## _wp11268

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---

### I. Introduction and scope
- Objective: Examine the Dutch disease (DD) phenomenon in the oil-rich countries of the Central African Economic and Monetary Community (CEMAC) by comparing the 14 member countries of the CFA franc zone, separated into net oil-exporters and net oil-importers.
- Rationale for sample:
  - All 14 countries are pegged to the euro, removing exchange rate regime differences.
  - Net oil-importing countries are treated as a counterfactual to net oil-exporters.
- Analytical approach:
  - Compare overall economic performance and non-oil GDP across groups over time.
  - Compare real exchange rate dynamics and correlations with economic growth.
  - Depart from traditional DD models by analyzing agricultural and external sectors and fiscal indicators.

### II. Theoretical background: resource curse and Dutch disease
- Definition and mechanisms:
  - Dutch disease: development of a natural resource-based sector induced by abundance or price increase at the expense of a non-resource traded goods sector.
  - Common DD effects: reallocation of factors of production, sustained appreciation of the real exchange rate, and de-industrialization (resource-movement and spending effects).
- Literature synthesis:
  - Negative relationship studies: Sachs and Warner; Gylfason, Herbertson and Zoega.
  - Positive relationship studies: van der Ploeg; Lederman and Maloney; Cavalcanti Mohades and Raissi.
  - Null/heterogeneous findings: Gelb; Davis; Manzano and Rigobon; Stijns; Collier and Hoeffler.
- Key theoretical points:
  - DD arises from relative-price changes that reallocate factors away from tradables and increase demand for non-tradables, favoring real exchange rate appreciation (Corden and Neary, 1982).
  - DD by itself does not imply inefficiency or welfare loss (Hausmann and Rigobon, 2002).
  - Alternate explanations for the resource curse include volatility of commodity prices, poor linkages between sectors, and weak institutions and rent-seeking.

### III. Empirical context and data choices for the CFA franc zone
- Time frames and episodes analyzed:
  - 1970–2009, 1990–2009, 1994–2009, 1994–2001, and 2002–2009.
  - 1994 regional devaluation explicitly considered.
  - 2002–2009 treated as an oil-boom episode due to high international oil prices and significant terms-of-trade improvements in oil-rich countries.
- Data and indicators used:
  - International Commodity Price Indices (2000=100) and Terms of Trade Indices (2000=100).
  - Non-oil and total real GDP, real exchange rates, sectoral composition, employment in agriculture, non-oil exports, government spending to GDP.

### IV. Main empirical findings (aggregate and cross-country)
- Aggregate stylized facts:
  - Oil-rich countries experienced relatively large appreciation of the real exchange rate and a rapid shift of labor away from the agricultural sector at the aggregate level.
  - Non-oil GDP growth exhibits an upward trend for net oil-exporting countries over time.
- Real exchange rate and growth:
  - No significant long-term relationship between real exchange rate dynamics and (non-oil) GDP growth at the aggregate level.
  - In some cases, real exchange rate appreciation is associated with higher rather than lower growth.
- Heterogeneity and departures from traditional DD predictions:
  - Mixed results across countries; some show clear DD patterns, others do not.
  - Traditional DD models assume full employment and typically ignore fiscal policy use of oil revenue for public investment; these assumptions may not hold in the CFA franc zone.
  - Manufacturing was often very small or absent before oil discovery; dependence on imported intermediate and capital goods alters traditional DD mechanisms.
- Role of fiscal policy:
  - Expansion of the wage bill and government expenditure during oil booms can explain some observed changes (expenditure effect) rather than resource-movement effects alone (example: IMF 2009 on Chad).
  - Case evidence suggests public investment financed by oil revenue (infrastructure, construction) can boost measured non-oil GDP.

### V. Quantitative summaries and key statistics
- Regression/trend results:
  - OLS regression of non-oil GDP growth on a linear trend:
    - Net oil-exporting group: estimated coefficient of 0.52 (positive and significant).
    - Net oil-importers: estimated coefficient of 0.36 (not significant).
- Table 1 — Average Annual Growth in the CFA Franc Zone (as reported)
  - Total Real GDP / Non-Oil Real GDP
  - 1970–2009: Net Oil Exporters 3.5; Net Oil Importers 2.9; Non-Oil Real GDP --  (Standard deviations in parentheses: (3.5) (2.3))
  - 1990–2009: Net Oil Exporters 3.2; Net Oil Importers 3.7; Non-Oil Real GDP 3.7  (Standard deviations in parentheses: (2.7) (1.7) (3.0))
  - 1994–2009: Net Oil Exporters 3.9; Net Oil Importers 4.1; Non-Oil Real GDP 4.5  (Standard deviations in parentheses: (2.4) (1.3) (2.4))
  - 1994–2001: Net Oil Exporters 3.7; Net Oil Importers 4.1; Non-Oil Real GDP 3.6  (Standard deviations in parentheses: (2.8) (1.4) (2.7))
  - 2002–2009: Net Oil Exporters 4.1; Net Oil Importers 4.0; Non-Oil Real GDP 5.5  (Standard deviations in parentheses: (2.1) (1.2) (1.6))
  - Note: "Standard deviations in parentheses. Source: International Monetary Fund."
- Real exchange rate appreciation (1994–2009, CFA franc zone):
  - Net oil importers: cumulative appreciation of about 10 percent.
  - Net oil exporters: cumulative appreciation of about 30 percent.
  - Real exchange rate appreciation in net oil exporters has doubled that in net oil importers since 2000.
- Oil revenue and government spending:
  - Oil-related revenue rose from about 8 percent of GDP in 2003 to a peak of nearly 17 percent in 2008 in oil-rich countries.
- Empirical correlations (panel correlations, selected periods):
  - 1990–2009: correlation coefficient (ρ) between real exchange rate changes and GDP growth is not significant for either subgroup regardless of GDP measure.
  - 2000–09:
    - Negative and weakly significant correlation between changes in the real exchange rate and non-oil GDP in oil-rich countries (suggesting DD).
    - For net oil importers the sign of the correlation is positive and significant for 2000–09 (appreciation associated with higher growth).
  - Sensitivity:
    - Reducing the sample to 2002–2009 switches the correlation between non-oil GDP growth and real exchange rate changes to positive (and significant) for oil-rich countries.
    - Equatorial Guinea strongly influences results:
      - Cross-section-specific slopes: Equatorial Guinea correlation coefficient -0.98; Congo -0.59.
      - Excluding Equatorial Guinea reduces the correlation coefficient in Figure 8 to 0.06 and it is not significant.

