of the state to promote human development and the
state's inability to attain the potentially substantial amount of diamond
revenues that would augment its capacity to advance human development;
2. Botswana has
made such progress with human development (even considering its high HIV
prevalence rate) because it was able to turn its diamond abundance into
increased capacity to promote human development and maintain a disposition
to use that capacity to that end, resisting the perverse incentives typical of
History: From the Province of
Freedom to Civil War
Sierra Leone was formed in 1787 as the "province of freedom" by slaves
freed by the British and brought back to Africa. By 1792, it became one
of the first British colonies in Western Africa, and the society of freed
slaves assimilated many aspects of British lifestyle and culture. There
are several ethnic groups in Sierra Leone, though the Mende, Temne and Limba
tribes were the largest portions of the native population. Although, the
Krios - the returned freed slave population - were relatively dominant for most
of the colonial history. With the creation of the Fourah Bay College in
Freetown in 1827 - the only European-style university in the region - Sierra
Leone became the "educational center" of West Africa.
rule, the British administration remained confined mostly to Freetown and the
surrounding areas, leaving the chieftains to govern the tribes outside of the
metropolitan area with little interference, and in many cases increasing and
solidifying the powers of the highest chiefs - the Paramount chiefs. The
British administration even provided rather large salaries for the chiefs,
which created heightened competition for the chieftaincy. "Discontent
at chiefs' abuses was common in Sierra Leone, often centering on excessive cash
levies, unpopular land allocations, forced labour, and the punishment of
dissenters. All this helped store up anger which erupted later" (Keen,
In 1951, a
constitution was created between the British administration and the local
leaders that set up a framework for a peaceful decolonization where
responsibilities were slowly passed on to local ministers. Independence
came in 1961 with a parliamentary system, similar to that of Britain, and the
election of Sir Milton Margai of the Sierra Leone Peoples Party (SLPP) as Prime
Minister. At this time, many saw great potential in Sierra Leone to
become a successful developmental state. There was already a focus on
education with the Fourah Bay College, and the new state showed signs of developing
a responsible bureaucracy. "At independence in 1961 Sierra Leone's
development prospects looked encouraging. The country had a renowned
educational system; a rich and diversified natural resource base comprising
diamonds and other minerals, and abundant agricultural and marine resources;
tourist attractions; and a seemingly stable democracy" (Davies, 2002).
Albert Margai, took office in 1964 upon Milton's death and "by all accounts
[he] saw the state not as a stewardship in the public interest [as his brother
did] but as the power base for personal gain and aggrandizement" (Hirsch,
2001). However, the SLPP ruled relatively peacefully and democratically
until 1967, when Siaka Stevens of the All People's Congress (APC) was elected
office. "Margai, unwilling to relinquish power, sought to reverse the
popular decision, first through a parliamentary maneuver and then by
encouraging a military coup" (Hirsch, 2001). Following several brief
coups, Stevens was finally sworn into office in 1968.
to overrule the multi-party democracy in Sierra Leone, combined with a previous
culture of popular disapproval of tribal chiefs, pushed Stevens to take
drastic, undemocratic actions to secure his and his party's position of
"Having himself been temporarily
toppled by a coup in 1967, Stevens tried to prevent a recurrence by keeping the
army restricted to a largely ceremonial role. William Reno (1995) refers
to the creation of a 'shadow state,' with entrepreneurs and politicians working
together to hijack the state for private gain. This was mirrored in the
creation in 1973 of what we might call a 'shadow army,' the so-called Special
Security Division (SSD), essentially a private security force that was built up
has a means of intimidating opponents and as a counter to the regular army"
By 1978, Stevens had amended the
constitution to ban all parties other than the APC. In addition to his
undemocratic behavior, Stevens' rule was defined by lavish, reckless spending
that drastically weakened the central government. Adebajo (2002), Hirsch
(2001) and Keen (2005) all cite the excessive spending on the 1980 Organization
of African Unity (OAU) summit hosted in Freetown, equivalent to a year of
central government expenditures, which decimated the central budget for years
to come. Hirsch explains that Stevens' rule was referred to as the
"seventeen year plague of locusts" for its destruction of the country
financially and its corruption politically. In 1985, Stevens hand picked
his successor, Major General Joseph Saidu Momoh.
