Resource curse encompasses the paradox of owning abundant natural resources like fossil fuels and other minerals while at the same time, experiencing excessive economic growth. That is, the vastness of the oil reserves and mineral deposits in a country does not reflect the anticipated growth in the economy or desired political stability. While the concept had been insignificant in the early 1900s, economic analysists started making observations in the 1950s and 1960s thereby establishing a pattern of inverse proportionality between the occurrence of natural resource and the expected economic benefits to a country. In 1993, Richard Auty coined the term resource curse to explain how countries that are rich in minerals were incapable of utilizing such resources to benefit their citizens. On the contrary, Auty observed that developed countries were actively engaged in the exploitation of these resources in the developing nations hence ascertaining that the correlation between the abundance of natural resources and detrimental economic performance is significant. Afterwards, other economists like Jeffrey Sachs and Andrew Warner confirmed the assertions of Robert Auty by explaining that the newfound wealth in weak economies is associated with extreme challenges just like a lottery winner who struggles to budget with the suddenly acquired riches.

After the derivation of the concept, empirical studies have been conducted to affirm whether the resource curse is a hoax or a real phenomenon. Through the evaluation of different economic cycles, it is evident that countries like Canada, Australia, Norway, Libya, Nigeria, and Ghana had experienced stunted economic growth when the country discovered mineral deposits in the countries for the first time. For instance, the discovery and exploitation of Athabasca Oil Sands in Canada starting 1967 created crash in oil prices in the country hence causing severe economic consequences before the situation became stabilized. Accordingly, the Australia Gold Rush in the 19^th century resulted in irregular economic cycles and civil conflicts in the country instead of boosting growth and development. Similarly, African countries like Nigeria and Libya, endowed with abundant oil reserves have not managed to attain the desired economic growth and political stability despite the ongoing exploitation of natural resources. Recently, Ethiopia discovered oil deposits, and there is the fear that the phenomenon of resource curse will possibly catch up with the country in its attempts to exploit the mineral deposits in Afar Block, the Mekelle Basin, the Segen Rift Basin, Abay Basin, and the Ogaden Basin.

Now, this study was developed to explore the concept of the resource curse in Ethiopia, in a comparative evaluation based on the existing literature and evidence from past cases like Nigeria, Sudan, and Libya. The explanations align with the resource curse theory and other associated frameworks like the rent-seeking model, dependency theory, and Dutch disease theory. In essence, the analysis was suggestive that Ethiopia is on the brink of suffering a resource curse because the country’s patterns of exploration are similar to the failed cases in the past. For instance, Ethiopia has contracted a foreign Chinese company to help in the prospective studies and initial exploitations. Unfortunately, the theories confirmed that any involvement of foreign firms or developed economies in the exploration of natural resources often result in a negative balance of payment and unfavourable dependence which leads to weak economic growth. Therefore, Ethiopia can only avoid the resource curse if the country uses a pragmatic approach in its attempts to engage developed countries in the exploitation of newly found oil reserves.

1.0 Chapter One: Introduction

1.0.1 Introduction

This research is designed to explain how Ethiopia can overcome the resource curse by exploiting its plenty of resources, thereby sustaining economic growth and full democracy. Resource curse refers to the paradox of owning abundant natural resources but experiencing stunted economic development and political instability (Demissie, 2014). This phenomenon is common across Africa and other developing economies in Asia, the Middle East, and South America. An example of this paradox occurred in Nigeria, whereby the extraction of oil and gas in the country has contributed to the emergence of outlawed groups like Boko Haram militia (Omenma, 2019). Another scenario is where the discovery of oil resources in South Sudan has invoked civil conflicts and resistance movements propagated at political liberation (Serfa-Nyarko, 2016; Austin, 2010). Despite the intensified calls for dialogue and peace agreements, countries which are experiencing the resource curse have not experienced the trickle-down effect of economic growth (Serfa-Nyako, 2016). Borrowing from the case of Nigeria and South Sudan, it is evident that there is a causal link between mineral wealth and conflict in Africa, hence the prevalence of the paradox of plenty (Petterson & Wallensteen, 2015). Therefore, the main idea of this paper is to discuss how Ethiopia can avoid the resource curse and oil wealth paradox hence attaining the desired economic growth and political democracy.

1.0.2 Problem Statement

Atey (2010) mentions that the paradox of plenty is prevalent in Sub-Sahara Africa because the exploitation of the underlying resources such as oil and precious stones is inconclusive. Accordingly, McFerson (2010) confirms these sentiments by stating that resource curse in countries like Ethiopia, Ghana, South Sudan, Nigeria, and Angola is persisting due to limited efforts which have been put in place to solve the issues. Furthermore, Ayelazuno (2013) argues that the adverse effects of the paradox of plenty have contributed to poor economic performance and low tolerance of democracy. In another study, Frankel (2012) reviewed the diagnosis and prescriptions of the resource curses and established that Ethiopia should explore its oil fields to promote economic development. Moreover, Beyene (2014) discusses that the resource curse in Ethiopia is not excluded from political and economic discussions if the country needs to turn things around and achieve sustainable development. Therefore, the critique of political science, resource theories and current empirical data in Ethiopia and Sub-Saharan Africa, in general, helps address the issues associated with the resource curse.

1.0.3 Justification

The following factors validated the selection of Ethiopia in place of other Sub-Sahara Africa countries. Firstly, the resource curse in Ethiopia has not been exhaustively investigated in literature because the country is not among the leading mineral producers in Africa. This assertion derives from the reports published by the US Geological Survey and Deloitte’s state of mining in Africa (Deloitte, 2015; US Geological Survey, 2019). Secondly, this research wishes to confirm the claims proposed by Arriola and Lyons (2016) that poor management of mineral wealth in Ethiopia is a result of the evolving ethnic conflict and ethnicity-based political order. Thirdly, the study will analyze the significant hydrocarbon deposits discovered in Ethiopia. According to Kiprop (2018), hydrocarbon mineral wealth in Ethiopia is estimated to be about 5 trillion cubic feet of gas, 14 million barrels of oil, and one billion tons of oil shale. Wolela (2019) also confirms similar sentiments that there are enough deposits of gold and precious metals in Ethiopia which can be utilized to sustain economic growth and political stability. However, the author cautions that the extraction of these mineral resources could potentially result in conflict, especially given the current inter-ethnic tensions (Wolela, 2019). Based on the factors enumerated above, the investigation of how Ethiopia could avoid a resource curse will yield new insights on the management of mineral sectors in other Sub-Saharan countries. In brief, the present research findings have implications for mineral extraction beyond Ethiopia. The research objectives are listed below.

1.0.4 Research Objectives

To investigate how Ethiopia can avoid the resource curse based on case studies of successful management of oil wealth
To examine the key triggers for resource-induced conflict and possible interventions
To outline recommendations for the management of mineral and oil wealth

1.0.5 Research Question

Can Ethiopia avoid a resource curse/oil wealth paradox?

1.0.6 Definition of Terms

1.0.6.1 Resource Curse

This is a phenomenon in which countries with significant mineral reserves (such as oil, gas, coal, gold and rare earth metals) experience conflict triggered by unequal sharing of resources and under-development despite receiving revenues from the mineral sales (Atey, 2010; Ayelazuno, 2013; Chol, 2016; and Frankel, 2012). The phenomenon is most common in less developing economies in Sub-Saharan Africa, such as Southern Sudan, Ghana, Angola, and Nigeria.

1.0.7 Structure of the Dissertation

The research comprises of three sections, namely; the introduction, literature review, and case study. Chapter one outlines the objectives, questions, justification, and problem statement, while chapters two presents the scholarly evidence about the resource curse concept in addition to the methods of data collection. The researcher explores the case in comparison to other related scenarios.

2.0 Chapter Two: Literature Review

2.0.1 Introduction

The literature appraisal advances the theories and insights drawn from the introduction, precisely the economic and political dimensions of the resource curse. The discussion also highlights the most critical information on what triggered resource curses in Ethiopia and other developing countries such as Sudan and Nigeria. Also, there is a provision of what Ethiopia could learn from the Darfur conflict and the Boko Haram insurgency in the Lake Chad Basin. The reason for including countries like Sudan and Nigeria is because Ethiopia is facing similar demographic and social-cultural and social-economic challenges that they also experience. The resource curse economic dimension is reviewed, including critical theories that explain the phenomenon such as the resource curse theory, Dutch disease concept, dependency theory, and the rent-seeking model. The theories help in understanding the resource curse dimensions and the possible factors which significantly contributed to the slow pace of development of the countries.

