How can fragile states make the most of their resource endowments without falling victim to resource conflicts or authoritarianism? This policy brief from the Danish Institute for International Studies advocates a re-examination of the link between natural resource governance and state fragility in order to better understand why many states fall victim to the ‘resource curse’. Donors can help fragile states make the most of their resource endowments by seeking to improve the: internal governance environment through greater transparency and capacity; and the external market environment, through more incentives for foreign investment and more equitable trade conditions.
Many of the world’s fragile states have become dysfunctional, despite vast resource endowments. Wealth in the form of natural resources has spurred not economic growth, but corruption, repression and violent conflict. This is the so-called ‘resource curse’. As such, it is important to rethink the governance of valuable resources, not only because this sometimes leads to state fragility, but also because improved resource management offers ways out of fragility and towards economic growth and development.
A first step in designing policies that mitigate these problems involves further scrutiny of the mechanisms that link natural resources with adverse outcomes for fragile states. Understanding the characteristics and problems of natural resource governance is critical to developing policies to counteract them. Some common features of natural resource governance issues in fragile states include:
- a high degree of resource dependence;
- situations of extreme state fragility where groups clash in violent conflict over resources or in attempts to secede by a resource-rich part of a country;
- rentier states, surviving on rents rather than traditional taxation of the population; and
- lack of economic development and the persistence of repressive regimes, with little ability or desire to promote growth and welfare for their citizens.
Breaking the linkage between state fragility and natural resources is a challenging and risky undertaking. Policies aimed to create growth based on natural resource extraction run the risk of solidifying authoritarian regimes’ grip on power. For donor countries, this amounts to a challenge when it comes to promoting policies that strike a fine balance to ensure that state strength, resource extraction and economic growth positively reinforce each other. To allow fragile states to make the best of their resource endowments, donors should work towards:
- increased transparency in the oil, gas and mining sector through the implementation of internationally recognised governance principles such as those set forth by Extractive Industries Transparency Initiative (EITI);
- improved local capacity for contract negotiation and creation of natural resource taxation schemes;
- better opportunities for companies to make investments in risky environments; and
- multilateral progress towards better market access for processed raw materials from fragile states through the removal of tariffs and non-tariff trade barriers.
