What Do Iran and Alaska Have in Common?

by Maniza Naqvi

Prosperity_AbundanceWhat do Iran and Alaska have in common? Well for one thing, both have followed a similar path towards equity by sharing mineral revenues with citizens through the Alaska Permanent Fund and the Iran Citizens Income Scheme (here). Why aren't other countries, rich in mineral wealth and poverty doing the same? Because, the “journey”, which costly consultants want costly decision makers at costly aid conferences full of power point presentations and participants by the presidential suite loads, to take, is one of visualizing the eradication of poverty with truisms. This journey can be short and sweet: It would entail direct dividend payments from mineral wealth to citizens to become a reality across Africa and other parts of the world.

It's time to put the “mine” in mineral resources. If there ever was a sweet spot for perfect nationalization and poverty eradication then it would be through direct cash payments from natural resource revenues to the citizens of a country: a mechanism by which citizens of a nation, share in its wealth earnings while making sure that the earnings keep growing for future generations (here,here). It is a tantalizing prospect. (here,here)

Africa has mineral revenues and much more that can end poverty. It seems, that whatever the so called developed world craves, Africa already has: from mineral resources to yet to be discovered deposits of diamonds, oils, rare earth; to agriculture land (here, here and here); and even children (here andhere). Yet, whatever enriches the so called developed world from Africa seems to not benefit the continent itself enough or fast enough. Why is that? And what will need to be done to change it?

It is time to transform the discussion on economic growth drivers and development aid by adding into the equation the distribution of mineral and hydro carbons revenues (here). Yet this is left out of the latest discussions, in the public square of elite policy making (here andhere). Similarly the current discussions on the growth from the mining sector still revolves on direct and indirect jobs created through mining and Government investments in social and economic infrastructure on behalf of citizens. The discourse continues on without focusing on giving agency to individuals and providing them with the cash and the tools for making choices for how they spend or invest their cash for their social and economic wellbeing. Mineral rich countries may have had the potential for even greater gains in HD outcomes if they had adopted different policies for how they used mineral revenues.

Imagine if the mineral wealth of countries would be managed so that it would continue to grow, and would be distributed to all their citizens based through an established transparent system of identification and targeting. Poverty would end. Families could take care of themselves. Aid would be a thing of the past. So perhaps would war.

Take, for example, the following mineral rich countries with a high poverty head count: Equatorial Guinea (76.8%), Gabon (32.7%), Angola (40.5%) and Botswana (20.7%) and very low human development indicators (here) yet they have equal or higher per capita GDPs than the BRIC countries: Brazil, Russia, India and China. The Human Development Indicators in all four mineral rich countries are very low. Clearly, the mineral revenues haven't been distributed to all and have not improved life for the poorest.

In 35 mineral resource and revenue rich countries in Africa, per capita GDP ranges from US$500 to US$20,200 (here). Yet the mineral wealth versus the consumption per capita and the poverty head count tell a starkly different story (here). The poverty head count averages at 48.56% and ranges from 20.7% in Botswana to 80% in Chad. Yet despite the high poverty head count and large mineral revenues, safety net benefits in terms of cash transfer programs targeted to the poor exist only in ten of these countries. These cash transfers cover less than 10% of the population, if that, and generally fall around US$15 per month equaling about 20% of household consumption. And in each of these cases, it is donor financing, not revenues from the mineral wealth that account for 65% to 100% of the cash benefits!

Aid money for the citizens of mineral rich countries? In low income countries the average donors funding for safety nets is 72.5 % of the total and for middle income countries it is over 50%. On average as percentage of GDP safety net programs represent only is 1.6% of GDPs in Africa (excluding what is spent on general subsidies). The average for MICs on safety net spending is not much higher – 2.4% of GDP – including donor financing.

In fact there are no significant cash transfer programs in 23 of these mineral revenue rich countries which have GDPs in the billions of dollars (here) and high GDP per capita (here) but high poverty headcounts (here). This includes Nigeria ($235.9 billion with GDP per capita of $2700), Angola ($100 billion with GDP per capita of $6200), Benin ($35 billion with GDP per capita of $1700), Cameroon ($25 billion with GDP per capita of $2300), Chad ($9 billion with GDP per capita of $1900), Equatorial Guinea ($19 billion with GDP per capita of $20,200), Gabon ($17 billion with GDP per capita of $17,300), Madagascar ($9 billion with GDP per capita of $1000), and Mauritania ($94 billion with GDP per capita of $1044).

Most of the jobs in the increasingly mechanized mining sector are for a few highly skilled workers and there aren't that many manual labor jobs in mining which pay well or have widespread impact on poverty or human development indicators (here). Jobs for the poor and the unskilled in this sector will not have a significant impact on reducing poverty. However revenues, even a fraction, from this sector have the potential to eradicate poverty.

Oil revenues and mining revenues have largely remained in the hands of a few or with the State and have not translated into improved outcomes for most of the citizens. The governance measures remain at a very low level in many countries, which begs the question of whether there would have been larger gains in the absence of the resources, or if different strategies for using these resources were implemented.

Mineral revenues dwarf aid money. And if a fraction of mining revenue streams earned by private corporations were also factored into the public revenues in these countries that could go as direct dividend payments to citizens then just imagine the implications for eradicating poverty. Consider the magnitude of revenues from mineral wealth compared to the aid inflows usually from the same countries where these corporations are headquartered. Aid originates from citizens tax money in developed countries “donated as charity” and goodwill, masking the billions in outflows from these mineral revenue rich impoverished countries, syphoned for private corporate coffers.

There is so much data available on wealth and disparity, on human development, poverty, consumption, incomes, GDPs and revenue streams, wealth and disparity with which to make the case for transfers from mineral revenues to citizens. Oil rents as percentage of GDP are here. Poverty head count for every country here. World Development Indicators here and here, food consumption maps are here, and GDP per capita are here . And great arguments for it are here.

When seen through this prism of mineral wealth in stark comparison to the poverty in the same countries and the examples of Iran and Alaska, a different light is shed on the prescriptions at global forums.

Please also read: Prospect For Ending Poverty

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