Zimbabwe must carefully craft policies and strategies to avoid the twin evils of a natural resource curse and the Dutch disease if the country is to benefit from its vast mineral deposits, economic development experts said.
Leading a natural resources discussion forum arranged by Southern African economic think-tank, Macro economic and financial management Institute of Eastern and Southern Africa (Mefmi) at a Harare hotel last week, Jan Isaksen, an economist and counsellor of the Norwegian Embassy in Zambia, said there was a tendency for resource rich countries to grow slower than their counterparts due to high levels of graft and corruption that can become pervasive in resource-rich economies, particularly in the early years after the discovery of the resources.
“In addition, there is sometimes a rapid movement of capital and labour from other traded sectors to the resource sector, a phenomenon known as the Dutch Disease,” he said.
The forum attracted discussants from Mefmi fellows, senior officials from the ministries of finance and economic planning, central banks and senior diplomatic staff from the region.
Isaksen also said some countries suffer a rapid increase in aggregate demand often leading to overheating of the economy and inflation and an appreciation of the currency.
He said economies could suffer due to the “spillover loss effect” of crowding out of the non- resource-traded-goods sector, leading to permanent loss of capacity and technological progress in these sectors.
The natural resource curse is a phenomenon where a resource rich country or region fails to develop economically despite its resource base due to poor governance, rampant corruption or civil wars or other conflicts that arise due to the resource endowment.
The “Dutch Disease” on the other hand describes an economic process where the resource sector drains productive resources from other sectors of the economy leading to stunted growth in these sectors or a skewed economy. According to Isaksen, the Norwegian parliament in 1971 adopted what they called the “ten oil commandments” that underpinned the country’s oil policy based on the principle that the natural resource was owned by all Norwegians and should fall under national supervision and control.
The policy was hinged on the establishment of a state oil company, Statoil, through which all licences would be issued to foreign partners on a 50% equal partnership with the government oil company.
The second most important thing the Norwegian did was to set up a sovereign wealth fund into which all oil revenues would flow. The parliament then set up a fiscal rule that the governemt budget deficit in any one year would not exceed the expected real return on the fund which was estimated at 4% per annum.
The fund is now worth US$700 billion and is managed by the Ministry of Finance through the Norges Bank (the central bank of Norway) under Norges Bank Investment Management (NBIM). NBIM also manages the foreign exchange reserves’ investment portfolio.
Despite being well endowed with natural resources Zimbabwe has struggled to create an environment in which the resource base can be leveraged to spur economic growth. A toxic political environment that is viewed as hostile to foreign investment has been cited as a challenge. Discussants also blamed the large multinational corporations for fuelling corruption as a deliberate policy saying this undermined the potential for poor countries