Natural resources have long been a cornerstone of economic development. But with climate change increasingly threatening the sustainability of current economic systems, the need to transition toward models that not only enhance productivity but also boost the regeneration of natural assets has never been more urgent. This critical issue, extensively highlighted in 2024 Call to Action: Achieving a Sustainable Future for All, was the focus of an exclusive interview with GFCC Distinguished Fellow Dr. Hippolyte Fofack.
Dr. Fofack, a globally recognized expert in economic policy, development economics, and international finance, has led numerous research projects and played a key role in shaping national and regional development strategies. His work contributed to the design and implementation of multiple trade agreements and development strategies between the African continent and the United States.
In this interview, Dr. Fofack shares insights on the challenges of transitioning to sustainable economic models, particularly for resource-based economies, amid the growing risks of climate change. He also addresses the urgent need to bridge the green technology gap between developed and developing nations, among other topics.
What is the impact of natural resources on economic development?
Natural resources have always played a key role in economic development, as well as economic integration. For instance, the European Coal and Steel Community, which was established in 1951, laid the foundation for the creation of the European Union.
Economic development has historically relied on the transformation of natural resources, often without consideration for the negative externalities that are associated with anthropogenic climate change and environmental consequences. For centuries, economic growth was treated as an end in itself, with climate change-related risks rarely accounted for. However, these risks have become too significant and costly in recent years to ignore. Our current growth model continues to pump greenhouse gases into the atmosphere, pushing global temperatures closer to the critical threshold of 1.5 degrees Celsius above pre-industrial levels.
As the social and ecological costs of climate change intensify, the future of humanity increasingly hinges on balancing growth with sustainability. For most countries, this means harnessing natural assets strategically to achieve a smooth transition toward sustainable growth. The most successful countries achieve this by prioritizing resource efficiency, replenishment, and diversification while maintaining long-term ecological, economic, and social stability.
How can a resource-based economy harness its assets to transition to sustainable models?
For low-income, resource-dependent economies, the challenge is to pursue this sustainable transition without sacrificing growth or undercutting global income convergence — both of which are essential to achieving shared prosperity on a livable planet. Reducing their excessive reliance on finite and non-renewable resources is critical, as it is economic diversification. This will mitigate the risks associated with resource depletion, price volatility, and long-term deterioration of commodity terms of trade.
Diversification will facilitate a smooth green transition and generate benefits for the balance of payments and fiscal accounts. Consider Nigeria, one of the world’s most resource-dependent economies, where oil and gas exports account for more than 70% of government revenues and 95% of foreign exchange earnings. A sudden shift to a net-zero development model could lead to major fiscal and balance of payments risks, underscoring the need for a more gradual transition.
For most natural resource-rich economies in the Global South, harnessing their substantial renewable energy potential to diversify their energy mix while maintaining strong economic growth and stability is perhaps the most important challenge in the transition to sustainable development. Success will also depend on sustained, robust investment in green and energy-efficient technologies.
In which ways can technology facilitate the transition from resource-based economies to sustainable economies?
The successful transition towards sustainable development in resource-based economies hinges on leveraging green technology, which has the potential to boost agricultural productivity and reverse the historical trend of deforestation and forest degradation, both of which have exacerbated the climate crisis by releasing stored carbon into the atmosphere. Closing technology gaps will also help low-income countries build climate-resilient infrastructure to boost competitiveness, support climate change adaptation, and bolster carbon-capture mechanisms, which will allow resource-based industries to operate more sustainably.
In September 2024, participants at the United Nations’ Summit of the Future rightly singled out access to finance and technology as key constraints to sustainable development. Establishing a robust carbon-trading market could create financial incentives to cut carbon emissions while supporting macroeconomic stability in resource-rich countries during the transition. But bridging the technology gap between developed and developing countries is perhaps the most important step we can take. Without global access to green technologies, the shift to sustainable growth will remain elusive, and the damaging costs of technology-driven rent-seeking will continue to rise.
What role do natural resources, particularly renewable energy sources, play in bridging the energy access gap in developing nations?
The energy access gap between developed and developing countries is huge and has contributed greatly to their persistent (and, in many cases, widening) income gaps — energy consumption is tightly and positively correlated with income. Consider Belgium and Bolivia, which have similarly sized populations, around 12 million. Energy consumption in Belgium is 6,200 kWh per capita, more than eight times the level in Bolivia (770 kWh). An even more striking example: Spain produces and consumes more energy than the combined 48 Sub-Saharan African countries (excluding South Africa). Across Africa, chronic electricity shortages have long inhibited competitiveness and growth, costing the region between 2%-4% of GDP per year.
Although Spain is increasingly incorporating renewables, its energy mix is still heavily tilted toward fossil fuels. Meanwhile, many resource-rich developing countries are contending with rotational blackouts and load-shedding, despite their substantial non-renewable and renewable energy resources. Their inability to leverage technology to harness these resources has left them chronically energy-poor, with severe consequences for macroeconomic stability and economic development.
Natural resources, especially renewable energy sources, which provide sustainable and scalable alternatives to traditional energy systems, can play a critical role in bridging the energy access gap in developing nations. To achieve that, we must first bridge the technology gap, which will ultimately boost aggregate output in developing nations to enhance global income convergence.
What will be the most important natural resource in the future?
Natural resources will play a vital role in economic development in the modern world, where technology has become the leading driver of growth, accounting for more than 55% of the Nasdaq Composite. However, demographic shifts and climate crises will invariably shape the future of commodities and natural resources. To facilitate the net-zero transition, renewable energy sources and green minerals (lithium, cobalt, and other rare earth elements) will become even more important.
Rare earth elements have already become a key geopolitical issue, with empirical research showing that the import price per unit of rare earth metals is positively related to geopolitics. In this new era of great-power rivalries, countries are racing to secure access to these elements, as seen in the US’s bid to secure rare earth minerals in war-torn Ukraine. At the same time, the growing global population is intensifying climate challenges. The future of humanity will depend increasingly on access to fresh water and arable land. As these resources become scarcer, they will take on even greater strategic and economic significance.
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