Member only
Episode
62

The Resource Curse

Jun 12, 2020
Economics
-
16
minutes
Economics
Africa
Gold
Oil

When a country finds gold, oil or diamonds, you might think this would be a good thing.

But in many cases, it is a curse for that country, and it would have been better off leaving its natural resources in the ground.

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[00:00:04] Hello, hello, hello, and welcome to English Learning for Curious Minds by Leonardo English, the show where you can listen to fascinating stories and learn interesting things about the world at the same time as improving your English. 

[00:00:21] I'm Alastair Budge, and today we are going to be talking about something strange that tends to happen to countries when they find oil, gold, diamonds, or any other sort of natural resource.

[00:00:38] You might think that finding hundreds of billions of dollars worth of natural resources in your country might be a blessing, a great thing for your nation. 

[00:00:51] But actually in many cases, this discovery proves to be exactly the opposite; a curse that brings conflict, slows down economic development, and is deeply damaging to a country.

[00:01:08] So in today's episode, we are going to find out why that is. 

[00:01:14] Before we get started though, let me just quickly remind those of you listening to this episode on your favourite podcast app, that you can find all of the episodes, plus transcripts, key vocabulary, subtitles, and more over on the website, which is Leonardoenglish.com.

[00:01:34] We've also made it much easier to find exactly what you want to listen to, so you can now filter episodes by subject, and there are nice little tags on every episode so it's easy to find what you want to listen to. 

[00:01:49] So go and check that out. It is at leonardoenglish.com.

[00:01:54] Okay, then the resource curse

[00:01:58] There's an expression in English and that is to 'strike gold'. 

[00:02:04] It means to suddenly become rich or successful after having found something, normally something unexpected. 

[00:02:13] Of course it comes from the idea that if you are digging and your shovel hits gold, well, then you are going to end up rich. 

[00:02:24] In theory, it makes sense. 

[00:02:26] You find gold, you sell gold, you get rich. 

[00:02:30] However, history shows us that for countries, at least , what often happens is completely the opposite. 

[00:02:41] When a country strikes gold, and that gold can either be literal gold or any other kind of profitable resource - oil, gas, diamonds, or other minerals - it can actually be worse for the people of that country than if they had never found it. 

[00:03:03] It is a pretty interesting idea, and today we are going to talk about some of the reasons why this happens.

[00:03:10] Let's just start with some numbers. 

[00:03:13] For countries in Africa, the economist from Oxford university, Paul Collier showed that the probability of there being a civil war in any five year period is less than 1% for countries without large amounts of natural resources, but it is around 25% for countries with natural resources.

[00:03:41] And since 1990, oil-producing countries have been twice as likely to have had a civil war compared with non oil-producing countries. 

[00:03:55] But it's not just about wars and conflict

[00:04:00] While wars and conflict don't help, of course, there are a plethora of reasons that countries with a lot of natural resources tend to grow slower than countries without a large amount of natural resources. 

[00:04:17] This theory first started to gain traction, to become popular, in the mid 1990s when two famous Harvard economists published a paper that suggested that countries that exported more resources, so agricultural products, minerals, and fuel, that these countries saw slower economic growth than those that didn't. 

[00:04:46] It was, and still is, an interesting idea because it goes against what you might think. 

[00:04:54] At first glance, you might think it must be a fantastic thing for a country to just find billions or trillions of dollars worth of natural resources under the ground. 

[00:05:08] All that the country needs to do is find a way of getting them out, and then it can build schools, hospitals, universities, and everything it needs for its citizens to prosper.

[00:05:24] But interestingly, these Harvard economists suggested that exactly the opposite often happens. 

[00:05:33] There are exceptions, of course, but they showed broadly that the more gold a country found, the poorer that country got, or at least the slower it developed. 

[00:05:48] And there are a few reasons for this.

[00:05:51] Firstly, when you are selling something like oil or gold or any kind of mineral, you sell it in dollars. 

[00:06:00] When you sell your resources, you receive the money in dollars, which you then need to convert into your own currency

[00:06:09] Because there are so many dollars coming into your country this often causes inflation; prices go up and your money is worth less within the country.

[00:06:23] But the other thing that often happens within countries that rely on exporting resources is that their own currency strengthens against the dollar, so it becomes more expensive for foreigners to buy products from that country. 

