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A plan for resource-rich countries

Published: February 26, 2010
Section: Opinions


Most countries that are rich with natural resources, such as petroleum, gas and minerals have a large percentage of poor citizens. This is the reason many oil-rich countries have called oil a blessing and curse at the same time.

Many social scientists, economists and philosophers have come up with countless theories as to why this is – here’s mine:

Large income from natural resources usually leads public servants to become overwhelmed and corrupted by it. The governments usually take the place of the private sector, and stretch their abilities beyond capacity, opening doors for corruption.

To be or not be corrupt depends mainly on the people in charge, but with the right system in place to check on corruption this problem may be significantly reduced.

An international body could be set in place throughout these countries that would investigate complaints or suspicions about corruption, or maybe a national government agency that is in charge of checking for corruption, whose employees get compensated for the crimes they detect. A good legal system is also required.

But beyond the creation of such agencies, private, governmental and financial security must also be assured. Once this happens, investments will flow into countries naturally.

Capital goes where it is safe. Security would stop the flight of capital, and is the main factor that leads to poverty, which leads to insecurity, eventually leading to flight of capital. It comes full circle.

This security can be achieved once income from natural resources is directed into security enforcing agencies of all kind. This includes affordable housing, health care, micro-finance and education. After the money is invested in this, the remaining profits should be left to the private sector. These will provide security to the countries by giving a healthy lifestyle to the poor, as well as future opportunities. By giving the poor their basic needs and finance for future enterprises the security is almost guaranteed.

Once foreign and national investors realize the country is secure, capital will flow to finance businesses and projects. Most resource-rich countries have millions of people who want to work, millions of entrepreneurs and millions of untapped talent because of the lack of investment.

Many of them will be able to get jobs from private investors that will be the responsible ones for investing on everything else that the government was investing their money before. The redistribution of the natural resource income to only those concentrated areas will further help reduce the possibilities of corruption

History has shown private capital is better at managing and financing projects than governments are. Think of the possibilities for example of developing the agricultural sector on countries that suffer from the dutch disease. Innovative companies would jump at the possibilities of developing these long- forgotten lands.

Of course, companies that exploit natural resources should pay higher taxes and royalties to the government as well as employ a good percentage of national citizens in the company.

This newfound industry will benefit both the people and the government. The flow of capital into the countries would increase tax revenues, reduce poverty and crime, improve the terms of trade, and increase their popularity. The government would give a free hand to new capitalism, but still help with public projects such as repairing highways.

People would feel safe and would shop without fear, and flocks of tourists would visit–a new world would open. Enforcing an efficient security system and redistributing the government revenue to these few and specialized areas is then the key to free these countries from poverty.