Setting a price on nature

The Economist on a book by Helm and Hepburn: Bowing to the primacy of economics, the Millennium Ecosystem Assessment, a huge global study of the state of the planet published in 2005, pushed the idea that nature provided “ecosystem services” to people as a way of persuading humanity that it trashed nature at its peril. That led to the establishment of The Economics of Ecosystems and Biodiversity, an initiative designed to put numbers on, and publicise, the economic benefits of biodiversity. Other country-level schemes were also established around the world, of which Britain’s is perhaps the most advanced. Some of the people involved in Britain’s effort have also contributed essays to a new book which provides a useful guide to the methods, uses and pitfalls of valuing biodiversity.

The Iraqi who saved Norway from oil

FT: The real achievement, in other words, was not finding oil but coping with its discovery. Norway faced the same dilemma as every other new oil producer with no experience of the industry: if you rely too much on private foreign companies, too little of the oil wealth benefits the country in the form of government revenue or economic development; if you go too far in the other direction, you risk a bloated, politicised oil sector that evades both accountability to the people and competitive pressures to be efficient... A balance had to be struck. Al-Kasim recalls now that one thing was clear in the early 1970s: Norway would join an international trend towards significant state participation in the oil sector... This created the Norwegian Petroleum Directorate, the oil industry regulator, and Statoil, the national oil company...

Extractive Resources for Development: Trade, Fiscal and Industrial Considerations

ECDPM WP: To be truly transformative, opportunities from the high growth rates have to be translated into employment creation, improved productivity and industrialization. For Africa, the capacity to mobilise domestic revenue and to stimulate industrial development from extractive resources is viewed as essential to economic priorities. Domestic industries should be linked to regional and global value chains. The most effective approach is to combine industrial strengths, deepen interconnectedness and develop competitive and functioning markets. The role of development partners in supporting African initiatives can only be modest: key impetus and drive should come from Africans themselves, and resource-rich countries have potentially greater means to reform their economies.

Nigeria central bank head ousted

BBC: Nigeria's central bank governor is suspended after he fell out with the president for alleging that $20bn (£12bn) in oil revenue had gone missing.

Ugandan oil - a blessing or a curse?

IGC WP: This paper addresses a number of macroeconomic concerns facing a developing country that falls upon a large stock of a valuable natural resource. Our focus is on Uganda, on whose territory substantial amounts of oil were recently discovered. Although this rather unexpected event is likely to affect the lives of many— in fact, arguably most— Ugandans, history is full of examples illustrating that natural-resource discoveries cannot simply be considered manna from heaven. The …nding of oil may indeed be a blessing but it can also easily turn into a curse. The purpose of this report is to analyze the key implications of an increase in revenue and to discuss some central related policy issues, such as how fast to extract the oil, how to man- age the revenues, and how and when to use the revenues. Our treatment does not aim to be de…nitive but is rather designed to build a framework with the perspective of which one can discern and analyze the key issues.

We will start by brief‡y describing Uganda’s economy and some recent macroeconomic trends. We then report estimates we collected concerning the size and value of the oil discovery. In order to analyze how the oil use ought to in‡uence the macroeconomic growth process, we then construct a tractable macroeconomic and use it to look the key macroeconomic tradeoffs facing Uganda. In particular, the model is well suited for a quantitative study of the tradeo¤s between investing and consuming are a¤ected by the oil discovery.

Since the model necessarily abstracts from a host of important issues we then move on and “think outside the theory box”, i.e., we discuss some concerns that our model cannot directly be used to analyze on a less formal level. Among these issues are risk and uncertainty, political transparency, the so-called “Dutch disease”, and whether oil revenues should be used for tax reductions. Finally, we try to draw some overall conclusions from our formal and less formal analyses.

The Global Impact of US Shale

Daniel Yergin: America’s shale gas and tight oil are already changing global energy markets and reducing both Europe’s competitiveness vis-à-vis the US and China’s overall manufacturing competitiveness. They are also bringing shifts in global politics. Indeed, how shale energy may change America’s role in the Middle East is becoming a hot topic in Washington, DC, and in the Middle East itself.

