Africa and the curse of natural resources


Par Brendan Berthold
Student in Economics
15.10.2017
Ecrit par
Brendan Berthold
Student in Economics

15.10.2017

Even though usually considered as a blessing, natural resources can become a true curse when it comes to the political stability of a country. In their 2016 paper, four economists investigate this apparently paradoxical relationship; their results are surprising and informative.

Natural resources and political stability

In the 2014 paper “This Mine is Mine! How Minerals fuel conflicts in Africa”, four economists investigate the relationship between the existence of mining activities and the likelihood of armed conflicts. They do so by using geo-localized data dividing 52 countries of the African continent in cells of around 55x55km, and documenting activities related to the extraction of 14 different minerals. Historically, papers exploring links between natural resources and violence had relied on data at the country level, which largely ignores within-country variation. “This is just too aggregate”, the authors argue. Breaking down the African continent into cells of limited size allows a more precise analysis, and makes it possible to specifically focus on areas of interest.

Their first striking result shows that the existence, but also the value of a mine play a critical role in the emergence of armed conflicts. More precisely, they find that “an increase in one standard-deviation in the price of minerals increase the probability of violence in mining areas from the benchmark 16.9% to a counterfactual 22.5%”. When considering neighbouring cells, the probability jumps from 19.7% to 22.5%.

Aggregating these results and taking into account the 1997-2010 commodities super cycle – a period during which mineral prices have rocketed, notably because of a rise in demand from the BRICS1 -, the authors find the commodities super cycle to be responsible for up to a quarter of the average violence experienced in Africa during that period. Even more impressively, the authors argue that this is a conservative estimate, for their dataset doesn’t contain smaller-scale mines and a comprehensive list of minerals extracted in Africa. Also, results translate a snapshot of the reality, essentially neglecting longer-term consequences by focusing on contemporaneous impacts. In the second part of their paper, the authors specifically tackled this limit by investigating the conditions and channels allowing local conflicts to go global.

Longer term consequences of mining activities

The literature has for long pointed out how dangerous and lawless mining areas can be; property rights are rarely enforced, and the activity typically attracts a well-defined subset of the population, namely young, uneducated males. While these two features are generally known to trigger local riots and protests taking place around the mines, the causes of larger-scale conflicts have different roots.

Once again, scholars came up with a variety of stories aimed at rationalizing the channels through which local conflicts can escalate into regional, or even national ones. For example, “rent-seeking behaviour”, where rebel groups attempt to capture a territory – and thus its natural resources – has been argued to be a key factor. On another level, countries with large natural resources might also have weaker incentives to build strong institutions, as they don’t see in them a requirement to prosper, thus reducing their ability to contain conflicts. However, it has also been argued that natural resources could work in the opposite direction: by enhancing local incomes, they might increase the opportunity costs of rebellion, eventually leading to greater political quiescence.

While not rejecting any of the above stories, the present paper focuses on an alternative channel, namely the one of “feasibility”: By looting and/or extracting revenues from captured mines, the rebel group enhances its financial means, thus allowing it to expand its activities. The data support this idea; after a spike in mineral prices, cells neighbouring mining areas are indeed more likely to experience violence in the years following a takeover. Quantitatively, the authors find that the appropriation of a mining area triples the activity intensity of the rebel group in subsequent years.

The role of the extracting firms

In the final part, authors look more closely at the ambivalent role firms operating in mining areas play. On the one hand, they may bribe local groups in order to secure the good conduct of their activities, but by doing so, they may also finance rebel groups and give them the financial means to expand spatially. Interestingly, the researchers find that mining-induced violence is particularly likely when a foreign firm – as opposed to a domestic one - is operating in the area. Put differently, foreign ownership seems to exacerbate the risk of armed conflict in mining areas while the same is not true for domestic firms. Intuitively, domestic firms might be more likely to benefit from state support, they might thus be less inclined to bribe local groups, either because they are harder to capture, or less in need of protection.

To test this hypothesis, the authors exploit the differences in state protection from which foreign firms benefit. A large literature notably highlighted that firms from “ex-colonizing power continues to benefit from privileged relationships with the new rulers after decolonization”. Using this distinction, the authors find significant results; firms with colonial ties are largely comparable to domestic firms while foreign firms without any colonial ties exacerbate significantly the probability of mining-induced violence. All in all, these results support that the level of state protection does indeed matter, and might play a critical role in the reduction of violence in Africa.

What solutions?

Even though the authors prove that foreign ownership has negative externalities, they also propose a way to mitigate it. They find that foreign firms which are members of the International Council on Mining and Metals are also less likely to exacerbate mining-induced violence. If necessary, the results prove that transparency matters. Recent initiatives by policy makers aiming to promote “transparency and traceability in the mining industry”, such as the new framework adopted by the EU commission to force companies to track the origin of minerals produced in conflict prone areas, seem thus to be welcome.

Is the abundance of valuable mines always a curse for political stability? Well, in Africa, it seems to be the case. Nevertheless, the results show that the level of state protection plays a critical role in the development of violence, and is thus the most urgent issue to tackle. It doesn’t seem so much that having large natural resources is a problem in itself, but rather the lack of strong enough institutions to handle them. It is high time for countries of Africa to create stronger states, and fully benefit from their immense potential at last.

References

Berman, N., Couttenier, M., Rohner, D. & Thoenig, M., 2017. This Mine Is Mine! How Minerals Fuel Conflicts in Africa. American Economic Review, 107(6), pp. 1564-1610.

Voanews. Former Seleka soldiers look at prospectors as they pan for gold near the open pit at the Ndassima gold mine in the Central African Republic. Digital image. May 9, 2014., https://www.voanews.com/a/rebels-retain-control-mine-central-african-republic/2530046.html