Governments owning natural resources have the responsibility to manage those resources for the benefit of current and future citizens. Where the revenues from resource extraction are properly managed they can help to alleviate poverty, generate economic growth and develop the economy, thus sustaining a more prosperous future. Realizing this vision, however, requires governments in resource-rich countries to formulate, implement and monitor detailed programs and policies in multiple areas, including leasing and fiscal regimes, social and environmental regulation, and national development plans. Resource governance and policy formulation should be guided by the principle of securing the greatest social and economic benefit for current and future citizens, including an equitable distribution of resource wealth. Decisions also need to be taken on how to obtain—whether from public or private companies—the capabilities and capital required for efficient development of the resource.

The sequence of choices for governments related to resource extraction can be thought of as a decision chain. The first link in the chain is the evaluation of a country’s geological potential and choices about when—and if—to develop. Next, if development is contemplated, governments must formulate the fiscal, contractual, and regulatory terms. Further, governments must ensure oversight regimes and a revenue management policy are in place before projects are implemented. Decisions must be taken around the use of public revenues for poverty alleviation and economic development, including investment in infrastructure, health and education and choices made between consumption and investment. Such decisions should also take into account the trade-offs associated with investment in the resource sector (such as upstream services or value-added processing)and diversification of the economy into other sectors.

In addition to the complexities of resource governance and the potential for mismanagement, the extractives decision chain suffers from a ‘weakest link’ problem. A weak or broken link in the chain undermines the ability of governments to capture revenues and use them effectively. For example, if exploration of resource deposits does not take place, or is limited in scale, due to problems in the allocation of exploration rights, a country may never know the extent of its resource wealth. Poorly structured concessions may yield little revenue. Similarly, if the decisions about public expenditure are compromised, governments may raise large amounts of revenue but then squander it on poorly selected projects or by subsidizing uncompetitive industries. Governments, therefore, should carefully consider all stages of the decision chain.