Unaccompanied Miners: Bolivia's child laborers

Vice: In 1936, George Orwell visited a coal mine in Grimethorpe, England. “The place is like… my own mental picture of hell,” he wrote of the experience. “Most of the things one imagines in hell are there—heat, noise, confusion, darkness, foul air, and, above all, unbearably cramped space.” Orwell was a lanky guy, 6'3" or 6'2", and I am too. So I was reminded of his comparison recently while crawling through a tunnel as dank and dark as a medieval sewer, nearly a mile underground in one of the oldest active mines in Latin America, the Cerro Rico in Potosí, Bolivia. The chutes were so narrow that I couldn’t have turned around—or turned back—even if I’d wanted to.

Orwell wasn’t the first to equate mines with hell; Bolivian miners already know they labour in the inferno. In the past 500 years, at least 4 million of them have died from cave-ins, starvation, or black lung in Cerro Rico, and as a sly fuck-you to the pious Spaniards who set up shop here in 1554 and enslaved the native Quechua Indians, Bolivian miners worship the devil—part of a schizophrenic cosmology in which God governs above while Satan rules the subterranean...

The makeshift oil industry in rebel-held Syria

Vice: It’s a very different place than it was prerevolution, but it is still an oil town, albeit one of an entirely new sort. Instead of multinational corporations, it’s now the Islamist rebels who are providing jobs to the locals...

PlayStation 4 Sales and Violence in Eastern Congo

MARCOS MÉNDEZ:   ...the presence of stationary armed groups is strongly associated with increased economic activity in those areas where they can raise taxes and as long as the price of coltan is high. Therefore, if more PlayStations are sold and the price of coltan increases, the violence could also flare up in the villages formerly held by the M23 in the short term, as armed groups will try to “conquer” them and settle there to extract their resources as soon as possible...

Directed Technological Change and Resources

Why Nations Fail: ...dirty technologies are more advanced than clean technologies based on wind, solar power or geothermal (and even, more controversially, nuclear power). Given this state, directed technological change implies that private incentives will encourage firms and researchers to invest more in using and improving these dirty technologies — clean technologies are just too far behind and won’t be competitive, so it wouldn’t make private sense for people to invest much in them... Though the market without intervention fails and fails badly (think environmental disaster), government intervention can be hugely powerful because it leverages the endogeneity of technology and, as Simon posited, the power of the market to generate new technologies. If the government intervenes and subsidizes clean research, then this can powerfully stave off an environmental disaster...

Is Kazakhstan vulnerable to natural resource curse?

UNU-WIDER WP: This study utilizes panel data from 14 provinces of Kazakhstan and investigates the link between the point-source resources (oil and gas) and economic growth via institutional quality. Labour force migration from manufacturing to non-traded sector occurs as a result of wage increase in the manufacturing sector while its production price is determined and pinned down by the world market. On top of that, the manufacturing sector costs increase even more as a consequence of the price increase of non-traded goods used as inputs in the manufacturing sector. Although, the impact of interaction terms of diffuse resource (wheat) production and institutional quality is not observed, diffuse resources deteriorate the economic growth through wheat price volatility. The wheat price spikes lead to institutional inefficiencies. Moreover, rent-seeking activities of intermediaries in agricultural sector further undermine the economic growth.

ENERGY ABUNDANCE AND THE END OF ECONOMICS

Pieria:  A combination of technological advances and an abundance of labour combines to drive down the cost of production and increase potential supply exponentially. The only constraints to supply are aggregate demand limitations and volatility in energy costs...

Coal part of solution for climate change, says UN climate chief

Mining Innovation: Christina Figueres, UN climate chief, has said that coal power can be part of the solution in dealing with climate change. At the International Coal and Climate summit in Warsaw, Figueres told delegates that they had “the opportunity to be part of the worldwide climate solution” by turning off old coal plants, capturing and storing carbon from new plants and leaving most of the coal reserves in the ground. While she said that coal power would help alleviate poverty and propel economic growth in poorer countries, the industry “must change”.