This tremendous and escalating level of fiscally, politically and socially
irresponsible behavior characterizing APC rule, combined with the onset of an
economic crisis in the late 1980s, motivated the creation of the Revolutionary
United Front (RUF). The small group of men of the RUF, led by Foday
Sankoh and supported by corrupt Liberian dictator Charles Taylor, began
attacking villages along the Guinean border in 1991 and within months had taken
control of the Kona district - the center of the diamond mining industry.
For them, this was a crucial victory and was much more important than taking
control of the capital. The central government had been so weakened by
more than twenty years of corrupt rule under the APC, that it could not muster
the strength or resources to deter the RUF, which in its early stages consisted
of only 100 men. In 1992 there was a military coup which overthrew Momoh
and established the National Provisional Ruling Council (NPRC); however, in the
following years, the NPRC also failed to deter RUF forces, who continued to
gain control of territory and moved closer to Freetown.
of the NPRC brought pressure to reinstate civilian rule, and in 1996 multi-party
elections were held to reinstate the civilian government. Ahmed Tejan
Kabbah, a former UN diplomat, was elected President. Yet, Kabbah was not
in office long before he was overthrown by the Armed Forces Revolutionary
Council (AFRC) in May of 1997. The AFRC invited the RUF to join the
central government but the Economic Community of West African States Cease-Fire
Monitoring Group (ECOMOG) removed the AFRC after less than a year in control
and reinstated Kabbah as president. The international community finally
took notice of the chaos ravaging Sierra Leone, helping Kabbah and the RUF's
Sankoh to negotiate the Lome Peace Agreement, which required the UN Security
Council to create the UN Mission in Sierra Leone (UNAMSIL) in 1999. The
Lome Agreement made Sankoh Vice President, a position which he almost
immediately began to abuse. The RUF staged attacks on UNAMSIL forces in
2000. It was not until 2002 that the government was able to regain
control, disarming much of the RUF forces, and President Kabbah officially
declared the civil war to be over.
Analysis and Discussion:
Much of the
turmoil and instability of Sierra Leone's history can be traced to the
conditions of the diamond industry and their effect on Sierra Leone's
institutional capacity and disposition. The role of the Sierra Leonean
central government in the resource sector has fluctuated throughout history,
but it was never able to really reap the benefits fiscally; profits always
seemed to end up in private hands and the state's potential to promote human
welfare was never realized. To determine where and how Sierra Leone lost
the potential capacity from the diamond industry, an analysis of the
progression of the industry is necessary.
started in the 1930s and the British administration regulated them under
Diamond Protection Areas, where it was actually illegal for anyone else to
mine. The British had exclusive rights over the diamond mining industry
from 1934 (the discovery of diamonds) until 1956 with the Sierra Leone Selection
Trust (SLST), a DeBeers subsidiary. "Sierra Leoneans [were] legally
prohibited from mining their own diamonds" (Keen 2005). Illegal mining of
alluvial diamonds grew more and more prevalent. Although it had its own
security force, the SLST was unable to curb the ever increasing amount of
illegal diamond mining. Pressure among the local population mounted
to legalize small, artisan mining operations through the Alluvial Diamond
Mining Scheme (ADMS) which would ideally reduce the amount of illegal diamond
trade that in the late 1950s constituted almost two-thirds of all diamond
production (Keen, 2005). The task of regulating licensing was placed on
the local chiefs, which resulted in cronyism in passing on licenses and drastic
increases in wealth and power of chiefs of diamond rich areas, fostering
resentment by the general population and competition for those positions.
While the ADMS had
increased the amount of legal mining activity, smuggling still remained
prevalent. In response, the Gold and Diamond Office (GDO) was created,
run by the DeBeers cartel, which bought and sold diamonds through legitimate
channels but at the high prices found in the illicit markets. The GDO
seemed to be successful in significantly decreasing the level of illegal diamond
trade, but the central government saw no substantial increase in revenues from
the diamond sector; "Sierra Leone's diamond wealth continued, in effect, to
hemorrhage from the country" (Keen, 2005). The SLST was mostly
privately run, meaning the government of Sierra Leone had no direct ownership
or share in the profits, which would explain the central government's inability
to gain the increased capacity typically seen in resource abundant
countries. In 1971 the state did take a controlling share of the SLST
with the National Diamond Mining Corporation (also known as DIMINCO).
However, the revenues from this creation of a public-private organization did
not augment government revenues because the "bulk of DIMINCO's income found its
way into private hands...a select group of business men - often Lebanese and
usually close to Stevens - rather than the treasury or the general population"
(Keen, 2005: 23). Thus, the state still saw no augmented capacity from
its diamond industry and its human development stagnated.
