DEVELOPMENT DEVELOPMENT STRATEGIES IN STRATEGIES IN

EXTRACTIVE EXTRACTIVE RESOURCE RESOURCE ECONOMIESECONOMIES

HON. MOSES ASAGA - GHANAHON. MOSES ASAGA - GHANA

PROPERTY FEATURESPROPERTY FEATURES

Location: Public lands and territorial Location: Public lands and territorial waterswaters

Ownership : mostly by the state and Ownership : mostly by the state and governed by the national constitutional.governed by the national constitutional.

Income: Is in the form of rent rather than Income: Is in the form of rent rather than reproductive capital.reproductive capital.

FISCAL REGIMEFISCAL REGIME

Royalty (%)Royalty (%) Cost RecoveryCost Recovery Carried interestCarried interest TaxesTaxes Profit sharingProfit sharing Production sharing contractProduction sharing contract Fee-based contractsFee-based contracts

ISSUES OF OVERTAXINGISSUES OF OVERTAXING

Return on InvestmentReturn on InvestmentPayment of DebtPayment of DebtReduction of Reproducible CapitalReduction of Reproducible Capital

Exploration, Appraisal, Development Exploration, Appraisal, Development Production storage and TransportationProduction storage and Transportation

Management of Production levels Management of Production levels (Time Paths) (Time Paths) Depletable resourcesDepletable resourcesConversion to financial capital & Conversion to financial capital &

consumptionconsumption

RISK TO MACROECONOMIC RISK TO MACROECONOMIC STABILITYSTABILITY

Unpredictable (large swings) PricesUnpredictable (large swings) Prices Unpredictable and variable budget Unpredictable and variable budget

revenue.revenue. Exchange Rate Regime issues Exchange Rate Regime issues Central Bank RoleCentral Bank Role

Floating exchange rateFloating exchange rate Peg/ Adjustable Peg Peg/ Adjustable Peg Option for devaluation and revaluation of Option for devaluation and revaluation of

domestic currency.domestic currency. ReservesReserves

MANAGING RISK OF MANAGING RISK OF MACROECONOMICS STABILITYMACROECONOMICS STABILITY

Three approaches can be usedThree approaches can be usedHedging against future fluctuationsHedging against future fluctuationsConservative Estimation of revenue Conservative Estimation of revenue

flowsflows Long term average prices and quantitiesLong term average prices and quantities Avoid short-term income streams current Avoid short-term income streams current

prices and production levelsprices and production levels

• Investment into diversified portfolio Investment into diversified portfolio financial assets, sectors of economyfinancial assets, sectors of economy

POLICY CHOICES OF INCOME POLICY CHOICES OF INCOME AND ASSETSAND ASSETS

Resource in the ground (exploit or Resource in the ground (exploit or not to)not to)

Financial Assets (e.g. foreign Financial Assets (e.g. foreign exchange reservesexchange reserves

Physical assets (Infrastructure)Physical assets (Infrastructure)Human Capital (better education Human Capital (better education

labour force, health)labour force, health)

POSITIVE ATTRIBUTES OF POSITIVE ATTRIBUTES OF NATURAL RESOURCE INCOMENATURAL RESOURCE INCOME

Despite Criticism there are huge benefitsDespite Criticism there are huge benefits Improve real living standardsImprove real living standardsThrough high levels of public and Through high levels of public and

private consumptionprivate consumptionFinance huge levels of investmentsFinance huge levels of investments Improve credit rating, and enhance Improve credit rating, and enhance

borrowing capacity.borrowing capacity. Income accrues largely to public sectorIncome accrues largely to public sector

NATIONAL DEVELOPMENT NATIONAL DEVELOPMENT MIXMIX

Mixed EconomyMixed EconomyPublic and private InvestmentPublic and private InvestmentPublic investments are into two Public investments are into two

important areas (Jeff. Sachs)important areas (Jeff. Sachs)Public and merit GoodsPublic and merit Goods

INVESTMENT IN PUBLIC INVESTMENT IN PUBLIC GOODSGOODS

Infrastructure NetworksInfrastructure NetworksNational Defense and securityNational Defense and securityRule of lawRule of lawEnvironmental protectionEnvironmental protectionScientific research Scientific research Infectious disease controlInfectious disease control

INVESTMENT IN MERIT INVESTMENT IN MERIT GOODSGOODS

List of merit goods include the List of merit goods include the following:following:Basic health careBasic health careBasic educationBasic educationSafe drinking water and sanitationSafe drinking water and sanitationAdequate basic nutritionAdequate basic nutritionSafe shelter and social insuranceSafe shelter and social insurance

CAUTION ON PUBLIC CAUTION ON PUBLIC INVESTMENTSINVESTMENTS

Based on sound macroeconomic Based on sound macroeconomic stabilitystability

Short-run macroeconmic stabilityShort-run macroeconmic stabilityLong-term fiscal solvencyLong-term fiscal solvency Inherent instability of earningsInherent instability of earningsDepletion of resources Depletion of resources Complementary rather than Complementary rather than

substitute for private investmentsubstitute for private investment

Programme Based Public Programme Based Public InvestmentInvestment

Long term development planLong term development planMedium term development Medium term development

frameworkframeworkMillennium Development Goals Millennium Development Goals

(MDG)(MDG)BenchmarksBenchmarksBold and achievable targets Bold and achievable targets Absorptive capacityAbsorptive capacity

THANK YOUTHANK YOU