Extractive Industries and the Resource Curse

Extractive Industries and the Resource Curse

Introduction

Extractive industries are categorized as those that operate through mechanisms of removing valuable minerals and other treasured aggregates from the earth. According to Wikipedia, resource curse refers to the paradox that states; nations with plenty of natural resources e.g., fossils fuels, usually have minimal economic growth and experience the worse in economic growth and development. Most of these countries have high potential to boosts their economies, but the resources are squandered by the corrupt few who control the economy, or the resources remain unmined due to civil wars and related political issues.

There is always a strong relationship between the resource curse and the extraction industries. Economists contest on the existence of positive and negative spillovers from mineral extraction to the economy of a country, suggesting that they are influenced by locals, particularly in the presence of a foreign multinational (Gilberthorpe, 2015). In this paper, Gilberthorpe indicates that whether the country benefits from the resource extraction or not, that will entirely depend on the decisions made by the locals. The extracting company has no direct influence on the economy of the country.  The truth in the statement above is that the locals will entirely decide on budgetary allocations after getting the benefits from the income provided from the mines.

In most cases, the income generated is usually given to the functioning government. Depending on the credibility of the government, the resources will either be used wisely to develop the nation and better the living standards of the people or get fixed in personal accounts of very few government officials who hide the money in abroad bank accounts and fail to share any with the poor citizens who need to benefit from it, as in most cases. This shows that not all countries with resources are cursed, while others make this paradox apply correctly. Good examples of resource curse countries are the Democratic Republic of Congo (Rich in all mineral sources) and the Sudan Republic (endowed with Oil riches).

Is it confirmable to say that sometimes, having resources on the earth is a call for laziness? Natural resource dependency may result in reduced people’s incentives to accumulate human capital due to high levels of non-wage income or resource-based wages (Badeeb et al., 2016). Is this a way of controlling the local people? Sometimes extracting natural resources gives the local people enough income to cater to the basic needs, thus forgetting on the big picture on investments and development. This has been a strategy utilized by most extraction companies buying the local resources directly from them without involving the state governments. Sometimes, having the basics for today, and having an assurance that the same will be available for tomorrow will diminish the morale to work hard to create enough capital. Most extract companies use this method to suppress competition and utilize the available cheap labor to make big profits at the end of the day.

The big game of how the extractive companies play with the resources of a nation is comprehensive and cannot be discussed lightly in this paper. However, the extent of how this relationship affects the environmental economics is a point of focus with much acquired from reliable resources. Despite some nations gaining much from the extracted resources, the primary concern of environmental issues is given a deaf ear with some of the resources extracted suspected to be the significant concern of the environment.

The economics behind extraction industries and the resource curse

Most of the country’s resources are usually transferred to the nation which the mining company comes from. This makes most of these countries economically prosperous because they have fully exploited the funds in the mining country. An example of such a nation is the United States. In the United States, landowners have modernized agricultural production, which has increased its capital intensity relative to near non-flooded countries.The poor immigrants from the poor but resource prosperous Latin America and African countries continue to provide labor to support their families working in the agriculture farms (Hornbeck, 2014). what Hornbeck tries to prove in his statement is that most of the minerals mined in Africa are among the rare and most expensive used in the making of agricultural machines e.g., diamonds for drilling technologies and iron for making most machinery. Despite all the riches, the African society cannot form a stable economy that can support its citizens through the provision of labor. The extreme companies exploit most of the resources and leave very little for the locals to benefit from hence end up finding employment in the country that is mining their resources.

Any nation third world nation that is academically or has sound policies to transform the resource wealth into positive social and economic development is bound to encounter financial or economic constraints (Singh, 2012). the third world acts as a market for the end products made from the resources mined from their land. Sometimes, the mining countries would not like these countries to start manufacturing their own or have the knowledge on how to utilize these resources.in return, they either buy the supplies at low prices or put on economic sanctions that will see these countries in their knees. Others support political cues to destabilize the country that be able to exploit the resource without any local threat or local heavy taxations.

The contrast in the resource curse paradox

                      Sometimes, being rich in resources does not mean that you will have problems in building your economy. The latter is just a result of greedy individuals who would not like any progress that might open your eyes to see the potential of making a good income from the resource. There is always an economic logic in the argument that resource revenues can mend the nation’s growth visions, potentially releasing a drift towards higher ranks of income, savings, and investments. Stevens at al, 2015). It is true to say that with enough resources, a country can develop itself from the shackles of poverty and use the available income from the supply to build the nation in terms of capital allocation and revenue generations.

A good example is the United Arab Emirates, where the Sheikhs have been able to control the revenues from the oil mined into a wealth-generating machine. The way of utilizing income is the critical factor and not the availability of the resource itself.

Some of the extraction companies have been able to support the local community by providing valuable resources e.g., hospitals and schools, in exchange for the resource mined in the region. Not all has gone lousy .it is the checks and balances that come with the support and how well the income can be controlled to benefit both the parties.