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Transcript of Presentations by African Ministers|
2005 Annual Meetings
International Monetary Fund
September 25, 2005
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The Office of the Executive Director for Francophone Africa held this public seminar during the 2005 Annual Meetings.
Mr. Abdoulaye Diop, Minister of State, Minister of Economy and Finance, Senegal
MR. ONDO MANE: Thank you. His Excellency, the Minister of State of Senegal, Abdoulaye Diop; His Excellency Marcelino Owono Edu, from Equatorial Guinea, Mr. McPherson, it is a pleasure to me to introduce this serious discussion on Africa. I think we will make it in the future for other countries. A key objective is to express what has been expressed in the communiqué, that Africa has to get more voice and explain their own problem. We will begin with Senegal and Equatorial Guinea to explain their economic development, their goals and one way to strengthen their ownership.
[Continuing in French] Excellency, the Minister of Finance of Equatorial Guinea, the Minister of Finance of Senegal, it is a pleasure for me, as Executive Director representing you, to present you here, introduce you during this press conference. You, yourselves, are going to express the economic and social objectives of your countries, and it's going to be proof of your ownership of the problems we have been implementing.
I will make a brief introduction for Senegal. As you all know, Senegal, for quite some time now, has enjoyed relations with the International Monetary Fund and the World Bank. The performance of that country is known to everyone. Senegal is one of the countries in its region which has reached the completion point, and it also has a positive economic outlook.
So this means that when the minister issues his treasury bonds on the market, he receives more than he actually asks for because Senegal enjoys a lot of confidence in the markets. So the markets have confidence in Senegal. That's one thing we should bear in mind.
Another thing is that Senegal has decided to institute an accelerated growth strategy which is built on its past performance. So you're going to have the opportunity to listen to the Minister of State Diop, who is one of the architects of this strategy, and he enjoys the support of his head of government and of President Wade.
You are going to listen to Mr. Marcelino Owono Edu, Minister of Finance and of the Budget of Equatorial Guinea. He's going to talk about the economic performance of his country.
Equatorial Guinea, as you know, was in the past one of the poorest countries in Africa. But recently it has enjoyed robust growth in its economy. This extends to oil production. So the Minister is going to explain to us how Equatorial Guinea manages its natural resources and how that country intends to improve management of those resources in the future. I think your questions are going to help him to throw more light on this. Equatorial Guinea has taken an important decision to boost the growth of its social sector. So part of the project has been legally that provision is made in the state budget to ensure the development of the social sectors. And so he is going to tell you more on this. It's up to the tune of about 50 percent. In any case, he's going to give you more information.
We invited Mr. McPherson, who is a Senior Adviser at the World Bank. He is in charge of petroleum matters, and he is one of the architects and members of the Extractive Industries Transparency Initiative, so he does not only cover petroleum resources.
We also have Mr. Itam, who is a top executive in the African Department. So without taking much time, I'll give the floor to Mr. Itam so that he can make his presentation.
MR. ITAM: Ladies and gentlemen, we welcome you here today to start this series of presentations, as Mr. Ondo Mane has said. Let me remind you all that simultaneous interpretation is available in French and Spanish. Spanish is channel two; French, channel three; English, channel four.
Our first presentation will be by His Excellency Mr. Don Marcelino Owono Edu, the Minister of Economy and Budget of the Republic of Equatorial Guinea. He will describe the evolution of the economy. He will also discuss recent development, the risk to economic outlook will be identified along with the strategies developed by the authorities to cope with this risk and ensure a sustained economic growth. His Excellency will also emphasize measures taken by the authorities to strengthen oil resource management, including the decision to adhere to the EITI.
MR. EDU [Interpreted from French]: Thank you, Mr. Itam. I'm planning to make my presentation in Spanish. [Continuing in Spanish] Distinguished guests, distinguished participants, ladies and gentlemen, it is an honor and a pleasure for me to take the floor on this occasion to say a few words on the economic prospects of the Republic of Equatorial Guinea. I would like to seize this opportunity that has been offered to me by the IMF to do so.
Before I continue with my presentation, I would like, on behalf of my delegation, on my own behalf, to extend thanks to the organizers of this event for giving me this opportunity, this singular opportunity, during the annual meetings of the World Bank and the IMF to say something about my country.
As such, I would like to say that the aging of economic structures of Equatorial Guinea, that these aging structures have not been renewed since 1957. This has set off the entire economic and social development of my country since 1973. This has affected our economy, as well. This has also undermined the living conditions of the people, and so our country has been isolated from the outside world.
In spite of the changes that have taken place in my country since 1979, the government of Equatorial Guinea undertook, between 1979 and 1983, a process to renew the production structures in my country in order to halt the deterioration of such structures and attract foreign investment. This was done within the new economic context that prevailed at the time.
And so thanks to various efforts made by the government, we were able to undertake certain negotiations with multilateral partners and with neighboring countries in order to join the CEMAC, that is the Economic Community of Central African States, in 1985. Our membership of CEMAC enabled our country to enjoy all the benefits of economic and monetary cooperation within that economic monetary union, that is CEMAC. So we benefited from the convertibility of our currency, a free market, and so on and so forth.
From that time, the economy of Equatorial Guinea gradually transformed itself, and so our structures, our economic structures, became gradually consolidated. After the efforts deployed by our country, we were able to start oil prospecting and investors' confidence in our country started growing again. So we received investment in forestry and oil sectors and this boosted the economy of our country. And so I would like to say that today Equatorial Guinea is one of the countries that enjoys the highest per capita income in Central Africa.
As concerns CEMAC, the macroeconomic situation has evolved favorably in 2004 because we were able to reach a GDP growth rate of close to 8 percent, that is after attaining a rate of 4.2 percent in 2003. The projections for 2005 show that this trend is going to continue rising.
At a national level, the macroeconomic context has made it possible for us to increase our GDP in real terms at a rate of 33.4 percent in 2004. That is compared to a growth rate of 12.6 percent in 2003. This trend was due to the improvement of the international economic context and the impact of oil prices, that is international oil prices, especially methanol and other such products that are produced in my country.
