By Alistair Thomson

17-09-04

It is a golden opportunity: billions of dollars in windfall earnings for a clutch of African countries thanks to sky-high oil prices. The International Monetary Fund (IMF) reckons Africa's oil producers should gain about $ 15 bn (R 98 bn) a year for every $ 10 rise in crude prices. The lending agency insists the money should be used to cut poverty, build infrastructure and achieve sustainable growth.

But the windfall carries risks of economic overheating and inflation as a result of large spending programmes, and the potential to fan corruption, especially with funds likely to go to the notoriously opaque construction sector, analysts say.

On his second visit to the continent in three months as IMF managing director, Rodrigo Rato said the fund was talking to oil producers to ensure they spent the cash in a transparent way that helped the poor.
"The challenge throughout the Gulf of Guinea is for a greater awareness of how much money is actually brought in by oil andgas to the governments, as a pre-factor before you can then say 'you have that money, how do you now spend it?'," says Alex Vines, the head of the Africa programme at the UK's Royal Institute for International Affairs.

Sub-Sahara's biggest oil producers, Nigeria and Angola, ranked in the last 10 of Transparency International's 2003 corruption perception survey. Equatorial Guinea, the third-biggest producer, was not even ranked because of lack of data.

But there are reasons for optimism, especially in Nigeria, which has set aside $ 2.5 bn in extra earnings from exporting crude at prices above its budgeted $ 25 a barrel. Nigerian finance minister Ngozi Okonjo-Iweala says sticking to the $ 25-a-barrel budget has helped balance the books, and insists the windfall cash will be spent on new infrastructure and social projects to alleviate poverty in the country.

Even Rato concedes such big cash injections into developing economies pose macroeconomic and inflationary risks -- fears shared by some analysts.

"There is a lack of absorptive capacity, the system is not capable of managing a large inflow of funds efficiently. The moment the windfall is spent, we are going to see some serious overheating in the economy," says Bismarck Rewane of the Financial Derivatives Company in Lagos.

Rewane worries that despite efforts to improve accountability under a fiscal responsibility bill, the windfall cash may not be put to best use once it is channelled through Nigeria's 36 states and 774 local governments.

"There will be a long process of persuading, training and educating to go from the reckless ways of the past to the prudent ways of the future," he says. "You can have as many acts as you want, but the question is who is going to enforce them."

Angola also has a long way to go to improve transparency and efficiency in spending oil dollars, but Robert Bunyi, an economist on the Africa desk at Standard Bank, says the IMF will have extra leverage on the government as it negotiates a lending programme that should unblock bilateral aid. Angola has budgeted for $ 23 a barrel, and the deputy prime minister said higher prices brought in $ 275 mm extra in the first six months.

Government sources say much of the windfall cash is being channelled straight into paying off expensive oil-backed loans taken out during a civil war that lasted nearly three decades. But one donor source says that despite Angola's progress towards better transparency, there is little chance the windfall will make a difference any time soon for Angola's 13 mm people, most of whom live in abject poverty.

Equatorial Guinea, Africa's fastest-growing oil producer in recent years, should in theory be able to use its burgeoning revenues to best effect to improve the lot of its population, which numbers between 500 000 and 1 mm. But with Equatorial Guinea's history of corruption and criticism over human rights abuses, oil has yet to make much of an impact on the lives of its citizens beyond a privileged ruling elite.

"In Equatorial Guinea,there is a tendency to spend money on large construction projects. There isn't much sense of a trickle down," said Vines. Meanwhile, Bloomberg reports that Libya plans to raise oil production to 2 mm bpd by the end of 2005 and to 3.7 mm barrels by 2009, says Prime Minister Shokri Ghanem.

Source: Business Report