Does Oil Price Predict Economic Growth? New Global Evidence

Energy Economics: In this paper, we test whether oil price predicts economic growth for 28 developed and 17 developing countries. We use predictability tests that account for the key features of the data, namely, persistency, endogeneity, and heteroskedasticity. Our analysis considers a large number of countries, shows evidence of more out-of-sample predictability with nominal than real oil prices, finds in-sample predictability to be independent of the use of nominal and real prices, and reveals greater evidence of predictability for developed countries.

Some analytical contributions to a mathematical model of resource curse

ANDREA GENOVESE: In this paper we provide some simple generalizations, that generate all the same results, of a model originally presented, along with its simplified version, in two works of Robinson, Torvik and Verdier about the understanding of the resource curse phenomenon, in particular we study how political objectives influence economical choices. More specifically we show how the extraction rate of various public nonrenewable resources, the rate of employment in the public sector and, last but most important, the overall income of a country depend in some way on the aspiration of the politician in charge to keep his power. In addition we analyze some particular cases, related to the same model, in which extraction or employment rates are fixed to a boundary value. We give also a lot of graphics about the results achieved in this extended work.

Maximizing the potential of resource-driven economies

McKinsey: R

ising resource prices and expanded production have raised the number of countries where the resource sector represents a major share of the economy, from 58 in 1995 to 81 in 2011. That number will rise: to meet soaring demand for resources and replace rapidly depleting supply, the world should invest a total of up to $17 trillion in oil and gas and in minerals by 2030, double the historical rate. In 20 years, almost half of the world’s countries could depend on their resource endowments for growth. Economies with natural-resource endowments have a huge opportunity to transform their prospects. But history suggests that they could all too easily squander the windfall.

To date, resource-driven countries have tended to underperform those without significant resources: almost 80 percent of the former have a per-capita income below the global average. Since 1995, more than half of these countries have failed to match the average growth rate of all countries. Only one-third have maintained growth beyond the resource boom. Recent McKinsey research lays out a new model that could help countries capture the coming resource windfall.

To be included in our roster of resource-driven countries in oil and gas and in minerals, countries had to meet at least one of three criteria: (1) resource exports accounted for 20 percent or more of total exports in 2011; (2) resources on average accounted for more than 20 percent of government revenue from 2006 to 2010; and (3) resource rents were more than 10 percent of GDP in 2010 or the most recent year for which data are available. Also included are countries likely to meet these criteria in the near future.

Resource-driven countries in the low- and lower-middle-income brackets could capture $1.2 trillion to $3 trillion of the $11 trillion to $17 trillion cumulative global investment in resources to 2030. At the high end of this range, these countries would net almost $170 billion a year, more than three times their development-aid flows in 2011. There is some potential to lift almost half of the world’s poor out of poverty. That would be more than the number of people who left the ranks of the poor as a result of China’s rapid economic development over the past 20 years.

To capture that investment, these economies should reframe their economic strategies around three key imperatives: effectively developing their resource sector, capturing value from it, and transforming that value into long-term prosperity. The research explores best practices on six fronts: building the resource sector’s institutions and governance, developing infrastructure, ensuring robust fiscal policy and competitiveness, supporting local content, deciding how to spend resource windfalls wisely, and transforming resource wealth into broader economic development (exhibit)...

Coal's Decline Hits Hardest in the Mines of Kentucky

WSJ: Mine Closures and Layoffs Are Reshaping Region's Coalfields

Africans lament poor transparency over mineral wealth

AFP: Most Africans believe their politicians can commit crimes such as stealing and mismanagement with impunity, according to a survey released on Wednesday of 22 of the continent's natural resource-producing countries. Despite attempts to improve governance and transparency in the natural resources sector, a majority said it was difficult to find out how their government was using money from sectors such as mining and oil production. Yet people in the same countries overwhelmingly said they could speak and vote freely and relied on the local media to hold power to account. "The two streams of perception create interesting challenges for governments trying to negotiate with foreign companies for the best mineral and petroleum extraction deals while maintaining transparency and accountability," the survey, by Afrobarometer, said...

