Front Matter

Front Matter

Bernardin Akitoby, and Sharmini Coorey
Published Date:
August 2012
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© 2012 International Monetary Fund

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Joint Bank-Fund Library

Oil Wealth in Central Africa: policies for inclusive growth / editors, Bernardin Akitoby and Sharmini Coorey. —Washington, D.C.: International Monetary Fund, 2012.

p.; cm.

Includes bibliographical references.

ISBN 9781616353766

1. Petroleum industry and trade —Africa, Central. 2. Petroleum industry and trade—Africa, Central—Case studies. 3. Natural resources—Africa, Central—Management. 4. Natural resources—Africa, Central—Management—Case studies. 5. Economic development—Africa, Central. 6. Africa, Central—Economic policy. I. Akitoby, Bernardin. II. Coorey, Sharmini. III. International Monetary Fund.

HD9577.A352 O35 2012

Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its members.

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Overwhelming evidence shows that the Central African Economic and Monetary Community (CEMAC) oil exporters—five out of the six countries in the region—have not avoided the “resource curse.” Despite its abundant oil wealth, the region has grown more slowly, even compared with sub-Saharan African countries that have comparable levels of development. Ineffective fiscal management of volatile oil revenue has led to procyclical policies with “boom-and-bust” cycles that induce macroeconomic instability, thereby hurting investment and growth. The region also has some of the world’s lowest living standards and social indicators. Poverty and unemployment remain widespread, and a large proportion of the population still lacks access to basic power, safe drinking water, and improved sanitation. In other words, oil wealth has not led to more inclusive growth.

Effective management of oil wealth remains on the IMF’s research agenda and is included in the policy dialogue with oil-rich countries. The IMF African Department recently launched an initiative to help countries strengthen the management of natural resources, sharpen our policy advice, and deepen our dialogue to promote more inclusive growth. As part of this initiative, this book is an excellent opportunity to focus our thoughts on the key challenges facing the CEMAC region and how they can be addressed. The overarching priority for these countries remains to seize the opportunity provided by oil wealth to foster strong, sustained, and inclusive economic growth, and to generate sufficient employment opportunities, particularly for their fast-growing youth populations. The related policy challenges range from breaking procyclical fiscal policies and improving governance and transparency of the oil sector to ensuring productive public investment and improving health and education spending.

Drawing on the experiences of the CEMAC oil-exporting countries and new research on managing oil wealth, this book offers policy advice to address these challenges. First, it proposes a fiscal framework that recognizes the CEMAC’s large investment needs in physical infrastructure and human capital while reducing a bias toward procyclical fiscal policies. It underscores that public investment plans should be embedded in a realistic multiyear investment plan, and the related annual budgets should be cast within a medium-term fiscal framework consistent with macroeconomic stability and fiscal and external sustainability. Second, better investment appraisal, selection, and monitoring are needed to ensure spending quality. The pace of scaling up investment should be commensurate with the quality of public investment management systems. Finally, there is a pressing need to improve accountability and transparency in oil revenue management. Several contributions and case studies in this book propose measures to achieve this important objective.

The likelihood that commodity prices will remain elevated by historical standards in the coming years gives CEMAC oil exporters strong incentives to strengthen their ability to maximize the benefits derived from exploitation of these resources. I hope this book provides a macroeconomic framework and policy advice to help CEMAC countries seize this opportunity to translate their oil wealth into inclusive and sustained growth.

Antoinette M. Sayeh


African Department

International Monetary Fund


This book is part of the IMF African Department’s project to strengthen the management of natural resources and promote more inclusive growth. It brings together research work by a broad group of IMF economists and leading experts from the World Bank, academia, and one of Malaysia’s sovereign wealth funds.

