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Impact of Local Manufacturing vs. Natural Resource Export Dependence on Development

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Introduction

Over the past 50 years, countries have followed different development paths – some have focused on building local manufacturing industries, while others rely heavily on exporting natural resources. These choices have profound effects on economic growth and societal progress. This report analyzes how a manufacturing-driven strategy compares to a resource-export-led strategy in terms of GDP per capita trends, human development outcomes (HDI), employment generation, and infrastructure development. We focus on examples from Africa and the Middle East, regions where both approaches are present, and also bring in a global perspective. Key case studies – such as Nigeria versus Mauritius in Africa, and Saudi Arabia versus Turkey in the Middle East – illustrate the contrast between resource-dependent economies and those that have diversified through industrialization. Finally, we discuss policy implications and recommendations for countries seeking to diversify their economies.

GDP per Capita Trends: Manufacturing-Focused vs. Resource-Exporting Economies

Countries that prioritized industrialization and manufacturing have generally achieved stronger and more sustained GDP per capita growth than those dependent on commodity exports. Historical comparisons are striking. For example, in the 1960s Ghana (a commodity exporter) and South Korea (which pivoted to manufacturing) had similar income levels, but over one generation South Korea’s economy surged ahead while Ghana’s progress stagnated (UNU-WIDER : Working Paper : Aid and State Transition in Ghana and South Korea). South Korea rapidly became an industrial powerhouse and moved from low to high income status, whereas Ghana experienced slow growth and even deterioration in living standards during that period (UNU-WIDER : Working Paper : Aid and State Transition in Ghana and South Korea). This pattern aligns with broader research: economists have found that, on average, resource‑rich countries grew more slowly than countries with fewer natural resources during the late 20th century (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). In fact, a high share of natural resource exports in an economy is statistically associated with slower GDP growth when controlling for other factors ([PDF] Natural Resource Abundance and Economic Growth). This phenomenon is often referred to as the “resource curse,” where abundant resource revenues paradoxically do not translate into broad economic development.

In contrast, manufacturing-driven economies – particularly in East Asia – saw dramatic income gains. The “East Asian Tigers” (South Korea, Taiwan, Singapore, and Hong Kong) and later China leveraged export-oriented manufacturing to boost GDP per capita many-fold. By continuously increasing the production and export of value-added goods (from textiles to electronics and automobiles), these countries achieved growth rates that were virtually unprecedented (Economic Issues 1 -- Growth in East Asia). Many went from poverty in the 1960s to high-income status by the 2000s. This success stands in sharp relief to numerous commodity-dependent economies in Africa, the Middle East, and Latin America, where growth has often been volatile and slower on average. For instance, sub-Saharan Africa’s industrialization has been limited – the region’s manufacturing value-added share of GDP stagnated around 10% from the 1970s to 2010 (Africa’s Failure to Industrialize: Bad Luck or Bad Policy?). Without a rising industrial base, per capita incomes in many African countries grew modestly at best. Resource booms did raise GDP in some periods (for example, oil price spikes benefited OPEC countries), but these gains were frequently unsustained or unevenly distributed.

A telling example is Nigeria, Africa’s top oil exporter. Over decades of oil booms, Nigeria’s oil revenue per capita increased tenfold, yet GDP per capita essentially stagnated since independence in 1960 (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). In real terms, Nigerians on average are no richer today than they were many decades ago, despite hundreds of billions of petro-dollars earned. By the early 2000s, Nigeria actually ranked among the world’s poorest 15 countries in income per person (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). This underperformance in GDP per capita is common in poorly diversified resource economies. In the Middle East, large oil producers saw periods of high income (e.g. the Gulf states), but many (like Iran, Iraq, or Venezuela globally) experienced negative per capita growth over certain decades, especially when resource prices collapsed or during internal crises (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). By contrast, economies that built a manufacturing base managed more consistent growth. For example, Turkey (which has a sizeable manufacturing sector producing goods from cars to appliances) steadily raised its GDP per capita from roughly US$500 in the 1960s to over US$10,000 today (nominal), outpacing many Middle Eastern peers that relied mainly on oil. By 2023, manufacturing contributed about 19% of Turkey’s GDP and 18% of employment, underpinning its status as an upper-middle-income economy (Türkiye: a global manufacturing hub - September 2023). In summary, the long-run trend has been that industrialized economies achieve higher GDP per capita and more sustained growth than those stuck exporting unprocessed natural resources.

