Harare — IN a scene in the film "Blood Diamond", an elderly man surveys a village destroyed in Sierra Leone's vicious civil war and laments the violence tearing his country apart as rebels and government forces fight for control over access to diamonds and the wealth and power they bestow.

"All this for some little stones," says the old man pessimistically and cynically.

"Let's hope they never find oil," in apparent reference to how petroleum has destroyed the economy of fellow West African state Nigeria instead of raising and sustaining it, and torn its socio-political fabric apart.

Oil riches are blamed for funding violent conflict, such as the constant attacks on pipelines by rebels demanding a greater local share of the oil wealth.

The violence is the effect, but the cause is what economists call the "natural resource curse".

The resource curse -- also known as the paradox of plenty -- refers to the contradiction where countries and regions with an abundance of natural resources -- specifically point-source non-renewable resources like minerals and fuels --tend to have less economic growth and worse development outcomes than countries with fewer natural resources.

"Oil has been a disappointment. Infrastructure has been allowed to rot away since it was found," lamented former Nigerian military leader Muhammad Buhari.

Nigerians are all too familiar with the curse of vast oil wealth, which largely bypasses local villagers and flows into the pockets of the urban elite, greedy politicians and multinational corporations.

Despite the potential of oil to change the lives of ordinary people, most Nigerians continue to live in poverty.

Thirty years after oil was discovered in Nigeria, while per capita income had fallen slightly, the number of those living on US$1 or less a day had nearly doubled, from 36 million to 70 million, showing shocking growing inequalities in society.

Meanwhile, Nigeria's politicians and businessmen breeze through choking traffic in plush new 4x4s.

As many nations have discovered, drilling oil generates money but not necessarily development.

Economists also refer to this as the Dutch disease, after the crisis that hit the Netherlands in the 1960s when a natural gas bonanza in the North Sea swamped the small economy with US dollars and foreign investment, inflating the value of the Dutch currency -- the guilder -- wiping out Dutch exports and crippling the national industry.

Juan Pablo Perez Alfonzo was Venezuela's oil minister in the 1970s. Observing the effect oil had on his country -- the destruction of a once diverse economy, the sapping of national energy, the soaring debt -- he said oil was not black gold but "el excremento del Diablo (the Devil's excrement)".

"Ten years from now, 20 years from now, you will see," he predicted, "oil will bring us ruin."

Natural resources can, and often do, provoke strife within societies, as different groups and factions fight for their share.

Sometimes these emerge openly as separatist conflicts in regions where the resources are produced (such as in Angola's oil-rich Cabinda province), but often they occur in more hidden forms, such as fights between different government ministries or departments for access to budgetary allocations.

This tends to erode governments' abilities to function effectively.

A common feature of resource-based economies is that they tend to have exchange rates that stimulate imports and inhibit the export of almost everything except their main commodity.

It is not that their leaders fail to realise the need to diversify; in fact, all oil countries have invested massively in other sectors.

Unfortunately, few of these investments succeed largely because the exchange rate stunts the growth of agriculture, manufacturing, tourism and other sectors.

Then there is the intense volatility of the exported commodities.

In the past 24 months, for example, oil shot up from less than US$80 per barrel to US$147, then fell to US$30, and again moved up, to US$60 by mid-2009.

These boom-and-bust cycles have devastating effects.

The booms lead to over-investment, reckless risk-taking and too much debt.

The busts lead to banking crises and draconian budget cuts that hurt the poor who depend on government programmes.

Furthermore, oil-fuelled growth does not create jobs in volumes commensurate with oil's large share of the economy.

In many of these countries, oil and natural gas account for more than 80 percent of government revenues, while these sectors typically employ less than 10 percent of the workforce.

Even when resource-fuelled growth takes place, it rarely yields growth's usual full social benefits. This increases economic inequality.

Far from an anomaly, this is a classic example of the "natural resource curse".

A 1995 analysis of developing countries by Jeffrey Sachs and Andrew Warner found that the more an economy relied on mineral wealth, the lower its growth rate.

Nigeria isn't poor despite its oil riches -- it's poor because of them.

How could that be?

For the same reason so many entertainers go bankrupt.

Drenched in sudden wealth, governments start spending like pop stars, creating programmes that are hard to undo when oil prices fall.

And because nobody wants to pay taxes to a government that is swimming in petrodollars -- "In Venezuela only the stupid pay taxes," a former president once said -- the state finds itself living beyond its means.

"A cycle begins. The economy can't absorb the sudden influx of money, causing wages and prices to inflate and the nation's currency to appreciate (by an average of 50 percent, according to a World Bank study).

"That makes it harder for local manufacturers to compete. Incentives, meanwhile, become upended. When free money is flowing out of the ground, people who might otherwise start a business or do something innovative instead busy themselves angling for a share of the spoils.

"Why slog it out in a low-margin industry when steering some oil business toward a contact could make you a millionaire? Thus a doubly deadly dynamic: a ballooning public sector, a withering private one," writes social commentator Jerry Useem.

Many of the petroleum-exporting countries have few oil millionaires in the private sector like those in Texas, but there are many in the public sector. Elected office comes with a hefty slice of the petrodollar pie.

Venezuela's non-oil GDP is back to 1997 levels. Every other sector seems to go stationary as most people chase oil --or go east to Chiadzwa for diamonds.

Perhaps even more significantly, the oil curse breeds bad politics.

Because governments of such countries do not need to tax the population to amass giant fiscal revenues, their leaders can afford to be unresponsive and unaccountable to taxpayers, who in turn have tenuous and often parasitic links with the State.

With their ability to allocate immense financial resources almost at will, such governments inevitably become corrupt. Politics becomes a scramble for unearned wealth.

