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Angola Day
Oil, Broad-Based Growth, and Equity
Angola Country Economic Memorandum
Francisco G. Carneiro
The World Bank
May 9 - 2007
International Price of Oil
1974
1980
1971
1981
World Price of Crude Oil since 1861
1998
120.00
100.00
$/barrel
80.00
60.00
40.00
20.00
Source: BP Statistical Review of World Energy
$ 2004
Median
Mean
Median = $18.18 Mean = $24.28
2006
2001
1996
1991
1986
1976
1966
1961
1956
1951
1946
1941
1936
1931
1926
1921
1916
1911
1906
1901
1896
1891
1886
1881
1876
1871
1866
1861
0.00
Figure 1: Oil Production in Angola, 2000-2020
3,000
2,500
2,000
1,500
1,000
500
Current production
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Pending production
Figure 2: Oil Revenues under Different Price Scenarios
(
45000
40000
35000
High price
30000
US$ million
2001
2000
-
25000
Base price
20000
15000
Low price
10000
5000
0
1990
1995
2000
2005
2010
2015
2020
2025
2030
The Paradox of Plenty
• Karl (1997) – Venezuela, Nigeria, Iran, Algeria,
and Indonesia in the midst of 1970s oil booms
• Oil-rich countries have a tendency to create
centralized bureaucracies to control oil profits
• Inefficiencies, inadequate policy choices,
corruption, waste, and vulnerability
• Four main contributors to Paradox of Plenty: (i)
Dutch disease; (ii) oil revenue volatility; (iii) weak
governance; and (iv) limited institutional
capacity.
The Paradox of Plenty
Oil Dependency
Oil revenues/Total revenues
(%)
Figure 5: Oil Dependency for Selected Countries
90
Nigeria
80
Angola
70
Trinidad and
Tobago
60
Gabon
50
Algeria
Venezuela
Mexico
40
Norway
30
Cameroon
20
10
0
0
20
40
60
80
Oil exports/Total exports(% )
Norway
Brunei Darussalam
Qatar
United Arab Emirates
Bahrain
Kuwait
Mexico
Trinidad and Tobago
Libyan Arab Jamahiriya
Malaysia
Russian Federation
Oman
Saudi Arabia
Venezuela
Ukraine
Kazakhstan
Human Development
Index - HDI
0.963
0.866
0.849
0.849
0.846
0.844
0.814
0.801
0.799
0.796
0.795
0.781
0.772
0.772
0.766
0.761
Turkmenistan
Iran, Islam. Rep.
Azerbaijan
Algeria
Indonesia
Egypt
Equatorial Guinea
Gabon
Sudan
Cameroon
Nigeria
Angola
Congo, Democ. Rep.
Chad
Sub-Saharan Africa
Human Development
Index - HDI
0.738
0.736
0.729
0.722
0.697
0.659
0.655
0.635
0.512
0.497
0.453
0.445
0.385
0.341
0.515
Low Social Indicators
100
Dutch Disease
• Formal treatment of Dutch disease: Corden (1984); van Wijnberger
(1984); and Nery and van Wijnberger (2000)
• Discovery and initial exploitation of vast domestic reserves of natural
gas in the Netherlands
• Dutch Disease: Resource Movement Effect; Spending Effect; and
Exchange Rate Effect
Spending Effect
Expanded Demand:
1. Public Sector
2. Budget
3. Credit expansion
Increases in prices
of non-tradables
Appreciation of the
RER
Resource Movement Effect
Erosion of diversity and
balance in the economy –
concentration on oil sector
Declining
competitiveness of
non-oil exports
Exchange
Rate Effect
Evolution of Real Exchange Rates
in Oil Rich Countries
Facts to Watch
• Potential to become largest oil producer in Africa and world’s largest
diamond producer
• Potential to assume a strategic role in Africa
• Vast economic potential that remains virtually untapped
BUT
• Huge inflow of foreign exchange may complicate macroeconomic
management (volatility, competitiveness)
• Daunting social challenges may create tensions that are difficult to
manage
• High dependency on natural resources can be a source of
constraints for diversification of the economy and can lead to conflict
• Limited institutional and technical capacity is a lingering concern
Main Messages of the Report
• First, Angola needs to conclude the transition to a
market economy
• Second, continuing deficiencies in policy design and
implementation need to be addressed
• Third, a clear strategy to manage the country’s
growing mineral wealth must be defined
• Fourth, improvements in the business environment
and the investment climate are urgently required
• Fifth, agriculture should be prioritized given its
potential to generate employment and incomes
• Sixth, the quality and supply of public services to the
poor must improve