Abstract
Countries with a large energy sector are faced with the issues of forming and developing a state energy policy that takes into account not only sectoral and intersectoral aspects, but also the components of managing significant amounts of rental income. In this regard, any of these economic systems, on the one hand, has great opportunities associated with the management of energy resources as a factor of development, on the other hand, it is constantly at risk of destabilization of the economic system as a whole. To date, the economic history allows us to speak about the accumulation of a sufficient number of observations for conducting a comprehensive study of the features of the development of public energy policies. The study is based on the formalization of historical descriptions of the experience of 24 countries (30 cases). The article describes in detail the experience of 13 of the most striking cases. This made it possible to identify 14 variables for evaluating the state energy policy, while outlining three areas (areas of attention) of public administration. The choice of variables used in the model was made on the basis of the relative frequencies of the mechanism application for the observed population, MNRW-TF recommendations within the improving extractive industry, the formation of the contribution of resource industries to the socio-economic development of the country and etc. Further cluster analysis led to the identification of both a pronounced polarity in the development of the state energy policy and options for combining its areas.
Keywords
Introduction
Resource-rich countries, whose economic development largely depends on the efficiency of managing their energy sector, are a large group in the global economic system, while very diverse: Norway, the United States, Venezuela, Australia, Nigeria, Mexico, Russia, Angola, Indonesia, Saudi Arabia, Canada, Sweden, Bahrain, Colombia, etc. The basis and conditions of economic prosperity of these countries are a debatable topic throughout the time when the system-forming factor of their development is rental income.
The history of the development of various rental economic systems cannot form an unambiguously positive or negative point of view about the impact of rental income on economic development. At various periods, all these countries have faced a lot of macroeconomic and industry risks associated with problems in the rental relations system (staple trap theory, “Dutch disease” (the Groningen effect), “Nigerian disease,”“Venezuelan disease,” etc.). At the same time, attempts to use the same methods of solving the problems that have arisen in different countries, even within the same region (Latin America, the Middle East, etc.), in most cases only led to an aggravation of the situation.
Moreover, the processes of formation, extraction, distribution and use of any rental income are always finite in time. This is due, on the one hand, to the volatility of prices for rent—bearing goods (e.g., oil prices), on the other hand, to a drop in demand for a key commodity (as it was with coal). In this regard, the following question arises: to what extent the economic system will be ready to abandon rental income as a key factor in its development.
In this context, the mechanisms of public policy aimed at creating conditions for the sustainable development of the energy sector and the economy as a whole are gaining a special attention. The question arises not only about the effectiveness of individual mechanisms, but also about the possibility of forming a set of measures of the energy policy that provides the necessary synergetic effects. This has led to the need for the formation of scientifically based approaches aimed at determining the combination of the mechanisms of the public policy.
At the same time, it should be noted that the level of development of the energy sector itself is of secondary importance. The choice mechanisms public policy for the development of a rental country should initially be guided by the phase of its economic development and the configuration of external conditions (institutional environment).
In this regard, it is necessary to answer the following questions:
– if individual mechanisms do not show their systemic effectiveness, is it possible to identify the key areas (areas of attention) of public policy, primarily energy policy, in the management of the rent-based economic system by systematizing the identified mechanisms;
– are there combinations mechanisms public policy that form and support the various statuses of the rent-based economic system;
– guided by the assessment of the current status by the rent-based economic system and the existing combination (or polarity) of mechanisms public policy, is it possible to focus a promising public policy within a certain framework: identify the shortcomings of the current strategy for the development of public policy and identify a list of necessary adjustments in the system of state programs and projects of the country.
Literature Review
Formation of independent direction regarding the framework of rent-based economic systems started in 1950s from the concept used to assess the public policy effectiveness (Prebisch, 1950). In most cases, works in this field are mostly descriptions and ways to overcome various individual negative phenomena in different periods of the economic history of resource-rich countries. Table 1 provides an overview of the works on the subject under consideration, which reflect the key negative manifestations, as well as negative macroeconomic and sectoral consequences.
Overview of literature on description and ways to overcome various negative phenomena in different periods of the economic history of resource-rich countries: on the example of energy sector industries.
Source. Formed by the authors.
Supporters of the “concept of the rental state” (Kimelman, 2011; Mahdavy, 1970; Oludimu & Alola, 2022; Onifade, 2022; Wong et al., 2021). The focus was on role of rental income. Main concern that rent was perceived as a source of problems in socio-economic development especially in oil industry. Need to say that there is an alternative look saying that abstract math models can’t serve as the basis for successful economic policy (Rainer, 2011). Thus, rental income from the energy sector can be perceived as a source not of problems, but of opportunities for the socio-economic development of the country.
Ambiguous phenomena are also emphasized in the works of Ding and Field (2005), and further by T. Gilfason (Gylfason, 2007), in which the following important aspect is revealed: the importance of breeding the concepts of “resource dependence” and “resource security.” According to their observations, the first corresponds to the manifestations of the “resource curse,” the second allows the formation of positive trends in economic development. The conclusions are confirmed based on the analysis of data from leaders in the field of energy resources extraction. At the same time, both the energy resources themselves and the rental income obtained on their basis can turn from an intensifying factor into a destabilizing one, and vice versa.
At the present stage of research, there are also works confirming the ambiguity of the impact of generated rental income on the socio-economic development of the country.
Özge Korkmaz raises such discussion questions in his work: «What is the effect of energy (coal/oil/natural gas) rents on economic growth for the Russian Federation?» and «What kind of path should be followed in Russia’s energy policies?» (Korkmaz, 2022). The result is as follows: positive impact of oil rents & negative impact of gas and coal rents on economic growth leads (supported by data from 1992 to 2018 & the ARDL Bounds test).
Many research continue to focus on the study of the effectiveness of individual mechanisms of public policy (Alola & Nwulu, 2022; Ni et al., 2022; Onifade, 2022). For example, the research which provides more in-depth on the performance of the Nordic countries’ disaggregated environmental taxes (Alola & Nwulu, 2022). The result posits the feasibility of Green growth in the panel of Nordic countries while a significant and negative nexus between GDP and energy intensity was also established. Another example, the research which found a positive impact of income (GDP), total natural resources rent and a negative impact of fiscal decentralization, institutional quality and renewable energy R&D on CO2 emissions (Ni et al., 2022).