Impact on Human Development, Employment, and Infrastructure

Economic structure doesn’t just affect income – it also influences broader development metrics like the Human Development Index (HDI), job creation, and infrastructure. Generally, manufacturing-led countries have translated growth into better human development outcomes, whereas many resource-focused nations lag on social indicators relative to their wealth. An IMF analysis highlighted that resource-rich countries tend to perform worse on the HDI than non-resource-rich countries (IMF laments disappointing performance of some countries despite natural wealth | Premium Times Nigeria). In other words, having plentiful oil or minerals often correlates with lower achievements in health, education, and living standards. One extreme example is Equatorial Guinea, which thanks to oil has one of the highest GDP per capita in Africa, yet about two-thirds of its people live in extreme poverty with very poor health outcomes – a “textbook case of the resource curse” where wealth failed to improve human development (Equatorial Guinea: Resource Cursed | Human Rights Watch) (Equatorial Guinea: Resource Cursed | Human Rights Watch). On the flip side, countries that industrialized and diversified their economies (like the East Asian states) achieved much higher HDI scores, investing in education and healthcare alongside economic growth. For instance, South Korea’s HDI is now in the top tier (very high human development), whereas oil-dependent Nigeria remains in the low-human development category (HDI rank far below its economic potential) (IMF laments disappointing performance of some countries despite natural wealth | Premium Times Nigeria).

Employment generation is a critical difference between the two development models. Local manufacturing tends to be labor-intensive, creating large numbers of jobs across skill levels, whereas resource extraction is often capital-intensive, employing relatively few workers. A clear illustration is Nigeria’s oil sector, which contributes about 90% of export earnings but directly employs only around 20,000 workers – a mere 0.03% of the labor force (Deliverable 3a. Final Oil and Gas Sector Impact Assessment Report 210524.docx). Thus, despite its huge share of the economy, oil has not provided widespread employment in Nigeria. By contrast, a growing manufacturing sector can absorb hundreds of thousands of workers, especially in industries like textiles, apparel, food processing, or electronics assembly. Many Asian economies leveraged this to achieve near full employment during their industrialization. In Ethiopia, for example, the government’s recent industrialization strategy aims to create 2 million manufacturing jobs in the coming decade by expanding labor-intensive industries (Budget support in Ethiopia helps industrialisation and employment while mitigating Covid-19 effects on vulnerable households - European Commission). More manufacturing jobs mean more households with stable incomes, which can reduce poverty faster than enclave mining or oil operations that hire few locals. Moreover, manufacturing has stronger linkages to the rest of the economy – it spurs growth in services, transportation, and small businesses that supply factories, multiplying its job impact.

Infrastructure development is both an enabler and outcome of industrialization. Countries focusing on local manufacturing typically invest heavily in infrastructure – power plants, roads, railways, ports, and telecommunications – to support factories and trade. These investments not only facilitate industry but also benefit society at large by improving access to electricity, mobility, and connectivity. In contrast, some resource-exporting countries have under-invested in broad infrastructure, sometimes concentrating only on infrastructure that serves the extraction of resources (like pipelines or mining facilities) without upgrading nationwide transport or power grids. The IMF noted that several resource-rich economies lack basic infrastructure such as roads, railways, ports, and electricity, precisely because resource windfalls were not efficiently invested (IMF laments disappointing performance of some countries despite natural wealth | Premium Times Nigeria). This infrastructure gap hampers their overall development. By comparison, manufacturing success stories like China poured resource revenues and export earnings into massive infrastructure projects (highways, logistics networks, industrial parks), which further fueled growth. There are exceptions – some oil-rich states have used wealth to build world-class infrastructure (for example, the Gulf states built modern highways, airports and cities). However, even in those cases, maintaining and fully utilizing that infrastructure for diversified economic activity can be challenging without a robust industrial base. Overall, a diversified economy tends to produce a virtuous cycle: industrial growth demands better infrastructure and skilled workers, prompting governments to invest in schools, training, roads, and power, which in turn increases a country’s long-term development and attractiveness for further diversification.

