Oil, gas and mineral resources – ‘extractives’ – can be used to drive public investments in infrastructure, health, education and other amenities. The key idea for policy-makers is ‘linkage’. Instead of viewing the extractives industry (EI) in isolation from the rest of the economy, an awareness of links, potential as well as actual, can lead to exciting opportunities for the policy-maker to enhance the benefits to the country.
This article explains how linkage works, drawing on the latest research into this important subject. In this context, ‘linkage’ means more than simple links but rather the relationship between EI and its impact on the development of the rest of the economy of the resource-rich State. In a number of countries such as Botswana, South Africa, Indonesia, Norway and Ghana linkages in the extractives sector are employed – assertively - to foster economic diversification and – defensively - to offset shortfalls such as commodity price shocks and volatile revenues to which the EI sector is vulnerable. As Figure 1 illustrates, linkages come in many forms too, ranging from fiscal, production, upstream, downstream linkages, to structural ones.