At the national level, there has been an increase in oil production that is plus 35.5 percent, methanol plus 24.3 percent. There has been a graduate increase in our budget and this has helped us to increase our construction activities and to consolidate our monetary situation. We have been able to reduce our external debt. And all of this has also helped us to curb inflation.
Now the main causes of the trends observed in the first quarter of 2005, in any case, we want to main this expansion and ensure that we continue to grow at a better rate compared to the rate of the previous year. Now looking at the economic trends of the country for 2005, we can say that, in summary, in the real sector domestic demand is going to fuel growth. That is it's going to contribute to consumption, especially household consumption. And the activities in the construction sector are also going to fuel growth.
I would like to signal here the positive contribution of the public sector, which has focused on key areas such as infrastructure, education, public health because we have increased spending in these areas. With regard to external demand, it has also contributed positively to growth in my country because there has been a moderate increase in exports compared to imports. This trend is due mainly to the excellent performance of oil exports and imports of construction material.
With regard to supply, the hydrocarbon sector is the driving force of our economic growth thanks to the increased production of crude and methanol. Similarly, in the construction sector, the growth rates keep rising and this is going to fuel our economic growth.
With regard to the transport and telecommunications sector, these sectors are equally growing thanks to the development of air traffic which is rising steadily, as well as the extension of mobile telephoning in all provinces of the country.
In the energy sector, growth is due to the increase in demand for electricity in urban areas, as well as an increase in economic activity. With regard to price trends, our inflation is estimated--our inflation is growing, especially in terms of the Consumer Price Index. In fact, the inflation rate is going to reach 5 percent in 2005 compared to 4.2 percent in 2004, and it is a rate which is higher than the threshold of 3 percent fixed by the Economic Community of Central African States.
Now we turn to public finance. The favorable economic climate has enabled the government to continue with its policy of granting effective allocation of public resources to the development of economic and social infrastructure, private sector such as education and health. It has also made it possible for us to diversify economic activity because such diversification is necessary for us to ensure sustainable growth and to reduce poverty.
Now this trend in public finance is dominated by an increase in our budget surplus because our budget revenue is rising steadily, thanks to our proceeds from the oil sector. There is also an increase in expenditure, notably investments, because we finance construction works and rehabilitation of economic and social infrastructure. This budget surplus enables the government to guarantee regular payment of our programmed debts.
For fiscal year 2004, the budget surplus is going to attain 268.8 billion CFA francs, thanks to revenue collection of 773.5 billion CFA francs which is higher than our expenditure. Expenditure levels stand at 501.5 billion CFA francs.
As concerns external trade, I would like to say that there has been an improvement in our terms of trade. And so our balance of payments is going to be in surplus in 2005.
Now turning to the monetary situation, we enjoy stability and we have a sound situation, thanks to the fact that our country is part or a member of an economic and monetary union which has a strong currency, namely the CFA, with respect to the euro. And so it guarantees that this currency has a fixed exchange rate.
So we have to consolidate our monetary situation by increasing our net foreign access and increase the volume of our exports and profiting from the rise in oil exports. Domestic credit has increased by about 10.3 percent due to the debt reduction or debt squeeze policy of the public treasury and the banking sector. It is also due to the short-term credits that are granted to major corporations. The households have also benefited to credits, that is from housing credit. This is what accounts for the increase in money supply.
Now with regard to multilateral convergence in the CEMAC area, the Republic of Equatorial Guinea respects three criteria, or three of the four convergence criteria. We have a budget surplus when it comes to public finance. We have a debt rate which is lower than 70 percent. And we do not have any arrears. However, our inflation rate is above the threshold of 3 percent set by CEMAC.
So all in all, despite the favorable trends in our economy, our growth depends essentially on oil. So this means that our economy is still vulnerable to the situation on the international market, especially when we're talking about oil. And that is why the key objective, the key policy objective of our government, is to use our oil resources to encourage diversification of economic activity so that we can ensure sustainable growth. We want to ensure that the private sector enjoys more flexibility. We equally want to develop our economic and social infrastructure.
The implementation of this policy requires the technical support of our development partners, notably the Bretton Woods Institutions. They should help us to define and implement a poverty reduction strategy so that we can also define a framework that would enable us to obtain our Millennium Development Goals.
The government is also cognizant of the fact that our human resources are limited in capacity, especially when it comes to the implementation or efficient management of the resources that come from our sales of crude. And so the government has embarked on a policy to join the EITI with the support of the World Bank and the IMF.
MR. ITAM: Thank you. We will now turn to our Minister from Senegal, Mr. Diop, Your Excellency.
MR. DIOP [Interpreted from French]: Thank you very much and good morning, ladies and gentlemen. It is, for me, a real pleasure to address you. I would like to express my gratitude for having been given this honor to be able to present to you the current situation of Senegal.
I would like to provide you with some information and some figures. In the past 10 years, Senegal has had a growth rate of approximately 5 percent per year. In the past three years, the growth rate has been closer to 6 or 6.9 percent. Inflation in these past two years is lower than 1 percent for each of those years. And there have been lots of problems because of the increase in oil products. And because of that we expect that our inflation rate will be closer to 2 percent this year.
In order to give you an overview of the situation in Senegal, it does belong to the WAEMU, the West African Economic and Monetary Union, with a common currency that has been in existence for approximately 40 years. In this economic arena, Senegal is maybe the only country that is able to comply with all the convergence criteria that have been in place for some years, four or even five and six years. In some cases, some of the criteria have been in place for eight years. These are criteria that were adopted within the WAEMU.
Senegal also belongs to another group, which is the ECOWAS. This is the Economic Community of Western Africa States that brings together 15 countries whose ambition is to implement economic and monetary union. For the time being, the customs union is in place and the monetary union is still being worked on. Hopefully the 15 countries of Western Africa will be able to have it in place within the next five years.
Senegal has a very special situation. Its inflation is quite low. That has enabled us to have a competitive situation for the past 10 years with regards to the franc zone because of the strong exports. So our competitive has been in existence for about 10 years, since the development of the CFA francs.
Senegal has reached the HIPC completion point two years ago. Its indebtedness has gone from 69 or 70 percent, has decreased to about 11 percent. It is now one of the countries that has been to benefit from the G-8 Initiative for Debt Forgiveness, with the forgiveness of practically all our debt.