2.0.2 Literature Review of the Concepts of Resource Curse

2.0.2.1 Economic Concepts of the Resource Curse

Resource curse can lead to severe economic implications if countries engaged in this paradox cannot fully exploit their minerals, thus limiting national productivity (Chol, 2016). For instance, countries endowed with rich mineral deposits such as Sudan and Libya are experiencing constant conflicts among the communities which are fighting against each other to retain autonomy and control of the natural resources (Chol, 2016). In support of this assertion, Beyene (2014) states that the productivity of Ethiopia is progressing slowly, and the country cannot achieve its growth prospects due to such paradox of plenty. In another example, Somalia is facing severe economic challenges in exploiting its resources because the country has not attained full democracy despite the abundance of natural minerals (Kiprop, 2018). Contrarily, the exploitation of oil in Ethiopia is yet to cause any economic and political reactionary effects. Despite the uncertainty observed in Ethiopia, the conflict in Darfur (an oil-rich region in Sudan) illustrates the economic effects of the resource curse (Ali 2013; Prendergast, Ismail & Kumar, 2013). In Darfur, local communities are involved in persistent conflicts, thus making it difficult for investors to focus on exploratory studies or even the actual drilling (Prendergast, Ismail & Kumar, 2013). Also, the country is facing challenges caused by other existential factors such as the unequal distribution of the resources and ethnic cleansing which reduced the volume of exports thus lowering foreign exchange reserves (Prendersgast, Ismail & Kumar, 2013).

While supporting that the assertion that resource curse causes poor economic growth, Ali (2013) explores the Darfur conflict which cost the Sudanese economy about $31 billion in military expenditure, loss of productivity among the internally displaced persons, damage to infrastructure, and direct effects on the national economy. These occurrences are inevitable when people get displaced from their primary area of residence and probably forced to stay in a refugee camp. The government takes the initiative of providing for their needs as they do not engage in any form of work (Rowley et al., 2013; Karazsia, 2015). In this case, the government spends on such disaster management cases without getting anything in return, instead of utilizing the resources for development purposes. Mostly, countries like Libya, Sudan and Ethiopia would have been among the most developed nations in Africa if their resources were exploited and utilized optimally. Ali (2013) estimates that the Ethiopian military used about 10 billion dollars in related expenditures, whereby there was a loss of seven billion dollars through limited economic productivity among the internally displaced persons. Another issue of concern noted by the researcher is that the cumulative losses were nearly 200% the value of the 2003 GDP (Ali, 2013). Comparatively, the economic effects of the resource curse were not unique only to Sudan; the conflict has equally impacted other African countries which are dependent on the mineral wealth (Frynas, Wood & Hinks, 2017). From these arguments, there is indeed a causal link between resource curse and economic underperformance because countries that faced the paradox of plenty are also experiencing civil conflicts and hindrances in the exploitation of the underlying minerals.

Contrary to the universal claims that the abundance of natural resources automatically leads to poor economic growth, the findings of Index Mundi (2019) and the reports of the US Energy Information Administration (2019) suggest that the phenomenon might not apply in Ethiopia because the counties oil reserves are nascent, and that there have been no substantial exports made in the last ten years. Moreover, Ethiopia’s government has not provided any data on exports even though the country has about 6-8 million meters of proven oil reserves. Other studies suggest that Ethiopia started small-scale oil extraction (150 barrels) from the Ogaden region in 2018 (Getachew & Awel, 2018; Weber, 2018). From here, there is indeed the delayed scaling of up production in the Ogaden region is due to lack of enough finance for large scale extraction. Sadly, the insufficiency of funds in Ethiopia is due to the disproportionate budgeting through investing in ending conflicts instead of promoting productivity (Weber, 2018).

On the other hand, Yihdego et al. (2018) believe that once the country finds a lasting solution, Ethiopia will be able to increase its oil extraction to large scale and also export in large amounts. Now, the pending dilemma is the possibility of success in Ethiopia’s attempts to eliminate the resource curse where its neighbours have repeatedly failed.

2.0.2.2 Political Concept of the Resource Curse

The negative impacts of the oil abundance on the economic development in Ethiopia are preventable through authoritarian rule. This assertion is supported by Diamond and Mosbacher (2013b) who states that Ethiopia is one of the Sub-Saharan Africa countries, where one partly rule is heavily entrenched, and there is minimal political accountability.

Furthermore, the one-party state is a suppressive form of governance since the leading faction lacks strong opposition to point the misdeeds of the government (Diamond & Mosbacher, 2013b). On the contrary, Akylbekova (2015) emphasizes that leaders who are exercising their authority in the one-party state are always dictatorial and sometimes ignore the constitutional provisions to rule with their guidelines. In such situations, the leaders use the available resources to benefit themselves thereby causing conflicts between them and the other people who may oppose their decisions, especially some of the elected individuals who value transparency in government (Alemazung, 2010). Therefore, the role of the one-party state and lack of political accountability as enabling factors for the resource curse may not contribute significantly to the resource curse in Ethiopia since Sudan and Nigeria have distinct political systems, but both have experienced the resource curse.

Now, when comparing to the leadership style of Sudan, Barnes (2011) reveals that the country was experiencing a similar authoritarian rule during the regime of Omar Al Bashir. The author further states that the country experienced episodes of civil war due to the fight for resources between the people of Arab and African descent (Barnes, 2011). One group felt that they are entitled to the resources because of the severe marginalization which they have endured during the previous regimes of Ahmed Awad Ibn Auf (Barnes, 2011). Accordingly, the author argues that blacks have experienced discrimination under the presidents affiliated to Arab ethnicity because the leaders use the authoritarian rule to extract the minerals and use some of the money to destabilize the country (Barnes, 2011). Prendergast, Ismail, and Kumar (2013) also support that the current war in South Sudan is due to dispute over the management of the oil resources which has seen many people get displaced where some of them have stayed in Kenyan refugee camps for a longer period. As put by Abdalla, ElHadary and Obeng-Odoom (2012), the increased cases of land grabbing have caused an influx of refugees in South Sudan which in turn affects the economy of the country as many people do not work and therefore depend on the government for their daily needs in the refugee camps. This situation occurs because, a country with a large size of unproductive dependants hinders economic growth and limits tax collection, which would be utilized directly by the government (Aizenman, Jinjarak & Park, 2011).

In another study reviewing the political concept of the resource curse in Nigeria, Owen and Usman (2015) argue that limited democracy has resulted in undue competition and civil conflicts thus hindering the exploitation of natural resources. The authors state that the transitioning of power from Goodluck Jonathan to Buhari is troubled with turbulent political incidences which affect the country’s economic development (Owen & Usman, 2015). From the evaluation of the two political systems in Nigeria and Sudan, it is of note that liberal democracy and democratic leadership is not a panacea for the resource curse. Therefore, Ethiopia should think beyond political structures to avoid the resource curse. As such, Ethiopia should not focus much on the form of leadership but how they handle the mining process of the minerals available and ensuring transparency in the government. Also, avoidance of undue influence by other countries may help in the prevention of resource curse effects. Some leaders, especially in war tone countries, fund civil wars to exploit the natural resources existing in that country. Therefore, Ethiopian leadership should stand firm, ensure accountability and transparency in the government to avoid the resource curse.

2.0.2.3 Environmental Concept of the Resource Curse

After the discovery of natural resources in a specific region, there occurs an intensified tendency to exploit the minerals and also perform further prospective studies to determine the extent of the resources. However, the unfortunate incidence is that sometimes the process of exploitation does not consider any sustainable measures aimed at conserving the environment while also regulating pollution. According to a study conducted by Aryee, Ntibery, and Atorkui (2003), the unregulated activities in small-scale mining in Ghana have largely contributed to environmental pollution and land dereliction. As such, the authors argue that the impacts of these natural resources become more destructive than their anticipated benefits. While the minerals obtained help in boosting economic development and rectifying the county’s balance of payment, very little efforts are towards conserving the environment thereby creating large parcels of wastelands (Aryee, Ntibery & Atorkui, 2003). Therefore, the environmental perspective of the resource curse is that the abundance of oil reserves and mineral deposits influences land degradation and pollution because the companies contracted for exploitation are only focusing on profits while ignoring conservative measures.

Similarly, Prior et al. (2012) agrees with the findings of Aryee, Ntibery, and Atorkui (2003) by stating that unregulated exploitation leads to resource depletion, destruction of biodiversity, and global warming. The authors stated that unsustainable practices could cause severe environmental impacts, thereby reversing the anticipated benefits into global calamities. In this case, the blessings of the discovery of a natural resource suddenly become a curse because of the damage caused in the area of exploitation (Prior et al., 2012). Accordingly, the authors discuss the extent of exploitation of renewable and non-renewable sources that if appropriate policies are not in place, then the economic benefits of oil or gold discovery can mysteriously turn to be a curse. This requirement is vital because renewable sources require some form of moderation during exploitation to allow enough time for the regeneration of the minerals. On the other hand, non-renewable resources should be exploited sparingly while also utilizing the obtained supplies in supporting the exploration of renewable reserves which can be used for a prolonged period (Prior et al., 2012). Therefore, these authors are confirming that the existence of abundant natural resources in a country can cause a paradox whereby it attains economic growth with consequent destruction of the environment.

