This document discusses the challenges of managing wealth from natural resource extraction industries. It identifies several key challenges: 1. Economic challenges like overdependence on extractive industries leading to "Dutch disease," high unemployment in other sectors, and inflation from increased spending on imports. 2. Social challenges around unequal distribution of wealth causing conflicts over who benefits and corruption. Health issues also arise for workers and communities affected by extraction. 3. Political challenges as different parties have competing interests in controlling resource wealth, often leading to instability and war, as seen in countries like Libya and Iraq. 4. Environmental challenges as extraction negatively impacts air, water and soil, and countries must balance development needs against long-term environmental protection.

1. Resource Wealth Management Challenges in
relation to extractive industries.
Felix Niwagaba
Oil, gas and energy management
St. Augustine International University
BOG 13A01/437
Introduction.
Wealth of natural resources must still be wealth even when not extracted but then it will
not make sense to people when it does not help them to live well in the world of lots of
needs, wants which must be met to satisfy a man. This calls for then to extract this wealth
for the well being of a man, this where challenges of management start to arise.
Natural resource wealth management has become so complicated that even the extractive
industries have failed to manage resource revenues they get from these industries. Recall
early years of extractive industries beginning, ancient Asians dug or used oil spillages as
medicine, Africans did iron ore mining and iron smelting and this was before colonial
times but still there used to be inter regional boundary conflicts, cultural, tribal and
ownership conflicts because of there natural resources. This indicates that management
of natural resources wealth had been a problem mainly because of uneven distribution,
personal interests differences. During the colonial era period: Europeans colonized most
of the world countries, chopping continents into many colonies so called countries today.
They were mainly after exploitation of natural resource wealth and wanting to have
control over resource wealth, this gave birth to world wars and hence the beginning of
resource curse in the world blessed natural resource wealth. As of today the number of
resource wealth demand have multiplied that of early years of extractive industries and
this has come up with many fierce competitors like USA, China, Israel, North Korea,
India, Russia and other Developed countries-Europe in mind. So if management of
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2. resource wealth faced challenges when demand and actors were few what of today and in
future when demand has increased and multiplied.
This paper will enlighten us about the challenges of natural resource wealth management
in relation to economic, political and social issues.
Challenges of resource wealth management are:
Economy and natural resource wealth, Most of the countries with natural resource
wealth tend to focus their attention on these extractive industry sectors forgetting other
sectors.
This brings about over dependence on this sector and with time yields so-called Dutch
disease and its related effects. Dutch disease comes about when a country having the
capacity and possibility of developing and gaining from different sectors spends much on
mineral resources extractive industry, planning and national budget concentrates on this
industry lugging behind other sectors let say agricultural industry which employs most of
the local people and as a heart of developing countries economy. With time non-mineral
resources exports start to decline because a shift from non-mineral industry to mineral
extractive industry. Un employment on the side of non-extractive industry personnel
increase, non-mineral products reduce like food products increasing dependence on
imports and poverty ratios. This finally will create a natural resource economy making
resource wealth management difficult for example in developing countries which have
got no or less personnel to do extractive industry activities, have less skills and
experience, limited capital and other resources to invest in extractive industry such as
fossil fuels mining and production. Loan dependency for most of their economic
activities finance whether commercial or developmental. International funding is the
result of this and hence control and exploitation of their wealth. Still when the natural
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3. resources revenue start to flow, loans must be cleared and after clearing of the loans there
is also a change of planning for how to spend and consume the resource revenues.
Appreciation of the local currency will discourage exportation because of increased price
for local products as compared to neighboring countries’ currencies. More to that much
income from the natural resource wealth will call for high standard of living and luxury
life of the citizens forcing the country for do more importation and not forgetting
inflation. The fact that the industry needs technical workers, employment will not be
equally distributed, income will also be distributed poorly and power and control over
these revenues will be in the hands of few elites at last bringing about resource wealth
conflicts and wars. When this matures resource curse will be the result and this takes us
to the next challenge of social inequalities.
Social, society and natural resource wealth, natural resources wealth distribution
among the societies, people governance and management is a big challenge. This arises
because of many things talk of corruption, different interests, races, regional differences
in that these factors confuses the wealth planning bring about conflicts on who is taking
what and why questions. For example most of wealth resource countries find it difficult
to get the right ratios of wealth distribution such countries include West Africa, Sudan
and Southern Sudan, Nigeria, Saud Arabia, DRC and these issues are arising in Uganda
about regional sharing of oil wealth, student scholarships.
