Oil Wealth in Central Africa Policies for Inclusive Growth
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Oil Wealth in Central Africa Policies for Inclusive Growth EDITORS Bernardin Akitoby and Sharmini Coorey INTERNATIONAL MONETARY FUND ©International Monetary Fund. Not for Redistribution © 2012 International Monetary Fund Cover design: IMF Multimedia Services Division Cataloging-in-Publication Data Joint Bank-Fund Library Oil Wealth in Central Africa : policies for inclusive growth / editors, Bernardin Akitoby and Sharmini Coorey. — Washington, D.C. : International Monetary Fund, 2012. p. ; cm. Includes bibliographical references. ISBN 978-1-61635-376-6 1. Petroleum industry and trade —Africa, Central. 2. Petroleum industry and trade— Africa, Central—Case studies. 3. Natural resources—Africa, Central—Management. 4. Natural resources—Africa, Central—Management—Case studies. 5. Economic development—Africa, Central. 6. Africa, Central—Economic policy. I. Akitoby, Bernardin. II. Coorey, Sharmini. III. International Monetary Fund. HD9577.A352 O35 2012 Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its members. Please send orders to: International Monetary Fund, Publication Services P.O. Box 92780, Washington, D.C. 20090, U.S.A. Tel.: (202) 623-7430 Fax: (202) 623-7201 E-mail: [email protected] Internet: www.imfbookstore.org ©International Monetary Fund. Not for Redistribution Contents Foreword v Acknowledgments vii About the Authors ix Abbreviations xv Overview xvii Bernardin Akitoby and Sharmini Coorey (IMF) PART I MACROECONOMIC AND GROWTH CHALLENGES 1 The CEMAC’s Macroeconomic Challenges ........................................................... 3 Bernardin Akitoby and Sharmini Coorey (IMF) 2 Improving Surveillance Across the CEMAC Region ........................................17 Robert York, Plamen Iossifov, Noriaki Kinoshita, Misa Takebe, and Zaijin Zhan (IMF) 3 Determinants of Non-Oil Growth in the CFA Zone Oil-Producing Countries: How Do They Differ? ................................................39 Alexandra Tabova (Federal Reserve Board) and Carol Baker (IMF) 4 CEMAC‘s Infrastructure Gap: Issues and Policy Options ...............................55 Rupa Ranganathan, Vivien Foster (World Bank), and Cecilia Briceño-Garmendia PART II MANagEMENT OF OIL WEALTH AND POVERTY REDUCTION 5 Managing Oil Windfalls in the CEMAC .................................................................89 Frederick van der Ploeg (Oxford University) 6 Government Failure and Poverty Reduction in the CEMAC ..................... 111 Shanta Devarajan and Raju Jan Singh (World Bank) 7 Natural Resource Endowments, Governance, and Domestic .................. 125 Revenue Mobilization: Lessons for the CEMAC Region Sanjeev Gupta and Eva Jenkner (IMF) 8 The Cyclicality of Fiscal Policies in the CEMAC Region .............................. 135 Gaston K. Mpatswe, Sampawende J.-A. Tapsoba, and Robert C. York (IMF) iii ©International Monetary Fund. Not for Redistribution iv Contents Part III CASE STUDIES ON OIL WEALTH MANagemeNT 9 Cameroon’s Oil Wealth: Transparency Matters .............................................. 155 Bernard Gauthier (HEC, University of Montreal, Canada) and Albert Zeufack (Director of Research, Khazanah National Berhad, Malaysia) 10 Chad: Lessons from the Oil Years ........................................................................ 171 Jean-Claude Nachega and Jaroslaw Wieczorek (IMF) 11 Congo’s Experience Managing Oil Wealth ...................................................... 183 Carol Baker and Oscar Melhado (IMF) 12 Gabon’s Experience Managing Oil Wealth ...................................................... 197 Cheikh Gueye (IMF) Appendix. Introduction to the CEMAC Institutions .................................................. 213 Salao Aboubakar (Advisor to the BEAC Governor) ©International Monetary Fund. Not for Redistribution Foreword Overwhelming evidence shows that the Central African Economic and Monetary Community (CEMAC) oil exporters—five out of the six countries in the region—have not avoided the “resource curse.” Despite its abundant oil wealth, the region has grown more slowly, even compared with sub-Saharan African countries that have comparable levels of development. Ineffective fiscal manage- ment of volatile oil revenue has led to procyclical policies with “boom-and-bust” cycles that induce macroeconomic instability, thereby hurting investment and growth. The region also has some of the world’s lowest living standards and social indicators. Poverty and unemployment remain widespread, and a large proportion of the population still lacks access to basic power, safe drinking water, and improved sanitation. In other words, oil wealth has not led to more inclusive