The “paradox of plenty,” natural resources are both a gift and a curse to emerging economies. Rather than providing a flourishing economy, often the result of discovering an abundance of new resources is quite the opposite.
The story is repeated over and over again throughout the world. Countries rich in natural resources have fallen victim to poverty, unrest, and tyranny.
In the 1997 study of Jeffrey D. Sachs and Andrew M. Warner, the writers suggest that rather than bolstering economic growth, countries with substantial resources often experience slower economic growth with little to no evidence to suggest geographical location or climate has any impact on this phenomenon.
There seems to be a direct relationship between reliance upon energy resources and authoritarianism. Larry Diamond of Stanford University said: "There are twenty-three countries in the world that derive at least 60 percent of their exports from oil and gas and not a single one is a real democracy.”
Venezuela may be the most striking example of this occurrence right now. The country has the largest oil reserves on the planet, but is now experiencing one of the worst economic crisis in its history. Once the richest economy in South America, the country at present resembles one in the midst of a civil war. In 2014, the country saw its murder rate skyrocket.
Venezuela’s overdependence on oil has led the country into a difficult position. Oil accounts for 96 percent of the country’s exports, leaving the country especially vulnerable to changes in the price of oil. Not only that, the country’s reliance on the resource has created a toxic relationship between the oil industry and the government, with corruption rampant and leaders unwilling to part with their cash cow.
On the other side of the world, Iraq has suffered a similar dilemma.
Over half of Iraq’s GDP comes from oil, in fact, the country’s reserves represent 10 percent of the entire world’s total proven oil reserves.
In Saddam Hussein’s Iraq, the country suffered similar effects to Venezuela. Hussein’s regime used revenue generated from the country’s abundant resources to oppress citizens, boost the military, and funded fruitless wars with neighboring Iran and Kuwait. Additionally, the regime built large palaces and siphoned cash into their personal bank accounts.
These actions derailed the country’s economic promise and led to one of the deadliest wars in recent times.
In Africa, Nigeria was once set to breach the world’s top 20 economies. The country was experiencing a promising surge in growth. Beginning in 1956, when oil was first discovered in the Niger Delta, the country began down the dangerous path of oil reliance.
Nigeria was hit especially hard the fluctuation of oil prices which took projects offline and crushed the nation’s GDP. Now, the country faces a negative growth rate and unrest. It must look toward other industries if it hopes to return to its former glory. Former Governor, Central Bank of Nigeria (CBN), Prof. Charles Soludo noted: “For too long, we have lived with borrowed robes, and I think for the next generation, for the 400 million Nigerians expected in this country by the year 2050, oil cannot be the way forward for the future.”
It is true, diversification of a country’s economy is essential to combat this curse.
There are several countries which have identified their own overreliance on non-renewable natural resource and have begun to diversify their economies through new technological developments.
Saudi Arabia, Russia, and the United Arab Emirates are notable examples. Each has embarked on a path involving technology to ease their dependence on oil and gas.
Saudi Arabia’s Crown Price Mohammad bin Salman has developed the Vision 2030 plan. The plan seeks to accomplish a broad set of goals, but primarily to free Saudi Arabia from its reliance on oil. Through the development of renewable resources and consumer goods, the country aims to increase its non-oil exports as a share of GDP to 50 percent.
Saudi Arabia also aims to revamp their banking system through the use of blockchain technology to streamline its real estate sector within the country and ease trade-based transactions with its neighbors.
The United Arab Emirates is also looking to diversify. The country has recently invested $163-billion in renewable energy projects. Additionally, the UAE has unveiled its Energy Strategy 2050. Sheikh Mohammed, Vice President of UAE and the ruler of the emirate of Dubai explained: "The plan aims to increase usage efficiency by 40 percent and increase clean-energy contributions to 50 percent.”
The UAE is also at the forefront of a move to streamline its government and banking sector by using blockchain technology with the goal to shift to a diversified and “knowledge-based” economy.
In UAE’s Vision 2021, the country looks to blockchain technology to completely revamp the way the government tracks and processes data. Through the process of eliminating unnecessary complications in its bureaucratic process, the country aims to streamline its education system, healthcare, and banking sectors.
Russia may be one of the most interesting examples of diversification away from natural resources. Instead of completely abandoning its reliance on oil, the country is embarking on a path to create its own $100-billion Bitcoin mine.
The Russian government has developed a plan to create an initial coin offering (ICO) to fund a large-scale Bitcoin mining operation in which miners will use the country’s 20GW excess power capacity to mine Bitcoin in order to compete with China. “RMC plans to use semiconductor chips designed in Russia for use in satellites to minimize power consumption in computers for crypto-mining,” Putin’s internet ombudsman, Dmitry Marinichev, said at a news conference in Moscow. Marinichev added that the country has the potential to reach up to a 30 percent share in the global cryptocurrency market.
In this ambitious effort, the mining hardware is given to individuals, each of whom receive a share of the Bitcoin mined, providing not only incentive to participate, but a drastic economic shift, the outcome of which is yet to be seen.
While there may not be one simple solution in shifting away from natural resources, following these nations in their individual paths may provide solid examples moving forward. Through technology, there is now more opportunity than ever to diversify away for non-renewable natural resources.
By Michael Kern via Crypto Insider
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