Abstract
Notwithstanding the anticorruption efforts the authorities have made since 2017, this chapter argues that oil revenue management and public investment in Congo remain vulnerable to corruption as a result of insufficient transparency and accountability. Corruption in these sectors is potentially a significant factor of weak macro-fiscal outcomes. Nevertheless, macro-fiscal gains from anticorruption reforms are significant. Depending on how ambitious reforms are, the potential additional growth can range between 0.8 and 1.8 percentage points per year in the long term over the next 10 years. Furthermore, debt can decline by 2.25 to 3 percentage points of GDP per year over the same period. Oil sector governance reforms could target improving transparency in oil trading and strengthening oversight and accountability of Congo’s national oil company. These reforms would be supported by measures to enhance the framework for anti–money laundering. Measures to reform public investment management and efficiency would include increasing transparency of public investment execution, strengthening external controls, and restructuring the internal audit system.
Introduction
As of 2019 the Republic of Congo was the third-largest oil producer in sub-Saharan Africa. Annual oil production is estimated to have averaged 87 million barrels between 1990 and 2019. Between 2005 and 2019, oil revenues accounted for about 25 percent of GDP. Between 1991 and 2018, oil generated close to $3 billion in annual rents, or close to $750 in rents per capita every year.1
However, oil rents in Congo remain subject to significant volatility, partly from fluctuations in global commodity prices. Indeed, oil fiscal receipts collapsed from an average of 50 percent of the value of oil production between 2005 and 2014 to less than 30 percent between 2015 and 2019. The ratio of oil revenues to exports also deteriorated from about 50 percent to 25 percent over the same period, well below the average for oil exporters in sub-Saharan Africa, which stands at about 45 percent. This steep decline in oil revenues also partly reflects the impact of the change in the legal framework governing oil-production sharing in 2015.
Corruption Perception Indicators and Macro-Fiscal Outcomes in Congo
Sources: Transparency International; and Worldwide Governance Indicators.Note: Third-party indicators reported in the figures may be subject to uncertainty. The Corruption Perceptions Index is scored from 0 to 100, where 100 is very clean. SSA, sub-Saharan Africa.Corruption Perception Indicators and Macro-Fiscal Outcomes in Congo
Sources: Transparency International; and Worldwide Governance Indicators.Note: Third-party indicators reported in the figures may be subject to uncertainty. The Corruption Perceptions Index is scored from 0 to 100, where 100 is very clean. SSA, sub-Saharan Africa.Corruption Perception Indicators and Macro-Fiscal Outcomes in Congo
Sources: Transparency International; and Worldwide Governance Indicators.Note: Third-party indicators reported in the figures may be subject to uncertainty. The Corruption Perceptions Index is scored from 0 to 100, where 100 is very clean. SSA, sub-Saharan Africa.Notwithstanding commodity price volatility, the large oil windfalls allowed the country to finance an public investment program that brought public capital spending from an already high average of 35 percent of GDP in the 1990s to above 50 percent in 2012–14, far above the ratio in other LIDCs and sub- Saharan Africa. Yet the ratio of the stock of public capital to GDP has not kept pace with the rapid scaling up of investment (Melina, Selim, and Verdugo-Yepes 2019).
The potential of these oil-financed public investments to contribute to poverty reduction and growth was significant but did not fully materialize. In fact, oil revenue management and public investment spending occurred in a context where corruption—as measured by a range of internationally recognized indicators—is perceived to be prevalent relative to other sub-Saharan African countries (Figures 6.1.1 and 6.1.2). Moreover, the large investment spending was not the most efficient (Republic of Congo 2018): as a result, socioeconomic performance was dismal, with low and volatile GDP per capita growth, fast-rising debt, deep-rooted poverty, and persistent inequality (Melina, Selim, and Verdugo-Yepes 2019).
