Natural Resources and Extractive Industries : an overview Trinidad & Tobago, February 2014
Outline
Natural resources, what are we talking about?
Renewable resources and nonrenewable
resources
Economy of natural resources
Sustainable resource management: challenges
and issues
2
Natural Resources
Materials and components that are useful and can be
found within the environment
•
•
•
•
•
•
•
Petroleum
Primary forests
Ichthyologic biomass
Land
Water
Air
Minerals
We could say that natural resources are everything
surrounding us that was not man made
3
EI and Development
Natural Resources are one of three generic production factors
Human Resources
Reproducible Resources
Natural Resources
4
Natural Resources
Sure it is important to have Natural Resources…
Source: IMF
5
Natural Resources
And they are an important asset for many countries
Source: World Bank
6
Natural Resources
However there can be too much of a good thing…
Dependence on Hydrocarbons and Minerals
Country
Resource type
Fiscal revenues from hydrocarbons and minerals
% of GDP
% of total government revenues
Exports of hydrocarbons
and minerals (% of total goods exports)
GDP per capita (PPP) (2011)
Human Development Index (HDI) ranking (2011)
Azerbaijan
Hydrocarbons
16.2
58.5
88.9
$10,200
76th
Bolivia
Hydrocarbons
11.3
32.0
5.0
$4,800
108th
Botswana
Minerals
17.1
44.0
77.5
$16,000
118th
Cameroon
Hydrocarbons
6.0
27.0
47.0
$2,300
150th
Iraq
Hydrocarbons
67.5
94.7
97.6
$3,900
132nd
Kazakhstan
Hydrocarbons
7.2
27.5
54.4
$13,000
68th
Kyrgyz Republic
Minerals
0.5
1.7
31.8
$2,370
126th
Norway
Hydrocarbons
14.1
25.8
42.7
$53,500
1st
Russia
Hydrocarbons
8.2
21.6
48.6
$16,700
66th
Saudi Arabia
Hydrocarbons
34.0
72.5
88.8
$24,200
56th
Venezuela
Hydrocarbons
18.7
58.0
93.0
$12,600
73rd
Source: IMF (2010); average 2006‐10 figures
7
Natural Resources
Hydrocarbons and Minerals are very special resources
• Location specific
provides leverage to governments
• Large upfront costs and production timelines
Thus sometimes it is not for everybody
• Substantial windfalls (economic rents)
And it brings good and not so good things
• Price and production volatility
And it brings conflict over who bears risk
• Information asymmetries
Companies have inner information and can game the tax system
• Non‐renewable assets
only worth extracting if country is properly compensated for asset depletion !!!
8
Renewable and non Renewable Resources
Renewable
Resources that are continuously available and their quantity is
not noticeably affected by consumption (rate of
replenishment/recovery is bigger than rate of consumption).
Sunlight, air, ichthyologic biomass, rainforest
Non Renewable
Resources that do not naturally form or form very slowly ( we
are talking million years here)
Oil and mineral deposits, ichthyologic biomass, rainforest
A resource is renewable only as long as the rate of
replenishment/recovery is higher
than the rate of
consumption. That means that in some cases renewable
resources could become non renewable under abusive
consumption
9
Renewable and non Renewable
You know, air used to be the perfect example of a
renewable (quasi) infinite natural resource …
10
Natural resource management
Extractive Industries
Any activity that extracts/withdraws resources from nature for
human consumption
Hunting, fishing, mining, oil and gas extraction, forestry
As we already saw, a key issue for natural resources is the rate
of extraction, in order to avoid resource depletion
A forest disappear
An animal species goes extinct
An oil field goes dry
Rational and optimal utilization of those resources are the
fundamentals of the economy of natural resources and
11
sustainable management
Natural resource management
Is the management of natural resources with a focus
on some key issues:
•Renewable strategies and policies (avoiding resource
depletion)
•Optimal utilization and value generation (improving
quality of life for the current generation)
•Intergenerational issues (how current consumption
affects the quality of life for future generations)
12
Natural resource management
Issues for governments/societies in resource rich countries:
•Nonrenewable resources—oil, gas, and minerals—are
exhaustible and, as a result, so is the income on which the
countries depend
•Prices of commodities are unpredictable, so a large proportion
of their revenues is often volatile, which can cause swings in
government budget
•Policy frameworks are often not strong enough to support
sound fiscal policies (income and expenditures). The countries
may have limited capacity to undertake long‐term revenue
forecasts and implement high‐quality public investment
projects
13
Natural resource management
Processing
And there is the challenge of adding value
Raw Material
Processed Material
Wealth Generated
Added Value Extraction Process
14
Natural resource management
Ideally the wealth generated from natural resources should
takes us to sustainable and inclusive development
This is even more imperative in the case of non renewable
resources, whose exploitation means a permanent reduction of
natural capital
However, frequently natural resources exploitation brings
underdevelopment , poverty and inequality
Natural resources are not necessarily a “curse” or a “blessing”;
all depends on what we do with those resources and how we
use the wealth generated by exploitation of those resources
15
Natural resource management
The issue of Sustainability is at the heart of natural resources
management
That means:
•To use renewable resources in a sustainable way, avoiding
depletion (forest, fish banks, etc.)
•To use non renewable resources in a rational way, extracting
the most value, but also getting ready for the day that the
resource is exhausted
•That brings the issue of “Life after the mine closes and the oil
well dries up”, and the transition process to an economy that
doesn’t depend as much of natural resources
16
Natural resource management
Of course, a key issue is Sustainability, but this word doesn’t
mean the same for everybody
Saudi Arabia, T&T, Venezuela
Relatively abundant reserves, main fiscal focus should be on
dealing with volatility and improving living standards; but also
promoting economy diversification and opportunity creation
Cameroon, Yemen, Bolivia
Limited reserves, main focus should be on improving economy
diversification and alternative productive developments to
ensure sustainable income in the future
17
Let’s get some discussion going on, shall we?
18