We would like to thank Antoinette M. Sayeh, Director of the IMF’s African Department, for her support for this initiative. We also owe thanks to many colleagues at the IMF and the World Bank who read and commented on the papers included in this volume. Special thanks to Michael Atingi-Ego, Carol Baker, Andrew Berg, Dhaneshwar Ghura, Saul Lizondo, Paulo Mauro, Sean Nolan, Roger Nord, Catherine Pattillo, Raju Singh, and Mauricio Villafuerte. We are particularly grateful to Paul Collier (Oxford University), Shanta Devarajan (Chief Economist of the African Region at the World Bank), Sanjeev Gupta (Deputy Director of the IMF’s Fiscal Affairs Department), and Rick van der Ploeg (Oxford University) for useful advice. We also thank the CEMAC authorities for highly productive policy discussions over the past several years.

We benefited from the technical and administrative support of many colleagues. We gratefully acknowledge the excellent assistance of Cheryl Roberts in preparing the manuscripts. Particular thanks go to Atsushi Oshima and Mpumelelo Nxumalo for excellent research assistance; Jenny DiBiase, who edited some of the chapters; and Joe Procopio of the External Relations Department, who edited the book and coordinated its production.

Finally, we are most grateful to our families for their unwavering support during the preparation of the book.

The views expressed throughout this publication are those of the contributing authors and do not necessarily represent the position or policies of the IMF, the IMF Executive Directors, or the CEMAC authorities.

About the Authors

Bernardin Akitoby, a national of Benin, is Division Chief in the African Department of the IMF. He also serves as the IMF Mission Chief for the Central African Economic and Monetary Community (CEMAC), the Bank of Central African States, and Gabon. Before joining the IMF, he worked in the World Bank’s Research Department and taught at the University of Montreal and the National University of Benin. He has published in academic journals, including Economic Journal, European Journal of Political Economy, Review of World Economics(Weltwirtschaftliches Archiv), Economie Appliquée, and Revue Economique. His research interests include real business cycles, growth, exchange rates, hyperinflation, macroeconomic management of oil wealth, fiscal procyclicality, public investment and public-private partnerships, financial markets, economic institutions, and sovereign risk. He holds a PhD in economics from the University of Montreal and degrees in business administration, finance, and accounting.

Carol Baker is an Economist and Deputy Division Chief at the IMF currently assigned to the CEMAC region. Her recent research has spanned topics ranging from investment efficiency and growth to reserve adequacy. Before joining the African Department in 2010, she worked extensively in Southeast Asia on the dynamic economies of China, Malaysia, Singapore, and Vietnam. She holds a BA and an MA in economics from Boston University, and a PhD in economics from the University of Wisconsin-Madison.

Cecilia Briceño-Garmendia is Senior Economist in the Office of the Director for Sustainable Development in the Africa Region of the World Bank, where she co-led a major knowledge program known as the Africa Infrastructure Country Diagnostic. For more than 20 years, Ms. Briceño-Garmendia has dedicated her professional career to work and research on economic and policy issues pertaining to service provision and optimal functioning of infrastructure sectors. She has worked extensively on issues in the area of public financing of infrastructure, particularly on links between institutions and regulatory frameworks, and the efficiency of spending. She has spearheaded the use of spatial tools to help policymakers with infrastructure investment prioritization and with coordination of interventions across sectors and stakeholders. Her work at the World Bank involves both analytical and advisory services and economic input into the design and supervision of projects, with a focus on the financing of public infrastructure. Before joining the World Bank, she worked in software engineering and the design of information and organizational systems for both private and public sector enterprises in Venezuela. She holds a PhD in economics from Georgetown University and an MBA from the Instituto de Estudios Superiores en Administración.