Stevens used those
revenues to increase his private capacity and maintain his position of power
rather than to increase the public fiscal capacity. Stevens had no
motivation to ensure that any of these revenues were deposited in the national
treasury- even for the augmentation of his military (let alone social
development). As noted earlier, he felt threatened by the military and
maintained his own private security force, the SSD. By 1984, the SLST
pulled out and the official corporate diamond sector fell apart. "The
state had lost control of its assets, enabling private entrepreneurs to take
over Kono and adjacent diamond-rich regions." (Hirsch, 2001: 27-28) Any
revenue from the diamond industry that the state (or Stevens) was collecting
disappeared with the collapse of the corporate diamond sector. Almost all
diamond mining was done privately and illicitly traded out of the
country. Keen reports that "by the late 1980s, economists were estimating
that 95 percent of Sierra Leone's diamond production was being smuggled out of
the country" (2005: 22). Even more recently, Davies, citing USAID, states
that in 1999 Sierra Leone's diamond production was estimated to be $70 million
and that $68.5 million was traded illicitly (2002).
of revenues from the diamond sector, the inability to control illicit diamond
mining, and the general corruption of Stevens' administration eventually
bankrupted the government, to the point where there was no capacity to provide
anything - socially, militarily or economically. When the economic crisis
of the late 1980s hit, already low levels of human welfare were exacerbated -
teachers were not paid and forced to charge students themselves; there was less
than 30% enrollment in secondary schools; public healthcare was deteriorating
or simply unavailable (Keen, 2005: 27-29). Momoh made several efforts to
reign in diamond smuggling and regain some revenue, but he lacked the political
power. "If Momoh had been able to gain a greater degree of control over
the diamond industry, this might have helped him to raise sufficient revenue to
consolidate his control and thereby obtain further revenue. But he lacked
the local clout to put the new edicts into operation. Corrupt mining
officials continued to allow extensive illicit mining" (Keen, 2005: 34).
When the RUF began its attacks in 1991, the government was too weak to defend
As reviewed in
Section V, the level of rule of law and government effectiveness can also be
indicative of the institutional capacity of a state. From the brief
history presented above, it is clear that the central government was
essentially rendered ineffective through Stevens' rule. The residual
effects of his corrupt activities made the level of rule of law almost
non-existent, bringing on a civil war. The government's inability to
legitimately secure a significant role in the diamond industry and maintain a
flow of revenues from the sector severely inhibited its ability to implement
effective policies for human welfare. Figure 5 below is clearly
indicative of Sierra Leone's poor performance in recent years compared to the
regional average for Sub-Saharan Africa, which itself is quite low.
Figure 5: World Bank
Institute Governance Indicators, Sierra Leone vs. Regional Average
institutional capacity and disposition, and the effects of resource abundance
thereof, are not mutually exclusive - as explained in section V. The
negative effect on the disposition of the Sierra Leonean government to support
human development, derived from what at times was only the prospect of windfall
revenues from the diamond industry, seems to be at the root of the state's
inability to capture sustained revenues from the sector. Rentier
effects - in the sense of self preservation and battle for control of territory
that will produce rents - were present in Sierra Leone even if windfall revenues
examination of the interests of the ruling elite would clearly conclude that
their priorities lie in the maintenance of their position of power and
maximizing their private gain. The fact that Stevens' power was
threatened from before he even officially took office certainly shifted and
reinforced his politics of intimidation and patronage. He did not
feel secure in his position of power and saw the public more as a threat than
the reason he was in power. In Sierra Leone there was also a history of
resentment towards the chiefs who were not welfare oriented and also easily
corrupted by the colonial administration. This made leaders more focused
on retaining their power rather than on the collective good or human development.
The lack of any previous transparent or semi-democratic institutions severely
hindered their development upon independence.
The lack of solid
pre-existing democratic institutions, and the deterioration of what little
democracy there was after independence, explains the poor disposition of the
state to promote human welfare and the self-serving interests of the ruling
elite. During Stevens' regime (and even earlier with Albert
Margai), when the system of corruption and unaccountability began, the level of
democracy fell dramatically. Sierra Leone was a budding democracy at
independence with potential, but it was not strong enough to resist the
perverse effects of resource abundance. Without a previously established
culture of participation and consensus, it was easy for Stevens to eliminate
democratic aspects of the state institutions; therefore allowing the
disposition of the state to be shifted towards his personal needs.