In another study, Edwards et al. (2014) review the environmental impacts of mining in Africa, and the authors agree that unregulated activities during the exploitation of natural resources result in the alteration of natural habitat, deforestation, and land dereliction. Having conducted a comparative study between the economic benefits and environmental impacts, the authors concluded that the damages outweigh the gains thus justifying the concept of resource curse when applied in the context of the natural environment (Edwards et al., 2014). As a result, the authors proposed that research and policy measures should be created to enhance sustainable coexistence between mining and environmental conservation. Furthermore, it was a proposal that an environmental impact assessment is necessary before harnessing the underlying minerals in order to avoid the resource curse. Accordingly, Dold (2008) supports the assertions that over-exploitation of natural resources and unsustainable practices results in wastages as well as the emission of pollutants to the environment. The authors explain that mining can cause complex issues such as environmental contamination, acid mine drainage (AMD) and hazardous emissions which affect biodiversity and human lives. Therefore, these studies are confirming that the abundance of natural resources in a specific region can indeed cause severe implications hence justifying the paradox of plenty.

2.0.3 Theoretical Review of the Resource Curse

2.0.3.1 Resource Curse Theory

2.0.3.1.1 Historical Development of the Theory

This section provided the historical accounts of the resource curse theory from 1993 when the development of the concept happened. The historical perspectives include modifications in definitions by other scholars as well as the economic impacts in selected countries across the years. Now, the resource curse theory was first coined by one economic geographer called Richard Auty in 1993. The derivation of this concept was influenced by a paradox in which Auty observed that countries with rich resource deposits developed at a slower rate than their counterparts with little patches (1993). As a result, it became an issue of interest to explore the motivating factors behind this phenomenon whereby it was established that both economic and political factors cause under-exploitation of resources in some countries.

In 1995, Sachs and Warner redefined the concept of the resource curse in relation to macroeconomics. Having observed the inverse variations between the abundance of natural resources and anticipated economic growth in countries with oil booms and the gold rush, Sachs and Warner concluded that the paradox of plenty is a real phenomenon.

In 1998, the resource curse theory was modified by another scholar called Gelb, who developed his concepts from the original definitions proposed by Auty in 1993. Gelb (1998) argued that the concept of resource curse was developed from the experiences of the Dutch Disease. In a comparative study involving six developing countries, Gelb (1998) maintained that the underlying political and institutional contexts influence the under-exploitation of natural resources in third world nations. As such, these hindrances continue to dissipate the efforts invested in the utilization of minerals and oil deposits in developing countries.

In 2006, Gylfason and Zoga confirmed that six countries they studied indicated a negative correlation between the abundance of natural resources and actual economic growth. In their cross-sectional studies, Gylfason and Zoga (2006) observed that countries which discovered oil reserves and rich mineral deposits in their territories exhibited poor economic development and persistent civil conflicts. As such, the authors supported the assertions made by Auty (1993) that resource curse exists where there are newly discovered minerals, but the economic growth is poor.

In 2013, Jeffrey made another landmark discovery which reinforced the understanding of the resource curse theory. In his study about abundant oil reserves in Nigeria, Jeffrey (2013) realized that the country had not achieved any significant economic growth since 1956. The author argues that oil discovery in the country has not influenced development as expected. Instead, the occurrence of this natural resource has caused political divisions, civil conflicts, and deterioration of the value of the currency. Therefore, Jeffrey observed that the abundance of oil reserves in Nigeria had caused more struggles than economic benefits, hence reflecting the concept of the resource curse.

In 2015, new modifications and justifications of the resource curse continued to appear when Torres explained the incidences which occurred in Norway. Torres (2015) defined the resource curse as the situation whereby the existence of natural resources in a country causes economic slowdown and a decline in political democracy. In the review of Norway, Torres explains that oil production in the country was marred with turbulences before the country gained momentum to become of the stable economies in the global market (2015). Furthermore, the author mentions that the discovery of oil occurred in Norway in 1959, but there was a delay in the country’s significant economic growth until the late 1990s (Torres 2015). With the initial tests and exploration, civil conflicts emerged as the locals could not agree on resource demarcations and remuneration of benefits while simultaneously, the country’s poor policies could not create stability to enhance proper governance (Torres, 2015). Therefore, Norway had to endure the resource curse sitting on valuable minerals while its population suffered economic setbacks and limited democracy.

In 2017, OPEC justified the existence of the resource curse in Nigeria by comparing the country’s oil reserves and the resulting economic performance. In the study, OPEC (2017) found that Nigeria earned a positive ranking of 10^th largest producer of oil, considering its reserves and exports to the global market. However, the sad reality is that Nigeria’s economy is regularly fluctuating to the economic troughs, while resistance movements continue to disrupt mining activities.

Another historical scenario is the case of Libya, where oil was discovered in 1959, but the intermittent civil wars have totally affected the economic progression and political democracy (EIA, 2018). Considering its favourable ranking by EIA (2018) which placed the country at position 9 in the global index with an estimated capacity of 48 billion barrels in its reserves, Libya should have been one of the best performing economies in Africa. However, the country’s stability is yet to be realized. This is because of the prevailing conflicts, under-exploitation, and even misuse of resources hence justifying the paradox of plenty.

2.0.3.1.2 Resource Curse Theory in Practice

Even though empirical evidence suggests that oil deposits in countries with substantial mineral wealth (especially oil and gas) lead to the manifestation of the paradox of the plenty, Altmann et al. (2013) proposes a different argument concerning the existence of the resource curse. The authors suggest that the resource curse is a hoax and that the dismal economic performances in countries with vast minerals should be blamed on the weak institutional policies (Altmann et al., 2013). The resource curse theory is applicable in Africa considering that nearly all developing countries in Sub-Saharan from the south (Angola and Zimbabwe), central (DRC), and west (Nigeria, Ghana, and Equatorial Guinea) have inadequately appropriated the oil wealth to catalyze socio-economic growth (Alemazung, 2010). As mentioned by Elbra (2013), even established economies such as South Africa are contending with the resource curse. However, it is imperative to appreciate the fact that the resource curse has assumed different dimensions. On the other hand, (Fiske, 2011) explains that poverty and civil conflicts have caused restraints on time which people would have used to focus on developing themselves and contributing to building the economy of their country as they always on the run in fear of the consequences of the conflicts in third-world nations. It is also explained by Elbra (2013) that the development of a renter state and income inequalities characterize resource curse in south African countries such as South Africa and Botswana, which has, in turn, led to social disenfranchisement and poverty. For instance, in South Africa, there is the rich class of people who benefit from the exports of minerals while the poor people are living in slums which are underdeveloped as the leaders representing them in government focus on developing the areas where they reside like in the cities such as Johannesburg while areas like Soweto to continue looking poor and underdeveloped (Elbra 2013). Therefore, the development is proportionate as it is not even in the whole country but only in some areas.

In Equatorial Guinea, the resource curse was by the extension, a governance curse, as illustrated by the adverse effects of poor leadership (Diamond & Mosbacher, 2013a). Even though the country holds more than one billion barrels of oil, the leadership of Teodoro Obiang has misappropriated national oil wealth for personal benefit (Diamond & Mosbacher, 2013a). Accordingly, the research findings of Atey (2010) and Barnes (2011) confirm the assertions that Sudan experienced similar problems due to Omar Bashir’s unethical leadership which was one of the causative factors that led to the resource curse in Sudan. At some point, Omar Al Bashir had charges of a war criminal since he instigated people to go into war with those who did not support him causing the increased instability in the country (Atey 2010). However, the president continued to reap big from oil exports in the country since no single development witnessed during the civil war in Sudan. In a different scenario, the studies conducted by Crawford and Botchwey (2017), as well as the findings of Aidoo (2016), confirm that problems of governance indeed cause the resource curse. The authors found that the administration of former Ghanaian president John Mahama was unable to prevent illegal gold mining or corruption in the mining industry (Aidoo, 2016; Crawford & Botchwey, 2017) – a factor that benefited foreign Chinese miners and impoverished the locals who relied on crude methods to extract gold. As stated by Miles (2015) and Bebbington et al. (2018), the ubiquity of poor governance from West Africa to East Africa is a potential indication of the current resource course on the continent would persist in the long run.