A plague of sapphires

Roads and Kingdoms: Until 1998 Ilakaka was home to a handful of houses, a few dozen residents, abundant scrubland—and little of particular interest. Then came the gemstone boom. Fifteen years later, with Madagascar having just elected a new president and hoping to finally put five years of political upheaval behind it, Ilakaka is the country’s greatest and unlikeliest boomtown—and a stark reminder of the persistent obstacles of making genuine progress in a blighted land...

Climate scientists, speak up!

NY Times: THE overwhelming consensus among climate scientists is that human-caused climate change is happening. Yet a fringe minority of our populace clings to an irrational rejection of well-established science. This virulent strain of anti-science infects the halls of Congress, the pages of leading newspapers and what we see on TV, leading to the appearance of a debate where none should exist...

Nationalised large-scale mining, trade unions and community representation: Perspectives from Northern Madagascar

Resources Policy: This article critically explores the nature and purpose of relationships and interdependencies between stakeholders in the context of a parastatal chromite mining company in the Betsiboka Region of Northern Madagascar. An examination of the institutional arrangements at the interface between the mining company and local communities identified power hierarchies and dependencies in the context of a dominant paternalistic environment. The interactions, inter alia, limited social cohesion and intensified the fragility and weakness of community representation, which was further influenced by ethnic hierarchies between the varied community groups; namely, indigenous communities and migrants to the area from different ethnic groups.
Moreover, dependencies and nepotism, which may exist at all institutional levels, can create civil society stakeholder representatives who are unrepresentative of the society they are intended to represent. Similarly, a lack of horizontal and vertical trust and reciprocity inherent in Malagasy society engenders a culture of low expectations regarding transparency and accountability, which further catalyses a cycle of nepotism and elite rent-seeking behaviour. On the other hand, leaders retain power with minimal vertical delegation or decentralisation of authority among levels of government and limit opportunities to benefit the elite, perpetuating rent-seeking behaviour within the privileged minority. Within the union movement, pluralism and the associated politicisation of individual unions restrict solidarity, which impacts on the movement's capacity to act as a cohesive body of opinion and opposition. Nevertheless, the unions' drive to improve their social capital has increased expectations of transparency and accountability, resulting in demands for greater engagement in decision-making processes.

Closing Coal: Economic and Moral Incentives

OxCarre WP: Climate policy requires that much of the world’s reserves of fossil fuels remain unburned. This paper makes the case for implementing this directly through policy to close the global coal industry. Coal is singled out because of its high emissions intensity, low rents per unit value, local environmental costs and sheer scale. Direct supply policy – such as the sequenced closure of countries’ coal mines – may lead to less
policy leakage (across countries and time) than other policies based on demand or price management. It also has the advantage of involving relatively few players and leading to clear-cut and observable outcomes. It is therefore better able to create the moral force needed to mobilize the collective international action that is required.

Maize prices and cartel violence in Mexico

insightcrime.org: In making the connection between maize prices and cartel violence, the study asserts that when crop prices are depressed, agricultural workers become more valuable to cartels because they will accept lower prices for illicit crops, thereby providing cartels with a bigger cut of the market sale price. In this way, the report offers an alternative explanation to the common assertion that economic depression fuels violence by providing a ready pool of combatants for cartels, stating, "We posit that violence rises in our empirical scenario not from the number of fighters, but from the increased value of controlling territories adversely affected by price shocks."

The mining debate: let’s talk about inclusive growth

IGC: Ghana is rich in gold. It is for the abundance of this valuable resource in the soils and rivers of this West African nation that the British called it the Gold Coast. In recent times questions have been raised about whether such rich natural endowments constitute a blessing or a curse. In a number of instances the exploitation of the natural resource leads to conflict situations or raise serious environmental issues. Gold mining is no more the preserve of the big multinational firms - small-scale mining is on the ascendancy. The recent crackdown on foreign illegal miners has added renewed vigour to the overall debate on mining. But have we considered the effect of the mining industry as a whole on Ghana and its people? Findings from a recent study suggest that we should.