Still going away from the conflicts on distribution, there are other health challenges
issues for extractive industries workers and other stakeholders who are affected either
inhaling toxic gases, accidents in mines. Rewarding structures in the extractive industry
brings also about income inequalities and related problems because of worker kind
needed.
Politics and natural resource wealth, If all persons were the same: leadership, power,
hard work, laws, state and other institutions would not be needed as of now. Persons are
different and what brings difference is wealth-money for one who controls money
controls the world and for this case USA controls money in away that the world uses US
dollar as the World currency, after all she is a super power.
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4. To control the wealth or money, all wealth sources must be controlled where natural
resources- extractive industry is a key.
Recall every person, institution, country wants to become the super power hence increase
the competitive rate on the control for natural resources to control wealth-money and so
the world. This brings in countries like China, Russia, India, Israel, South and North
Korea in the game that was earlier played by European countries only. For this fact
resource wealth management challenges triples due to many players, take a case of DRC,
Southern Sudan and Sudan, Libya, Middle East countries. Politics and resource wealth
management cannot match mainly because of different parties interests, values. Looking
back to the Libya’s crisis where NATO and USA opened up a war and as the war was
going on Americans were busy robbing the oil and unfortunately up to now Libya’s
instability have multiplying instead of calming down. Another good example is Iraq
under Saddam Hussein where USA did the same in 2003. Middle East political
instabilities are also due fossil fuel and definitely politics and resource wealth yield war
in most of the times if observations are made from long ago in colonial times, world wars
times.
Environment and Natural resource wealth management, Extractive industry and
environment cannot match the fact that every activity in this sector has got negative
consequences on the environment mention air, water, and soil pollution. For example a
mere digging of holes during mining let say gold, coal may lead to erosion, mass wasting,
earthquakes due to integration of soil and rock formation of that particular area. Then
what of oil, coal nuclear exploration, development and production activities; all these
harden health and safety in the extractive industry hence calling for more costs which is
challenging in the sector for much of the wealth is some times spend on compensation,
safe technologies to reduce the environmental impacts.
Climate change is challenging natural resource wealth management in a way that planers
must compare people, environment to draw a conclusion of where to make wealth-
spending focus now or in the future. If people are chosen over environment problems will
arise in future, if environment is chosen over people then no development, wars and
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5. conflicts. Wealth spending balance from the natural resources is needed for sustainable
development to occur and this is the challenge.
Solutions that might help to counter attack the
challenges.
Good governance, transparency in relation to accountability is important for wealth
management changes especially resource wealth revenue waste. Still again good
governance have to include the kind of leaders with collective or public interest, public
involvement in decision making, rule of law, constitution. All these are to help in
management of natural resources revenue toward sustainable development, so the
government needs to build sustainable development strategies.
Investment of natural resources revenue in other sector to avoid direct spending and
her related effects, this will work in many ways to develop other sectors, act as separate
government investments. It is from these investment revenue the country can start
spending to the common good of her citizens and other developments can be met through
this strategy. Resource revenue investment let say in agriculture reduces over dependency
on natural resource revenue-extractive industry, reduces on importation, unemployment
hence increasing on the products to avail in the international markets.
Education reformation is also needed, the fact that extractive industry needs
sophisticated technology and technical worker which most of resource blessed countries
lack in reasonable numbers. This enables even local citizen to get skills through training
hence fighting payment inequality among workers and in long-term income inequalities
are reduced. Education reformation will reduce over dependency on international
personnel and exaggerated salaries.
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6. Reduction on loan seeking, most countries with natural resource wealth tend to opt for
more loans to meet their needs expecting the natural resource revenue to pay back these
debts. These loans increase the loan size for even during extraction of resource wealth,
these countries lack enough capital to invest as sunk costs for this industry needs lumpy
investments. So loan reduction will help the countries to plan well for the revenues not
spending all the revenue in servicing the debts and leaving the country in poverty. As
most international loans come up with strings attached, by countries reducing on loans
these strings are reduced to enhance good and flexible decision making.
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