[00:06:43] What this does is it makes exporting things less competitive, thereby hurting people who produce goods and sell them abroad. 

[00:06:57] To give you an example of this, if I used to make something and export it for $10, but now, because the currency in my country has increased in value, I need to sell the same thing for $20, well, there are going to be fewer people that will want to buy it. 

[00:07:21] Because the export industry becomes less competitive, it doesn't grow, and so the country becomes completely reliant on the money it gets from exporting its natural resources.

[00:07:37] You might say, well, that's no bad thing. 

[00:07:40] If a country is making enough money through selling oil, gas, or gold or whatever it is, is that a problem? 

[00:07:49] Look at Saudi Arabia, that doesn't seem to be doing too badly. 

[00:07:54] Of course there are exceptions to every rule, but in many cases, having large amounts of natural resources means that the entire country becomes completely dependent on this money.

[00:08:09] In most countries, the government collects money through taxes from its people, it therefore needs to be accountable to its people because it's the people who pay the salaries. 

[00:08:24] But if suddenly the government gets a huge new source of income from selling natural resources, then the income it gets from taxes becomes less important. 

[00:08:39] And because it becomes less important, governments often become less accountable to the people they are supposed to govern. 

[00:08:49] And this somewhat inevitably leads to countries with large amounts of natural resources being more likely to have authoritarian leaders and to have increased levels of corruption.

[00:09:05] As I'm sure we know the behaviour of lots of oil and mining companies over the last few decades has been, well, not very admirable, and there are dozens of cases of large companies offering bribes to local politicians and leaders. 

[00:09:27] The president of Equatorial Guinea, for example, has an estimated net worth of $600 million, and it was found that he had accepted $300 million from the large US oil companies, Exxon mobil and Hess corporation. 

[00:09:48] Equatorial Guinea is, on a GDP per capita basis at least, one of the richest countries in Africa. 

[00:09:57] Yet it's 141st out of 189 on the UN's human development index. 

[00:10:05] So clearly that oil money is not trickling down to the people. 

[00:10:12] Other than the increased likelihood of war, the fact that it causes inflation and harms exports, and that it leads to more authoritarian leaders who are often more corrupt, there are a few other problems with suddenly finding that you have a large amount of natural resources. 

[00:10:31] Natural resources, or commodities, have very volatile prices; the price can go up a lot, but it can also go down a lot. 

[00:10:43] For countries that are reliant on natural resources to generate money, this makes planning for anything pretty hard. 

[00:10:54] Life is great when the price goes up, but when it comes down, the state suddenly gets significantly less money than it had planned for. 

[00:11:05] One of the reasons that Venezuela is having such trouble now is that the price for oil has dropped significantly. 

[00:11:15] In 2008 the price of a barrel of oil was $144; in April of 2020 it was under $20. 

[00:11:27] Obviously, if your country is dependent on money from something like oil, then it's very hard to predict how much money you'll get in the future.

[00:11:39] Maybe it'll be more than you get now, but maybe it'll be a lot less.

[00:11:44] So what often happens is countries tend to borrow a lot of money if they need it quickly, when prices are low, but they are then saddled with, they are weighed down by these huge debts that they have to continue to pay for years ahead. 

[00:12:06] This idea of the resource curse isn't just a modern thing though, and it doesn't only apply if you find resources in your own country. 

[00:12:19] There is quite a persuasive theory that the resource curse is one of the reasons that caused the fall of the Spanish empire. 

[00:12:29] After colonising large parts of Latin America, Spain was able to bring back huge amounts of precious minerals to Europe: silver, gold, and other minerals. 

[00:12:43] Of course, there was a great human cost, but from a currency point of view, the Spanish got these riches almost for free - they simply took them. 

[00:12:55] Bringing these goods back to Spain and then selling them for lots of money meant there was a lot of money that came into Spain and reduced the incentives for development of other industries within Spain, so there wasn't as much attention paid to things like investment in education. 

[00:13:18] The result of this was that the Spanish empire was rich and strong for a while.

[00:13:24] However, as this influx of cash from the sale of minerals found in Latin, America had made it lazy, it wasn't building any strong foundations that would help preserve its strength. 

[00:13:40] That's one theory in any case. 

[00:13:43] There are however, a handful of countries that disprove everything I've said, countries that have large amounts of natural resources that they've managed to use sensibly, and for the benefit of their citizens. 