### VI. Box 1 — Crude Oil Production in Oil Rich Countries of the CFA Franc Zone (selected production timing and facts)
- Cameroon:
  - Oil discovered in 1976; production peaking in 1985.
  - Chad-Cameroon pipeline launched late 2000; operational in 2001.
- Chad:
  - Oil discovered in the early 2000’s; commercially viable in 2003; production peaking in 2005.
  - Chad-Cameroon pipeline launched late 2000; operational in 2001.
- Congo:
  - First oil wells discovered in the late 1950s; larger-scale exploitation started in the late 1970s.
  - Congo is currently the fifth-largest oil producer in sub-Saharan Africa.
  - Oil production is expected to peak in 2011.
- Equatorial Guinea:
  - Oil discovered in the 1960s; commercial production started in 1991; Zafiro field discovered in 1995.
  - Equatorial Guinea is currently the third-largest oil producer in sub-Saharan Africa.
  - Oil production peaked in 2008.
- Gabon:
  - Oil discovered in the early 1970s; production started around 1976.
  - Gabon is currently the fourth-largest oil producer in sub-Saharan Africa.
- Cote d’Ivoire:
  - Oil refining started in 1975; 1993/1994 marked breakpoints with substantial production increases in 1994.

### VII. Resource-movement effects and sectoral patterns
- Labor movements:
  - Annual growth rate of individuals employed in agricultural activities declined steadily in oil-exporting countries since 1990, accelerating between 2003 and 2007.
  - In oil-importing countries this variable remained relatively stable, with a slight upward trend since 1994.
- Sectoral output composition (non-oil GDP shares, 1990–2009) in net oil exporters:
  - Share of non-oil primary activities to (non-oil) GDP has risen over time, with a hump in 2007–08.
  - After a mild trend decline, share of secondary non-oil activities to non-oil GDP increased notably in 2009.
  - Tertiary activities declined steadily in net oil-exporting countries.
  - Increase in traditional traded activities (agriculture) and decline in non-traded activities (services) appears to contradict the DD paradigm in some respects.
- Non-oil exports:
  - Between 2001 and 2008 non-oil exports to non-oil GDP were consistently lower in oil-rich countries relative to net oil-importing countries.
  - Volume of non-oil exports declined sharply in oil-rich countries since 1998, while it showed a steady increase since 1999 in oil importers.

### VIII. Fiscal policy, oil revenue, and macroeconomic effects
- Theoretical nuance:
  - Response of the real exchange rate to changes in public spending is ambiguous; depends on asset substitutability and composition of government spending (tradables vs nontradables).
  - Permanent increases in public spending biased toward nontradables lead to appreciation in some frameworks; temporary increases have varying effects.
- Empirical evidence:
  - Little empirical work for sub-Saharan Africa on fiscal policy effects on the real exchange rate.
  - Aydin (2010) finds no significant explanatory effect of government consumption (to GDP) on equilibrium real exchange rate for a panel of 182 countries from 1973 to 2014; results unchanged for sub-Saharan Africa and net oil-importing subset.
  - Hypothesis: public investment (rather than public consumption) may matter more for real exchange rate determination in these countries.
- CFA franc zone evidence:
  - Oil-related revenue rose from about 8 percent of GDP in 2003 to a peak of nearly 17 percent in 2008 in oil-rich countries.
  - This revenue supported an increase in government spending, especially in investment, likely affecting short-term growth and the real exchange rate.
  - Long-term impact on productivity and growth remains uncertain; concerns include reduced diversification and increased vulnerability to oil-price developments.

### IX. Conclusions and directions for further research
- Main empirical conclusions:
  - Evidence of Dutch disease in oil-rich CEMAC countries is mixed.
  - Aggregate patterns (real appreciation and labor shift away from agriculture) are consistent with DD.
  - No strong evidence of a resource curse: oil abundance does not appear correlated with overall economic performance in the long term in this sample.
  - In some cases real exchange rate overvaluation is associated with higher rather than lower growth.
  - Welfare implications once oil is exhausted remain an open question.
- Policy- and research-relevant observations:
  - Case-by-case analyses needed because results are sensitive to sample period and country inclusion; many DD assumptions do not fit all countries in the sample.
  - Traditional models largely ignore the role of fiscal policy and the composition of oil-related public spending (investment vs current).
  - Research priority: assess whether long-term implications of resource abundance depend on fiscal policy actions—specifically the extent to which oil windfalls are channeled toward productive investment rather than current expenditure to improve competitiveness, external sustainability, and long-term growth.

*Source: _wp11268 - References*

### References .............................................................................................................

### _wp11268 - References

### I. Introduction and scope
- The paper examines the Dutch disease (DD) phenomenon in the oil-rich countries of the Central African Economic and Monetary Community (CEMAC) by comparing the 14 member countries of the CFA franc zone, separated into net oil-exporters and net oil-importers.
- Rationale for sample choice:
  - All 14 countries are pegged to the euro, removing exchange rate regime differences.
  - Net oil-importing countries are treated as a counterfactual to net oil-exporters.
- Analytical approach:
  - Compare overall economic performance and non-oil GDP across groups over time.
  - Compare real exchange rate dynamics and correlations with economic growth.
  - Depart from traditional DD models by analyzing agricultural and external sectors and fiscal indicators.

### II. Theoretical background: resource curse and Dutch disease
- Dutch disease defined: development of a natural resource-based sector induced by abundance or price increase at the expense of a non-resource traded goods sector.
- Common observed DD effects: reallocation of factors of production, sustained appreciation of the real exchange rate, and de-industrialization (resource-movement and spending effects).
- The literature is mixed on the resource curse:
  - Some studies find a negative relationship between resource abundance and economic performance (e.g., Sachs and Warner; Gylfason, Herbertson and Zoega).
  - Other studies find resource abundance increases growth (e.g., van der Ploeg; Lederman and Maloney; Cavalcanti Mohades and Raissi).
  - A third group finds no significant structural determinant effect of resource abundance on growth (e.g., Gelb; Davis; Manzano and Rigobon; Stijns; Collier and Hoeffler).
- Key theoretical points:
  - DD arises from relative-price changes that reallocate factors away from tradables and increase demand for non-tradables, favoring real exchange rate appreciation (Corden and Neary, 1982).
  - The welfare and long-term growth implications of DD are not settled; DD by itself does not imply inefficiency or welfare loss (Hausmann and Rigobon, 2002).
  - Alternate explanations for the resource curse include volatility of commodity prices, poor linkages between sectors, and weak institutions and rent-seeking.

### III. Empirical context and data choices for the CFA franc zone
- Time frames and episodes considered:
  - 1970–2009, 1990–2009, 1994–2009, 1994–2001, and 2002–2009.
  - 1994 regional devaluation taken into account.
  - 2002–2009 treated as an oil-boom episode due to high international oil prices and significant terms-of-trade improvements in oil-rich countries.
- Data sources and indicators cited:
  - International Commodity Price Indices (2000=100) and Terms of Trade Indices (2000=100).
  - Non-oil and total real GDP, real exchange rates, sectoral composition, employment in agriculture, non-oil exports, government spending to GDP.
- Heuristic comparative approach suggested by Ismail (2009).

### IV. Main empirical findings (aggregate and cross-country)
- Aggregate stylized facts:
  - Oil-rich countries experienced relatively large appreciation of the real exchange rate and a rapid shift of labor away from the agricultural sector at the aggregate level.
  - Non-oil GDP growth exhibits an upward trend for net oil-exporting countries over time (Figure 3).
- Relationship between real exchange rate dynamics and growth:
  - No significant long-term relationship between real exchange rate dynamics and (non-oil) GDP growth at the aggregate level.
  - In some cases, real exchange rate appreciation is associated with higher rather than lower growth.
- Heterogeneity and departures from traditional DD predictions:
  - Mixed results across countries; some show clear DD patterns, others do not—warranting case-by-case analysis.
  - Traditional DD models assume full employment and typically ignore fiscal policy use of oil revenue for public investment; these assumptions may not hold (example: Equatorial Guinea’s infrastructure investment supporting construction counted as non-oil GDP).
  - Manufacturing was often very small or absent before oil discovery; dependence on imported intermediate and capital goods alters traditional DD mechanisms.
- Role of fiscal policy:
  - Expansion of the wage bill and government expenditure during oil booms can explain some observed changes (expenditure effect) rather than resource-movement effects alone (IMF 2009 on Chad).

### V. Quantitative summaries and reported statistics
- Regression trend results:
  - Ordinary least squares (OLS) regression of non-oil GDP growth on a linear trend:
    - Net oil-exporting group: estimated coefficient of 0.52 (positive and significant).
    - Net oil-importers: estimated coefficient of 0.36 (not significant).
- Table 1. Average Annual Growth in the CFA Franc Zone (as reported)
  - Total Real GDP / Non-Oil Real GDP
  - 1970–2009: Net Oil Exporters 3.5; Net Oil Importers 2.9; Non-Oil Real GDP --  (Standard deviations in parentheses: (3.5) (2.3))
  - 1990–2009: Net Oil Exporters 3.2; Net Oil Importers 3.7; Non-Oil Real GDP 3.7  (Standard deviations in parentheses: (2.7) (1.7) (3.0))
  - 1994–2009: Net Oil Exporters 3.9; Net Oil Importers 4.1; Non-Oil Real GDP 4.5  (Standard deviations in parentheses: (2.4) (1.3) (2.4))
  - 1994–2001: Net Oil Exporters 3.7; Net Oil Importers 4.1; Non-Oil Real GDP 3.6  (Standard deviations in parentheses: (2.8) (1.4) (2.7))
  - 2002–2009: Net Oil Exporters 4.1; Net Oil Importers 4.0; Non-Oil Real GDP 5.5  (Standard deviations in parentheses: (2.1) (1.2) (1.6))
  - Note: "Standard deviations in parentheses. Source: International Monetary Fund."
- Observed patterns across indicators:
  - Since 1990 average annual growth of total real GDP in net oil-exporting countries has generally been lower and more volatile than in net oil-importers, with the exception of 2002–2009.
  - The non-oil component of GDP has grown at least as much in net oil-exporters in all but one episode (1994–2001), with the difference in favor of net oil-exporters especially high since 2002.

### VI. Interpretation and implications
- Evidence suggests potential positive spillovers from the oil sector into the rest of the economy, contradicting a simple resource curse or “disease” narrative in aggregate terms.
- However, the pattern of expanding non-tradable sectors (services and construction) alongside potential contraction of non-resource tradables is consistent with DD and raises concerns about increasing specialization and limited diversification.
- The absence of a clear negative link between real exchange rate appreciation and non-oil growth at the aggregate level implies that DD effects on growth are conditional and mediated by country-specific factors such as institutions, pre-existing sectoral structure, and fiscal policy.
- Policy-relevant observation: analyses that rely solely on traditional DD models may mischaracterize outcomes when full-employment assumptions, sectoral structures, and fiscal uses of oil revenue differ from model premises.

*Source: _wp11268 - References*

### Box 1. Crude Oil Production in Oil Rich Countries of the CFA Franc Zone

### Box 1. Crude Oil Production in Oil Rich Countries of the CFA Franc Zone

### Country histories and production timing
- Cameroon
  - Oil was discovered in 1976, with production peaking in 1985.
  - The construction of the Chad-Cameroon pipeline was launched in late 2000, but it did not become operational until 2001.
- Chad
  - Oil was discovered in the early 2000’s and became commercially viable in 2003, with production peaking in 2005.
  - The construction of the Chad-Cameroon pipeline was launched in late 2000, but it did not become operational until 2001.
- Congo
  - Congo is currently the fifth-largest oil producer in sub-Saharan Africa.
  - The first oil wells were discovered by the French in the late 1950s.  Various sources report that larger-scale commercial exploitation started in the late 1970s.
  - Oil production is expected to peak in 2011.
- Equatorial Guinea
  - Equatorial Guinea is currently the third-largest oil producer in sub-Saharan Africa.
  - Oil was discovered in the 1960s, but commercial production started in 1991. The largest field (Zafiro) was discovered in 1995.
  - Oil production peaked in 2008 and newly discovered wells may boost production in the coming years.
- Gabon
  - Oil was discovered in the early 1970s and production started around 1976 (the country was a member of the Organization of the Petroleum Exporting Countries (OPEC) from 1975 to 1995).
  - Oil production increased significantly between 1989 and 1997.
  - Gabon is currently the fourth-largest oil producer in sub-Saharan Africa.
- Cote d’Ivoire
  - Oil refining started in 1975. That same year Petroci, the oil company, was established.
  - Various sources consider 1993 a “breakpoint year” in oil production and refining. Oil production jumped substantially in 1994, although it remains low compared to most countries.

### Sources used in the box
- United States Energy Information Administration (http://www.eia.doe.gov/) and IMF.

---

### Spending effect and real exchange rate dynamics
- Real exchange rate appreciation mechanism
  - Real exchange rate appreciation results from an increase in the relative prices of domestic goods and services owing to an increase in aggregate demand.
  - Higher wages in the resource-based sector lead to higher wages in other activities; the wealth effect raises demand for domestically produced goods and services and hence higher prices.
- Empirical observations (CFA franc zone, 1994–2009)
  - Net oil importers experienced a cumulative real exchange rate appreciation of about 10 percent between 1994 and 2009.
  - Net oil exporters accumulated about 30 percent appreciation between 1994 and 2009.
  - Real exchange rate appreciation in net oil exporters has doubled that in net oil importers since 2000.
- Alternative interpretation
  - Higher appreciation may reflect the relative size of the terms-of-trade shock because the international price of oil increased more than nonfuel commodity prices.
  - If the oil-price shock and its impact were permanent, the observed real appreciation could be consistent with a transition to a new equilibrium real exchange rate, contradicting the Dutch disease (DD) argument.
  - Productivity gains supporting real appreciation could also indicate productive diversification and thus refute DD.

### Resource-movement effect (labor and sectoral reallocation)
- Labor movements
  - Annual growth rate of the number of individuals employed in agricultural activities declined steadily in oil-exporting countries since 1990, with decline accelerating between 2003 and 2007.
  - In oil-importing countries this variable remained relatively stable, with a slight upward trend since 1994.
  - This is consistent with DD as a shift of potential labor away from traditional activities into oil-related activities in oil exporters.
- Sectoral output composition (non-oil GDP shares, 1990–2009)
  - The share of non-oil primary activities to (non-oil) GDP in net oil-exporting countries has risen over time, with a hump in 2007–08.
  - After a mild trend decline, the share of secondary non-oil activities to non-oil GDP in net oil-exporting countries increased notably in 2009.
  - Tertiary activities declined steadily in net oil-exporting countries.
  - The increase in traditional traded activities (agriculture) and decline in non-traded activities (services) in net oil-exporting countries appear to contradict the DD paradigm.
- Non-oil exports
  - Between 2001 and 2008 non-oil exports to non-oil GDP were consistently lower in oil-rich countries relative to net oil-importing countries, consistent with DD.
  - The volume of non-oil exports declined sharply in oil-rich countries since 1998, while it showed a steady increase since 1999 in the group of oil importers.

### Empirical correlation: real exchange rate changes and GDP growth
- Correlation findings (panel correlations, 1990–2009 and 2000–09)
  - For 1990–2009 the correlation coefficient (ρ) between real exchange rate changes and GDP growth is not significant for either subgroup regardless of GDP measure.
  - For 2000–09 there is a negative and weakly significant correlation between changes in the real exchange rate and non-oil GDP in oil-rich countries, suggesting DD.
  - For net oil importers the sign of the correlation is positive and significant for 2000–09, suggesting real exchange rate appreciation can be associated with higher growth in those countries.
- Sensitivity to sample period and country composition
  - Reducing the sample to 2002–2009 switches the correlation between non-oil GDP growth and real exchange rate changes to positive (and significant) for oil-rich countries.
  - Results are very sensitive to the inclusion of Equatorial Guinea:
    - Cross-section-specific slopes yield a negative and strongly significant correlation coefficient only for Equatorial Guinea (-0.98) and the Congo (-0.59).
    - The correlation coefficient in Figure 8 falls to 0.06 and is not significant when Equatorial Guinea is excluded from the regression.
  - Equatorial Guinea as of 2008 was the third largest hydrocarbons producer in sub-Saharan Africa; an important share of the oil windfall has been poured into the economy through public investment in infrastructure (construction), favoring strong growth in the non-oil sector.
- Interpretation caveats
  - Evidence is not conclusive; results are sensitive to sample period and specific countries, and a case-by-case analysis is warranted.

### Fiscal policy, oil revenue, and macroeconomic effects
- Theoretical background
  - The response of the real exchange rate to changes in public spending is ambiguous in some analytical models; effect depends on degree of asset substitutability and composition of government spending (tradables vs nontradables).
  - Permanent increases in public spending biased toward nontradables lead to real exchange rate appreciation in some frameworks; temporary increases have effects depending on substitutability and composition.
  - Empirical findings across regions are mixed: some studies find public spending induces appreciation; others find depreciation.
- Empirical evidence for sub-Saharan Africa and CFA franc zone
  - Little empirical work has been done for sub-Saharan Africa on fiscal policy effects on the real exchange rate.
  - Aydin (2010) finds no significant explanatory effect of government consumption (to GDP) on the determination of the equilibrium real exchange rate for a panel of 182 countries from 1973 to 2014; results unchanged for sub-Saharan Africa and net oil-importing subset.
  - A possible explanation is that public investment (rather than public consumption) matters for real exchange rate determination in these countries.
- Oil revenue and government spending in oil-rich CFA franc countries
  - Oil-related revenue rose from about 8 percent of GDP in 2003 to a peak of nearly 17 percent in 2008 in oil-rich countries.
  - This revenue supported an increase in government spending, especially in investment, compared to previous years, likely affecting growth (at least in the short term) and the real exchange rate.
  - The long-term impact of this increase in public spending on productivity and growth remains uncertain; concerns include reduced diversification and increased vulnerability to oil-price developments.

### Conclusions and directions for further research
- Main empirical conclusions
  - Mixed evidence of Dutch disease (DD) in oil-rich countries of the CEMAC region.
  - Observed appreciation of the real exchange rate and rapid shift of labor away from agriculture in oil-rich countries are consistent with DD at the aggregate level.
  - There is no strong evidence of a resource curse: oil abundance does not appear to be correlated with overall economic performance in the long term in this sample.
  - In some cases real exchange rate overvaluation is associated with higher rather than lower growth.
  - Welfare implications once oil is exhausted remain an open question given the absence of a clear long-term growth impact.
- Policy- and research-relevant observations
  - Case-by-case approaches are needed because many DD assumptions do not suit the reality of all countries analyzed and results are sensitive to sample period and country inclusion.
  - Traditional models largely ignore the role of fiscal policy in the use of oil-related revenue for public investment.
  - A promising research path is to assess whether long-term implications of resource abundance depend on fiscal policy actions, specifically the extent to which oil windfalls are channeled toward productive investment rather than current expenditure to improve competitiveness, external sustainability, and long-term growth.

*Source: IMF (content unit: Box 1. Crude Oil Production in Oil Rich Countries of the CFA Franc Zone).*

### References

### _wp11268 - References

### Major referenced works and themes
- Studies on remittances and real exchange rates:
  - Amuedo-Dorantes, Catalina and Susan Pozo. (2004), “Workers’ Remittances and the Real Exchange Rate: a Paradox of Gifts,” World Development 32, 1407–1417.
- Exchange rate assessment and country case studies (IMF Working Papers and Country Reports):
  - Aydin, Burcu (2010), “Exchange Rate Assessment for Sub-Saharan Economies,” IMF Working Paper 10/162, Washington, D.C.
  - Aydin, Burcu (2011), “Ghana: Will It be Gifted or Will It be Cursed?”, IMF Working Paper 11/104, Washington, D.C.
  - IMF (2009), Chad: Selected Issues, IMF Country Report No. 09/67, Washington, D.C.
  - IMF (2011), Republic of Congo: 2010 Article IV Consultation and Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility, IMF Country Report No. 11/67, Washington, D.C.
- Theoretical and empirical literature on the “Dutch Disease” and resource booms:
  - Corden, Max W. and J. Peter Neary (1982), “Booming Sector and De-Industrialization in a Small Open Economy,” The Economic Journal 92 (368), pp. 825–848.
  - Van Wijnbergen, Sweder (1984), “The ‘Dutch Disease’: A Disease After All?” The Economic Journal 94(373), pp. 41–55.
  - Davis, Graham A. (1995), “Learning to Love the Dutch Disease: Evidence From The Mineral Economies,” World Development, pp. 1765–1779.
  - Ismail, Karim (2009), “The Structural Manifestation of the `Dutch Disease’: The Case of Oil Exporting Countries”, IMF Working Paper 10/103, Washington, D.C.
  - Magud, Nicolas and Sebastian Sosa (2010), “When and Why Worry About Real Exchange Rate Appreciation? The Missing Link between Dutch Disease and Growth”, IMF Working Paper 10/271, Washington, D.C.
- Natural resource curse, growth, and policy implications:
  - Frankel, Jeffrey A. (2010), "The Natural Resource Curse: A Survey." Harvard Kennedy School, Faculty Research Working Paper Series RWP10-005, Cambridge, Mass.
  - Gelb, Alan and Associates (1988), Oil Windfalls, Blessing of Curse?, World Bank and Oxford University Press.
  - Sachs, Jeffrey D. and Andrew M. Warner (1997), “Natural Resource Abundance and Economic Growth,” Center for International Development and Harvard Institute for International Development, Harvard University, Cambridge, Mass.
  - Van der Ploeg, Frederick (2011) “Natural Resources: Curse or Blessing?” Journal of Economic Literature 49 (2), pp366–420.
  - Lederman, Daniel and William F. Maloney (2007), “Natural Resources: Neither Curse nor Destiny”, World Bank and Stanford University Press, Stanford, Ca.
- Fiscal policy, devaluation, and macroeconomic adjustment literature:
  - Edwards, Sebastian (1986), “Are Devaluations Contractionary?” The Review of Economics and Statistics 68(3), pp. 501–508.
  - Krugman, Paul and Lance Taylor (1978), “Contractionary Effects of Devaluation,” Journal of International Economics 8, pp. 445–456.
  - Sachs, Jeffrey D. and Charles Wyplosz (1984), “Real Exchange Rate Effects of Fiscal Policy,” NBER Working Paper 1255, Cambridge, Mass.
  - Monacelli, Tommaso and Roberto Perotti (2007), “Fiscal Policy, the Trade Balance, and the Real Exchange Rate: Implications for International Risk Sharing,” presented at the 8th Jacques Polak Annual Research Conference, Washington, D.C.
- Cross-country and panel evidence on resources, volatility, and growth:
  - Ramey, Garey and Valerie A. Ramey (1995), “Cross-country evidence on the link between volatility and growth,” American Economic Review 85, 1138–1151.
  - Cavalcanti, Tiago V. de V., Kamiar Mohaddes, and Mehdi Raissi (2009), “Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis,” Faculty of Economics, University of Cambridge (mimeo).
  - Stijns, Jean-Philippe C. (2005), “Natural Resource Abundance and Economic Growth revisited”, Resources Policy 30(2), pp 107–130.
- Case studies of countries that faced or managed resource booms:
  - Iimi, Atsushi (2006), “Did Botswana Escape from the Resource Curse?” IMF Working Paper 06/138, Washington, D.C.
  - Sarraf, Maria and Jiwanji (2001), “Beating the Resource Curse. The Case of Botswana,” Environment Department Papers, The World Bank Group, Washington, D.C.
  - Manzano, Osmel and Roberto Rigobon (2001), “Resource Curse or Debt Overhang?” NBER Working Paper 8390, Cambridge, Mass.
- Institutional, political economy, and governance perspectives:
  - Collier, Paul and Anke Hoeffler (2009), “Testing the Neocon Agenda: Democracy in Resource-Rich Societies,” European Economic Review 53(3), pp. 293–308.
  - Hausmann, Ricardo and Roberto Rigobon (2002), “An Alternative Interpretation of the ‘Resource Curse’: Theory and Policy Implications,” NBER Working Paper 9424, Cambridge, Mass.