Stevens amended the constitution for one-party rule and used intimidation and
force to remove any opposition. Transparency International ranks
Sierra Leone 126 out of 158 with a score of 2.4/10, and it has been shown in
Figure 4 that Sierra Leone ranks low with the measure of voice and
accountability as well.
The low level of
democracy and the lack of disposition to promote human welfare can be traced to
Stevens' insecurity in his position. He saw other political leaders and
parties and the military as the ultimate threat to his power and control of
resource wealth. Therefore, his policies of patronage and intimidation
were logical to maintain his position of power and wealth - appeasing and
providing social services for the public were not necessary. However,
policies such as these have severe consequences, which are evident in the
chaos, civil war, and deep poverty that follows soon after his rule.
preoccupation with the preservation of his status, and lack of focus on human
welfare, is clearly visible in the government expenditures. As explained
above, the revenues from the resource sector were not being put toward public
spending of any kind - even the military. Stevens profited privately, as
well as the business men with whom he had developed strategic relations, and
used his profits to support his private security force (SSD), enhance his
reputation among other African leaders (lavish and wasteful spending for the
OAU Summit), or to simply buy off the opposition (when that failed, his
investment in the SSD was put to use). None of these expenditures exhibit
any inclination of a focus on human development. During all of Stevens'
spending, the education and healthcare systems were left to deteriorate.
"From the 1930s to
the present, diamonds became the crucial keystone in the widespread pattern of
corruption and private benefit that has remained beyond the institutional
capacity of successive governments to control" (Hirsch, 2001). There was
clear potential for a greater capacity from diamond abundance, but this was
overshadowed by the lack of will produced by resource abundance to take action
to increase human welfare. All of this has left Sierra Leone to be one of
the poorest and most poverty stricken countries in the world today.
History: From mineral scarce
colony to diamond-produced development
In Botswana, the
pre-colonial tribal institutions were particularly incorporative and run
largely on consensus. The Tswana tribes in the eighteenth century
conquered many of the other ethnic tribes, but they had a very integrative
tribal structure, so these other tribes "were basically amalgamated into the
Tswana" (Acemoglu et al, 2001). While the chiefs were the central
political leaders in these tribes, "they were not, and were not supposed to be,
absolute dictators" (Colclough and McCarthy, 1980). A form of public
assembly or forum, called kgotla, existed in these tribes where the
members of the tribe (the male members) acted in a type of advisory and
critical role to the chief. Colclough and McCarthy (1980) cite a Setwana
(the language spoken by the Tswana) proverb that "'a chief is a chief only by
the will of the tribe' implying that the tribe could if necessary remove the
chief" (36). It is also important to note that "tribes" in Botswana are
not the traditional ethnic groups that usually come to mind. A "tribe"
was actually a political entity - similar to a territorial reserve or state -
which is a product of British rule. In other words "tribes" are actually
multi-ethnic groups. The University of Botswana's History Department's
report on the Afrobarometer Network findings makes the point with the following
example: "The 'Batawana Tribe' [Batawana, not Batswana] of the North-West was a
political entity, in which the Batawana, as an ethnic group, were a
minority. Most members of the 'tribe' spoke other languages."
In 1885 Britain
officially declared Botswana, then "Bechuanaland," a royal protectorate. The
British colonial rule was relatively minimal as it was a colony for its
strategic, territorial positioning more than value of the region itself.
Though Britain had some level of indirect rule in most of its colonies, in
Botswana it was particularly non-invasive - much less than in Sierra
Leone. Thus these pre-colonial institutions and this culture of governing
under the consent of the populous survive today.
pre-independence period, the colonial administration neglected the education
and healthcare systems, investing little in their development and localizing
the responsibilities of maintaining and providing these social services to the
tribal administration which lacked the necessary resources. "The quality
of education was uniformly poor with large class sizes and a high failure rate"
(Acemoglu et al, 2001). At independence, enrollment in primary
education was only 47% and only 40% of those students actually completed their
primary schooling. Secondary education was only provided to 3.1% of
population in that age group. Samatar (1999) reports that
the "secondary school system produced only 16 students in 1965 capable of
higher education." Health standards were also quite low, which was
typical of poor countries of the time. In the late 1930s, only nine
doctors with a supporting staff ran four mission hospitals and three government
hospitals throughout the entire protectorate. Even in 1963 a majority of
government expenditures on health were concentrated in those seven already
existing hospitals, rather than creating new health centers in rural areas far
from those hospitals (Colcough and McCarthy, 1980).