This research continues to be a situational nature and was fragmentary. However, more system research are beginning to appear, confirming the ambiguity of the impact of resource abundance on economic development. For low-to-middle-income countries there is a transformation of negative to positive effects observed mainly due to corruption. In general terms it’s found that impact of natural resources on economic growth differs a lot and depends heavily on the level of change. Need to state that despite of mixed results fuel export and oil-gas rents can be used as metrics of resource endowment (Sharma & Mishra, 2022).
In addition to the above-mentioned works, the IMF is engaged in the study of this problem and the development of international recommendations for the development of public policies for countries rich in natural resources. First of all, this applies to countries that are provided with energy resources.
In early 2000s there were a lot of works related to “Managing oil wealth” topic (IMF driven). There individual case were analyzed, for example, Azerbaijan (Hobdari, 2014).
Nowadays IMF issues both individual country reports and specialized issues, for example, mobilization and management of income from the commodity sector—reports of The Managing Natural Resource Wealth Trust Fund (MNRW-TF)) started in 2011 (MNRW-TF, 2016a, 2016b). But it doesn’t bring clarity to the question of “coordinate system” unified vision for public administration in developed countries energy sector.
As a result, there is a need for a comprehensive study that will summarize and systematize the features of public administration in countries with a developed energy sector, taking into account the ambiguity of the impact of generated rental income on the socio-economic development of the country, as well as the need to form a unified system of analysis criteria to ensure the possibility of comparing energy policies.
Research Methodology
If earlier the study of the formation and development of public administration in the energy sector could only be of a situational nature and was fragmentary, now we can talk about the accumulation of sufficient experience to conduct a comprehensive study in this area. Based on this, it is acceptable to assume that now it is possible to identify a number of generalized models for the development of energy policy based on consideration of various criteria for its assessment. At the same time, it is advisable to determine most of the criteria based on the experience of applying various mechanisms of energy policy.
To form the information base of the study, the experience of 24 countries—the largest producers and exporters of natural resources, primarily energy resources, was initially considered. The composition of the countries is determined based on the application of the criterion selection method. Its advantage is to ensure that the objects of research correspond to the characteristics originally laid down at the stage of formation of the research hypothesis, as well as to establish clearer boundaries of research.
When selecting countries, the following criteria were chosen:
– high (excessive) resource availability, which under certain conditions can actualize various negative economic effects, including the effect of a “resource trap”;
– the country currently has comparative competitive advantages within the raw materials sector of the economy (primarily within the fuel and energy complex);
– at various times, the country has experienced deep structural changes and rapid growth of knowledge-intensive sectors of the economy, even in the conditions of a transformational downturn;
– there is an economic crisis in the economic history of the country, accompanied by prolonged stagflation and a general decline in the level of economic development.
In different periods of time, it is possible to identify 30 states of these economic systems (30 cases), which are characterized not only by different sets of mechanisms of energy policy, but also by the levels of efficiency of economic systems.
The main observation horizon is the period from the 1970s to the present. The choice of the lower limit of the observation time interval is due to the first oil shock of 1973. As part of the consideration of a number of cases, the period of the 1960s is touched upon in connection with the formation of the basic conditions for the functioning of the economy, including the implementation of structural changes in the economy, the transformation of industrial policy, etc.
As part of the disclosure of the features of the development of some economic systems, several time periods are identified (Venezuela, Saudi Arabia, Norway, Chile) within the general observation horizon. This is due to the presence in the economic history of countries of periods characterized by the implementation of various vectors and sets of mechanisms of public policy in the field of regulation of rental relations. Cases without specifying specific time periods are characterized by a description of the status of the economy for the entire observed period: from the 1970s to the present.
Using the method of historical descriptions allowed (advantages of the method):
– not only to identify the facts of the use of public policy mechanisms, but also to reflect the level of economic development of the country in the historical period under study, as well as to give a brief description of the institutional environment (institutional contour);
– to form the initial information base of the study based on the facts of historical reality;
– to look at the issue under study of achieving an effective status of the rent-based economic system from the side of past accumulated experience and thereby delve into the research field already at the present stage.
Next task is to classify developed energy sector economic systems using the mechanisms of public policy applied. Target result is the groups with easily interpreted profiles. The most suitable statistical method used for such type of tasks is cluster analysis. The main criterion for the formation of clusters to be used in the optimal ratio of the intercluster dispersion to the intracluster one.
The use of cluster analysis made it possible to consider a significant amount of historical information and greatly compress a large array of socio-economic information obtained on the basis of historical descriptions, make them compact and visual.
Based on the historical descriptions presented, the initial base of the study was formed on the basis of an expert analysis of the criteria of public policy used in 30 cases of economic development of various countries with a developed energy sector: 14 variables were identified (Table 2). There was a binary scale where 1—mechanism is applied, 0—mechanism is not applied in the public policy of a particular country. The k-means method cannot be applied to binary data. (IBM, 2009).
Justification of the Choice of Variables Used in the Model.
Source. Formed by the authors.
Due to this, a hierarchical cluster analysis was used with an agglomerative algorithm (SPSS statistical package). The main method of clustering is Ward’s where minimum variance criterion minimizes the total within-cluster variance. In order to implement it, at each step need to find the pair of clusters that leads to minimum increase in total within-cluster variance after merging (Vukolov, 2013). Binary data used for analysis applied extra restrictions to the distance metric. It was the Squared Euclidean Distance (IBM, 2009).
For interpretation of groups characteristics final cluster centers were used. Due to absence of this functionality in SPSS package average values for each attribute were analyzed. The outcome of the study is the list of basic, superstructure and unused criteria in models for energy policy development and clear profiles of clusters obtained.
Research Results
The results of the study consist of two interrelated parts:
- the case study of countries with a developed energy sector, reflecting historical descriptions of the basics and features of energy policies, as well as the consequences of their implementation in different periods;
- the results of a multidimensional grouping of variables for evaluating the public policy obtained on the basis of historical descriptions-identification of polarities and combinations of the development of state energy policies.