This information obviously can be obtained from the web site of the Monetary Fund and the World Bank, and as our Executive Director said, the country is now calling out to the market because the Central Bank can no longer continue funding it. So every year, we go out to the market and we have a show of the confidence of the market in our country.
Let me give you an example. This year we went to the market for $9 million, and this was, we received offers for $230 million. This I think is a clear signal of the confidence that has been placed by the market on Senegal. However, it's not these issues that I want to raise because they are pretty well known and they have been going on for some years, but I want to talk to you about a policy that is being implemented in Senegal. We can no longer be happy with growth rates of five, six, or 6.9 percent which is the case of last year. What we want is to further grow and to reach a minimum of seven percent and even an eight percent over a long period as was the case for the previous period.
We therefore tried to develop an accelerated growth strategy which I now wish to describe to you as it will be able to show our economic performance. On 14 January of this year, our Prime Minister presided at a ceremony to launch the finalization and definition of the accelerated growth strategy that Senegal will be implementing as of 2006.
We must recognize and state that 2005 was a hinge between two dynamic growth periods that we would like to be strong and sustained. The first phase as you probably know covers the period 1994-2005 during which growth was pushed by the January 1994 devaluation of the CFA franc. It was then supported by the macroeconomic and structural reforms that accompanied the change in parity and then implementation of the WAEMU common rate in order to have a far more competitive production apparatus.
Following the political change that occurred in March 2000 in Senegal, the economic reform process benefited from new initiatives to further enhance investment environment and to improve the even further the competitiveness of business. The underlying political willingness was expressed at the highest levels of the state through the creation of the national Agency for Promoting Investments in Major Works, the establishment of the Presidential Investment Council and then the activities of the agency to develop the SMEs, and most recently the creation of the Senegalese Export Promotion Agency, ASAPEX [ph].
To address the efforts, every six months the president meets with a board that comprises one-third local or domestic investors, one-third foreign investors who come to our country to invest, and one third of foreign investors who do not invest in Senegal.
And it is at these biannual meetings that all the issues that could improve the business environment are tabled so that the government who is present at these meetings then has an agenda for its work in the following six months in order to implement all the recommendations that are formulated, so in two years of existence, this Presidential Investment Council has been able to formulate 35 strong recommendations and practically everything has been accomplished.
To describe one of the achievements of his Presidential Investment Council, a lot had been said about taxation in Senegal. It had a fairly high level for private investors but was within the normal standards for the members of the union and also countries that do not belong the union. The tax on income for private enterprise was approximately 35 percent two years. Today this has decreased and the rate, income rate, is now down to 25 percent. That is ten percent drop in taxation, and this is thanks to the Presidential Investment Council and if we we're able to do this, it's also thanks to our economic and financial achievements.
So all the structures that I have described and all these entities that were created in order to enhance the support of the private sector are in place today and an effective transformation has already occurred in order to improve efficiency and also to promote the economic situation and to open up to the private sector. Through the implementation of a device to support private sector based on the best global practices, the government has wanted the dynamic growth that has been this way since 1994 to not be a reason for self-satisfaction but rather to look at it as an opportunity to create conditions to transform production such as promoting diversified exports that requires looking into the structural deficit of the trade balance to create more productive jobs to combat poverty and achieve social stability, to develop a culture for investments and innovation that will be especially helpful for the value added or rather the high value added export activities and also to create a productive dynamic that is the best manner to achieve wealth throughout the country.
These objectives in our view will allow us to achieve the accelerated growth strategy in particular for the period 2006-2015, so that Senegal can achieve the MDGs which includes obviously reduction of poverty by half. Senegal therefore intends to implement through its accelerated growth strategy and to work in order to set the basis for its economic emergence. The definition of accelerated growth strategy is founded on three pillars. The first is to consolidate private initiatives for the development of that local private sector.
The second pillar is to pursue initiatives having to do with the client business affairs in order to bring it up the international level. The third is to establish a partnership between the state and private sector and to tie it to promoting Senegalese products on the international market in order to look at the competitive clusters.
Addressing now the first pillar which are initiatives to develop the private sector that was a strategy first adopted in 1990 and then updated in 2002 and 2004, I would like to refer to the upgrading of the economy in order to attain the growth acceleration objectives. The period started in 2006 should allow all economic actors to focus on a culture of investment and to be very focused on the production procedures and also to have the most highly performing management procedures. In the business sector, we should note that many programs were already developed in the period 2000-2005, under the chapters of Alleviation of Administrative Procedures and the Reduction of Taxation. The reform of the investment code, development of basic infrastructure, implementation of a global device to fight corruption, and a national good governance program.
All of these programs were supported by the IMF and the World Bank. With regards to the pre-requirements for economic emergence, the accelerated growth strategy will provide us with an opportunity to take a closer look at the shortcomings of the financial market, human resources, the labor market, the efficient use of public resource sand infrastructures.
And lastly, the third pillar, the competitive clusters, there are certain studies underway in five key sectors, working groups started work in their analysis since May of this year in the following five sectors: agriculture and agro-industry, fisheries, clothing industry, the ICTs, information and communication technologies and teleservices, and the growth of tourism, cultural industry and artisan work and arts and crafts.
These obviously are in view of contributing to export goals to generate jobs, investment and productivity, but always in accord with the private sector. Through the cluster approach that has been tested in a number of countries and territories, Senegal hopes to have an instrument to diversify its exports, stimulate business initiatives, cooperation with trust between innovative enterprises and also to fight disinvestment in a sector or region.
The driver of the private initiative in this cluster approach eliminates all involvement by the public sector. The public sector should just be a facilitator should it be motivated to encourage the creation of these clusters and help their sustainability. The state initiatives are the following: to raise awareness among enterprises about the cluster approach and to help the establishment of initiatives among actors, to have a legal and administrative framework that is suitable, to support the start up of management and coordination structures within the clusters, to strengthen the capacities of these clusters, facilitate access to existing support mechanisms or to be implemented in order to further encourage these initiatives to help the cluster partnership undertaking, to allow the technical and economic data to be used and study the feasibility of action plans, to support consolidation of support structures in training, technology transfer, the financing and support, et cetera, organize exchanges of experience among projects, facilitate contracts with stakeholders involved in cluster experiences in other countries, and to have an evaluation and monitoring instrument.
