Natural Resources for the Knowledge economy (NR4K) Funds:

Experiences from four Latin

American countries
Jakob Baumann, Michiko Iizuka, Fernando Vargas
UNU-MERIT
Maastricht
December 7th , 2016

Outline of presentation
Motivation
Theoretical review: NR & Policy intervention
Conceptual framework: Institutional framework
Country cases of new institutions
Chile
Colombia
Peru
Bolivia

Findings from the case & Conclusion

Motivation
The most recent boom and fall of commodities prices. Weaknesses
of economic growth of natural resources-rich countries.
Revisiting an old debate: achieving long-term economic development
in NRs-rich countries
What type of institutions and policy intervention are needed?
Changing debates on role of policy interventions
Examine cases of LA countries using NRs rents to finance policies
promoting the transition towards the knowledge economy.

Theoretical discussion on NR and economic

development: The NR curse

Dutch disease: Inflows from NR activities crowds out exports

of tradable goods.
Prebisch-Singer hypothesis: Terms of trade of NRs exporting
countries deteriorate in the long run.
Volatility of financial flows: Instability harms investment
decisions.
Enclave: Lack of forward and backward linkages
Corruption: Rent seeking behavior on the access to resources.
Limited technological development: Innovation is dominated
by capital suppliers.

Theoretical discussion on NRs and economic development:

Argument against the curse
Methodological argument of previous studies (T of T)
Choice of indicator/Period of study/ Analytical methods
applied
Excluding other important factors: HR, Institutions & physical
infrastructure

Demand for local-specific knowledge

NRs exploitation create local specific conditions that may lead
to technological development (geological, biological factors).

Theoretical discussion on NRs and economic development:

Argument against the curse
The role of institutions:
Producer friendly institutions (strong rule of law, bureaucratic
quality, low corruption, low risk of expropriation).
Macroeconomic stabilization, risk management.
Active role in science, technology and innovation.

Popular institutions to deal with NR: NRF

Natural Resource Fund (NRF)
Government owned fund whose financing is revenue derived
from oil, gas or mineral sales at least one of the following
objective of: saving for future generations, covering unexpected
expenditures, earmarking resource revenues for specific
expenditure items.
Became popular since the 1990smany NRF are established to
overcome volatility of financial flows of commodity prices
Effective on achieving macroeconomic stability, but not enough to deal
with diversification.

What type of institutions are necessary in effectively managing NR

towards productive development?
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Theoretical discussion on NRs and economic development:

the role of institutions
NR based development require appropriate institutions and
policy interventions to overcome the curse challenges (Collier,
2010, Ferranti et al, 2002, Humphreys et al, 2007, Dietsche, 2014).

'Investing in investing: Capacity building necessary before

making investment decisions (Arezki, Gylfason &Sy, 2012, Collier and
Laroche, 2015, Collier, 2010 etc).

The need of coordinated and sustained efforts for a certain

period of time (Benavente, Crespi, Figal Garone,& Maffioli, 2012).

Funding knowledge investments with NRs (NR4K

Funds)

Starting in the mid-2000s some Latin American countries

created these types of fund

Essentially, imposing/adapting royalties from natural

resources exploitation, allocating a share to finance science,
technology and innovation activities. Addressing dynamic
inconsistency of governments regarding STI policy

Heterogenous design and implementation:

- Different scope: Basic science/innovation
- Governance: Centralized/decentralized
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Design Criteria for NR4K Funds

Static
Clear purpose of establishment

Dynamic

Consistent and clear statement on the

use and objective of the fund.

Rule based design

Clear rule exist and leaves limited
scope for discretion by government.

Multiple stakeholder governance

Decision making is shared among
multiple organizations

System to ensure transparency

Disclosure of information on flow of
funds

Mechanisms to monitor and

evaluate activities
Systematic monitoring and evaluation of
the NR4K.

Institutional/managerial capacity
Intended activities are carried out by
capable and flexible organizations.

Coordination with STI institutions:

Policy Mix
Mix between short, medium and long
term goals. Clear responsibilities and no
duplication.

Source: Collier & Laroche (2015), Coller & Venables, (2011) , Collier (2010), Hamilton& Ley,
(2011), Humphreys and Sandbu(2007), Zahler, Bravo, Goya & Benavente, 2014

Source: Crespi et al (2014), Crespi & Dutrenit (2014)

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Methodology and information used in this study

Using Design Criteria as the reference point to compare
following countries which recently introduced NR4K Funds:
Peru (2004), Chile (2005), Bolivia (2007), and Colombia (2009).

Use of secondary sources:

Legislations, national policy documents, documents from international
organizations (i.e. OECD, IADB)

Interviews with key informants:

Experts working in the area that crosses STI and mining sector
Interview and follow up questions

Cross check with the informants & external sources

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COUNTRY CASES

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Cases: general information of 4 countries

2014
Population
(millions)
GDP growth
(annual %)
GDP per capita
(current US$)
Income group

Chile

Colombia

Peru

Bolivia

17.70

48.90

30.80

10.80

1.89

4.55

2.35

5.40

14,520.0

7,720.0

6,594.4

3,150.5

High income:
OECD

Upper middle
income

Upper middle
income

Lower middle
income

3.3
35.1
61.5
2014

6.7
38.2
55.1
2014

7.4
36.8
55.8
2012

13.3
38.1
48.6
2013

Sectoral value
added (% GDP)

Agriculture
Industry
Services
year
Source: World bank Data, 2016

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Natural resources for knowledge economy funds

NR4 K

Chi l e

Col om bi a

Peru

Bol i vi a

US$ millions

195

711

50

192

% of GDP

0.08

0.19

0.02

0.56

21

95

13

350

% of GERD*

Note: GERD Chile, 0.38; Colombia, 0.20; Peru, 0.16; Bolivia, 0.16
* Latest available.

