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Angola
Workshop on Oil Revenue Management
Appropriate Fiscal Responses to the
Rapid Accumulation of Oil Revenues
By Francisco G. Carneiro
May - 2006
The World Bank - Angola
Structure of the Presentation
• Background and main challenges
• Government actions to relaunch the
economy
• Administration of oil revenues
• Appropriate fiscal responses
• Summary of recommendations
Background:
The Most Challenging Issues
Facing Angola in the Near Future
A Country Rich in Natural Resources
Receitas do Petróleo sob Diferentes Cenários de Preços
Regime (All)
Na Ausência de Novas Descobertas
Sum of Gross Rev $M
60000
50000
High price
40000 Base price
Price
US$ million
Base
30000 High
Low
Low price Figure 1: Angola's Official Diamond Exports
20000
7,000,000 900
10000 6,000,000
800
700
5,000,000
0 600
US$ million
Carats
4,000,000
1990 1995 2000 2005 2010 2015 2020 2025 2030 500
Year 3,000,000 400
3,000 300
2,000,000
200
1,000,000
2,500 100
0 0
2,000
Carats US$ million
1000 b/d
1,500
1,000
500
-
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Current production Pending production
The Evolution of World Prices
World Price of Crude Oil since 1861
1974 1980 1998
120.00
100.00
80.00
$/barrel
60.00
40.00
20.00
0.00
1861
1866
1871
1876
1881
1886
1891
1896
1901
1906
1911
1916
1921
1926
1931
1936
1941
1946
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
Median = $18.18 Mean = $24.28
Source: BP Statistical Review of World Energy $ 2004 Median Mean
Association Between Resource
Concentration and Conflict
Bannon, Ian and P. Collier (2003), “Natural Resource and conflict: What We Can Do” in Natural
Resources and Violent Conflict, Bannon, Ian. and Paul Collier (eds.), Washington DC: World Bank
Low-Base Social Indicators
Indicadores Sociais e de Pobreza
Indicador A Posi ção de
Angola
Popula ção (em milh ões) 14.7
Popula ção 20 anos 60%
Popula ção abaixo da linha de pobreza 68%
Expectativa de vida ao nascer 42.4
Taxa de mortalidade dos 0 aos 5 anos ( por 1000 nascimentos) 250
Taxa de preval ência do VIH /SIDA 3.9%
Popula ção que sabe onde fazer um teste do VIH 23%
Popula ção que sabe pelo menos 3 maneiras de se evitar a infec ção pelo VIH 17%
Taxa de analfabetismo adulta 33%
Taxa de mortalidade maternal 1800
Taxa líquida de escolarização ( 1ª -4ª classe) 56%
Classifica ção no IDH (entre 177 países) 166
Classifica ção PIB /capita (entre 177 países) 128
Coeficiente de Gini (1995) 0.54
Coeficiente de Gini (2001) 0.62
Fonte: ECP.
Dealing with an Appreciating
Exchange Rate
Angola has experienced a more sustained real appreciation of the effective exchange rate
since 2003 than its oil-producing neighbors.
240
Real Effective Exchange Rate Angola Cameroon
(Index 100=Jan00)
220 Chad Congo, Rep. of
Equatorial Guinea Gabon
200 Nigeria
180
160
140
120
100
80
Nov-00
Jul-02
Aug-04
Nov-05
Jan-00
Sep-01
Feb-02
Oct-03
Jun-00
Dec-02
Jan-05
May-03
Mar-04
Jun-05
Apr-01
What the Government is Doing
Repairing Job Creation
Infrastructure
Relaunching
the Economy
Improving
Social
Service
Stability
Delivery
Causal Factors
• Technical Factors:
– “Paradox of Plenty”
– Volatility of revenues
• Political Factors:
– Diminished governance
– Under-investment in capacity
Governance and United Kingdom
Transparency
Governance Indicator
Malaysia
Norway
Colombia
Gabon
Algeria
Russia
Cameroon
Nigeria
Kuwait
Mexico
Iran
Ecuador Venezuela
Azerbaijan
Angola
160 Countries
Weak Governance Strong governance
Source for data: http://www.worldbank.org/wbi/governance/govdata2001.htm. This chart shows estimates of control of corruption for 160 countries during
2000/01, with selected countries indicated for illustrative purposes. The vertical bars show the likely range of Governance indicators, and the midpoints of these
bars show the most likely value for each country. The length of these ranges varies with the amount of information available for each country. Colors are
assigned according to the following criteria: Red, less than 30% of overall countries rank worse; Yellow, between 30% and 70%; Green, over 70% . Countries’
relative positions in no way reflect the official views of the World Bank or the International Monetary Fund.
Weak Institutional Capacity
• National Tax Department (DNI)
– USD $10 billion in revenues (2004)
– > 30 companies
– > 60 contracts
– 6 professional staff
Sector Management
Assessment
• World class reserves with robust pre-tax
economics
• Up-to-date legal and contractual regime
• Acceptable post-tax returns
• Very significant production build-up, but
with significant mid-term peaking….
