Review the theory and empirical evidence on the resource curse. Choose an oil rich developing country.

Based on the international experience, what advice (try to be specific!) would you give this country in order for it to avoid the resource curse and promote development for the people?

Sally Amkoa Inoka Barclay Nikolay Bashlykov Alina Selezneva

Bergen 30.06.2013

Table of Contents
Resource curse ................................................................................................................................................. 3
Introduction .................................................................................................... Error! Bookmark not defined. Theory ............................................................................................................... Error! Bookmark not defined.

International Experience .............................................................................................................................. 5

Norway ............................................................................................................................................................................. 5 Norwegian Petroleum sector ............................................................................................................................. 5 The Government Pension Fund ........................................................................................................................ 6 State organization of the petroleum activities ........................................................................................... 6 Costs of the model .................................................................................................................................................. 7 Concluding remarks .............................................................................................................................................. 7 Botswana ......................................................................................................................................................................... 8 Alaska................................................................................................................................................................................ 9 Nigeria ............................................................................................................................................................................ 10

Developing country ..................................................................................................................................... 10 Funds Comparison ....................................................................................................................................... 13 Discussion........................................................................................................................................................ 13

Lessons learnt from International experience .............................................................................................. 13 Advice to Nigeria ........................................................................................................................................................ 15

Conclusion ........................................................................................................................................................ 17 References ....................................................................................................................................................... 19 Appendix .......................................................................................................................................................... 21

Table of Appendixes
Appendix 1 The Government Pension fund ....................................................................................... 21 Appendix 2 Handlingsregelen ................................................................................................................. 21 Appendix 3 State Organisation of the petroleum activities ......................................................... 22 Appendix 4 Growth rates of per capita GDP 1960-98 .................................................................... 22 Appendix 5 GRICS ......................................................................................................................................... 23 Appendix 6 Alaskas Fund Market Value............................................................................................. 23 Appendix 7 Alsakas fund asset allocation ......................................................................................... 24 Appendix 8 Funds Comparison ............................................................................................................... 25

Introduction
In this paper we are going to talk about theory, empirical evidence on the resource curse and we will choose an oil rich developing country to elaborate on set of advice to manage this disease. We have chosen this topic because we believe that the questions raised in it are very relevant managing the natural resource welfare is on of the most challenging problems for resource rich countries. The fact that resource rich countries are home to a considerate part of worlds population heightens the importance of this topic. We start our paper with theoretical background of the term resource curse use the examples of Dutch and Spanish diseases as an empirical evidence of this disaster. Further on we describe international practices of well management of natural resource wealth on the examples of Norway, Botswana and Alaska. We have a look on the current situation in Nigeria our target country for which we elaborate on the set of advice to manage their resource welfare. In the final part we provide specific advice to Nigeria based on international benchmark of managing resource welfare. This advice is relevant to current situation in Nigeria and aim to increase the welfare of the country and promote the development of Nigerian people.

Resource curse
Introduction
In this section we will discuss the theoretical background of a term resource curse. The term refers to the paradoxical situation in which countries with abundant natural resources tend to experience stagnation and low economic growth. Lately, researches and scholars have studied the subject using statistical methods to test the hypothesis that oil and gas fortune undermines democratic principles and leads to reduction of peoples wealth. Most believe that there is statistical evidence (Frankel, 2011) of a significant relationship between abundance of natural resources and low economic development of the country. At the same time, recognition has been growing that the effects of oil can be quite different in different types of countries and in different periods.

Theory
A country experiences resource curse when it starts to concentrate all its effort on a single industry, such as exploration of natural resources, while simultaneously neglecting other economic activities. The examples could be the growth losers such as Nigeria, Zambia, Sierra-Leone, Angola, with abundant natural resources and from another hand so called Asian tigers: Korea, Taiwan, Hong Kong, and Singapore, all resource poor countries. As a result of resource abundance, a country loses diversification in its economy and becomes overly dependent on the price of commodities. Economic performance of the country in terms of overall gross domestic product becomes extremely volatile. Enormous resource rent often appears as a windfall of great magnitude (Heum P. , 2013). Weak institutions and deficient policies together with extensive welfare concentrated under government control leads to corruption and bribing among authority. In terms of economic performance, export of natural resources strengthens real exchange rate, which hurts other export oriented industries and worsen the competitiveness of the economy overall. The resource curse is often observed in emerging markets following a major natural resource discovery. High volatility revenues often result in stop and go policies, which adds uncertainty to countries performances. However, there is no convincing theoretical argumentation explaining poor performance of resource rich countries. Moreover there are a number of countries opposing conventional point of view. Good examples of management the natural resource welfare could be Norway, Australia, New Zealand and Canada. Fundamental research has been performed by Sachs and Warner (Sachs & Warner, 1995) where they explain Dutch disease. They explored states and discovered that resource abundance leads to corrosion of institutions and lowers the overall economic performance of a country, leading to the development of the rent-seeking hypothesis. In the later paper Halvor, Moene and Torvik (Mehlum, Moene, & Torvik, 2005) state that the difference between economic performances between resource rich countries lies in the quality of institutions. The authors justify that natural resource abundance is only harmful to the economic development of countries with grabber friendly institutions. Halvor, Moene and Torvik allocate entrepreneurs between production and unproductive rent extraction, which they call grabbing. They state that grabbing harms economic 4

