Natural Capital And Macroeconomic Policy In Africa: A Systematic Review Of The Resource Curse, Fiscal Rules, And Monetary Policy Channels

Most of the world's mineral, hydrocarbon and biological natural capital is located in Sub-Saharan Africa, but so have most of the world's volatile growth, currency misalignment and fiscal failures. The paper is a synthesis of the theoretical and applied literature on the resource curse, the Dutch disease, and genuine savings, with a study of how the fiscal rules, the presence of sovereign wealth funds and monetary policy have mediated the link between natural capital wealth and macroeconomic stability in African economies. The paper follows an analytical pathway from the booming-sector model of Corden and Neary to the institutional quality literature of Mehlum, Moene and Torvik, and links this theory to those of fiscal and monetary policy channels in Botswana, Nigeria, Ghana, Angola, Zambia and Uganda. The review shows that natural capital abundance per se does not determine macroeconomic outcomes; the relationship between resource dependence, institutional quality, exchange rate management regimes and the credibility of fiscal anchors (such as non-mineral balance rules and SWF governance) determine macroeconomic outcomes. Countries with rules-based, transparent, de-politicized revenue management systems, like Botswana, have better transformed their subsoil assets into produced and human capital than others with discretionary and opaque revenue management systems. The paper calls for inclusion of genuine saving, and the full accounting of wealth, in macro-fiscal surveillance; greater independence of stabilization mechanisms; and the incorporation of measures of natural capital depletion in the continental monitoring systems of central banks and finance ministries.