Resource-rich Countries Can Learn from History, Says Collier

Dedicated funds can cushion low-income countries against price shocks

Allocate substantial resources to building productive infrastructure

Use revenues from natural resources to diversify economy

During a seminar on “Commodity Price Volatility and Inclusive Growth in Low-Income Countries” on the sidelines of the 2011 IMF–World Bank Annual Meetings, Paul Collier from the Centre for the Study of African Economies at Oxford University outlined policies to help countries ride the “commodity price tiger.”

In an interview with IMF Survey online, Collier said that African countries endowed with mineral and other natural wealth could learn from the mistakes of the past and rise from their low-income status through better management of their natural resources.

IMF Survey online: Are low-income countries always doomed to fall victim to the so-called “natural resources curse?”

Collier: If we look at the history of resource extraction in Africa and elsewhere, it is not a happy history. In fact, it is a history of plunder. So the task is to make sure that history does not repeat itself. Societies do not have to repeat history. They are not condemned to repeat mistakes. There is a thing called “social learning” and that is what has to happen in Africa.

IMF Survey online: What are some recommendations that you might suggest for saving and investing in natural resources?

Collier: Governments should not devote everything to the future. Similarly, if people are poor now, everything should not be devoted to just raising consumption in the present. Governments need to find a balance between present and future needs.

Part of the task is to smooth spending so you do not get these booms followed by crashes. You need one set of institutions, which rides the tiger of commodity prices. You need to save in good times and then pull that money back into consumption in bad times.

I call those “sovereign resilience funds.” You put the money in when you have got plenty of money; you take it out when you have not. Alongside a sovereign resilience fund is a “sovereign development fund”. It finances the schools, the ports, the hospitals, the roads, power stations that build a more productive future. Africa has been starved of economic infrastructure. It really needs to devote serious money to that task of building productive infrastructure.

IMF Survey online: Can you give us an example of a particular place that has done a good job at that?

Collier: Botswana...