[00:14:00] The classic example is Norway, a small fishing country in the North Sea that now enjoys one of the highest per capita incomes and highest quality of living in the world. 

[00:14:14] Botswana, which is the world's largest producer of diamonds has remained free from civil war and is one of the wealthiest countries in Africa.

[00:14:26] And one that most people wouldn't think of is Canada. 

[00:14:30] It's actually thought to have the second largest oil reserves in the world after Saudi Arabia, yet it hasn't fallen prey to the resource curse. 

[00:14:43] So having a large amount of natural resources and striking gold, doesn't always have to be a curse, but it certainly is something that a country needs to be careful about.

[00:14:58] Back in 1976, the Venezuelan oil minister, Juan Pablo Perez Alfonso said that "10 years from now, 20 years from now....you will see, oil will bring us ruin. It is the devil's excrement." 

[00:15:16] Okay. Well, it happened a little after 20 years later, but he was proved to be right. 

[00:15:24] For Venezuela, it most certainly was the devil's excrement

[00:15:31] Okay then, that is it for today's episode. 

[00:15:35] I hope that it has been an interesting one and that you now know that striking gold doesn't always mean, well striking gold. 

[00:15:44] As a final reminder, if you are looking for all of the episodes plus access to subtitles, key vocabulary, transcripts, member's only live question and answer sessions and more, then the place to go to is Leonardoenglish.com. 

[00:16:01] You've been listening to English Learning for Curious Minds by Leonardo English.

[00:16:07] I am Alastair Budge, you stay safe and I'll catch you in the next episode.

[END OF PODCAST]


Continue learning

Get immediate access to a more interesting way of improving your English
Become a member
Already a member? Login

[00:00:04] Hello, hello, hello, and welcome to English Learning for Curious Minds by Leonardo English, the show where you can listen to fascinating stories and learn interesting things about the world at the same time as improving your English. 

[00:00:21] I'm Alastair Budge, and today we are going to be talking about something strange that tends to happen to countries when they find oil, gold, diamonds, or any other sort of natural resource.

[00:00:38] You might think that finding hundreds of billions of dollars worth of natural resources in your country might be a blessing, a great thing for your nation. 

[00:00:51] But actually in many cases, this discovery proves to be exactly the opposite; a curse that brings conflict, slows down economic development, and is deeply damaging to a country.

[00:01:08] So in today's episode, we are going to find out why that is. 

[00:01:14] Before we get started though, let me just quickly remind those of you listening to this episode on your favourite podcast app, that you can find all of the episodes, plus transcripts, key vocabulary, subtitles, and more over on the website, which is Leonardoenglish.com.

[00:01:34] We've also made it much easier to find exactly what you want to listen to, so you can now filter episodes by subject, and there are nice little tags on every episode so it's easy to find what you want to listen to. 

[00:01:49] So go and check that out. It is at leonardoenglish.com.

[00:01:54] Okay, then the resource curse

[00:01:58] There's an expression in English and that is to 'strike gold'. 

[00:02:04] It means to suddenly become rich or successful after having found something, normally something unexpected. 

[00:02:13] Of course it comes from the idea that if you are digging and your shovel hits gold, well, then you are going to end up rich. 

[00:02:24] In theory, it makes sense. 

[00:02:26] You find gold, you sell gold, you get rich. 

[00:02:30] However, history shows us that for countries, at least , what often happens is completely the opposite. 

[00:02:41] When a country strikes gold, and that gold can either be literal gold or any other kind of profitable resource - oil, gas, diamonds, or other minerals - it can actually be worse for the people of that country than if they had never found it. 

[00:03:03] It is a pretty interesting idea, and today we are going to talk about some of the reasons why this happens.

[00:03:10] Let's just start with some numbers. 

[00:03:13] For countries in Africa, the economist from Oxford university, Paul Collier showed that the probability of there being a civil war in any five year period is less than 1% for countries without large amounts of natural resources, but it is around 25% for countries with natural resources.

[00:03:41] And since 1990, oil-producing countries have been twice as likely to have had a civil war compared with non oil-producing countries. 

[00:03:55] But it's not just about wars and conflict

[00:04:00] While wars and conflict don't help, of course, there are a plethora of reasons that countries with a lot of natural resources tend to grow slower than countries without a large amount of natural resources. 

