Highlights:
Many resource-rich countries badly mismanage their natural resource endowments.
Seeing minerals as a source of windfall revenue is a central reason for poor outcomes.
Government accounting standards underpin the “windfall revenue” paradigm.
Better mineral management needs a paradigm shift from “windfall revenue” to “shared inheritance.”
Minerals are a shared inheritance, extraction its sale, capital maintenance the goal.
Abstract:
Many countries badly mismanage their natural resource endowments. We argue that a fundamental change in paradigm is needed. Specifically, we advocate treating non-renewable natural resources as a finite shared inheritance asset, and extraction as the sale of the inherited wealth. We identify several proposals that logically derive from treating mineral sale proceeds as intergenerational wealth rather than as revenues that can be spent. Wealth portfolio management suggests that mineral owners must strive for zero-loss when selling minerals, establish a passively invested future generations fund from the proceeds and distribute dividends from that fund to citizens as the rightful owners of the shared inheritance. The current dominant metaphor of proceeds from the exploitation of non-renewable mineral resources as being “windfall revenues” is underpinned by government accounting standards. The “windfall revenue” metaphor is not only inaccurate but also produces several pernicious effects that help explain the poor management of natural resource endowments in so many countries. We do not anticipate that our ideas will quickly overturn centuries of established practice. We do, however, believe that the case needs to be made.
Keywords: resource curse; government accounting standards; inter-generational equity; public sector net worth; shared inheritance
