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Natural Resource Abundance: Obstacle to Development or Harnessing Wealth for Development?

Date
Time (GMT +00) 13:00 14:30

Speakers:

Patrick Alley, Global Witness 

Arthur Neiland, Institute for Sustainable Development and Aquatic Resources (IDDRA)

Chair:

John Battle, MP

Before introducing the speakers, the Chair began the meeting by thanking those in attendance and noting that it would be the last APGOOD meeting of the year and the last in this very successful series on the role of agriculture and natural resources in development. Mr Battle stressed that Global Witness was well known to MP's for its campaigns.

Patrick Alley focuses his work on the link between resource extraction and poverty and today would be speaking on forestry. He maintained that the "resource curse" is becoming well-known as a phenomenon. Academics, such as Professor Paul Collier (see first meeting in this series) say countries rich in resources are 50% more likely to have problems with civil conflict and that 50% of those conflicts will re-emerge within five years. The most resource-rich countries lie at the bottom of the Human Development Index.

While natural resources are a key to wealth and rehabilitation in many transitional states, tropical forestry is more problematic than the extraction of other natural resources. The macroeconomic benefits that economists predict very rarely actually happen. However, the multilateral development banks and others will often recommend industrial forestry as a key economic driver in many of these states, including the Democratic Republic of Congo, Liberia and Cambodia. Despite these failures, there is very little learning going on.

The problems facing the logging industry include corruption, illegal logging, and conflict. In 1996 the World Bank estimated that Cambodia could earn $100 million a year in their timber sector; Global Witness said it wasn't possible. In hindsight, only $93 million was made between 1994 and 2000 ie: less in six years accrued the state and the country than what was projected as a single year's earnings. During that time, illegal exports were vast ($187 million in one year).

In Cameroon, the amount of income acquired from logging has increased. In 2002-2003, it was $23 million and is currently $74 million. But some have estimated that in 2000, an additional $181 million went unnoticed. WWF estimates that 50% of the logs leaving Cameroon are illegal.


In the democratic Republic of Congo, the World Bank believes that there are many millions to be earned in the next five to ten years in forestry, if well collected. There is little evidence that this would happen. 48 million out of the 58 million people living her depend on the forests for their livelihood, making this a high-risk state.

One of the main problems is that people tend to discount this issue as something merely environmental. Instead, the forests are also important to housing, construction material, medicines, shelter, food, and as a socio-economic function. Usually, the poorer and more unstable the country, the more people will depend on the forest and its products.

The forest industry is particularly prone to corruption, mainly because unlike say, the petroleum sector where there are mainly smaller companies with little transparency, name recognition and accountability.

Alley provided the example of Cambodia. In the early 1990's the Government of Cambodia and the Khmer Rouge cooperated with each other to trade logs with Thailand in order to raise funds for warfare, ironically and unfortunately between each other. In 1996, the Cambodian Prime Minister signed a deal with the Thai deputy minister allowing for the export of timber from Khmer Rouge-controlled territory. In 1997, the minister staged a coup with funds raised by illegal logging in Vietnam. A concession system was also on the rise at the time, an illegal system that many NGOs called to be disbanded. Even with a target arrangement capturing wealth potentially available for development and the closing of a civil system, and example of inefficiency and the failure of resources.

The real tragedy is that this is no secret. The international community is well-informed. It is also dangerous that public policy can add to this corruption by making statements like the World Bank did about the Democratic Republic of Congo last week.

Liberia is also a good case study. The timber industry funded and helped bring to power, Charles Taylor, a very clear example of timber use in conflict. Sanctions were put in place and are still today.

There are no examples of countries with positive growth coming from natural resources; it was maintained by Mr Alley.

Given the failure of industrial policy, it is time to take a fresh look at possibilities for the future. Perhaps a coalition of governments should be formed to think of something new and imaginative. Legislation banning the importation of illegal extracted logging is needed in the same way the many commodities are handled today. A definition is needed at the UN to deal more quickly deal with resources used in conflict, which would have helped in dealing with the Liberia situation. MDB loans should not be used to reform the un-reformable. The timber industry is currently operating in too lenient an environment, and Global Witness believes it needs to change.

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Arthur Neiland focused his presentation on fisheries. He introduced IDDRA Ltd as a small, independent research organisation based in Portsmouth and Montpellier, that deals with fisheries management in Africa and Asia.

IDDRI has recently produced the DFID Key Sheet on the Role of Fisheries in Economic Growth and Poverty Alleviation. Currently, fishing accounts for the 126 million tonnes of fish, 150 million people employed, $125 billion in income, and $18 billion in trade (more than coffee, tea, sugar, and cotton combined). The main fishing nations are all developing ones, including China, Peru, Indonesia, Chile, and India. Fisheries in Africa take in about one-tenth of those figures.

Fisheries tend to be synonymous with poverty, but are quite capable of producing vast amounts of wealth. Fisheries are the source of income for 100 million people, 80% of which are poor. The question then becomes, can fisheries make a greater contribution to development and poverty reduction?