The Case Study of Economic Systems of Rental Character Based
The case study of countries with a developed energy sector, reflecting historical descriptions of the foundations and features of energy policies, as well as the consequences of their implementation in different periods, reflects 30 cases: Venezuela (case: 1970s), Venezuela (case: 1990s), Venezuela (case: 2000s), Angola, Mexico, Azerbaijan, Indonesia, Saudi Arabia (case: 1960–1990s), Saudi Arabia (case: since 2000), the United Arab Emirates, Iran, Nigeria, Norway (case: until 2014), Norway (case: since 2014), USA (Alaska), USA, UK, Australia, Canada, Sweden, Chile (case: until 2009), Chile (case study: since 2009), Kuwait, Bahrain, Colombia, Zimbabwe, Iraq, Yemen, Kazakhstan, Russia. At the same time, it is advisable to reveal the 11 most striking cases.
Azerbaijan
The country has adopted a set of necessary strategic documents, but the principles and rules established in them are de facto violated. The central place in the management system of the economic system is occupied by the “Long-term strategy for managing oil and gas revenues for the period 2005 to 2025.” The strategic document establishes a system of distribution of income from the energy sector, focused on ensuring current consumption: 27% of revenues go to the State Reserve Fund, 73%—to the state budget (Decree, 2004). At the same time, since 2008, there has been a stable violation of the adopted budget rules: the savings function of the sovereign fund is severely limited due to high transfers to the budget (up to 90% with a limit of 75%) (Reports And Statistics, 2019). On the other hand, the development concept “Azerbaijan-2020: a look into the future “has been adopted to implement the task of economic diversification (Decree, 2012), “The State program for the development of Industry for 2015-2020,” as well as a number of strategic roadmaps for the national economy and the main sectors of the economy (Decree, 2016), in which an export-oriented production model was announced. However, now the economic system is not ready for a sharp decline in oil and gas revenues, the budget system is not adapted to the occurrence of such a situation.
Saudi Arabia (1960-1990s)
Since the oil boom of 1973, it has a high degree of resource dependence (99% of the state budget is formed from oil export revenues; the average share of oil rents in GDP is 32.15%, taking into account the peak of 77.25% in 1979. (WB, 2019b)). A complex bureaucratic apparatus was used as an active tool for formalizing the receipt of rent. At the same time, the oil rent became the basis for the “free design of institutions” of state power (Hertog, 2007). It showed one of the most striking examples of gradual nationalization in the world: the process of nationalization of Aramco was carried out during 1950 to 1980, taking into account the purchase of the US share. The monarchical system has a strong influence on the economic development of the country. This introduces specifics into the organization of the process of distributing income from the energy sector, forming a centralized system. At the same time, much attention is paid to measures to prevent the formation of socio-political tension, including extensive social programs that provide citizens with free education, including in foreign universities, health services, interest-free mortgage lending, etc. As part of the formation of public policy, the creation of a tax system and sovereign funds was not carried out, and industrial policy was fragmented, being a hidden form of redistribution of oil rents without effective development of the non-oil sector. Most of the projects. Implemented at the expense of state subsidies from oil rents were capital-intensive and unprofitable, including the import substitution program in the field of food and the creation of a system for desalinization of seawater.
Saudi Arabia (After 2000)
After a period of low oil prices in the 1980s and 1990s, the country recognized the need and began a slow transformation of the economic system. Since 2016, the country has adopted the Saudi Vision 2030 development strategy, the tasks of which are declared to contain the country’s oil dependence and the possibility of implementing the development strategy even with oil under $ 30 per barrel (by 2020), diversification of the industry structure (growth of non-oil revenues to the level of 1 trillion SAR (up to $ 267 billion). Six times), the growth of non-oil exports to 50% of GDP (three times), the development of renewable energy to preserve its own resource base, the restructuring of the housing sector, the development of anti-corruption policy, the transformation of Saudi Aramco, increasing investment attractiveness, etc. (Program Document, 2016a). To implement these tasks, six state programs have been launched and about 96 KPIs have been established, which are fixed in the National Transformation Program 2020 (Program Document, 2016b). A Sovereign Public Investment Fund (IMF) has also been created, which should provide an investment, not a savings function, placing significant assets around the world. Interestingly, the fund’s financing is based not on changing the system of distribution of rental income, but on privatization (about $ 2 trillion from the sale of 5% of Saudi Aramco shares). At the same time, the country continues to have a strong dependence of economic growth rates on fluctuations in world oil prices (Foudeh, 2017), an inefficient system of energy subsidies, the lack of a developed tax system, a strong bureaucratic apparatus, a significant public sector.
Nigeria
The public policy on the management of rental income implemented until 2000 provided not a solution, but a preservation of the socio-economic problems of the country. The centralization of public policy, as well as the related nationalization of hydrocarbon production and the concentration of rental income at the federal budget level, are caused by an attempt to overcome the problems of regional development. Initially, until the 1960s, the country’s economic system was based on the development of agriculture (Manasseh et al., 2019), and the system of distribution of export revenues assumed the transfer to the regional budget of more than 50% of revenues (Klieman, 2012). The resulting imbalance was associated with the location of all the oil fields in one region in the south-east of the country. After the civil wars in the 1960s, a number of regulatory acts were adopted, including the law on the redistribution of oil rents (the “oil decree”) and the law on income from offshore oil production (Genova & Falola, 2003). These measures ensured, on the one hand, the establishment of the dominant role of the central government in relation to the regional authorities, on the other-a strong and stable dependence of the state budget and the economic system as a whole on rental income, exposure to external oil shocks (IMF, 2018), as well as the atrophy of agriculture and other sectors of the economy (Bankole & Shuaibu, 2013; Mordi, 2006). A significant decision in the economic history of the country is also the creation in 1977 of the Nigerian National Petroleum Corporation (NNPC), which combined the functions of the regulator of the oil and gas industry (authority), the issuance of permits for oil production in the country, operational activities for the production of hydrocarbons, as well as activities for the creation of joint ventures with international oil companies (production operators). Without the establishment of a restraining framework, corruption is growing and inefficiency is worsening the company’s activities: in 2016 the NNPC audit showed that the company did not pay the state about 18.3 billion US dollars, which are subject to transfer to the budget (VestiEconomy, 2017); economically unjustified sales of oil blocks to foreign companies are traced—the development of the “Nigerian disease.” Since 2000, the country has managed to change the formula for the distribution of rent: to reduce the share of the federal center to 39% of the volume of rental income, 15%—to provide for the management of municipalities (Grigoriev, 2017). This provides a basis for economic diversification (Oludimu & Alola, 2022) with an emphasis on the revival of the agro-industrial complex and the formation of the telecommunications sector in Nigeria, which is confirmed by shifts in the industry structure (a decrease in the share of the oil and gas sector to 10%) and a decrease in the share of oil rents in GDP to 3.5% (WB, 2019a).