### Appendix 1 excerpt — Country Summaries: Net Oil Exporters (selected entries)
- Chad
  - Oil Industry: Discovery 2003; Production 2004; FDI in sector (Chad-Cameroon pipeline) started in 2000 with WB support and participation of US oil company Exxon-Mobil.
  - Dutch Disease Symptoms and comments:
    - Effects of Dutch disease hard to evaluate because the non-oil sector is underdeveloped.
    - Oil rents may have reduced the incentive to proceed with the reform of the cotton sector.
    - Nontradables price dynamics show no evidence.
    - The only variable showing evidence is the wage bill.
    - The [suboptimal] use of oil resources for infrastructure, education and health to help building up the non-oil sector, [partially] addresses the risk of Dutch disease.
    - It appears that labor availability and costs in the agricultural sector has not been affected by the emergence of the oil sector or the expansion of government employment. Rather, increased government spending has helped agriculture by providing essential infrastructure.
    - Difficulties in transforming the oil production; it has fueled fiscal expansion pushing public expenditure to an unsustainable path and weakened financial discipline.
    - The global financial crisis has affected the country mainly through the sharp decline in oil prices, which imply a decline in oil revenue and a sharp deterioration of the fiscal position.
    - Program based on the implementation of a revised budget for 2010 with realistic oil price assumptions and rescheduling of investment expenditures.
    - [Volatile] Oil revenue provides a unique opportunity for Chad to lay the foundation for sustained growth and lasting poverty reduction.
    - The oil revenue has financed an increase in public spending in priority areas, but also in military spending.
    - Concerns over absorptive capacity are prompted by fast growth of investment spending and insufficient attention to the multi-year implications of investment decisions, including inadequate allocation for recurrent spending in health and education.
  - Post Conflict: Yes (2007)
- Central African Republic
  - Post Conflict: Yes (2004)  (entry indicator present; detailed cells follow in the full appendix)
- Cameroon
  - Oil Industry: 1976; Private oil companies are responsible for exploration and exploitation activities.
  - Comment:
    - The Chad-Cameroon pipeline favored construction, transportation and telecommunications between 2001 and 2003 (most of the equipment for its construction was imported)
- Equatorial Guinea
  - Oil Industry: 1960’s discovery; Production 1991/1995; Export 1997e
  - Comment:
    - Although oil was first discovered in the 1960’s, it was first produced offshore in 1991 from the Alba oilfield discovered by Mobil. The Zafiro field (major producer) was discovered in 1995.
    - The discovery of large oil reserves and their subsequent exploitation have contributed to a substantial increase in government revenue.
    - Timber is the third source of foreign exchange after oil and gas.
    - Since 2004, the country is the third-largest oil producer in Sub-Saharan Africa (behind Angola and Nigeria).
    - The agricultural sector, historically known for cocoa, has collapsed.
- Gabon
  - Oil Industry: Early ‘70s; Production 1976e
  - Comment:
    - Gabon was member of OPEC from 1975 to 1995.
    - The lack of transformation of primary materials is associated with a small (local) market, and the oil "rent".
    - Resource-based income was not invested in modernizing or diversifying the economy.
- Republic of Congo
  - Oil Industry: Early ‘80s
  - Comment:
    - The fifth largest oil producer in sub-Saharan Africa. Oil accounts for a large portion of GDP, exports and fiscal revenue..
    - The country has the fourth largest proven natural gas reserves in sub-Saharan Africa.
    - In the early 1980s, rapidly rising oil revenues enabled the government to finance large-scale development projects, some of which were subsequently deteriorated by civil war.
    - Production in currently active fields is expected to peak in 2011.
    - The main fuel products are gasoline, diesel, kerosene, jet fuel, and propane.
    - Forestry led exports before the discovery of oil and continues to generate 10% of export earnings, although high transportation costs, high wages, and low productivity have hurt that industry in recent years.
    - The downstream oil industry, predominantly run by foreign companies, is also an important element in the economy.
  - Post Conflict: Yes (1999)

