Dependency and Diversification: Keys to Success for Single Export Nations


In 1959, around 1700 billion cubic meters of natural gas were found in Holland’s Groningen region. At the time, gas prices were near their all time high and the Dutch had a relatively strong ability to harvest oil through the Nederlandse Aardolie Maatschappij (NAM), which was jointly owned by Esso and Shell. The discovery of natural gas was believed to enable the Dutch economy to grow and prosper, which it appeared to do so through the 70s: the Dutch Guilder appreciated by 16.4% between 1971 and 1977, social security benefits made up over 23% of national income versus 16.5% in 1970, and regulations were put in place establishing minimum wages, employment standards and environmental standards. The discovery of natural gas seemed to pave a road to long-term prosperity for the region.

By 1977, 80% of government revenue came from the natural gas. Despite the positive outlook at the time, the country began to crumble from the inside out. Industrial production had not increased during the 70s and employment in the manufacturing industry, which was once Holland’s strongest industry, declined by 16%. Corporate investment fell nearly 15%, and the proportion of people that qualified for their long-term benefits program increased from 20% in 1965 to more than 60% in 1977. Their overreliance on natural gas exports led to a dollar so strong that Holland could not sell any other goods for a reasonable price. This interior collapse of a nation, despite a positive economic image, was coined as the term “Dutch Disease”.

At the time, Dutch Disease was believed to be caused by an overreliance on one export. However, in the time since, it appears as though many nations have found success by relying on a single export, while others have been destroyed by it. Though previously unavoidable and misunderstood, Dutch Disease plagues nations that rely solely on one export but is entirely avoidable through strong fiscal policy.

Modern Single-Export Nations

Dutch disease introduced the concept that relying on a singular export has harmful repercussions. However, when we look at today’s economy, we see many successful and unsuccessful nations that were born out of single export reliance, with common trends arising from both sides. Oil-rich countries such as Saudi Arabia, Qatar and the UAE come to mind as nations that have been able to utilize the export they rely upon to prosper. Though diversification might be the obvious answer to their success, entering new industries is extremely challenging when a nation does not have strong leadership or direction. The leaders of these oil rich nations have chosen to do 3 main things: invest in a sovereign wealth fund, invest in strategic industries, and control their oil companies.

Sovereign wealth funds (SWFs) are investment vehicles that are often funded by natural resources and are used by a nation to diversify their interests into different industries. Based on size, the UAE’s SWF is the 3rd largest, Saudi Arabia’s is the 6th largest and Qatar’s is the 9th largest globally. These SWFs invest into industries that the host country had not found success in, such as Qatar’s SWFs investments into sports and tech, or the UAE’s investments into technology and travel. This presents a unique way to avoid Dutch disease, as a nation's rising dollar affects their exports but not investments.

The industries that these nations appear to invest most in are the tourism and business. It appears as though their main goal is to bring foreigners in and keep them there for various reasons. For wealthy businesspeople, this means giving large tax incentives to encourage the growth of tech and finance in the country. For poor migrant workers, this means cheap labor and infrastructure development. It's a way for these oil-rich countries to increase their economic complexity while not actually relying on exports, but rather being attractive destinations to visit or live in, and using their high dollar to earn greater revenue from these newcomers.

The final piece of this puzzle is overall government control. If the government can control the oil companies and those who operate it, they can avoid issues from Dutch Disease that were akin to the nations overreliance on their oil workers. Currently, roughly half of the world's oil production comes from state-owned companies such as Sinopec, QatarEnergy, Emirates National Oil, Aramco and Kuwait Oil Company, which are all from Asia and the Middle East. This number is expected to grow over the next decade as they are entirely self-sustaining and can collaborate through OPEC: an organization made up of oil nations like Iran, Iraq, Saudi Arabia, the UAE and others around the Middle East. Having a central power in charge of a country’s main oil company ensures decisive action and a greater ability to secure a strong workforce, while ensuring that oil profits suit the nations need. After all, the rulers get rich as the nation gets rich, so it is in their best interest for oil production to continue.

Unsuccessful Single-Export Nations

The question then arises of how any nation can be unsuccessful with one export when there are clear examples of those that have grown tremendously from their oil. Surely there is a set of examples they can follow in order to prosper from their main export? Countries today still have deteriorating economies similar to Dutch Disease due to various factors that prevent them from capitalizing on their greatest export.

Single export nations that are unsuccessful appear almost “forced” to be reliant on one export, not by circumstance but by outside forces. Banana republics are the perfect example of this. 

Banana Republics are South American nations that are reliant entirely on bananas for their economic expansion and became this way through foreign intervention. The rise of Banana Republics was mainly due to the United Fruit Company, who’s first operation in 1871 started by building a railroad through Guatemala and Honduras. After realizing that the project was not profitable and having been granted over 800,000 acres of land along the railroad, they decided to expand into banana production. With control of over 13% of the surrounding nations land mass and over 4000 workers by the 1930s, the United Fruit Company had a heavy influence over the government purely because of the profit they brought the nation. The ultimatum was simple: if the government does not comply with the United Fruit Company, they could leave the nation and deprive them of their most successful export. The most extreme case of government control came in December 1928, when the famous “Banana Massacre'' left an estimated 2000 workers dead after they were protesting their abhorrent living conditions while working in banana farms. The massacre was led out by the Columbian military who were pressured by the United Fruit Company to bring their labor back into work. The United Fruit Company had enough control of the country that they could coerce Colombian leadership to lead out a massacre on their own people, who were protesting the conditions that they were subjected to by a foreign company, just for the country to get a meager share of the profits.

