Commission on Growth and Development (2008) ‘The Growth Report: Strategies for Sustained Growth and Inclusive Development’

Precept 10 states that resource revenues can be used by governments to facilitate private investment for diversification as well as exploiting opportunities for increased domestic value added. The report supports the underlying statement of Precept 10, that increasing growth of the domestic economy requires a significant increase of private sector investment. In addition the report provides a number of general points specifically for resource rich countries.

Precept 9 recommends that government use resource wealth for increasing efficiency and equity in public spending. In doing so the government is required to raise the capacity for spending. As resource rich countries have a large concentration of revenues accumulating to government, the government must be able to spend that money effectively. The report provides a number of guideline recommendations on public spending.

Precept 7 states that resource revenues must foster continued high levels of domestic investment if those revenues are to promote sustainable and inclusive economic growth. A general principle of the Precept is that once it has been decided to invest, investment in public capital is particularly beneficial. The report supports this principle and places emphasis upon infrastructure investment.

The Growth Commission report analyses 13 economies which experienced sustained high growth rates for 25 years or longer. In doing so it identifies some of the characteristics of high growth economies and considers how these can be replicated. The underlying statement of the report is that growth is a necessary, albeit insufficient, condition for broader development. It is found that no country achieved sustained growth without also maintaining high rates of public investment. Such investment furthermore crowds in private investment and allows new industries to emerge. Public investment is however affected by the availability of savings, the report finding that high income economies often have a saving rate of between 20-25%. One sector which has been neglected and which the report highly recommends for public investment to reach is infrastructure.

The report also directly addresses growth in resource rich countries. The Dutch disease and fluctuating commodity prices, whilst presenting a challenge, are not insurmountable. They have not been handled well by many governments however. Extraction rights are sold too cheaply and taxation is too low whilst money accrued is stolen or wasted. As a response to these challenges the report suggests government begin by deciding how to allocate exploration and development rights and an accompanying tax regime. Once revenue is collected, government should aim to invest between 5-7% of GDP in the domestic economy. Remaining revenue ought to be invested in a politically insulated savings fund.

Access the report here.