Sharmini Coorey, a national of Sri Lanka, is Director of the IMF Institute for Capacity Development. She was previously Deputy Director in the IMF’s African Department where her oversight and review responsibilities included the CEMAC region and Southern Africa. She has led IMF staff missions to South Africa, Zimbabwe, and Ireland, and headed the U.K. and Nordic country division. Her experience includes work on surveillance and IMF-supported programs in a range of industrial and emerging economies in Europe, Asia, and North and South America, as well as on various policy issues in the IMF’s Policy and Review Department. She has also served on the Editorial Committee of IMF Staff Papers and been a visiting researcher at George Washington University’s Elliot School for International Affairs. Ms. Coorey holds a PhD and a BA in economics from Harvard University. Her research interests include financial sector issues, macro-economic stabilization, and growth, about which she published numerous works.

Shantayanan Devarajan is the Chief Economist of the World Bank’s Africa Region. Since joining the World Bank in 1991, he has been a Principal Economist and Research Manager for Public Economics in the Development Research Group, and Chief Economist of the Human Development Network and of the South Asia Region. He was the Director of the World Development Report 2004: Making Services Work for Poor People. Before joining the World Bank, he was on the faculty at Harvard University’s John F. Kennedy School of Government. The author and coauthor of more than 100 publications, Mr. Devarajan’s research covers public economics, trade policy, natural resources and the environment, and general equilibrium modeling of developing countries. Born in Sri Lanka, Mr. Devarajan received his BA in mathematics from Princeton University and his PhD in economics from the University of California, Berkeley.

Vivien Foster is Lead Economist in the Office of the Director for Sustainable Development in the Africa Region of the World Bank, where she has been responsible for coordinating a major knowledge program known as the Africa Infrastructure Country Diagnostic. Her work at the World Bank involves both analytical and advisory services, and economic input into the design and supervision of projects, with a focus on the effects of infrastructure reform and privatization on the poor. Before joining the World Bank, she was a Managing Consultant at Oxford Economic Research Associates Ltd in the United Kingdom, where she advised private and public sector clients in the water and energy industries, and worked with numerous Latin American governments on issues relating to water sector reform. She holds a PhD in economics from University College London.

Bernard Gauthier is Professor of Economics at the Institute of Applied Economics at HEC Montréal (the University of Montréal’s business school). He is also a visiting professor at Université de Paris 1, at Université de Paris 12, and at CEIS, Universitá degli Studi di Roma. His research interests include development economics, public finance, public sector economics, and the new economics of institutions. Since 2001, he has been involved in public sector micro-level surveys using Public Expenditure Tracking Surveys and Quantitative Service Delivery Surveys in various sectors. He has been a consultant for the African Economic Research Consortium, the World Bank, the United Nations Children’s Fund, the U.K. Department for International Development, and the Union Douanière et Économique de l’Afrique Centrale.

Cheikh Anta Gueye is a Senior Economist at the IMF and has wide experience in country policy issues. Before joining the IMF, he worked at the Central Bank for West African States based in Dakar, where he held successively the positions of Senior Economist and Head of the Department of Research and Statistics from 2003 to 2007. Before joining the Central Bank, he worked at the Senegalese Ministry of Economy and Finance. He holds an MBA from Southern Illinois University; an MPA from National School of Administration, Dakar, Senegal; and an MA in economics from University Cheikh Anta Diop, Dakar, Senegal.

Sanjeev Gupta is Deputy Director in the Fiscal Affairs Department of the IMF. He was previously Senior Advisor in the Fiscal Affairs Department and Assistant Director in the African Department. Mr. Gupta has published extensively on macroeconomic and fiscal issues.

Plamen Iossifov is an Economist in the European Department of the IMF. Before his current assignment on the Bosnia and Herzegovina country team, he worked extensively on countries in West and Central Africa—Equatorial Guinea, Sierra Leone, Gabon—and on CEMAC regional surveillance. Current research interests include credit growth, bank stress tests, and money demand.

