economic

• Bring in foreign money to host countries

  • Help the country gets what it needs to grow and diversify 
  • Money from developing projects and ongoing operations boosts the country’s overall financial situations
• Generate income for governments

  • Through various means like owning state companies, joint ventures with private companies, taxes, royalties and concession payments 
  • In many places, they constitute a significant portion of annual government income 
  • Eg. in Nigeria, oil brought in 74% of government income in 2010. This money is important for building things like roads and schools, investing in people and helping other parts of the economy grow
• Private companies prioritise sending profits back to their home countries rather than investing in local infrastructure

  • This means that these industries do not prioritise boosting growth in the wider economy unless local governments put in place policies to keep more money within the country 
  • Eg. In Jamaica, very little of money generated from bauxite-aluminium production stays in the country, mainly due to how production is controlled by large foreign companies. This industry also causes local pollution. However, it is still a major source of foreign exchange for Jamaica
• Capital intensive and provide limited direct employment opportunities

  • By prioritising capital, the job opportunities are mainly confined to the extraction sites
  • Eg. Although oil makes more than 85% of Saudi Arabia’s total exports, the contribution of oil and gas industry to the national employments is only 1.5% of the working population
• If managed properly, there can be spillover effects on other sectors of the economy

  • It can foster the establishment of new industries, creating employment and stimulating related activities that may not have otherwise developed domestically 
  • Eg. Norway requires companies to refine oil extracted from Norwegian waters within the country. Some of the profits are then put into a national fund, which helps pay for things like healthcare and education. The oil sector in Norway also supports a large number of skilled jobs
• The volatile prices of commodities can lead to significant investment losses (explain)

  • Exploration activity is closely tied to market conditions, with periods of high prices encouraging exploration and development
  • Conversely, sharp and rapid price declines prompt investors to retreat from risky ventures 
• The volatile prices of commodities can lead to significant investment losses (example)

  • For five years of busy construction and activity, the race to extract crude from Canada’s vast oil sands suddenly stopped due to a drop in oil prices. Canada has the world’s largest oil-reserves after Saudi Arabia, and in 2023, there were 60 ongoing projects. But as oil prices fell, energy companies cancelled over US $90 billion in oil sands investment