Norway (Until 2009)
The foundations of the welfare state, including a developed legislative framework, were laid even before the oil boom of the 1970s. Today, the economic system is characterized by a combination of high institutional potential and strong political competition, which largely determines the sustainable and progressive development of the country. The high cost of oil production constrains production volumes. This, on the one hand, allows us to limit the receipt of rental income, on the other hand, it initially stimulated the high-tech development of industry and production with high added value. The success of the Norwegian experience is formed from the following key components: organizational and functional management structure, state property system, taxation system, rental income distribution system, social policy. The management of the oil and gas industry is based on three interrelated organizations: the national oil company Equinor (formerly Statoil ASA) (commercial (operational) activities with hydrocarbons), the federal authority-the Ministry of Oil and Energy (development and implementation of policy directions), and the regulatory authority (providing supervision and technical expertise) (Thurber et al., 2011). In the distribution system, there is a concentration of assets and income under the management of the public sector. The legislation stipulates 50% state participation in all projects of the extractive industry and a number of infrastructure industries, taking into account changes in this share as necessary. There is a two-part management model of the national oil company (since 1985): gratuitous participation in the capital (67% of Statoil shares (MTIF, 2019b)) and the State’s Direct Financial Interests (SDFI) system. The SDFI system reflects the transfer from the Norwegian government of a portfolio of licenses for the exploration and production of oil and natural gas on the Norwegian continental shelf for investing and generating net cash flow from direct ownership of fields [The net cash flow from direct ownership in fields] (46.6% of state revenues (MTIF, 2018)). The indirect influence on the company’s management is of interest: the Norwegian state emphasizes that state-owned companies must comply with the 10 principles of good corporate governance—the Norwegian Code of Corporate Governance Practice “White Paper No. 22” (NCGB, 2018). Taxation system: the marginal tax rate is 78% (22% is the basic tax, 56% is the special tax of oil producing companies (MTIF, 2019a)). At the same time, only the company’s net profit is taxed. There is an expanded system of tax deductions, including for expenses related to exploration, research and development, financing, operation and decommissioning (consolidation between deductions is allowed). It is also interesting that state revenues are rent—dependent, while expenditures are not. This is ensured by the activities of the Global Pension Fund “Global”: net income from the oil industry [the net cash flow from the petroleum activities] is transferred to the fund, while in accordance with the budget rules, transfers can be made from the fund to the budget to finance social programs (2018-1/7 of the Norwegian budget, within the expected real income of the fund-3%), but without attracting the main capital of the fund (Act, 2016). As a result, the Norwegian budget is largely non-oil, which ensures a balanced development of the country and promotes the creation of a diversified industrial complex focused on exports.
Norway (Since 2014)
In the conditions of exhaustion of its resources, the country faces the question of the need for structural transformations for a painless transition to the post-trend nature of the economic system. The official estimate is an income deficit of 10% of GDP by 2030, while maintaining the current structure of the economy (Statistics Norway, 2017). At the same time, there is no valid evidence to support the validity of double dividend hypothesis in Norway (Alola & Nwulu, 2022). The problem has been laid down since the late 1980s, when the program of support for large companies (“national champions”) was completed. A similar project has been implemented in other countries, including Russia since 2016 (Mandych et al., 2022). The results of the implementation of the program in Norway were a high industry differentiation in favor of the fuel and energy and military-industrial sectors against the background of a number of bankruptcies of “national champions” or a reduction in the scale of their activities under the pressure of international competition. At that time, there was a shift in the focus of the country’s technological development. An attempt was made to change the approaches to industrialization: the basis of investments and benefits was now to be the consumer request of industry, and not the state plan. This only led to an additional diversion of the investment flow and R&D developments toward the oil and gas sector. Since 2003, the country has announced the implementation of an innovation policy that has focused on large-scale programs and the creation of competence centers—its low effectiveness is noted.
USA (Alaska)
The state of Alaska is one of the points of transport and energy growth not only in the country, but also in the world. The US National Oil Reserve is located in the north-west of the state. This is due to the construction of gas pipelines and the transportation of LNG to the Asia-Pacific region. The high level of taxes on onshore oil production in the state (92% of regional budget revenues) is a deterrent to unlocking the region’s potential and attracting investment from oil companies. At the same time, there are no property taxes and VAT in the region’s taxation system. The easing of the tax regime is hindered by the Senate of the US Congress. Currently, studies describing the economic growth model of Alaska refute the allocation of energy resources as a development factor. It is empirically confirmed that energy resources have only an indirect impact on long-term economic growth through such a parameter as investment in fixed assets (Bekareva et al., 2018). Almost 104,000 jobs in Alaska are associated with investments and activities in the field of oil and natural gas—32% of all jobs and 35% of all wages in Alaska (Lutz, 2019). From the point of view of assessing the public policy of managing rental income, it is necessary to note the creation of the Alaska Permanent Fund in 1976: at least 25% of the state’s rental income goes to the fund (APFC, 2019). Since the decision to create it was made by referendum and is enshrined in section 15 of Article IX of the State Constitution, the budget rule cannot be changed by the authorities, for example, to cover the regional budget deficit. The fund consists of two parts: the main [principal] and the income [income]. The main part is only invested and cannot be spent without holding a referendum. The revenue part is invested according to a similar strategy, but can support government spending (by a general decision of the governor and the state legislature after a broad public discussion). Since 1979, the fund’s policy has assumed a direct distribution of a limited share of oil rents among the residents of the state—a special dividend program: half of the dividends from the income management are distributed annually (Alaska’s Constitution, 2019), after the operation of the inflation protection mechanism, about 10% of the entire annual profit of the fund goes to the accounts of residents of the state (Dvoretsky, 2019), that is typical for small economic systems. The amount depends on the number of participants in the distribution program and the level of profitability over the past 5 years. Income is subject to federal tax. It is interesting that this mechanism, on the one hand, largely acts as a significant financial assistance to certain categories of citizens, on the other hand, it is a way to attract immigrants for permanent residence.