Based on this perspective, it can be stated that Ethiopia can avoid the resource curse through the institutionalization of ethical and democratic governance. As reinforced by Frynas, Wood, and Hinks (2017), political and economic policymakers in countries that anticipate a resource boom should undertake rational decisions and factor the variability of global commodity prices, which may erode the value of crude deposits and minerals. For example, the volatilities in the crude oil prices had contributed to the economic recession in Venezuela. The cases of Sudan and Venezuela also illustrate that mineral and oil booms catalyze the emergence of an oil-oriented economy, which is less resilient to oil price shocks (Crespo & Zambrano, 2018; Mu & Hu, 2018). However, Mu and Hu (2018) argue that there are legitimate concerns which can be developed to address the potential shocks arising from the exploitation of natural resources hence improving the sustainability of foreign exchange. The claim is informed by the fact that the Ethiopian People’s Revolutionary Democratic Front has instituted ethnic-based federalism and tribalism in government, among other negative leadership strategies that were transferred from one administration to another (Abbink, 2011; Gebrehiwot & Haftetsion, 2015). For example, following the death of Melez Zenawi, his successor (Haile Mariam Desalegn) advanced the same authoritarian rule as his predecessor (Mengie, 2015). Therefore, a change in governance was not an effective preventative measure for the anticipated resource curse.

2.0.3.2 Dutch Disease Theory

2.0.3.2.1 Historical Development of the Theory

The historical development of the Dutch disease theory started in 1977 after the publication by The Economist magazine to explain the discovery of an extensive oil field in Groningen in 1959 (Van Wijnbergen, 1984). The magazine explored the implications of the oil discovery to economic performance and growth of other sectors in the Netherlands. In 1982, two economists Max Corden and Peter Neary developed a classic economic model which aimed at explaining the relationship between economic booms and fluctuating currency performance as triggered by the discovery of natural resources. The authors ascertained that as the revenues of a country increase from the trade of the newly discovered minerals, products from the booming sector become expensive hence making them less competitive as compared to the commodities produced in other sectors (Corden & Neary, 1982).

In 1995, the concept of the Dutch disease was modified by Davis who defined it as the causal relationship between a significant increase in the development of an economy’s specific sector in a country and the subsequent decline in the performance of other sectors. Davis (1995) evaluated the frameworks developed by Max Corden and Peter Neary, thereby concluding that there is an inverse proportionality of tradable and no-tradable sectors of a booming economy (Davis, 1995). In 2008, another concept of Dutch disease was developed by Bresser-Pereira who reviewed the economic impacts of oil booms in Indonesia. In a cross-sectional evaluation dating back to the oil booms between 1974 and 1979, Bresser-Pereira stated that Dutch disease is a phenomenon which boosts the economic performance of one sector while hindering the growth of others.

In 2010, Mustapha developed another perspective of the Dutch disease when he studied the economic consequences of natural resources in African countries like Nigeria, Ghana, and Libya. Mustapha (2010) stated that Dutch disease occurs when natural resources such as oil and valuable minerals are exploited to boost economic growth while the same attempts result in the declining performance of other sectors like agriculture and manufacturing. As such, the Dutch disease can trigger civil conflicts and poor living standards because the economic benefits of the natural resources are not uniformly distributed. Furthermore, the impulses created in the initial phases of exploitation usually cause short-term booms which quickly transform into economic downfalls due to imbalanced trade deficits (Mustapha, 2010). Therefore, these historical illustrations are proving that the abundance of natural resources does not directly translate to sustainable economic development.

In 2017, Comunale also refined the definition of the Dutch disease by stating the phenomenon involves the partial increase in economic development as a result of a causal relationship triggered by the discovery of natural resources. Comunale (2017) justified his assertions through the review of phenomena witnessed in countries such as Australia during the gold rush in the 19^th century as well as the economic impulses occurring in Chile during the booming mineral prices in the late 2000s and also the Azerbaijan oil exploration in the same period. With the exploitation of the Athabasca Oil Sands in the early 2000s, Canada experienced severe effects of the Dutch disease when its dollar strengthened against other currencies in the global market thus blocking its exports while making imports as favourable commodities of trade (Comunale, 2017). In the Philippines, economic appreciation in the 2000s contributed to a strong foreign exchange market leading to the supremacy of the country’s currency while weakening its competitiveness in the global platforms (Comunale, 2017).

2.0.3.2.2 Dutch Disease Theory in Practice

From a theoretical perspective, the incidence of Dutch Disease in Ethiopia would have disastrous consequences for the economy and the nation (Lefort, 2012). The claim is grounded in the value of agricultural exports, which is estimated at 18.5 % and the general contribution of the agricultural sector to the national economy, as shown in Figure 1.1 in Appendix 1(UNDP, 2017). A decline in agricultural productivity in the country would threat Ethiopia’s economic growth model and developmental state, especially those founded on value-added agriculture through the agricultural extension programs and the model farmers (Lefort, 2012). Lefort (2012) argues that the phenomenon had the potential to destabilize the national economy given the impact of periodical oil price shocks, decline in food production, and purchase of illegal weapons. The observation is partly reinforced by the current events in Ghana, where the weaponization of mining occurred. Furthermore, there have been numerous cases of armed confrontation between local miners and Chinese – leading to higher cases of insecurity (Bach, 2014; Crawford & Botchwey, 2017).

2.0.3.3 Dependency Theory

2.0.3.3.1 Historical Development of the Theory

The historical development of the dependency theory started in 1949 from the ideas of Hans Singer and Raul Prebisch. The authors defined the concept as the situation whereby the wealthy nations misappropriate resources from underdeveloped countries in the disguise of funding these impoverished states to exploit the naturally occurring resources (Sarkar & Singer, 1991). The philosophy of Singer and Prebisch emphasized that resources from underdeveloped countries are erroneously channelled to the developed economies, thereby enriching the stable states more than the primary sources (Sarkar & Singer, 1991).

In 2000, Grosfoguel defined the dependency theory as the deterioration of economic progression of many countries in Africa, Latin America, and Asia because the contracted foreign nationals are selfishly utilizing the opportunities in benefiting themselves while the sources languish in poverty and civil conflicts. As such, dependence on foreign aid has caused severe economic effects and political instability in these countries to the extent that independent operations are threatened (Grosfoguel, 2000).

In 2002, Valesco provided another perspective that dependency theory occurs due to the pursuit of accelerated development whereby the developed nations fund underdeveloped countries, thereby creating some form of over-reliance by the impoverished states. Velasco (2002) argues that with little financial support offered to develop countries, many nations cannot accumulate enough funds to purchase their own equipment and monitor economic development. Furthermore, these superior nations can also interfere with the political democracy of a country so that they can continue to harness the natural resources amid heightened civil conflicts as they disguise as peace-keepers. These scenarios have been witnessed in Nigeria, Libya, and Ghana since the 1940s where developed nations intervene as financiers or experts only to gain control over the oil fields and gold mines. For instance, the plentiful resources in Latin America discovered in the 1900s have attracted many prospective sponsors who are willing to fund the projects and facilitate the host nations in attaining rapid economic growth as well as stability in governance (Velasco, 2002). However, the developed countries are not transparent in their dealings because most of the obtained resources are transported back to their foreign territories where the final products are manufactured and transported back for sale at exorbitant prices. Valesco (2002) confirmed that the dependency theory has existed since the colonial times, but the main subjects of the phenomenon are the helpless nations whose oil reserves and mineral deposits are used for capital accumulation by the foreign countries and a few lobbyists who are supported by the bureaucratic governments in such countries.

In 2011, another definition was postulated by John who stated that a situation of dependency arises when the natural resources of underdeveloped countries are exploited in disguise of technology transfer and investment while the developed economies grab all the benefits to their countries. As such, overreliance continues to build up because of the increasing population and financial needs of these nations thereby necessitating the intervention of developed economies which exploit the natural resources in developing countries (John, 2011). Therefore, the modifications of this theory justified the earlier versions which cited reliance and exploitation of developing countries by developed nations.

The contemporary developments of the dependency theory continued in 2019 when Ghosh explained that the concept entails the economic systems connecting developing countries and stable markets which lead to the creation of gaps that are exploited by these rich nations in the form of technology transfer, grants, and investments. However, the gains from these perceived supports exceed reasonable ratios which apply when the developed economies are trading among themselves. That is why the existence of abundant natural resources in Africa and some Asian countries continue to be a paradox of economic development since foreign countries which disguise as sponsors are only exploiting the minerals and taking them back to their countries (Ghosh, 2019). Therefore, Ghosh (2019) stipulates that underdeveloped countries should apply reasonable levels of protectionism when dealing with their developed counterparts in order to restore their economic stability. The author also argues that dependency theory has affected many countries in Latin America and Sub-Saharan Africa since 1940s because the manufactured goods supplied by the foreign countries are not commensurate to the value or quantity of natural resources exploited from these underdeveloped countries (Ghosh, 2019).