A constitution was
established in 1961 with a framework for peaceful decolonization. This
constitution remains functioning and unchanged today. The transition from
the tribal system based on participation of the tribe members to a democratic
independent state, while not perfect, was smooth. After gaining
independence in 1966, Seretse Khama of the Botswana Democratic Party (BDP)
became the first president. Khama was well respected by the Batswana
population, having strong ties to most of the population, sustaining a united
dominant class. Samatar (1999) emphasizes how the fact that Khama "wore
1. For the peasants,
he is a chief. [He was chief of one of the largest tribes in Botswana before
2. For the small
group of educated Africans, he is one of them.
3. For the large
cattle-owners, his is one of them. [Cattle-owners were the economic elite]
4. For the chiefs,
he is one of them.
5. For the
Europeans, by dress, language, behavior and experience, he has much in common
cemented a national coalition"
One of Khama's
first actions in office was to pass the Mineral Rights in Tribal Territories
Act in 1967, which transferred the mineral land rights from the local tribes
over to the state. "Its passage was undoubtedly simplified by the limited
knowledge of the mineral potential at the time, the ethnic homogeneity of the
Batswana, and most importantly by the fact that Seretse Khama, the State
President, also happened to be the traditional leader of the only tribe which
at that time had any prospect of mineral wealth" (Colcough and McCarthy, 1980).
It was soon after that intensive diamond mining commenced within
Botswana. In 1975, the government was able to negotiate an equal share in
the new diamond mining industry with DeBeers, forming Debswana. The
government had a strong bargaining position as it became more and more clear
that Botswana was an important region of diamond abundance. DeBeers, who
had and still has, a strong monopoly on the industry could not risk completely
withdrawing from Botswana. The 1975 agreement with DeBeers was a huge
triumph for the Batswana government because it had been struggling to shift
away from its fiscal dependence on British funding (Colcough and McCarthy,
1980). The high level of human development in Botswana was explained at
the beginning of this section, but it was at this point, when resource revenues
really began to flow to the government that improvements in health and
education became visible. In 1975, Botswana's HDI score was a .500 and in
1990 it had risen to .680 (after this the effects of the HIV/AIDS epidemic
began to take hold and HDI fell).
In 1980 Khama died
in office and Vice President Ketumile Masire peacefully made the transition
into office. Masire was reelected three times (1984, 1989, and 1994).
After his retirement in 1998, Festus Mogae took over, who was reelected 2004
and is still in office today.
Analysis and Discussion:
Unlike most other
resource abundant countries, Botswana was able to turn its diamond abundance
into a blessing which contributed to both its human and economic
development. Early in its independence human welfare performance was
quite low due to a lack of capacity on the part of the government - it simply
lacked the resources improve conditions. Botswana's success in securing
and maintaining a strong position in the diamond industry was undoubtedly one
of the most important factors in the augmentation of its capacity to promote
human welfare. The fact that these negotiations with DeBeers took place
several years after independence also played a factor in its success,
especially compared with Sierra Leone, whose diamond sector was already mostly
privately run at independence. "Botswana got off on to the right track at
independence and by the time the diamonds came on stream, the country had
already started to build a relatively democratic polity and efficient
institutions. The surge of wealth likely reinforced this" (Acemoglu et
al, 2001). And not only was it able to get a stake in the
industry, but the revenues flowed directly to the central government, not into
private hands - which is not easy to guarantee, as seen in Sierra Leone. As the value of diamond exports
increased rapidly from the mid-1970s onward, the budget balance shifted from
deficit to surplus, and has remained a surplus sine 1983 (Samatar, 1999: Table
Botswana experienced a huge increase in fiscal capacity almost immediately at
the start of major diamond mining. The government was not only receiving
revenue from taxes and royalties, but also from dividends and shares of the
profit as an equal owner of Debswana. Colcough and McCarthy (1980) report
that even in the first two years of major diamond extraction, rents from the
mineral industry totaled 18% of government revenue. This figure only
increased from there. The Bank of Botswana reports that in the 1990s, the
diamond industry provided approximately 50% of government revenues on
average. In its 2005 Annual Report, in the 2004-2005 fiscal year mineral
revenue still constituted 49.3% of total government revenue.
