1. INTRODUCTION

Mozambique is set to become a world-class natural resource exporter with projections indicating that it will experience rapid increases in windfall revenues over the next several decades and well beyond. While this is welcome news for a low-income country with a substantial proportion of the population below the poverty line, it foreshadows some economic management problems ahead.

The main concern is the lack of economic performance of other low-income countries with large natural resource endowments. It is remarkable how often these countries have experienced inferior rates of growth compared with countries lacking such endowments. This pattern, known as the ―natural resource curse,‖ has been documented in empirical research across a wide sample of nations. Its causes have been traced to important negative spillover effects that come from heavy specialization in natural resource exports, and it has been shown that these adverse effects can be especially pronounced in low-income countries with embryonic financial markets and weak institutions.

Importantly, there is also evidence that resource-rich countries can do something about this problem. Resource wealth is not necessarily a one-way ticket to inferior economic outcomes. More accurately, natural resource wealth is a situation that bestows mixed possibilities, conferring both benefits and risks. The priority for any country should be to magnify the benefits and identify ways to manage the economy around the risks and problems that have badly affected other natural resource producers in the past, and, in doing so, put the economy on a successful development trajectory.

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