Case Studies: Africa – Industrialization vs. Resource Dependence

Case Studies: Middle East – Industrialization vs. Oil Dependence

  • Saudi Arabia (Oil-Dependent Economy) – Saudi Arabia’s development has been fueled by oil exports, with the kingdom long being one of the world’s top petroleum producers. This brought high GDP per capita in nominal terms (around $20,000–$25,000 in recent years) and funded massive infrastructure projects and social programs. However, Saudi Arabia exemplifies the challenges of over-reliance on a single resource. The oil sector, while accounting for roughly 50% of GDP and the bulk of government revenue, employs only a small fraction of the workforce. A large portion of Saudi employment is in the public sector (funded by oil) or low-productivity services, with youth unemployment persistently high as the population has grown. Recognizing these issues, Saudi Arabia has launched Vision 2030 to diversify its economy. Currently, manufacturing is around 12–15% of Saudi GDP (Saudi Arabia - Manufacturing, Value Added (% Of GDP)) – mostly petrochemicals, plastics, and some consumer goods – indicating some diversification but still limited compared to advanced economies. In terms of human development, Saudi Arabia has achieved high HDI (0.854), benefiting from oil-funded improvements in health and education, but it still faces issues in economic opportunity for citizens. The heavy reliance on oil also made the economy vulnerable to commodity price swings: recessions followed oil price crashes in the 1980s and 2010s. In summary, Saudi Arabia’s oil wealth brought prosperity but also structural weaknesses – a narrow economic base and an urgent need to create private-sector jobs and industries outside of oil.

  • Turkey (Manufacturing and Diversified Economy) – Turkey provides a regional contrast as a Middle Eastern economy (often categorized as such) with a broad industrial base and much less dependence on raw commodities. Lacking rich oil reserves, Turkey industrialized by developing sectors like textiles, automotive, appliances, steel, and chemicals. Manufacturing makes up about one-fifth of Turkey’s GDP and employs nearly one-fifth of its workforce (Türkiye: a global manufacturing hub - September 2023). This has helped Turkey steadily raise incomes – its GDP per capita (PPP) is now over $30,000, considerably higher than many oil-exporting countries when adjusted for cost of living (Real GDP per capita Comparison - The World Factbook - CIA). Turkey leveraged its strategic location and large domestic market to become an export hub for Europe and the Middle East, sending abroad cars, machinery, clothing, and electronics. The diversified economy has generally made Turkey more resilient to shocks (though it faces other challenges like inflation). On the human development front, Turkey’s HDI is in the high category (reflecting decent education and healthcare access for a middle-income nation). Infrastructure in Turkey is relatively advanced: the country invested in extensive road networks, industrial zones, and power capacity to support its industries. While not without economic volatility, Turkey’s example shows how a middle-income country can climb the value chain via manufacturing, achieving more balanced growth than a resource-fed boom. Notably, Turkey’s export-oriented factories provide millions of jobs, directly addressing employment needs that many oil states struggle with. Its trajectory underscores the payoff from diversification and industrial policy in the Middle East context.

  • United Arab Emirates (Oil Wealth to Diversify) – A unique case in the Middle East is the UAE, which initially grew rich from oil (especially Abu Dhabi’s petroleum) but has since used that wealth to diversify aggressively. The UAE invested oil revenues in building modern cities (Dubai, Abu Dhabi), world-class infrastructure, and new industries. As a result, the UAE has turned the resource curse into a blessing in many ways (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty) (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). It enjoys very high GDP per capita and has made “major strides in life expectancy and literacy” through universal healthcare and education, funded by oil (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). Anticipating eventual oil depletion, the UAE (particularly Dubai) has developed sectors like light manufacturing, aluminum smelting, aviation (Emirates airline), finance, tourism, and logistics (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). Today, oil and gas account for only about 30% of the UAE’s GDP, a much lower share than in past decades. The UAE’s success factors include strong institutions, sovereign wealth funds to invest resource income, and openness to foreign investment and talent. However, it’s worth noting the UAE’s small population and federated structure make it easier to manage resource wealth (Abu Dhabi’s oil can support the whole federation). Even so, the UAE demonstrates that resource-dependent states can diversify if they invest in infrastructure, create a business-friendly environment, and focus on sectors with comparative advantage. The country now boasts excellent infrastructure (ports, airports, telecoms) and a very high HDI, on par with many fully industrialized nations. The UAE’s journey offers lessons for other Gulf states on how to parlay a resource boom into sustainable, diversified development (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty) (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty).

