IMF Survey: Oil Revenue Has Power to Transform Countries of Central Africa

IMF News, October 3, 2012

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Five of the six CEMAC countries (Cameroon, Chad, Equatorial Guinea, Gabon, Republic of Congo) are oil producing; the Central African Republic has no oil at the moment.
Oil accounts for 41 percent of the regional GDP.
Oil is 86 percent of total goods exports.
Oil is 67 percent of the region's fiscal revenue.

If oil revenue were properly used, it "could be completely transformative."
Example income and development contrasts:
- Gabon: per capita income "in the order of $10,000 per year."
- Human Development Index rankings (out of 169 countries): Chad 163; Central African Republic 159; Cameroon 131; Republic of Congo 136; Equatorial Guinea 117; Gabon 93.
Despite middle-income status by income measures, these countries display low human development indicators and underinvestment in human resources.

Conflict:
- Chad and the Central African Republic have often been subject to conflict; the Republic of Congo experienced a civil war. Conflicts have often been on the control of resources.
Procyclical fiscal policies (boom-bust cycle):
- When oil prices are high, spending explodes; when oil prices decline, spending does not decrease just as quickly, leading to overspending and subsequent economic problems.
Insufficient investment in productive areas:
- Not enough investment in infrastructure, health, and education; funds have been misused.
- Public investment is often unproductive—"these countries spend billions of U.S. dollars on public investment, yet if you go there, you will not find roads that are commensurate with the level of expense."
Limited employment linkage:
- Oil sector is dominant but employs very few people, limiting broader employment opportunities.
Low regional integration:
- CEMAC countries export much oil externally and have limited intra-regional trade compared with the West African Monetary Union.
Lack of transparency and weak governance:
- None of the countries in the region are fully compliant with EITI, the Extractive Industries Transparency Initiative.
- Budgets are "some of the most opaque in the region" and "some of the most opaque in the world."

Break procyclical fiscal patterns:
- Apply multiyear budget planning.
- Base budgets on sustainable oil revenue estimates rather than on current oil revenue levels.
Improve governance and transparency:
- Increase transparency in how oil revenues are spent.
- Pursue compliance with EITI standards to improve public scrutiny.
Make public investment productive:
- Implement proper project evaluation.
- Increase capacity to assess investment projects.
- Adopt multiyear planning of budgeting and better preparation to fix public infrastructure.
Invest in people to achieve inclusive growth:
- Direct oil revenue to basic health and education to reduce preventable maternal and child deaths and increase access to safe drinking water.
- For countries at income levels of "$5,000 to $10,000 a year," prioritize basic health and education spending.
Improve the business and trade environment:
- Create a more transparent process for setting up businesses.
- Eliminate corruption and improve the investment climate for private investment.
- Remove trade barriers: reduce very high common external tariffs and surcharges across borders.
- Improve labor mobility within the region.

Political constraints:
- Reluctance to undertake reforms stems from political choices and political factors that constrain the ability to act.
Signs of progress:
- "There are some countries that are making more progress than others."
- Greater awareness of the cost of inaction may change incentives and facilitate reform.

IMF Survey: Oil Revenue Has Power to Transform Countries of Central Africa — October 3, 2012.