In this context, this chapter has two objectives: first, it explores the transmission channels between corruption vulnerabilities and macro-fiscal outcomes in Congo. The chapter focuses on oil revenue management and public investment because both involve the management of large public funds and frequent interactions between public and private actors.2 With limited transparency and accountability in those sectors, collusive institutional arrangements between public and private actors could enable corrupt practices that undermine macro-fiscal outcomes. Second, the chapter presents the findings from the DIGNAR model simulations to quantify the impact of anticorruption reforms in Congo on macro-fiscal outcomes.
Report on Governance and Corruption: Summary of Main Findings
There are significant challenges in implementing and enforcing the rule of law: Congo’s governance system suffers from an implementation deficit, due to a failure to enact implementing regulations, weak institutions, or simple inaction. There is also a significant shortfall in transparency and public data-reporting. Up until 2018 Congo was one of the few countries where the central government did not have an official website. Finally, the enforcement of claims remains a significant challenge, with public trust in the legal system, notably the courts, being particularly weak.
There is ample scope to strengthen governance in PFM and address corruption vulnerabilities: On the revenue side, in relation to natural resources (especially oil), governance challenges result in a significant leakage of revenues before they reach the national budget. Weaknesses in procurement—for example, lack of due diligence in contracting and sanctioning systems, as well as frequent opportunities for circumventing formal processes—result in significant losses. Excessive spending has been a major factor in the significant increase in the debt stock (from 20 percent of GDP in 2010 to 118 percent in 2017). Internal control systems are weak. Both the internal and external audit agencies are insufficiently empowered to perform their functions effectively. Other structural weaknesses include poor control of the public sector wage bill. Governance challenges also affect market regulation and the business climate: The government recognizes the diverse challenges, including the hurdles and costs to start a business, the weakness of public registers of land and companies, the many-layered tax services, and the potential for abuse of these services.
The weak anti–money laundering framework only inadequately addresses governance vulnerabilities: As a signatory to the United Nations Convention against Corruption (UNCAC), the Republic of Congo has enacted laws intended to address AML weaknesses, but these have significant limitations. Also, agencies created to detect and investigate the laundering of the proceeds of corruption have not been properly staffed or trained, lack coordination, and do not have the necessary powers to carry out their legal mandates.
The anticorruption efforts need significant strengthening to address these governance vulnerabilities: The current weaknesses lie principally in gaps in the statutory framework and in the ineffectiveness of the institutions tasked to implement anticorruption laws, both specially tasked institutions (such as the Commission Nationale de Lutte Contre la Corruption, CNLCFF) and the regular enforcement agencies. The anticorrup-tion agencies are not independent and lack legal enforcement powers.
Source: Republic of Congo (2018): report on governance and corruption.In 2017 the authorities of the Republic of Congo came to recognize the fight against corruption as a development priority. They prepared and published the Rapport sur la Gouvernance et la Corruption: République du Congo [Report on Governance and Corruption: Republic of Congo], in which they acknowledged that their efforts to date had not been effective and that they needed a new policy of breaking with the past (politique de rupture) (Republic of Congo 2018, p. 4). The report also informed their anticorruption reform agenda, aiming to address vulnerabilities in the rule of law, PFM systems, financial sector oversight, market regulation and the business climate, AML/CFT, and the anticorruption framework (Box 6.1).
The remainder of the chapter is structured as follows: the following two sections explain corruption vulnerabilities in oil revenue management and public investment, respectively. The next section presents the results of simulations of the potential impact of anticorruption reforms on Congo’s growth and public debt. The last section concludes and suggests possible reforms to reduce corruption risks.
Oil Revenue Management
Large oil rents could create incentives to “grand corruption” (which results from the abuse of power by a few high-ranking public officials and leads to the waste of massive amounts of public money that could otherwise benefit the citizens) at various stages of the oil value chain including exploration, development, and production and trading. If unaddressed, these vulnerabilities could result in the misappropriation of public funds. This section identifies three main sources of corruption risks in oil revenue management in Congo: (1) the production-sharing agreements (PSAs), (2) inadequate budget-reporting and misallocation of oil funds, and (3) the national oil company, the Société Nationale Pétrolière du Congo (SNPC) (Figure 6.2).
