THE PARADOX OF THE RICHEST POOR:

An examination of Niger

Judy Wairimu 2008

Introduction

Why do African countries well endowed with natural resources fall plight to

extreme levels of poverty? Since the time of Adam Smith and David Ricardo there has

been a belief that natural resources are a blessing: that countries richly endowed with

natural resources have an advantage over countries that are not. For centuries, people

moved to where natural resources were abundant: to the Americas, to Australia, to oil-

rich countries in the Middle East. Natural resource endowments have helped many

countries, including Australia, Canada, Finland, and Norway, to grow and diversify, in

part by providing a basis for developing associated technologies and capital goods

industries (World Bank, 2001). Since the end of World War II, however, and particularly

since the 1960s, evidence has accumulated that natural resources are less often a blessing

than a curse.

The poorest countries in Africa are rich in oil and other natural resources.

According to the United Nation’s Human Development Index 2007-2008 Niger ranks

bottom with life expectancy rate for male is 44.05 years, female: 44 years with GDP

(Gross Domestic Product) per capita income as $700 (UN Development Program, 2007)

Almost 70% of the population lives below the poverty line. Nearly half of Niger’s annual

budget comes from aid and donations and it receives enhanced debt relief under the

International Monetary Fund program for Highly Indebted Poor Countries, which means

that Niger has reduced obligations to pay interest on debts and foreign loans. Conversely,

Niger is the third-highest uranium producer in the world behind Canada and Australia

(UN Development Program, 2007). Other natural resources found in Niger include coal,

iron ore, tin and gold, while exploration for oil in the Lake Chad area is ongoing. Niger’s
industries include mining (uranium and coal), production of bricks, cement and

chemicals, textile manufacture and food processing. Despite the natural resources

endowments, they have been a source of conflict and war instead of development and

prosperity. This has led many to conclude that natural resources are a “curse” for Africa.

The concept of a natural resource curse is not new. It refers to countries that, despite

being endowed with abundant natural resources, have lower economic growth rates than

those countries with few if any natural resources. Many economists and world leaders

have pondered on this enigma to the extent of labeling it the ‘resource disease’ or

‘resource trap’.

Competing explanations have been proffered for this dilemma including a decline

in competitiveness of other economic sectors, volatility of revenues from the natural

resource sector, corruption, and resource led conflicts that reverse development efforts.

According to Gunning, natural resources fuel civil wars that hinder economic

development, driving rival factions to battle for control for resource wealth. Rebel groups

may also use natural resources to finance their activities, such as in Sierra Leone where

the Revolutionary United Front (RUF) used alluvial diamonds (diamonds found in rivers)

to purchase weapons (Gunning & Collier, 2005b). Other economists argue it is not only

the ‘curse’ fueling underdevelopment in Africa; it is the corruption and lack of good

governance of these natural resources. Countries with relatively good governance are able

to improve their economies and attract additional foreign direct investment, which can

help to lift many out of poverty (Meaza, 2007). On the other hand, other arguments

place little to no importance in the role of corruption or conflict over the natural

resources as a main cause of poverty in many rich African nations. Economist Paul
Collier argues that resource riches are rarely a path to sustained growth. This is because

an abundant natural resource pool attracts a large inflow of foreign investors with foreign

currencies who take advantage of the situation to benefit themselves, like is the case in

Liberia. Here, oil and gas resources - relatively easy pickings for the governments and

elites - have "crowded out" (a large inflow of foreign currency causing an appreciation of

the domestic currency which discourages exports and encourages imports thus

suppressing national production and employment) the potential for economic growth

brought about by manufacturing or service industries in Liberia which end up in countries

like China and India where they create many job opportunities (Collier & Hoeffler,

2005a). Moreover, in resource-rich countries, governments swimming in revenue have

less incentive to promote economic diversification. Yet these other activities -

manufacturing for export, for example - might have been the best vehicles for sustained

economic growth.