development. However, the quality of institutions may induce entrepreneurs not to specialize in grabbing, thus leaving scarce entrepreneurial resources in production activities. In this paper we will mostly concentrate on petroleum natural resource curse, taking only Botswana as an example of a non-oil resource rich country. Oil is the worlds most capital-intensive industry (Times, 2013), which means that it needs relatively less labor, creating few jobs. Moreover, it demolishes jobs in other sectors of economy. When a budget depends only on petroleum rent income, the government has less incentive to build an efficient taxation system. This creates opacity in government spending and reduces authority accountability, as citizens want to know how the government is using their money. Oil revenues tend to segregate government from the people inducing unfair distribution of wealth and poverty.

International Experience
Norway
Norwegian Petroleum sector Since the discovery of Ekofisk by Philips Petroleum in 1969 and production start in 1971, Norwegian petroleum sector has been expanding ever since. From shipping and fishing representing the two most important industries for the Norwegian economy, petroleum industry became the most important nowadays. Important fact to mention is when petroleum was discovered in Norway, it was a highly industrialized country with institutions, policies, educated society, which means that Norway was already developed at that time which is sometimes not the case with oil-exporting countries. In 2012, petroleum sector represented 23% share of GDP; 30% share of state revenues; 29% share of total investment and 52% share of total exports (Statistics Norway, Ministry of Finance, 2012). Over the 44-year period, petroleum production has added more than $1440 billion to the countrys GDP. In 2011, Norway was the seventh largest oil exporter and the fourteenth largest oil producer in the world. The petroleum sector is Norways largest industry proceeds from which are transferred to the Government Fund valued at $695 billion in 2012, which corresponds to $140 000 for every Norwegian citizen (Norwegian Ministry of Petroleum and Energy, 2013). Being endowed with such huge amounts of resource and money flowing from extraction creates tensions among society 5

on how to spend the money in the right way so that everybody gets the equal amount, including the future generations to come. The society might decide to have the party of the century; stash the earnings away for future generations; invest in the post-petrol economy or give the money away. Norwegian society has decided to set up the Government Pension Fund to manage the money flowing from petroleum activities. The Government Pension Fund The Government Pension Fund Global (SPU) was established in 1990, received its first transfer in 1996 and has been growing ever since (Appendix 1). According to Eiffert et al. (2002), it serves two main purposes: (i) save part of current oil rents for the needs of future aging population and decline in oil revenues (ii) smooth fluctuations in oil revenues and mitigate exchange rate pressures to avoid Dutch disease and preserve a diversified industrial structure The Government Pension Fund consists of cash flows from the petroleum activities plus the return on capital. Cash flows are kept in the fund and only the return is spent. The return is spent in compliance with the fiscal spending rule Handlingsregelen (Appendix 2). According to this rule, annual spending over the public budget should amount to a 4% calculated real return of the Fund. The reason for that is the ageing population and increased costs it brings meaning that expenditures will increase in the future. Therefore, it is better to spend less today as long as more is not required, and more tomorrow when there is a need for it. Transfers to and from the Fund are monitored by the Government which informs the Parliament on the Funds status three times a year. State organization of the petroleum activities In order to ensure that the money from petroleum activities do not end up in the hands of a few important powerful politicians, a set of institutions has been created (Appendix 3) to unbundle the problems. Norway is a prototype representative of a mature democracy with stable policies, and a broad social consensus. The Storting (Parliament) is the biggest institution representing interests of society. It sets the framework for the petroleum activities and supervises the Government. The Government carries out the policies set up by the Storting and is assisted by several institutions. The government

