Why Poor Countries Have So Many Natural Resources VisualEconomik EN

let me ask you question what determines whether country is Rich or poor I'm sure that many of you think that the answer is very simple the secret lies in natural resources that is the more oil gold or natural gas country has the easier it will be to prosper and become rich makes sense doesn't it well the truth is perhaps not so logical you see I'm sorry to tell you but if you think that natural resources are good news for the development of countries you are very very mistaken now the question is why let's take for example the case of the Arab countries the country with the second largest oil reserves in the world is Saudi Arabia and although in the popular mentality of the West the Saudis are all as rich as can be and all have four Ferraris in each garage thanks to Petro dollars the truth is that their wealth per capita is considerably less than that of countries as insignificant as Italy or Spain you don't believe me well judge for yourselves as you can see Saudi Arabia's gross domestic product is not particularly High despite the fact that it has the second largest oil reserves in the world so let me ask you another question if the Saudis have the second largest amount of oil can you guess which country is first on the list place your bets Venezuela the country with the most oil in the world is forced to buy gasoline from Spain and Russia yes indeed Venezuela the country with the most oil in the world is at the same time one of the poorest if not the poorest in the western world and take note because that is not all if we go to the list of the richest countries or territories in the world in the top 10 we find countries like Switzerland Ireland Hong Kong Singapore and Lichtenstein and honestly can anyone guess what oil natural gas or gold these countries export none at all in fact they are countries that are characterized by precisely the opposite by depending on the rest of the world for practically all of their raw materials so the evidence seems clear everything indicates that natural resources make country much poorer than we might think stop though for just moment because know what you're thinking Qatar the Arab country the owner of Paris Saint-Germain is mega rich country country that exports loads of oil and that you seem to have forgotten to mention you are tricking us well obviously there are always exceptions but when you put all the countries together in graph according to their exports of Natural Resources you get something like this as you can see although there are exceptions to the rule the trend is very clear natural resources in an economy slow down its development yes know it doesn't make lot of sense but that's exactly what the data tells us so now the questions are the following what is it that causes countries with natural resources to become poorer why is it precisely the countries without resources that are the wealthiest of all is there way to avoid this resource curse in order to take advantage of them as Qatar is doing to answer those questions let's get into better history laughs up until the first half of the 20th century like most people economists thought that natural resources were boon to economic activity however as we've already seen they were wrong but you know what they didn't discover they were wrong until an event happened that would change the textbooks forever it turns out that in the late 1950s in slotchteren the Netherlands huge source of natural gas was found until then the dutchlands were not particularly noted for their natural resources but the discovery of natural gas presented them with an extraordinary opportunity that they were quick to seize so as we say no sooner said than done the Netherlands became European natural gas exporting power something like Russia is today but on smaller scale of course and at the beginning everything went well International wealth was pouring in but visual economic fans the resource curse soon appeared the fact is that against all logic and without apparent explanation the manufacturing industry began to lose money overnight many workers who were employed in domestic industry began to lose their jobs despite the gas wealth to be more specific while in 1964 the Netherlands had 1.8 million workers in Industry by the mid-1980s that figure had plummeted to 1.3 million we're talking about drop of about 25 and that's despite the fact that the population was growing as you can see from the graph from the time of the discovery of natural gas Dutch industry went into decline in way it was as if the arrival of gas had started to liquefy jobs in Dutch industry since then the resource curse has been known in economic jargon as Dutch disease although the story we've just told you seems almost surreal do not think that the case of the Netherlands was an exception in 1975 Frost hit Brazil this caused the coffee crops to fail causing the world price of this raw material to increase by more than 150 percent now while the frosts came and destroyed Brazil's crops Colombia's crops continued as usual in other words Colombia began to earn lot of money thanks to the increase in the price of coffee to be specific the annual growth of the Colombian coffee industry has multiplied by almost three making its harvests very very valuable natural resource and the question is did Colombia suffer from the Dutch disease did its industry suffer after the coffee boom well the truth is that the data seems to tell us clearly that it did take look following the growth of the coffee sector the vast majority of the Colombian manufacturing industry suffered dizzying deceleration again it was as if the natural resource had taken energy away from the rest of the economy but why exactly did that happen what is the cause of the Dutch disease that leads countries with natural resources to lose their industry let's take look the classic theory of evil the first Theory to explain why Dutch disease occurred was the following country's economy can be divided into three sectors one the exportable natural good sector such as natural gas two the exportable industry sector such as shoe production and three the local sector that only trades in the domestic economy for example construction companies when the natural asset sector explodes as it did in the case of Dutch natural gas then foreigners start buying local currency in order to acquire that natural gas if foreigners buy lot of local currency then the price of the local currency skyrockets which is just what you are seeing in this graph depicting the evolution of the Dutch currency since the 1970s coming back to the previous sectors we can see that the natural sector has grown and this has made the currency more expensive however as the currency is now more expensive it is more expensive for foreigners to buy local shoes so the industrial sector loses sales and becomes smaller but pay attention because that's not all that happens as usual when there is resource opportunity as significant as natural gas governments tend to nationalize it or impose very abusive taxes and what does the government do with that money well indeed with the money from natural gas both the government and some private agents start spending much more in the local economy more is spent on infrastructure hospitals subsidies and in general the domestic trade sector grows and what does this mean well because the domestic trade sector is now more profitable many workers are leaving industrial jobs to work for example in construction causing the industrial sector to shrink even more due to higher labor costs this effect of work is being channeled from industry to other sectors is something we have seen lately in countries like Spain and you will say Spain but Spain does not export natural resources in