New discoveries of natural resources in several African countries –including Ghana,Uganda,Tanzania,and Mozambique– raise an important question: Will these windfallsbe a blessing that brings prosperity andhope, or a political and economic curse, as has been the case in so manycountries?

On average, resource-rich countries have done even more poorly thancountries without resources. They have grown more slowly, and with greaterinequality – just the opposite of what one would expect. After all, taxingnatural resources at high rates will not cause them to disappear, which meansthat countries whose major source of revenue is natural resources can use themto finance education, health care, development, and redistribution.

A large literature in economics and political science has developed toexplain this “resource curse,”and civil-society groups (such as Revenue Watchand the Extractive Industries TransparencyInitiative) have been established to try to counterit. Three of the curse’s economic ingredientsare well known:

• Resource-rich     countries tend to have strong currencies, which impede other exports;
  

• Because     resource extraction often entails little job creation, unemployment rises;
  

• Volatile resource prices cause     growth to be unstable, aided by international banks that rush in when     commodity prices are high and rush out in     the downturns (reflecting the     time-honored principle that bankers lend only to those who do not need     their money).
  

Moreover, resource-rich countries often do not pursue sustainable growthstrategies. They fail to recognize that if they do not reinvest their resourcewealth into productive investments above ground, they are actually becomingpoorer. Political dysfunction exacerbatesthe problem, as conflict over access to resource rents gives rise to corruptand undemocratic governments.

There are well known antidotes to eachof these problems: a low exchange rate, a stabilization fund, carefulinvestment of resource revenues (including in the country’s people), a ban onborrowing, and transparency (so citizens can at least see the money coming inand going out). But there is a growing consensus that these measures, whilenecessary, are insufficient. Newly enriched countries need to take several moresteps in order to increase the likelihood of a “resource blessing.”

First, these countries must do more to ensure that their citizens get thefull value of the resources. There is an unavoidableconflict of interest between (usually foreign) natural-resource companies andhost countries: the former want to minimize what they pay, while the latterneed to maximize it. Well designed, competitive, transparent auctions cangenerate much more revenue than sweetheart deals.Contracts, too, should be transparent, and should ensure that if prices soar– as they have repeatedly – the windfallgain does not go only to the company.

Unfortunately, many countries have already signed bad contracts that givea disproportionate share of the resources’ value to private foreign companies.But there is a simple answer: renegotiate;if that is impossible, impose a windfall-profit tax.

All over the world, countries have been doing this. Of course,natural-resource companies will push back, emphasize the sanctity of contracts, and threaten to leave. Butthe outcome is typically otherwise. A fair renegotiation can be the basis of abetter long-term relationship.

Botswana's renegotiations of such contracts laid the foundationsof its remarkable growth for the last four decades. Moreover, it is not onlydeveloping countries, such as Bolivia and Venezuela, that renegotiate; developed countrieslike Israel and Australiahave done so as well. Even the United  States has imposed a windfall-profits tax.

Equally important, the money gained through natural resources must be usedto promote development. The old colonial powers regarded Africasimply as a place from which to extract resources. Some of the new purchasershave a similar attitude.

Infrastructure (roads, railroads, and ports) has been built with one goalin mind: getting the resources out of the country at as low a price aspossible, with no effort to process the resources in the country, let alone todevelop local industries based on them.

Real development requires exploring all possible linkages: training localworkers, developing small and medium-size enterprises to provide inputs formining operations and oil and gas companies, domestic processing, andintegrating the natural resources into the country’s economic structure. Ofcourse, today, these countries may not have a comparative advantage in many ofthese activities, and some will argue that countries should stick to their strengths. From this perspective,these countries’ comparative advantage is having other countries exploit theirresources.

That is wrong. What matters is dynamic comparative advantage, orcomparative advantage in the long run, which can be shaped. Forty years ago, South Korea hada comparative advantage in growing rice. Had it stuck to that strength, itwould not be the industrial giant that it is today. It might be the world’smost efficient rice grower, but it would still be poor.

Companies will tell Ghana,Uganda, Tanzania, and Mozambique to act quickly, butthere is good reason for them to move more deliberately. The resources will notdisappear, and commodity prices have been rising. In the meantime, thesecountries can put in place the institutions, policies, and laws needed toensure that the resources benefit all of their citizens.

Resources should be a blessing, not a curse. They can be, but it will nothappen on its own. And it will not happen easily.