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The Resource Curse: Is this the cause of growing inequality in Southern Africa?

January 21st, 2014 by Posted in Angola, English, Malawi, Mozambique, South Africa, Zambia, Zimbabwe

Credit : Augustine Mandigora (Oxfam Regional Policy Manager: Southern Africa) & Prof. Nicholas Ngepah (Oxfam Senior Regional Research Adviser: Southern Africa)

 Economic Inequality. Picture Credit : Oxfam

Economic Inequality. Picture Credit : Oxfam

The Oxfam Briefing Paper “Working for the few: Political Capture and Economic Inequality” has highlighted the shocking statistic that the world’s 85 wealthiest people own the same wealth as half the world’s population. The paper also describes the extent of this inequality, highlights some of the causes and proposes a number of key policies to address the problem.

For Southern Africa, the next step is to ask how relevant these findings are. Many Southern African countries share characteristics of economic growth prevalent in the rest of the continent. These are: abundant natural resources, high levels of economic growth but stubbornly high levels of poverty and inequality. In fact, a quick desktop analysis shows that Southern African countries with a high proportion of natural resource exports exhibit higher levels of inequality.

The two scatter plots below (figures 1 and 2) show this relationship. Inequality is captured by Gini coefficients and Palma Ratios. Extractives activities are captured by ores and minerals exports as a share of total merchandise exports. The data points are ten-year averages from 1990 to 2013, for twelve SADC countries guided by data availability. Data for the indices was drawn from the World Development Indicators.

With both indices of inequality, there appears to be a positive association between extractives and inequality. The figures show that SADC countries with higher dependence on ores and mineral for exports revenue tend to also be more unequal. This reinforces the view that the benefits flowing from mineral wealth may be disproportionately distributed. The number crunchers among us can look at the detailed data set used to generate these graphs and draw their own conclusions.

 Figure 1: Extractives and Gini coefficient.

Figure 1 : Extractives and Gini coefficient.

 Figure 2: Extractives and Palma Ratios

Figure 2: Extractives and Palma Ratios

Although this analysis does not purport to be exhaustive, its findings suggest that the link between inequality and resources needs further, detailed interrogation. In addition, the link between governance and inequality within resource exporting countries also needs to be better understood. It may be that the briefing paper’s contention that wealthy elites often capture policy-making processes for their own benefit and that global extractives companies often negotiate their way out of paying their fair share of tax applies to Southern Africa, but this needs more investigation.

Some earlier research evidence shows that much of the ‘resource curse’ that characterised the natural resources sector is propagated through corruption and bad governance, although the latter can also be a consequence as well as a cause of the former. Further, some natural resources, contingent on the type of governance regime may be more prone to corruptive rent seeking than others, implying that the above graph also merits a case-by-case disentanglement. However, broadly speaking, there is a clear observable negative association between natural resource exploitation and inequality. Although this association may not be causality, it is indicative of something worth probing.

In conclusion, the global levels of inequality have reached crisis proportions and need urgent policy interventions at global, regional and national levels. In the case of Southern Africa, the link between heavy reliance of extractives exports and high levels of inequality requires detailed interrogation. This understanding may help the region to formulate a coordinated response to the yawning gap between rich and poor which appears to be accelerating in resource-rich countries.

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