Eva Jenkner has worked extensively on fiscal policy issues and public sector reform at the IMF, where she is a Senior Economist in the Fiscal Affairs Department. Her publications address a variety of fiscal policy topics, and include contributions on health and education expenditure and to IMF reports on Latin America, emerging Europe, and the Middle East. Apart from the IMF, she has worked as a Senior Economic Advisor to the government of Georgia and a Deputy Representative with United Nations Children’s Fund Malaysia. She has a BA from Cambridge University and an MA in Public Affairs from Princeton University’s Woodrow Wilson School of Public and International Affairs.

Noriaki Kinoshita, a Japanese national, is a Senior Economist in the African Department of the IMF. He holds a PhD in economics from the University of Cambridge and a BA in economics from the University of Tokyo. Before joining the African Department, where his responsibilities as a desk economist have included work for the Central African Republic and Ethiopia, Mr. Kinoshita worked for several years in the Fiscal Affairs Department. Before joining the IMF, Mr. Kinoshita led the international economics team at the Mitsubishi Research Institute in Tokyo.

Oscar Melhado is the IMF’s Resident Representative in Brazzaville, the Republic of Congo. He joined the IMF in 1999, working in the Western Hemisphere Department, and since 2003 in the African Department as desk economist for Gabon and Chad. Before joining the IMF, he worked as a consultant and taught at the Central American University of El Salvador.

Gaston Kagabo Mpatswe is an Economist in the African Department at the IMF, working on various countries’ economic programs supported under IMF arrangements. He also served as Advisor to the Executive Director for Africa. Before joining the IMF, he held senior positions in the Office of the President of Rwanda. He led and served on boards of directors of various public agencies and on high-level government committees in charge of designing and monitoring implementation of economic policies and reforms that were keystones to Rwanda’s successful postconflict recovery and ongoing economic development process. He started his economic career in academics at the National University of Rwanda. His research works relate to the effectiveness of foreign aid to sub-Saharan Africa, financial sector development, and economic reforms and development. He holds a graduate degree in quantitative development economics from the University of Warwick.

Jean-Claude Nachega is an Economist in the African Department of the IMF. In 2008–10, he worked as the Deputy Chief of Staff and Chief Economic Advisor to the Prime Minister of the Democratic Republic of Congo. He also previously worked as an economist at the International Finance Corporation (World Bank Group). He has published papers in the areas of monetary economics, public finance, and development economics.

Rupa Ranganathan is a core team member of the Africa Infrastructure Country Diagnostic. She has worked in a number of departments across the World Bank and International Finance Corporation. She is an economist and energy specialist. Ms. Ranganathan has an MA in public policy and is currently working toward her MBA.

Raju Jan Singh is the Lead Economist for Central Africa, based in Yaoundé, Cameroon. Before joining the World Bank, Mr. Singh held positions at the IMF in Washington, D.C., at the Swiss Ministry of Finance in Bern, and at Lombard Odier & Cie (private banking) in Geneva. He was also a consultant for the Swiss Agency for Development and Cooperation, working with the central banks of Rwanda and Tanzania, and taught at the Graduate Institute of International Studies in Geneva. Mr. Singh holds a PhD from the Graduate Institute of International Studies in Geneva, Switzerland.

Alexandra Tabova is an Economist in the Division of International Finance at the Board of Governors of the Federal Reserve in Washington, D.C. Her current work focuses on issues related to cross-border capital flows and implications for the U.S. economy and the world. Her research focuses on international capital flows, portfolio choice, foreign direct investment, effects of risk exposure on economic growth, commodity price fluctuations, and growth in low-income countries. She previously worked in the Economic Policy and Debt Department and the Financial Resource Mobilization Department at the World Bank, and the African Department at the IMF. Ms. Tabova, a Bulgarian national, holds a PhD in economics from Duke University and an MSc from the Vrije Universiteit of Amsterdam.

Misa Takebe was a senior desk economist in the African Department of the IMF when her chapter was written. At the IMF, she has worked in the African Department, and in the Independent Evaluation Office where she focused on crisis cases in Latin America, Eastern Europe, and Asia. Ms Takebe was previously a regional strategist and economist for Asia at Nomura Asset Management. She is currently on leave from the IMF and is working at the Hong Kong Monetary Authority.