The public sector obviously requires the involvement of a number of agencies in public administration. This is indeed an overall policy covering a number areas, teaching, education, research, economic policy, foreign trade, the rule of law and credit policies, et cetera. Nonetheless, the support of the administration should enhance competitive advantages of the members of the clusters because establishment of the clusters is not the objective per se.
Therefore, a steering committee has been created with a budget developed by the state with the contribution of the partnerships, in particular, the IMF, the World Bank, and many other agencies.
And all of this will make it possible to undertake these studies and to reach agreement between the private sector and state. November and December of this year shall be devoted to technical validation, to exchanges with development partners, and in particular for the political validation of the strategy in order to accelerate implementation of reforms and growth as well as the next financial and economic program that will be created with the IF will be negotiated in the first semester of 2006, but it will obviously rely very heavily on the accelerated growth strategy.
Thank you very much for your attention.
MR. ITAM: Thank you very much. His Excellency has discussed the good dynamics in Senegal since the mid-1990s. His presentation highlighted significant progress made in the implementation of the Government's structural reform agenda. It has laid out the objectives of the accelerated growth strategy as well as the mode of determination of priority sectors identified by the strategy. It concluded with the steps for the implementation of this strategy.
Ladies and gentlemen, we now turn to our colleague from the World Bank, Mr. McPherson, who will discuss the rapid gains that the EITI has made since its launch in August 2002 in terms of prominence and importance as a key governance objective among developing countries. His presentation will provide a brief overview of the EITI, its origins, objectives, criteria, and options for its future direction. The relevance of EITI to the World Bank and the IMF programs will be discussed as well as procedures for access to technical assistance grants for those countries implementing EITI. Country case examples will be used to illustrate the discussion.
MR. MCPHERSON: Thank you very much, Mr. Chairman. Thank you, Mr. Executive Director, for this invitation to this very interesting panel. Chairman and Excellencies, ladies and gentlemen, a pleasure to be here. I have been asked to address the topic of the Extractive Industries Transparency Initiative. As the Chairman said, I will speak for a moment on the developmental relevance of, if I can ask the technology--
MR. MCPHERSON: I'll say a few words about the developmental relevance of transparency, what the Extractive Industries Transparency Initiative has accomplished to date, and pass over four country cases and conclude with a word or two on the World Bank and IMF roles and on the access to the EITI Trust Fund by those countries implementing the EITI.
The developmental relevance of transparency originated with studies that identified what they called the paradox of plenty. I'll discuss that, talk about its causal factors, the role of governance, the contribution of transparency, and finally, the definition of EITI. The paradox of plenty is briefly described. It recognizes the widespread resource wealth in developing countries, and it is particularly true in Africa. The potential for good based on that resource wealth, however, has not been realized in many countries, and resource-rich developing countries have experienced low per capita growth rate, slow progress on human development, and social and political instability and often violence. This has certainly been true in oil-rich Africa and resource-rich Africa. Incidentally, my remarks are referring to those countries with substantial endowments of oil and of minerals, and I'll focus primarily on oil.
The oil-rich countries in Africa are well known to you. They include Nigeria; Angola; Equatorial Guinea, as we've just heard; but Cameroon; Gabon; the Republic of Congo; Sudan; and Chad with others pending: Sao Tome and Principe; Mauritania to just mention two of them. These countries have very significant resources of oil, about 4.5 million barrels a day or 5 percent of current world production and growing rapidly, but they have a very high dependency on oil, as was also made clear. It's 70 percent plus of government revenues in most of the countries that I've mentioned.
And at the same time, those countries, with a few exceptions, have below average per capita Africa income and below average scores on infant mortality, life expectancy, literacy, and a number of other human development indicators, and they certainly have had their share of instability and violence. The war in Nigeria, the civil war in Nigeria, the violence in Angola, Chad, Sudan, the Republic of Congo to mention a few.
What has caused all this? Those analyzing the paradox of plenty have identified at least four factors, two of which is technical. One is the Dutch Disease, which may be familiar to some of you as a name. It really refers to the rapid appreciation in the exchange rate which results from major exports of natural resources, the escalation in the price of domestic factors of production, and the resulting decline, rapid decline in the competitiveness of other exports or tradables in that economy, so that Nigeria has lost its export markets in agriculture, and similar things have happened in Angola.
The other technical factor is well known, and we have been experiencing it in recent months. That's the dramatic volatility of oil prices and the resulting volatility in revenue going to governments and difficulty in maintaining, in the face of that, revenue volatility, a stable and predictable expenditure pattern.
There are two political factors that I would like to mention. One of them is diminished accountability. When a government has access to one source of income which is very substantial, it has a diminished incentive to be accountable to the public's priorities. Many countries are now becoming very aware of this, and they are taking steps to correct this. It also has a diminished incentive to invest in capacity. You don't need to invest in wide-scale capacity if you have a large cash flow coming in from one single source.
Good governance has been identified as critical to addressing the paradox of plenty, and resource-rich developing countries do not score well on governance, unfortunately, or have not. That, again, is changing. Good governance has a lot of features, multiple features, including clear and stable laws and regulations, the rule of law, high level capacity and skills in government, fiscal and monetary discipline. The two previous speakers, by the way, made it very clear that they are on the road to good governance, and they have identified that as a major priority in listing their programs.
Good governance also includes our open dialogue between government and civil society and a good balance between the public sector and the private sector. And lastly and far the least, it includes transparency.
Transparency really is a fundamental building block of good governance. It increases accountability; it reduces the risk of wasteful investments, poor economic management, and corruption. It fosters a democratic debate on what the priorities of expenditure ought to be, and it improves macroeconomic management. Once you have a good handle on what the figures are, have been, and are going to be in the future, you can manage your economy much more effectively. It also increases access to finance, and we are going to have a very interesting meeting with a number of syndicating banks tomorrow to discuss how transparency is going to affect the due diligence that they conduct at their board level in making loans to developing countries.