The basic assumption is that the abundance of natural resource becomes a curse

due to poor governance, corruption and frequent risk of civil and non civil wars over

these natural endowments. That is a logical argument as it does not seem possible that

additional money distributed fairly and invested wisely could do any harm. While all

these arguments do play a role in propitiating the natural resource ‘trap’ it is the volatility

of prices of natural resource commodities-such as minerals and agricultural commodities-

and the amount of economic freedom or extent of government control over economic

matters present in many African states, that prevent development despite abundance of

resources. Many African developing countries’ exports consist of mainly primary

commodities; they inevitably face greater instability in export earnings than do developed
countries’ manufactured products. This is because prices of minerals and agricultural

goods fluctuate much more frequently and with greater amplitude than the prices of most

manufactured products, the reasons for this will be discussed later in the paper.

Understanding the reasons behind poverty levels in Africa despite the availability of

natural resources is a major step in solving the ‘economic problem’ ensuring a quality life

for everyone.

The basic premise of this paper is that the high poverty levels in many African

nations despite an abundance of natural resource, is not primarily caused by poor

governance nor civil wars but the lack of economic freedom and the nature of the

resources themselves: An examination of Africa’s poorest oil rich nation, the Niger.

Consequently, the thesis will be argued based on the two suggested ideas:

(i) The role of economic freedom and the extent of government control

over economic matters in alleviating Africa’s poverty levels despite

availability of natural resources

(ii) The nature of the natural resources themselves creates price uncertainty

or volatility that prolongs development in African states.

This paper acknowledges other major factors that hinder development in Africa such as

lack of proper health care and prevalence of disease such as AIDS and Malaria coupled

by cultural barriers, it however will not address these factors as they are not in the scope

of the paper.
The role of economic freedom and the extent of government control over economic
matters in alleviating Niger’s poverty level.

Poverty is not a natural state for any country. It is largely a condition imposed on

people by ill-conceived and repressive economic policies. Free up the latent economic

energies of poor nations, and prosperity will follow. Economic Freedom should not be

mistaken with Democracy; first, they differ with regard to the area of human interaction

covered. Democracy relates to political decision-making while economic freedom relates

to interaction through exchange and markets (Collier & Hoeffler, 2005a). Democracy is

present when all adult citizens are free to participate in the political process (vote, lobby,

and choose among candidates), and when political outcomes are determined by voting in

fair and open elections. Economic freedom on the other hand, is about the freedom of

individuals to decide how they will develop and use their productive abilities, exchange

goods and services with others, compete in markets, and keep the fruits of their labour.

Political restrictions that inhibit voluntary actions and personal choice in these areas

conflict with economic freedom, even when they are adopted democratically. A country

can be democratic and still severely restrict the economic freedom of its citizens.

Economic freedom is indeed important for a country like Niger that has

experienced devastating civil war and nine military coups, all linked to the scramble for

the oil resources of the Niger Delta, the communities and the people are no better off than

they were in 1958. In the Niger, natural resources-which are the sources of survival-,

have been taken away violently, undemocratically, and unjustly. Many are quick to

attribute Niger’s poor economy to solely civil wars and corruption, whist this may be true

ending civil wars or violence over oil control is only one-step to solving Niger’s poverty
problem. This step on the other hand can only be taken if proper economic freedom is

present by maintaining rule of law (Meaza, 2007). This can be done by, regaining

ownership, control, use, and management of resources primarily for the benefit of the

communities and people on whose land the resources originate and secondarily for the

good governance and development of the entire country. Institutions and policies that are

consistent with economic freedom provide an infrastructure for protection of individuals

and their property from aggressors seeking to use violence, coercion, and fraud to seize

things that do not belong to them (Meaza, 2007). In this regard, the legal and monetary

arrangements are particularly important for the Niger government to promote economic

freedom. Legal and law enforcement systems that protect the property rights of owners

and enforce contracts in an even handed manner are therefore possible catalyst in ending

civil unrest over natural resource control.