2.0.3.3.2 Dependency Theory in Practice

Velasco (2002) states that the exploitative effects of the developed countries lead to over-urbanization, a situation whereby the affected poor economies are experiencing a higher rate of urban development with suppressed industrial growth. The irrational prioritization of development usually causes this situation because developed countries which follow the oil or mineral treasures are only building the facilities which they require but not passing the skills to natives to help them in sustaining their lives (Ghosh, 2019). For instance, it is common to find that countries like Nigeria, Libya, and Ethiopia are selectively developed whereby modern amenities are established in areas with mineral reserves while other regions are completely abandoned. In such countries, major tamarack roads built by the foreign settlers are connecting the oil fields to the export locations while urban centres are growing due to migration and congestion of people in a specific area (Grosfoguel, 2000). Furthermore, the rate of industrialization is very low because of inadequate support, training, and facilitation for harnessing the existing natural resources (Grosfoguel, 2000). This situation is an implication that developed countries are fulfilling their interests by acquiring the needed resources at cheap costs and building necessary facilities which enhance their activities (Velasco, 2002). However, the host nations like Ethiopia, which are endowed with plenty of resources are plunged into a third-world debt crisis which has been the main cause of stagnant economic growth in Africa since the early 1980s.

As proved by Kufakurinani (2017), lack of modernization and modification of the factors of production contribute to the skewed flow from less developed countries to advanced economies. Therefore, the validity of this theory is grounded in classical economics, including the assumption that leading economies in Europe and North America (global north) developed because there were other undeveloped economies (especially in the global south) to indirectly support their growth through commodity supplies (Tausch, 2010). Moreover, the dependency narrative blames Europe for Africa’s underdevelopment even though internal factors had equally contributed to poor development (Jeffry, 2013). For example, Ethiopia could not blame the global north for the entrenchment of ethnic-based federalism (Abbink, 2011) or the marginalization and subjugation of ethnic groups in the south, including the Oromo (Hussein & Ademo, 2016). Even though the model has its limitations, it advances valid assumptions, including the claim that low and middle-income countries would remain underdeveloped as long as they strive to integrate into the global system.

2.0.3.4 Rent-Seeking Model

2.0.3.4.1 Historical Development of the Theory

The development of the rent-seeking model started in 1967, and the theory has been modified across the years as influenced by economic fluctuations and the discovery of natural resources in various countries. The phenomenon of the rent-seeking theory was first developed by Gordon Tullock in 1967 (Dari-Mattiacci & Parisi, 2005). The model is an integration of essential concepts in public choice and economical which aim at explaining why people are making attempts to increase their share of exiting without striving at creating new opportunities (Dari-Mattiacci & Parisi, 2005). When experiencing challenges, economic regulations are often applied to regain a coercive monopoly can countries can only benefit in the short-term because the situation will gradually hinder the performance of incorrupt competitors. According to Dari-Mattiacci and Parisi (2005), rent-seeking model occurs differently in specific countries as dictated by the constitutional incentives of each nation. As such, countries with stable democracies are likely to engage in this economic phenomenon, while bureaucracies are the most severely affected.

In the same year, Di John (2005) modified the definition of rent-seeking theory after studying the prevalence of economic fluctuations in Chile, Venezuela, and the Philippines in the early 2000s. The definition stated that the abundance of natural resources in a country could mysteriously lead to economic inefficiency when the process of exploitation focuses on enriching the economy while destroying the reserves (Di John 2005). The notable impacts were stimulated by artificial restraints imposed by lobbyists to limit access to lucrative occupations. Apparently, these counties were also struggling to achieve full democracy, so it was challenging for the citizens to be accorded favourable opportunities which the bureaucratic leaders and foreign investors were enjoying.

In 2010, there was another development of the definition when Alcalde and Dahm stated that rent-seeking model involves the emergence of disproportional correlation between existing wealth and new opportunities in developing countries with abundant resources. The authors emphasized the concept of regulatory capture whereby foreign countries are seeking to increase their capture without adhering to the established policies of the business. The authors mentioned that historical economic malpractices were influenced through medieval guilds which provided punitive restrictions to some traders while favouring the parties allied to the government (Alcalde & Dahm, 2010).

In 2013, there were additional modifications whereby Rowley, Tollison, and Tullock stated that rent-seeking model occurs due to biases arising from an emphasis on monopoly privileges which benefit a few corporations associated with the bureaucratic authorities while ignoring rational investors who meant good for the economy. In essence, this description is a typical depiction of the misappropriation of natural resources without taking caution for possible replacements, hence causing an economic crisis. As such, it becomes difficult for African countries like Nigeria, Libya, and Ethiopia which are endowed with abundant natural resources to explore the full potential of the underlying minerals in the 1990s because of the government’s preferential treatment to investors (Rowley, Tollison & Tullock, 2013). The authors also justified their definition by stating that, in Africa, the impacts of rent-seeking started in the post-colonial period in the 1990s whereby foreign lobbyists convinced the local governments to fund their exuberant demands in order to facilitate the exploitation of natural resources within these countries (Rowley, Tollison & Tullock, 2013). Furthermore, it was mentioned that due to poor economic status of African countries in the early 1990s, the phenomenon became prevalent such that the foreign intermediaries dominated the markets with unfair pricing and unequal distribution of assets (Rowley, Tollison & Tullock, 2013).

In 2014, Záhořík refined the concept of rent-seeking when he studied the economic implications of oil exploitations in Ethiopia. The author stated that the phenomenon could occur due to misallocation of resources during the initial phases of exploration, thus hindering economic development (Záhořík, 2014). In justification of the definition, the author affirmed that Ethiopia’s economic status had been affected by the rent-seeking phenomenon since the early 1990s due to the country’s undemocratic policies and favouritism against lobbyists. In a review by Záhořík (2014), it is ascertained that the political impacts in Ethiopia before and after the interventions of Meles Zenawi were influential in redefining the regulatory captures affecting the economy. With sufficient reserves of natural resources, Ethiopia is yet to attain the anticipated level of economic development and political democracy because of the continued influence of intermediaries who coordinate with the government to exploit minerals for personal gains (Záhořík, 2014). Furthermore, economic growth in Ethiopia is hindered because of the insignificant efforts aimed at creating new opportunities.

In 2016, the rent-seeking model was further developed by Lock and Seele, who explained the phenomenon as the irrational attempts to increase one’s share of the country’s natural resources while failing to create new wealth. The authors confirmed the concepts which have been developed by previous scholars hence justifying that rent-seeking causes the disproportional allocation of resources, reduced government revenue, and a possible rise in civil conflicts (Lock & Seele, 2016). In the same year, another author called Aidt modified the concepts by stating that rent-seeking causes a decline in economic efficiency because of the prevalence of misappropriation of resources hence widening the gap of income inequality while also inducing loss of national income (2016).

2.0.3.4.2 Rent-Seeking Theory in Practice

The rent-seeking model offers plausible explanations of the antecedents for the resource curse (Deacon & Rode, 2012). A study by Deacon and Rode (2012) posits that by understanding the root causes, the government can institute appropriate preventative measures. The rent-seeking model basis on the fact that underdeveloped economies had a greater risk of resource rent misappropriation compared to developed countries. On the other hand, Hurrell and Sengupta (2019) trace the origins of the rent-seeking in Sub-Saharan Africa back to the 1970s when groups of elites began to exploit third world constructs and global north-south divide for individual gains.

The primary challenge of the rent-seeking model is the variations in the implementation of the practice depending on the geographical scope. For example, in the context of Ethiopia, it can be argued that the political establishment had “legitimatized theft” through the resistance to governance reforms – ethnic federalism is the cornerstone for governance (Aalen, 2014; Abbink, 2011; Gebrehiwot & Haftetsion, 2015; Hussein & Ademo, 2016; Mengie, 2015; Johnson & Taxell, 2015). Therefore, the legitimatization of theft in Ethiopia had provided safe conduits for bureaucrats to siphon public funds and consequently sustain the cycle of poverty and domination of the masses.

Rent-seeking through legitimatized forms of theft is a common practice in Ethiopia, as noted by Alebachew (2013). However, in place of only apportioning blame to the political hierarchy, Alebachew advanced a broad view of rent-seeking by arguing that the Ethiopian society, local populations, government officials, political parties, civil society, and other social groups were either corrupt, rent collectors or rent-seekers (2013). Various case studies augment the relationship between peasantry, civil society groups, and political classes.

In the recent past, Ethiopia’s government mining and development initiatives have been opposed by locals who presume that they would derive limited benefits from such projects. For example, the local people in Amhara opposed the government’s attempt to construct a road linking Combolacha and Addis Ababa (Alebachew, 2013). In 2019, the government of Ethiopia was forced to temporarily suspend the mining license of MIDROC Gold – due to the lack of environmental accountability and pollution in the mining process (Amiha, 2018) In a recent report, the World Bank (2019) notes that the current legislative and policy frameworks increase the possibility of conflict between artisanal miners and large multinational mining companies. The government of Ethiopia has not developed a robust mechanism for ranking mineral prospecting companies, which consequently increases the risk of conflict between the multinational companies with locals (World Bank, 2016).

