The decision chain of natural resource management: Part II

Using the revenues from resource extraction well is difficult. The first reason is that the revenues are volatile, and they are not sustainable. Volatility is evidenced by booms and busts in public spending during the supercycle, or the recent period of sigificant price growth for natural resources. Two examples are given: Ghana, which borrowed US$ 2 billion on the strength of oil discovery and Chile, which had a copper boom and then parked its prices, recognizing their temporary nature. Sustainability is evidenced by the finite nature of these resources and their obsolence (e.g. new scientific discoveries to make similarly effective resources synthetically). Additionally, citizens are often not aware of the volatility of these resources, and thus cannot support or debate appropriately sustainable or productive policy decisions. The second is converting those revenues into assets that are as productive as possible. This can include savings; getting higher savings rates out of resource revenues and then channeling it into domestic investment is a priority. Investment in domestic investment is also important, and is profiled in the International Monetary Fund's Public Investment Management Index.

Watch Part I.

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