The Rise of the Resource Curse – by William Pesek (Bloomberg News – December 12, 2013)

 http://www.bloomberg.com/

In many ways Mongolia is an outlier — an exotic tourist destination filled with windswept deserts, nomads and yurts. It might also be a vision of the world’s future.

With a tiny $10 billion economy and less than 3 million people, Mongolia is fantastically resource-rich. And with borders touching China, Russia and Central Asia, the landlocked nation seems to have won a geographic lottery ticket. It doesn’t need to go far to find enthusiastic customers for its immense endowment of copper, gold and other minerals.

That also means that Mongolia sits on the precipice of the so-called resources curse, in which citizens in countries such as Nigeria and Indonesia have not prospered from the treasure sitting under their land and seas. As politicians and cronies make millions, there’s little incentive to create other industries to employ the masses.

Mongolia’s challenge will soon be the world’s. That’s the upshot of a new report from Richard Dobbs and his team at McKinsey, in which they predict a $17 trillion investment bonanza by 2030 to keep up with demand for oil, gas and other materials. That’s an amount greater than the annual output of the U.S. economy and more than four times Germany’s. It’s not just the kind of money that changes people or even nations. It’s the kind that changes the world — and probably not for the better.

In 1995, about 58 countries depended on resources for the bulk of their output and wealth. In 2011, that number had risen to 81. By 2030, roughly half of the world’s economies will essentially become giant filling stations for developing superpowers from China to South Africa.

That means that instead of the world moving toward greater transparency, democracy and freer markets, we could see rising corruption levels and even greater income inequality. “Economies with natural-resource endowments have a huge opportunity to transform their prospects, but history suggests that they could all too easily squander the windfall,” says Dobbs, director of the McKinsey Global Institute in London. “To date, resource-driven countries have tended to underperform those without significant resources.”

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