National Economic Development and Natural Resources
Natural, non-renewable resources are a major source of income for dozens of countries around the world. In an article titled “Understanding Resource Nationalism“, economist Jeffrey Wilson divides these countries into three categories to better understand how their governments manage the income from said natural resources. Meanwhile, a complete different type of renewable natural resource is agriculture, which Farmfolio’s CEO Dax Cooke has conceptualized into an innovative asset class.
National Economic Development and Natural Resources
Rentier countries are the first type to be examined. Within these countries, natural nonrenewable resources play a key role in the national economy. The governments of these countries tend to be populist, authoritarian or both. If they are populists, they promise to (re)distribute the wealth generated by nonrenewable natural resources to the middle and lower classes. If they are authoritarian, they use the country’s natural resources to strengthen and secure the dominant position of the ruling classes and their allies. Traditionally, in these countries, extractive resource activity accounts for a significant portion of economic activity, between a third and half of the GDP, as well as the bulk of national exports. Countries within this category include the six members of the Cooperation Council for the Arab States of the Gulf or GCC (Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Kuwait and Oman), Guinea (Conakry), Kazakhstan, and Russia. Likewise, it should be noted that Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates are all members of OPEC.
In the second category, known as that of developmental governments, natural nonrenewable resources play an important role in the national economy and governments seek to use the incomes that they generate to diversify and propel the national economy in other sectors. In these countries, the resources are exploited both by public corporations and by private companies. Subsequently, the national government captures incomes through mechanisms, such as tariffs, export quotas, taxes, and royalties. As a fixed public policy of the state, the governments of these countries dedicate their efforts to social and industrial development in order to lead the national economy towards an increasingly productive and sustainable model. Likewise, in many cases, governments demand that the extracted resources be processed within the country before being exported, to avoid the creation of a neo-mercantilist dependence. Countries highlighted in this category include Brazil, Chile, China, India, and Indonesia.
Lastly, in advanced free-market economies, natural nonrenewable resources play a secondary role in the national economy and are not directly controlled by the government. Despite not intervening directly in the extractive sectors of their economies, the governments of these countries do take economic advantage of periods with high international commodity prices through taxation mechanisms. Being free-market economies, these countries have no public enterprises for the exploitation of the natural resources, nor do they impose restrictions on international trade. Therefore, these countries adjust or increase the tax rate brackets for multinational corporations in order to exercise resource nationalism and increase their income during commodity booms. These countries include Canada, Australia, the United Kingdom, and the United States.
(Read more about Traditional Market Cycles and Agribusiness)