There are a variety of means through which someone can make gains from fisheries. Governments can also ensure that the benefits are insulated in and returned to economy. If this tends not always to be the case, consider the following issues:

1- Fisheries resources are difficult to manage
2- Open and free access conditions apply in many fisheries
3- In weak economies, fishing and other Common Property Resources (CPR) are a source of livelihoods and a safety-net for poor
4- Low level of government attention is common (fisheries tend to be undervalued)
5- In weak states there are good opportunities for rent-seeking and privatisation
6- 'Mining' of fisheries instead of management is a lost opportunity for investment in renewable natural capital in development

Neiland provided a summary of work being done in the fisheries world.

1- Trying to convince people that the common   downbeat image of fisheries can be misleading. DFID did a study showing the positive impacts of fisheries instead of just showing the negative.
2- Ownership and property rights need to be in place via appropriate institutions and a legal framework.
3- Poverty problems in fisheries often have non-fisheries causes which must be dealt with explicitly.
4- Greater awareness, understanding and political support for fisheries must be established in Africa, particularly through the NEPAD process.
5- Investment is needed to underpin changes in fisheries management approaches to increase capacity, reform structures and processes, and cover transition costs. Neiland was working on an EU project in Uganda attempting to create an efficient fishery market. Even with the low cost, many donors were unwilling to put resources into such a system.
6- Fisheries governance (relations between actors) must be addressed from within the countries, bringing together the public and private sectors.
7- Greater information flow and advocacy concerning new approaches to fisheries management and development are needed to ensure relevant actors and decision-makers are properly involved within the policy process.

The Chair then opened the floor to questions and debate.

The first questioner commented on the difficulty in managing regional resources due to weakness in legislation, even under the SADC water protocol The case of Zambia was cited: it possessed the rich Zambizi River basin yet nearly all its neighbours were countries in conflict or recently emerged from conflict. She asked, then, how these regional agreements could be strengthened to provide for more efficient resource allocation and trade. Also since Zambia had opted against scientific advice to spray infested water hyacinths surely this prevented many timer exports to Europe on SPS grounds. Is the certification system currently in place really working? Patrick Alley noted that the certification system is not a mandatory one. At the same time, there is a lot of debate about what type of certification system should be in place, if even one at all.

There was keen interest in the "family tree" diagram which Patrick Alley provided of the interlocking internal actors of the Cambodian government and timber trade. He commented that Patrick provided an illusion that all of the corruption was from the inside. What about outside actors, including trading partners and the World Bank? He also went back to Arthur Neiland's presentation noting that there is hope in the current state of recovering from disaster, as we can learn from those few examples of positive measures and he doubted the assertion that NR had never generated wealth for a country and its people. Patrick noted that logging is an insatiable market, one in which a new paradigm is needed. We need to come up with a variety of ways forward, as there is certainly not one solution.

Another comment focused on Arthur Neiland's comment about the amount of unabsorbed income. Through his own work, he found that $1 billion is stolen from Exclusive Economic Zones in African fisheries, representing a very significant proportion of that extracted. This displays the importance of the situation. The solution was to strengthen regional work; through such groupings change could be most effective.

Another noted the rapid rise in investment from London into natural resources in Africa and Asia. How much of this investment was retained for the benefit of rich countries? What is the reason for this and what were big UK companies doing? Patrick Alley pointed out that while the London capital market invested worldwide, the days were long past when it was a major player in NR extraction. Nowadays companies from China, Malaysia and Japan were almost the most pro-active.

A final intervention came from a person with a lifetime experience in natural resource management in developing countries. He contrasted the situation regarding forestry in Nicaragua with that of Bhutan. Nicaragua ticked all the right boxes, involved the World Bank, accepted external supervision and put in place all the formal checks and balances, yet the industry was still hopelessly corrupt in reality. Bhutan resisted external help and advice but internalised all its systems; it exported relatively little (being landlocked) but retained a much greater share of the NR benefits for its people.

On that interesting and well informed note, and with another parliamentary meeting due to start on the hour, the Chair thanked both the speakers and those in attendance for their input and highly thoughtful debate, and closed this very successful APGOOD series.

Description

Countries endowed with natural resources should be better of and grow faster than countries without valuable natural capital. However, the reverse is often the case; moreover, some countries with abundant natural resources are marked by more poverty, more inequality and more conflict than others less well-endowed.

This meeting attempts to develop an understanding of the seemingly paradoxical relationship between natural resources abundance and poor development outcomes including the alleged 'commodity curse' and the incidence of 'Dutch Disease'.

It examines two key areas of concern: the politicisation of the wealth associated with natural resources in the forestry and fishery sectors; and the impact of weak governance on illegal activity that is robbing some of the poorest countries in the world of much-needed revenue. Revenue losses due to illegal activities in the forestry and fishery sectors are estimated at US$15 billion and 9 billion respectively, exceeding the World Bank's lending to affected countries.