How the oil price drop can lift a 'curse'
Is this a moment to finally end the “resource curse”?
It’s a question many experts are asking as oil-exporting nations from Venezuela to Russia – supposedly “cursed” by an overdependency on easy natural wealth – cope with a deep plunge in oil prices and, more important, the strong possibility of low prices for years.
“What we’re witnessing in part ... is the failure of the petrostate, where the resource curse has finally reached its logical conclusion,” says Edward Morse, head of commodities research at Citibank, who adds that $100 a barrel may not be seen for a very long time.
Others see a blessing in disguise as the drop in petrodollars exposes the illusions of governance that many petrostates have been prone to: corruption by a well-connected elite, concentration of power, little transparency, reckless welfare spending and, most of all, a failure to improve their citizens’ productivity and create a healthy future in nonoil business.
Even Norway – which for decades has prudently set aside its petroleum riches into a $840 billion sovereign wealth fund, distributed only a portion of that money, and largely avoided the “curse” – is now racing to boost other export industries. The Nordic nation’s economic growth has declined sharply after the unexpected nosedive in oil prices since last June.
“The long-term adjustments that come from this will be good for Norway,” says Prime Minister Erna Solberg.
With gas and oil reserves recently discovered in Africa, and with many nations planning to tap shale deposits with new-style drilling methods, lessons from mismanaged petrostates are being studied and spread by the World Bank and others. Leaders of nations who expect a resource “bonanza” would be foolish to fall for the now-unmasked “curse.” They also now have many negative object lessons.
Libya’s implosion into violent chaos is the most visible example of an oil exporter that left itself with little to build on. Russia has put billions of petrodollars in a reserve but it, too, is taking drastic steps to prepare for a low-price era. And Nigeria, which faces a key election and terrorist attacks by Boko Haram, may finally be focusing on the pestering issue of oil-fueled corruption.
Most eyes, however, are on Venezuela, which has the world’s largest proven oil reserves. This major Latin American country of 30 million people is seeing its democracy implode, starting first under the late Hugo Chávez and lately under his chosen successor, President Nicolás Maduro. The country’s economy is in a tailspin with high inflation and shortages in basic goods. Among large oil exporters, Venezuela has the lowest level of foreign-exchange reserves, in part because it has squandered money in redistribution programs with little to show.
As political dissent and social unrest rise, Mr. Maduro keeps looking for diversions or scapegoats, such as arresting top political figures, including the mayor of Caracas. Other South American nations, worried about possible spillover effects, are offering food and other assistance.
Natural resources can be a blessing, not a curse, if countries wisely invest the wealth in their people’s capacity to develop skills and create useful ideas, and not siphon it off for temporal needs or to line the pockets of the powerful.
This scenario has long been predicted. “Just as the oil curse had a beginning, it could also have an end,” predicted Michael Ross, author of “The Oil Curse: How Petroleum Wealth Shapes the Development of Nations,” in 2012. The final chapter may well end with a blessing for much of the world.
