The political state and the management of mineral rents in capital-surplus economies: Botswana and Saudi Arabia

In recent decades, the rate of economic growth in the developing countries has been inversely related to the share of rents in GDP. The resource-poor countries out-performed the resource-abundant ones and among the latter the small mineral economies performed least well and the oil-exporters worst of all. This outcome is counter-intuitive because mineral rents can boost investment while mineral exports can expand import capacity. One explanation is that Dutch Disease effects from mineral booms trigger trade policy closure that distorts the economy. But most high-rent capital-surplus oil economies like Saudi Arabia eschewed trade policy closure and still experienced a growth collapse. A second explanation lies in the political economy: resource-rich countries have been less likely than resource-poor countries to spawn developmental political states. The latter have two key features: first, sufficient autonomy to pursue a coherent economic policy; and second, the aim of raising social welfare. This paper compares Botswana, a rare case of a resource-rich country with a developmental political state, with Saudi Arabia, which had less autonomy in policy formulation due to its role as swing producer in OPEC and cultural pressures for a paternalistic deployment of the oil rents. It argues that although Botswana experienced more success than Saudi Arabia in deploying its mineral rents, this may owe much to its more stable rent stream rather than to its political state alone. Moreover, it is still premature to judge Botswana wholly successful. (C) 2001 Elsevier Science Ltd. All rights reserved.