The curse cuts across times and ideology.

A 16th-century Spanish economist said of his homeland: "What makes her poor is her wealth."

This was after Spain had struck it rich on gold from the Americas. Its monarchs spent like madmen, expanding the army 15-fold, creating an elaborate patronage system and sending conquistadors in search of El Dorado.

As inflation and currency appreciation slowly killed industry and agriculture, a parasitic class of noblemen lived off gold money (reminds one of Saudi Arabia's idle princes), waiting for the next ship to dock in.

By the time the vessels stopped coming, Spain wasn't able to feed itself, forcing it to declare bankruptcy eight times and finishing it off as a world power.

This disconnect between natural resource wealth and economic growth can also be seen among members of the Organisation of Petroleum Exporting Countries.

Between 1965 and 1998, in the Opec countries, gross national product per capita growth decreased on average by 1,3 percent, while in the rest of the developing world, per capita growth was on average 2,2 percent.

"No country can ever sustain itself on oil only. Oil is not an economy.

"Creative economic activities have spillover effects that become self-sustaining. Oil spills only into a barrel -- and from there usually into the hands of a favoured few.

"That's the real reason many Opec members' productivity growth has been around half the average of more diversified and integrated economies," further observes Useem.

Can the curse be avoided?

A few smaller countries -- such as Malaysia, Norway and Mauritius -- curbed its worst effects. Unlocking the secret of their escape from the resource curse could spare millions from the Devil's excrement.

Initially, they did so by spending slowly and using the money to diversify their economies.

Brazil has taken steps to ensure that the oil industry avoids drilling too much oil too fast, safeguarding the nation's strategic oil reserves, thus immunising the economy from the oil curse that could flood its market with investment, send its currency, the real, soaring, and price its goods out of the world markets.

Its leaders have decided to look beyond the day after tomorrow.

Another way would be for the dividends to be invested in a sovereign wealth fund for the whole nation's benefit to build infrastructure and provide essential services and amenities such as education, housing, and healthcare so that we don't have grinding poverty in a land of plentiful God-given resources.

With an estimated 140 million people, Nigeria is Africa's most populous nation and the world's eighth largest exporter of petroleum, pumping billions of dollars worth of fuel into the global market.

Yet most Nigerians live in dire poverty, whether in the oil-rich Niger Delta or the bustling slums of Lagos.

Villages in the delta are frequently polluted by oil spills and often lack roads, clean water and electricity.

Even in Lagos, which has between 10 million and 15 million inhabitants, the teeming city hums with the constant drone of generators.

Unlike Nigeria, Norway -- with a population of just 4,6 million -- controls the largest sovereign wealth fund outside the Middle East, worth US$435 billion, and the kitty is growing.

The fund, through the Government Pension Fund, which invests the country's oil and gas reserves, now ranks as Europe's largest equity investor, owning 1 percent of all the world's shares, as a result of snapping up stocks at the start of this year's global rally.

Here in Zimbabwe, the National Social Security Authority could invest the Chiadzwa diamonds in a sovereign wealth fund in the same manner so that no one would be subjected to the derisory US$25 pension a month many Zimbabweans are currently getting after a whole life of toil and sweat. Let's think outside the box.

Such a fund also gives political clout to a nation. For instance, Norway has issued a document listing measures on climate change that it expects from businesses in which it holds a stake.

Zimbabwe could, likewise, advance and protect its foreign policy interests on the global stage through such "soft" but effective power, an iron fist in a velvet glove.

As for the Marange people specifically, a special dispensation could be made for them along the "Alaska Model" in which a portion of the oil (in this case, diamond) royalties collected by the State are paid out directly to citizens.

The Alaska Permanent Fund in the US state sets aside a certain share of oil revenues to continue benefiting current and all future generations of Alaskans.

With the largest oilfields in North America, Alaskans came to agree that a portion of this wealth should be saved for the future when the oil runs out. Marange should not be a wasteland when the diamond fields are finally exhausted.

The Alaska Permanent Fund's principal cannot be spent without amending the state's constitution by a majority vote of the population, and it must invest outside Alaska to help stabilise the state's income.

The Fund grew from an initial investment of US$734 000 in 1977 to approximately US$28 billion as of March 2008.

Some growth was due to prudent management, some to inflationary re-investment, and some via legislative decisions to deposit extra income during boom years.

Each year, the fund's realised earnings are split between inflation-proofing, operating expenses, and the annual Permanent Fund Dividend.

Chiadzwa diamonds could be earning Zimbabwe as much as US$600 million a month, according to a recent study -- enough to make a big dent in the US$8,3 billion the country requires to meet its development and reconstruction goals. The windfall should not end up in the pockets of a few insiders, but improve the wealth and well-being of Zimbabwean society.

This widens the tax net and civil servants, for instance, would be able to pay their medical aid without the need of a government subsidy.

There is need to maintain macroeconomic stability, manage public finances prudently, invest part of the windfall abroad, set up "rainy-day funds", diversify the economy and ensure the local currency does not reach too high an exchange rate --which will happen if there is a scramble to Chiadzwa and all other economic activities stagnate.

The Government is currently receiving a flood of advice on how to manage its new source of wealth, and possibly how to avoid the "resource curse".

There are many good suggestions on the table that will enhance transparency, improve citizen oversight, and hopefully allow the diamonds to benefit more than just a small elite.

Now that operations at Chiadzwa are being regularised, getting the framework right from the beginning is essential; once entrenched interests set in, changing the system becomes extremely difficult.

This is our "Alaska Moment".

Let's make a strong statement about the importance of sharing national resources -- whether scant or abundant.

l conway.tutani@zimpapers.co.zw