Poverty, Oil and Mining Dependency Linked

October 12, 2001

allAfrica.com

By Charles Cobb Jr.
Washington, DC

Poverty and health problems are worse in countries dependent on oil or mineral exports than in countries with more diverse economies, a new Oxfam America report has found. Infant and child mortality is higher; life expectancy is lower. These nations also spend a far higher percentage of their budget on their military. "This probably has the greatest relevance for Africa," says UCLA Professor Michael Ross who authored the study.

Most of the world's mineral-dependent states - 13 out of twenty-five - are concentrated in sub-Saharan Africa. Eight of the 25 oil-dependent states are in Africa. Botswana is listed as the most mineral-dependent state and on the UNDP's Human Development Index (HDI) which measures a combination of health, income and education. The HDI is available for 174 countries. Botswana ranks 122. Sierra Leone, which follows as the next most dependent on minerals, is at the very bottom ranking 174. "Our analysis," the report says, "finds the more that states rely on exporting minerals, the worse their standard of living is likely to be."

Oil-rich Angola tops the list of oil-dependent states. No nation in this category is ranked lower than Angola at 160, although Nigeria, which is seventh on the list of 25 oil-dependent nations, has an HDI ranking of 151. Across the globe, the report notes, an average of 26.5 children per thousand are malnourished. But in oil-rich Nigeria the number rises to 37.7 per thousand.

Oil and mineral wealth even "heightens the risk of civil wars in various ways," the report claims. Such wealth sometimes fuels separatist sentiments, especially in poorly-governed areas. "Rebel groups may also finance themselves by looting or selling off natural resources, as in the case of Liberia, Sierra Leone and the Congo Republic." And one consequence is that governments spend more money on the military

The report indicates some differences between dependency on mineral extraction as dependency on oil extraction, although both dependencies, "tend to reduce the rate of economic growth." Both are also "strongly correlated" with poor health and high rates of child mortality."

Oil rates seem more correlated with high rates of child malnutrition than mineral dependency. Oil dependency is also correlated with low enrollment in primary schools and low rates of adult literacy. Mineral dependence is more strongly correlated with income inequality than is oil dependence. In fact, the report found, when it used an alternative measure - the fraction of the population living below the poverty line - "a higher level oil dependence is is associated with less poverty." But the report qualifies its assessment noting that data on this measure is available for only 51 states so "we believe these findings are less reliable."

The report expressed uncertainty as to the exact cause of these relationships, offering several possibilities, "although economists have not reached a consensus." Among them: declining terms of trade for oil and minerals, the boom and bust nature of extractive industries, the "foils" of long-term planning, and high levels of corruption.

It does appear, according to the Oxfam report, that when countries are dependent on oil and mineral exports, "they have difficulty diversifying their economy and promoting sectors like agriculture and manufacturing... [this dependence] becomes an obstacle to pro-poor types of economic activity."

Although Oxfam thinks poor nations should avoid extractive industries altogether, it recognizes that such a radical step is not likely to be taken. There are some measures it proposes should be applied: removal by OECD states of tariff barriers that block export of processed minerals and petroleum products, transparency of loans to governments, aid only to states committed to democracy and fighting poverty, and careful monitoring of revenues.

The Oxfam report has been released as what will be a year-long World Bank review of its investments in oil, gas and mining gets underway. And, says Keith Slack, a policy advisor for Oxfam America, "the Bank should begin its review by questioning whether these sectors really do contribute to sustainable poverty reduction."