Production-Sharing Agreements
Production-sharing-agreements allow Congo to retain ownership of its oil resources but grant the rights of exploration and production within a specified area, and for a limited period, to a private oil company or consortium (the contractor). The contractor assumes all costs, which are later recovered against a share in oil production. Production-sharing terms between the oil companies and the government determine the oil share that each party would receive from total production and therefore how much revenue would flow to the treasury.
The 2016 Hydrocarbons Code provides a more transparent basis for the awarding of licenses in the petroleum sector, as well as guidance on the main production-sharing fiscal terms—royalties, cost recovery, profit sharing, and taxation. The code also requires the parliament to approve all PSAs and, that they are published in the official gazette.
Yet the opacity of the PSA negotiations between the state and the private companies may create incentives for corruption. The authorities recognize that these complex negotiations may be open to abuse by the companies. The specific terms of PSAs are negotiated on a case-by-case basis between the government and private sector oil companies. Moreover, some contractual terms (such as the amount of the signature bonus) are not disclosed and could thus disguise illegal payments to public officials. Also, exemptions granted to oil companies are not published at the end of each fiscal year and operating costs claimed by them are not audited. If exemptions are too high or these costs are overestimated, then these terms would lower the share of oil accruing to the government.
Furthermore, the authorities offered more generous fiscal terms to oil companies in 2015. The new terms were meant to compensate oil companies for relatively higher costs in a low oil price environment and to attract interest in Congo’s maturing oil fields and deepwater fields, which are difficult to access, making exploration and development operations expensive. These revised terms—which affected about half of oil production beginning 2015—increased the ceilings for costs recovered by the companies and lowered the government’s share of profits. As a result, they significantly reduced the government’s share of oil production from 56 percent in 2012–14 to only 40 percent in 2015 and to about 37 percent in subsequent years, thus depriving the state of substantive fiscal revenue (Figure 6.3.1). Simulations show that if the government had retained the old fiscal terms, the oil price decline would still have reduced the government share from oil production but only to an average of 52 percent of total production (Figure 6.3.2).
Fiscal Receipts and Distribution of Oil Production in Congo (2012–17)
Sources: Authorities; and authors’ calculations.Note: Oil production shares were estimated by authors based on PSA terms. The scenario in Figure 6.3.2 reflects a simulation based on oil fiscal terms.Fiscal Receipts and Distribution of Oil Production in Congo (2012–17)
Sources: Authorities; and authors’ calculations.Note: Oil production shares were estimated by authors based on PSA terms. The scenario in Figure 6.3.2 reflects a simulation based on oil fiscal terms.Fiscal Receipts and Distribution of Oil Production in Congo (2012–17)
Sources: Authorities; and authors’ calculations.Note: Oil production shares were estimated by authors based on PSA terms. The scenario in Figure 6.3.2 reflects a simulation based on oil fiscal terms.The new terms, which are unfavorable to the state on almost all accounts, principally benefit private sector oil operators in the upstream oil market. Two international oil companies control more than 70 percent of Congo’s oil production.
Finally, the introduction of local content requirements under the 2016 Hydrocarbons Code is another potential source of corruption risk. The code requires that national companies (defined as companies based in Congo in which individuals with Congolese nationality hold more than 50 percent of shares) hold a minimum of 10 percent share in new joint ventures. Moreover, oil contractors must employ Congolese personnel and give preference to equipment and services of Congolese origin, if the price of this labor and equipment is no more than 10 percent higher than that of foreign equivalents. In addition, at least 25 percent of the development and operational costs of oil fields must be sourced locally. If these requirements are not met, the companies are not allowed to recover any additional costs incurred. While such requirements can support diversification, they represent a significant risk of rent-seeking if not implemented under a transparent framework. The provisions could be a potential source of corruption if they are used to favor local companies with political connections or to channel and conceal kickback schemes to public officials (Camos and Pradham 2007).
