Geology for Global Development

Guest Blog: An Economist’s Perspective on Natural Resources

Helen Ashcroft is currently a DPhil student at the University of Oxford. She blogs for the Bang! Science Magazine (Planet Blog) and is also a STEMNET Ambassador, working to promote science, technology, maths and engineering to young people.  Jim Cust, a graduate student in economics, presented this term’s Oxford University Group GfGD seminar. In addition to his research Jim is also a director of the Natural Resource Charter, an organisation which gives guidance to societies and governments on natural resource extraction. Helen has written for the GfGD Blog before, about career paths in the development sector, and today she shares some of the lessons from Jim’s seminar with us.

Hearing an economist’s perspective on the mining of natural resources was very interesting to me as a geologist. I discovered it isn’t as simple as extracting the resources and benefitting from their sales; Jim pointed out some of the long-term economic issues that I hadn’t really thought about before.

In developing countries, the discovery of a new natural resource, oil or minerals for example, can seem like a gift, as it offers the potential for independent economic development for the country. However, observations of the economic growth of countries within Africa has shown that countries which are rich in natural resources actually exhibit less growth than resource poor countries – this phenomenon is known as the ‘resource curse’.

Obviously factors such as population size and the ability to efficiently extract the resources affect the economic growth of a country, but a systematic investigation was needed in order to understand this ‘curse’. There are several steps in the successful extraction and usage of natural resources, which are complicated by the rising prices of commodities across the globe, as well as taxation laws.To reap the maximum benefits a set of guidelines needs to be emplaced.

One thing which I hadn’t considered before was the rate at which the resources should be extracted and what should be done with the profits – i.e. how the development can be made sustainable. When resources are extracted, the profits earned from their sale can either be spent immediately or invested into long term projects or ‘produced capital’ (hospitals, roads, education etc.). Different countries have different requirements due to the differences in capita, for example Norway is rich in natural resources and produced capita, and so it can look at ways to maximise its profits, whereas lower income countries like Nigeria would be better investing their profits into building a stable infrastructure or produced capital so that if the global market crashes they have some financial security.

One difficulty with all of these considerations is that it can be difficult to give advice to a country, and communication between governments and the public needs to be effective. For example the profits made from copper mining in Chile are partly put into savings, which was not a popular choice during an economically wealthy time period, however when the prices of commodities crashed, the Chilean population were relieved that they had put aside money for a ‘rainy day’.

Jim’s talk emphasised the importance of a multidisciplinary approach to improving global development, and pointed out that it is the geologists’, geographers’ and engineers’ role to effectively and efficiently extract resources with minimum damage to the local environment and to the community, but that it is the role of economists to aid countries in the investment of the profits gained.  As a true economist, Jim pointed out that the extraction of natural resources should be considered as a cost balance with respect to the damage done and the profits gained, and suggested that it is worth extracting natural resources if the profits gained can then be put to good use in development and repair to damage already done.

The importance of international guidelines and support is particularly important at the present, due to the rise in prices of commodities, the improvement and advances in the identification of new natural resources especially in regions which have low incomes, and the growth of China which has led to Western civilisation having less money to give as aid to developing countries. Therefore is imperative that we enable these countries to build economically as this will provide them with more wealth now and in the future.

Rosalie was the Himalayas Programme Officer for Geology for Global Development and writer for the GfGD blog. She is a geochemist and a postdoc at the University of Oxford.