Sampawende J.-A. Tapsoba works as an Economist in the African Department at the IMF. Before the IMF, he was a research economist at the French Ministry of Finance and Economy and served as an assistant professor at the University of Auvergne. He holds a PhD and an MA in international economics from the Center for International Development Study and Research (France). He also received a degree in economics and management from the University of Ouagadougou.

Frederick van der Ploeg is currently a professor at the University of Oxford and codirector of the Oxford Centre for the Analysis of Resource Rich Economies, and senior research fellow at New College, Oxford. Before that, he held appointments at Cambridge University, London School of Economics; Tilburg, Amsterdam; and the European University Institute, Florence. He has been a Member of Parliament and State Secretary of Education, Science and Culture in the Netherlands, and a member of the United Nations Educational, Scientific and Cultural Organization World Heritage Committee. Apart from his core interests in macroeconomics and public finance, his main research interests are development economics and environmental and resource economics. He has advised the European Union, the Organization for Economic Cooperation and Development, the African Development Bank, the Asian Development Bank, and the World Bank, and has taught a course on the economics of natural resources at the IMF Institute.

Jaroslaw Wieczorek, a Polish national, is a Deputy Division Chief in the Central I Division of the IMF’s African Department. He holds a PhD and an MA in international economics from the Graduate Institute of International Studies (GIIS) in Geneva, and MAs in economics and in philosophy from Warsaw University. He was also a George Soros scholar at Lincoln College, Oxford. Before joining the African Department, Mr. Wieczorek worked for several years in the IMF’s Middle East and Central Asia Department, in the Policy Department, and in the Review Department. Before joining the IMF, Mr. Wieczorek held teaching positions at Warsaw Polytechnic, Warsaw University, and GIIS, and worked as a consultant at the Centre de Recherche Entreprises et Sociétés in Geneva.

Robert C. York is a Deputy Division Chief in the IMF’s African Department. He has extensive experience in the CEMAC region, having participated in IMF missions to all CEMAC countries except Chad; he previously led missions to the Central African Republic and the Republic of Congo. Mr. York currently is the African Department’s mission chief for the Democratic Republic of Congo. He holds a BA and MA from the University of British Columbia and did doctoral studies in economics at Queen’s University.

Albert G. Zeufack is Director of Research and Investment Strategy in Khazanah Nasional Berhad, a Malaysian sovereign wealth fund, on leave from the World Bank. Before joining Khazanah, he was the World Bank’s Acting Lead Economist, Head of the Poverty Reduction and Economic Management Cluster, and Cluster Leader for Private Sector Development for Southeast Asia based in Bangkok, Thailand. Mr. Zeufack joined the World Bank as an Economist in 1997 through the Young Professionals Program. At the World Bank, he has worked both in Research and in Operations on Africa, Asia, and the Middle East, from Washington, D.C., and from field offices. Before starting his World Bank career, he taught economics and applied econometrics at the University of Clermont-Ferrand, where he received his PhD in economics with the highest distinction. Mr. Zeufack has worked extensively on micro-foundations of growth and competitiveness, and is author of a number of books and articles in academic journals. He is a renowned keynote speaker at international conferences.

Zaijin Zhan is a Senior Economist in the African Department of the IMF, where he served as desk economist for South Africa and Ethiopia. Before joining the African Department, Mr. Zhan worked for several years in the Strategy, Policy, and Review Department and Finance Department, focusing on IMF lending programs to various countries. Mr. Zhan has a PhD and an MA in economics from the University of Maryland and a BA in economics from the Beijing University, China.