gets the money from the petroleum activities through Direct taxes (28% corporate tax + 50% petroleum tax); Environmental taxes and area fees; SDFI; and Statoil dividends. Costs of the model Norwegian model might be seen as ideal compared to other oil-exporting countries since Norway has been managing its petroleum wealth better compared to several other countries. However, even such a system does not come without any costs. Norwegians have been so afraid of Dutch disease and adverse effects of domestic spending that there have been failures to use petroleum wealth to build the country. Schools, roads and railways have not been maintained well enough; there is no university in Norway ranked among top 200 in the world; there has been underinvestment in new infrastructure and IT-systems (Norman, 2013). Despite modest domestic spending, Norway has become the most expensive country in the world with Oslo and Stavanger ranked 1st and 3rd most expensive cities in the world (Stre, 2013) with hourly labor costs 67% higher than the rest of Northern Europe (Norman, 2013). Moreover, Norway may suffer from a mutated Dutch disease, when high and visible public wealth has adverse effects on Norways human capital. According to Thgersen (2013), every 5th Norwegian citizen has a disability allowing to stay out of employment and receive disability allowances. However, disabled people can hardly be seen on the streets of Norway having one of the healthiest nations in the world. Therefore, there is an urgent need for structural reforms of the welfare state system in order to avoid giving out money freely for the wrong reasons. Concluding remarks Even though there are certain costs associated with the Norwegian petroleum management system, it seems like benefits outweigh the costs so far and the model works fairly well compared to the other countries. Petroleum is transformed into financial wealth in an orderly manner; the investment portfolio is well-managed; domestic overspending and Dutch disease are avoided; equitable distribution between generations is ensured; the fund and the rule have defused the political bomb represented by unspent petroleum revenue (Norman, 2013).

Botswana
we intend to conserve our resources wisely and not destroy them. Those of us who happen to live in Botswana in the 20th century are no more important than our descendants in centuries to come. -Hon. Sir QKI Masire, former President (1980-1998) of Botswana When Botswana gained its independence from the British Empire in 1966, it was one of the 25 poorest countries in the world. However, as shown in Appendix 4, Botswana was among the fastest growing economies in the world together with the Asian tigers (Singapore, South Korea, Hong Kong, Thailand) during 1966-1998. Being endowed with a vast amount of natural resources and the biggest world deposits of diamonds, Botswanas example shows that a poor, developing, landlocked, former colonised African country is not destinied for a downfall, but, instead can have a bright future. From one of the poorest, Botswana transferred itself into a middle-income country with 16,800 $ GDP per capita in 2012 (The World Factbook, 2013). Botswana managed to avoid the resource curse through fiscal discipline and sound management. Botswana is the least corrupted Sub-Saharan African country ranked 30 out of 174 countries (Transparency International, 2012). Botswanas leaders, unlike the leaders of other developing African countries, have pursued the goal of national development and building wealth for society instead of following grabber friendly policies and focusing on personal fortune. When the first diamond mine was discovered in 1967, Botswanas politicians decided to pursue three main policies that turned out to bring success: avoiding external debt, stabilizing growth and ensuring economic diversification (Sarraf and Jivanji, 2001). The government was implementing National Development Plans where expenditures of earnings from resource extraction were specified in detail and changes could not have been done. Unspent revenues were accumulated as foreign exchange reserves for future use in case exports declined. Sound policies and institutions were the key for Botswanas road to prosperity. Some of the most important institutions are: The Pula Fund A government fund established in 1994 to manage excess foreign exchange reserves with a purpose of preserving income from diamond exports for future generations. For long-term investment considerations. Government owns 50% of the worlds leading diamond mine Debswana which is 8

50% owned by South African company De Beers. Ministry of Minerals, Energy and Water Resources formulates, directs and coordinates national policies connected with minerals, water and energy. Directorate of Corruption and Economic Crime monitors corruption and reports directly to the President. As GRICS (Appendix 5) indicators show, Botswana resembles with high-income countries: its elections are fair, democratic and free; it has a high degree of political stability; government is effective quality of public services is high and civil servants are competent; corruption is controlled and laws are followed.