This presents the main differentiating factor in successful and unsuccessful single-export nations: whoever controls the companies controls the profits. Successful nations own their companies, such as Saudi-owned Aramco and Qatar-controlled QatarEnergy. When profits are funneled out of a poor nation by a foreign power, the living conditions in that nation do not improve and thus it is more challenging to diversify. When large companies are state-owned, investment can be made to better the nation and prosper.

A common argument is that the type of export is the main factor which decides if a nation will be successful or not successful. After all, while oil-rich countries such as the UAE and Qatar have thrived, banana-rich countries have suffered. Though one might argue that Banana Republics are unsuccessful because their export is less desirable in today’s economy, Nigeria has suffered in similar ways despite their main export also being oil.

95% of Nigeria’s exports are oil exports, which make up 40% of their total economy. The vast majority of their oil wells are owned by Shell, who “purchased” oil fields from the economy through shady-looking purchases that involved bribed government officials. Most notably, the $1.3B purchase of OPL 245 led to $466M in the pockets of government officials. Today, the country is so reliant on the oil giant that 65% of their government revenue comes from oil. Though the relationship was initially symbiotic with Shell gaining new oil fields and Nigeria getting new infrastructure, foreign investment, labor opportunities and profits, Shell’s immense power was abused through massive oil spills (they admitted to around 250 oil spills per year from 1997-2006) and power consolidation. One of the most noteworthy acts is their devastation of Ogoniland, a 1000km add delta that was poisoned with oil spills, which Shell paid $83M to fix despite the UNEP estimating that a $1B fund is needed to correct the environmental damage.

In 1994, Shell was also accused of complicity when 9 Ogoni men were protesting alongside the Movement for the Survival of the Ogoni People (MOSOP) and got arrested and executed. only $15.5M was paid to their families as settlement. These countries were taken over by companies that demanded more power and destroyed their nations by making them reliant on the exports that earned them the most profit. Dutch Disease is strong in nations that have higher dollars and labor forces that are empowered by their reliance on one export, but it is also strong in nations where their other exports are destroyed by monopolization and their labor forces are suppressed by their own governments that act as puppets to foreign conglomerates.

What defines success?

In the times of Dutch Disease, it was believed that being reliant on one export caused nations to fail. The same was seen in the 1970s when Great Britain found oil off the coast of Scotland and they fell in a recession despite oil prices quadrupling. However, we’ve seen nations such as the UAE and Qatar become net oil exporters while successful, and net exporters such as Nigeria and Banana Republics be unsuccessful. So what causes this difference?

We’ve already established that the type of export has little influence on the country's success, with some oil nations finding success and some not. The UAE and Qatar were once poor countries with exports such as fishing and farming, but were able to transform into global superpowers. Nigeria is in a similar situation to pre-oil middle eastern countries, but are still finding it difficult to progress. The main success factors lie beyond the type of export.

The other main idea is the possibility of collaboration. The largest oil exporters are members of OPEC, which allows these countries to control global trade of oil by setting volume mandates. If a country like Nigeria could join OPEC, it could perhaps find more success by being able to collaborate with some of the other exporters. Banana Republics could form their own type of OPEC and control global banana exports, asserting how much volume can be distributed and controlling prices as a result. However, there is one large factor that prevents this from being possible that defines the main factor which separates successful and unsuccessful single export nations.

The success of single export nations is solely dependent on their foreign policy and level of government control. When a nation is able to learn from the lessons of Dutch Disease and quickly expand into new industries through an investment vehicle or government spending, they are able to benefit from their profits from any export that they might rely on. This is only possible with strong foreign policy, where spending is constantly monitored and trends are understood.

We spoke with an individual from the IMF who has studied the effects of foreign policy on the success of a nation. Through in-depth discussion and ideation, we learned that nations suffer when their economies are informal and their labor costs are too high, which pose as barriers to growth as the nation might try to create an entity to generate profit through successful exports. The defining factor between success and failure in the eyes of this individual was a country's economic framework. Countries need to control their exports, but their success is defined by much more than that: they also need to look at their education levels, their labor laws and their investments. The way forward for suffering nations is unclear, said this individual, but they must start by taking control of their resources and using their profits to encourage long term prosperity.


It appears as though the goal of every single export nation is to diversify away from that export. This is seen globally through the Middle East's growth in tourism, Norway’s sovereign wealth fund and even Canada’s own pension plans that were developed from their oil sands. Dutch Disease is a condition gained from being reliant on an export for too long, and these countries are trying their best to diversify as quickly as possible in order to avoid the condition. This is simply not possible when foreign companies obtain too much share of a nation's profits and prohibits them from expanding into new industries and rather forces them to stay entirely focused on the one export that brings them the most success for their bottom line. The solution is clear: control the profits and invest them in a way where the country can avoid over reliance.