Politics, Business & Culture in the Americas

[i]The Developmental Challenges of Mining and Oil: Lessons from Africa and Latin America[/i] by Rosemary Thorp, Stefania Battistelli, Yvan Guichaoua, José Carlos Orihuela, and Maritza Paredes

Reading Time: 5 minutes

The first decade of the twenty-first century has witnessed some remarkable developments: the 9/11 terrorist attacks, the rise of China, the 2008–2009 financial crisis, and the Arab Spring, just to name a few. South America’s commodity and natural resource boom should be added to that list. The buoyant market for soy beans from Argentina, oil and natural gas from Bolivia, iron ore from Brazil, copper from Chile, and fishmeal from Peru, among other examples, has not occurred in the region for nearly a century. Prices and demand have held steady as emerging market countries like China and India have voraciously consumed these exports in their pursuit of economic growth.

The Developmental Challenges of Mining and Oil: Lessons from Africa and Latin America comes at the right time to understand the implications of this boom. The five authors—Rosemary Thorp of St Antony’s College at University of Oxford; Stefania Battistelli of the UN Food and Agriculture Organization; Yvan Guichaoua of the United Kingdom’s University of East Anglia; and José Carlos Orihuela and Maritza Paredes of Brown University’s Watson Institute for International Studies—consider six country cases, three from Africa (Botswana, Nigeria and Niger) and three from South America (Bolivia, Chile and Peru).

Unfortunately, the authors employ a rather busy analytical framework in writing their case studies. Each seeks to explain the interplay between resource abundance and development through the lens of “historical institutionalism.” This term is expanded, perhaps too flexibly, to encompass everything from colonial legacies to political and economic institutions, leadership, state–society relations, and the influence of external actors and multinational corporations. The result is that so much old ground is covered in these chapters that more recent trends of the current commodity bonanza are barely addressed. Inexplicably, the chapter on Bolivia does not go beyond the 1950s.

Moreover, the justification for choosing the country cases is not clear. Within each region, the authors designate one “successful” case. For Africa this is Botswana; for South America, Chile is portrayed as the winner. The four other cases, each in its own way, are deemed “failures.” However, the criteria for success or failure are not well spelled out, leaving the various references to these terms somewhat vague and uneven.

In the cases of Botswana, authored by Battistelli and Guichaoua, and Chile, authored by Orihuela, “success” is defined as a more accountable distribution of the rents from diamonds and copper and cohesive state-society collaboration in upholding property rights and the rule of law. In a chapter on developmental outcomes, the book’s five authors write that in Botswana and Chile “the centralization of revenue from extractives in central government hands allowed its relatively unobtrusive use to sustain the political system without provoking the regional tensions so vivid and disrupting elsewhere.”

The failed development cases are roughly defined against this same standard. In one form or another—and when compared with the success cases—failure implies a weaker and distorted form of distribution (Bolivia and Peru), or the lack of checks, balances and institutional oversight (Niger and Nigeria). In the failed cases, resource abundance becomes both cause and effect in perpetuating dysfunctional institutions, incompetent policies and persistent inequalities.

It would be difficult to dispute the evidence for failure in Niger and Nigeria, which are considered in a chapter by Guichaoua. These countries define the very meaning of “resource curse.” The enormous rents from uranium (Niger) and oil (Nigeria) have freed authoritarian and paternalistic rulers from accountability or from even minimally upholding the rule of law. Nigerian President Goodluck Jonathan’s failure to curb the misappropriation of billions of dollars in fuel subsidies since 2009 is testimony to this ruthless exploitation. In his gripping and tragic account, Guichaoua writes, “Nigeria’s per capita GDP in 2000 was roughly the same as in 1970 […] but the proportion of the population living on less than a dollar a day doubled over the same time period.”

Although difficult to fathom, Niger is in even more dire straits—ranking second to last in the 2011 UNDP Human Development Index.

When compared with these African cases, their counterparts in Latin America—Bolivia and Peru—start to look much better. Still, these mineral producers continue to grapple with the legacies of resource exploitation, enclave development and discrimination against Indigenous populations.

After offering a cursory summary of the current period in the introduction, Maritza Paredes, the author of the chapter on Bolivia, identifies the challenge as “the disconnect between state autonomy and state capacity, the common and problematic legacy of mineral states, and of the problems of Bolivia.”

But since Paredes sticks closely to her declared commitment to tackle this “paradox by exploring the history of Bolivia,” the reader is left without insight into the current period.

This is unfortunate. The Bolivian case raises important contemporary questions concerning the economic effects of nationalization in the hydrocarbons sector, the collection and disbursement of new royalties on oil and natural gas, and the interaction of these trends with the efforts of President Evo Morales to implement policies of redistribution and social inclusion.

Despite the similarities between Bolivia and Peru in terms of history, geography and endowment factors, the justification for lumping these two countries together in the “failure” column is not all that convincing. The Peru chapter, written by Thorp, draws heavily from her iconic book, Peru 1890-1977: Growth and Policy in an Open Economy (1978), co-authored with Geoffrey Bertram. Yet her brilliant analysis in that book is oddly out of place in the current volume, as Thorp’s analysis, like Paredes’, is largely historical. Although more attention is paid by Thorp to the contemporary era, trends that could actually bode well for Peru’s development are not treated as such.

For example, the more recent devolution of royalties from oil, mining and natural gas to the provinces where these resources are extracted is certainly better than the previous regime of hoarding these rents in central government coffers. Thorp also rightly notes that efforts to disburse these funds in a transparent manner on social infrastructure projects have been abysmally slow.

This, however, hardly constitutes a critical failure. Thorp overlooks Peru’s high growth, sound macroeconomic track record and the fact that the Peruvian middle class has grown in leaps and bounds.

This last point is where the lines between “success” and “failure” begin to blur. The designation of Bolivia and Peru as failed cases rests largely on their poor distributional and development indicators and their inability to change a strong dependence on revenues from primary exports. In both cases, the result has been stunted institutional modernization. The success stories, Botswana and Chile, are depicted as having broken out of this syndrome, each in its own way.

But the data tell a different story.

Because of its diamond wealth, Botswana’s per capita income (based on purchasing power) is about $17,000 a year. Yet some 30 percent of the population lives below the poverty line, and another 20–25 percent is infected with HIV/AIDS. Its ranking on the UNDP Human Development Index is worse than that of Bolivia. Chile’s indicators are much better. Its per capita income is on a par with Botswana: just 11 percent of the population lives below the poverty line, and it ranks in the Index’s “very high” category.

Meanwhile, Chile’s ranking on inequality falls midway between that of Bolivia and Peru, whereas Botswana ranks as one of the world’s most unequal countries. Both Bolivia and Peru have a more diverse export portfolio than either Botswana or Chile.

All the authors tend to treat the distributional downside of mono-export dependence in Botswana (diamonds) and Chile (copper) as caveats or anomalies, whereas the scale of similar challenges faced by Bolivia and Peru are deemed sufficient for an indictment of failure. If the latter is indeed true, the facts are not entirely borne out in this volume.

The authors would have done better to avoid normative approaches that seek to classify cases which, in the end, defy neat categories. In line with the historical institutional approach, it is the subtle variation among countries that can sometimes be more revealing than an effort to identify stark contrasts.

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