Alaska
Alaska is the largest state of the United States which was purchased from Russia for $7.2 million in 1867. 100 years later, in 1969 oil was found on the territory of Alaska and authorities began leasing out the oil-rich land to international companies with competence. However, after a short time they realized that more money can be earned through extracting the oil rather than from leasing out the land. Thus, a construction of the Trans-Alaskan pipeline began in 1974 and was finished after 39 months (Alaska Permanent Fund Corporation, 2013). Soon after the completion of the pipeline construction, the Alaskan Permanent Fund was established and received its first transfer in 1977. The Fund is government-owned and is managed by the Alaska Permanent Fund Corporation. Fund market value was equal to $44,5 billion on June 25th 2013 (Appendix 6). According to law, at least 25% of revenues from oil-extracting activities must go to the Fund. Up to 5% of the Fund can be invested and is invested in the following manner: stocks (36%), bonds and cash (20%), real estate (12%), private equity (6%), absolute return strategies (6%), infrastructure (4%), other (16%) (Appendix 7). Earnings realized from investment activities are spent in the following manner: 49% is saved for future generations and 51% is spent for current generations for Permanent Fund Dividends and for General Fund. General fund is a governments allpurpose spending account. Dividends are distributed among Alaskan Citizens according to a formula:

 ADD: statutory net income of the last five years Multiply: by 21 % Divide: by 2 Divide: by number of eligible applicants =Amount of dividend (Souce: Alaska Permanent Fund Corporation. An Alaskan Guide to the Permanent Fund. 12th Guide Edition, July 2009)

Developing country
Nigeria
Nigeria is the most populous country in Africa with approximately 174,507,539 people and a GDP per capita of $1443. Its population comprises over 250 ethnic groups, the most prominent and politically influential being: the Hausa and Fulani 29%, Yoruba 21%, Igbo (Ibo) 18%, Ijaw 10%, Kanuri 4%, Ibibio 3.5%, Tiv 2%. Nigerias economy is made up of various sectors including agriculture, which produces cocoa, cotton, cattle and fish among others; the industrial sector includes coal, tin, timber, rubber products, cement, and steel. The main export commodities, however, are petroleum and petroleum products, making up 95% of total exports . Nigerias abundant natural resources make it one of the top ten oil producers in the world: the country raked in a hefty sum of $50 billion in oil revenues in 2012 alone. This amount accounted for 90% of the government revenue. The big breakthrough in the oil business for Nigeria came when Shell-BP discovered oil in the Niger Delta in 1956. Oil production began in 1958. Nigeria has been producing 2-3 million barrels of oil per day for decades, yet 62% of its population lives in poverty (SNF Report 25/30; UN Data). Nigeria has been unable to thrive both economically and socially despite its vast oil wealth. The country has fallen victim to the resource curse. Oil wealth has been at the root of political instability, corruption, deteriorating or lack of infrastructure, poverty and inferior management of the economy as a whole. From the onset, Nigeria was doomed to fail due to weak policies during the oil boom of 1971-1983 when oil revenues became the primary source of revenue for the country. Before the oil boom, Nigeria had been the leading global producer of cocoa, but because the country failed to adequately invest in agriculture, the agricultural sector declined sharply. Nigeria instead opted to invest heavily in steel and

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petrochemicals which proved to be an unprofitable venture. As a result, the decline of most non-oil industries led to a huge gap between the poor and the rich (Heum, 2013). In addition, Nigeria lacked a vision of how to manage its oil wealth hence did not create an oil fund as a safety net against market shocks and declining oil reserves. Despite years of surplus oil revenues, Nigeria managed to sink into foreign debt in the 1980s after declining oil production caused its economy to have a public deficit. The deficit worsened, forcing Nigeria to turn to the International Monetary Fund for an economic stabilization program (Heum, 2003). Currently, Nigerias foreign debt stands at $6 billion (World Bank, 2012). It was not until May 2011 that the Nigerian senate approved the Nigeria Sovereign Authority Bill, 2010, which aimed at creating a sovereign wealth fund to manage excess revenues from the sale of crude oil. Prior to this bill, excess funds were held in the Excess Crude oil Account (ECA) to stabilize the budget. The Nigerian Sovereign Investment Authority (NSIA) was formed to replace ECA. NSIA would manage three funds: The Stabilization Fund, the Infrastructure Fund and the Future Generations Fund. The Stabilization Fund aimed to provide stabilization to the countrys revenue in times of economic stress. This fund would be managed in-house in a diversified portfolio of liquid, low risk investments like treasury bills and liquid short-term investment grade bonds. This fund would be directed by the Minister of Finance upon sufficient evidence of urgency. The Infrastructure Fund would invest in infrastructure projects in Nigeria in transportation, agriculture, energy, power and water resources in order to attract foreign investment, stimulate the economy and create employment. The Future Generations Fund would invest in a diversified portfolio of growth investments to provide future generations with a savings base for when petroleum reserves get exhausted. As of 2013, the total wealth per capita of the funds was estimated to be $5.70 (SWF Institute, 2013). Corruption is a major issue in Nigeria that has been fueled by the oil wealth. Transparency International ranked Nigeria 139th on its scale of 176 countries, where the 1st country had the least corrupt public sector while the 176th country had the most corrupt public sector. Nigeria was awarded 27/90 points, where higher points indicated less corruption. Corruption is rampant in the Nigerian government because the government doesnt depend on tax-paying citizens for funding, hence the lack of accountability. In 2004, Mr. Olusegun Obasanjo the former President of Nigeria embarked on the Nigeria Extractive Industry Initiative (NEITI) to make way for much needed transparency to reduce countrywide corruption, to attract foreign investment, to strive to achieve financial independence, to reduce funding from donors, and most of all to gain the trust back from the Nigerian people. This drastic move led to the recognition of Nigeria as the first African country to improve transparency of resource 11