Comparative Global Examples

The dichotomy between industrialization and resource dependence is evident not just in Africa and the Middle East, but across the globe. In Latin America, for instance, countries that relied heavily on commodities have struggled with volatility and limited income growth – Venezuela is a dramatic example of an oil-rich economy that fell into economic collapse, while Chile (more diversified, with significant manufacturing and services alongside mining) achieved steadier growth and markedly higher living standards. In Asia, the stark contrast between resource-poor, industrialized nations (like Japan, South Korea, and Taiwan) and resource-rich, less-developed ones (like Myanmar or Mongolia) underscores how crucial policy choices and economic diversification are. Resource endowments by themselves do not guarantee development – governance and how wealth is used matter greatly (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty) (Do resource rich economies have better or worse human development outcomes? - Development Matters). Many of the world’s advanced economies today (e.g. Germany, Japan) rebuilt via manufacturing and export-led growth despite limited natural resources, whereas several resource-rich countries in Africa and the former Soviet Union remain middle or low income. There are, however, notable exceptions to the resource curse globally. Norway used North Sea oil revenues to fund education and a sovereign wealth fund, maintaining a diverse economy and very high HDI. Australia and Canada combined rich resources with strong institutions and industrial diversification, achieving high incomes (sometimes these are termed “new economies” that avoided the curse by industrializing alongside resource extraction (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty)). These cases show that with the right policies and institutions, resource exporters can also attain broad development – but it requires conscious effort to invest resource wealth into other productive assets.

Policy Implications and Recommendations for Diversification

For resource-dependent countries, the evidence makes clear that economic diversification is critical for long-term prosperity. Booms in oil, gas, or minerals should be viewed as a springboard for broader development, not as ends in themselves. Key policy implications and recommendations include:

  • Transform Resource Wealth into Human and Physical Capital: As the IMF advises, the fundamental goal should be to convert exhaustible resource revenues into lasting assets – educated people, infrastructure, and financial savings (IMF laments disappointing performance of some countries despite natural wealth | Premium Times Nigeria). This means investing heavily in public education, vocational training, and healthcare to improve the human capital that a future industrial sector will need. It also means building roads, power grids, water systems, and telecommunications that enable businesses to operate everywhere, not just at extraction sites. Such investments raise a country’s productive capacity beyond the resource sector and improve its HDI outcomes.

  • Promote Industrialization and Value Addition: Governments should adopt policies that encourage the growth of local manufacturing and processing industries, including those that can add value to natural resources. Instead of exporting raw materials only, countries can develop refineries (for oil), smelters (for minerals), agro-processing (for agricultural commodities), and assembly plants. Supporting industries that have export potential – through incentives, infrastructure support, and reducing bureaucratic barriers – can help kick-start a manufacturing base. For example, setting up special economic zones or industrial parks with reliable electricity and port access can attract domestic and foreign manufacturers, as seen in Ethiopia’s industrial parks initiative and Mauritius’s export zones.

  • Macroeconomic Management to Avoid the “Dutch Disease”: Resource booms often lead to exchange rate appreciation and wage inflation that undermine other industries. To prevent this, resource-rich countries should manage volatility by saving a portion of windfall revenues in sovereign wealth funds or stabilizing funds. This approach (used by Norway, Botswana, and Kuwait) can smooth expenditures and prevent an overvaluation of the currency that would hurt exports. Keeping inflation in check and maintaining competitive exchange rates make it easier for manufacturing and agriculture to thrive alongside resource extraction (African Development Report 2007 - Chapter IV - Africa’s Natural Resources:The Paradox of Plenty). Prudent fiscal policy – for instance, limiting excessive public sector hiring or subsidy booms during good times – also helps avoid a bust when commodity prices fall.

