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Improving Management of Oil Revenue during Periods of Price Booms

Guest post by: OECD Development Centre

Article Overview: With more than 100 billion barrels, Africa had 9 per cent of the world’s oil reserves by the end of 2003. Half are located in North Africa. In sub-Saharan Africa, the oil-producing countries can be divided into three categories: the old ones where production is in decline (Congo, Cameroon and Gabon); those where production is still on the increase (Angola, Nigeria); and the new members of the club (Equatorial Guinea, Chad and São Tomé and Principe). However, most of these countries have suffered from the “oil curse” finding themselves heavily indebted and impoverished.

Improving Management of Oil Revenue during Periods of Price Booms

With more than 100 billion barrels, Africa had 9 per cent of the world’s oil reserves by the end of 2003. Half are
located in North Africa. In sub-Saharan Africa, the oil-producing countries can be divided into three categories: the
old ones where production is in decline (Congo, Cameroon and Gabon); those where production is still on the
increase (Angola, Nigeria); and the new members of the club (Equatorial Guinea, Chad and São Tomé and Principe).
However, most of these countries have suffered from the “oil curse” finding themselves heavily indebted and
impoverished. For this reason, with the help of the international community, some oil-producing countries are
seeking to take advantage of the high prices prevailing since 2003 to make better use of surplus revenue and to
improve transparency in the oil sector.
Regulations Concerning the Utilisation of Oil Revenue
Several countries have specific regulations for the use of oil revenue. In Nigeria and Congo, the budget is based on
a very conservative estimate of the price of oil. Any surplus is then deposited in a special account with the central
bank. In 2004, high oil prices enabled Nigeria to save a substantial amount of its oil revenue. The government of
Congo used most of its 2004 budget surplus to make external debt repayments and regain the approval of the
international community. In Algeria, the government’s budget for 2005 calls for a significant reduction of the primary
non-oil deficit in order to reduce the government’s dependence on volatile oil income, thereby ending a pro-cyclical
budgetary policy. Since 2001, priority has been given to investment, with adjustments being targeted at recurrent
expenditure.
Transparency of the Oil Sector
The Extractive Industries Transparency Initiative (EITI) aims to encourage information sharing between governments
and private companies. Several African oil-producing countries (namely, Nigeria in November 2003, Angola in June
2003, Chad in October 2004, Gabon in May 2004, Congo and São Tomé and Principe in June 2004) have expressed
their intention of adhering to the EITI in order to improve the transparency surrounding their oil income. Thus,
Congo regularly publishes detailed information concerning financial transactions in the oil sector on its official web
site, especially about its contracts with oil companies including the controversial financial dealings with a particular
oil company in 2003. At the same time, the government has ended advance payment for the proceeds of future oil
exports. In Chad, the allocation of oil revenue is regulated by law – 10 per cent is saved and the remainder is
allocated to priority sectors – and the publication of an independent external audit carried out by the Petroleum
Revenue Oversight and Control Committee is compulsory. Nigeria also publishes information on the government’s
oil income on a monthly basis.

African Economic Performance in 2004:
A Promise of Things to Come?
by Nicolas Pinaud and Lucia Wegner
Policy Insights No. 6 is derived from the African Economic Outlook 2004/2005, a joint publication
of the African Development Bank and the OECD Development Centre

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Article Tags: budget surplus, budgetary policy, conservative estimate, debt repayments, eiti, equatorial guinea, external debt, extractive industries transparency initiative, government of congo, oil income, oil prices, oil producing countries, oil reserves, oil revenue, oil sector, price of oil, recurrent expenditure, sub saharan africa, surplus revenue, volatile oil



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