Why African Resource Exporting Nations Need Tariffs

by John Brian Shannon

Many nations in Africa are presently experiencing a boom in resource exports. And that is truly wonderful news as exports of any kind contribute handsomely to national GDP and balance-of-trade figures. Not only that, millions of dollars of Foreign Direct Investment (FDI) often accompany resource exports.

For workers involved in the resource sector of a nation, it is unquestionably a positive development. Many other businesses and citizens at the periphery of the resource sector benefit too.

But does resource extraction benefit the rest of the society? It is heartening when one sector experiences strong growth – but when that rapid economic growth is limited to a small proportion of the population, tensions can become inflamed.

Joseph E. Stiglitz, Nobel laureate in economics and Professor at Columbia University has noted the problems inherent to resource-based economies in his recent and excellent article; “From Resource Curse to Blessing” which I urge you to read. Early into his piece, he says;

“On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect.” — Stiglitz

Rather than develop the resource sector to the exclusion of all else and hope the rest of the society holds itself together — it would be prudent to tax all raw resources which are leaving the country.

In that case, comparatively few people will still make a good living directly from the oil (or other resource) company, while the rest of the country benefits in other ways from additional government spending on programs like improvements to national infrastructure, such as airports, highway systems, rail transportation and hospitals and schools on account of the tariff revenue.

When governments take in additional multi-millions of dollars from raw resource tariffs they will have additional money to improve services across the country.

The one thing governments shouldn’t do is add a tariff when resource prices are high! The major powers in the world will not let that happen as prices begin to skyrocket because that will add to uncertainty in the stock market and huge pressure will be brought to bear against any government attempting such a thing.

The time to add a small tariff is now, when prices are comparatively low and therefore, complaints will be few. Prices won’t drop much anytime soon. Due to the supply and demand equation they will be more often rising in the coming decades.

As we know, many African nations export significant amounts of unrefined oil, raw metals (ore and ingots), minerals or uncut and un-mounted gemstones. When African nations implement a 5% tariff on every exported tonne of resource — or barrel of oil — their economies will fire on all cylinders and with little complaint from rapidly growing and resource-hungry nations.

John Brian Shannon

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada