Strengthening Transparency in the Oil Sector in Cameroon

Stéphane Cossé. Strengthening Transparency in the Oil Sector in Cameroon: Why Does it Matter? IMF Policy Discussion Paper No. 06/02. March 23, 2006.

Summary: There has been a growing recognition of the importance of transparency for economic growth and social development in oil producing countries. This paper analyzes transparency issues in Cameroon's oil sector. It shows that, while substantial efforts have already been undertaken, continued action is necessary to strengthen transparency. The paper seeks to identify why and how transparency, especially in the fiscal area, matters for economic development and poverty reduction in Cameroon.

Excerpt
This paper analyzes transparency issues in Cameroon’s oil sector. It shows that, while substantial efforts have already been undertaken to strengthen transparency, continued and sustained action is necessary to address the remaining gaps in this area. In the early 1990s, the authorities enhanced their supervision of the national oil company (Société Nationale des Hydrocarbures, SNH), including over the transfer of oil revenue to the budget. Efforts were also significantly renewed in 2005 as part of the authorities’ broader commitment to enhance fiscal transparency and reporting in the context of the implementation of their programs with the IMF. Looking ahead, further steps to enhance accountability are nevertheless needed to improve the use of oil revenue and to strengthen fiscal policies to meet the country’s development priorities. Notwithstanding substantial oil-generated resources over the last 30 years, Cameroon has remained a low income country with relatively weak social indicators.
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Empirical work, particularly in the last decade, has demonstrated the importance of transparency and good governance to effective policymaking, economic growth, and poverty reduction.8 The prevalence of weak transparency and corruption in public management is not limited to oil-producing countries, but oil-rich economies appear to be in this respect particularly vulnerable. The oil sector is prone to mismanagement and abuse because of the magnitude of the revenues at stake, its enclave-sector nature with few people involved, and the complexity of fiscal arrangements. Strengthened effort to enhance transparency in the oil sector can therefore be instrumental in changing overall perceptions about governance in the country.
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Production is declining, but at an uncertain pace.
Cameroon is the smallest oil producer in sub-Saharan Africa (Figure 1), and production levels are declining. Production started in 1976 and reached its peak in 1986 at 173,000 barrels/day. It declined by nearly 40 percent over the decade through 1996. However, the pace of the decline slowed to about 10 percent during the last eight years (to 90,000 barrels/day), reflecting the effects of improvements in technology that allow for higher oil extraction per well.
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Although significant efforts were undertaken in the early 1990s to improve transparency in the oil sector (Box 3), there remains substantial scope for further improvements in four main areas.

1. A broad perception of a lack of transparency in oil earnings and revenue.
2. A lack of well-specified and transparent rules for the transfer of oil revenue.
3. A need to abide by a fiscal rule on the use of oil revenue for an effective conduct of fiscal
   policy.
4. Limited dissemination of information undermining public scrutiny and accountability.

Publication of data on the oil sector has been very limited in Cameroon, thus preventing effective public scrutiny and an active debate on the use of oil resources. In order to hold policymakers accountable and to strengthen governance, the public (particularly parliament and civil society organizations) needs information on how oil resources are generated and spent (or saved).

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