The Way Forward
The way forward requires:
1. Better capacity to forecast revenues
2. Appropriate fiscal policies
3. Some form of a stabilization fund (conta
de reserva do Tesouro)
Different Price and Revenue regime (All)
Scenarios
45000
Sum of TotalGov. Take $M
82.00
40000
35000 High price
72.00
30000
62.00
25000
US$ million
Base price
52.00
20000
42.00 15000
32.00 10000 Low price
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Low 54.00 40.00 39.44 38.89 38.33 37.78 37.22 36.67 36.11 35.56 35.00 5000
Base 54.00 56.00 52.00 47.00 43.00 40.00 39.00 38.00 37.00 36.00 35.00
High 54.00 76.00 72.00 67.00 63.00 60.00 59.00 58.00 57.00 56.00 55.00 0
1990 1995 2000 2005 2010 2015 2020 2025 2030
price
Different Price Scenarios Revenues
Corresponding high low
base
Year
Different Price and Revenue
Scenarios
Total Government Revenues (US$ million)
Past revenues at historical prices
1990 - 1994 10,247
1995 - 1999 12,119
2000 - 2004 24,251
Future revenues under three price scenarios
Base Price High Price Low Price
2005 – 2009 99,930 152,358 74,301
2010 - 2014 95,016 175,672 86,805
2015 - 2019 50,239 94,850 48,232
2020 - 2024 21,556 41,922 21,256
2025 - 2029 5,772 11,748 5,714
Fiscal Policy Response
1600
1400
Assumptions:
1200
Base price scenario
1000
Population grows at
US$
800 2.9% annually.
Financial assets
600
yield 5% annually.
400 Adjusted
$169 government
200 revenue is
discounted at 10%.
0
r
07
09
11
13
15
17
19
21
23
25
27
29
a
Ye
20
20
20
20
20
20
20
20
20
20
20
20
Adjusted government revenue per capita Interest on accumulated savings per capita
Projected government revenue per capita Permanent Expenditure per capita
The essential idea is to convert uncertain per capita future oil revenues into a conservative estimate of what might be spent per
capita in perpetuity, based on those future revenues and on accrued savings and interest from their early investment. The result of
such a policy is a dramatic smoothing of expenditure, which addresses both Dutch Disease and expenditure volatility concerns, and
a transfer of wealth to future years to cover resource exhaustion concerns.
Permanent Expenditure Levels
under Different Assumptions
Discount Rate
Price Scenarios 5% 10% 15%
Low 182 136 107
Base 220 169 136
High 385 292 232
US$ per capita, assuming that population grows by
2.9% annually and that financial assets yield 5%
Practical and Political
Considerations
• Need for agreement on assumptions
• Institutional capacity requirements
• Popular opposition current savings/deferred
expenditures
Economic Policy Objectives
• Manage the impact of an appreciating real
exchange rate
• Agree on a strategy to absorb oil windfall
with a view to move to an MTEF
• Build international reserves/the oil reserve
account as buffers against the foreign
exchange/fiscal impact of revenue volatility
• Promote rapid and bold improvements in
procurement practices
Options to Deal with the Effects of
Appreciation of the Currency
Reduce Costs
• Detailed analysis of the structure of
production costs is essential
• Use of oil revenues for productive
investment (e.g., infrastructure) can lower
domestic costs for the entire economy
• Do not try to fight against the appreciating
trend
Institutional Options to Manage the
Windfall
Box E.1: Elements of a Revenue Management Framework for Angola
Revenue consolidation and collection
- The collection of all petroleum related revenues are consolidated through the oil reserve account
- Revenues are accounted for according to agreed and transparent accounting guidelines
- Revenues are published in an accessible and timely manner
Define savings and consumption
- Transfers from the oil reserve account to the budget are based on the agreed savings/expenditure rules.
- The rules are clear, predictable, and public, do not depend on administrative or political discretion for their application
- In the development of guidelines for savings and consumption, macroeconomic and sustainability concerns are paramount
Institutionalize the transfer mechanism
- Transfers from the revenue collecting authority to the budget and the oil reserve account follow predefined rules and occur
automatically, independent of administrative or political discretion
Account management
- Management of the funds is based on clear, transparent, agreed, and predictable rules, which allocate clear responsibilities and
reporting requirements.
- The BNA is designated as the operational (day-to-day) manager for the account.
- The rules for investing the account’s assets must be clear, agreed and published.
- Fund assets should to a large extent be invested abroad and in safe instruments
- The BNA reports on performance of the oil reserve account and asset allocation according to a preset schedule, and the reports are
made public in an accessible way
- A high level oversight committee (key ministries plus qualified external advisers) must be established.
- The oil reserve account, its management, and guidelines must be subject to rigorous transparency requirements
- There should be a cap limiting the resources accumulated ex-ante to avoid political economy problems.
Summary of the Recommendations
Improve Governance
• Adopt best practice policies to
manage natural resources
• Invest in institutional capacity
• Improve transparency
• Consolidate macroeconomic
stability
Strong political commitment to
guarantee the success of the reforms