Read more of Ghana's first newsfile, published by IGC Country Economist, Fahmina Rahman.

Ivory Coast joins the African gold rush – but it's no quick fix for the economy

The Guardian: Mining companies are moving in after conflict left vast natural resources untapped, but will these benefit ordinary Ivorians?

Coal Mining and the Resource Curse in the Eastern United States

WP: We measure the effect of resource sector dependence on long run income growth using the natural experiment of variation in coal endowments in a set of 409 relatively U.S. counties selected for homogeneity. Using a panel data set that extends over two separate boom and bust cycles (1970-2010), we find that coal dependence significantly reduces growth of per capita county income over the long run. These estimates indicate that a one standard deviation increase in the measure of resource intensity results in an estimated 0.7 percentage point drop in average annual growth rates. We also measure the extent to which the Appalachian coal resource curse operates by providing disincentives to education, and find that the education channel explains only about 15% to 40% of the curse.

World Bank eyes $1 billion African resource mapping fund in July

Reuters: The World Bank wants to launch a $1 billion fund in July to map the mineral resources of Africa, using satellites and airborne surveys to fill geological gaps across the continent where a lack of adequate data hampers mining investments.

Production of Natural Gas From Shale in Local Economies: A Resource Blessing or Curse?

Kansas City Fed: This article investigates how the recent boom in the U.S. natural gas industry has affected local economies in the central United States. Labor market conditions at the county level in a nine-state region are analyzed using econometric model to determine how employment and wages have responded to the rapid expansion of natural gas production  from 2001 to 2011. The article fi nds a modest positive impact on local labor market outcomes in counties where natural gas production has increased, and little evidence of a natural resource curse.

Sovereign Wealth Funds and Domestic Investment in Resource-Rich Countries: Love Me, or Love Me Not?

World Bank: Sovereign wealth funds (SWFs) represent a large and growing pool of savings. An increasing number of these funds are owned by natural resource–exporting countries and have a variety of objectives, including intergenerational equity and macroeconomic stabilization. Traditionally, these funds have invested in external assets, especially securities traded in major markets. But the persistent infrastructure financing gap in developing countries has motivated some governments to encourage their SWFs to invest domestically. Is it appropriate to use SWFs to finance long-term development needs? Does it matter whether such investments are domestic or foreign-held assets? This note considers these issues, particularly the controversial question of using SWFs to finance domestic projects, motivated partly by SWFs’ perceived importance for development.

Equatorial Guinea: Squandered riches

FT: Standing nearly five storeys high, the granite headquarters of the Democratic Party of Equatorial Guinea epitomises the power of this small country’s ruling party. A pastiche of Middle East extravagance, false Greek columns and brutalist Soviet style, the building is the new home to the party run by Teodoro Obiang, who has ruled the nation for nearly 35 years with an iron first...

Natural resources and public spending on health

New WP: This paper extends the concept of the resource curse by studying whether and through which transmission channels natural resource wealth affects social spending. Even though the availability of vast natural capital reserves has commonly been linked to the neglect of human development, most of the literature has continued to focus on economic performance. This paper is the first to empirically explore the link between natural resource wealth and public health expenditures in light of the hypothesis that the availability of resource wealth as a source of unearned state income enhances state autonomy, which leads to policies that fail to prioritize human development. Using a large panel dataset of world countries covering the period from 1991 to 2010, we find a robust, significant inverse relationship between natural resource dependence, and even abundance, and public health spending over time. The effect remains significant after controlling for state autonomy, volatility, and other factors. These findings have implications for national authorities as well as the extractive industry. Governments should be made accountable for natural resource wealth and correct taxation could provide additional resources, earmarked for health. The extractive industry could increase their investments in sustainable Social Corporate Responsibility operations, specifically in the health sector.