How to increase level of wealth

Natural resources are important asset for low-income countries. According to World Bank, close to one-third of the wealth of low-income countries comes from their natural capital which includes forests, protected areas, agricultural lands, energy and minerals. What makes different between developing countries and developed countries lies in where their wealth is based.

Most countries have experience a dependence on natural capital. However, not all of them are succeed in managing the natural assets for the long term as well as re-investing in human and social capital. Countries also need to build strong institutions and systems of governance.The WB, in a book of The Changing Wealth of Nations, indicates that countries that manage these natural assets carefully are able to move up the development ladder – investing more and more in manufactured capital, infrastructure and “intangible capital” like human skills and education, strong institutions, innovation and new technologies.

The WB book extends the principles of wealth accounting to include dimensions that go beyond the standard Gross Domestic Product (GDP) calculations undertaken by finance ministries. It presents, for the first time, a set of “wealth accounts” for over 150 countries for 1995, 2000, and 2005 which allows a longer-term assessment of global, regional and country performance in building wealth.

“What we found was a strong link between careful management of a country’s natural capital with increasing levels of wealth and economic well-being,” said co-author Glenn-Marie Lange from the World Bank’s Environment Department. Glenn-Marie says that in low-income countries development is about leveraging natural capital for growth.

The book reveals that intangible capital growth contributed close to 100% of the increase in total wealth in Sub-Saharan Africa and Eastern Europe and Central Asia from 1995 to 2005. This share was 80% in South Asia and 72% in Latin America and Caribbean.

The Changing Wealth of Nations highlights the quality of institutions that especially important for the good stewardship of natural capital. The quality of institutions enhances a country’s capacity to provide economic benefits. A country with strong institutions, reaffirming the rule of law, ensuring government accountability and help control corruption, the investment will follow and grow.

Interesting facts about Botswana, a growing country in Africa which carefully managing its natural resource base and succeess to increase its per capita wealth by 35 per cent between 1995 and 2005. In 1980s, Botswana applied a Sustainable Budget Index in place to monitor how well income from mining is reinvested in the national budget. And, through a long-established environmental accounting program, it has shown that a large share of the rents from mining is being recovered and invested in Botswana’s long-term development.