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Pietro, you've drawn attention to an important public policy choice faced by resource rich developing countries, whether to rely on the fiscus to generate development benefits, using the principles of converting natural assets into financial assets and then into made (manufactured) and intellectual assets, or to rely on market channels (with some targetted public interventions) to generate development benefits, using the principles of direct, indirect and induced income effects of linkages (backwards, sideways and forward). This can be presented as a straight trade-off, in which case one would have to value the worth of one incremental dollar of value through the fiscus versus through the market. But I think we are all aware of two complications: i) the fiscus can be stolen, raided, diverted or just badly used - there are also issues of absorption and inter-generational benefits: ii) the market can be distorted, monopolized and worse, moreover, without infrastructure, skills and other public goods, the returns on the market channel may be poor. Moreover, markets in isolated developing countries may be difficult to integrate into global value chains. So where does this leave us? Probably with a need for a judicious blend of i) and ii) in which the fiscus is selectively used to deliver public goods that are most likely to spur stronger direct, indirect and induced linkage effects from the exploitation of a resource endowment. There is also a "third way", involving cash transfers to citizens; a use of helicopter money to generate spending power which can bring forth investment and the opening of markets - some advocate strongly for this on the basis that the fiscus cannot be relied upon and that the market is unprepared to deliver linkage benefits. But if those two conditions cannot be fulfilled, it seems to me unlikely that the "third way" has any better chance of success. Oh, and there is a fourth way - the solution hinted at by Tom Burgis in "The Looting Machine" of not developing the resources in the first place!  For me the bottom line is that this is less a choice among alternatives but just a lot of effort and good fortune working across-the-board to improve the functioning of the fiscus to deliver public goods, to promote strong linkage effects with post-modern industrial policies and to inject a little resource cash from time to time when conditions are favorable.

Hi Brian,

Thanks for your insightful comments.

I agree, the policy tree is not a binary choice but a blend of channels (I tried to make the point here - although it is important for policymakers to be aware that there are indeed trade offs between the fiscal and market channel - not least because some local content provisions will increase production costs in the short term end therefore eat into the tax base - too often LCPs are seen as a "free meal" by policymakers. But you are very much right that both the tax channel and the market channel are vulnerable to imperfections of various nature...We looked at the cash transfer issues briefly in this paper

but what I find most striking is recent5 opinion surveys (admittedly limited to East Africa, carried out by CGD) shows lukewarm responses to the "helicopter money" option...


Pietro, Thank you for your very brief and clear description of situation in the natural resources led industrialization of the African Continent, and obvious conclusion that it is the Continental rather than the individual African countries approach would enable it to realize the maximum of its potential in natural resources led industrialization. Continental approach would enable the huge African potential in natural resources led industrialization to be realized at maximum via the collective approach in the development of its huge industrial base of natural resources such as the energy, power generation and raw materials of manufacturing minerals, fertile lands, fresh water bodies, very extensive coastlines, marine fisheries, hydro power generation potentials, a huge and very under-supplied African population, etc. which are scattered all over the Continent in different countries which won’t realize their national natural resources led industrialization by going on in isolation from each other because the individual African countries don’t have enough/all of the whole package of different natural resources required to enable the evolution of natural resources led industrialization at national levels. The collective Continental approach would enable the African countries to collaborate in the development of natural resources led industrialization potentials all over the continent via the deployment of a well integrated base of national policies, laws and fiscal regimes and enabler infrastructures which would maximize the Continent’s attractiveness for investments in the exploitation of the industrial base of natural resources anywhere they are on the Continent for manufacturing and supplying to markets anywhere they are on the Continent most effectively. I also think Africa has de-industrialized in relative terms over the past two decades mainly because the Continent didn’t have much of the R&D capabilities required to enable it maintain competitiveness of its products in the global market dominated with competitors on continuing modernization of their production processes and lines for enhanced quality and price competitiveness of their products . Continental level approach would enable the evolution of Continental manufacturers who are well equipped with the R&D capabilities enabling to maintain the competitiveness of its industries in the global market.