The stable rule of law and the high effectiveness of the government's policies
(seen in Figure 6 below) in Botswana reinforce the notion that the state had a
high capacity for human development. Sustained resource revenue (and
capacity) allowed the government to ensure a certain level of rule of law and
implement effective policies. The increased capacity produced by the
resource sector clearly puts Botswana above the regional average for
Sub-Saharan Africa with respect to these governance indicators.
Figure 6: World Bank
Institute Governance Indicators, Botswana vs. Regional Average
The potential to
enhance human welfare from this augmented capacity did not go to waste.
Botswana was able to resist the negative effect on its disposition to promote
human development that most resource abundant countries face. The state
had the will and motivation to use its capacity to promote human development as
opposed to private gain. Why was this the case?
culture of participatory governance was by far the most important influence on
the disposition of the state to promote human welfare and key to resisting the
perverse incentives created by resource wealth. The tribal heritage based
on consensual rule was critical to the adoption of a stable democracy at
independence. Additionally, this democracy had several years to develop
before windfall revenues from the diamond industry began to flow.
Transparency International recently labeled Botswana as the "least corrupt
country in Africa" ranking it at 32 out of 158 with a score of 5.9/10.
Its stable democratic system meant that the biggest threat to the political
rulers was the voter - not a military coup or political rivals. This
implies that the ruling elite felt accountable to the public to secure their
position of power, motivating them to serve their needs and provide social
services like healthcare and education. This would explain why countries
with well-established democracies perform better with respect to human
development. This is a major difference between Botswana and Sierra
The ruling elite
in Botswana at independence were a united class of predominantly cattle
owners. Before intensive diamond extraction, the cattle industry was the
biggest economic sector, which meant that the cattle owners had a vested
interest in stability and economic development, as they stood to profit the
most from it. "At independence the only real prospect for a sector of the
economy to develop was ranching... and a great deal of the infrastructure development
had the effect of increasing ranching incomes....The political elites were
therefore enriched by the development policies that were adopted in 1966"
(Acemoglu et al, 2001). These elite did not change their views or
policies when diamond revenues appeared because they felt secure in their
position and in the institutions. "The political security of the elites
was to some degree an outcome of the relatively developed institutions that
Bostwana inherited from its pre-colonial period, which ensured some degree of
political stability" (Acemoglu et al, 2001). This feeling of
security allowed the elite to support development policies that seemed to
undermine the power of most other African governments.
The effects of the
interests of the ruling elite and high level of democracy on its disposition to
promote human welfare are clearly visible in the government's
expenditures. For the fiscal year 2004-2005, education commanded 24% of
total government expenditures and healthcare took 12%.
If you combine education; health; food and social welfare; housing, urban and
regional development; and community and all other social services, this
constitutes almost half of all government expenditures.
These numbers clearly show a disposition, will, and desire, to foster human
development. This disposition, when combined with its great capacity,
helped Botswana to achieve its level of development today and surpass many of
Natural resource abundance has been found to have a significant negative impact
on human development in this paper. This effect is seen to take place
through the impact on the capacity and disposition of state institutions to
foster higher levels of human welfare. High levels of resource rents may
increase the capacity of a state, but will also have detrimental effects on the
placement of human development as a priority to the government.
Without the motivation to use its potential capacity to promote
better human development, the state remains bogged down by poverty.
However, as seen
in the case of Botswana, this is not an absolute or certain outcome for all
resource abundant countries. The question is: what made Botswana resist
these effects? What can be concluded from these case studies is that
strength of pre-existing stable, democratic institutions can be the ultimate
determining factor of the effect of resource abundance. Sierra Leone, who
was unable to gain control of resource revenues, had weak participatory
elements in its government before its independence. The tribal structure
was very authoritarian and created much resentment from the population.
The fact that the diamond industry was pre-established to be controlled by the
private sector during the pre-independence period also had detrimental effects
on the development of stable, democratic institutions. The disposition of
the government to promote human welfare was moved away from that goal from its inception.
