Wednesday, June 18, 2008

Resource Curse and under-development

Orissa has been witness to vociferous and often violent protests in the recent months over the proposed setting up of a $12 bn steel plant by the South Korean Steel giant, POSCO. The investment, if it goes through, would easily be the largest FDI in Indian manufacturing.

It is alleged that the Steel Plant would result in displacement of large numbers of tribal communities. Opponents point to the examples of Jharkahand and Uttaranchal, which despite being rich in mineral resources, have not enjoyed the proportionate benefits of their resource ownership and continue to remain poor and deprived. The left-wing extremists too have taken up the cause of these tribals and are threatening to launch a violent agitation against the mining project.

Economists have a term to describe this phenomenon - "resource curse". It refers to the condition wherein natural resource rich regions not only do not get the benefits from the resources they own, but also suffers from violent conflicts, extreme poverty and under-development. Orissa may only be the latest example in the long line of resource rich countries or regions experiencing such conditions. The large numbers of resource-rich African countries are the commonest examples of nations afflicted by this "resource curse".

The latest edition of the State of India's Environment, "Rich Lands Poor People, is sustainable mining possible?", brought out annually by Centre for Science and Environment (CSE), says, "India’s richest lands — with minerals, forests, wildlife, water sources — are home to its poorest people. Mining in India has, contrary to government’s claims, done little for the development of the mineral-bearing regions of the country."

The report observes that of the 50 top mineral producing districts, 34 fell under the 150 most backwards districts. It concludes that the vast majority of the wealthiest districts in terms of natural resources were the poorest and the most under-developed districts. The report said that "the wealth of mining does not go back to the mining areas. Mining takes minerals, degrades land, water and forests, and does not provide local employment."

The report also observes, "Between 1950 and 1991, mining displaced about 2.6 million people — not even 25 per cent of these displaced have been rehabilitated. For every 1% that mining contributes to India’s GDP, it displaces 3-4 times more people than all the development projects put together."

Why do such resource rich regions appear to suffer from such extreme poverty and deprivation? Here are a few possible reasons

1. Mining belongs to that category of industries, in which the consumers benefit more than the producers. Invariably, the consumers live very far away from the production centers.
2. Mining causes significant environmental damages and pollution, which are rarely addressed fully. This in turn excerbates the health and environmental problems in the area. It is estimated that the mining of major minerals in India generated about 1.84 billion tonne of waste in 2006, most of which has not been disposed off properly.
3. Such areas are generally situated in inhospitable terrain and areas, thereby accentuating accessibility and development problems. As the report points out, "If India’s forests, mineral-bearing areas, regions of tribal habitation and watersheds are all mapped together, they will overlay one another on almost the same areas." The forest cover for the top 50 mineral bearing districts was one-third higher than natural average.
4. Mining is labor intensive and therefore mining cities have to support a large proportion of unskilled and semi-skilled population, who invariably are poor and have limited purchasing power.
5. In the absence of a critical mass of consumer base, mining areas cannot support many of the modern businesses, especially in the services sector. Good quality hospitals, schools and civic infrastructure requires a minimum number of consumers who are willing to pay for the delivery of these services.

It does not help that many of these areas are also originally some of the poorest districts, and thereby requiring consciously pro-active government policies. In conclusion, despite the presence of valuable natural resources, these areas have substantial legacy costs, which draws the region into a vicious cycle from where escape becomes a difficult challenge.

1 comment:

Karen said...

I'm writing to bring to your attention a new study published by the HSRC Press, entitled 'Resource Intensity, Knowledge and Development: Insights from Africa and South America'. Edited by Dr Jo Lorentzen (Chief Research Specialist at the HSRC), it is actually a series of studies that make the case for a fresh look at resource-strong economies. The publication shows the direct contribution that resource-based activities can make to the knowledge intensification of an economy at large. By focusing on the technological trajectories of firms and research teams in resource-intensive sectors in Brazil, Costa Rica, Peru and South Africa, researchers engage with the issue that what ultimately can contribute to growth is not an abundance (or lack) of natural resources, but what one does with it.

The publication begins with an overview on knowledge intensification in resource-based economies, before presenting the five detailed case studies: the development of a sugar-based plastic in Brazil; the manufacture of biodegradable plastics from maize starch in South Africa; the development of an indigenous hydro-metallurgic form of gold leaching in Peru; South Africa’s development of hydraulic technologies in the mining sector; and the development of machinery that sorts coffee, rice, beans, nuts and seeds in general by colour, in Costa Rica. All of which provide plenty of food for thought.

The case studies were commissioned by the South African Department of Science and Technology (DST) with the aim of contributing to principles that would guide public policy in promoting resource-based technology clusters, and to explore the concept of lateral migration. It forms a part of the DST’s national research and development strategy to leverage know-how in resource-based industries to create new knowledge-based industries.

I think that the content would interest your readers enormously. We're an open access publisher, so you can access the studies at, or via amazon, or a local bookstore.