Is Nigeria Missing $50 Billion? Some Considerations

Revenue Watch: Nigeria's latest oil scandal has erupted, and it's a big one. This week, an online media outlet leaked a letter from the country's central bank governor to the president accusing the national oil company of failing to transfer $50 billion in oil revenues to the treasury between January 2012 and July 2013...

Making the case for a sovereign wealth fund

Sam Wills in the Sidney Morning Herald: Holden has announced that its manufacturing in Australia will drive off into the sunset by 2017. GM's chairman Dan Akerson attributed this to the “sustained strength of the Australian dollar [and] high cost of production”, or, in other words, Dutch disease. To prevent other exporters doing the same Australia must strengthen its mining tax and save the proceeds in a sovereign wealth fund...

Making Earth's Riches Work for Poor and Fragile Countries

World Bank webcast: At least 80 percent of countries considered fragile or affected by conflict are home to valuable extractive resources that the global economy hungers for. Earth’s riches like oil, gas, and minerals often fuel conflict, trapping all but the elites in poverty amid vast wealth.
Creating good governance, including citizen participation and ensuring that economic dividends translate into equitable development is key to managing the extractives industry, especially in situations where there is conflict. A high-level panel of industry experts and representatives from CSOs and resource rich nations will grapple with the challenges that define poverty or prosperity in a fragile country.

webcast FEATURING

Matata Ponyo Mapon

Prime Minister, the Democratic Republic of Congo

Kay Rala Xanana Gusmão

Prime Minister, Timor-Leste

Heikki Holmaas

Minister of International Development, Norway

Daniel Kaufmann

President, Revenue Watch Institute

Michiel Kool

Executive Vice President for Social Performance, Shell

Clare Short

Chair, the Extractives Industry Transparency Initiative

Sri Mulyani Indrawati

Managing Director & Chief Operating Officer, World Bank Group

Janine Di Giovanni

Newsweek’s Middle East Editor, Author

The Rise of the Resource Curse

Bloomberg: In many ways Mongolia is an outlier -- an exotic tourist destination filled with windswept deserts, nomads and yurts. It might also be a vision of the world's future. With a tiny $10 billion economy and less than 3 million people, Mongolia is fantastically resource-rich. And with borders touching China, Russia and Central Asia, the landlocked nation seems to have won a geographic lottery ticket. It doesn't need to go far to find enthusiastic customers for its immense endowment of copper, gold and other minerals...

Fiscal policy in commodity republics

JDE: We revisit the issue of fiscal procyclicality in commodity-rich nations–commodity republics in the nomenclature of this paper. Since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries, we focus on the behavior of fiscal variables across the commodity cycle, in contrast to behavior across the output cycle, which has been the main focus of earlier research on fiscal procyclicality. We present evidence of reduced fiscal policy procyclicality in a number of countries. Our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries. The presence of fiscal rules also seems to have made a difference: countries that use them displayed a larger shift toward fiscal counter-cyclicality between the two episodes.

Kenya’s Resource Challenge

van der Ploeg and Wills at Project Syndicate: Kenya has been exporting energy for years – in the form of some of the world’s fastest long-distance runners. But Kenya will soon be exporting another, far more profitable kind of energy, as it taps into a string of recently discovered oil fields in its 450-mile-long section of the Great Rift Valley, a fissure in the earth’s crust that runs from Lebanon to Mozambique...