Bank of Central African States


Central African Power Pool


Central African Economic and Monetary Community


Coopération Financière en Afrique Centrale


CFA franc


Central African Banking Commission


Common Market for Eastern and Southern Africa


East African Community


Economic Community of West African States


Extractive Industries Transparency Initiative


gross domestic product


generalized method of moments


gross national income


information and communications technology


International Monetary Fund


international oil company




left-hand scale


low-income country


Millennium Development Goal




non-oil GDP


non-oil primary deficit


Organization for Economic Cooperation and Development


ordinary least squares


Public Investment Management Index


purchasing power parity


Petroleum Revenue Management Program


real effective exchange rate


real exchange rate


right-hand scale


Southern African Development Community


Société Nationale des Hydrocarbures


Société Gabonaise de Raffinage


sub-Saharan Africa


Central African Economic Union


Central African Monetary Union


West African Economic and Monetary Union


World Economic Outlook


The Central African Economic and Monetary Community (CEMAC) has earned significant revenue from oil production in past decades but faces substantial growth and development challenges. The region is lagging in non-oil growth and poverty reduction, even compared with sub-Saharan African (SSA) countries that have comparable levels of economic development. Inequality remains high, poverty and unemployment are widespread, and it is unlikely the region will meet the Millennium Development Goals. The overriding economic challenge for the CEMAC is how to seize the opportunity provided by oil wealth to achieve a significant and durable reduction in poverty through productive public investment in human and physical capital and employment generation in the non-oil sector.

This book addresses the challenge of strengthening the management of oil wealth and promoting policies for inclusive growth. It is organized in three parts. The first part lays out the macroeconomic and growth challenges facing the region. The second part focuses on oil wealth management and its implications for poverty reduction. The third part consists of four case studies on the CEMAC countries’ experience with managing oil wealth and lessons learned.

Macroeconomic and Growth Challenges

In Chapter 1, Akitoby and Coorey identify four primary macroeconomic challenges facing the CEMAC region: (i) ensuring fiscal and external sustainability, (ii) fostering stronger non-oil growth, (iii) reforming the financial sector, and (iv) promoting trade and regional integration. In discussing the first challenge, they argue that the permanent-income hypothesis model is not a suitable framework for capital-scarce developing countries like those in the CEMAC. Given their large investment needs in physical and social infrastructure, the focus should be on the quality and efficiency of public investment. Public investment needs to be embedded in a realistic multi-year investment plan, and related annual budgets should be cast within a medium-term macroeconomic framework consistent with fiscal and external sustainability. In addressing the challenge of raising non-oil growth, the authors underscore the need to strengthen the quality of health and education, improve the business climate, build basic infrastructure, and facilitate access to financing for small and medium enterprises. They emphasize that better investment project appraisal, selection, and monitoring are needed to ensure spending quality. Reforming the financial sector is another long-standing challenge facing the region. The authors highlight the urgency of reforming the prudential and regulatory framework, and dealing with problems of systemically important banks. In discussing the challenge of promoting trade and regional integration, the authors note that trade barriers remain pervasive and intra-regional trade is the lowest among regional trade groups in SSA. They call for the removal of internal and external trade barriers.

The next three chapters provide an in-depth discussion of the first two challenges identified in Chapter 1. Improving regional surveillance in the CEMAC is critical to safeguarding the currency union and the fixed exchange rate regime. In Chapter 2, York, Iossifov, Kinoshita, Takebe, and Zhan examine how surveillance in the currency union might be improved by broadening the current convergence criteria through alternative fiscal indicators. To start with, the authors note that the CEMAC convergence criterion in the fiscal area—nonnegative basic balance—has two main shortcomings. First, it fails to take into account the cyclical nature of each economy, thereby making countercyclical fiscal policies difficult to implement. Second, it does not recognize that the region’s economy is dominated by oil. To address these shortcomings, the authors propose that greater attention be given to non-oil fiscal balances in the design of the convergence criteria. They also suggest that the CEMAC might consider setting a minimum reserve level as a convergence criterion.