Niger has spent most of its post-colonial era under Marxist socialism, one of

many failed government experiments. Corruption a major hinder to development has also

haunted Niger, Transparency International's Corruption Perception Index 2005 puts it at

122 globally and 27 out of 36 in Africa. In general, Niger’s judicial system remains

under-resourced and, as a consequence, subject to pressure from the executive and other

detrimental influences such as corruption and inadequate training. Corruption by

officeholders remains a serious problem in Niger. Corrupt officeholders regularly attract

adverse publicity, but are not prosecuted consistently under the law. In mid-2006, two

(former) ministers, both responsible for the Ministry of Basic Education, were

imprisoned for embezzlement of EU funds, with a trial before the High Court of Justice

pending (Sachs, 2005). Niger still clutches to the old ways of doing business, sweeping
things under the carpet and often failing to respect the law. Failure of the country’s legal

system to provide for the security of property rights, enforcement of contracts, and the

mutually agreeable settlement of disputes undermines the operation of the market

economy (Meaza, 2007). Niger’s investors lack confidence in their business

environment, contracts are not always enforced and their productive efforts are not

protected, their incentive to engage in productive activity is eroded. Furthermore, poor

performance in this area is sure to deter investment despite the availability of resources

and a ready market. Therefore, it is highly unlikely that countries with low ratings in

economic freedom will be able to achieve and sustain high rates of development even

with a natural resource upper hand.

The nature of the natural resources themselves creates price uncertainty or
volatility that prolongs development in the Niger.

In 2006 Niger exported uranium ore, livestock, cowpeas and onions worth

US$428 million to France 34.8%, Nigeria 18.3%, US 26.6% ,Russia 11.3%. They then

imported foodstuffs, machinery, petroleum, cereals, vehicles and vehicle parts all worth

$800 million (World Bank, 2006). Part of the Macro-economic objectives that every

economy aims at is favourable balance of payments- where import levels do not exceed

exports, as this would create a deficit in the economy. By having their imports exceeding

the exports the country’s domestic currency is ejected from the economy, thus can not

benefit the citizens as domestic investment falls which in turn decreases job opportunities

consequently decreasing income levels and triggers a downward spiral in consumption

and saving.

In Economics primary commodities or agricultural commodities are considered to

have a positive elasticity to prices (Collier & Gunning, 2005b) meaning a small change in

demand for these commodities could lead to a more than significant change in their

prices. This is due to the high levels of uncertainty that is involved in the procurement of

these resources. For example conflict in Niger where resources are fuelling instability in

the country. Ongoing conflict between the government and locals over uranium

extraction for export, has led to the loss of life and oil prices to shoot up causing inflation

in the country (Collier & Hoeffler, 2005a). The poorest and most vulnerable Nigerian

citizens (from Niger not Nigeria) are those most heavily reliant on agriculture, and most

strongly locked into subsistence within agriculture. Niger’s economy, while showing

promise, suffers from the unpredictable climate conditions (erratic rainfalls,

desertification, and the plague of locusts) that make subsistence or agricultural activities

unreliable. Therefore their natural resources are not very reliable yet their whole

economy depends on this sector, thus a need for diversification into the manufacturing

and service industries that are more consistent and does not cause large price fluctuations.

Countries with relatively good governance based on their economic freedom are

able to improve their economies and attract additional foreign direct investment which

can help to lift many out of poverty. At the same time the need transformation from

complete dependency on primary commodities (natural resources) to a more service or

manufacturing oriented economy is of outmost importance. The good news is the

number and scope of conflict over natural resources is actually decreasing in Africa,

which gives hope to these resource rich countries. If indeed natural resource is a curse or

a blessing for Africa is still debatable, I tend to believe it is a blessing and African

countries should take advantage of their valuable resources with proper systems of

management of these resources. According to Jaffrey Sachs’ ‘The End of Poverty’ one

of the major hinders to economic development is the lack of innovation, not because the

people are not smart enough but because government control put off innovation or

entrepreneurship (Sachs, 2005) British economist John Maynard Keynes pondered the

dire circumstances of the Great Depression. From the depth of despair around him, he

wrote in 1930 of the ‘Economic Possibilities for our grandchildren’. “At a time of duress

and suffering he envisioned the end of poverty in Britain and other industrial countries in

his grandchildren’s day towards the end of the 20th century” (Sachs, 2005, p. 56). Keynes

emphasised the dramatic march of science and technology and the ability of innovation in

technology to underpin continued economic growth enough growth indeed to end the age
old ‘economic problem’ of having enough to eat and enough income to meet other basic

needs. Keynes got it just right. Today we can invoke the same logic to declare that

extreme poverty can be ended not in the time of our grandchildren but in our time.

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