Botswana, however, has strong participatory elements in its tribal heritage as
well as communal sentiments. This history allowed Botswana to easily
adopt a solid democratic system at independence. Also contributing to its
democratic development is the fact that intense diamond revenues did not begin
flowing into the national treasury until several years after
independence. With a stable democracy already in place, the damaging
effects on the disposition of the government to foster human development typically
seen in resource abundant countries were not felt.
does not mean that all hope is lost for resource abundant countries without
previous democratic governments. If countries with newly found resource
abundance acknowledge and understand the effects on their abundance on their
capacity and disposition, they can take steps to reform their current form of
governance. The Extractive Industry Transparency Initiative (EITI) is one
example of how a country without a previously stable and accountable government
can avoid the negative effects of resource abundance on their
development. The EITI supports more transparent and accountable
governance in resource abundant countries through an independent publication
and verification of company payments and government revenues from extractive
industries. Additionally several oil producing countries are creating
development entities that are funded by a secured percentage of oil
revenues. The Chad-Cameroon pipeline project has earmarked 80% of royalties
and 85% of dividends for poverty reduction spending until the end of 2007, and
after that those figures increase to 95% and 100% (Pegg 2005). Norway,
another resource abundant country able to avoid the curse, has started the Oil
for Development initiative where the Norwegian development agency helps
developing oil rich countries to manage their revenues. With precautions
such as the EITI and initiatives like Oil for Development, countries can avoid
the curse, but this only comes with the understanding of the impact of resource
abundance on institutions and human development. As the resource curse
becomes better understood, the more the world will recognize the detrimental
effects that resource abundance has on development, economically and socially,
and be better prepared to prevent them.
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 Moon (1991; p.5) explains: "The needs
considered basic are those minimally required to sustain life at a decent
material level. Conventionally, these are defined in terms of adequate
food, water, health care, shelter and minimum education. Adequacy is defined
in a minimum way and measured in terms of observable outcomes rather than in
relation to income or consumption of such basic "goods." Thus, the most
common indicators of national achievement of basic needs are life expectancy,
infant mortality, and literacy."
 Sachs and Warner (1995, 1997, 2001)
 These findings are even more convincing when one
takes into account the exclusion of six major oil producing countries that have
experienced substantially low growth rates. A significant correlation
between resource abundance and slow growth was still produced.
 Originally shown in Sachs and Warner
 Anand and Ravallion (1993) also make
note the causal complications involved with the inclusion of GDP per capita in
HDI to measure development.
 These indicators were added to
include more aspects of the MDGs to determine their performance with respect to
 Frey and Al-Roumi cite R.J.
Szal in this quote. "Popular participation, employment and the fulfillment of
basic needs." International Labor Review 118: 27-38 (1979).
 Jensen and Wantchekon (2004) provide
empirical evidence of the significant negative effect of resource abundance on
the level of democracy.
 Many scholars use rentier state logic
to explain the resource curse, but few ask why the ruling elite act differently
with resource rents than with taxes or why citizens do not demand
accountability for those resources. Future work to apply Tversky and
Kahneman's (1979, 1986) prospect theory can potentially provide greater insight
into these questions. A more detailed description of the applicability of
this theory can be found in my original, full-length thesis.
 His figures are for 1995.
 World Development Indicators, 2006.
 World Bank Millennium Development
Indicators, Data for 2004.
 The HIV prevalence rate in Sierra
Leone is 7% (CIA 2007).
 World Bank, Millennium Development
Indicators, Data for 2004.
 World Bank, Millennium Development
Indicators, Data for 2000, 2004, and 2000 respectively.
 CIA Factbook 1993.
 Human Development Report 2006.
 Much of this historical account
comes from the State Department's Bureau of African Affairs Background Notes,
Hirsch (2001), and Keen (2005).
 Kaufmann et al measure
Government Effectiveness by combining "perceptions of the quality of public
service provision, the quality of the bureaucracy, the competence of civil
servants, the independence of the civil service from political pressures, and
the credibility of the government's commitment to policies into a single
grouping." They measure Rule of Law with "perceptions of the incidence of
both violent and non-violent crime, the effectiveness and predictability of the
judiciary, and the enforceability of contracts."
 Statistics for 1965 from Colcough
and Mc Carthy (1980).
 It is, however, important to note
that there was no real prevalence of smuggling in Botswana because it is mostly
abundant in kimberlite diamonds, which require large corporate operations to
extract, whereas Sierra Leone was abundant in both kimberlite and
 If this percentage seems low
considering the health crisis at hand, note that Botswana has one of the most
extensive programs combating HIV/AIDS. It recently rolled out a huge
anti-retroviral program with a tremendous amount of private investment through
their partnership with the African Comprehensive HIV/AIDS Partnerships, Merck
Pharmaceuticals and the Bill and Melinda Gates Foundation.
 Statistics from the Bank of Botswana
Annual Report 2005.