revenue by following the EITI global standards. Within the next five years there was enough evidence statistically to prove the significant improvement that Nigeria has made with regard to transparency (Transparency International, 2010). This is a major breakthrough for the Nigeria but the journey to wipe out corruption and the equitable distribution of the oil revenues among Nigerians is far from over (EITI, 2012). Other pressing issues that are contributing to the resource curse in Nigeria are: poor institutions, the poorly managed national oil company, and internal unrest, all of which are closely linked. Corruption thrives in Nigeria because of weak systems that do not encourage accountability, efficiency and ethical practices. Unlike Norway, Nigeria failed to build strong institutions that could transparently and efficiently manage oil revenues injected back into the economy to strengthen the production sector. The Nigerian National Petroleum Corporation is poorly managed, unlike national oil companies in other oil producing countries like Norway Statoil, Malaysia-Petronas, Brazil-Petrobras, where the National Oil Companies are the iconic economic pillars of the nations (NEITI, 2012). Nigerias ethnic diversity has also been a great source of internal division, fueled by the oil wealth. There have been regular clashes between religious groups, particularly between the predominantly Muslim oil-rich north, and the mostly Christian south. There has also been serious ethnic clashes over control of the oil wealth, which led in part to the Biafran war of 1967-1970, which some experts viewed as a divisive tactic by British oil companies like BP to make the country politically unstable so as to open it up for the plunder of oil resources (Mitchell, 2011). This political instability has contributed to criminal activities like kidnapping, illegal bunkering, and terrorist attacks in the North. Unfortunately the Nigerian government is unable to put a stop to the turbulent internal unrest due to prevalent corruption in the Nigerian military. This internal crisis is escalating and the gap between the rich and the poor further. Additionally, Nigeria failed to invest adequately in its education system using its oil resources. Consequently, the literacy level in the country is wanting: only 61.3% of the total population is literate. 72.1% of men are literate while a dismal 50.4% of women are literate (The World Fact Book, 2013). These low literacy levels severely handicap the population by rendering citizens unable to meaningfully participate in the management of oil wealth. Illiteracy has also contributed to social problems like early marriages and teenage pregnancies among young women, particularly in Northern Nigeria where as little as 20% of women are literate (UNICEF, 2007). Such women end up working menial jobs in a difficult economy, thus perpetrating the cycle of poverty.

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Funds Comparison
To sum up the previous sections, we provide an overview of Norwegian, Botswanas, Alaskan and Nigerian Government Funds (Appendix 8). We look at how much revenues were generated since natural resource exploitations started and what percentage of these revenues was transferred into the funds. The numbers for Norway are reliable, however, the numbers for the rest of the countries are approximations based on available data. Since corruption is a big issue in Nigeria, transparency is not common, therefore, it is rather challenging to estimate the revenues from petroleum extraction. From the percentages it can be seen that Nigeria and Botswana need to increase savings for future generations. Since Norwegian model is considered as one of the best petroleum management models in the world, it should serve as a guide and benchmark for Nigeria and Botswana.

Discussion
In this section we first present lessons learnt from international experience: Norway, Botswana and Alaska, followed by recommendations for future Nigerian petroleum wealth management based on lessons learnt and country-specific adaptations.