USA
The entire public policy of the United States is aimed at ensuring its economic, including energy, security. It was initially based on the preservation of its own resource base, the import of basic natural resources, including hydrocarbons, while diversifying supplies (Khlopov, 2015), as well as reducing dependence on foreign partners through the search for alternative sources and new energy efficiency technologies (Act, 2005) At the next stage (since 2009), the reduction of net oil imports was identified as a priority due to a decrease in domestic demand for oil, an increase in domestic oil production while maintaining the rational use of reserves, improving the efficiency of vehicles and wider use of renewable energy sources. The development in this direction has led to the addition of the public policy course with aspects related to the formation of the country’s energy independence (Act, 2007, 2009): support for energy sources with low and zero carbon dioxide emissions (reducing emissions by up to 30% by 2030), state support for the development of “clean” and safe energy technologies (including financing projects for the development of wind and solar energy), the development of new technologies for producing biofuels, increasing the energy efficiency of the economy through raising the level of energy conservation, combating adverse climate change, reducing dependence and achieving independence from imported oil and gas supplies (EOP, 2014). As a result, the energy sector provided key support to the US economic recovery after the Great Recession of 2009. A key energy resource has changed: natural gas now plays a central role in the transition to the use of environmentally friendly energy (33% in electricity production, reducing carbon dioxide emissions by 25% (Lowery, 2018)). The Federal Renewable Portfolio Standard (RPS) has been adopted, which provides for an increase in the production of renewable energy by individual states to a certain share in the total production of the country. In various states, RPS is implemented by creating the necessary production facilities and/or trading renewable energy Certificates (REC) (Hamrin, 2014), this balances the country’s production complex and increases the level of technological development. The United States creates a closed energy market when the United States turns from a consumer country into a producer and exporter of energy resources. The current public policy package is characterized by continuous state supervision over the processes of subsurface development and production, flexible tax policy in the extractive industries, the use of a wide range of rent withdrawal tools (bonuses, rents, fixed royalties, etc.), a clear specification of property rights, the accumulation of rent at the regional level (Baykova, 2013).
Australia
The country belongs to the category of resource-surplus: it has one of the world’s largest resources of gold, iron ore and lead, nickel, uranium and zinc (Geoscience Australia, 2019). At the same time, the mining sector is export-oriented: For example, Australia provides 36.6% of the total volume of coal exports (Workman, 2019). Mining is regulated at the local level: the legal framework for the development of mining projects is usually regulated by the mining laws of various states and territories. There is a licensing system that involves the payment of royalties. At the same time, all mining companies are required to disclose information in relation to all types of mining, exploration and lease activities in accordance with the Australian Code of Reporting on Exploration Results, Mineral Resources and Ore Reserves (JORC Code) (Leary & Kerrigan, 2018). The stability of the Australian economy is ensured by maintaining for a long period the total share of the manufacturing sector and productive services at the level of 44% to 47% of GDP (Decree, 2014). At the same time, the country used the mining industry as a driver for the development of high-tech services. On the one hand, the dispersion of natural resources with a low population required the development of intra-industry technologies that ensure the autonomy of production and high labor productivity. On the other hand, through an effective taxation system, funds are redistributed in the country to support the technological development of manufacturing industries and the social sector. There are two main taxes: Petroleum Resource Rent Tax (PRT) and mineral Resource Rent Tax (MRT). The TAX has been levied since 1987 in the amount of 40% of taxable profit (it is levied before corporate income tax and is subject to deduction when calculating income tax). At the same time, companies that pay PRRT do not pay royalties. MRRT is fixed at an effective rate of 22.5% (the base rate is 30%, taking into account a 25% reduction in the discount for production) of the total profit from the extraction of iron ore and coal in the amount of more than 75 million Australian dollars per year. Interestingly, at the same time, Australia does not have commodity sovereign funds, that is, the country’s economic structure is built in such a way that it does not require sterilization of the economy and is able to absorb all funds within the country.