Inadequate Budget-Reporting and Misallocation of Oil Funds
The uncertainty of estimates of oil receipts stemming from commodity price volatility complicates oil revenue management. The forecasting of oil revenues suffers from substantial weaknesses. The General Directorate for Hydrocarbons and the Natural Resources Office of the Cabinet of the Ministry of Finance work closely with the SNPC and selected international oil companies to validate projections of oil production. However, there is no clear methodology used for oil forecasting, and there are inconsistencies between the estimates of oil production and oil revenues produced by the oil companies at the end of the year and the data collected by the Ministry of Finance. Moreover, reconciling the value of production from oil sales based on PSAs terms with amounts received by the treasury has been problematic.
A reconciliation exercise done with assistance of IMF staff for the period 2014–17 has helped identify substantial amounts of off-budget oil revenue. These amounts relate primarily to oil-backed prefinancing arrangements contracted by the SNPC with oil traders ($2.3 billion), and special contracts with oil companies that were repaid with the equivalent of at least $0.5 billion in annual withholdings of government oil. These funds were largely used to finance infrastructure projects, including a power station (EITI 2014). The oil reconciliation exercise also identified additional oil revenue (about $250 million per year) that bypassed budget processes. These amounts were reportedly used to finance transfers to the oil refinery as well as payments of the government’s share in the operating costs of the five oil fields in which it participates.
Finally, the lack of enforcement of the repatriation and surrender of foreign exchange provisions associated with the AML framework is a concern. According to CEMAC regulations (Chapter 5), companies must repatriate export proceeds received in foreign currencies and surrender them to the regional central bank within one month of collection. The authorities have indicated that multinational companies tend to evade this requirement.
The Role of the SNPC
Created in 1998, SNPC has been a key player in the oil sector.3 It has the dual mandate of managing its own share of production received through stakes in oil fields from joint ventures with oil companies, and managing the state’s oil share on behalf of the government. In its latter capacity, SNPC represents the state’s interests in all third-party contractual negotiations, signs PSAs on behalf of the state, and receives the state’s in-kind share of oil. Yet the regulations governing the management of the state’s oil resources are loosely implemented by the SNPC, a practice that may conceal corruption risks.
SNPC also remits the proceeds of oil sales—net of its fees—to the treasury on a quarterly basis (EITI 2015). Yet accounting for oil revenue flows and related financial transfers between the government and the SNPC remains inadequate. EITI reported being able to reconcile the quarterly oil transfers between oil producers and SNPC based on PSAs—but not the quarterly transfers disclosed by SNPC with those received by the treasury. In part, this may be explained by weak capacity, but in larger part it may be explained by corruption vulnerabilities as a result of weak corporate governance in SNPC.
Political Economy of Grand Corruption Vulnerabilities: Oil
Sources: Longchamp and Perrot (2017); and authors.Political Economy of Grand Corruption Vulnerabilities: Oil
Sources: Longchamp and Perrot (2017); and authors.Political Economy of Grand Corruption Vulnerabilities: Oil
Sources: Longchamp and Perrot (2017); and authors.Figure 6.4 describes the key corruption vulnerabilities surrounding SNPC. Politically exposed persons (PEPs) can influence decisions related to oil-trading transactions conducted by SNPC on behalf of the government, including through prefinancing and oil-backed infrastructure agreements (Longchamp and Perrot 2017).4 In the absence of full transparency and sufficient oversight, the proceeds of these transactions may have been channeled abroad to companies with obscure beneficial ownership or that could be related to a PEP or someone in that person’s patronage network (Longchamp and Perrot 2017).5
These corruption vulnerabilities persist against a backdrop of lack of transparency about SNPC’s oil-trading operations. There is a severe lack of published, timely and regular information on (1) regulations for competitive public tenders for the sale of oil; (2) objective criteria for the selection of buyers or prequalifica-tion of local suppliers; (3) a list of oil buyers and traders; and (4) the volume of oil sales and their pricing. The opacity of oil-trading transactions also raises concerns about potential mispricing of these transactions, which may allow the buyers to resell oil to traders at an inflated margin. Edgardo and Pradham (2007) report that financial audits uncovered that SNPC was selling the state’s share of crude oil production at prices that were 5 to 6 percent below market.