growth. Effective management of oil wealth remains on the IMF’s research agenda and is included in the policy dialogue with oil-rich countries. The IMF African Department recently launched an initiative to help countries strengthen the man- agement of natural resources, sharpen our policy advice, and deepen our dialogue to promote more inclusive growth. As part of this initiative, this book is an excel- lent opportunity to focus our thoughts on the key challenges facing the CEMAC region and how they can be addressed. The overarching priority for these coun- tries remains to seize the opportunity provided by oil wealth to foster strong, sustained, and inclusive economic growth, and to generate sufficient employment opportunities, particularly for their fast-growing youth populations. The related policy challenges range from breaking procyclical fiscal policies and improving governance and transparency of the oil sector to ensuring productive public investment and improving health and education spending. Drawing on the experiences of the CEMAC oil-exporting countries and new research on managing oil wealth, this book offers policy advice to address these challenges. First, it proposes a fiscal framework that recognizes the CEMAC’s large investment needs in physical infrastructure and human capital while reducing a bias toward procyclical fiscal policies. It underscores that public invest- ment plans should be embedded in a realistic multiyear investment plan, and the related annual budgets should be cast within a medium-term fiscal framework consistent with macroeconomic stability and fiscal and external sustainability. Second, better investment appraisal, selection, and monitoring are needed to ensure spending quality. The pace of scaling up investment should be commen- surate with the quality of public investment management systems. Finally, there is a pressing need to improve accountability and transparency in oil revenue management. Several contributions and case studies in this book propose mea- sures to achieve this important objective. v ©International Monetary Fund. Not for Redistribution vi Foreword The likelihood that commodity prices will remain elevated by historical stan- dards in the coming years gives CEMAC oil exporters strong incentives to strengthen their ability to maximize the benefits derived from exploitation of these resources. I hope this book provides a macroeconomic framework and policy advice to help CEMAC countries seize this opportunity to translate their oil wealth into inclusive and sustained growth. Antoinette M. Sayeh Director African Department International Monetary Fund ©International Monetary Fund. Not for Redistribution Acknowledgments This book is part of the IMF African Department’s project to strengthen the management of natural resources and promote more inclusive growth. It brings together research work by a broad group of IMF economists and leading experts from the World Bank, academia, and one of Malaysia’s sovereign wealth funds. We would like to thank Antoinette M. Sayeh, Director of the IMF’s African Department, for her support for this initiative. We also owe thanks to many col- leagues at the IMF and the World Bank who read and commented on the papers included in this volume. Special thanks to Michael Atingi-Ego, Carol Baker, Andrew Berg, Dhaneshwar Ghura, Saul Lizondo, Paulo Mauro, Sean Nolan, Roger Nord, Catherine Pattillo, Raju Singh, and Mauricio Villafuerte. We are particularly grateful to Paul Collier (Oxford University), Shanta Devarajan (Chief Economist of the African Region at the World Bank), Sanjeev Gupta (Deputy Director of the IMF’s Fiscal Affairs Department), and Rick van der Ploeg (Oxford University) for useful advice. We also thank the CEMAC authorities for highly productive policy discussions over the past several years. We benefited from the technical and administrative support of many col- leagues. We gratefully acknowledge the excellent assistance of Cheryl Roberts in preparing the manuscripts. Particular thanks go to Atsushi Oshima and Mpumelelo Nxumalo for excellent research assistance; Jenny DiBiase, who edited some of the chapters; and Joe Procopio of the External Relations Department, who edited the book and coordinated its production. Finally, we are most grateful to our families for their unwavering support dur- ing the preparation of the book. The views expressed throughout this publication are those of the contributing authors and do not necessarily represent the position or policies of the IMF, the IMF Executive Directors, or the CEMAC authorities. vii ©International Monetary Fund. Not for Redistribution This page intentionally left blank ©International Monetary Fund. Not for Redistribution About the Authors Bernardin