At the core of economic development for a poor country is a successful strategy for multidimensional capital accumulation. For resource-rich countries, extractive industries can be particularly beneficial for achieving these goals. However, there are several features of extractive industries in developing countries that make resource-based development particularly challenging. Addressing five key elements is essential to formulating an effective resource-based development strategy

On Solid Ground: Toward Effective Resource-Based Development

By , , Feature

The small island-state of Timor-Leste exemplifies the challenge of resource-based development for a poor country well-endowed with a valuable natural resource. Timor-Leste, which gained its independence in 2002, has accumulated $13 billion in its petroleum fund in less than a decade. Some of the largest multinational oil companies are operating in the country, and the revenues continue to flow. And yet, while Timor-Leste has seen very notable improvements in its development indicators in the past few years, it continues to face a massive challenge of converting financial wealth into economic development. There are also heated debates about how to spend the oil revenues, or whether to spend them at all as opposed to accumulating them in an overseas fund.

Oil wealth by itself does not end a poor country’s problems. Timor-Leste’s malnutrition and stunting rates remain among the highest in the world. The electricity grids are incomplete. Many roads are in disrepair. The education system is in need of massive upgrading, and many of those seeking higher degrees now go to Indonesia or elsewhere to get them. The government is committed to transforming its economy into that of a middle-income country in a short time. In 2011, it produced a 20-year strategic development plan that laid out the priorities for public investment in a number of key sectors. While Timor-Leste has made and continues to make great progress in its development trajectory, the country illustrates the basic fact that resource-based development is extremely challenging, even for a small, democratic and financially well-resourced country. ...

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