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Tokenization – Turning the Resource Curse into a Blessing

Updated: Oct 13, 2023



The “resource curse” or “paradox of plenty” refers to the phenomenon where countries rich in valuable natural resources such as oil and minerals, often experience economic, social and political challenges rather than prosperity. Most explanations that have been provided for this counterintuitive situation place the blame on the nations that own the resources by citing mismanagement of the resources and corruption as the leading causes. However, this fails to place any accountability or responsibility on the foreign governments and multinationals that seek to control these vital resources that are necessary for their own purposes.


Tokenization may prove to be the most equitable and sustainable option for countries with significant untapped natural resources. In addition, assets that are tokenized may not even have to be extracted and will therefore be more sustainable over the long term. Tokenization, within the blockchain framework, entails the creation of digital tokens that symbolize ownership rights or other attributes of real-world assets. It transforms physical assets like commodities into digital tokens, enhancing their tradability and accessibility. The main benefits of tokenization of natural resources are summarised in the following paragraphs.


Increased Liquidity and Access

Tokenization transforms the natural resources into tradable forms, broadening investment opportunities for both large and small investors. We stress that even those resources which are not yet extracted and sold can be tokenized, thereby providing a long term and sustainable funding solution for the development of the nation.


Global Market Access

It opens up investments to a global audience, promoting financial inclusion and global collaboration. It will also be possible to attract certain classes of investors who may not traditionally have the access to such investment opportunities. In the case of natural resources, it may be possible to attract more investors who are committed to sustainability and environment protection and who therefore are more aligned to the objectives of conservation of the resources within the nation.


Disintermediation and Cost Efficiency

Removing intermediaries streamlines transactions, reducing costs. The disintermediation also refers to the eventual exploration and extraction activities where the nation is committed to the mining, extraction and eventual sale of the commodity. Tokenization will enable the nation to raise the necessary capital to fund these extraction activities independently and without being negatively influenced by the financiers.


Improved Transparency and Security

Tokenization utilizes blockchain's inherent transparency and immutability features to securely record and make visible all token-related transactions and ownership. These features significantly reduce fraud risks and the risks of investor concentration which may eventually interfere with the nation’s sovereignty.


Automated Compliance

Tokenization allows for the implementing of smart contracts to govern the tokenization process, setting terms and conditions for asset ownership, transfer, and associated rights. The contracts can also provide for the oversight and periodic information updates from various external sources to establish and maintain greater credibility in the tokens.


Fractional Ownership

Dividing assets into smaller fractions, enabling fractional ownership and making high-value assets accessible to a broader range of investors. Careful consideration should be given to the size and value of each token to make it attractive and available to as many private parties and to include the citizens of the nation itself.


Enhanced Market Efficiency

Reduces information asymmetry, enabling faster settlement and improved price discovery.


The Central African Republic (CAR) has already taken steps to tokenize its natural resources. On July 24, 2023, the CAR passed a law on tokenizing land and natural resources in the country following unanimous approval by the National Assembly. This is groundbreaking legislative framework that could be a template for the rest of Africa and maybe the world.


The idea behind tokenization and the legislation is an attempt to position CAR as one of the most business-friendly environments in Africa. Despite the many political, social, economic and human capital challenges facing CAR, this ought to be viewed as a major step forward in the development of the nation. The blockchain based platform that the initiative is built on enables individuals, both domestic and foreign, to establish businesses seamlessly, obtain business e-visas online, and secure licenses for various sectors, including real estate, agriculture, natural resource exploitation, and logging.


Being one of the poorest countries in the world, the landlocked CAR has emerged as a pioneer in the tokenization of its real estate and natural resources and will no doubt provide many valuable lessons from its experience.


Monica Pheny is a Director at Azean Ventures Sdn Bhd and can be contacted on consult@azeanventures.com

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