Roadmap for Answer Writing

1. Introduction

• Define ‘Resource Curse’: Start by explaining the concept of the resource curse, which refers to the paradox where countries rich in natural resources experience slower economic growth and development compared to countries with fewer natural resources. This paradox is also known as the paradox of plenty.
• Briefly state that while natural resources have the potential to drive economic prosperity, improper management or overreliance on one resource can lead to poor outcomes.

2. Main Body

• Economic Volatility
  • Overdependence on a Single Resource: Explain how reliance on one resource makes a country vulnerable to global price fluctuations, leading to economic instability.
  • Fact: Venezuela’s economy has suffered from oil price volatility due to its overreliance on oil exports. When oil prices fell, Venezuela’s economy collapsed, leading to hyperinflation, food shortages, and economic turmoil.
• Neglect of Other Sectors
  • Economic Diversification: Emphasize that overdependence on a single resource can stifle the growth of other industries, reducing economic diversification.
  • Fact: Zambia is heavily dependent on copper exports, ranking low in the Global Economic Diversification Index (2023). This limited diversification makes Zambia’s economy vulnerable to fluctuations in copper prices.
• Governance and Corruption
  • Mismanagement of Resources: Discuss how natural resource wealth can lead to corruption and poor governance, as leaders may misuse resource revenues for personal or political gain, harming economic development.
  • Fact: Despite being a leading diamond producer, Sierra Leone remains one of the poorest countries in the world due to corruption and poor resource management in the diamond sector.
• Positive Aspects of Resource Management
  • Effective Management for Growth: Explain that with proper management, resource wealth can be a source of economic growth and development. For example, revenues can be invested in infrastructure, education, and innovation.
  • Fact: Norway successfully manages its oil wealth through the Government Pension Fund Global, ensuring long-term economic stability and growth. Norway’s sovereign wealth fund is considered one of the largest in the world, contributing to a robust and diversified economy.
  • Fact: Botswana has used revenues from diamond exports to build infrastructure and invest in education and healthcare, leading to high levels of human development despite its reliance on diamonds.

3. Conclusion

• Summarize: Conclude by acknowledging that while excessive reliance on a single resource can indeed hinder a country’s development due to economic volatility, neglect of other sectors, and poor governance, it is not a deterministic outcome. Countries can overcome the resource curse with effective governance, strategic diversification, and investment in human capital and infrastructure.
• Reaffirm that the key to avoiding the resource curse lies in managing resources wisely and investing in sustainable development.

Relevant Facts and Sources

1. Venezuela’s Economic Volatility
   • Fact: Venezuela, heavily reliant on oil exports, faced economic collapse when global oil prices fell, leading to hyperinflation and a humanitarian crisis.
2. Zambia’s Lack of Diversification
   • Fact: Zambia ranks low in economic diversification, relying mostly on copper exports, which makes its economy vulnerable to shifts in global copper prices.
3. Sierra Leone’s Corruption Issues
   • Fact: Despite being a major diamond producer, Sierra Leone struggles with poverty and inequality due to corruption and poor resource management.
4. Norway’s Resource Management
   • Fact: Norway has prudently invested oil revenues into a sovereign wealth fund, ensuring long-term economic stability and avoiding the pitfalls of the resource curse.
5. Botswana’s Resource-Driven Development
   • Fact: Botswana used revenues from its diamond exports to invest in education, healthcare, and infrastructure, which has led to strong human development and economic stability.