Countries that earn a lot of money from oil, coal, minerals and other natural capital by no means invest it wisely. A lot of money flows away into corruption and unsustainable investments. Investing more sustainably in education, health and infrastructure would benefit not only current, but also future generations within these countries. Charan van Krevel investigated why things still often go wrong. His PhD defense at Radboud University takes place on 21 December.
Van Krevel's research shows that in countries with abundant natural capital that make poor investments, there is not 'just' apathy or aversion towards sustainable development, but that there are systematic, economic and institutional factors causing this policy failure. It sounds very logical: using your country's resource profits to help the entire population move forward not just in the short term, but in the long term. Yet it often fails to happen this way.
Well-known are the stories of corruption and missing money in poor countries in Asia, South America and Africa, as well as scenarios where rich Western companies make off with the profits. But there is more to it, the economist outlines. Van Krevel used data from more than 140 countries for his research, to understand how they spend their natural capital, and which investments were most effective in the long run. 'What you often see is countries that are already developing sustainably continue to do so even as new natural capital is mined,' Van Krevel explains.
Corruption
In his research, Van Krevel looks at the causes of the lack of investment in the future. He finds evidence that (international) companies are skimming off profits so that there is little left to invest with. So corruption is not only at government level, but also in deals with business. There is simply not enough left over to invest.
The economist made an extensive study of Indonesia: 'It has numerous natural resources, including palm oil, gas, coal and more. That's given the country a lot: incomes have risen, but there have not been enough investments that contribute to the long-term welfare of its people. But it also has some interesting governance quirks: in Indonesia, the local government is responsible for the sustainable investments and often does it better than national governments would. In the Netherlands, if not The Hague but Groningen had spent the money from gas, investment choices would probably have been more sustainable.'"
'Furthermore, data doesn't paint the full picture. Look at Cambodia, for example. That country signed contracts with China to mine limestone. On paper, you see big investments by China in infrastructure in the country. But in practice, this then turns out to be, for example, a highway from the capital to a coastal town, where many politicians and other rich residents have second homes.'
Norway and Botswana: a better way?
Van Krevel: 'There are examples of things working out better, of course. Norway set up a fund with profits from natural capital that politicians have little or no access to. Its interest is invested in free education, good libraries and more things that benefit the population. Botswana also made good investments with money from mining, and has become relatively quite prosperous. The political climate and aversion to the colonial past made for smart choices.'
Although Van Krevel's research focuses mainly on fossil fuel profits, he says there are plenty of lessons for countries like Congo that are sitting on a lot of other natural capital: minerals like lithium and cobalt, important for many of the tech we use every day. 'Those countries have an opportunity to learn. Make sure your property rights are well organised, and not just vested in the elite or Western parties. With democratic control, you significantly increase the chances of sustainable development.'