2.0.4 Summary of Literature Review

According to the literature reviewed, the resource curse in a country is influenced by both economic and political concepts. While focusing on the scenario in Ethiopia, the review revealed that the resource curse had hindered economic development in the country because the vast mineral deposits cannot be exploited sufficiently to sustain growth. The discussions ascertained that other African countries like Nigeria, Ghana, and Libya had experienced similar problems whereby resources are available in plenty, but there are no appropriate economic models for utilizing the reserves. Furthermore, it was noted that resource curse is a common phenomenon in countries which have not attained full democracy. Taking the examples of countries in Sub-Sahara Africa, Stock (2013) conducted a review and established that the main challenge which hinders the exploitation of oil and other valuable minerals is the increase in persistent civil wars which arise from disagreements on the procedures of distributing the economic benefits of these resources to all the citizens. By reviewing associated theories like; resource curse, Dutch disease, dependency theory, and rent-seeking model, it was noted that the paradox of plenty is a phenomenon which has been witnessed in May nations like Canada, Norway, Netherlands, and the Philippines. The concepts revealed that the availability of abundant resources in a country could trigger rapid economic growth where there are enough policies to guide the exploitations. However, the blessing of oil reserves and mineral deposits can also turn chaotic if the government is not committed to optimum utilization of the resources.

3.0 Chapter Three: Case Study

Introduction

This research is centrally focusing on the resource curse of Ethiopia and the strategies which can be adopted to enhance sustainable exploitation of resources and political stability. Ethiopia is a sovereign state in the North-Eastern part of Africa and borders countries like Eritrea to its North, Djibouti lies in the North-Eastern border, Somalia is found to its East, Kenya to the South, the recently found South Sudan to its West, and Sudan to the North West (Mehretu, Marcus & Crummey, 2019). See figure 1.1(Appendix 2)

According to Tadesse (2015), the main oil blocks which have been confirmed to be viable for exploitation include; the greater Afar Block, the Mekelle Basin, the Segen Rift Basin, Abay Basin, and the Ogaden Basin. These regions have been marked as the richest reserves for oil that can be explored by the contracted foreign companies. Furthermore, Tadesse is appealing for continued prospective studies to help in establishing new boundaries of oil downstream (2015). Another region which has been identified is the Calub Gas Field, expected to contain ten (10) productive wells. The oil field can support two main reservoirs, namely; Adigrat, which provides condensate and Calub, which produces dry gas. On the other hand, the Ogaden Basin can support small wells such as Hilala and El-Kuan, which can be relied on as the simple units for exploration of oil. Cumulatively, the oil deposits in Ethiopia can be refined to produce benzene, kerosene, diesel, jet fuel, and liquid petroleum gas (Tadesse 2015).

Other discoveries of oil blocks in Ethiopia which have been documented by Tadesse (2015) include; Generale Area block 4, New Reservoir in the Gumburo Sandstone, and New Age El-Kuran block 8. With these blocks, it is estimated that there is a total reserve of 766 billion cubic feet of oil which can be exploited to improve the economic growth of the country. In the extended regions of South West Ethiopia, North East, and Central parts such as Yayu, Sola, Mersa, Lalo-Sapo, Delbi-Moye, and Gojeb-Chida, prospective studies indicate that oil shale occurrences amount to over 1 billion tons (Tadesse 2015). With these resources, Ethiopia can engage in sustainable exploitation to sustain its commendable growth rate, which hit landmark attainment of over 10% in growth between 2004 and 2009 (World Bank 2018).

Therefore, it is imperative to outline proper guidelines which can curb rapid reactions in the economic and political spheres which had already started in some regions like Kalub and Hilala (Getachew & Awel, 2018). Proper utilization of these vast resources can also rectify the declining economic growth in Ethiopia hence restoring the negative economic balances like high inflation rates and unfavourable balance of payment (World Bank 2015). Accordingly, UNICEF (2019) affirms that reasonable exploitation of large blocks of natural resources can help in correcting loose monetary policies, food prices and the GDP of Ethiopia.

Furthermore, the aims and objectives of this comparative study would be achieved by analyzing the situation in Ethiopia with respect to Nigeria and Batswana. Nigeria is a country in West Africa with the highest population in the continent, totalling to 190 million people (Rui et al., 2018). The country has vast oil deposits which were discovered in 1956 and efforts have been invested in harnessing the natural resource for economic development. In partnership with foreign sponsors, Nigeria has managed to explore its oil fields, thus producing over 1.6 million barrels per day (Rui et al., 2018). The country’s large-scale production has influenced its positive ranking in the global index, sitting in position 13 among the world’s largest producers (Rui et al., 2018).

Nigerian Case

However, the irony is that Nigeria has not achieved significant economic growth and economic stability despite the abundance of natural resources in the region. Reports by World Bank (2018) show that up to 33.1% of Nigeria’s population is surviving below the poverty line, while political democracy has not attained full equilibrium. Furthermore, Nigeria’s government is in constant conflicts with outlawed groups such as Boko Haram who want to take control of the country. Some of the reasons why Nigeria suffer the consequences of resource curse are as follows. First, Nigeria dismantled its federal fiscal system of derivation practice upon the discovery of oil resources and introduced a new system of collecting and distributing revenue. This new model created vast political turmoil through skewed resource distribution, creating regional and national development plan distortions and imbalances. The new changes in policy privileged the majority in terms of revenue benefits and therefore received more social and economic benefits alienating the minority regions characterized by a considerably small number of people. These marginalized communities, therefore, felt neglected, and they were deprived of enough resources leading to their underdevelopment (Gatachew & Awel 2018).

Second, the country’s natural resource wealth has gravely undermined the checks and balanced provided by institutions and resulting to the emergence of a weak and unresponsive state where only the executive arm of government is responsible for policymaking. Under this arrangement, the executive holds exclusive state power preceding over the country’s wealth policies of collection and distribution of revenue. The other arms of government, the judiciary and legislature are left to perform superficial duties. The result of such a strategy leaves the executive immensely powerful and therefore, the tremendous growth of rent oil in the country. (Rui et al. 2018). For instance, the draft constitution of Nigeria inaugurated after 1970, grants almost all state power to the executive branch of government. It is therefore responsible for the budget-making process; the constitution also provides the president of the country the right to withdraw money from consolidated of the federation. These provisions of the law render the other arms of the government almost helpless before the executive and therefore, cannot provide checks and balances to the executive arm of the Government (Crawford & Botchway 2017). These inappropriate governance policies make Nigeria suffer the consequences of the resource curse.

Oil sector dominates Nigeria’s Economy; the government derives nearly nine-tenth of its national income from oil. This scenario means that the oil sector receives most of the fixed investments. According to (Crespo & Zambrano 2018), the abundance of oil as a natural resource in Nigeria coupled with poor government policy creates overreliance in the oil sector. The effect of such is the instigation of rent-seeking violence between the regional and ethnic factions in Nigeria. Under the current regime, the country has seen the reduction in income from the other formerly lucrative sectors of the economy like palm oil, timber and cocoa to an export total of 4% of the country’s income. Such a reduction is as a result of the skewed investment that privileges the oil sector at the expense of the other sectors like manufacturing, human capital among other traditional exports of the county (Gatachew & Awel 2018). As a result, the economy of Nigeria has become totally reliant on the oil export sector for economic development; therefore, any interference on the oil sector would drastically harm the country and control over the oil resource translates into the control of the cautery’s collection and distribution of resources. Through the analysis of the Nigerian case, the discovery of oil resources translates into increased national income characterized by inequitable distribution of resources, inequitable scion-economic growth, income inequality, poverty and ethnic violence. Hence, rather than the natural resource, oil contributing to the economic growth, the oil resource has caused the weakening of the institutions of the state, caused ethnic group, undemocratic governance and undermined equitable resource distribution (Uhunmwuangho 2011).

Botswana’s Case

Contrary to Nigerian Case, Botswana demonstrated the possibility of escaping the resource curse. It is considered, one of the richest countries in the world as far as diamond is concerned. The country was able to survive the effect of the economic phenomenon through the use a three-pronged strategy to avoid the resource curse; first, the country indulged in economic diversification because an overreliance on the mineral sector for most of Botswana’s revenue renders the country susceptible to the key sector price shocks. The country also recognized that diamond wealth was limited; it was existent if diamonds were in the ground. However, if the country created wealth from the resources obtained from diamonds, it could achieve the long-term sustainable development programs of the country for posterity. Because the mineral sector liked narrowly with the other sectors of the economy in Botswana. It was paramount for the state to initiate the growth of other non-mineral economy sectors with specific focus to the creation of employment, (the mineral sector holds 2% of the country’s labour force) (Meijia and Castel 2012).