Against the background of weak non-oil growth in the oil-producing countries of the Coopération Financière en Afrique Centrale (CFA) zone, Tabova and Baker (Chapter 3) investigate how the determinants of growth in these countries differ from other low-income countries. Using a panel regression and controlling for the real effective exchange rate, they do not detect any significant association between non-oil growth and the sizable public investment in the CFA zone oil producers. The authors advance two reasons to explain this striking finding. First, the quality of public investment may be questionable because of weak project selection, appraisal, implementation, and monitoring. Second, it is likely that the necessary conditions for public investment to spur private sector activity are not in place. Such conditions include basic infrastructure, an enabling business environment, and good governance.

Non-oil growth has been constrained by poor physical infrastructure. For instance, despite abundant oil wealth, paved road density in the CEMAC is a fraction of already-low levels in West Africa. In Chapter 4, Ranganathan, Foster, and Briceño-Garmendia document the state of infrastructure in the region and discuss policy and financing options to close the infrastructure gap. Infrastructure indicators suggests that CEMAC countries are on par with other low-income countries in SSA, but they significantly lag resource-rich countries worldwide. Despite oil wealth, a large portion of the population still lacks access to basic power, safe drinking water, and improved sanitation. Moreover, new infrastructure costs are very high because of regulatory hurdles and insufficient and low-quality existing basic infrastructure. Governance challenges have hindered translation of investment into productive infrastructure. What can be done to address the CEMAC region’s pressing infrastructure needs? To achieve the conservative objective of bringing CEMAC infrastructure in line with that of other developing countries, the authors estimate that, with efficiency and regulatory improvement, the funding gap will be manageable at 5 percent of the CEMAC region’s GDP. Establishing a proper investment climate will also help the region attract private financing for infrastructure.

Management of Oil Wealth and Poverty Reduction

The four chapters in this section deal with the challenges of managing oil resources and transforming them into poverty reduction. In Chapter 5, van der Ploeg attempts to address the fundamental question facing the CEMAC oil exporters: how can oil wealth be successfully transformed into productive assets for economic development? Noting that the permanent-income hypothesis model is not optimal for capital-scarce developing countries, the author offers a different theoretical framework for harnessing oil revenue windfalls. He argues that there is a strong case for investing in both physical and human capital in the domestic economy rather than investing exclusively in a sovereign wealth fund. Given that developing countries often face absorptive capacity problems, the author calls for “investing to invest” to overcome these difficulties. Where absorptive capacity is very low, he suggests temporarily accumulating the oil windfall in a sovereign wealth fund.

Devarajan and Singh (Chapter 6) investigate the CEMAC governments’ failure to transform significant revenue from natural resources into poverty reduction. They attempt to explain this apparent disconnect between money and results by predicating the analysis on four common themes. First, elites in the government captured oil revenue with little accountability to the population because this revenue accrued directly to the government. Second, potential or actual conflict within the country—often because different groups wanted to capture the resource rents—led to expenditure that was oriented toward maintaining political stability (or capturing political power) rather than fostering widespread development. Third, expenditure—on infrastructure, health, and education—was poorly targeted or used unproductively. Finally, the combination of conflict and economic distortions meant that private investment suffered, leading to slow growth and even slower poverty reduction. To address what they call “government failure” as the mirror image of “market failure,” Devarajan and Singh emphasize the need for a fundamental shift in citizens’ ability to hold governments accountable for spending natural resource revenue.

Ensuring effective mobilization of domestic revenue is critical for long-term development in resource-rich countries. Recent studies emphasize that countries receiving large revenue from natural resource endowments typically raise less revenue from domestic taxation, thereby reducing the incentive for public scrutiny of government. Gupta and Jenkner (Chapter 7) examine disaggregated trends in revenue mobilization in the CEMAC and find that the data suggest disincentive effects on domestic revenue mobilization. The authors emphasize three reasons why the CEMAC region needs to strengthen the nonresource revenue base. First, because oil revenue is exhaustible, early development of alternative revenue sources will help minimize the cost of adjustment when oil runs out. Second, greater reliance on domestic revenue is likely to lead to increased public scrutiny and government accountability, thus strengthening governance and state institutions. Finally, high levels of corruption tend to coincide with low domestic revenue mobilization.