Transparency itself has many dimensions. You can encourage transparency with regard to expenditures; obviously very important in knowing what's in the budget, where is it going. Transparency with respect to policies, laws, regulations, administration and so on, all sectors, not just the extractive industry sectors. But the Extractive Industries Transparency Initiative has focused on resource revenue, that is, revenue from oil, gas, and mining, and it takes this focus to make transparency a manageable and meaningful starting point. Once people have a good handle on the figures, they can move on to their application in other aspects of governance.
The EITI to date: it was launched by Prime Minister Blair of the United Kingdom in Johannesburg in 2002. Since then, there has been an escalating engagement of all stockholders, all people whom this affects. There has also been an emerging consensus on principles, objectives, and criteria, which I'll mention in a moment. The process so far has been very much learning by doing, and we and the IMF have been playing very important roles. It's very important to our own policies.
The implementing countries, governments, there are 20-plus of these in Africa. I'm sure many of them are represented in this room today. They're also in Latin America and in Asia, although a smaller number to date. Donor governments have been involved in the debate and deliberation of extractive industries transparency. The U.K., of course, Norway, France, and the United States have all shown a great deal of interest. Incidentally, it was on the agenda in the last three G-8 meetings. So it began in Evian, it appeared at Sea Island, and it was also high on the agenda at Gleneagles.
Industry has shown a rapidly increasing interest in the subject. It produces good transparency; it makes it more manageable, more attractive investment climate in the host country. It also reduces reputational risk for many of the companies involved. So we have BP, Exxon Mobil, Chevron Texaco, a number of the international companies heavily involved as well as the major international organizations of industry.
Civil society, the NGOs, are very much there. They were a major catalyst in getting this whole thing started. Groups such as Publish what you Pay, Catholic Relief Services, Human Rights Watch have been absolutely critical to moving this initiative along.
And finally, as I mentioned when I referred to the link between transparency and improved access to finance, there are a very large number of institutional investors who have shown an interest in what the EITI criteria are and where the EITI is likely to go. The FNC Management Group has something like US$8 billion under management, and those investment groups are supportive of EITI.
I won't mention this in the interests of time, but we have gone through, since the beginning, several high level conferences, regular meetings of the stakeholder groups. An international advisory group has been established which represents all stakeholders. There have been a number of bilateral consultations and, of course, deep discussions inside particular countries in the individual country context.
The principles and objectives of EITI are quite straightforward. They're just to ensure that the substantial resource revenues are properly accounted for and that they contribute to sustainable development and to poverty reduction, in contrast to what has happened in most countries in the past. The objective of the EITI is to provide guidelines to stakeholders on auditing, reporting, and disseminating information, on resource payments, payments by the companies, and revenues, revenues received by government and government agencies. And it's also, as a way of implementing that, you can't simply offer the advice, designed to offer technical assistance to those countries who seek it on the implementation of the Extractive Industries Transparency Initiative.
There are five key implementation criteria that have been established. The first is that there be a credible, independent audit of the payments made by the companies and the revenues received by the government. You have to know where you are at the beginning. Many times, the actual monies involved have been very opaque or completely obscured. Second criterion, there is to be publication and widespread dissemination of the audit results in an easily accessed format. That means it has to be available to civil society and to the people, and to stakeholders outside those who are responsible for generating the numbers. It should be comprehensive coverage. In other words, if your government is going to do this, it should bring all companies into the net, including their own national oil companies. Civil society should be engaged in the process. That's the fourth criterion. That doesn't mean that civil society is going to be doing the audit or anything, but it certainly ought to be involved in the design of the whole transparency process. And finally, there ought to be a public, financially sustainable, time-bound action plan for implementation of the goals of the EITI.
Up to now, there has been very much learning by doing. Every country has a different context, and all the stakeholders involved in EITI have been learning as we go along. And the attention is focused much more on getting that process put in place than in picking up on the numbers itself. Incidentally, as we went along, a source book was produced to provide guidance on the number of different ways in which you can implement the Extractive Industries Transparency Initiative, the different steps and way in which you would go ahead.
I'll touch on four country cases and then wrap up, but one of them is Azerbaijan. This is one of the first countries, a very new but a very oil-rich country who got involved in the EITI for the reasons that I've outlined. They signed a memorandum of understanding among all key stakeholders. It took a long time to negotiate this, although within a year, but it was very intense. Government, industry, and civil society all came to an agreement on the publication and dissemination of revenue numbers. They engaged a qualified independent auditor to certify the payments that were made to government, and the auditor issued the first EITI report to the public in March 2005. A second report is pending.
MR. McPHERSON: There's one problem with this. Almost every country has its own model, as I said, and accomplishing most of the objectives of the EITI but missing others. The one problem with the Azerbaijan model right now is that SOCAR, the national oil company, has not been included in the revenue audit.
Nigeria, the key African producer, has played really a leading role on transparency. The Nigerian Extractive Industries Transparency Initiative, and there they were making the point that it is to be very much a home-grown initiative. It was part of a larger initiative on good governance. In other words, it was set in the kind of framework that both ministers have described. It established a National Stakeholders Working Group in February of 2004 to guide implementation of the EITI, and that was established by the president so it had a very high profile. Legislation that will anchor the initiative in law has been submitted to the national assembly and is near being passed. There's a very comprehensive audit underway which actually, in Nigeria's case, extends well beyond just the audit of the revenues to a cost audit, which I believe is also in place in Equatorial Guinea. We'll come to that in a moment. But an audit of the whole procedures in the sector, how licensing is done, how the oversight of the oil companies is undertaken.
There have been aggressive outreach programs. A lot of workshops have been held in all of the different regions of the country and at the national level to explain the industry to people and particularly to explain revenues. There have been major capacity building programs planned and now under implementation in capacity building in government, in the Ministry of Finance, in all of the other agencies in the petroleum sector, and also in civil society.
East Timor is an interesting case simply because it started with a clean sheet of paper and it had a major--it's the newest country in the world, and one of the poorest. And when it came to be established, it found it had a major natural gas project on its hand and another one pending that was going to produce very, very substantial revenues relative to the past. They took a very rigorous approach to transparency from the outset.