[00:04:17] This theory first started to gain traction, to become popular, in the mid 1990s when two famous Harvard economists published a paper that suggested that countries that exported more resources, so agricultural products, minerals, and fuel, that these countries saw slower economic growth than those that didn't. 

[00:04:46] It was, and still is, an interesting idea because it goes against what you might think. 

[00:04:54] At first glance, you might think it must be a fantastic thing for a country to just find billions or trillions of dollars worth of natural resources under the ground. 

[00:05:08] All that the country needs to do is find a way of getting them out, and then it can build schools, hospitals, universities, and everything it needs for its citizens to prosper.

[00:05:24] But interestingly, these Harvard economists suggested that exactly the opposite often happens. 

[00:05:33] There are exceptions, of course, but they showed broadly that the more gold a country found, the poorer that country got, or at least the slower it developed. 

[00:05:48] And there are a few reasons for this.

[00:05:51] Firstly, when you are selling something like oil or gold or any kind of mineral, you sell it in dollars. 

[00:06:00] When you sell your resources, you receive the money in dollars, which you then need to convert into your own currency

[00:06:09] Because there are so many dollars coming into your country this often causes inflation; prices go up and your money is worth less within the country.

[00:06:23] But the other thing that often happens within countries that rely on exporting resources is that their own currency strengthens against the dollar, so it becomes more expensive for foreigners to buy products from that country. 

[00:06:43] What this does is it makes exporting things less competitive, thereby hurting people who produce goods and sell them abroad. 

[00:06:57] To give you an example of this, if I used to make something and export it for $10, but now, because the currency in my country has increased in value, I need to sell the same thing for $20, well, there are going to be fewer people that will want to buy it. 

[00:07:21] Because the export industry becomes less competitive, it doesn't grow, and so the country becomes completely reliant on the money it gets from exporting its natural resources.

[00:07:37] You might say, well, that's no bad thing. 

[00:07:40] If a country is making enough money through selling oil, gas, or gold or whatever it is, is that a problem? 

[00:07:49] Look at Saudi Arabia, that doesn't seem to be doing too badly. 

[00:07:54] Of course there are exceptions to every rule, but in many cases, having large amounts of natural resources means that the entire country becomes completely dependent on this money.

[00:08:09] In most countries, the government collects money through taxes from its people, it therefore needs to be accountable to its people because it's the people who pay the salaries. 

[00:08:24] But if suddenly the government gets a huge new source of income from selling natural resources, then the income it gets from taxes becomes less important. 

[00:08:39] And because it becomes less important, governments often become less accountable to the people they are supposed to govern. 

[00:08:49] And this somewhat inevitably leads to countries with large amounts of natural resources being more likely to have authoritarian leaders and to have increased levels of corruption.

[00:09:05] As I'm sure we know the behaviour of lots of oil and mining companies over the last few decades has been, well, not very admirable, and there are dozens of cases of large companies offering bribes to local politicians and leaders. 

[00:09:27] The president of Equatorial Guinea, for example, has an estimated net worth of $600 million, and it was found that he had accepted $300 million from the large US oil companies, Exxon mobil and Hess corporation. 

[00:09:48] Equatorial Guinea is, on a GDP per capita basis at least, one of the richest countries in Africa. 

[00:09:57] Yet it's 141st out of 189 on the UN's human development index. 

[00:10:05] So clearly that oil money is not trickling down to the people. 

[00:10:12] Other than the increased likelihood of war, the fact that it causes inflation and harms exports, and that it leads to more authoritarian leaders who are often more corrupt, there are a few other problems with suddenly finding that you have a large amount of natural resources. 

[00:10:31] Natural resources, or commodities, have very volatile prices; the price can go up a lot, but it can also go down a lot. 

[00:10:43] For countries that are reliant on natural resources to generate money, this makes planning for anything pretty hard. 

[00:10:54] Life is great when the price goes up, but when it comes down, the state suddenly gets significantly less money than it had planned for. 

[00:11:05] One of the reasons that Venezuela is having such trouble now is that the price for oil has dropped significantly. 

[00:11:15] In 2008 the price of a barrel of oil was $144; in April of 2020 it was under $20. 

[00:11:27] Obviously, if your country is dependent on money from something like oil, then it's very hard to predict how much money you'll get in the future.