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NR4K and STI in Chile and Colombia

CHILE

COLOMBIA

Inter-ministerial Commitee
of Innovation

Ministry of Education

National Innovation Council

for Development

National Planning
Department

MInistry of Commerce,
Industry and Tourism

Ministry of Economy

FIC

COLCIENCAS
FCTeI
CONICYT

Bancoldex
InnPulsa

CORFO

Universities, research centers and industry

Universities, research centers and industry

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Industry

NR4K and STI in Peru and Bolivia

PERU

BOLIVIA
Inter-ministerial Council of
Science, Technology and

National Competitiveness
Council

Ministry of Education

Cannon
+
Royalty

CONCYTEC

Ministry of
Production

Ministry of Productive
Development and Plural
Economy

IDH
(*)
Pro-Bolivia
Productive Dev. Bank

Public universities

Universities,
research centers

Public regional
universities

Industry

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Universities,
research centers

SMEs

Natural resources for the knowledge economy

funds
Chile
Clear purpose of
establishment

Static

Set by law
Vague objective

Colombia
Set by law
Vague objective

Peru
Set by law
Vague objective

Law define
allocation and use.
Strict def. of
Law define
Rule based design Law define
allocation and use allocation and use eligible activities
Multiple
No third party
Multiple public
Multiple public
stakeholder
agencies involved agencies involved involved
governance

System to ensure
transparency

Open disclosure of
budget flows
Difficulty in
accessing
beneficiary
information

Bolivia
Set by law
Vague objective

Law define
allocation and use.
Strict def. of
eligible activities
No third party
involved

Open disclosure of
budget flows
Difficulty in
Open disclosure of Open disclosure of
accessing
budget flows
budget flows
beneficiary
information

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Natural resources for the knowledge economy

funds
Chile
Gov. auditing
Designed, not
Mechanisms to
implemented.
monitor and
Ad-hoc basis in
evaluate activities
programs

Colombia

Peru

Gov. auditing
DNP evaluate
some programs.

Gov. auditing
Civil society

Only gov. auditing

No implementing
agency + Lack of
capacities in
universities

No implementing
agency + Lack of
capacities in
universities

No coordination
Lack of
complementary
assets

No coordination
Lack of
complementary
assets

Dynamic
Lack of flexibility
Institutional/mana and capacity to
gerial capacity
address regional
challenges

Lack of flexibility
and capacity to
address regional
challenges

Overlapped.
Coordination with
"Crowding out".
STI institutions
Short sighted STI

Overlapped.
"Crowding out".
Short sighted STI

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Bolivia

Policy implications
Areas of considerations when designing institutions
Objectives must include clear long-term policy goals to avoid dynamic
inconsistency in policy-making.
Right balance between rigidity and flexibility Besides main objectives, NR4K
may consider investing in investing for proper implementation (regions).
Appropriate coordination with STI institutions Total overlap may lead to
crowding-out and acquiring virtues and vices of current STI. Lack coordination
leads to wasting resources.
Appropriate way to let private sector participate in decision making while
preventing regulatory capture
Establish M&E with feed back loop to generate policy learning important in
adjusting above in dynamic manner

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Limitation of this case for applying to other regions

All the LA cases happened with following background
Sound political economy context; main stakeholders were
aligned to change.
Sound financial background of increasing inflow of money
Regional example: demonstration effect

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Chile

Colombia

Peru

Bolivia

NR4K institutions
Law no. 28077 (canon),
Law No. 298788 (mining
royalty)
2004 (canon), 2011 (mining
royalty)
Law no. 28303, Supreme
decree no. 05 2016-PCM

Law no. 3058 (IDH),

Supreme decree no. 29322

Legal framework NR

Law no. 20026/20097/20469 Law no. 05/Law no. 1530

Year established

2005 (rev. 2006,2010)

2011/2012

Legal framework for STI

agency

Presidential decree no.

1408/Decree no. 177

Law no. 1286

Objective

Increase the technological,

Finance innovation,
Invest in research
Strength higher education
scientific, innovation and
research and
infrastructure and capacities and research capacities in
competitiveness capacities
entrepreneurship programs.
in the regions of the country. the regions of the country.
of the regions of the country

Implementing agency

CORFO, CONACYT, and

COLCIENCIAS
others

Beneficiaries

Private sector, universities,

Private sector, universities, research organizations
Regional public universities Regional public universities
research organizations

NR4K

FIC

FCTeI

Canon/Mining Royalty (part

IDH (part of)
of)

Coordinating agency

CMI/CNID

OCAD/COLCIENCIAS

None

None

Agencies involved in
decision of fund use

Ministries of finance,
Education, Foreign Affairs,
Public Works, Transport and
telecommunications,
Agriculture and Social
Development

Representative of 6
department, 6 Universities
(4 public, 2 private), 6
ministries and agency of
government

None

None

Monitoring
and
Evaluation

None

2005/2007
Supreme Decree

None

Ministry of Economy and

Finance (auditing), EITI (Int Ministry of Economy and
nat NGO), PGC (Civil
Finance (Auditing only)
society)

Ministry of Economy
SMSCE/DNP
(Innovation division)/CNID

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