Why do Mineral-Based Developing Economies Face Economic Problems?

The Case Study of Nigeria and Botswana

1. Introduction.

Mineral-based economies have been defined as “those developing countries which generate at least 8 percent of their GDP and 40 percent of their export earnings from the mineral sector”. (Auty, 1993: p. 3). Two main categories of mineral-based economies have been identified. These include hydrocarbon producers and hard mineral exporters (producers of ores such as copper and tin). (Auty, 1993).

Although one may reasonably expect developing mineral-based economies to witness tremendous economic development owing to their rich mineral resources, this has hardly been the case. According to Davis (1995: p. 1766) “mineral-based economies rather have development problems than development advantages”. In addition, Davis (1998) notes that economists and political scientists have recently proposed that mineral economies’ growth is below par, despite the mineral windfalls (rents) generated from mineral extraction. The mineral sector has even been classified as a ‘loser’ sector in the economic development race. (Shafer, 1994) cited by Davis (1998). Citing from a recent World Bank conference on mining and economic development, Davis (1995: p. 1765) states that several invited experts noted with concern the historical poor per capita economic growth of the mineral-exporting nations. In particular, participants from mineral-based developing economies were justly anxious about their fate. (Davis, 1995: p. 1765). In addition to fears of the “Dutch disease” and the “resource curse thesis” (explanations of these terms follow in subsequent sections), delegates were also concern about the appropriate policy response measures to these issues. (Davis, 1995).