[00:11:39] Maybe it'll be more than you get now, but maybe it'll be a lot less.

[00:11:44] So what often happens is countries tend to borrow a lot of money if they need it quickly, when prices are low, but they are then saddled with, they are weighed down by these huge debts that they have to continue to pay for years ahead. 

[00:12:06] This idea of the resource curse isn't just a modern thing though, and it doesn't only apply if you find resources in your own country. 

[00:12:19] There is quite a persuasive theory that the resource curse is one of the reasons that caused the fall of the Spanish empire. 

[00:12:29] After colonising large parts of Latin America, Spain was able to bring back huge amounts of precious minerals to Europe: silver, gold, and other minerals. 

[00:12:43] Of course, there was a great human cost, but from a currency point of view, the Spanish got these riches almost for free - they simply took them. 

[00:12:55] Bringing these goods back to Spain and then selling them for lots of money meant there was a lot of money that came into Spain and reduced the incentives for development of other industries within Spain, so there wasn't as much attention paid to things like investment in education. 

[00:13:18] The result of this was that the Spanish empire was rich and strong for a while.

[00:13:24] However, as this influx of cash from the sale of minerals found in Latin, America had made it lazy, it wasn't building any strong foundations that would help preserve its strength. 

[00:13:40] That's one theory in any case. 

[00:13:43] There are however, a handful of countries that disprove everything I've said, countries that have large amounts of natural resources that they've managed to use sensibly, and for the benefit of their citizens. 

[00:14:00] The classic example is Norway, a small fishing country in the North Sea that now enjoys one of the highest per capita incomes and highest quality of living in the world. 

[00:14:14] Botswana, which is the world's largest producer of diamonds has remained free from civil war and is one of the wealthiest countries in Africa.

[00:14:26] And one that most people wouldn't think of is Canada. 

[00:14:30] It's actually thought to have the second largest oil reserves in the world after Saudi Arabia, yet it hasn't fallen prey to the resource curse. 

[00:14:43] So having a large amount of natural resources and striking gold, doesn't always have to be a curse, but it certainly is something that a country needs to be careful about.

[00:14:58] Back in 1976, the Venezuelan oil minister, Juan Pablo Perez Alfonso said that "10 years from now, 20 years from now....you will see, oil will bring us ruin. It is the devil's excrement." 

[00:15:16] Okay. Well, it happened a little after 20 years later, but he was proved to be right. 

[00:15:24] For Venezuela, it most certainly was the devil's excrement

[00:15:31] Okay then, that is it for today's episode. 

[00:15:35] I hope that it has been an interesting one and that you now know that striking gold doesn't always mean, well striking gold. 

[00:15:44] As a final reminder, if you are looking for all of the episodes plus access to subtitles, key vocabulary, transcripts, member's only live question and answer sessions and more, then the place to go to is Leonardoenglish.com. 

[00:16:01] You've been listening to English Learning for Curious Minds by Leonardo English.

[00:16:07] I am Alastair Budge, you stay safe and I'll catch you in the next episode.

[END OF PODCAST]


[00:00:04] Hello, hello, hello, and welcome to English Learning for Curious Minds by Leonardo English, the show where you can listen to fascinating stories and learn interesting things about the world at the same time as improving your English. 

[00:00:21] I'm Alastair Budge, and today we are going to be talking about something strange that tends to happen to countries when they find oil, gold, diamonds, or any other sort of natural resource.

[00:00:38] You might think that finding hundreds of billions of dollars worth of natural resources in your country might be a blessing, a great thing for your nation. 

[00:00:51] But actually in many cases, this discovery proves to be exactly the opposite; a curse that brings conflict, slows down economic development, and is deeply damaging to a country.

[00:01:08] So in today's episode, we are going to find out why that is. 

[00:01:14] Before we get started though, let me just quickly remind those of you listening to this episode on your favourite podcast app, that you can find all of the episodes, plus transcripts, key vocabulary, subtitles, and more over on the website, which is Leonardoenglish.com.

[00:01:34] We've also made it much easier to find exactly what you want to listen to, so you can now filter episodes by subject, and there are nice little tags on every episode so it's easy to find what you want to listen to. 

[00:01:49] So go and check that out. It is at leonardoenglish.com.

[00:01:54] Okay, then the resource curse

[00:01:58] There's an expression in English and that is to 'strike gold'. 

