Resource Curse; aggregate productivity of a country is skewed towards a singular or few natural resources to the extent that the economy becomes solely dependent on revenues from the resource(s). 

Countries claimed to have escaped the resource curse:

Country Scores
Australia 18.0
Botswana 33.0
Canada 15.7
Chile 7.4
Ireland 22.0
Malaysia 19.9
New Zealand 18.4
Norway 17.0
Oman -20.0
Thailand 20.0
United States 15.1
Angola 8.11
Congo -11.9
Mexico 10.8
Nigeria -22.0
Saudi Arabia -21.5
Sierra Leone -1.8
Trinidad & Tobago -3.9
Venezuela -1.6
Zambia -5.6
Thailand N.A.

Dutch Disease; the shrinking of non-resource export sectors in terms of labour hours and/or export receipts due to emergence of natural resource exports (in this case oil) e.g. decline of manufacturing and agricultural sector exports with the founding of crude oil in Nigeria.

Oil revenue is channelled through the government, which runs a parliamentary system. To access oil revenue, there needs to be negotiations with the government. The well-functioning legal system, media scrutiny and strong social norms all served to deter rent-seeking and corruption.

“Driven by windfall oil revenues combined with prudent fiscal management”, Norway ranks 3rd in global competiveness.

Domestic capability building in Norway was reflected in:

  • – Policy backed human capital accumulation to create a highly skilled labour force with the oil industry (over 50,000 engineers employed offshore)
  • – Govt. specified licensing conditions, which often required technology transfer from foreign companies to domestic organizations.
  • – Govt. systematically evaluated and rewarded foreign oil companies who were contributing to domestic capacity building.
  • – Concessionary procedures are used as instruments to force the international companies to engage in technology transfer and local content development.

These policies supported the:

  • – Establishment of its national oil company – Statoil in 1972, now present in 40 countries around the world and creating value.
  • – Supplies for petroleum industry is Norway’s largest export
  • – Technological advancements were prompted through R&D, businesses, universities, science parks, and bodies such as Innovation Norway.

Norway maintained a variegated productive capacity by using price subsidies transfers and tariffs to shield and support domestic industries like fishing.

  • Fishing; exports of stock fish as far back as 12th century, seafood and aquaculture exports continue to gorw. Norwegian aquacuturists are actually selling their expertise to other counties such as Chile that specialize in fish farming.
  • Shipping; the country already possessed an international maritime industry, and industrial actors within the fields of fabrication and construction.
  • Timber logging; timber bulp and paper industry exported newsprint. With internet replacing print media, the mills were reinvented into using industry standard technology. As one of the world’s most advanced biorefineries, Borregard mills turns into a variety of products: cellulose, lignosuphonates, vanillin, ethanol, and generates 200GWh of bioenergy.

Norwegian government owns 37% in the Oslo stock market, with shares in Statoil the national oil company, Telenor the country’s biggest telephone operator, Norsk Hydro its biggest aluminium producers, Yara its biggest fertilizer makers, DnBNor its biggest bank, Statkraft a power-generator (if listed would be the third biggest company on the stock market). All of this is made possible through oil.

Note that Statoil and Hrdro merged in 2007. The government however reduced the state’s share to 62.5% balancing state control and global competiveness.

Source: The Economist Article – Norway: The rich cousin

Norway created a Sovereign-Wealth Fund (SWF) in 1990 and invests locally and in foreign financial assets that create wealth for the country’s citizens.

SWF of Norway is owned by the finance ministry and managed by the central bank (Norges Bank), it is now worth $750bn (2013). The fund has 63.4% of its money in equities, 35.7% in fixed income investments, and 1% in real estate.

Recent developments in pursuit of more attractive returns on capital (than bonds) have seen proposal for increase in the real estate share to 5% more investments in green technology and emerging markets.

Norway shields its economy by practicing fiscal prudence through limiting exploitation of Pension Funds to 4% annually thereby avoiding hyperinflation and stunting of traditional industries.

Sources: Wall Street Journal Article – Norway Oil Minister Proposes carving Out Real-Estate Fund from $750bn Oil Fund.

Labour market reforms increased the labour force’s share of the population, and checked unemployment

Wage control and income coordination programs were followed in nation-wide negotiations.

  • Sweden – 4th – $9894/capita
  • Denmark – 6th – $9793/capita
  • Norway – 9th – $8120/capita

Norway’s GDP trend started on relatively steady acceleration four years after oil production started in 1971. It passed Sweden eight years after in 1979 and Denmark in 1985. Norway maintained a higher pace after 1988. Ten years later, Norway had 2nd largest GDP in the word.

  • Norway – 2nd – $27,581/capita
  • Denmark – 3rd – $26,176/capita
  • Sweden – 12th – $21,218/capita

The RIC has been hailed as one of the most technologically advanced identity cards in the world. Not only will it give Brazilians unique, multipurpose identity number based on their fingerprints, it also includes a photo, a signature and a chip with a biometric and biographical details. “This card uses the best technology in the world, adapted to the necessities of Brazil”, says Celio Ribeiro, President of ABRID, the country’s Association of Digital Identification Technology Companies.

