Resource development, including the decision to develop, the adoption of fiscal and regulatory regimes, and the spending of resource revenues should be designed to provide economic growth and an equitable distribution of resource wealth to the citizens of the producing country. This requires a vision and a plan for both the development of the resource and for the use of the resource in realizing the country’s larger development goals.
This development requires a government and its citizens to make many complex decisions in the effort to maximize the benefit of those resources to society now and in the future. Extractive activities are technologically demanding, capital intensive and may continue for decades, during which demand and prices may vary wildly. They often come with large environmental costs. From a very early stage in the resource identification process, decisions must be made regarding the choice to develop the resource now or later; whether the government should develop the resource itself through an existing or new state enterprise or whether to allow the private sector, including foreign investors, to do so. Decisions must also be made regarding the fiscal and contractual regime, including the incentives for investment; the regulation and control of the impacts of resource development; and the use of the revenues generated. Governments find themselves in many different stages of this process. Government may inherit mismanagement by previous governments or from investors. Prior development may have resulted in adverse social and environmental effects. Potential revenue may have been lost; it may have been wasted or used for the benefit of limited political and economic elite or, in the worse cases, simply stolen. Governments will face pressures to favor current consumption over investment.
Inherent to the extraction of natural resources are world price fluctuations, uncertainties, and long term implications from decision-making. As a consequence, decisions around natural resource extraction should be made in a context that attempts to best managed these uncertainties, including the eventual size and nature of the resource deposit and a possibly volatile and uncertain pricing environment. Further in designing and executing its strategy, the government must also take account of its existing institutional and human resources and its own prospective development.
Effective use of resources requires a plan or vision of what the country wants to do and how resources, if developed, can assist the country in getting there. These larger goals should inform all of the individual decisions along the way.
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