Public Investment and Public Service Delivery6
The rapid scaling up of public investment, financed essentially with bilateral debt (mostly from China), has occurred in a poorly managed and nontransparent environment with strong perceptions of corruption and inadequate PFM systems (IMF 2019; Republic of Congo 2018).7 This section identifies corruption vulnerabilities in public investment spending in Congo.
Opportunities for corruption could arise at various stages of the investment project cycle, from initiation and planning, to allocation of resources, to implementation and procurement.8 In Congo, during the planning phase, corruption risks could have stemmed from two aspects. First, limited available information on the public investment plans suggests that programming and budgeting processes were weak and not well coordinated. Second, there were no clear guidelines (or an underlying regulatory framework for PPPs) to guide the planning and management of projects, and no clear and objective criteria for project selection. As such, projects were not systematically subject to a rigorous technical, economic, and financial appraisal, which may raise concerns about their overall efficiency (Republic of Congo 2018). To the extent that such appraisals were done, they did not undergo independent external review and were not published. Major projects (including those funded by development partners and through PPPs) were not scrutinized by a central ministry or by an independent agency prior to inclusion in the budget.
The lack of transparency during the project allocation phase provides opportunities for influence by PEPs who may financially benefit from the projects. Anecdotal evidence suggests that construction contracts are often allocated to members of the governing coalition, particularly if these contracts involve projects that provide high-value consumption goods to the Congolese elite (Bertelsmann Stiftung 2016). Firm survey data show that around 75 percent of firms were expected to give gifts to secure a government contract. Against a lack of transparency and accountability for budget execution, discretionary extrabudgetary investment spending occurred in the form of oil barter agreements, as explained earlier in this chapter (see “Oil Revenue Management”). Infrastructure projects executed under such agreements have bypassed official budget processes for selection, qualification, and monitoring.
Weak public investment management, along with poor implementation capacity, also suggest that selected projects were not the most efficient, which contributed to weakening the link between public investment and growth (Republic of Congo 2018).9 In particular, weak procurement processes and internal controls may have created widespread opportunities for misuse of public funds.10
Public procurement is particularly susceptible to corruption if processes are not transparent and the underlying legislative, regulatory, and institutional frameworks are weak. According to the procurement subindicator of the Ibrahim Index of African Governance, procurement procedures in Congo have become much less competitive since 2014, with the country’s score dropping from 50 to 25 in 2019.11 In fact, projects are sometimes tendered in a competitive process, but the public does not have access to complete, reliable, and timely procurement information. There are also no available data on public tendering versus direct procurement. Other corruption risks include insufficient controls of the procurement process, the absence of mechanisms to impose sanctions when the regulations are breached, and weak capacity of civil servants responsible for conducting procurement transactions in line ministries. Only a limited number of procurement audits have been conducted in recent years, and they have excluded high-value contracts.
Some progress was made with the introduction of a new procurement law in 2009, the establishment of a review mechanism for monitoring and processing appeals related to complaints, and the operationalization of the existing Public Procurement Regulatory Authority. Even though the law requires that procurement complaints be reviewed by an independent body, it is not known whether such reviews have been carried out or are rigorously enforced.
There is also evidence of corruption risks faced by the private sector when interacting with public administrations. In fact, Congo ranked poorly in 2019 on indices of the Ibrahim Index of African Governance that assessed both the absence of bribery in the public sector (with a score of 36.9)12 and risks of corrupt practices faced by the private sector when interacting with the public sector (with a score of 20).13 Earlier findings from the 2009 Investment Climate Assessment (ICA) survey for Congo confirm that close to 40 percent of firms have experienced at least one bribe request and were expected to give gifts to tax officials. More than 80 percent of firms were expected to give gifts to public officials to “get things done.” In this context, it is not surprising that selected infrastructure projects have not had a significant impact in improving development outcomes. For instance, the poorest 10 percent of the population has no access to electricity, and only half of those in the poorest quintile have access to safe water (World Bank 2017).