[00:02:04] It means to suddenly become rich or successful after having found something, normally something unexpected. 

[00:02:13] Of course it comes from the idea that if you are digging and your shovel hits gold, well, then you are going to end up rich. 

[00:02:24] In theory, it makes sense. 

[00:02:26] You find gold, you sell gold, you get rich. 

[00:02:30] However, history shows us that for countries, at least , what often happens is completely the opposite. 

[00:02:41] When a country strikes gold, and that gold can either be literal gold or any other kind of profitable resource - oil, gas, diamonds, or other minerals - it can actually be worse for the people of that country than if they had never found it. 

[00:03:03] It is a pretty interesting idea, and today we are going to talk about some of the reasons why this happens.

[00:03:10] Let's just start with some numbers. 

[00:03:13] For countries in Africa, the economist from Oxford university, Paul Collier showed that the probability of there being a civil war in any five year period is less than 1% for countries without large amounts of natural resources, but it is around 25% for countries with natural resources.

[00:03:41] And since 1990, oil-producing countries have been twice as likely to have had a civil war compared with non oil-producing countries. 

[00:03:55] But it's not just about wars and conflict

[00:04:00] While wars and conflict don't help, of course, there are a plethora of reasons that countries with a lot of natural resources tend to grow slower than countries without a large amount of natural resources. 

[00:04:17] This theory first started to gain traction, to become popular, in the mid 1990s when two famous Harvard economists published a paper that suggested that countries that exported more resources, so agricultural products, minerals, and fuel, that these countries saw slower economic growth than those that didn't. 

[00:04:46] It was, and still is, an interesting idea because it goes against what you might think. 

[00:04:54] At first glance, you might think it must be a fantastic thing for a country to just find billions or trillions of dollars worth of natural resources under the ground. 

[00:05:08] All that the country needs to do is find a way of getting them out, and then it can build schools, hospitals, universities, and everything it needs for its citizens to prosper.

[00:05:24] But interestingly, these Harvard economists suggested that exactly the opposite often happens. 

[00:05:33] There are exceptions, of course, but they showed broadly that the more gold a country found, the poorer that country got, or at least the slower it developed. 

[00:05:48] And there are a few reasons for this.

[00:05:51] Firstly, when you are selling something like oil or gold or any kind of mineral, you sell it in dollars. 

[00:06:00] When you sell your resources, you receive the money in dollars, which you then need to convert into your own currency

[00:06:09] Because there are so many dollars coming into your country this often causes inflation; prices go up and your money is worth less within the country.

[00:06:23] But the other thing that often happens within countries that rely on exporting resources is that their own currency strengthens against the dollar, so it becomes more expensive for foreigners to buy products from that country. 

[00:06:43] What this does is it makes exporting things less competitive, thereby hurting people who produce goods and sell them abroad. 

[00:06:57] To give you an example of this, if I used to make something and export it for $10, but now, because the currency in my country has increased in value, I need to sell the same thing for $20, well, there are going to be fewer people that will want to buy it. 

[00:07:21] Because the export industry becomes less competitive, it doesn't grow, and so the country becomes completely reliant on the money it gets from exporting its natural resources.

[00:07:37] You might say, well, that's no bad thing. 

[00:07:40] If a country is making enough money through selling oil, gas, or gold or whatever it is, is that a problem? 

[00:07:49] Look at Saudi Arabia, that doesn't seem to be doing too badly. 

[00:07:54] Of course there are exceptions to every rule, but in many cases, having large amounts of natural resources means that the entire country becomes completely dependent on this money.

[00:08:09] In most countries, the government collects money through taxes from its people, it therefore needs to be accountable to its people because it's the people who pay the salaries. 

[00:08:24] But if suddenly the government gets a huge new source of income from selling natural resources, then the income it gets from taxes becomes less important. 

[00:08:39] And because it becomes less important, governments often become less accountable to the people they are supposed to govern. 

[00:08:49] And this somewhat inevitably leads to countries with large amounts of natural resources being more likely to have authoritarian leaders and to have increased levels of corruption.

[00:09:05] As I'm sure we know the behaviour of lots of oil and mining companies over the last few decades has been, well, not very admirable, and there are dozens of cases of large companies offering bribes to local politicians and leaders. 