Canada
Canada’s economic system is considered one of the most stable in the world. This is ensured by maintaining the share of the manufacturing sector at the level of at least 20% of GDP (20.4% on average since 2011) and the share of the extractive sector at no more than 10% of GDP (7.3% on average since 2011) (Statistics Canada, 2019). But these inter-industry proportions began to form only from the beginning of the 2000s. Until that time, in conditions of low technological efficiency of production, the model of development of the extractive sector (in particular, the coal sector) followed the so-called “rent-wasting cycle,” in which the creation of rent in a profitable sector created overly optimistic expectations that encouraged new participants to waste rent by developing uneconomical potential (Gunton, 2004). However, for a long time Canada could not realize its resource potential: only in 1999 the technology of effective development of oil sands appeared. The country’s reliable oil reserves have increased by 3.64 times this year (BP Statistics, 2018), and the industry has become investment attractive for foreign companies. Canada’s position in energy markets started to strengthen. This and maintaining investment attractiveness of national facilities served as the basis of the energy policy allowing the industrialization to be financed out of natural rent (Howlett, 1999; Kapitsa, 2014). In 2015, Canada launched the Extractive Sector Trade Strategy, which establishes a set of measures to promote the interests of the country’s extractive sector abroad, taking into account assistance to developing countries in expanding their capabilities to manage their extractive sectors (Caulfield, 2015). Now Canada positions itself as a global superpower in the mining industry, justifying this by the presence (since 2013) of 1,500 competitive Canadian companies operating in more than 100 countries, 31% of global exploration spending and the placement in Canada of more than 50% of publicly registered companies in the world engaged in exploration and production (Global Affairs Canada, 2014). This was largely done to reduce the risks associated with the strong dependence of the national energy system on the partnership with the United States: they provide 95.9% of Canadian oil and petroleum products exports, 68.6% of imports of the fuel and energy complex of Canada and are the only partner for the transportation of oil and natural gas through the country’s extensive pipeline system. The internal policy of Canada is based on the license-lease system for the provision of mineral resources for use (Baykova, 2013) and the principle of creating conditions for the development of private initiative in the field of production implementation: regional authorities take on the risks and responsibility of implementing large energy projects. This entails a different level of investment attractiveness of Canadian territories (jurisdictions). Currently, four Canadian jurisdictions are in the TOP 10 most attractive jurisdictions for investment in the mining industry, including Calgary-Saskatchewan-third place. In other territories of Canada, legal risks remain (regulatory uncertainty and concerns about disputed claims to land ownership)—8 territories, including Ontario, which dropped to 20th place in the ranking in 2018. (Stedman & Green, 2019) Interestingly, the regions of Canada do not support the use of sovereign funds. The exception is the province of Alberta, but its experience is ambiguous. In 1976, the Alberta Heritage Savings Trust Fund was formed, which accumulated from 15 to 30% of rental income in different years due to the variability of government policies and directed them to loans to other provinces of Canada and the implementation of infrastructure projects within the region (Kapitsa, 2007). In 1987, the transfer of royalties from non-renewable natural resources (oil) to the fund was stopped and was no longer resumed (Alberta Government, 2019). The fund continued its existence taking into account the receipt of only investment returns (in most years of losses). The fund’s management policy was publicly criticized, and since 1997 the fund has been restructured (Act, 2000). The fund could no longer be used by the regional government for the purposes of direct economic development of the province or social investments and focused on obtaining long-term profitability. Only since 2015, direct investment in the economy of Alberta has been resumed (up to 3% of the fund’s capital in priority areas (AIMCo, 2015). On the other hand, Canada has significant positive experience in the development of energy conservation and energy efficiency policies. A series of ecoENERGY energy management standards has been adopted, including eco energy efficiency (Decree, 2015), aimed at stimulating investment in energy conservation, effective exchange of information and experience in the Canadian energy industry.
Bahrain
The successful economic growth of Bahrain, one of the highest among the countries of the Middle East, is the result of a purposeful and thoughtful public policy in the field of energy. Bahrain timely assessed the risks of depletion of energy resources (oil and gas) and concentrated all its economic opportunities on the steady progressive development of the manufacturing industry: oil refining, petrochemicals, aluminum industry, etc. Bahrain is currently implementing a number of major energy projects, in particular, the construction of a new gas processing plant and an LNG receiving terminal, as well as the laying of a new oil pipeline between Bahrain and Saudi Arabia. The main role in investment processes and maintaining the level of domestic consumption is played by government spending. In the field of public finance, dependence on oil revenues still persists: an increase in oil revenues by 1% leads to an increase in government spending by 1.37%, taking into account that the share of oil revenues in total government revenues in 2017 was 82% (Kreishan et al., 2018). In this regard, we can say that the country’s experience demonstrates an attempt to diversify the economy through rental income. It should be noted that during periods of low oil prices, there is no reduction in the level of expenditures, which leads to the formation of a budget deficit and public debt. Currently, the country is undergoing fiscal reforms, including reducing the level of energy subsidies and introducing a value-added tax (CIO, 2017). One of the main strategic tasks is the formation of sources of state revenue from non-oil sectors.
Based on the presented historical descriptions, a number of criteria for evaluating the public policy can be identified (variables), while outlining three areas (areas of attention) of public administration, which together are able to ensure the integral (balanced) development of countries with a developed energy sector, which generates a significant amount of rental income:
The economic mechanism of extraction (production) of rent-forming energy resources: fiscal measures (taxation); centralization of extractive industries; diversification of commodity exports; margin equalization; limiting the budget’s dependence on rental income by deliberately reducing production;
The system of distribution of rental income (income) from the energy sector: creation of a subsidy system; financing economic diversification; formation of sovereign funds from rental income; financing of social projects; price control in the domestic market; militarization of the economy (significant financing of the military sector);
Strategic planning, economic security and independence: availability of industry strategic documents; the presence of a formalized energy security system; development of energy saving and energy efficiency policy.
Results of Multidimensional Grouping
The criteria of the energy policy allocated on the basis of historical descriptions and further areas of public administration together are able to ensure the integral (balanced) development of countries with a developed energy sector, which generates a significant amount of rental income. The absence of one of the elements provokes the appearance of various kinds of strategic gaps. A special role is played by the institutional framework that has developed in the economic system—a system of conditions that has a direct and (or) indirect impact on the existing rental relations. Its individual elements can be both stimulating and restrictive (the institutional environment). This is confirmed by the results of a multidimensional grouping, which allowed us to generalize cases characterized by a certain combination of areas of public policy (energy policy) (Table 3, Figure 1).
Identification of Combinations of Areas of Public Policy Based on Specifying Criteria.
Source. Based on the authors’ own calculation.
Green – the mechanism is of key importance in cluster formation (from 0.90 to 1.00)
Light Green – a high level of significance of the mechanism in cluster formation (from 0.70 to 0.89)
Yellow – an average level of significance of the mechanism in cluster formation (from 0.30 to 0.69)
Orange – a low level of significance of the mechanism in cluster formation (from 0.10 to 0.29)
Red – the mechanism does not matter when forming a cluster (from 0.00 to 0.09)
Key areas of the public policy in the management of the rental economic system.
On the one hand, the considered cases allow us to identify examples of public administration that focuses only on one area (polarity). All of them are examples of low-efficiency rental economic systems (Matraeva & Korolkova, 2019).