Source: gemalto.com

(FC) FGTS is the Fundo de garantia por Tempo de Servico which is the Employee Indemnity Guarantee Fund and an employee compulsory fund. All companies are obligated to deposit the FGTS contribution into their employers account by the 7th day of the month. The tax corresponds to an 8% rate on top of the gross salary.

The Contribution of FGTS is mandatory even in cases of contract interruption and the law requires the following:

  • Illness assistance/aid for a maximum of 15 days.
  • During any period of absence due to workplace accidents
  • Maternity leave
  • Paternity leave

Source: thebrazilbusiness.com

Development through Diversification

  • Agriculture: 5.2%
  • Industry: 26.3%
  • Services: 68.5%

Source: 2012 est. CIA World Fact Book

In recent years, the ethanol program has become even more important. Demand for ethanol surged due to increase in oil prices, but also due to technical developments in the automobile industry, which allows drivers to use either gasoline or ethanol in locally manufactured cars. Additionally, concerns about climate change are offering the opportunity for exports of ethanol and Brazilian ethanol technology to international markets, Brazil is the second largest producer of ethanol in the world, just behind USA.

The Rio Carnival in 2013 alone drew about 1.1 million tourists to Rio, generating some 650$ (£410m) for the local economy. Hotels and restaurants were booked almost to capacity.

5,154,386 attended FIFA Fan Fests in Brazil during the World Cup, with Rio de Janeiro’s spectacular Copacabana site attracting 937,330 – the highest number in any individual city.

Source: fifa.com

Non-commodity Sovereign Wealth Funds are typically financed by an excess of foreign currency reserves from current account surpluses. Non commodity funds totalled $2 trillion in 2012, which is three times the total three years earlier.

Currently, the majority of funds are financd by commodities, but non-commodity funds may reach beyond 50% of the total by 2015.

Brazil’s Sovereign Wealth Fund ($5.2bn) is invested overseas, used to finance strategic local development, reduce effects of economic cycles and create public savings.

Source: investopedia.com

Recent discoveries show that Brazil’s oil reserves are significantly larger than the believed 16 billion barrels. Some have argued recent pre-salt discoveries hold about 33 billion barrels, if this proves to be true, it would alter the country’s standing in terms of global crude oil reserves.

The United Arab Emirates is a federation of seven emirates (Abu Dhabi, Dubai, Ajman, Fujairah, Ras al Khaimah, Sharjah and Umm al Qaiwain) that gained its independence in 1971. Since then it has grown from a desert to one of the most important economic centers. Although each state maintains a large degree of independence, it runs a federation with specified powers delegated to the UAE federal supreme council comprising rulers of each emirate and a council of ministers.

The UAE discovered oil in the 1960’s. Most of the oil is found in Abu Dhabi and Dubai. Exports began in 1962 and 1969 respectively.

As at 2012, the UAE holds the 7th largest proven reserves in the world producing 2.69m barrels/day. According to BP, its reserves would last another 94 years.

Today, the UAE is one of the world’s wealthiest nations, with a GDP per capita est. at $48,158 in 2011, ranking it at 8th in the world.

Source: www.eia.gov

The ruler of Abu Dhabi, Sheikh Zayed, undertook a massive construction program, building schools, housing, hospital and roads.

When Dubai’s oil exports commenced in 1969, Sheikh Rashid bin Saeed Al Maktoum, the ruler of Dubai, was also able to use oil revenues to improve the quality of life of his people.

Source: bbc.co.uk

The UAE is known for a number of world tourist attractions:

Burj Khalifa – the tallest man-made structure in the world at 829.8m (2,722 ft).

Burj Al Arab – World’s 4th tallest hotel. Often referred to as the only 7-star hotel.

Ferrari World – World’s largest indoors amusement park.

Palm Islands – World’s largest artificial islands.

Dubai’s tourism vision seeks to draw 20 million visitors per year and Dh300 billion ($82 billion) in annual revenues by 2020.

Shaikh Mohammed said the UAE has positioned itself among the most popular tourist destinations on the planet as it presses ahead by launching ambitious developmental initiatives and high quality projects. He said was confident that the Department of Tourism and Commerce Marketing (DTCM) is capable of achieving Dubai’s new Tourism Vision for 2020, given its recent press release that shows Dubai enjoying its busiest first half year (2013) with a track record of 5.5 million visitors so far.

Source: dubaitourism.ae

Investments in projects such as Khalifa Industrial Zone Abu Dhabi (KIZAD) continue to provide the UAE with insurance against oil price decline and global economic stagnation (EIA). KIZAD whose vision is “to bring the industrial zone of tomorrow to life, creating prosperity and a lasting legacy for future generations of Abu Dhabi.”

With it enormous size and strategically planned approach, KIZAD is set to become a hub for manufacturing, logistics and trade, across a number of sectors.

Sovereign Wealth Fund Name Investment Corporation of Dubai Abu Dhabi Investment Authority International Petroleum Investments Corporation – Abu Dhabi Mubadala Development Company – Abu Dhabi
Total assets $70 billion $627 billion $65.3 billion $53.1 billion
Wealth per capita $680,782 $70.901 $57.782
Year of inception 2006 1976 1984 2002
Original Source of Funds Oil Oil Oil Oil