Power in 2030: The Roads We May Take

Daniel Yergin in the NY Times:
• Less than three years ago, a ‘‘nuclear renaissance’’ seemed to be unfolding. Now, in the aftermath of the Fukushima nuclear accident in Japan, the renaissance has turned into a ‘‘nuclear patchwork’’  —  moving ahead in some countries, stalled or shut down in others.
• Five years ago, the United States was suffering an advanced case of ‘‘peak oil’’ and was going to run out of petroleum. Since then, crude oil output has increased by 56 percent and its net oil imports are down 40 percent.
• Four years ago, the cost of solar panels seemed stubbornly high. Then a rapid buildup of over-capacity in China brought costs down by more than 60 percent.
• Half a decade ago, the United States seemed headed to become the largest importer of liquefied natural gas in the world, spending $100 billion a year to make up for falling domestic production. Now, thanks to shale gas, the United States is on track to become an exporter to both Asia and Europe.
• Two years ago, Germany was moving full speed ahead on its Energiewende  —  a quick shift to renewable electricity. Now it is going through a painful reappraisal because of high costs and the loss of international competitiveness to the United States.

Is Saudi Arabia doomed?

Project Syndicate: In the early 1970’s, Saudi Arabia’s King Faisal reportedly confided to senior members of the royal family his fear that, just as in a single generation the country had moved from “riding camels to riding Cadillacs….the next generation could be riding camels again.” His warning seems more apt than ever...

Mining in west Africa

The Economist: Regional governments look for better deals with foreign mining firms...

Large Companies Prepared to Pay Price on Carbon

NY Times: More than two dozen of the nation’s biggest corporations, including the five major oil companies, are planning their future growth on the expectation that the government will force them to pay a price for carbon pollution as a way to control global warming...

Do food prices respond to oil-price shocks?

VoxEU: Recently, there has been great concern among policymakers worldwide about rising food prices and increased food-price volatility. It is widely believed that oil and food prices have become closely linked after 2006, owing in part to a shift in US biofuel policies. This column presents evidence that challenges this conventional wisdom.

Urban property taxation, revenue generation and redistribution in a frontier oil city

Cities: Calls for the institution of fiscal regulations in Africa abound. At the urban level, they hinge on well-known contentions that taxes generate substantial local government revenue for infrastructural development and tend to curtail the problem of ‘unearned income’. Based on empirical evidence from Sekondi-Takoradi, an oil city in Ghana, this paper shows that the nature of regulation, especially the exceptions, broader economic systems of how land is held, and social institutions can constrain successful implementation of taxation. Thus, the argument of advocates of land taxation ought to be revised: the efficacy of taxation is obvious, but contingent rather than assured.

U.S. Frackers, Iran's Oil Men Threaten Energy Cartel

FP: Iran's potential rehabilitation comes at an awkward time for OPEC, the elite club of petroleum-producing states that controls the flow of oil to the world market. The cartel's dominance is already threatened by a boom in oil extracted from shale in the United States, and now the potential return of millions of barrels of Iranian oil to the market looms over Saudi Arabia and other OPEC countries as they meet in Vienna this week.
While the global power shift brought on by the U.S. shale boom threatens OPEC from the outside, member countries are threatening it from the inside. Iraq, and now Iran, both want to increase production at a time when global supply is already high, raising the specter that OPEC won't be able to marshal its members into line to control prices. The end result could be lower oil prices next year, according to many analysts...

The Shale Revolution’s Global Footprint

Javier Solana: The shale-energy revolution that started in the US is thus causing sweeping changes worldwide. And incorporating shale gas into the world’s energy mix could help to combat climate change by creating a bridge to a low-carbon future. So long as methane leakage is contained, CO2 emissions from natural-gas combustion can be significantly lower than those caused by reliance on oil.

Iran threatens to trigger oil price war

FT: Tension between Iran and Saudi Arabia over Tehran’s plans to raise oil output spilled into the open on Wednesday as Opec rolled over its production target in the belief a wall of supply will fail to materialise next year...

Enacting the Mines and Minerals Act (2009) of Sierra Leone

African Studies: The inability of most resource-rich countries in sub-Saharan Africa to benefit from their natural resource endowments has continued to confound observers. Although a growing scholarship has covered this problem, scholars have not focused on explaining the architecture of legal regimes that are instrumental in understanding the policies and approaches states employ in governing their resource endowments. Drawing upon participant observation in the field, this article presents a case study of how actors and stakeholders interacted during deliberations leading to the enactment of legislation governing the minerals sector in Sierra Leone in 2009, and the sources and outcomes of conflicting interests or complimentary pressures on the process. The findings show several courses of action that help explain why, and how, developing countries such as Sierra Leone sometimes fail to maximise revenue generation from their mineral wealth.