[00:09:27] The president of Equatorial Guinea, for example, has an estimated net worth of $600 million, and it was found that he had accepted $300 million from the large US oil companies, Exxon mobil and Hess corporation. 

[00:09:48] Equatorial Guinea is, on a GDP per capita basis at least, one of the richest countries in Africa. 

[00:09:57] Yet it's 141st out of 189 on the UN's human development index. 

[00:10:05] So clearly that oil money is not trickling down to the people. 

[00:10:12] Other than the increased likelihood of war, the fact that it causes inflation and harms exports, and that it leads to more authoritarian leaders who are often more corrupt, there are a few other problems with suddenly finding that you have a large amount of natural resources. 

[00:10:31] Natural resources, or commodities, have very volatile prices; the price can go up a lot, but it can also go down a lot. 

[00:10:43] For countries that are reliant on natural resources to generate money, this makes planning for anything pretty hard. 

[00:10:54] Life is great when the price goes up, but when it comes down, the state suddenly gets significantly less money than it had planned for. 

[00:11:05] One of the reasons that Venezuela is having such trouble now is that the price for oil has dropped significantly. 

[00:11:15] In 2008 the price of a barrel of oil was $144; in April of 2020 it was under $20. 

[00:11:27] Obviously, if your country is dependent on money from something like oil, then it's very hard to predict how much money you'll get in the future.

[00:11:39] Maybe it'll be more than you get now, but maybe it'll be a lot less.

[00:11:44] So what often happens is countries tend to borrow a lot of money if they need it quickly, when prices are low, but they are then saddled with, they are weighed down by these huge debts that they have to continue to pay for years ahead. 

[00:12:06] This idea of the resource curse isn't just a modern thing though, and it doesn't only apply if you find resources in your own country. 

[00:12:19] There is quite a persuasive theory that the resource curse is one of the reasons that caused the fall of the Spanish empire. 

[00:12:29] After colonising large parts of Latin America, Spain was able to bring back huge amounts of precious minerals to Europe: silver, gold, and other minerals. 

[00:12:43] Of course, there was a great human cost, but from a currency point of view, the Spanish got these riches almost for free - they simply took them. 

[00:12:55] Bringing these goods back to Spain and then selling them for lots of money meant there was a lot of money that came into Spain and reduced the incentives for development of other industries within Spain, so there wasn't as much attention paid to things like investment in education. 

[00:13:18] The result of this was that the Spanish empire was rich and strong for a while.

[00:13:24] However, as this influx of cash from the sale of minerals found in Latin, America had made it lazy, it wasn't building any strong foundations that would help preserve its strength. 

[00:13:40] That's one theory in any case. 

[00:13:43] There are however, a handful of countries that disprove everything I've said, countries that have large amounts of natural resources that they've managed to use sensibly, and for the benefit of their citizens. 

[00:14:00] The classic example is Norway, a small fishing country in the North Sea that now enjoys one of the highest per capita incomes and highest quality of living in the world. 

[00:14:14] Botswana, which is the world's largest producer of diamonds has remained free from civil war and is one of the wealthiest countries in Africa.

[00:14:26] And one that most people wouldn't think of is Canada. 

[00:14:30] It's actually thought to have the second largest oil reserves in the world after Saudi Arabia, yet it hasn't fallen prey to the resource curse. 

[00:14:43] So having a large amount of natural resources and striking gold, doesn't always have to be a curse, but it certainly is something that a country needs to be careful about.

[00:14:58] Back in 1976, the Venezuelan oil minister, Juan Pablo Perez Alfonso said that "10 years from now, 20 years from now....you will see, oil will bring us ruin. It is the devil's excrement." 

[00:15:16] Okay. Well, it happened a little after 20 years later, but he was proved to be right. 

[00:15:24] For Venezuela, it most certainly was the devil's excrement

[00:15:31] Okay then, that is it for today's episode. 

[00:15:35] I hope that it has been an interesting one and that you now know that striking gold doesn't always mean, well striking gold. 

[00:15:44] As a final reminder, if you are looking for all of the episodes plus access to subtitles, key vocabulary, transcripts, member's only live question and answer sessions and more, then the place to go to is Leonardoenglish.com. 

[00:16:01] You've been listening to English Learning for Curious Minds by Leonardo English.

[00:16:07] I am Alastair Budge, you stay safe and I'll catch you in the next episode.

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