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Reverse the Curse: Maximizing the Potential of Resource-Driven McKinsey Global Institute McKinsey Global Institute Reverse the curse: Maximizing the potential of resource-driven economies resource-driven of Maximizing potential the curse: the Reverse December 2013 Reverse the curse: Maximizing the potential of resource-driven economies The McKinsey Global Institute The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with facts and insights on which to base management and policy decisions. MGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Our “micro-to-macro” methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy. MGI’s in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on six themes: productivity and growth; the evolution of global financial markets; the economic impact of technology and innovation; natural resources; the future of work; and urbanization. Recent reports have assessed job creation, resource productivity, cities of the future, and the impact of the Internet. Project teams are led by a group of senior fellows and include consultants from McKinsey’s offices around the world. These teams draw on McKinsey’s global network of partners and industry and management experts. In addition, leading economists, including Nobel laureates, act as research advisers. The partners of McKinsey & Company fund MGI’s research; it is not commissioned by any business, government, or other institution. For further information about MGI and to download reports, please visit www.mckinsey.com/mgi. McKinsey Global Energy & Materials Practice McKinsey & Company’s Global Energy & Materials Practice (GEM) serves clients in industries such as oil and gas, mining, steel, pulp and paper, cement, chemicals, agriculture, and power, helping them on their most important issues in strategy, operations, marketing and sales, organization, and other functional topics. The practice serves many of the top global players, including corporations and state-owned enterprises. GEM works with more than 80 percent of the largest mining companies and 90 percent of the largest oil and gas companies worldwide. Over the past five years, the practice has completed more than 5,000 projects, and today has over 1,000 consultants who are actively working in this space across the world. McKinsey Sustainability & Resource Productivity Practice Greater pressure on resource systems together with increased environmental risks present a new set of leadership challenges for both private and public institutions. McKinsey & Company’s Sustainability & Resource Productivity Practice (SRP) works with leading institutions to identify and manage both the risks and opportunities of this new resource era and to integrate the sustainability agenda into improved operational performance and robust growth strategies. SRP advises companies on how to capture emerging opportunities in energy, water, waste, and land use, as well as harnessing the potential of clean technologies to create smarter systems, new jobs, and competitive advantage. SRP helps governments to incorporate sustainability into their long-term economic growth plans, supporting the welfare and prosperity of their people and protecting the natural capital of their countries. The practice draws on more than 1,000 consultants and experts across McKinsey’s offices with academic backgrounds in fields such as development and environmental economics, chemical engineering, oceanography, weather modeling, waste engineering, and international affairs. This expertise combines with McKinsey’s deep industry insights developed through decades of advising companies in sectors from energy, mining, and forest products to consumer goods, infrastructure, and logistics. For further information about the practice and to download reports, please visit www.mckinsey.com/client_service/sustainability.aspx. Copyright © McKinsey & Company 2013 McKinsey Global Institute December 2013 Reverse the curse: Maximizing the potential of resource-driven economies Richard Dobbs Jeremy Oppenheim Adam Kendall Fraser Thompson Martin Bratt Fransje van der Marel Preface Investment in oil and gas, and minerals will need to also examines the strategic implications for extractive increase significantly to 2030 to meet strong demand companies and argues that they, like governments, will (particularly in emerging markets) and replace existing need to adopt a new approach if they are to reap the full sources of supply coming to the end of their useful lives. benefit of new resource reserves that could come online in This investment should promise huge benefits