[MUSIC] Natural resource wealth comes in many forms. It can be energy resources in the form of oil and natural gas, or coal, or uranium. It can be metals and mineral resources, in the form of bauxite ore to make aluminum, beryllium and titanium for aerospace applications. Cobalt to craft super alloys for tools and engines, copper for wiring. Gold and silver for jewelry and electronic instruments. Iron-ore can produce iron and steel. Led and lithium for batteries. Nickel for fabricated metal products. Rare metals like platinum, palladium, rhodium, oridium, osmium, and ruthenium for auto and industrial applications. Even phosphates and potash for fertilizer, silica for glass, and zinc for galvanizing. It can also be renewable resources like timber in the trees that yield key foods stocks, like palm oil. In natural resource wealth in developing countries and especially include sufficient arable land and water for irrigation and power. The problem however with natural resource wealth, is that it is no guarantee of corresponding wealth for a nation's population. The problem maybe laid at the feet, in what economist call the natural resource curse, also known as the paradox of plenty. [MUSIC] To understand the natural resource curse, let's contrast the situation of a country like that of Norway versus that of many African nations. Norway is a vibrantly functioning democracy, it was blessed in 1959 with the discovery of a huge reserve of oil and natural gas deposits. Since that time, the state government has played a key role in developing these oil and gas fields and capturing the revenues generated by these resources for its citizens. Most importantly, Norway has established a type of savings fund aimed at building an endowment for Norwegian citizens, once the oil and gas reserves begin dwindle. In sharp contrast, many African countries literally sitting on vast reserves, valuable cobalt, copper, diamonds, oil, and timber, are ruled by venial dictatorships that capture the wealth from these resources. Not for the citizens of their nations, but rather for their own bank accounts. In this key concept, the natural resource curse theory predicts, that in countries with poorly formed and non-democratic political systems, such looting by ruling elites of a nation's wealth is almost inevitable. The problem, of course, is that this is an extremely difficult political situation to rectify. As any new revolution in an African country may well simply be led by just another would be venal dictator, out to loot the treasury. For these reasons, it's specially important that both business executives and investors carefully assess, not just the natural resource wealth of the various nations, they may want to do business or invest in or with. It's critical to also assess the political environment and the extent of any corruption that may exist in a nation. [MUSIC] In many developing countries, the amount of arable land is the most important natural resource of all. This is because much of the labor force in most developing countries remains employed in farming. And because this is true, increasing the productive use of land will go along ways towards increasing the poor nation's output. Well, what determines land productivity? Besides the fertileness of the soil itself, and the climate. One important factor is the level of investment in, and expenditures upon things like farm equipment and machinery, soil conservation, fertilizers and pesticides, irrigation systems, and proper tillage of the soil. However, the second important factor is the pattern of land ownership, itself. One end of the pole in developing countries, farmers may own their own land. The other end of the pole, a wealthy few might own the land and rent it out to farmers. [MUSIC] In many cases, when farmers own their own land, they have better incentives to invest in new farm equipment, make improvements, such as irrigation systems. Undertake appropriate conservation practices, and engage in appropriate tillage of the soil. On the other hand, when a wealthy few own the land, they may be better able to take advantage of what are significant economies of scale in farm production. However, concentrated land ownership by the wealthy few, may also trigger political unrest, and perhaps outright conflict and even revolution. And with that said, let's move when you are ready to our next module, and the two final wheels that the engine of growth and developing nations rides on. [MUSIC]