Angola—the energy policy is reduced to supporting the economic mechanism of extraction (production) of a rent-forming resource, which is based on the conclusion of concession agreements with international energy companies and the collection of taxes by the state company Sonangol. Angola is a representative of cluster 1. A characteristic feature of the countries included in this group is the concentration of efforts on expanded rent extraction by a limited number of economic entities. The distribution mechanisms in this case are represented only by the financing of the military sphere and the control of domestic prices, which indicates a purposeful containment of socio-political instability in the conditions of development crises. This group is one of the most numerous, including: Nigeria, Colombia, Zimbabwe, Iraq, Yemen. Interestingly, Chile (case study: since 2009) has also entered this group, which may indicate a deterioration in the quality of state regulation.
Saudi Arabia (1960–1990s)—public policy is reduced to supporting the system of distribution of rental income, which is expressed in the “free design of institutions” of state power. The country is a representative of cluster 2. Among the representatives of this group are also Venezuela (case: 1990s), the United States (Alaska) and Kuwait. The key features of the energy policy in this case are:
- the formation of sovereign funds from rental income, that is, the purposeful sterilization of the economy;
- financing of social projects and projects to diversify the economy, but in the absence of a strategic planning system, significant amounts of funds are spent ineffectively or/and inappropriately.
- significant financing of the military sector, the strengthening of which is dictated not so much by internal as by external factors (but by necessity).
Azerbaijan—the public policy is declarative (de jure), that is, it is represented by a system of strategic planning, taking into account the coverage of issues of economic security and independence, but without building systems for the formation and withdrawal of rent, as well as its subsequent distribution and use. The country is a representative of a special subgroup in cluster 4 (along with the UAE and Kazakhstan). It is worth noting that the subgroup is formed into a separate cluster with a cluster solution—7 clusters. In this case, a lot of regulatory documents create only the appearance of development without obvious results. Economic well-being is supported only by minimally sufficiently developed fiscal mechanisms (the taxation system) and a system of subsidizing both systemically important economic entities and subsidized spheres of activity.
On the other hand, the analysis shows 4 (four) options for combining the areas of state policy.
Combination I “omission of the role of strategic guidelines” (cluster 3)—the presence of a well-established economic mechanism for the extraction (production) of a rent-forming resource, taking into account the built system of distribution of rental income. The experience of Norway (since 2014) is well illustrated. The approach makes it possible to maintain the effective functioning of the economic system, but does not provide, in extreme cases even blocks, the possibility of a controlled transformation of the system when there is an objective need (e.g., if structural transformations are necessary for a painless transition to the post-current nature of the economic system). The key problem in this case is the low efficiency of the current strategic planning system (or its absence). In Norway, this is currently manifested in problems with the effectiveness of the innovation policy being implemented. Australia and Mexico are also considered representatives of this cluster.
Combination II “development without taking into account the distribution system” (cluster 5)—a built-up system of strategic planning, taking into account the solution of issues of economic security and independence, is supplemented by the presence of an economic mechanism for the extraction (production) of a rent-forming resource. The lack of a built-up system of distribution of rental income leads to a strategic gap: despite the fact that the process of withdrawal of rent has been established, the accumulated funds do not flow to the necessary links of the economic system, including the points of economic growth, which leads to the impossibility of achieving strategic goals, objectives and results (KPIs). An example is Saudi Arabia (since 2000), where the economic system cannot absorb significant amounts of petrodollars received (the effect of rent dispersion) even with a change in strategic guidelines and a change in the organizational and functional system of the oil industry. Indonesia and Sweden are also considered representatives of this cluster.
Combination III “hypertrophy of the economic mechanism of production” (cluster 4)—the system of distribution of rental income has clear guidelines due to the organization of strategic planning, taking into account the solution of issues of economic security and independence. However, the absence of an economic mechanism for the extraction (production) of a rent-forming resource violates (blocks) the processes of formation and withdrawal of rent. A strategic gap is being formed: when it is possible to absorb rental income in the economy, there is no system for accumulating them for subsequent targeted use in accordance with the priorities of economic development. Examples are economies that have faced problems of depletion of rent-forming resources (Great Britain) or technological restrictions on its production (Canada). However, this group is often characterized by the fact that at this stage of development growth trajectory comes with an environmental trade-off and consequences (Bekun, Alola et al., 2021), emphasis is placed on economic expansion relative to the quality of the environment (Bekun, Gyamfi, Onifade, & Agboola, 2021). Bahrain, Russia, Chile (until 2009), Norway (until 2014) are also considered representatives of this cluster.
Combination IV “comprehensive development” is a combination of all three of these areas. The key issue in this case is the problem of balance in the formation and development of public policy. No striking examples have been identified at present. The case of the US economy, which is currently classified as cluster 5 (combination II), can be considered the closest. It includes all three components, but so far the most vivid expression is the orientation on ensuring its economic security and independence.
Thus, the research confirms the ambiguity of the impact of resource abundance on economic development. Research conducted to date has shown some aspects of the negative manifestation of the “resource curse.” They were caused by the shortcomings of one or another combination of existing mechanisms of public policy. At the same time, the leveling of these shortcomings (the development of a combination of mechanisms) can lead to a positive impact of resource availability and rental income on economic growth.
Conclusion and Policy Recommendation
Conclusion
The conducted research allowed us to draw a number of conclusions and conclusions that have both theoretical and practical significance.
The formalization of historical descriptions of the experience of 24 countries of the world, reflecting 30 states of economies with a large energy sector in various conditions of their functioning, allowed us to identify 14 criteria for evaluating energy policy, while outlining three areas (areas of attention) of public administration
the economic mechanism of extraction (production) of rent-forming energy resources (five criteria);
the system of distribution of rental income (income) from the energy sector (six criteria);
strategic planning, economic security and independence (three criteria).
The generalization of this experience led to the identification of both a pronounced polarity of the development of the public policy and options for combining its areas:
combination I “omission of the role of strategic guidelines”;
combination II “development without taking into account the distribution system”;
combination III “hypertrophy of the economic mechanism of production”;
combination IV “comprehensive development.”