In 2005, Botswana created the body, BEAC (Business and Economic Advisory Council) to help in the promotion of economic diversification through the identification of investment projects, outlining constraints that would hinder the implementation of the identified projects and formulation strategies to overcome the constraints through an action plan. This strategy focused on the following; First, by creating an environment for business to thrive. Second, the government ensured the creation of projects to aid economy diversification through the support of agriculture and tourism among other sectors. Third, the government of Botswana addresses the issues of policy as well as institutional matters to create a stable financial sector. Fourth, through creating structures and offering the necessary incentives to such as training and business development to improve the business capacity of Botswana. Nevertheless, economic diversification has more room for improvement especially in the agricultural and manufacturing sectors to further strengthen the country’s private sector which shows some weakness due to high labour cost and the thin domestic market and insufficient skill-mix required by the market. The government additionally created institutions and infrastructure to facilitate the competitiveness of the private sector to help attain sustainable economic diversification (Pegg 2012).

Besides diversification, Botswana created a sustainable fiscal policy which ensured the government separated the linkage between revenue and expenditure. According to (Meijia and Castel 2012), this strategy saw the country avoid pro-cyclical expenditure and thereby eliminating excessive investment in projects with low return, transparency and institutions weakening, accumulation of debt, the entrenchment of expenditure and the loss of manufacturing competitiveness. The decision of delinking these two financial aspects is no small feat given the then, political pressure to spend to the last penny funds in treasury coffers. Nevertheless, Botswana adhered to the guidelines provided by both the informal and formal fiscal policies and to the National Development Plan to ensuring moderated spending during booms increased spending during busts. The Government was able to save, invest and use any excess revenue prudently and therefore avoided the resource curse (Frankel 2012). The national development plan consists of a 6-year planning cycle with the provision for updates prompted by economic changes through mid-term reviews. The development plan has been crucial in the management of foreign aid and mineral rent (Frankel 2010).

The structure, oversight and the recurrent nature of the National Development plan plays a critical role in the successful track record of wealth planning in Botswana. The involvement of the government officials, parliament and the civil society in the process planning through transparent consolations improves accountability of all mineral resource management. The country adheres strictly to the development plans preventing illegal project inception and implementations (Pegg 2012). The sustainable fiscal policy, on the other hand, provided guidelines and rules focused on limiting debt, increasing revenue productivity and limiting expenditure. With the acknowledgement of the limited nature of the mineral wealth, the government ensured the policy consisted of both informal and formal rules to guarantee fiscal sustainability (Frankel 2010). For instance, the principle of sustainable budgeting introduced in 1994, which directs on the productive investment or saving of mineral revenues rather than consuming them. And the National Development Plan of the 2006 mid-term review which directs on the requirement for consistency between the projected midterm government revenue and the and the set government expenditure limit (at40% of GDP) (Meijia and Castel 2012). Lastly, the Pula Fund as a strategy for investing and saving mineral revenue is effective for Botswana. The Pula Fund was established in 1993. The fund is critical in providing the required greater flexibility in the international reserves management and to create certainty in the forecasting of the government annual dividend payments by the Bank of Botswana.

The Botswana case, therefore, reveals that the resource curse can be avoided, a country should ensure good governance, promote economic diversification and promote efficient investment policies.

Ethiopian Case: Lessons Learnt moving forward

Ethiopia, just like Nigeria and Libya, is vulnerable to the effects of the Resource Curse phenomenon. The country is rich in oil estimated at 766 billion cubic feet and other valuable minerals but also has a history of political upheavals. However, the country can avoid the resource curse and engage in sustainable exploitation to of its resources (World Bank 2018) by taking a lesson from Botswana and avoiding the Nigerian route to turn its oil resource into a blessing that will enable the country to overcome the challenges that come with wealth discovery. This can happen in several ways: First, the country should ensure that the government is democratic and ethical with strong institutions to support the government. According to Frynas, Wood, and Hinks (2017), Ethiopian economic and political policy should consider the global oil prices, which have the potential of eroding the value of minerals and crude oil. It is only after such considerations that an informed decision can be reached. The cases of Venezuela and Sudan are a testimony of the possibility of making an economy less reliant in oil and therefore less oil price shock (Crespo & Zambrano, 2018; Mu & Hu, 2018). The country can also minimize the effect of price shock arising from natural resources exploitation through proper governance. For instance, the institutionalization of ethnic-based federalism and tribalism among other undesirable governance attributes that have been traditionally inherited from the previous regime has the potential of making Ethiopia suffer the impacts of the resource curse if the government does not take care. (Abbink, 2011; Gebrehiwot & Haftetsion, 2015). It is, however, important to mention that, advocating for good governance in Ethiopia is not synonymous with a change of government as in some cases, such vices have proved to be contributors rather than being a preventive measure for resource curse (Mengie, 2015).

Recently, Ethiopia commenced the production of crude oil with the vision of producing commercial quantities soon. Once, such quantities are attainable, Ethiopia could inevitably, encounter the economic phenomenon of resource curse or the paradox of plenty (Crespo & Zambrano, 2018). However, the country has the capability to create a steady and stable economy, using wealth in several ways. First, the country should create a peaceful environment by reaching a consensus with the communities around the place of oil discovery as well as the general public as to how the natural resource would be used. Ethiopia should also ensure her economy grows through investment. Ethiopia should also ensure to develop human capital and infrastructure through the funds obtained from oil revenue to help the economy in the long run. The revenue should hoverer not be used to service recurrent expenditure. The oil industry should have the right people at the helm for proper management, taxation and licensing. This strategy would ensure the oil resource is well managed to benefit the Ethiopian masses and for the development of the country through fair and wide distribution while minimizing both social and environmental hazards (Diamond and Mosbacher 2013). A decision by the government to apply innovation and state of the art processes in the critical economy sectors of industry, healthcare, education, agriculture and service would ensure that the country grows equitably without preference to any region. The continued investment in the oil sector exclusively would result in skewed development which would be devastating to the country in the long run (Lefort 2012).

Economic diversification as well the establishment of linkages between different sectors on the economy would distribute the country’s dependency to all the sectors preventing the over-dependency on a single sector such as oil. Such overdependency would plunge Ethiopia into the resource curse phenomenon. Multisectoral partnerships like the linkage between the sector of agriculture in the region of Afar and the Potash; the potash fertilizer would be produced for the agricultural industry to boost production. Such arrangement encourages multisectoral interaction leading to their growth and sustainability (Bach 2014). Ethiopia should also create the capacity to collect quality geo-data and a robust management process in place to manage the collected geo-data. As of today, records show that only 75% of the country’s geo-data is known; however, it is of poor-quality scale. Therefore such strategies are critical for the economy. Such data is useful for informed decision-making which spurs the growth of the economy through investments. The Country should put in place, strategies to enable the balancing between long term development goals and the short-term projects while reinvesting the acquired resource into a reproductive investment such as state of the art education and healthcare.

While these gains are possible, the country should be alive to the challenges of increased corruption as well as the negative social and environmental impacts (Mengie, 2015). As such, the government should ensure the industry is developed in a viable and clear way. The assistance of partners like the World Bank Group (WBG) should be a welcome for Ethiopia, because, they are a strategic technology partner with the ability to offer assistance in the translation of reports’ recommendations into a well-built responsible, practicable and predictable strategy, institutional and legislative framework for the Mining, Oil and Natural Gas sector. With such gains in place, the government of Ethiopia possesses the power to negotiate viable deals for the mineral resource and oil extraction in a manner that reduces the risks of avoidable remediation later in the process. Difficult political processes and huge costs always accompany such remediation. With a better deal, the country is also able to maximize its benefits (Bach, 2014; Crawford & Botchwey, 2017).

Primarily, Dutch disease is the resultant decline in the performance of other economic sectors within a country especially agriculture and manufacturing due to the exploitation of a natural resource like oil to strengthen the economy and boost its growth (Mustapha, 2010). If a Dutch disease were to occur in Ethiopia, it would have disastrous effects (Lefort 2012). The reason for such an argument is that Agriculture is one of the main pillars of the Ethiopian economy and it is estimated at 18.5% of the GDP, as shown in figure 1 (Appendix 1). Agriculture provides food for the Ethiopian population besides being a source of material for export. The development of the country and economic growth of Ethiopia would be significantly affected if agricultural production declined especially the value-added agriculture based on model farmers and agricultural extension programs. This phenomenon would potentially cripple the Ethiopian economy, thereby destabilizing the country is subjected to oil price shocks (Lefort, 2012). It would result to declined food production and possible purchase of illegal firearms as witnessed in the Ghanaian case which resulted to the weaponization of mining causing severe insecurity in the country (Bach, 2014; Crawford & Botchwey, 2017).