Dividends from Anticorruption Reforms
This section presents the results of simulations using the DIGNAR model by Melina, Yang, and Zanna (2016) to quantify the impact of anticorruption reforms in Congo on macro-fiscal outcomes, including output, private investment, private consumption, and debt. This model was also used in IMF (2018b).
The model calibration for Congo incorporates the anticorruption reforms to address vulnerabilities described earlier in this chapter (see “Oil Revenue Management” and “Public Investment and Public Service Delivery”). We calibrate different reform scenarios.14 The baseline scenario captures the effect of an ambitious but realistic reform package that would advance Congo within the distribution of sub-Saharan African countries. The second scenario assumes a partial reversal of reforms, as commitment to governance reforms may falter over time. Finally, a more conservative scenario includes less ambitious reforms.
Under the baseline scenario, the reforms are calibrated such that (1) the reduction of bribes would boost private sector investment within 10 years from 14 to 16 percent of GDP, advancing Congo by a decile in the distribution of sub-Saharan African countries; (2) public investment efficiency would rise from 0.43 to 0.58, which is the median level of sub-Saharan African countries; (3) a more efficient government bureaucracy would increase the nonoil revenue-to-GDP ratio by 2 percentage points;15 and (4) a correction of the mispricing of Congolese crude oil exports would raise total oil revenues by 7 percent.16
Baseline simulations show that these reforms can increase the level of real nonoil output by 18 percent in 10 years, implying approximately an additional growth of 1.8 percentage point per year on average, with a crowding-in effect on private consumption and investment (Figure 6.5). Reforms would also reduce the ratio of public debt to GDP by about 3 percentage points per year. Moreover, 10 percent of the increase in growth and almost one-third of the reduction in public debt is due to better oil sector governance.
Baseline Scenario: Macro-Fiscal Gains from a Comprehensive Anticorruption Reform Package
Sources: DIGNAR model simulations; and authors’ calculations.Note: X-axis reflects years. Policy changes occur in year 0. Red line refers to the baseline reform scenario; black dashed line refers to a scenario where there is a partial reversal of reforms in year 4.Baseline Scenario: Macro-Fiscal Gains from a Comprehensive Anticorruption Reform Package
Sources: DIGNAR model simulations; and authors’ calculations.Note: X-axis reflects years. Policy changes occur in year 0. Red line refers to the baseline reform scenario; black dashed line refers to a scenario where there is a partial reversal of reforms in year 4.Baseline Scenario: Macro-Fiscal Gains from a Comprehensive Anticorruption Reform Package
Sources: DIGNAR model simulations; and authors’ calculations.Note: X-axis reflects years. Policy changes occur in year 0. Red line refers to the baseline reform scenario; black dashed line refers to a scenario where there is a partial reversal of reforms in year 4.Congo’s weak initial conditions, including very low investment efficiency, can explain the large growth dividends. They are also of the same order of magnitude as results for both other developing countries and other cross-country empirical estimates reported in IMF (2018a), and in Chapter 2 of this book. Finally, these reforms are only a subset of possible reforms that Congolese authorities may choose to pursue. It is reasonable to conjecture that coupling governance reforms with broader fiscal reforms is likely to deliver much larger growth dividends.
Two additional simulations highlight more conservative reform scenarios. Results suggest that economic dividends from anticorruption reforms remain significant even under (1) a partial reversal of reforms or (2) the adoption of less ambitious reforms (Figure 6.6). The first alternative scenario assumes that gains are partially reversed after three years. This reversal is captured by the following assumptions: a decline in private investment to 14.5 percent of GDP, a deterioration of public investment efficiency to 0.47, and a decline in the ratio of nonoil revenue-to GDP by 0.5 percentage points and fiscal revenues by 1.75 percent.