Volatile oil revenue has often led to procyclica policies with “boom-and-bust” cycles that induce macroeconomic instability. In Chapter 8, Mpatswe, Tapsoba, and York examine fiscal cyclicality in the CEMAC region. Using panel data analysis, they find that, as in other SSA countries, total public expenditure in the CEMAC is strongly procyclical. The procyclicality is most pronounced for public investment, which overreacts to lagged output growth with elasticity above 1. The factors driving the procyclical behavior include institutional weaknesses, the low level of economic development, and foreign aid. In contrast, the existence of an IMF-supported program can be a counterbalancing influence to attenuate this bias.

Case Studies on Oil Wealth Management

Although they offer different perspectives, the four case studies point to common themes: procyclical fiscal policies with “boom-and-bust” cycles that induce macroeconomic volatility; slow non-oil growth that leads to fewer employment opportunities and less inclusiveness; poor quality of spending, especially investment spending; and weak institutions and accountability that result in poor management of oil wealth.

Gauthier and Zeufack (Chapter 9) contrast Cameroon’s experience managing its oil wealth with that of Malaysia. Noting that both countries had strong similarities at independence (more than 50 years ago), the authors investigate why Malaysia harnessed oil wealth for broadly based economic development while Cameroon did not. They conclude that transparency and accountability in oil wealth management in Malaysia explain this divergence. They find that although transparency and accountability in Cameroon’s oil sector have improved somewhat during the past 30 years, evidence indicates that much remains to be done. They suggest that reforms along the lines of the Natural Resources Charter, especially those precepts aimed at empowering civil society in holding governments, firms, and capital markets accountable, would be most useful.

Nachega and Wieczorek (Chapter 10) argue that Chad has struggled to translate oil wealth into productive public spending, faster growth, or reduced poverty. Moreover, oil resources have intensified security tensions. Chad also experienced “boom-and-bust” cycles from procyclical and unsustainable fiscal policies. The relatively short horizons of Chad’s oil fields call for some long-term saving of oil revenue and improved domestic revenue mobilization. The authors underscore the benefit of the Petroleum Revenue Management Program (PRMP) for revenue transparency and the need to build some basic institutions before oil revenue starts flowing. However, they note that the PRMP’s rigid mechanisms have complicated fiscal management and have stretched the country’s limited capacity.

Baker and Melhado (Chapter 11) document the “boom-and-bust” cycles the Republic of Congo experienced during the past 50 years and emphasize the daunting challenge of maximizing the benefits of oil in a country with weak institutions. After a half century of oil production, much remains to be done to improve the life of the Congolese people and achieve inclusiveness. The authors see the need to build on the recent progress made—in macroeconomic stability, the external financial position, and public financial management—to sustain the reform momentum in three areas: strengthening institutions, improving the governance and management of oil wealth, and fostering policies for private sector–led development.

In his case study on Gabon (Chapter 12), Gueye notes that oil production during the past 40 years has transformed Gabon into a middle-income country; however, income inequality is high, and non-oil sectors are stagnant. Gabon is among the highest per capita GDP countries in Africa but ranks below the average of middle-income countries on human development indicators. In addition, government spending has often been inefficient, with past capital spending not translating into improved infrastructure or high and sustained non-oil growth. Oil revenue, channeled through government spending, is a main driver of economic activity, but volatile oil revenue and the government’s procyclical fiscal policy have caused “boom-and-bust” cycles. The author underscores the need to anchor fiscal policies and improve spending quality, further strengthen governance and transparency, and improve the business climate to encourage private sector development.

Bernardin Akitoby and Sharmini Coorey

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