Cash Transfers from Mineral Resource Wealth: Evidence from Africa

Maniza Naqvi - 15th July 2013

In a previous post, Maniza Naqvi discussed how cash transfers from natural resource wealth revenues have the potential to reduce poverty in resource-rich countries. In this post, she discusses how direct dividends from natural resource wealth could benefit the African continent.

Marcelo Giugale, World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, makes the case with enthusiasm for direct cash payments from natural resource revenues to the citizens of a country: a mechanism by which citizens of a nation, share in its wealth earnings while making sure that the earnings keep growing for future generations. Iran and Alaska share mineral revenues with citizens through the Alaska Permanent Fund and the Iran Citizens Income Scheme. Why aren’t other countries, rich in mineral and hydro-carbon wealth on their way to doing the same?

Africa, for example, has mineral revenues and much more that have the potential to reduce poverty. It seems, that whatever the so-called developed world craves, Africa already has: from mineral resources to deposits of diamonds, oils, rare earth; to agriculture land. Yet, these resources do not always benefit the continent. It is time to transform the discussion on economic growth drivers and development aid by adding into the equation the distribution of mineral revenues urges Shantayanan Devarajan, World Bank’s Chief Economist for the Middle East and North Africa and until recently for the Africa Region.

Yet, this is left out of the latest discussions, in the public square of elite policy making. Current discussions on the growth from the mining sector still revolve around direct and indirect jobs created through mining and government investments in social and economic infrastructure on behalf of citizens. Most of the jobs in the increasingly mechanized mining sector are for a few highly skilled workers and do not have a widespread impact on poverty, points out Dena Ringold, World Bank Lead Economist and co author of the World Bank’s World Development Report on Jobs. The current job-centered discourse does not focus on giving agency to individuals and providing them with the cash for determining how they invest for their social and economic well-being.

Mineral rich countries may have had the potential for even greater gains in human development outcomes if they had adopted different policies for how they used mineral revenues. Take, for example, the following mineral rich countries with a high poverty head count: Equatorial Guinea (76.8%), Gabon (32.7%) and Angola (40.5%) and very low human development indicators, yet they have equal or higher per capita GDPs than the BRIC countries: Brazil, Russia, India and China. The Human Development Indicators in all four mineral rich countries are very low. Clearly, the mineral revenues haven’t been distributed to all and have not improved life for the poorest.

Safety net benefits in terms of cash transfer programs targeted to the poor exist only in ten of 35 mineral rich countries in Africa. These cash transfers cover less than 10% of the population and generally fall around US$15 per month equaling about 20% of household consumption. In each of these cases, it is donor financing, not revenues from the mineral wealth that account for 65% to 100% of the cash benefits!

The governance measures remain at a very low level in many countries, which begs the question of whether there would have been larger gains in the absence of the resources. Mineral revenues dwarf current aid flows. Aid originates from citizens tax money in developed countries “donated as charity” and goodwill, masking the billions in outflows from these mineral revenue rich impoverished countries.

When seen through this prism of mineral wealth in stark comparison to the poverty in the same countries and the examples of Iran and Alaska, a different light is shed on the prescriptions at global forums. If there ever was a sweet spot for perfect nationalization and poverty eradication then it would be through direct dividend payments.

Maniza Naqvi is a Senior Social Protection Specialist at the World Bank working on safety nets in Malawi and Ethiopia.  This is a version of a post that first appeared here.

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