appreciation of the real exchange rate, a loss of competitiveness in the non-resource export sector, deindustrialization of the traditional sectors, and poorer growth prospects overall for the economy. These potential harmful effects were labeled as “Dutch disease” when they were noticed in Netherlands after the discovery of North Sea gas.<sup>3</sup> In this paper, we examine Dutch disease in the context of Niger and its discovery of oil and uranium deposits. We quantify the likely impact of the expansion of the extractive industries on Niger’s real exchange rate and economy and suggest policy options to mitigate the negative impact of an appreciating exchange rate on Niger’s international competitiveness. Obtaining quantitative estimates of the impact of the expansion of Niger’s extractive industries sector on the country’s competitiveness is of particular interest as it directly affects Niger’s efforts to diversify the economy.

We analyze the macroeconomic implications of an increase in revenue from export sales in a recursive dynamic computable general equilibrium (CGE) model for Niger, 2009. The underlying data for the model are from a 2009 social accounting matrix (SAM), which is estimated and updated from the 2004 matrix using information from Niger’s national accounts. The model includes private and public investment. Public capital increases infrastructure which is assumed to increase productivity growth. Note the SAM for 2009 includes uranium production (at the 2009 level as part of the broader mining sector); there is no petroleum production in 2009. The discovery and extraction of petroleum and expanded uranium output will have an impact on the economy mainly through the increase in foreign revenue to government and the economy-wide repercussions of its use. The nascent oil sector is assumed to be a highly extractive and the revenue to Niger is only the government’s share in its export revenues, assuming that petroleum production is financed mainly by foreign capital and foreign labor. Likewise, we assume that new expanded uranium production is financed mainly by foreign capital and foreign labor.

The baseline replicates the historical GDP growth for Niger. Policy shocks include an increase in revenue from export sales of oil and uranium – using estimates of the share of export revenue that accrues to the government. The revenue that goes to the government may directly increase public expenditures to provide public infrastructure, deliver education and health services, and pay for public administration. Alternatively and through government transfers, the income can go to households which spend most of their incomes on subsistence agriculture. For each simulation, we report the annual growth rate of GDP, investment, consumption, imports, exports, the real exchange rate, private capital, and public capital.

Although Niger’s mineral revenue can bring about greater development, its use can clearly affect its external balance of payments (BOP) and debt situation. Without undertaking a new debt sustainability analysis (which is beyond the scope of this paper), a simple approach undertaken is to assume that no new debt burden is incurred at the margin over the 3 Corden and Neary (1982) and Wijnbergen (1984).

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