All the revenues and contracts are made public. All the government policies and draft legislation have been the subject of intense public scrutiny and debate and transparency and audit requirements have been written into legislation.
Final case study, I'd like to mention is Equatorial Guinea, represented on this panel, which has been moving very aggressively to implement EITI. It endorsed the EITI officially in 2004, although we had had discussions about it before that time. It already conducts regular annual third-party audits of payments by companies. It constituted a stakeholder group, all of the key stakeholders, who then held workshops and drafted an action plan which will cover reports and auditing procedures. It participated with the IMF in its Article 4 Review, and what's called a fiscal ROSC, which did address the behavior of the petroleum sector very explicitly and the numbers generated by that sector. Those results are published.
And it has issued a decree implementing a national commission which will take over from the stakeholder group and give it legal life again. The implementation of that is pending. As a matter of fact, I think there's a meeting on it in half an hour, so it's moving well along.
What have our roles been at the World Bank Group and the IMF? We were very early and active supporters of the EITI and if DfID, the Department for International Development, in the U.K. which has really taken a leadership position in the EITI.
It was a key element in our response to our own internal reviews of what we're doing in the extractive industries. Right now we cannot take a country project to our board, whether as a Country Assistance Strategy, a lending program, technical assistance program. We cannot take it to the board if the country is a major extractive industries country without explaining, first of all, what is happening to revenues and transparency.
We've added resources internally to work on this project. We have a management right now of a multi-donor trust fund which will help those countries implementing EITI. Our individual country programs all incorporate, where the country is a resource rich country, incorporate aspects of EITI. So in other words, the process has been very clearly mainstreamed in the World Bank Group.
The same applies to the IMF, it has been providing parallel support in many of the same ways as I've described the activities going on in the World Bank Group, and in their own special cases, like the Article 4 Reviews and ROSCs. Anton Op de Beke is here from IMF and I'm sure in the question and answer period can address any questions you may have specifically about what the IMF is doing.
Incidentally, we brought with us a number materials related to EITI, which are all available out in the hall, a fact sheet, and the kinds of documents that we have internally, the source book, which I mentioned, which tells how to implement EITI, and the IMF's Resource Transparency Manual. Finally, I'll close with a word about the EITI Trust Fund. It's objective, as I've already mentioned, is to help those countries implementing EITI programs with technical assistance. It's managed by the World Bank Group with donor participation in the steering group. The donors at the moment are the U.K. and Norway, and there's over $5 million committed to the fund, and that's likely to increase.
Incidentally, that's also complemented by our own Bank programs and IMF programs.The Work Program is providing support to 20 countries over a two-year time period. I say 20, plus or minus, because countries are being added and countries are also working at their own pace to implement EITI.
Typical components include workshops to educate people on what the EITI is all about, we've had a number in Equatorial Guinea as I mentioned, the establishment of secretariats like the national commission, the audits of payments and revenues received, capacity building both in the key government agencies in managing petroleum revenues, and information centers to make information on the sector available to a much wider group of stakeholders.
I think, Mr. Chairman, I'll close with that. Thank you very much and I'll be happy to answer any questions. Ladies and gentleman, you have had the three presentations. We welcome interventions now from the floor, or questions either to his excellencies or to our colleague from the World Bank on his presentation. Please feel free to intervene at this point.
QUESTION: Christopher Thompson from Africa Confidential in London.
This is a question firstly directed to Minister Edu, but also sort of an attached question to Mr. McPherson. Minister Edu, you talk about the increase in social expenditure. But how exactly do you intend to distribute Equatorial Guinea's newfound wealth more equitably without first making the government more accountable to its population? And secondly, sort of attached to that to Mr. McPherson, how can you ensure that the Bank's money is being well spent? Until there are democratic reforms in the country, it seems a little antithetical to your proposed creed of good governance.
MR. ITAM: Let's start with his Excellency.
MR. EDU [Interpreted from Spanish]: Thank you for this question. As I said a short while ago, one of the objectives of the government is to ensure attainment of the Millennium Development Goals. And this means we have to focus on poverty reduction. And this, as I talked about, is important in our poverty reduction process. I'm talking here about social investment. It is crucial to poverty reduction, investment in the areas of education, women's empowerment and schooling for younger children. And so it is on that basis that the government is striving to increase spending in these various social sectors.
Mr. Ondo Mane, a short while ago, talked about the social fund that the government set up. The objective of that social fund is to resolutely support or boost progress, the country's progress, in the area of economic and social activities. That is with a view of reducing poverty, of course.
Now with regard to spending and ensuring equity in spending, I would like to tell you that if you look at our state budget we try to take this in to consideration. That's what you'll find. You will also find that we take into consideration poverty reduction and to ensure that all our people benefit from resource allocation, especially oil revenue.
MR. McPHERSON: The question is a good one and it's one that doesn't just apply in Equatorial Guinea's case. It applies to almost all of the countries we're dealing with, which are at different stages in their level of development of governance. I think it's quite clear from the Minister's remarks that pursuit of good governance is on the agenda in Equatorial Guinea.
The consultations that we've had have increasingly involved other stakeholders than just the government itself. The agenda that will come out under EITI will be a public agenda. I think increasingly the results of these working groups and the priorities that they set will go into the public domain.
As I mentioned, there is already a fair amount of data that's coming into the public domain which relates to developmental objectives and Equatorial Guinea's track records in pursuing those objectives.
Anton, I don't know if you want to add anything from the IMF on the results of the Article 4 Review and the fiscal ROSC review, that is the Report on Standards and Codes.
MR. OP DE BECK: What I could add is the IMF addresses the problems raised in the question through a very broad program of promoting transparency in fiscal policy, of which the EITI is a component. We are an enthusiastic supporter of the EITI, but it's an element. In the countries in question we promote fiscal transparency not only in revenue but also on the expenditure side in the expectation that that will produce the kind of political accountability that ensures the outcomes that we all seek.
QUESTION: I have two questions. The first is could you clarify when we're likely to see such audits being produced and how many? Just a bit more on the process there. My second question is if Africa's oil industry books were thrown open today, what do you think we would see? What would the consequence of that be?
