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Resource Traps: Examining developmental differences between Canada and the DRC

With a land area the equivalent of Western Europe, the Democratic Republic of Congo (DRC) is widely considered to be the wealthiest country in the world for natural resources, with an estimated $24 trillion worth of untapped deposits of raw materials. [1] However, despite this wealth, 73% of the Congolese population lives below the international poverty line of $1.90 a day. [2] Throughout its bloody, hopeless history, the DCR has continuously fallen victim to Western colonialism and has been exploited for its riches. The DCR's independence from Belgium in the 1960s escalated immense political turmoil and anarchy and the country has since been plagued by severe ethnic tension and abusive foreign multinational companies operating in the area.


At the heart of the DCR’s failure is poor governance. Due to the inability of the Government to rule such a vast country and enforce effectively any of its legal frameworks designed to tax multinationals and redistribute the revenue to its population, the country is locked into a vicious downwards spiral whereby as the resources (predominantly Copper and Cobalt) are extracted, the distribution of those meagre revenues causes an unequal allocation of wealth which generates resentment amongst the various tribal regions and stokes further ethnic discontent, violence and a deeply embedded distrust of the ruling government.


Furthermore, the influx of foreign currencies has increased the DCR’s reliance on natural

resources as its main export because other, traditional industries cannot compete with the

profit-intense commodities market and so receive inadequate funding as the Government

moves its paltry spending to these markets, spurred by the short term profit incentive- a classic symptom of the Dutch Disease. The DRC’s wealth has also attracted neighbouring countries, for example, Rwanda, to loot from the country as its government struggles internally to curtail the prospect of a civil war. This significant looting further stokes ethnic tensions, heightening the instability and regional imbalances.


According to a report from the United Nations in 2014, [3] an estimated 98% of the 10,000kg of gold produced in the country was illegally smuggled out. This loss of such a valuable

commodity and its associated revenue again prevent any benefit of the precious metal from going to the native population.


Similar to the DRC, Canada has a value of resource rents per capita of $1,200 [4] (a resource rent is the value of the total revenue gained from the extraction of the natural resource minus the cost of extracting the resource) yet boasts one of the highest Human Development Index’s in the world at 0.929. [5] It has successfully capitalised on its profusion of natural resources and managed to transfer this into its economy and consequently offers some of the highest living standards in the world and is a leading free country in democracy, human rights and gender equality. However, in contrast to the DRC, Canada’s natural resources only contribute 2.2% of its GDP whilst the DRCs value is 27.7%


Canada has done this whilst mining, real estate and manufacturing remain its largest

industries. The mining industry is a significant contributor to Canada’s economic strength,

contributing 5% of the country’s nominal GDP in 2020 with a value of $107billion. [6] Mining has directly promoted the economic growth of Canadian cities. Toronto, for example, is the global hub for mining finance with the Toronto Stock Exchange listing more of the world’s public mining companies than any other exchange. The companies listed on the Toronto Stock Exchange support over 210,000. [7] workers and these industries offer the population higher-paying jobs in the tertiary sector, such as financial services, and quaternary sectors, such as specialized IT and consultancy. This aids the economy to transition away from lower-paying jobs in the primary sector of coal extraction.


The Canadian Government regulates the mining industry through the implementation of the

Impact Assessment Act. [8] This requires companies seeking to open a major mining operation in Canada to undergo a federal environmental assessment. This aims to streamline environmental regulations, improve mining transparency and provide a greater voice to the Indigenous population. This all centralises the position of the Government and increases public confidence in mining operations as they recognise the wealth from their resources is not being stolen or Mismanaged. Like Norway vs Nigeria, the two very different outcomes for the DRC and Canada are a clear demonstration of the fundamental importance that a robust, enforceable legal system, a strong governance framework and a culture of transparency are vital in determining whether or not natural resources are a curse or a blessing.


In the case of Canada, the implementation of high standards of financial regulation and

environmental laws that have been vigorously administered has led to the optimisation of the

long-term benefits of mining coal and copper for the population, economy and environment.

Overall, natural resources have been a blessing for Canada. In contrast, the discovery of mineral wealth in the DRC has been a socio-economic and environmental disaster, causing irreversible levels of corruption. The mineral extraction process has led to the degradation of the environment and the wealth distribution amongst the most unequal in the world, making natural resources a curse for the DRC.

 
References:

[1] https://globaledge.msu.edu/countries/democratic-republic-of-the-congo/economy

[2] https://www.worldbank.org/en/country/drc/overview#1

[3] https://issafrica.org/iss-today/the-true-cost-of-mineral-smuggling-in-the-drc

[4] Alex Hammond

[5] https://hdr.undp.org/en/content/latest-human-development-index-ranking?utm_source=EN&utm_medium=GSR&utm_content=US_UNDP_PaidSearch_Brand_English&utm_campaign=CENTRAL&c_src=CENTRAL&c_src2=GSR&gclid=Cj0KCQjwg_iTBhDrARIsAD3Ib5gLqkqqByQ_FJP0dOBS2t1fxETDO7pUQH6WaYgKgtA_-gX_9sFQ5g8aAkuyEALw_wcB

[6] file:///C:/Users/USER/Downloads/MAC-Facts-and-Figures-ENG_Final-Wb.pdf

[7] https://www.toronto.ca/business-economy/industry-sector-support/financial-services/#:~:text=The%20Toronto%20Stock%20Exchange%20(TSX,largest%20financial%20centre%20in%20Canada

[8] https://uk.practicallaw.thomsonreuters.com/w-019-6669?transitionType=Default&contextData=(sc.Default)&firstPage=true#:~:text=Regulatory%20framework,-Canada%20is%20a&text=The%20provincial%20legislatures%20principally%20regulate,legislative%20jurisdiction%20over%20natural%20resources

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