ABSTRACT
The first distinctive feature of low-income countries is that the discovery process is likely to be far more important than in the high-income resource-rich countries. A snapshot of discovered natural assets for the year 2000 assembled by the World Bank brings this out. In the OECD the average square kilometre possesses known sub-soil assets to the value of $125,000, whereas the figure for Africa is only $25,000. Since both land masses are enormous such a large difference is unlikely to reflect differences in luck: the original endowments of sub-soil assets were probably not very different. Further, since the OECD has been depleting its natural assets for far longer than Africa, a reasonable expectation is that Africa has more sub-soil assets remaining than the OECD. Of course, even in the OECD by no means all natural assets have yet been discovered: discovery is costly so there is little incentive to prove reserves that will not be exploited for decades, and as the technology of discovery improves more becomes economic. The implication is that a large majority of Africa’s natural assets remain undiscovered. The predominant reason for this is presumably that the incentive regime is less conducive to discovery. This is supported by the substantially lower density of drilling in the major sedentary basins of Africa compared to those in the OECD. Since Africa has radically less invested capital, physical and human, than most other regions, its successful management of its extensive undiscovered natural assets is both absolutely and relatively far more important: the design of an appropriate tax regime for resource extraction is a first-order issue.
