Are natural resources really a curse? Before discussing cross-country regressions analysis let’s begin with a case study that appears to illustrate exactly what people have in mind when they talk about the resource curse. In their recent edited volume “Plundered Nations? Successes and Failures in Natural Resource Extraction” Paul Collier and Anthony Venables have a very interesting chapter by Bernard Gauthier and Albert Zeufack called “Governance and Oil Revenues in Cameroon”. There is no better place to start to study the resource curse.
Oil was discovered in Cameroon in 1977. At the time the economy had been growing well based on coffee and cocoa exports. The arrival of oil triggered a boom with the economy growing at an average rate of 9.4% between 1977 and 1986, but then the slide began. Positive turned negative, and by 1993 income per capita was half of the 1986 level. Though growth then resumed, Cameroon is still about 1/3 poorer than it was in 1986. This poor growth experience went along with deteriorating human development. Life expectancy fell from 56 to 50 years between 1995 and 2006 and infant mortality increased by almost 30% over the same period. Primary and secondary school enrollments declined by 10%. A lot of these declines are due to a collapse of public investment.
On the face of it this is odd given that over the period since 1977 Gauthier and Zeufack estimate around US$20 billion has accrued as oil rents to the Cameroonian government. This represents around 67% of the total oil rents, so the lions share of the rent went to the government, not to big bad oil companies.
What did the government do with this windfall?
Gauthier and Zeufack don’t know the answer to this because for a start only 54% could be properly accounted for in the sense that they appeared somewhere in the government budget. They rest simply vanished and “may have been looted”.
Just getting to this first number takes a lot of work and the use of many sources because “The oil sector in Cameroon has been surrounded by official secrecy for most of the last 30 years … very little is known about the level of resources accruing to the country and the use of these resources.’’
Interestingly in 1977 President Ahmadou Ahidjo of the Cameroon decided to create an extra-budgetary account abroad to “manage” the oil revenues. The size of this account was never published, and the president released no information about it. This was not a sovereign wealth fund of the type run by Norway or Chile. Sadly, some erroneous ex post justifications were provided for this lack of transparency even by the international community which should have known better.
Gauthier and Zeufack quote a 1988 World Bank report as noting:
While this secrecy has potentially dubious effects on the responsibility and accountability for public revenues, it does presumably have the benefit of reducing various pressures to increase government spending, which emerge once it becomes clear that the government is flush with funds
Meanwhile, between 1978 and 1986 government expenditures went from 17% of GDP to 26% of a much larger number. Public sector wages increased as did subsidies. There was also a boom in government capital formation that tripled. The government, based on a temporary increase in oil revenues, embarked on an unsustainable boom in consumption and investment, much of which was in “white elephant” projects with little social value. The crash came in 1986 and in 1988 Cameroon entered into a structural adjustment program with the IMF.
Cameroon has limped along since then. The President Paul Biya, who replaced Ahidjo in 1982, is still in power having survived the democratization of the country in 1992. In October 2011 he won his sixth term in office with 77.9% of the votes. In the meantime he had to amend the 1996 Constitution to remove the two-term presidential term limit.
Oil seems to have brought few development benefits to Cameroon, indeed quite the opposite. This looks like the resource curse doesn’t it? So is resource wealth always a curse?