to countries the years ahead. with major reserves of natural resources. However, all too often, governments in these countries have failed to make The research was directed by Richard Dobbs, director the most of their potential resource wealth. of McKinsey and MGI; Jeremy Oppenheim, leader of SRP; Adam Kendall, a partner in the McKinsey sub- In 2011, the McKinsey Global Institute (MGI), together Saharan office; Pablo Ordorica Lenero, leader of SRP with McKinsey’s Sustainability & Resource Productivity in Latin America; and Harry Robinson, a GEM leader. Practice (SRP), published a report entitled Resource Fraser Thompson, an MGI senior fellow based in Revolution: Meeting the world’s energy, materials, food, London, led the research, with help from Martin Bratt, an and water needs. We highlighted the fact that the world associate principal also in London. Fransje van der Marel is in the throes of a fundamental shift in the resource led the project team of Nicolo Andreula, S. Aparajida, landscape. The unprecedented pace and scale of Byron Ascott-Evans, Soumiya Balasubramanian, economic development in emerging markets means Greg Callaway, Markus Gstöttner, Cecile Lavrard, demand for resources is surging, and prices for most Tim McEvoy, Angel Sarmiento, Sahil Shekhar, and resources have risen sharply since the turn of the century. Lee Teslik. We would like to thank Caitlin McElroy from the Our most recent MGI resource-related research, in Oxford Smith School of Enterprise and the Environment September of this year—Resource Revolution: Tracking for her input to the team. global commodity markets—highlighted the fact that, despite declines in some resource prices over the past We are grateful for the advice and input of many two years, on average commodity prices have more than McKinsey colleagues, including Gassan Al-Kibsi, doubled since 2000. Even with a step change in resource Nevia Andrisani, Henrik Arwidi, Hadi Benkirane, productivity—the efficiency with which we develop, Michael Birshan, Jennifer Brady, Anders Brun, extract, and use resources—significant additional supply Gauthier Canart, Elsie Chang, Dan Cole, Foucauld Dalle, of resources will be needed to support economic growth. Mark Davis, Kito de Boer, Dumitru Dediu, Amadeo Di Lodovico, David Dyer, Per-Anders Enkvist, This report—Reverse the curse: Maximizing the potential Luis Enriquez, Diana Farrell, Nelson Ferreira, David Fine, of resource-driven economies—builds on this past Barbara Fletcher, Christophe Francois, Toby Gibbs, work by taking a closer look at how the world’s rising Francisco Goncalves Pereira, Andrew Goodman, need for resources can be met, and, in particular, how Stewart Goodman, Andrew Grant, Rajat Gupta, countries that have large resource endowments can Wieland Gurlit, Stephen Hall, Frithjof Lund, handle them more effectively in order to bolster economic Svein Harald Øygard, Johan Hesselsøe, Vitaly Klintsov, development. Our latest research is a joint effort of MGI, Peter Lambert, Olivier Lambrechts, Acha Leke, SRP, and McKinsey’s Global Energy & Materials Practice Susan Lund, Johannes Lüneborg, Matias Marcote, (GEM). It aims to offer new insights on how the supply Sigurd Mareels, Jan Mischke, Tomas Nauclér, landscape is evolving in oil and gas and minerals, and the Scott Nyquist, Ellora-Julie Parekh, Xavier Peny, potential opportunity for resource-driven economies. It Stefan Rehbach, Jaana Remes, Jens Riese, discusses how policy makers in these countries will need Occo Roelofsen, Bill Russo, Nuno Santos, Jorg Schubert, to adopt new approaches to ensure that their resource Maia Schweizer, Namit Sharma, Paul Sheng, endowments are a blessing for their economies rather Marc Stoneham, Martin Stuchtey, Karim Tadjeddine, than a curse as they have proved all too often in the past. Amine Tazi-Riffi, Oliver Tonby, Asli Ucyigit, The report considers issues ranging from local content Michel van Hoey, and Jonathan Woetzel. to shared infrastructure and economic diversification. It McKinsey Global Institute Reverse the curse: Maximizing the potential of resource-driven economies The team would like to thank MGI senior editors Management; Gordon Clark at the Oxford Smith School Janet Bush and Lisa Renaud for their editorial help; of Enterprise and the Environment; Will MacNamara; Rebeca Robboy and Gabriela Ramirez in external Dirk-Jan Omtzigt; James Otto; Anthony Paul; communications; Julie Philpot, MGI’s editorial production Alexander Van de Putte; Magnus Ericsson of the Raw manager; and Marisa Carder, graphics specialist. Materials Group; Robert Court, Nicolas di Boscio,
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