EXTRACTIVE RESOURCES, GLOBAL VOLATILITY AND AFRICA’S GROWTH PROSPECTS1

Elias T. Ayuk* and Rebecca A. Klege**

ABSTRACT

Africa is endowed with an incredible amount of natural resources of which the extractive sector is a key component. Unfortunately, however, the continent is characterized by a paradox of plenty or resource curse, depicting a situation of abundant resources that have not translated into economic growth and prosperity for the population. The potential role of the extractive sector is further affected by global volatilities. This article reviews the importance of the extractive sector to selected African countries. It identifies sources of global volatility that affect the sector and further attempts to establish the factors that drive the volatility-growth nexus. We use panel data covering 18 selected African countries from 1970-2013 to explain the gross domestic product (GDP) growth. Volatility persistence estimates are also calculated. The article further examines the policy space that African governments might consider to make the extractive sector play a major role in the development of the continent. We find that the extractive sector makes a huge contribution to GDP of the selected countries. The empirical evidence also indicates that 12 out of 18 countries find it difficult to adjust their economies back to equilibrium when hit with volatility shocks or changes in the volatility of GDP growth.

Keywords: economic diversification, extractive sector, growth, natural resources, resource curse, volatility

DOI: https://dx.doi.org/10.4314/jsdlp.v8i1.11

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* Director, United Nations University Institute for Natural Resources in Africa, Accra, Ghana.

** Doctoral candidate, School of Economics, University of Cape Town, South Africa.

1 The views expressed in this chapter are those of the authors and should not be attributed to their affiliated institutions.

THE ROLE OF THE STATE AND THE TRANSNATIONAL IN LIFTING THE RESOURCE CURSE

Karolina Werner*

ABSTRACT

In the past, natural resources such as coal and iron ore were catalysts for development and the economic theory focused mainlyon how the exploitation of natural resources could promote trade and development. Since the 1970s, however, we have been increasingly confronted with resource-rich countries lagging behind in economic growth and facing high risks of violent conflict. Using Sierra Leone as a case study, this article briefly explores the resource curse paradox, noting the role of the national government and international actors in maintaining the status quo. It highlights the fragile state of postconflict governments, focusing on the delicate balance between attracting foreign investment and fighting corruption and poverty in environments already susceptible to recurring violence. The article further examines both government and private sector activities that have contributed to the economies of violence through unequal distribution of natural resource rents and revenues. It also argues that to move from resource curse to resource blessing, both the affected states and the international community need to refocus their attention on the effectiveness of returns on natural resource revenues and the critical role of transnational corporations in perpetuating the curse.

Keywords: Sierra Leone, resource curse, TNCs, natural resources, postconflict states

DOI: https://dx.doi.org/10.4314/jsdlp.v8i1.13

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* Theme Leader, Conflict, Security, and Natural Resources, Institute for Natural Resources and Sustainable Development; Researcher, Centre on Governance, University of Ottawa, Canada; PhD Candidate, Global Governance, Balsillie School of International Affairs, Wilfrid Laurier University, Canada.

PERIODIC REVIEW IN NATURAL RESOURCE CONTRACTS

Jacky Mandelbaum*, Salli Anne Swartz*, and John Hauert***

ABSTRACT

Periodic contract review mechanisms, which are provisions in contracts that formally require parties to meet at particular intervals to review the terms of the contract, are mechanisms that may facilitate the process of negotiating contractual changes to accommodate changing circumstances over the term of extractive industries contracts. Through the review of existing extractive industries agreements, this article considers how such review mechanisms have been incorporated into existing contracts and the use of such mechanisms as a tool for maintaining good relationships between the parties. In addition, the article suggests a new approach to the drafting of these mechanisms by negotiating objective criteria to be incorporated into the contract at the commencement of the contractual relationship in order to facilitate the timing and parameters of contract renegotiation when certain triggers occur.

Keywords: Periodic review, natural resources, extractive industries contracts, renegotiation, sustainable development, long-term contracts; hardship.

Doi: http://dx.doi.org/10.4314/jsdlp.v6i2.6