Lessons learnt from International experience

So, how does a good natural resource management system look like? There is no ideal system of managing natural resources, however, there are some bad systems, like Nigerian, and some that do much better than the others, like Botswana, Norway and Alaska. We will try to find a good recipe for improving the lagging Nigerian system. To start with, what can be learnt from the Norwegian petroleum management system? The lessons can be summarized in the 5 following propositions:

1. Choose your production profile on its own merits (do not think about consumption or investment when you make a production decision) 2. Place the proceeds in a fund (in order to separate annual earnings & spendings) 3. Invest the fund abroad (to keep the money at arms length) 4. Leave financial investments to professionals (to prevent them from becoming a

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political battlefield) 5. Use the annual real return at home (to ensure that all generations will benefit)

Botswanas example shows that a poor, underdeveloped, former-colonized, landlocked African country is not destined for downfall, but can have a bright future. However, achieving this bright future does not happen overnight, but is a result of a long-term planning. Lessons that can be learnt from Botswanas example:

1. Politicians need to focus on developing and building wealth for society instead of focusing on personal fortune. 2. Sound policies and institutions and the rule of law are the key to long-term prosperity. 3. Unlike Norway, African countries have a serious problem with corruption which is difficult to control. However, Botswana shows that corruption can be combated. Directorate of Corruption and Economic crime is an institution that monitors and controls corruption and reports directly to the President. 4. Revenues (not all, but at least some part) earned from resource extraction activities need to be put in a fund, which in Botswanas case is called Pula fund. 5. The Government needs to own at least 50% of countrys natural resources

Alaskas example, together with Botswanas and Norwegian, shows the importance of saving the current earnings for future generations and creating a fund for managing the natural resource wealth. Lessons learnt from Alaskas case are as follows:

1. Create a State fund for future generations and invest certain % of the Fund domestically and internationally. 2. Spend some of the earnings of the fund for developing the country. 3. Distribute some of the earnings among Alaskan citizens.

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Moreover, based on the three models of managing natural resource wealth, transparency is vital. The information on how much each field produces in terms of resources and money needs to be publicly available and accessible to everybody around the world. The information on how much money is transferred to the fund and how this money is being spent needs to be publicly available and easily accessible. The information should not be hidden or kept secret from the countrys citizens and citizens of other countries.

Advice to Nigeria
From the lessons gathered from better managed oil-rich countries, we have identified specific action steps that Nigeria needs to take in order to pull itself out of the economic decline that has been brought about by the resource curse:

Good management of the sovereign oil wealth fund Nigerias Sovereign Investment Authority fund, which is in its infancy stage would benefit immensely by following in the footsteps of Norway and Alaska. The global pension fund of Norway and the Alaska permanent fund is managed and monitored by independent financial teams. A strong recommendation for Nigeria is to appoint an independent financial management team who are not directly linked to the government of Nigeria. Nigeria should consider using Hotellings rule to manage its future generations fund as is the case in Norway. Diversification of fund investment Nigeria should diversify its investments by following Norway and Alaskas example of investing both domestically and internationally in stocks, bonds and real estate. It is rather ironic that a country as resource rich as Nigeria should be in debt rather than having excess revenue. However, Nigeria can follow the example of Botswana, which managed to get out of debt completely through ambition and strict regulation. Strong regulatory structure to promote accountability 15

The Nigerian government is lagging behind in accountability as shown by the Transparency International Index. Nigeria should follow Botswanas example by creating an institution for structural reform such as Botswanas Directorate of Corruption and Economic Crime which investigates economic crimes and corruption in government. Increased transparency of wealth management One of the biggest complaints Nigeria is facing from the international community relates to the transparency of wealth management. Nigeria has not been very forthcoming of revealing its financial transactions. In contrast, the Norwegian and the Alaskan governments have been compliant in facilitating easy access and increasing transparency to the public via the multimedia. The Nigerian government could gain back the trust of Nigerians and the international community by increasing transparency. Government subsidy to promote agriculture Due to the collapse of the agricultural sector Nigeria has become heavily dependent on imports to provide for its population. In order to entice the population and to revamp the once thriving Nigerian agricultural sector, the Nigerian government must introduce and commit to a generous incentive program for the rural population, which makes up about 50% of the total population (The World Fact Book, 2013). This policy has succeeded in Norway where the Norwegian government provides a yearly subsidy of $ 47,786.97 to each Norwegian farmer to maintain the profession of farming. Improve education Nigeria must invest greatly in its education system in order to increase the intellectual capacity to which its citizens can contribute to the economy. The Norway and Alaska have highly educated populations, which contribute greatly to innovation and a productivity of the community. The Nigerian government could provide scholarships for the Nigerians to study both abroad and locally, and entice the scholars to work for the government through attractive pay and impactful work assignments. The government should require government-sponsored students abroad to sign contracts that require them to return to work in Nigeria upon graduation in order to prevent brain drain. 16