MR. MCPHERSON: Well, you're already seeing the audits. I mean, the audits--many are underway. Some of them already started to publish results. There are early results, early publication of partially audited results in Nigeria already which have been very interesting and have caused a great deal of public debate. Nigeria now publishes federal, state, and local revenues as they are distributed month by month. They go out in all the local newspapers, and while they're not broken down by all the categories of revenue, you can tell--those people living in the oil-producing states in the Niger Delta can tell very clearly how much their governments are getting in each period from oil, and they've already started to put a lot of pressure on their governments to change policies or be more accountable about what's in the budget, exactly the process that Anton described. I mean, these revenue numbers are just the starting point for getting accountability on the expenditure side.
More audits will be coming out very soon. I mentioned East Timor has already been publishing all its revenues on a very regular basis. What would you see? That's an interesting thing. In discussions with the Nigerians, they said, well, you're likely to see some discrepancies between what was paid and what was received, and what do you want to do about that or think about that? And they said that's precisely what we want out in the open, because we don't want to repeat past problems. We want to solve these things and get them discussed.
So you'll see some discrepancies and so on, but I frankly think--and those will be things that stakeholders need to get together on to clear up. I frankly think that the most important part of it, though, will be just getting credible numbers out in the public domain as a starting point for accountability on the expenditure side.
Incidentally, another country which I didn't mention, which is in Africa, which already produces very detailed information on revenues is Angola; not an open participant of the EITI but doing many things related to it, and on its Website, it publishes month by month, block by block figures on revenues. So thank you.
QUESTION: I'd like to ask two things: will the coming into play in Africa new investors in the hydrocarbon sector, I'm thinking of China and India, who have sometimes different views about the accountability process to the Western companies, will that affect your initiative in any way? And also, where you have, again, new countries, for example, such as Sudan, which has a fast growing oil industry and has been the target of much criticism in terms of internal transparency also, in terms, it would say its right to use its oil revenues to buy armaments to pursue an internal security policy, isn't that, again, going to raise quite substantial ethical and political difficulties for the EITI when you've got a situation where they're saying that they have the right to do with their hydrocarbon revenues what they like, because it is a matter of internal security?
MR. MCPHERSON: The first question is a very interesting question and one that a lot of people are concerned about. You're saying that people might come in under the radar screen sort of with different kinds of governance standards and come into the new hydrocarbon producing states.
QUESTION: Well, for example, I mean, what people are saying is that Western companies now have a lot, whether they want to do it or not, they have a lot of shareholder pressure
to be more accountable that may not exist in, say, China or India.
MR. MCPHERSON: That's true, and first, let me address the implications of that for the EITI, the initiative. If a country like Equatorial Guinea here or any of the other African producers has decided to implement the EITI, they are going to make all companies accountable, all companies, whether they're from China, India, Russia, or other countries in the category you're mentioning or from the OECD countries will be required, subject to certain requirements of audit and publication of results, and that should apply to all the companies and to the national oil companies at home.
So the real issue is: are there other dimensions of transparency or governance that get eroded when these companies come in? And that may be the case, because during a licensing round, for example, a company may agree to publish, a company in the category you have may agree to publish results and so on but at the same time be conducting another agenda in the country which doesn't get caught in the EITI net.
And that really, where is it going to be caught? It will be caught in other dialogues, either with civil society or with maybe the Bank and the Fund with respect to public expenditure and so on, but it would be picked up there. And that remark also applies to your question about Sudan. I mean, you can get Sudan to participate in the transparency initiative, but other policies would have to take care of what they want to spend the money on. As I said, one of the important objectives is just to get that starting point established and then to enter into discussions about the direction in which the money flows or is spent.
QUESTION: Just a follow-up: the other country I was thinking of was Chad, because of course, that seemed to be the launching pad almost for EITI, and again, there was concern that when new players came into Chad, that somehow challenged the Transparency Initiative. Has that been the case or--
MR. MCPHERSON: Well, I will sound off very quickly on this. The Chad case, if you're referring to what the expenditure did, the Chad model involved not just the transparency on the revenue side but also involved a revenue management law which had implications for where you spent the money. So there was an issue at one time on the expenditures and bonuses on armaments, but that was an area that turned out to be an ambiguous area, and that's being resolved with the Government, and they've put the remainder of that money back in the trust fund.
That's an ongoing story, though. It was an early model, I think a very interesting model, but possible revisions are under discussion or debate with the Government.
QUESTION [Interpreted from French]: I come from Dakar. I have a question for Mr. Ondo Mane, another for Mr. Edu, and a third one for Mr. Diop. For Mr. Ondo Mane, most African countries are clients of the IMF. But for some years now, we have learned that their concerns are not always addressed. Yesterday, the Minister of Niger said that the conditionalities should be simplified and made more understandable. Today, how can African countries with only two or three administrators influence the strategic choices or decisions of the IMF?
For Mr. Edu, I would like to ask about diversification of the economy of Equatorial Guinea. In your presentation, you said something about this. Now, have you already identified other sectors, sectors other than petroleum, that will enable you to ensure the sustainable development of your economy if there is a decline in oil prices?
For Mr. Abdoulaye Diop, in the five sectors of the cluster with regard to your accelerated growth strategy, there are about three whose potential is doubtful. Here, we are talking about agriculture, agriculture which is subjected to the vagaries of climate, fluctuations, locust attacks and so on. There is also the fisheries sector. The growth potential of that sector is also in doubt. The prices are declining. The sector is in crisis. There are companies that are closing down. Then, you also have the textiles sector. The infrastructure for that sector has virtually disappeared over the last 15 years. So on what criteria did you base your choice or your selection of these various sectors? Thank you.
MR. ONDO MANE [Interpreted from French]: Thank you. I would like to tell you that it is difficult for the EDs, the Executive Directors, representing African countries, it is difficult for them to represent 24 countries. However, the important thing here, you know, I bear in mind what the Minister from Niger said, namely, that we should simplify conditionalities. We think that these conditionalities should be simplified because in the past, they were justified, and they've yielded positive results, because everyone in Africa today acknowledges that macroeconomic stability is indispensable. It is crucial to development.