  • Strengthen Institutions and Governance: One of the root causes of the resource curse is weak institutions that allow corruption and patronage to squander resource revenues (Do resource rich economies have better or worse human development outcomes? - Development Matters) (Do resource rich economies have better or worse human development outcomes? - Development Matters). Improving transparency (such as through EITI – Extractive Industries Transparency Initiative standards), accountability, and the rule of law is essential. When governments are accountable, resource money is more likely to be spent on public goods like schools, roads, and diversification projects rather than captured by elites (Do resource rich economies have better or worse human development outcomes? - Development Matters) (Do resource rich economies have better or worse human development outcomes? - Development Matters). Strengthening checks and balances – for example, empowering parliaments to oversee budgets and creating independent anticorruption bodies – can ensure resource wealth is managed in the public interest. Effective institutions were a big part of success in countries like Botswana and Malaysia in channeling resource revenues into development.

  • Foster a Conducive Business Environment for Non-Resource Sectors: Diversification will ultimately come from private sector growth in industries outside the resource sector. Thus, governments should improve the business climate – simplify regulations, ensure stable contracts, protect property rights, and provide access to finance for entrepreneurs. Investing in infrastructure and education (as noted) makes little difference if investors face a hostile or unpredictable business environment. Successful industrializers often had active industrial policies, but they also empowered competitive firms. Trade policies can be aligned to support new industries (e.g. temporary protective tariffs or export incentives), but with clear performance targets to avoid perpetual dependence. Joining regional trade agreements or common markets can also expand the potential market for nascent industries (as seen when Turkey leveraged access to the European market, or when African countries engage in the AfCFTA free trade area).

  • Leverage Resource Wealth for Infrastructure Development: Large resource projects should be used as anchors to develop transport and energy infrastructure that also serves the broader economy. For instance, mining railways or ports can be designed to carry other goods and spur trade in non-mining sectors. Similarly, electricity investments to power oil operations can be expanded to feed the national grid. Public-private partnerships can be explored to use mining/oil company expertise in infrastructure while ensuring public access. By doing so, the resource sector becomes an integrated part of the economy’s development rather than an isolated enclave. Countries like the UAE invested oil money into world-class logistics and airline hubs that now benefit their whole economy, facilitating tourism and commerce beyond oil.

  • Encourage Economic Complexity and Innovation: Over the long run, diversification should aim to increase the complexity of the economy – producing a wider array of sophisticated products. This involves investing in technology and higher education, encouraging sectors like manufacturing, ICT, and high-value services. Government can facilitate links between universities and industry for R&D, or attract foreign direct investment that brings new technologies. The success of East Asian economies was not just cheap labor – it was also continual upgrading into more complex industries. Resource-rich countries can similarly use targeted strategies to develop downstream industries (for example, petrochemicals, fertilizers, or metal products in resource hubs) as a stepping stone to broader industrial skills. Over time, workers and firms gain skills that can be applied to completely new sectors, reducing reliance on the original commodity.

Conclusion

In sum, five decades of global experience demonstrate that countries prioritizing local manufacturing and diversified production have achieved more robust economic and social development than those relying narrowly on natural resource exports. Manufacturing-led growth tends to raise GDP per capita steadily, create employment for a broad segment of the population, and drive improvements in infrastructure and human development. Conversely, heavy dependence on oil, gas, or mineral exports often leads to growth that is volatile, uneven, and less effective at improving people’s lives – unless accompanied by deliberate policies to counteract those tendencies. Africa and the Middle East provide clear microcosms of these patterns: from Nigeria’s and Saudi Arabia’s struggles with the resource curse to Mauritius’s and Turkey’s gains from diversification and industrialization. The key lesson is that natural resources, if present, should be a means to an end – the end being a diversified, inclusive economy. For resource-rich nations, the policy imperative is to harness resource revenues to lay the foundation for industries that will outlast the resources. For resource-poor nations, the path to prosperity clearly lies in building competitive industries and integrating into global value chains. In both cases, sound governance, strategic investment in people and infrastructure, and an openness to adapt economic policies are vital. Moving forward, countries in Africa, the Middle East, and beyond that embrace economic diversification will be better positioned to achieve sustained growth and high living standards, whereas those that remain mono-exporters risk being left behind in an increasingly industrial and knowledge-driven global economy.

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