 Ethnic integration The internal unrest in Nigeria is due to the diverse cultures and religions that exist. Unequal distribution of wealth in the country is a major issue that has led to conflicts among communities clamoring for the control of the oil wealth. The Alaskan government has been successful at managing well to redistribute the dividends from its oil wealth among its people and yet keeping harmony intact. The Nigerians should try to follow the Alaskan example, which ensures that every citizen is included benefits derived from oil wealth. The Nigerian Ministry of Culture should be involved in promoting cultural events with aim of integrating different tribes in order to promote cultural tolerance. Nigeria should also encourage and promote youth cultural exchanges domestically through providing scholarships for students to study in different states in the country.

Disciplined Politicians Nigerian politicians are notorious for being corrupt. Nigeria should follow the example to Norway, Alaska and Botswana by imposing and enforcing stricter rules and regulations to hold officials who abuse public office accountable.

Conclusion

It is impossible to replicate a system of managing oil wealth from one country to another because of vast socio-economic differences between countries. However, there are fundamental lessons that developing resource-rich countries can learn from other countries with better managed resources to help them create strong policies that cater to their specific contexts. We chose Nigeria as our case study for a developing oil rich country because of clear evidence of the resource curse that the country is facing as a result of poor economic planning after the discovery of immense oil wealth. We chose the Norwegian and Alaskan models of oil wealth management because of the great successes both have had in spite of their imperfections. We also chose Botswana as a role model for Nigeria because it is a developing country in Africa as well, but it has been able to manage its natural resource revenues just as successfully as Norway and Alaska in spite of facing socio-economic

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challenges much like Nigerias. The main factors that make Norway, Alaska and Botswana successful include the creation and good management of a sovereign wealth fund by professionals as opposed to politicians; strong policies and institutions that promote accountability, transparency and the rule of law; visionary leadership such as leaders who share a common interest in the well-being of the nation as opposed to personal interests; and the development of the country using resource wealth. Using these lessons, Nigeria needs to create and implement clever policies that will ensure the expert management of its fledgling sovereign oil wealth fund. The country also needs to be committed to the fight against corruption by adhering to strict regulations on the management of their resource wealth. Nigeria also needs to invest heavily on the education, infrastructure and other non-oil related industries in order to reverse the effects of the resource curse. Nigeria desperately needs disciplined politicians who will not only make sound economic decisions, but also unify the countys multi-ethnic population in order to work together towards the common goal of a successful economy.

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References
Alaska Permanent Fund Corporation. [online] Available at: < www.apfc.org > [Accessed 27 June 2013] Iimi, A., 2001. Did Botswana Escape from the resource curse? IMF Working paper, WP/06/138, 1-31. Eifert, B., Gelb, A., Tallroth, N.B., 2002. The political economy of fiscal policy and economic management in oil exporting countries. World Bank Policy Research Working Paper 2899, 1-29. Frankel, J. (2011). (Harvard Kennedy School) Hagen, R., J., 2002. Marginalisation in the Context of Globalisation: Why is Africa so poor? Nordic Journal of Political Economy, vol.28, 147-179. Heum, P., 2013. How to manage valuable petroleum resources? Natural resources and national wealth. Presentation on its learning from 20.06.2013. Stre, J., 2013. No er Oslo den dyraste byen p planeten. [online] NRK. Available at: < http://www.nrk.no/okonomi/no-er-oslo-dyrast-i-verda-1.11094370 > [Accessed 23 June 2013] EITI, 2012. Extracting Industries Transparency Initiative. [Online] Available at: http://eiti.org/document/case-study-nigeria [Accessed 25 June 2013]. et.al, H., 2003. Enhancement Local Content in the Upstream Oil and Gas Industry in Nigeria: A Comprehensive and Viable Policy Approach, Bergen: SNF. Frankel, J., 2011. [Online]. Mitchell, Alex (November 2011). Come the Revolution A Memoir, p.135. Australia: NewSouth Publishing. p. 544.ISBN 978-1-74223-307-9. NEITI, 2012. Nigeria Extractive Industries Transparency Initiative. [Online] Available at: http://neiti.org.ng/sites/default/files/news/uploads/neiti-position-pib.pdf [Accessed 25 June 2013]. Norman, V., 2013. Handling natural resources. The case of Norwegian petroleum wealth. Presentation on its learning from 17.06.2013. Norwegian Ministry of Petroleum and Energy, Norwegian Petroleum Directorate, 2013. Facts 2013. The Norwegian Petroleum Sector. 07 Media.