Resources, Conflict and Governance: a critical review of the evidence

JSRP WP: What are the links between natural resources and violent conflict? How do formal, informal, and ‘hybrid’ governance arrangements shape those links? What is the impact on the position of conflict-affected populations of these arrangements? This paper conducts a systematic review of the evidence base of peer-reviewed and ‘grey’ literature on resource governance in conflict-affected areas. It finds limited consensus on how to approach and conceptualise resource-related issues in conflict-affected areas. Many of the existing theories rely on normative assumptions and lack empirical support. Three areas are highlighted as demanding further research: hybrid resource governance, rebel resource governance, and the position and strategies of conflict-affected populations.

Auctioning Resource Rights

Slides by Hendricks and Porter.

First-best vs. Optimal Carbon Taxation

Alex Schmitt JMP: At what rate should a government tax carbon emissions? This paper analyzes optimal carbon taxation while taking into account that taxes are set by national policy makers. I add three real-world features to a standard climate-economy model, namely distortionary income taxation, lack of commitment to future policies, and no policy cooperation between regions. I find that in a calibrated two-region model, the optimal carbon tax decreases by more than half relative to the global first-best rate as a result of these features, assuming that a regional government only maximizes domestic welfare. The intuition for this result is twofold: first, under unilateral policy making, the government does not take into account climate damages to the rest of the world and therefore faces a lower welfare cost of emitting carbon. Second, resorting to distortionary income taxes reduces the optimal carbon tax further, partly because of a tax-interaction effect. This effect, which is caused by the presence of second-best costs and benefits of reducing emissions, drives a wedge between the optimal tax and the Pigouvian rate. In contrast, if the regional government maximizes global welfare, then the two distortions partially offset each other, resulting in an optimal carbon tax much closer to the global first-best rate.

Resource Dependence and Armed Violence

Defence and Peace Economics: The dependence on oil, gas, and mineral exports arguably has a negative impact on economic growth in resource-rich, developing countries. This article looks at the impact of resource dependence on adjusted net savings (ANS) as an indicator of weak sustainability. Our results, based on a panel of 104 developing countries during the recent commodity price boom, confirm a negative relationship between resource extraction and sustainable development as measured by ANS. We further look at the specific role of armed conflict and armed violence as captured by the homicide rate. Armed conflict, which is positively associated with resource dependence, negatively affects ANS per capita according to both our OLS and instrumental variables (IV) estimates. Similarly, armed violence has a detrimental effect on sustainable development. Our IV estimate suggests that a one-point increase in the homicide rate decreases ANS per capita by $60. Since education expenditures are a critical ANS component, we further examine the impact of resource dependence and violence on human capital. Consistent with previous findings, resource-dependent countries underinvest in education but armed conflict and violence do not affect the instantaneous share of education expenditures, hinting at a detrimental effect working through physical and social capital rather than education.

Ghana passes local content law for petroleum activities

Spy Ghana: The purpose of these Regulations is to, among other things provide for –

• promotion of maximization of value-addition and job creation, through the use of local expertise, goods and services, businesses and financing in the petroleum industry value chain and the retention of benefits within Ghana;
• development of local capability in all aspects of the petroleum value chain through education, skills and expertise development, transfer of technology and know-how and an active research and development programme;
• achievement of the minimum local employment and in-country spend in the petroleum industry value chain within a decade of the start of every petroleum license or contract, in the provision of such supplies and services specified in these Regulations;
• increased capability and international competitiveness of domestic businesses and industrial sectors;
• creation of petroleum and related supportive industries that will sustain economic development;
• achievement and maintenance of a degree of influence or control by Ghanaians over development initiatives for local stakeholders; and
• A rigorous and transparent monitoring and reporting system to ensure delivery of Ghanaian content policy objectives.