Natural resource rent‐cycling outcomes in Botswana, Indonesia and Venezuela

Autocracies tend to be more successful than democracies in deploying natural resource rent. This renders democratic Botswana's success an anomaly, which Collier and Hoeffler (2006) attribute to strong checks and balances. This chapter assesses this thesis by comparing rent deployment since the 1960s in democratic Botswana with that in democratic Venezuela and in Indonesia's autocracy under Suharto. It draws on Rent‐cycling theory, which posits that the higher the ratio of rent/GDP the more likely it is that the political state will pursue rent distribution at the expense of wealth creation; so that rent is cycled through patronage channels at the expense of markets; and, consequently, the economy is distorted. This increases its vulnerability to external shocks and a collapse in growth. The chapter reaches four conclusions. First, a critical determinant of Rent‐cycling outcomes is the strength of the incentives for the elite to prioritise wealth creation over rent distribution. Low rent confers such incentives, as do a rent stream that is precarious (Botswana) and a perception of rent exhaustion (Indonesia). Second, effective institutions reflect rather than mould them wealth‐creating incentives. Patronage‐driven rent cycling tends to corrode institutions, whereas market‐channelled rent tends to consolidate them. Third, few governments manage to pursue all four key policies required for effective rent cycling. Finally, Rent‐cycling impacts are cumulative and negative circles are difficult to arrest.