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Sarraf, M., Jiwanji, M., 2001. Beating the resource curse. The case of Botswana. The world bank environment department papers, 24753, paper no.1, 1-22. The World Fact Book, 2013. Cental Intelligence Agency. [Online] Available at: https://www.cia.gov/library/publications/the-worldfactbook/fields/2103.html [Accessed 30 June 2013]. Times, T. NMitchell, Alex (November 2011). Come the Revolution A Memoir, p.135. Australia: NewSouth Publishing. p. 544.ISBN 978-1-74223-307-9.. Y., 2013. http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-richnations/?_r=0. [Online]. Thgersen, ., 2013. Fiscal policy and the management of the Norwegian petroleum wealth. Presentation on its learning from 21.06.2013. Times, T. N. (2013, February). http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-richnations/?_r=0. Transparency International, 2010. Transparency Internationa. [Online] Available at: http://www.transparency.org/country#NGA [Accessed 26 June 2013]. Transparency International Corruption Perceptions Index 2012 [online] Available at: <http://www.ey.com/Publication/vwLUAssets/2012_TI_CPI/$FILE/2012%20TI%20CP I.pdf > [Accessed 25 June 2013] UNICEF, 2007. Girl's Education: Nigeria Country Office. [Online] Available at: http://www.unicef.org/wcaro/WCARO_Nigeria_Factsheets_GirlsEducation.pdf [Accessed 29 June 2013]. World Bank, 2012. World Bank Group Finances. [Online] Available at: https://finances.worldbank.org/facet/countries/Nigeria [Accessed 30 June 2013].

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Appendix

Appendix 1 The Government Pension fund

(Source: Presentation by ystein Thgersen Fiscal policy and the management of the Norwegian petroleum wealth on 21.06.2013)
Disponering mlt i absolutte kroner (realverdi)

Handlingsregelen

Permanentinntekt

Idag

t*

Tid

Figur 2: Disponering av petroleumsinntekter, handlingsregelen vs. en permanentinntektsstrategi. t*: Siste periode med petroleumsutvinning.

Appendix 2 Handlingsregelen

(Source: Presentation by ystein Thgersen Fiscal policy and the management of the Norwegian petroleum wealth on 21.06.2013)

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Appendix 3 State Organisation of the petroleum activities

(Source: The National Budget)

Appendix 4 Growth rates of per capita GDP 1960-98

(Source: Rune Jansen Hagen, 2002. Marginalisation in the Context of Globalisation: Why is Africa so poor? Nordic Journal of Political Economy, vol.28, 147-179)

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Appendix 5 GRICS

(Source: Atsushi Iimi, 2001. Did Botswana Escape from the resource curse? IMF Working paper, WP/06/138, 1-31)

Appendix 6 Alaskas Fund Market Value

(Source: Alaska Permanent Fund Corporation, 2013)

23

Appendix 7 Alsakas fund asset allocation

(Source: Alaska Permanent Fund Corporation, 2013)

24

Country

Name of the Year Fund

Year

of Total revenues from resource exploitation since start

Current % value of fund the money

of

established natural resource start

transferred from total

extraction natural

Norway

Government 1990 Pension Fund Global

1971

$1440 billion*

$695 billion $44.5 billion $6.9 billion $1 billion

48%

Alaska

Alaskan Permanent Fund

1977

1976

$178 billion**

25%

Botswana The Fund Nigeria Nigeria

Pula 1994 2011

1969 1958

$129 billion*** $1.6 trillion****

5% 0,0625 %

Sovereign Investment Authority

*NOK 9000 billion=$1440 billion. Norwegian Ministry of Petroleum and Energy, Norwegian Petroleum Directorate, 2013. Facts 2013. The Norwegian Petroleum Sector. 07 Media. **According to law, at least 25% of revenues from petroleum activities must be transferred to the Fund (Current market value of the fund= $44.5 billion=25%; 100%=(44.5*100)/25) ***http://www.diamondfacts.org/index.php?option=com_content&view=article&id=132&Itemid=169&lang=en year*43 years= $129 billion) ****http://news.bbc.co.uk/2/hi/africa/7840310.stm ($3 billion per

Appendix 8 Funds Comparison

25