Conservative Scenario: Macro-Fiscal Gains from a Comprehensive Anticorruption Reform Package
Sources: DIGNAR model simulations; and authors’ calculations.Notes: X-axis reflects years. Policy changes occur in year 0. Red line refers to the baseline reform scenario; black dashed line refers to a more conservative reform scenario.Conservative Scenario: Macro-Fiscal Gains from a Comprehensive Anticorruption Reform Package
Sources: DIGNAR model simulations; and authors’ calculations.Notes: X-axis reflects years. Policy changes occur in year 0. Red line refers to the baseline reform scenario; black dashed line refers to a more conservative reform scenario.Conservative Scenario: Macro-Fiscal Gains from a Comprehensive Anticorruption Reform Package
Sources: DIGNAR model simulations; and authors’ calculations.Notes: X-axis reflects years. Policy changes occur in year 0. Red line refers to the baseline reform scenario; black dashed line refers to a more conservative reform scenario.The calibration shows that anticorruption reforms would yield an average increase in nonoil growth of 0.8 percentage points per year and a decrease in the ratio of public debt to GDP by 2.25 percentage points per year.
In a second alternative and more conservative scenario, the reforms are calibrated to lead to (1) an increase in private sector investment from 14 to 15 percent of GDP; (2) an increase in public investment efficiency to 0.5375; (3) an increase in nonoil revenue mobilization by 2 percentage points of GDP; and (4) oil revenues that are 3 percent higher. This scenario yields an average increase in nonoil growth of about 1 percentage point per year and reduces the ratio of public debt to GDP by 2 percentage points per year (Figure 6.6).
Conclusion
This chapter has argued that oil revenue management and public investment in Congo are vulnerable to corruption. Collusion between public officials and private actors has facilitated corrupt practices. The chapter also showed that the potential dividends from anticorruption reforms could be significant, and range per year between 0.8 and 1.8 percentage points of higher growth and between 2.25 to 3 percentage points of lower debt-to-GDP ratio. Improvements in oil sector governance alone account for around 10 percent for the increase in growth and one-third of the reduction in debt.
The authorities have already taken several anticorruption measures. In 2019 they adopted a law introducing asset declaration requirements for senior political figures, and in 2020 they established an anticorruption commission with investigative powers. Going forward, however, it will be necessary to bring the asset declaration regime in line with international good practices (Swanepoel and Verdugo-Yepes 2020).
To upgrade oil sector governance, the government (1) revised the SNPC statutes in 2017 to clarify accountability for functions performed on behalf of the state;17 (2) published online oil production sharing agreements in 2018; and (3) submitted to Parliament in late 2018 draft amendments to the law requiring the SNPC and its subsidiaries to publish their audited financial statements.
The following oil sector reforms would also reduce corruption risks and increase the government’s accountability for the use of oil revenue: (1) auditing the recovery costs claimed by oil companies; (2) publishing, by SNPC, of detailed information on oil sale volumes, prices, sales, and buyers; (3) enhancing the AML framework to deter and detect illicit transactions in oil trading; (4) auditing, by an independent entity, all financial flows between the SNPC and the budget; and (5) increasing transparency regarding the operations of SNPC subsidiaries, including the national refinery company.
To enhance public investment efficiency, the authorities submitted to Parliament a report on past transactions involving the financing of infrastructure projects with oil revenues and the use of oil prepurchase transactions. They further committed in 2018 to (1) publish detailed information on public investment; (2) conduct an investment tracking survey; (3) adopt a law and underlying implementing regulations on the organization and functions of the supreme audit institution of Congo (Cour des Comptes et Discipline Budgétaire); and (4) restructure the internal audit system and establish a mechanism to coordinate the work of the internal and external audit institutions. Another area of reform should include the expedition of plans to finalize a comprehensive medium-term strategy for PFM reforms with a three-year rolling action plan.
