Published On: Mon, May 18th, 2015

Energy to Synergy: Lessons in Flexibility from Resource Boomtowns

Summary: Resource boomtowns provide lessons in urban economic development and equitable growth. They are unique policy laboratories, with the resources and urgency to move beyond single-industry economies. This piece examines two successful (Calgary and Oklahoma City) and two failed (Dubai and Luanda, Angola). The conclusion is that the allure of serving affluent markets has led some boomtowns towards economic instability and inequality, while more successful cities have imbued their post-resource industrial structures with the flexibility to capture emerging economic opportunities. This piece should be of interest to professionals and officials in urban planning, business, and economic policy.

 

Russian energy giant Gazprom recently reported an 86% drop in 2014 profits, attributable in part to the falling price of oil. Unstable energy markets impact not only companies but also cities, as the world’s resource boomtowns are acutely reliant on commodities prices. Large and diversified national economies can absorb price fluctuations, but resource-based urban economies are not as resilient. Those exclusively dependent on global commodities demand ultimately consign themselves to the rubbish heap of failed boomtowns. Unexcused from the task of long-term planning, these cities must approach economic development in the same creative ways as their less fortunate peers. To this end, their resource endowments provide valuable but fleeting advantages.

In the dynamic global economy, long-term growth is built on more than a single industry. Resource boomtowns thrive intermittently, and stabilize only by building flexibility and complementarity into their industrial structures. In more farsighted boomtowns, resource proceeds support conditions for a flexible economic base by funding infrastructure, workforce development, and effective regulatory systems. Synergy among these elements is essential for establishing an economy responsive to opportunity.

Experiences of recent boomtowns reveal lessons for avoiding the dead-end of resource dependency. From Calgary’s livability to Oklahoma City’s urban revival, some are moving beyond oil to re-define their image through lifestyle experiences. By contrast, others target only the narrow and fickle market of luxury consumption, or simply bet on the continuation of current fortunes. Planning for diversification alone is insufficient. Cities must consider how potential growth trajectories fit their non-resource advantages, and how such scenarios impact existing populations including the less fortunate. Sacrificing flexible and equitable growth to serve the affluent exposes cities to the risks of whimsical capital flight and exacerbates socio-economic inequality. A prime example is Dubai.

Once a provincial trading outpost, Dubai elevated its international status after the discovery of oil. Resource concessions were granted to foreign companies in 1968, and oil revenues grew more than 2,000% between 1970 and 1975. 40 years later, however, oil accounts for only 4% of government revenue, against 74% from services like visa fees and road tolls. In 2014, foreign investment included US$ 7.8 billion in infrastructure and services projects, and Dubai’s property market recently boasted the world’s second highest yield growth. The city’s 2008 property value crash was only a temporary setback. Nevertheless, the volatile global economy and Dubai’s relentless real-estate development raise prospects of another downturn, potentially destabilizing its already strained municipal budget (debt is US$ 15 billion). Further, Dubai’s growth has created a wealth gap, particularly among non-citizens: foreign property investors on one hand and migrant construction workers on the other. The recent announcement of affordable housing initiatives is a promising sign. However, the sustainability of Dubai’s growth model remains uncertain.

 

A resource-dependent coastal city in the Southern African country of Angola, Luanda is – like Dubai – a study in economic inequality. Emerging in 2002 from a decades-long civil war, the dusty capital region of over 6 million inhabitants has been rebuilt for wealthy foreigners on a wave of offshore oil production. While most residents live in poverty, an affluent minority supports demand for the type luxurious developments that are rare in other African cities (but not always successful). The newest and best infrastructure serves the wealthy with lavish shopping malls and satellite towns. However, congestion and forced displacement plague an environment stretched to accommodate an overgrown population. For a country among the world’s top-10 most unequal, there appears little motivation to develop beyond diamonds and oil. Recently labeled the world’s most expensive city, Luanda will continue to be a testament to Angola’s social problems borne of economic divide.

 

Not every boomtown fails to plan for post-resource growth. On Canada’s prairie, Calgary is diversifying an economy once jolted by booms and busts. Oil and gas dominance is now complemented by growing education, health, and service sectors. Within Canada, Calgary trails only Toronto in concentration of corporate head offices and enjoys one of the lowest unemployment rates. It was also internationally recognized for quality of life. Despite worries about a looming economic downturn, Calgary is an example of how initial resource advantages were parlayed into a viable long-term economy. Leaders must sustain urgency for a beyond-oil economy, challenging amidst high resource prices.

Fortuitously located in America’s newly prolific shale gas region, Oklahoma City has been an energy leader since the local discovery of oil in the 1920s. The city’s economy is now relatively diversified, with headquarters for companies in banking, health, and consumer products industries complementing those of two energy-based Fortune 500 companies. After a failed 1970s renewal project decimated the city center without follow-up investment, a vibrant and successful new project (“Bricktown”) embodies contemporary design, with residences, corporate offices, walkable riverfront, and entertainment facilities. Property market stability and low unemployment attract national attention, and the city now appears in rankings of healthy economies. It is also one of America’s 10 fastest-growing cities.

 

Resource boomtowns are admirably situated; they can leverage private investment and government revenues to initiate programs that generate economic flexibility. Long-term success is therefore a reflection of visionary leadership, rather than of blind luck and resource windfalls. Investments in a post-resource economy reflect political, economic, and social priorities. The allure of serving affluent markets leads some boomtowns towards economic instability and inequality, while more successful cities imbue their industrial structures with the flexibility to capture emerging economic opportunities.

 

Free of budgetary constraints common elsewhere, resource boomtowns are unique policy laboratories that have the resources and urgency to experiment with innovative development initiatives. As such they are raw and real, extreme examples for their ambitious but less fortunate peers. Urban governments should note how successfully these contrasting growth visions – near and farsighted, both borne of resource dependence – generate sustainable economies, and what types of societies they create.

 

Kris Hartley is a Visiting Researcher at Seoul National University and PhD Candidate at the National University of Singapore, Lee Kuan Yew School of Public Policy.

 

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