Policy Recommendation
The approach proposed in the paper allows us to focus the prospective public policy being developed within a certain framework. Based on the characteristics of the identified combination or polarity, it is possible to determine the shortcomings of the current strategy for the development of the energy policy and to identify a list of necessary adjustments in the system of state programs and projects of the country.
For combination IV “comprehensive development”: the prerequisites are the existence of a system of stable institutions before the emergence of a rent-forming resource and the beginning of the formation of the rent-based economic system. The combination is characterized by the absence of clearly defined disadvantages. It assumes the use of rental income as a source of qualitative transformation of the economy, that is, “the key to economic prosperity.” The combination of mechanisms public policy include:
– as a basis: fiscal measures (flexible taxation, automatic stabilizers), diversification of commodity exports (export of raw materials), availability of industry strategic documents, formation of effective sovereign funds from rental income, development of active energy saving and energy efficiency policy;
– as a supplement: financing economic diversification, financing of social projects, the presence of a formalized energy security system.
Combination III, combination II and combination I, as well as combination IV, are already aimed at long-term balanced development, but they have disadvantages of one or another strategy for the development of public policy.
For combination III “hypertrophy of the economic mechanism of production”: the disadvantage of the public policy is the weakness of the development of mechanisms aimed at the formation and withdrawal of rental income. The combination of mechanisms public policy include:
– as a basis: fiscal measures (taxation, discretionary measures), availability of industry strategic documents, developed investment policy sovereign funds from rental income, financing of social projects, development of energy saving and energy efficiency policy.
– as a supplement: creation of a subsidy system, financing economic diversification, the presence of a formalized energy security system;
It is recommended to use the following mechanisms aimed at the development of the economic mechanism of extraction (production) of rent-forming energy resources:
– for countries with productive rent-seeking: development of fiscal measures (flexible taxation, automatic stabilizers), diversification of commodity exports (export of raw materials), revision the system formation of sovereign funds from rental income;
– for countries with counter-productive rent-seeking also possible to apply (short-term anti-crisis measures): centralization of extractive industries (the predominance of state ownership), and also limiting the budget’s dependence on rental income by deliberately reducing production.
For combination II “development without taking into account the distribution system”: the disadvantage of the state policy is the weakness of the development of mechanisms aimed at ensuring the flow of accumulated funds to the “growth points” of the economy, what does not lead to the achievement of the set strategic goals, objectives and results of balanced development. The combination of mechanisms public policy include:
– as a basis: limiting the budget’s dependence on rental income by deliberately reducing production, fiscal measures (flexible taxation, automatic stabilizers), large share of state ownership state ownership, availability of industry strategic documents, development of energy saving and energy efficiency policy;
– as a supplement: diversification of commodity exports (export of raw materials), margin equalization, financing economic diversification (not system), the presence of a formalized energy security system.
It is recommended to use the following mechanisms aimed at the development of the system of distribution of rental income (income) from the energy sector:
– for countries with productive rent-seeking: system financing economic diversification, creation of a subsidy system, formation of effective sovereign funds from rental income; financing of social projects.
– for countries with counter-productive rent-seeking also possible to apply (short-term anti-crisis measures): price control in the domestic market.
For combination I “omission of the role of strategic guidelines”: the disadvantage of the public policy is the weakness of the development of mechanisms aimed at providing opportunities for a controlled transformation of the economic system (structural transformations, sustainable development, innovative development). The combination of mechanisms public policy include:
– as a basis: fiscal measures (taxation); diversification of commodity exports (export of raw materials); limiting the budget’s dependence on rental income by deliberately reducing production; financing economic diversification; financing of social projects,
– as a supplement: centralization of extractive industries (the predominance of state ownership); formation of effective sovereign funds from rental income; availability of industry strategic documents (only at the conceptual level).
It is recommended to use the following mechanisms aimed at the development of strategic planning, economic security and independence (without separation depending on the type of rent-seeking): development of industry strategic documents taking into account the formation of active goal-setting, planning and forecasting systems; development of energy saving and energy efficiency policy; formation of energy security system.
For countries with pronounced polarities, it is recommended to abandon mechanisms aimed at establishing only short-term macroeconomic and socio-political stability. It is advisable to gradually form one of the combinations (combination I, combination II or combination III) aimed at long-term balanced development with subsequent elimination of the shortcomings of the corresponding combination and transition to combination IV.
Limitation of the Study and Future Recommendation
Limitation of the Study
The limitations of this research are related to the following aspects:
– limitations from the point of view of the characteristics of the objects of research: resource-rich countries are considered, which are characterized by the formation of large volumes of rental income in their economic history (reviewed the experience of 24 countries—the largest producers and exporters of natural resources, primarily energy resources, was initially considered);
– time frame of the research (general observation horizon): descriptions of the conditions of rent-based economic systems for the period from the 1970s to the present are given. The choice of the lower limit of the observation time interval is due to the first oil shock of 1973. As part of the consideration of a number of cases, the period of the 1960s is touched upon in connection with the formation of the basic conditions for the functioning of the economy, including the implementation of structural changes in the economy, the transformation of industrial policy, etc. As part of the disclosure of the features of the development of some economic systems, several time periods are identified (Venezuela, Saudi Arabia, Norway, Chile) within the general observation horizon. This is due to the presence in the economic history of countries of periods characterized by the implementation of various vectors and sets of mechanisms of public policy in the field of regulation of rental relations;
– a set of 30 cases was taken for the research: the expansion of the set will make it possible to specify the relative frequencies of the already identified mechanisms of public policy (14 variables used in the model), and it is also possible to identify a number of new mechanisms. This will allow us to check the stability of the results of cluster analysis (identified combinations of public policy measures);
– nominal scale analysis has some limitations in selecting cluster analysis method (no k-means, hierarchical analysis only) and measuring the distance (Squared Euclidean Distance for binary data).
Future Recommendation
Further directions of research on the experience of functioning of economic systems with a large energy sector can be associated with two areas:
– expanding the set of cases, taking into account the differentiation of various phases of economic, including raw materials, cycles;
– cross-examination of the identified generalized models of the development of rent-based economic systems with the identified combinations and polarities of the development of the energy policy.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