Finally, government commitment at all levels to its governance strategy is critical for Congo’s citizens to fully reap the anticorruption dividends. Such dividends will also depend on how well the reforms are implemented and how compliant stakeholders are with reporting obligations under the new framework. The issues discussed in this chapter can guide reforms in other CEMAC or other resource-rich sub-Saharan African countries facing similar challenges.
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Swanepoel, Jonathan, and Concepcion Verdugo-Yepes. 2020. “Improving Governance and Combatting Corruption in Congo—Some Progress, but More to Be Done.” IMF Country Report 20/27, Washington, DC.
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World Bank. 2017. Republic of Congo: Poverty Assessment Report: Education, Jobs and Social Protection for a Sustainable Reduction of Poverty. Washington, DC: World Bank.
Rent is defined as the difference between the value of crude oil production at world prices and the total costs of production.
For a review of the literature on corruption, oil wealth, and public investment, please see Melina, Selim, and Verdugo-Yepes (2019).
SNPC has five subsidiaries (Société Nationale de Recherche et de Production, Société des Forages Pétroliers, Integrated Logistics Services, Congolaise de Rafnage, NPC-Distribution), covering the entire oil industry value chain.
According to the FATF, a PEP is an individual who is or has been entrusted with a prominent function. Many PEPs hold positions that are open to abuse, including through laundering illicit funds or engaging in other predicate offenses, such as corruption or bribery.
See the cases of Philia and Vitol in Longchamp and Perrot (2017).
All third-party indicators reported in this section may be subject to uncertainty.
The analysis builds on the discussion in Rapport sur la Gouvernance et la Corruption (Republic of Congo 2018) of inefficiencies in public investment.
A diagnostic tool, the Public Investment Management Assessment (PIMA), has been developed by the IMF to assess the efficiency of public investment management during each phase of the investment cycle. PIMAs have been carried out in more than 50 countries, not including the Congo. See IMF (2015; 2018a).
Examples of investments deemed inefficient by CSOs and other stakeholders are the Kintélé National Stadium, the Imboulou Dam Project, and the Congo Power Station. For a discussion of inefficient investments, see World Bank (2015).
This paragraph and the next are based on discussions between IMF staff and the authorities in December 2017 and April 2018. Other sources of information include EITI (2014; 2016), Republic of Congo (2018); and World Bank (2015).
This subindicator assesses (1) the extent to which bids from competing contractors, suppliers, or vendors are invited through open advertising of the scope, specifications, and terms of the proposed contract and (2) whether the criteria by which the bids are evaluated are available for scrutiny. The assessment score ranges between 0 and 100, where 100 is the best possible score.
This sub-subindicator assesses the extent to which bribery is absent from administrative processes, the extent to which the police and military do not use public office for private gain, and the extent to which public sector employees do not engage in bribery. It ranges between 0 and 100, where 100 is the best possible score.
This sub-subindicator assesses the risk that individuals or companies will face bribery or other corrupt practices in order to carry out business, from securing major contracts to being allowed to import or export a small product or obtain everyday paperwork. It ranges between 0 and 100, where 100 is the best possible score.
More details on of the model and its calibration to Congo are provided in the annex of Melina, Selim, and Verdugo-Yepes (2019).
This number refers to the IMF Fiscal Affairs Department estimate for an efficiency index ranging between 0 (worst) and 1 (best). This is a somewhat conservative assumption as PFM reforms can improve revenue mobilization by a more significant margin.
This indicative figure is derived from an oil reconciliation exercise undertaken by IMF staff. If Congolese crude oil were sold at Brent prices, the government would be able to accrue an additional 14 percent of oil revenue. If around 7 percent of revenues are due to the lower quality of the Congolese crude, then the remaining 7 percent could capture revenues lost to corruption.
Article 59 of the 2017 Statutes for the Société Nationale Pétrolière du Congo.
