Sunday, May 08, 2005

West Africa's Petroboom

The IMF just finished its article IV consultations with Equatorial Guinea and the press release has some interesting facts. Growth is booming thanks to the dramatic increase in oil production, but unfortunately the boom isn't easy to handle. The real exchange rate is appreciating substantially, and the inflows of foreign exchange are generating an explosion in the money supply. Unbelievably, international reserves are set to reach US$1.6 billion this year, and they were less than 100 million dollars just four years ago. Talk about an oil windfall! Unfortunately, the government spending that is resulting isn't exactly transparent, the document alludes.

Here is a snippet about the good things that are happening.
Hydrocarbons dominate economic developments in Equatorial Guinea and will continue to be the engine of growth in the foreseeable future. Since oil production began in 1995, hydrocarbon production has increased from 6,000 barrels of oil equivalent per day (boe/day) to 282,000 boe/day in 2003, supporting an average annual growth of 31 percent. In 2004, real GDP grew by 34 percent, reflecting a sharp increase in oil production. Non-oil GDP increased by 13 percent fueled by growth in the infrastructure and construction sectors, driven by increasing government capital expenditure. However, the primary sector remained sluggish as labor migration from rural to urban areas continued in search of higher earnings and the enforcement of sustainable logging program was maintained. Although inflation has decelerated to 5 percent in 2004, the inflation differential between Equatorial Guinea and its trading partners and the appreciation of the euro have led to the appreciation of the real effective exchange rate by 5 percent in 2004, for an accumulated real appreciation of 32 percent since 2000, further undermining external competitiveness.
Another rather predictable problem is that there hasn't exactly been a trickle-down effect from the massive oil windfall.
Unfortunately, the country's oil and gas wealth has not yet let to a measurable improvement in living conditions for the majority of the population. Against that background, the authorities have assessed their National Development Plan for 1997-2001 and have recognized that the objectives poverty reduction has not been achieved. They therefore intends to prepare an Interim poverty reduction strategy paper (PRSP) that could serve as a roadmap for the provision of donor's technical support.

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