way no but what it does export is lot of Tourism and the reason Spain has so much tourism is largely because of its Landscapes beaches and ultimately its natural areas this leads many young people to leave school very early to dedicate themselves to tourism to illustrate this according to data from the Spanish Ministry of Education among the regions with the highest number of school dropouts are the baleric islands that is Mallorca manorca and Ibiza the Canary Islands and Andalucia precisely the most popular tourist regions in Spain and you may Wonder but why is this problem well firstly because dropping out of school means an enormous loss of wealth for any country in the long term and secondly because by depending so much on natural resource whether it be tourism oil or natural gas an economy runs the risk that if that natural resource ceases to be profitable everything will collapse sound familiar the collapse of oil prices sinks Venezuela the fall of barrel of crude is aggravating the crisis that grips Venezuela however visual economic viewers while these classical theories may make lot of sense there is something that they are not able to explain you see at the beginning of the 20th century Norway was one of those European countries with no say in the regional economy country to the north of that frankly nobody paid much attention to however just few decades later the world Hit the oil boom and guess what in the Norwegian territories there was dinosaur juice in abundance oil made the Scandinavian country wealthy beyond measure today Norway is not only the continent's largest oil producer it is also Europe's most prosperous major economy after Ireland according to the theories Norway should now be country in Decline like Venezuela or Saudi Arabia but the opposite is true the question is why what on Earth is Norway doing to avoid Dutch disease our natural resources really are Bane to economies listen up the evil of the usurper if ask you to think of Botswana you will probably think of desperately poor country another sub-Saharan territory with shattered economy society with countless epidemics and where people go hungry day in and day out but just as not all Arab oil countries are as rich as popular culture makes them out to be Botswana is nowhere near as poor as some might think in fact for 50 years Botswana has been one of the countries with the highest economic growth rate in the world and in fact today it's GDP per capita is even higher than that of Latin American economies such as Colombia or Ecuador given that quick overview would you be able to tell me what is the main economic sector in Botswana well as you may have already guessed it is diamonds the export of this precious stone accounts for up to 40 of its economy like Norway or at least as far as the African environment is concerned it seems that Botswana has not been particularly affected by the natural resource curse in this graph you can see how at the same time as Dutch industry began to decline with Dutch disease public spending skyrocketed this in itself is Not Unusual as we've mentioned before when natural resources are discovered in country the government does its best to capture the maximum benefits and increase public spending with them but what if the problem of Dutch disease was not in the actual finding of resources but in how governments use or spend those resources for example in the case of Saudi Arabia we already explained on visualpolitik that the government uses large part of the oil money to finance religion to finance groups of government cronies and ultimately to use all its money to control the population and stay in power according to the most recent theories of Dutch disease the key to the disaster lies precisely in the type of government of each country let me explain on the one hand there are the countries like Saudi Arabia authoritarian corrupt and wasteful countries whose governments seek nothing more than to perpetuate themselves in power and they achieve this precisely by wasting money on corruption and on things that are not very productive but which usually brings rewards in terms of popularity or social support without digging too deep seventy percent of Saudis work directly for the government in way it is as if working as civil servant is something guaranteed paycheck that citizens can receive no matter what they do this as you can imagine does nothing to encourage an entrepreneurial culture there's lower rate of Entrepreneurship less Innovation and long-term economic stagnation on the other hand however there is second type of country countries with strong democracies and rule of law such as Norway that do not allow politicians to abuse their power or natural resources these types of countries use the money for productive things such as the education of citizens infrastructure and generally improving people's lives in short the key to overcoming the Dutch curse lies in strict political control and do you know what Norway is the country with the best Democratic quality index in the world and you'll probably say yeah but what about Botswana well Botswana too the country of diamonds is precisely the country with the lowest corruption perception index in Africa quite coincidence don't you think it seems visual economic community that in the face of finding lot of Natural Resources government can become corrupt and end up sinking the economy of country it is actually not at all uncommon in fact many economists suggest that this could be the main reason why Africa has remained in poverty for so many decades but when government has so much money thanks to the expropriation of Natural Resources it does not have to keep citizens happy in order to collect their taxes but can bribe local leaders and silence critics let's just say that natural resources are an unalterable source of income for the Tyrant politician of the day now is this something that we can empirically verify or are these mere assumptions according to economists Jensen and want to check on in countries such as Nigeria Gabon Zaire and Angola the presence of Natural Resources caused their Democratic quality to be up to five times lower than in similar countries without natural resources in particular the case of Nigeria was very very interesting because from the 1960s onwards this African country was able to start exploiting and making its oil reserves profitable to give you an idea its exports went from one percent of GDP in 1960 to more than 90 in just 20 years well since then only four of the last 35 years of Nigeria's political history have been spent under Democratic rule not only that but oil revenues have led to the political and economic centralization of the country let's just say that the central government has acquired enormous influence over everything not to mention of course the countless Wars and conflicts over the continent's resources are you familiar with the term blood diamonds well get the picture in short even if the Dutch disease has certain economic basis that can explain it it seems that everything indicates that it is essentially political problem too many resources in undemocratic countries leads to stagnation and poverty rather than wealth for the people we could say that in most cases the resources mean wealth for the political Elite in power in any case at this point it's up to you which Theory to explain Dutch disease impressed you the most do you think that this is the most significant cause of poverty in Africa how would you ensure that politicians do not use their power to stick their paws where they are not wanted you can leave me your answers in the comments below and of course if you found the video interesting you can like it and of course subscribe to the channel from my side that's all for now all the best I'll see you next time