In the recent past, the Government of Ethiopia has been receiving substantial foreign aid inflows for development activities, in the event of curtailment of these inflows, the economy of Ethiopia would be adversely affected as a result of the effect of the Dutch disease. For instance, the country would experience a decline in export performance, and appreciation of the real exchange rates and resources, causing manufacturing production decline. This impact would eventually affect other sectors of the economy besides manufacturing (Holden, Deininger and Ghebu 2010). As a solution to this problem, the government should channel such funding to servicing of the national debt. This strategy should ensure that the country uses its resources for development but equally be able to reduce her debt substantially. However, the country should adopt strategies to reduce the amount of aid and therefore, dependence through continuous democratization, effective civil service reforms, transparency, institutional mechanisms of aid delivery but most importantly, good governance (Aunty 2007).

Ethiopia has the potential of suffering the effects of the rent-seeking theory. First, the phenomenon explains the struggle between economics and public choice. The citizens make attempts to increase the share of their available resources with no regard to opportunities that the project could create; they assume that the project would bring little if not any benefit to them. For instance, the residence of a small town called Kara Kore in Ethiopia opposed the construction of a road connecting Addis Ababa, and Combolacha claimed that the road upgrade would damage the businesses along the road thereby causing more harm than the gain to the locals. (Alebachew, 2013).

The government, therefore, decided to skip Kara Kore town with the Asphalt road rollout because the locals could not be convinced. In another instance, the ministry of agriculture, at the ninth EPRDF Congress at Bahirdar reported that because the extension program had not reached 75% of Ethiopian farmers, there was, therefore, a retreat in the agricultural spurt. Even though the Amhara Region Bureau of Agriculture acknowledged the failure, they blamed it on resistant farmers, political leadership and professional. The government of Ethiopia is the central repository of both the anti-rent seeking regime and the rent-seeking front. The government realizes that the rent-seeking behaviour is real and is a threat and therefore tabled it recently it in the national agenda for development, ethical, economic and policy discourse. According to (Ohno 2009), the government cannot possess an advantage to commence developmental projects in a region from a scenario where rent-seeking behaviour is a problem. The government of Ethiopia should, therefore, ensure the implementation of proper policies for her people.

Rent-seeking behaviour sometimes calls for drastic actions by the government. For, instance, the government of Ethiopia suspended the mining license for the company MIDROC Gold because this company did not meet the pollution and environmental accountability requirements in its process of mining (Amiha, 2018). Such actions are not sustainable, and therefore, the country should seek a lasting solution should. Going by the 2019 World Bank report, the loopholes in the policy and legislative frameworks of Ethiopian government concerning the exploitation of natural resources is the primary issue. The report outlines that the existing policies have the potential of spurring conflict between the large multinational mining companies and the local artisan miners. Therefore, in order not to sufferer the effects of the rent-seeking theory, the government of Ethiopia should reevaluate its policies and legislations to prevent such costly conflicts. The government should also develop a robust mechanism which will help identify and rank the mining companies, such mechanisms would, as a result, reduce the risks of conflict between the local companies and the multinationals (World Bank, 2016). The Dependency theory, suggests that the leading economies in Europe and North America thrived through the support of the underdeveloped economies, which directly contributed to the big economies through commodity supply (Tausch, 2010). This concept puts the blame on Europe for the underdevelopment witnessed in Africa. Soil and land degradation, poverty, and recurrent drought cause persistent food insecurity in Ethiopia. Ethiopian subsistence farming, therefore, depend on the unreliable rainfall. Irrigation accounts for only 2% of land considered arable inn thee country, coupled with massive soil erosion and degradation, susceptibility to diseases and pests, and low soil fertility, the agricultural sector of the country suffers a devastating low performance. The lack of capacity of the previous and the current government regimes to conclusively dress the problem of food insecurity worsens the situation.

Consequently, the country’s populating has for several decades, depending on foreign food aid. For instance, in 2012, nearly 8 million Ethiopians benefited from the program PSNP program in order to counter the shortage of food in the country — also, the Horn of Africa case of 2011 where over 4.6 million Ethiopians required food assistance. Further, shocking statistics reveal the situation of this agriculturally struggling country. As a result of the chronic food insecurity in Ethiopia, about five million people require food aid annually since 1884. Between 1999 and 2000, about 16% of the country’s 62 million persons received food aid, at the same time the food aid totals as a ration of the foreign exchange earnings of the country increased alarmingly from about 2% to 40%. Arguably, Ethiopia happens to be one of the biggest food aid beneficiaries globally. Even though it seems easy to blame the foreign aiders for the problems of Ethiopia, the country has also experienced underdevelopment due to the existing internal factors (Jeffry, 2013).

For instance, the government of Ethiopia cannot blame Europe for its choice to adopt the ethnic-based federalism government structure (Abbink, 2011). The government must take responsibility for the subjugation and marginalization of ethnic groups of southern Ethiopia like the Oromo and not blame Europe (Hussein & Ademo, 2016). Even though the theory asserts that Ethiopian problem is as a result of its struggle to fit into the global system, and consequently remains struggling and underdeveloped, (Kufakurinani, 2017), the country’s problem results from poor governance. Therefore, the consequences of the underlying food production failure can only be solved by the setting up of a robust strategy of food security fit the country with the aid of the current innovations and technology. The government should also endeavour to use appropriate policy and legal frameworks to support innovation in solving the major structural problems responsible for the persistence of food insecurity such as population pressure, poor soil fertility, fragmented landholdings, environmental degradation and lack of other income-generating opportunities beside agriculture). Most importantly, deficiency syndrome should not be blamed for Ethiopia’s food security issues if a lasting absolution is required. Therefore, the government should put more efforts into solving the structural problems to ensure that the vulnerable Ethiopian households permanently find a way out of the persistent food shortage by providing better opportunities.

4.0 Conclusion

The research has obtained evidence associating natural resource wealth abundance and a series of macro-economic imbalances such as the resource curse like in the case of Nigeria. However, the study has established that such imbalances are primarily a consequence of high corruption levels, lack of accountability and transparency derived from poor governance strategies, poor fiscal and monetary policies, impropriate investment and saving strategies, overdependence on one key sector of the economy and lack of economic diversification within a country. Clearly, the study has shown the role of governance in transforming resource abundance into economic development. Good governance, which is people-centred, accountable, transparent, with checks and balances and powerful regulation against corrupt tendencies tends to associate the abundant natural resource with a high economic wealth of the country.

The study has also demonstrated that the abundance of a resource is never a sentence to poor, skewed economic growth. Because Botswana was able to avoid resource curse by applying a series of sustainable measures of fiscal policy, including the prudent and strategic investment of revenues from the natural resource for current and future generational use, and coupling such policies with good governance practices characterized by accountability, transparency and proper checks and balances. Consequently, Botswana has managed to convert its resource wealth into a blessing.

Ethiopia stands at a development crossroads in the advent of oil discovery. The current regime can take the opportunity for reform by putting into practice the good lesson obtained from Botswana’s management strategy of resource wealth. In so doing, the country will be able to turn around Ethiopia from the resource curse, Dutch disease, Overdependency Syndrome but most importantly create a vibrant, diverse, inclusive economy which is people-centred. Through equitable resource distribution, the standard of living of the Ethiopians would improve, and the decades of food shortages would end, the country can also achieve sustainable agriculture through strategic investment in the sector. Ethiopia can also achieve sustainable development goals through investment in human capital and other key sectors of the economy like health, education, industry and manufacturing. Therefore, rather than letting the abundant oil wealth to become a burden to the country, Ethiopia can leverage the revenue from the resource and the retunes on investment for the promotion of inclusive and equitable economic growth.

4.0 References

Appendices

Appendix1: Figure 1.0 Contribution of the agricultural sector to the national economy (1995 to 2013). Obtained from UNDP (2017).

	1995-1997	1998-1999	2000-2001	2002-2003	2004-2008	2009-2013
GDP per capita growth rate	3.9	-2.0	4.2	-3.2	8.9	7.5
Agriculture, value-added growth rate	7.6	-3.1	6.4	-6.2	12.7	6.4
Food Production Index (2004-2006 = 100)	63.3	65.0	73.1	86.2	108.1	138.1
Crop Production Index (2004-2006 = 100)	69.3	68.1	77.5	80.2	104.3	144.7
Cereal imports as a % of production	5.6	8.3	14.3	15.0	7.5	9.6
Value of agricultural exports (growth rate)	16.3	-16.1	-22.8	54.4	24.7	18.5

Appendix 2: Figure 1.1 Spatial Distribution of Oil Blocks in Ethiopia. Obtained from Tadesse (2015)