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Development Strategies in Extractive Resource Economies

Discusses fiscal regimes, overtaxing issues, macroeconomic stability risks, risk management, policy choices, positive attributes of natural resource income, national development mix, investment in public and merit goods, caution on public investments, and programme-based public investment.

norman-owens
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Development Strategies in Extractive Resource Economies

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  1. DEVELOPMENT STRATEGIES IN EXTRACTIVE RESOURCE ECONOMIESHON. MOSES ASAGA - GHANA

  2. PROPERTY FEATURES Location: Public lands and territorial waters Ownership : mostly by the state and governed by the national constitutional. Income: Is in the form of rent rather than reproductive capital.

  3. FISCAL REGIME • Royalty (%) • Cost Recovery • Carried interest • Taxes • Profit sharing • Production sharing contract • Fee-based contracts

  4. ISSUES OF OVERTAXING • Return on Investment • Payment of Debt • Reduction of Reproducible Capital • Exploration, Appraisal, Development Production storage and Transportation • Management of Production levels (Time Paths) • Depletable resources • Conversion to financial capital & consumption

  5. RISK TO MACROECONOMIC STABILITY • Unpredictable (large swings) Prices • Unpredictable and variable budget revenue. • Exchange Rate Regime issues • Central Bank Role • Floating exchange rate • Peg/ Adjustable Peg • Option for devaluation and revaluation of domestic currency. • Reserves

  6. MANAGING RISK OF MACROECONOMICS STABILITY Three approaches can be used • Hedging against future fluctuations • Conservative Estimation of revenue flows • Long term average prices and quantities • Avoid short-term income streams current prices and production levels • Investment into diversified portfolio financial assets, sectors of economy

  7. POLICY CHOICES OF INCOME AND ASSETS • Resource in the ground (exploit or not to) • Financial Assets (e.g. foreign exchange reserves • Physical assets (Infrastructure) • Human Capital (better education labour force, health)

  8. POSITIVE ATTRIBUTES OF NATURAL RESOURCE INCOME Despite Criticism there are huge benefits • Improve real living standards • Through high levels of public and private consumption • Finance huge levels of investments • Improve credit rating, and enhance borrowing capacity. • Income accrues largely to public sector

  9. NATIONAL DEVELOPMENT MIX • Mixed Economy • Public and private Investment • Public investments are into two important areas (Jeff. Sachs) • Public and merit Goods

  10. INVESTMENT IN PUBLIC GOODS • Infrastructure Networks • National Defense and security • Rule of law • Environmental protection • Scientific research • Infectious disease control

  11. INVESTMENT IN MERIT GOODS • List of merit goods include the following: • Basic health care • Basic education • Safe drinking water and sanitation • Adequate basic nutrition • Safe shelter and social insurance

  12. CAUTION ON PUBLIC INVESTMENTS • Based on sound macroeconomic stability • Short-run macroeconmic stability • Long-term fiscal solvency • Inherent instability of earnings • Depletion of resources • Complementary rather than substitute for private investment

  13. Programme Based Public Investment • Long term development plan • Medium term development framework • Millennium Development Goals (MDG) • Benchmarks • Bold and achievable targets • Absorptive capacity

  14. THANK YOU

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