Resources as a Curse: The Impact of Oil and Diamonds on States

INTERNATIONAL POLITICAL ECONOMY 1
International Political Economy
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Resources can be damaging to states going against the anticipation of many, this is true
particularly in the case of countries that have weak systems of governance making it hard to
manage such resources. In this case countries in Africa such as Nigeria and Sierra Leone can
attest that indeed resources in their countries have become a curse. In Nigeria’s Niger Delta there
has been a constant war between the locals and the multinational companies over the control of
oil. This has led to blood baths in the region as cartels use all weapons at their disposal to control
the region. In Sierra Leone, it is even worse where the regime in power supports label groups
from neighboring countries to disrupt peace while extracting the valuable minerals, diamond. For
instance, Charles Taylor supported the Revolutionary United Front that was under the leadership
of Foday Sankoh which saw Sierra Leone plunged into a vicious civil war. However, in a
country such as Russia, the effects are not as bad as those in African countries. The authoritarian
government in Russia is responsible for impeding freedom of the civil society groups. Gazprom,
a monopoly controlled by Kremlin used the lent muscle from the state to take over media
channels in Russia. On the economic side, countries such as Nigeria and Angola despite
collecting oil revenues there has been a decline in GDP, an increase in poverty levels
exacerbated by poor living standards among their large population. In Angola, it is even
devastating as 90 percent of the revenue collected from oil is unable to provide clean water,
schools, and health facilities for more than two-thirds of the population. It is thus from such
examples that it is evident that resources are bad in some states.
The Dutch disease
The oil income impediments to growth economic growth of oil-producing nations are
what is referred to as the Dutch Disease according to development economics (W., 2014). Dutch
disease in this context can be defined as stagnation in other sectors of a country’s economy

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arising from the boom of revenues from exports that are majorly natural resources. This can be
explained further when nations divert their endeavors and dependence on the little rich natural
resources at the expense of the many sectors of the economic sectors. It is due to this reason that
the Dutch disease manifests itself as a resource curse (Rajan & Subramanian, 2006).The huge
cash boom generated from oil tends to propagate wasteful and imprudent expenditure. It is the
attractive incomes from oil that catapult exchange rates leading to disequilibrium balance of
payment as the costs associated to imports rise. In a nutshell, the contingency to risk in non-oil
sectors investment gets killed (Rajan & Subramanian, 2006). Also, the attractiveness of all non-
oil sectors, for instance, the industries in the agriculture and manufacturing sectors end up getting
crowded out. The utilization of labor and other resources is traded for unemployment as
expenditure multipliers for the state and private sectors gets exported abroad. The combination of
these forces entails the rentier impact, where oil states are dubbed "rentier states".
According to the theory of rentier state, it postulates that nations reliant on exogenous
rent such as oil, advance a varying bond of connection between the state and its citizens different
from those that depend on fiscal policies for instance taxation (Corden, 1984). Pundits go further
postulating that such countries are less probable to be democratic compared to other states that
are tax dependent. The Niger-Delta region is one of the places where oil revenue sparked war
and the extraction of oil for commercial purposes has been a constant source of conflict (Kurtz,
2011). In most cases, the economic advantages only benefit a small elite composed of enterprises
and state people with the inclusion of agents of big multinational corporations. Unfortunately, a
range of burdens for instance land expropriation, disruption of conventional ways of life and
degradation of the environment get imposed on the locals unabated (Otaha, 2012). It is such
practices that lead to application of neo-liberal policies by the International Monetary Fund

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(IMF) and World Trade Organization among other institutions in conjunction with the local
political affiliations; aiming to combat not only the business entities aiming to exploit their land,
livelihood, customs and environment but also to pacify the efforts by the judicial system that
fails in protecting their rights. It has been reported that such a judicial system makes laws
targeting to take away the rights of the community.
The political elites have been found colluding with the multinational corporations that are
agents of IMF, World Bank, and WTO and this translates to a feeble environmental regulation,
preferential tax eras and unproductive labor that is cheap. It is such conditions that allow such
companies to flourish amidst negative effects impounded on communities exacerbated by
utilization of destructive processes, toxic materials and pollutants banned in developing nations.
It is when all such negative variables compounded with the exploitation and sale of oil that
economists refer to as the Dutch disease.
How oil has damaged democracy by breeding war in Niger Delta region
Many states that have oil reserves meaning they are oil-dependent nations portray similar
political traits. Such countries are characterized by weak accountability framework which leads
to massive corruption with heads of state seizing power for many decades and a good example
was Obasanjo of Nigeria who extended his power for a third term (Otaha, 2012). It is the weak
institutions and poor governance that culminate in wealth being distributed easily and unevenly
among academic elites, military personnel and traditional puppets of power. Exposing such
inequalities that have been exacerbated by wealth from oil ventures compounded with unequal
power distribution and a government that is separated from its people breeds an explosive
anticipation vacuum among its citizens causing rebellions such as holding of hostages of oil
employees that was carried out by the angry Ijaw youths in Niger Delta (Otaha, 2012). The