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The resource boom: new developmental spaces or another race to the bottom?

Booming resource business in the global South may be opening up new possibilities for development strategies

Jewellord Nem Singh, Lecturer in Development, University of Sheffield

Jewellord Nem Singh

Whilst uncertainty over economic recovery remains pervasive in Europe and the United States, in other parts of the world one can hardly speak of an economic crisis. From the ‘BRICS’ to ‘rising Africa’ and the revival of the G20, we cannot deny the newfound sense of optimism that has arisen in much of the developing world. There is more confidence to discuss growth strategies that are not necessarily aligned with the dictates of Washington. These discussions, in part at least, are underpinned by questions about the promise of utilising natural resources for long-term development.

With emerging markets competing with one another for their share of the resources they need to fuel national industrial projects, resource-rich states have experienced new modes of integration in the global political economy. Inevitably, this opens up debates about whether these countries are carving new developmental spaces, or whether another race to the bottom is taking place.

In my recent book co-edited with France Bourgouin, entitled Resource Governance and Developmental States in the Global South, we argued that the commodity boom is unprecedented for three reasons.

First, the driving force behind the boom is a complex set of factors linked to structural change in global and national economies, rather than simply resulting from a demand shock. In addition to strong and sustained economic growth from China and India, the recent boom was fuelled by low previous investment in extractive commodities in the final decade of the 20th Century, a weak dollar, and the explosion of finance capital as a way of managing investment funds from commodities.

Second, the recent resource boom has entailed changing geographies of extractive resource supply and demand. New producer countries have emerged – notably in Africa and Asia – whilst technological advancements have led to the extraction of resources that were otherwise impossible to reach fifty years ago. For example, offshore drilling technology developed by PETROBRAS in Brazil has led to the discovery of pre-salt oil reserves in 2007, whereby oil exports are expected to bring in US$ 28 billion by 2020. Fracking, a new method of extracting oil and natural gas, has not only given hope of becoming self-sufficient in energy to the United States itself, but has also allowed countries like Argentina and Bolivia to discover new deposits of unconventional gas for exploration.

Third, South-South investment driven by multinational enterprises from emerging markets (as measured in terms of Southern outward FDI) is in equal measure driving the commodity boom. Put simply, given the upsurge in (costly) investments to discover new sites of extraction, the commodity boom may be prolonged, and subsequently become less reliant on Chinese economic growth.

The export bonanza undeniably represents a new opportunity for resource-abundant countries to rethink their models of development. Whilst market-opening reforms and new investment regimes were implemented prior to the commodity boom, thus making extractive industries more attractive for multinational capital, it is also the case that some countries have swiftly altered their policy frameworks to capture more resource rents. In South America, apart from exceptions like Colombia and Peru, most states have introduced royalty payments and higher taxes.

In many resource-rich Asian countries, risk management in the mining sector is invariably contested.  Some national governments have digressed from World Bank prescriptions of full-scale privatisation, but – quite controversially – have also introduced new forms of state control as commodity prices have gone up.

But, as developments within many African countries have demonstrated, the hyper-privatisation processes that took place in the 1990s and 2000s are not easily reversible, nor are they necessarily always desirable. As Pádraig Carmody suggests, we are witnessing a new ‘scramble for Africa’. This suggests that the growing Asian presence in Africa has not in fact led to the emergence of new developmental spaces.  Put simply, states act in unexpected ways in response to a common set of external pressures generated by the changing global economy.

These various (and diverse) country experiences with reform of their strategic resources sectors demonstrate, above all, the contingent nature of development, and perhaps also the need to stress agency over structural constraints in taking advantage of new opportunities for growth.

There are, however, crucial questions that we need to ask about all of this. Are national elites capable and willing to build developmental capacities at this critical juncture? What kind of political settlements and elite collective action are plausible to expand reforms beyond producing narrow economic growth and thus position countries to tackle more difficult issues around redistribution?

These inter-twined questions allow us to rethink both the limitations and the possibilities of developmental spaces at a time when resources can be used as leverage for economic development. The resource boom can generate the necessary ingredients to unlock the both the growth and the development potentials of countries. But, equally, it may prove to be a ‘curse’ that locks countries instead into poverty, war and resource dependency.

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