So certain conditionalities which were necessary to inculcate this macroeconomic culture into the minds of Africans are no longer useful now. They are no longer relevant. Let's take the case of Nigeria: Nigeria itself drafted a program, a national economic program, that they were piloting themselves. And in any case, they wrote into that program a vision of where they were heading to. So we don't think that we can now come back and tell Nigeria 2 percent of your budget has to be allocated to education, 0.5 percent has to go to military spending, and so on and so forth.
From its experience, Nigeria already knows how to allocate its resources, how to implement its macroeconomic policy to ensure its own development. In my introduction, I said that Senegal, and the Minister is going to say something on this, that Senegal is now on the market. So Senegal has choices. They have two sources of financing. It can either be international resources or domestic resources, either budget sources, and you know the performance of its budget, or it can fall back on the market to get financing.
So this means that some of the conditionalities that govern these aspects have to be reviewed. That is why we insist during our Executive Board meetings, and I agree with the Minister of Niger, that the conditionalities have to be adapted to the various countries, adapted to the realities of the various countries, and we should respect the macroeconomic objectives of the various countries, because we are today able to make the strategic macroeconomic choices that are relevant.
With regard to the future, we have the initiative, that is, the Economic Policy Support Initiative. The principle, as you must have noticed in the communiqué of the IFC, is that the country drafts its own policies. These policies are approved or accepted by the Fund. And that gives the country some international credibility in the market and in the eyes of donor countries. We recognize that the PRGF should continue to be an important or a major initiative for low-income countries, but then, things have changed with regard to what used to obtain 10 years ago, and so, we should make the necessary adaptations.
That is why the conditionalities have to be streamlined. They have to be reviewed and adapted to the realities of the various countries. You know, the Minister talked about the accelerated growth strategy in Senegal, and the Minister from Equatorial Guinea talked about the things that they are doing in their own country. So these are innovations. So in the past, our ministers did not used to take the floor to say what they were doing. Today, you hear that there are new national interests, and so, they can say something about that. They can talk about their strategies to the international community. So that is the new vision in Africa today. I think that we have to insist on our choices and insist on the fact that we have to participate in this dialogue on an equal basis.
I hope that answers your question. I think it is important to review the conditionalities, but then, we can't live without conditionalities, because we cannot have a city without traffic lights, so to speak. Conditionalities are good. But then, these conditionalities should be tailored to the macroeconomic objectives of the countries concerned.
MR. EDU: Thank you very much. In our report we did indeed say that the basis for our country's economic growth is the oil sector. However, the government is fully aware that oil is a non-renewable resource and that in a certain number of years oil production may decline and that would not be surprising.
So fully aware of this situation, the government is adopting action to promote the other sectors of national economy which will be able to guarantee a sustainable economic growth for our country in the future. By this I'm referring to the agricultural sector, the tourism sector, the forestry sector, and service sector, and so many others. In other words, the government is taking advantage of the oil resources today to create basic economic conditions that will be able to promote diversification so as to sustain the country's economic growth in the future whenever the oil enters its production decline phase.
MR. DIOP [Interpreted from French]: Thank you. Mr. Kay asked a very excellent question, I must say, because we selected five sectors and out of these five sectors three of them have problems. But then the choice that we make cannot doubted because these five sectors were selected out of 60 sectors. We proceeded by elimination on the basis of export potential in the various sectors concerned, on the basis of the job creation prospects and so on.
Now to come back to these five selected sectors, as you said, as agriculture has a certain number of problems, level of rainfall, locust attacks, and so on. But then these are problems that we can address. And proof of this is that last year we took measures early enough to control the locust attack, and so when this attack eventually came we were able to control it. As a result, we were able to save our agricultural sector.
So countries that did not deploy enough means to address this problem suffered from greater damage. You are all aware of this. I don't need to go into detail. As concerns agriculture, there is an initiative in Africa, namely, that about 16 percent of budgets should be devoted to the sector. In our budget we devote 17 percent to agriculture. This is not the same allocation that we give to other sectors. So 17 percent of our budget is devoted to agriculture.
But then what interests us is not agriculture but the agro-industrial sector. We have a lot of potential that we can develop. In the north of Senegal we built dams, we irrigated a lot of farming areas.
We also have a natural zone such as the Niayes region, which has a heavy agricultural potential. And of late we have been exporting a lot of agricultural produce such as fruits. Recently a company came and set up to develop or to grow and export fruits in a region which is virtually a desert area. So today Senegal supports fruits in and out of season. We also export vegetables. We export tomatoes, for example, and other such products. Foreign companies, such as companies from Spain, have been investing in regions such as Niayes, the Niayes region. So they export to Europe, for example.
This is to tell you that our agricultural sector has a lot of potential that was not tapped in the past. In the fisheries sector we have some problems. But then there are other initiatives that could be taken to save the sector. We could do fish farming, for example. In our country this is not a practice that has not been taken up heretofore.
So in any case, the most important thing for us is to process our products on the spot, process them locally, because we have noticed that most of our products are exported unprocessed. And if we were to process these products it's going to increase value added.
With regard to the textile sector, I think you are right, most countries that used to export cotton in the past are now beginning to have problems because of the reduction of quotas. So Senegal may not be a major exporter of cotton, but I think that if we were to process our cotton on the spot we would increase the value added and we would increase our export earnings.
You know that we have a lot of people, a lot of tailors, a lot of dyers and so on who are making use of our textile, dying, sewing, and so on, so we enjoy a certain reputation.
This is to tell you that when we talk of eligible sectors we are not saying that there are problems that do not have problems. We are still in the preparatory phase. We are adopting a cluster approach. We are still discussing and at the end of our discussion we are going to highlight our priorities. And then we will discuss with our private sector to see which sectors can be given greater priority, because we cannot focus on five sectors alone in our accelerated growth strategy. We are going to, within these five sectors, prioritize again to get sectors that have top priority so that we can boost our private sector development strategy and process.
So we are taking initiatives jointly with the private sector to see how we can solve some of these problems. That is the answer to this question in brief.
MR. ITAM: Thank you very much for attending this session. We look forward to repeating this type of presentation in the future. Thank you very much to our panelists and to Mr. Ondo Mane for arranging it, and our colleagues in the World Bank. Thank you.
IMF EXTERNAL RELATIONS DEPARTMENT