So, I’m gonna be talking about a national commons problem
which then flips into a global commons problem.
And then I’m gonna be talking about the opportunity to harness natural resources,
the natural resources underneath the ground for prosperity in the poorest countries.
Over the next decade this is going to be Africa’s big opportunity.
There’s a whole chain of decisions which have to be taken
in order to harness natural assets for prosperity
and, historically, it hasn’t happened. That chain is broken.
It’s... our big insight is to see the whole decision chain as a chain,
as a joined up thing rather than just silent.
But let’s start at the beginning of the chain,
finding the natural resources under the ground.
It’s the one number you’ll remember from this Ideals Lab.
We take the average square kilometer of the OECD
and the average square kilometer of Africa. Underneath
OECD square kilometer is a 123,000 dollars worth of subsoil assets.
Now, let’s take the square kilometer of Africa. What’s the same figure for Africa?
Everybody imagines it’s even more.
It’s actually much less. It’s only about 20,000 dollars. It’s about a fifth.
That discovery process has gone wrong.
Suppose we fix the discovery process and that’s a matter of property rights,
you then have to harness the revenues for the government
and that’s a matter of taxation.
The money should flow into the national treasury but, typically, in Africa it doesn’t.
Let’s take the example of exports of gold from the Democratic Republic of the Congo,
supposedly around a billion dollars a year revenue into the... we don’t know exactly.
We do know revenue into the treasury, the DRC, 37,000 thousand dollars.
So something is going very badly wrong.
We can generally spot what it is.
It’s a mixture of the problems of asymmetric information
between the companies and the government
and the agency problem within the government
which is a polite word for corruption.
There are institutional devices for tackling both those problems.
For example, auctions get around the problem of asymmetric information...
Sorry, The agency problem can also be addressed by auctions
because it cleans up the process of the warning contracts,
but also a trick of taxation is to tax the things that are highly observable
that can’t be gained.
Typically, profits can be gained much more easily
than the actual physical quantity of the resources being extracted.
So we’ve discovered the assets, we’ve taxed them.
This is smuggling.
And now we come to how they’re spent.
This is how they were spent in Nigeria.
This is the Central Bank of Nigeria.
And so big public expenditure is kind of the default option
but it doesn’t necessarily produce very much.
And so the alternative to something like that is to have high savings rates.
Now, high savings rates are politically unpopular in resource rich countries.
This is the logo of the People’s Populist Party in Norway, so it’s not just a problem
in Africa, it’s a problem for all of these resource rich countries.
This Populist Party wants to spend the money now...
is you’re depleting an asset. You should be building up another asset,
and so a few countries do that, usually, it’s not happened.
Once you saved the asset, what should you do with it?
The low income countries, Africa, shouldn’t copy Norway.
Norway gives it to those wise New York bankers to invest internationally,
but what Africa should be doing is investing within Africa.
Now, the problem with that, historically, there are good things
you could invest on like schools,
but, historically, the process with investment has failed.
And so the final link in the chain is to invest in the capacity to invest well.
Investing and investing.
Now, in conclude by saying why has that chain gone wrong?
And it’s gone wrong with repeatedly yet it is Africa’s big opportunity the next decade.
It’s vital that that change should hold. What has to happen?
This is not a matter of the international financial institutions
telling resource rich countries what to do.
There’s no power, they won’t listen.
And so to our mind what’s necessary to get this sort of thing
is to build within each resource rich society a critical mass of informed opinion.
Now, how do you that?
That’s where we flip from the national public good of natural resources
to the global public good of knowledge.
And so a team of us have built what is called the Natural Resource Charter
which is both a website and a physical product.
You can pick this up on your way out.
And the natural Resource Charter lays out the full decision chain
in clear language at different levels
so that ordinary people in the resource rich societies can understand what went wrong
and what are the critical decisions they need to harness this enormous opportunity.
Thank you.