*Content derived from _wp11268 - References and Appendix 1 excerpt.*

### Appendix 2. Country Summaries:

### _wp11268 - Appendix 2. Country Summaries: Net Oil Importers

### Benin — Cotton
- Main export: Cotton.
- The manufacturing sector is confined to some light industry, mainly processing primary products and production of consumer goods.
- Cotton production and export play a pivotal role in the economy.
- Cotton exports constitute on average about three quarters of total annual merchandise exports, and contribute around 7 percent to GDP.
- Nearly 30% of the population depends on the cotton sector.
- At the end of the 1980s, the government embarked on a series of reforms to modernize the sector, from a monopolistic and centrally administered system to a more competitive structure; the reform process has been affected by various setbacks.
- No clear impact (as of 2004) of the reform on production and producer prices; after production increased rapidly during the first phase of the reform, it has stagnated since 1996.
- Prospects for growth and poverty reduction are affected by developments in the international markets, especially trade restrictions and subsidies that affect world prices (the subsidy systems in the United States, the European Union, and China).
- The government annulled the privatization of the state cotton company in November 2007 after the discovery of irregularities in the bidding process.
- In October 2008, the authorities concluded the privatization of 33.5 percent of the SONAPRA ginneries (the government will retain a 33.5 percent stake in the newly established ginning company. An additional 17.8 percent stake will be sold through an initial public offering in the regional stock market. The remaining shares will be distributed to local authorities, cotton producers, and workers).

### Burkina Faso — Cotton
- Main export: Cotton.
- Few natural resources and a weak industrial base. Cotton is the main cash crop.
- In 1998, Burkina Faso embarked upon a gradual but successful privatization of state-owned enterprises.
- Having revised its investment code in 2004, Burkina Faso hopes to attract foreign investors.
- The country has seen an upswing in gold exploration and production.
- More than 80 percent of the population relies on subsistence agriculture, with only a small fraction directly involved in industry and services.
- Many Burkinabe migrate to neighboring countries for work, and their remittances provide a substantial contribution to the balance of payments.
- Policy focus: developing mineral resources, improving infrastructure, making agricultural and livestock sectors more productive and competitive, and stabilizing the supplies and prices of cereals.
- Manufacturing is limited to food processing, textiles, and other import substitution heavily protected by tariffs. Some factories are privately owned, and others are set to be privatized.
- Exploitable natural resources are limited, although a manganese ore deposit is located in the remote northeast. Gold mining has increased greatly since the mid-1980s and, along with cotton, is a leading export money earner.

### Cote d’Ivoire — Oil; Cocoa
- Main exports: Oil; Cocoa.
- Oil refining started around 1975. Gas reserves were discovered in the 1980’s. 1993 and 1994 marked breakpoints in gas and oil production/refining.
- Since 2006, oil and gas production have become more important engines of economic activity than cocoa.
- Since the end of the civil war in 2003, political turmoil has continued to damage the economy, resulting in the loss of foreign investment and slow economic growth.
- The energy sector has emerged as a major source of growth and fiscal revenue over the past few years (oil, gas, electricity and fuel production).
- Crude oil production grew from 7.6 million barrels in 2003 to 22.2 million barrels in 2006.
- Rich in hydrocarbons with significant refinery and electricity production capacities.
- Almost all oil is exported, while natural gas is used by domestic electricity producers and refineries (car, jet and heavy fuels for export and local consumption).
- A substantial part of domestic electricity production is exported.
- Since most oil and gas production takes place offshore and with the involvement of foreign companies, technical efficiency is close to industry standards.
- By developing country standards, the country has an outstanding infrastructure. Public investment programs stepped up after the stagnation of the pre-devaluation era.
- Known more as an oil refining country rather than as an oil producing one; possesses a modest upstream oil industry.
- The national oil company, Petroci, was established in 1975. Petroci was restructured in 1998 and four new entities were created.
- The gas reserves discovered in the 1980’s have begun to be developed and utilised. The Foxtrot offshore gas field was discovered along with the Panthere gas and condensate field in 1993 and the Lion oilfield in 1994, both of which came on stream in the mid 1990’s.
- Offshore oil and gas production has resulted in substantial crude oil exports and provides sufficient natural gas to fuel electricity exports to Ghana, Togo, Benin, Mali and Burkina Faso.
- Yes (2004).

### Guinea-Bissau — Cashew/rice; Fish/seafood
- Main exports: Cashew/rice; Fish/seafood.
- Depends mainly on farming and fishing. Rice is the main crop.
- Cashew crops have increased remarkably in recent years; the country now ranks fifth in cashew production.
- Exports include fish and seafood along with small amounts of peanuts, palm kernels, and timber.
- Intermittent fighting between Senegalese-backed government troops and a military junta destroyed much infrastructure and caused widespread damage to the economy in 1998; the civil war led to a 28% drop in GDP that year, with partial recovery in 1999-2002.
- Because of high costs, the development of petroleum, phosphate, and other mineral resources is not a near-term prospect. Offshore oil prospecting is underway in several sectors but has not yet led to commercially viable crude deposits.
- In December 2003, multilaterals provided emergency budgetary support ($107 million) for 2004, representing over 80% of the total national budget.
- Government drift and indecision resulted in continued low growth in 2002-06.
- Higher raw material prices boosted growth in 2007 and 2008.
- After a slow 2006, growth bounced back in 2007, in part due to a recovery in cashew production (the country's principal cash crop). The economy also benefited from robust growth in tourism.
- Yes (1999,2003).

