DEVELOPMENT STRATEGIES IN EXTRACTIVE RESOURCE ECONOMIES HON. MOSES ASAGA - GHANA

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