the gulf of guinea and the global economy - AIPN

THE GULF OF GUINEAAND THE GLOBAL ECONOMYOUTLINE:The Potential of the Gulf of GuineaChallenges to Sustainable DevelopmentCoping with the Obstacles to Development: A Role for theInternational Business and Financial CommunitiesNeed for Urgent ActionsRole for Oil CompaniesConclusion2

I. The Potential of the Gulf of Guinea(1)The region enjoys a comparative advantage for thesupply of oil and other raw materials:‣ Endowment with abundant natural resources, notably oil, naturalgas, forestry and fishery;‣ Transportation cost advantage stemming from the geographicalposition of the region: openness to the sea and relativecloseness to consuming markets;‣ Absence of maritime chokepoints;‣ Tremendous potential of natural gas.3

I. The Potential of the Gulf of Guinea(2)‣ Tremendous potential of natural gas:• In the Gulf of Guinea, natural gas resources are underexploited and thelevels of gas flared or vented are among the highest in the world d (48%in 2002), which represent an invaluable opportunity cost to the region.Estimated Share of Flaring and Other GasProduction (2002)Flaring48%Senegal0.003%Nigeria33%Angola7%Gabon1%Cameroon0%Republic ofCongo4%Cote d'Ivoire2%EquatorialGuinea5%4

I. The Potential of the Gulf of Guinea(3)To estimate the amount of revenues that could be derived from thereduction of gas flaring in the region, we have built three scenarios(we assume that the required investments had been made):- the current 48% ratio of gas flaring;- hypothetical 20% of gas flaring; and- hypothetical 10% of gas flaring.We found that the gains in gas production would have amounted to$2.2 billion and $3 billion for 2002, relative to the current 48% % flaringlevel, respectively under the scenarios of 20% and 10% flaring.5

II. Challenges to Sustainable Development(1)Pro cyclical expenditures, overspending and inefficienciese.g. Nigeria, Gabon6

- Pro cyclical expenditures in Nigeria, 1970-2001:Strong correlation between public expenditure and oil market developmentselopments(Fiscal measures are in percent of GDP)7

- Pro cyclical expenditures in Gabon, 1981-2002:Strong correlation between public expenditure and oil market developmentselopments(Fiscal measures are in percent of GDP)60Chart 6: Gabon: Fiscal Trends, 1981-2002in percent of GDP unless specified otherwise5040302010019811983198519871989199119931995199719992001Total revenue Oil revenue Total expenditureCurrent expenditure Wage Bill Oil price (US$/barrel)8

II. Challenges to Sustainable Development(2)Pro cyclical expenditures, overspending andinefficienciesWeak institutional qualityaccording to six indicators (World Bank):- Voice and accountability- Political stability- Government effectiveness- Regulatory quality- Rule of law- Control of corruption9

- Six indicators: weak institutional quality2002Voice andAcct.PoliticalStabilityGovernment.Effectiv.Regul.Qual.Rule ofLawControlCorr.Average OilCountries inGulf ofGuinea -1.01 -0.93 -0.96 -1.02 -1.11 -1.14Average non OilCountries inGulf ofGuinea -0.66 -0.75 -0.91 -0.67 -0.80 -0.75Average Other Sub-Saharan AfricanCountries -0.39 -0.39 -0.55 -0.50 -0.48 -0.3410

II. Challenges to Sustainable Development(3)Pro cyclical expenditures, overspending andinefficienciesWeak institutional qualityInadequate infrastructureLow spending in education and health11

III. Coping with the Obstacles to Development of the Region:A Role for the International Business and Financial Communities(1)Two positive developments in the past decade:‣ Wide recognition, including by the Gulf of Guineacountries, of macroeconomic stability as pre-requisite requisite fordevelopment;‣ Recognition of the critical importance of transparency indoing business, particularly in the oil sector and otherextractive industries (e.g. EITI)12

III. Coping with the Obstacles to Development of the Region:A Role for the International Business and Financial Communities(2)International Financial Institutions to help the countries preventmismanagement of natural resources: Appropriate fiscalstabilization instrumentsThree-fold role for the IMF:‣ A partner for reforms;‣ A catalytic role for financing: signaling to private investors;‣ A better partner in the dialogue with developing countries.International community to help promote good institutionsthrough political encouragement and technical assistance,with the view to improve accountability, government effectiveness, s, regulatoryframeworks, respect for the rule of law, and fight against corruptionInternational business and financial community to helpcountries cushion against oil market shocks:‣ Economic diversification;‣ Greater access of developing country products to markets of developedcountries;‣ Improving oil market information and transparency.13

