Commodity Bubbles and the Resource Curse

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The FT links to this Oxford Policy Management study showing that 15 low and medium income countries have become newly dependent primarily on some commodity–fuel or minerals–for export income in the last 14 years.

The number of low- and middle-income countries1 that depend on minerals for more than 25%
of their tangible exports – defined as ‘mineral-dependent’ countries – increased by more than
30% between 1996 and 2010, from 46 to 61 countries.

  • Over this period, seven low- and middle-income countries became dependent on non-fuel minerals including: Montenegro, Guyana, Laos, Burkina Faso, Bolivia, Georgia, Somalia and Ghana.
  • Six low- and middle-income countries became dependent on fuel-based minerals including: Belarus, Belize, Chad, Cote d’Ivoire, Myanmar and Timor-Leste.
  • By 2010, more 80% of non-fuel, mineral-dependent states were low- and middle-income countries, compared to about 70% of fuel-dependent countries.
  • Overall, 45 countries depend on fuel-based minerals and 40 countries depend on non-fuel minerals, nearly half of which are in Africa.

The report goes on to raise concerns about the “resource curse,” the common occurrence by which oil and mineral dependent countries become especially corrupt, resulting in a decline in quality of life for the bulk of people in those countries.

This is an unsurprising outcome of the development- and speculation-driven growth in commodity prices of late. But that–plus our stated intent to conduct small-footprint paramilitary operations in to pursue claimed terrorist and drug threats–does suggest we’re headed for further globalization-driven destabilization. Sure, globalized finance was always part of the problem in developing countries, as corrupt elites incurred debts, stripped their country of cash, and then hid it outside of the country (where it would make western bankers a profit).

But now, it seems likely you’ll see more cash coming in, more weapons, and more inequality.

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5 replies
  1. Bob Schacht says:

    Orwell’s vision is again proving prescient. The world will be divided into a few major powers, and the rest will be marginalized lands that will be where the major powers fight over resources. Orwell did not foresee predator drones, but he got the rest pretty well checked out.

    Any doubters might take a look at The Pentagon’s New Map(2004).

    Bob in AZ

  2. Gitcheegumee says:

    Would be curious if these countries will become the new offshoring tax havens…certainly would be a big(or bigger) stick,so to speak.

  3. person1597 says:

    A cooling global economy has deflated emerging market enthusiasm for the resource extraction paradigm and there is no wealth generating replacement available.

    “Speculative demand” ginned up by innovative investment vehicles brought forward price increases that spoofed the production engine into a dangerous mismatch between organic demand and mal-invested overcapacity.

    It isn’t hard to justify the desire for a profitable return on investment feigned by globalized resource marketing advances, but the rush to monetize latent resource wealth overlooked the sustainability of the aggregate market demand.

    Mal-investment and defects with improvised trading mechanisms were overlooked while the perception of demand seemed unrelenting (read:China ascendent).

    The inversion of growth into recession and the subsequent unwinding of long-commodities/short-dollar plays in the oil markets is a case in point:


    Chris Cook: Naked Oil

    If you believe the investment banks – who all have oil funds to sell to the credulous – Far Eastern demand is holding up, supplies are tight, and stocks are low, so prices are set to rise to maybe $120 or above in 2012, even in the absence of fisticuffs involving Iran.

    I take a different view. I see real demand – as opposed to financial demand and stock-piling, such as in the copper market – declining in 2012 as the financial crisis continues at best, and deepens at worst, particularly in the EU. Stocks are low because bank financing of stock is disappearing as banks retrench, and it makes no sense for traders to hold stocks if forward prices are lower than today’s price.

    What happens next? A Minsky Moment? Wholesale disintermediation?

    Chaos?

    We’ve discovered that some jobs cannot be outsourced. That is true with miners in any country so the employment circumstances have no immediately available substitutes. Would workers voluntarily leave the mines for other opportunities in the global economy? The [lack of]mobility of human capital provides no escape for the locals.

    Global economics is Darwinian and no respecter of ideologies. Communist and capitalists competing in a market environment is not something Americans can get their heads around. If anything, Americans buy on price — regardless of the thoughts and political stylings of the country of origin.

    Commodities are particularly harsh mistresses for populations enslaved by foreigners with contracts. As we now see, the investment bankers are singularly unsympathetic owners of the human capital: local populations indentured to servitude within the commodities complex.

    When does the bloodbath begin? It begins when the stockpiling ends and the desire to cash-out becomes implacable. Could a world-economic-governance paradigm emerge from the denouement? (Woah — did I say world governance?)

    Ha! Only in the mind of monsters!

  4. Gitcheegumee says:

    @person1597:

    local populations indentured to servitude within the commodities complex.//

    Has ANYONE else noticed the incredible upward spike in the cost of groceries since Thanksgiving 2011?

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