### Mali — Gold; Cotton
- Main exports: Gold; Cotton.
- In 2008-2009(?), gold accounted for about 80 percent of exports.
- During the past few years, mining of gold resources has provided a large portion of budgetary revenue and export receipts; the country’s principal gold mines will probably be exhausted within a few years.
- Cotton production, a mainstay of Mali's agriculture for decades, is facing many difficulties. Since 2004, production has declined rapidly, partially due to a reduction in procurement prices paid by cotton ginners reflecting a decline in world market prices driven mainly by rising production in China and Brazil, as well as cotton subsidies in industrialized countries.
- The cotton sector is almost exclusively rain-fed and thus at risk from planting to harvest. Other problems include lack of vertical integration (imported inputs), high transportation costs, low technical efficiency and inadequate financing systems.
- The authorities are committed to privatizing the cotton state enterprise (CMDT) in early 2010.
- Because of crop diversification, the impact of the decline in cotton output on farm incomes is unclear.

### Niger — Uranium/gold; Onion/cowpeas
- Main exports: Uranium/gold; Onion/cowpeas.
- Uranium exports are reported since the ‘70’s.
- The economy is concentrated around subsistence and some export agriculture clustered in the more fertile south, and the export of raw materials—especially uranium ore.
- The decline in uranium exports during the 1990s was reversed after 2002 when world prices rose dramatically due to years of underinvestment in production and revived world demand.
- Agricultural exports like onions and cowpeas are growing annually at double-digit levels because modern production and marketing techniques have been introduced.
- Livestock exports were stagnant in 2003–07 because of a drought in 2004 that led to a decline in the stock.
- Data on annual wages, employment, and value added of the modern sector show that since 2000 productivity has improved in all sectors except services. Value added per worker has increased especially in manufacturing, energy, and transportation.
- The labor market is characterized by shortages of skills, rigidities, and wages cost that are higher than in comparable countries in sub-Saharan Africa.
- The existing oil deposit had been commercially unviable until recently. About 2 years ago, with the support of China, exploitation is expected to start in 2012.

### Senegal — Fish; Phosphate
- Main exports: Fish; Phosphate.
- The fishing sector has replaced the groundnut sector as Senegal's export leader. Fish accounts to about 30 percent of total exports.
- Phosphate production is the second major foreign exchange earner; phosphate products do not compete in world export markets. ICS, the main producer of phosphate products, is contracted to export close to its entire production to India.
- Predominantly rural and with limited natural resources, Senegal gains most of its foreign exchange from fish, phosphates, groundnuts, tourism, and services.
- Exports are not well diversified, mainly from the primary sector, and concentrated in products that have experienced below-average growth in volumes compared to world exports.
- Structural performance indicators suggest that substantial barriers to private sector development hinder Senegal’s external competitiveness. Reforms should focus on improving infrastructure, education, the provision of health services, the legal, regulatory, and administrative framework, labor markets, financial sector intermediation, and governance.
- Senegal is ranked as one of the least competitive countries in the world. Its stable macroeconomic and political environment, as well as technological readiness, rank relatively high, but the survey points toward a need to develop institutions, labor market efficiency, education, and infrastructure. In these areas, Senegal ranks well below other African countries, including Kenya and South Africa.
- Firms face high costs of doing business. According to the World Bank’s Doing Business Report, in 2007–08 Senegal ranked 162 out of 178 countries in terms of the ease of doing business—below all WAEMU countries, except Guinea-Bissau and Niger.
- Dakar is home to banks and other institutions which serve all of Francophone West Africa, and is a hub for shipping and transport in the region. It also boasts one of the best developed tourist industries in Africa, the country’s fourth largest source of income.

### Togo — Cement; Phosphate; Cotton
- Main exports: Cement; Phosphate; Cotton.
- Cotton and phosphate’s share in total exports declined from 50 percent at the end of the 1990’s to around 13 percent in 2008 and could fall further with the crisis.
- In the industrial sector, phosphates are Togo's most important commodity.
- Cement exports represent about 20 percent of total exports and are expected to continue to increase, but declining regional demand should not be ruled out.
- Subsistence agriculture accounts for about 25 percent of GDP.
- Main sources of medium-term growth are expected to be agricultural production (especially food); construction fueled by higher public investment; a recovery in phosphate production; the competitive cement industry; and a recovery in trade-related services capitalizing on Togo’s role as a regional hub.
- International comparisons highlight the importance of priorities for boosting productivity and growth—infrastructure and human capital, financial intermediation, and a business friendly environment.
- Indicators of business climate and infrastructure endowment show that Togo is positioned below its main regional competitors.
- Challenges: rehabilitating transport infrastructure; providing quality education to more of the population; and improving the business environment.
- Historical note: encouraged by the commodity boom of the mid-1970s, Togo embarked on an overly ambitious program of large investments in infrastructure while pursuing industrialization and development of state enterprises; subsequent declines in world commodity prices left the economy burdened with fiscal imbalances, heavy borrowing, and unprofitable state enterprises.

### Central African Republic (CEMAC) — Diamonds; Timber
- Main exports: Diamonds; Timber.
- Timber has accounted for about 16% of export earnings and the diamond industry for 40%.
- Subsistence agriculture, together with forestry, remains the backbone of the economy.
- Despite CAR’s rich endowment in natural resources and arable land, political instability since independence is still affecting economic performance.
- The agricultural sector generates more than half of GDP.
- The country is characterized by its poor transportation system and a largely unskilled work force.
- Factional fighting between the government and its opponents remains a drag on economic revitalization.

*Appendix 2. Country Summaries: Net Oil Importers — _wp11268 (source PDF content provided).*

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