IV. Need for Urgent ActionsCountries in the region expect very large budget resources inthe years ahead (e.g. over US $ 350 billion from the sole oilsector over 2002-2019);2019);Investments in the extractive industries would also result ingreater revenues for the local governments, but also higheremployment in the region and elsewhere;Thanks to endowments in natural resources, the region has thepotential to play a greater role in the global trade and economy;Oil era has generated important social demands in countries ofthe region, especially in this information age (access ofpopulations, including in poor countries, to the Internet, CNN,BBC, etc.)Need to tackle the maritime security and safety issue.15

IV.Need for Urgent Actions(2)The Question of Maritime Safety and Security‣ Need for a focused and coordinated approach throughregional cooperation and partnerships;‣ Stylized Facts:• Risks of accidents: 85% of vessels in the region are over 20 year- old(international average is 15%);• Maritime pollution: important urban and industrial wastes;• Security concerns: piracy and unlawful activities;• Illegal trade: weapons, drugs, people?• Estimated costs of insecurity: $370 million each year.16

IV.Need for Urgent Actions(3)The Question of Maritime Safety and Security (2)What is being done at the regional and global level?‣ Little‣ There are many inter-sectoral and cross-country country linkages in thesecurity issue that can be better addressed through regionalcoordinationHow best to share information?‣ Use the existing institutional bodies (WAEMU, ECOWAS,CEMAC, CEEAC, etc.) to put in place a strategy for maritimesafety and security‣ The international community to provide necessary support(capacity and technical assistance)17

V. Role for Oil CompaniesThe investment opportunities offered by the Gulf of Guinea shouldattract the business community. Their intervention should takemultiple forms, including joint-ventures with the countries’national companies.Key issues:Corporate Governance:‣ Compliance with international best practices on accounting, anti-corruption laws, auditing and reporting requirements;‣ Transparency in activities (e.g. full participation to EITI):this will help them make reputational and credibility gains, andfacilitate their establishment in the indigenous locations19

Key Issues:V. Role for Oil Companies(2)Relations between governments and oil companies:‣ These countries have all reasons to maintain good relations with oil companies, inlight of the oil sector in their economy (oil sector contributes to more than 80% of totalexports and more than 50% of government budget in most of oil-producing countriesin the region).Finding the right balance between profit-seeking on theone hand, and redistribution of wealth and socialdevelopment on the other hand:‣ Create conditions for good partnership and trust;‣ Put in place a clear and effective institutional framework in which the role of eachparty is clearly defined;‣ Ensure the capability of each party to check the consistency of the activities of otherswith the laws and commonly-agreed rules. In this regards, ministries concerned mustbuild human capacity (e.g. Trinidad and Tobago where the ministry y of financecomprises a well equipped technical unit for oil sector matters).20

How Can National Oil Companies (NOCs) contribute to afriendly environment for oil and gas activities in the Gulf ofGuinea?NOCs should and cannot replace their international counterparts:lack of technological capacity and know-how; and they haveinsufficient financial resources and credibility to access financialmarkets;Benefits of having NOCs:‣ Technological transfers to countries;‣ Increase the producer country’s s share of oil rent;‣ Contribute to reducing tensions between multinationals andindigenous populations;‣ Direct control over production volumes by producer countryfacilitates the management of the supply and demand balance.21

National Oil Companies (2)NOCs are even more justified in relatively large countries that have thehuman and financial resources that make the local industry a realistic andpromising prospectNOCs should be given the commercial freedom to concentrate on efficiencyficiencyin producing oil rent, which is a clear dividend policy.However, there is a need to improve transparency in contractualarrangements, which would benefit all: increased fiscal revenue,reputational and credibility gainsNOCs can help diversify economic activities in the producer countryThey must fulfill social obligations (e.g. paying for environmental damagecaused, if any, according to market-based mechanisms of the “PolluterPays” Principle.22

ConclusionI believe that national oil companies can help improve thebusiness climate in the oil sector and related services, maketheir international counterparts look more friendly to theindigenous populations.This good business environment, along with the sanctity ofcontract and their ownership by local authorities, wouldcertainly attract more direct investment in the region. Inpreparing this intervention before you, I have long hesitatedabout how detailed I should in each themes I just presented. Atlast, I opted to be selective on the topics while trying to be as aspecific as possible, given the time constraint.I hope that my presentation has brought light to some of thequestions you might have had on the Gulf of Guinea, my mainobjectives being to contribute to the ongoing debate on thegrowing role of the Gulf of Guinea in the global economy.23

THE EMERGENCE OF THE GULF OF GUINEAIN THE GLOBAL ECONOMYDamian Ondo MañeTHANK YOU FOR YOUR ATTENTION24