93355 THE POWER OF PUBLIC INVESTMENT MANAGEMENT' Transforming Resources into Assets for Growth C O U N T RY C A S E S T U D Y Equatorial Guinea: Public Investment Management Review Rafael Munoz Moreno 2009 0 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review THE AUTHOR Rafael Munoz Moreno Senior Economist, The World Bank This case study is one of a number of country cases in the Public Investment Management Series. The country case studies accompany the volume, “The Power of Public Investment Management: Transforming Resources into Assets for Growth”, World Bank (2014), and apply a common methodology to assess PIM systems globally. T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 1 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review EQUATORIAL GUINEA ! The*chapter*offers*concise*diagnostics*of*the*public*investment*management*(PIM)*system* in*Equatorial*Guinea.*It*provides*specific*examples*of*how*underperforming*institutions*throughout* the*investment*process*raise*the*risk*of*selecting*“white*elephants,”*reducing*the*value*for*money*of* investment* projects* and* undermining* the* quality* of* completed* projects.* Politically* compatible* recommendations*unlock*the*opportunities*for*overcoming*the*major*institutional*and*procedural* binding* constraints* to* improve* the* country’s* PIM* in* a* sequenced* manner.* The* set* of* analysis* and* derived* policy* implications* provides* policy* insights* for* countries* in* similar* situations* that* need* clear*and*pragmatic*guidance*on*where*to*start*building*a*better*performing*investment*system*in*a* challenging*country*context.*Equatorial*Guinea,*one*of*the*poorest*countries*in*Africa*prior*to*the* discovery*of*hydrocarbons*in*the*1990s,*has*made*a*significant*effort*to*transform*this*new*wealth* into* public* infrastructure.* After* a* first* phase* focused* on* improving* the* dilapidated* infrastructure* and* supply* of* capital* in* the* country,* the* Government* embarked* on* a* second* investment* round* to* implement* the* National* Development* Plan,* adopted* in* 2007* with* the* aim* of* diversifying* the* economy*out*of*petroleum*production*and*improving*living*standards.**However,*the*country*is*ill* equipped* for* such* a* massive* investment* effort—with* oil* comprising* 22* percent* of* GDP* in* 2008.* Public* expenditure* is* thwarted* by* cumbersome* administrative* procedures* encouraging* informal* shortcuts*that*render*the*rigorous*capital*budgeting*both*irrelevant*and*impossible.*The*absence*of* reliable*budget*data*undermines*the*monitoring*of*budget*implementation.*As*a*result,*the*public* budget*fails*as*a*tool*for*resource*allocation*and*control.*To*partially*overcome*these*deficiencies* and* accelerate* public* investment,* the* Government* set* up* a* centralized* unit,* “Geproyectos,”* that* reports* directly* to* the* Presidency* and* acts* as* a* parallel* government* for* implementing* a* large* infrastructure* program* with* limited* involvement* of* sector* ministries.* Given* the* limited* institutional* capacity* and* concerns* over* the* sustainability* of* the* large* investment* program,* the* authorities*worked*with*international*partners*to*improve*the*efficiency*of*the*PIM*system.*In*2007* the*Government*commissioned*the*World*Bank*to*review*its*PIM*system*and*the*work*translated* into*a*full*Public*Expenditure*Review*in*2010.*The*work*forms*the*basis*of*this*chapter.*Some*years* after* the* World* Bank* and* Equatorial* Guinea* collaboration,* results* on* PIM* are* mixed.* On* the* one* hand,*infrastructure*development*has*certainly*been*impressive*and*the*country*has*been*able*to* build* roads,* ports,* airports,* and* many* other* infrastructure* projects* in* a* short* time* span.* On* the* other*hand,*most*of*the*World*Bank*recommendations*were*never*adopted*and*there*is*a*serious* risk*that*the*country*has*not*built*the*right*infrastructure*at*the*right*quality*with*value*for*money.* Moving* forward,* these* recommendations* remain* valid* as* the* current* institutional* setting* for* investment*management*is*reaching*its*limit*and*will*need*to*be*reformed.** T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 2 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Equatorial*Guinea,*comprising*a*mainland*portion*plus*five*inhabited*islands,*is*one*of*the* smallest* nations* on* the* African* continent.* President* Teodoro* Obiang* Nguema* Mbasogo* has* ruled* the*country*since*seizing*power*in*1979.*Equatorial*Guinea*gained*independence*in*1968*after*190* years*of*Spanish*rule,*and*began*a*nation*with*limited*human*capital,*a*weak*public*administration,* and* a* shortage* of* capital.* Political* turmoil* after* independence* led* to* the* collapse* of* the* economy,* fostering*migration*and*further*increasing*poverty.*Guinea*has*experienced*rapid*economic*growth* since*the*1990s*as*a*result*of*the*discovery*of*large*offshore*oil*reserves,*and*in*the*last*decade*has* become* Sub`Saharan* Africa's* fourth* largest* oil* producer* after* Nigeria,* Angola,* and* Sudan* (figure* X.1).* Figure+X.1+Sub;Saharan+Crude+Oil+Production,+2000–08+(thousands+bbd)+ 2.500 2.169 2.015 2,169 2.000 2,015 2000 2008 1.500 1.000 480 359 500 248 240 195 127 82 60 0 n ea ui t ia a Re bon o n G Ca ad ca n G asst ol So ong YIv roo da l er EQ oa fri ia Ch Co ng Su or ig a yC e A G C at A N m ry h p. or u ut E q ! Source:!U.S.!Energy!Information!Administration.! Source:Energy Information Administration, USA Government * Mounting*Government*oil*revenues*during*the*1990s*(estimated*at*US$1.3*billion/year)*and* an* inflow* of* foreign* direct* investment* (FDI)* signaled* that* the* chronic* stringency* and* dependence* on* aid* that* had* characterized* the* country’s* economy* for* nearly* a* quarter* century* was* over.* Consequently* the* Equatoguinean* budget* has* grown* enormously* in* recent* years* as* royalties* and* taxes* on* foreign* company* oil* and* gas* production* have* provided* new* resources* to* a* once`poor* Government.* The* 2008* total* Government* revenue* was* about* US$7.1* billion,* of* which* oil* represented*more*than*81*percent.*Value`added*tax*and*trade*taxes*are*other*large*revenue*sources* for*the*Government.* Equatorial* Guinea* boasts* other* resources,* including* its* tropical* climate,* fertile* soils,* rich* expanses* of* water,* deep* water* ports,* and* reserves* of* unskilled* labor.* However,* its* hydrocarbon* riches* and* a* few* sectors* like* construction,* dwarf* all* other* economic* activity.* The* once`significant* economic*mainstays*of*the*colonial*era—cocoa,*coffee,*and*timber—*remain*miniscule*compared*to* the* energy* sector.* There* is* little* industry* in* the* country,* and* the* local* market* for* industrial* products* is* small.* Thus* the* Government* is* seeking* to* diversify* the* economy* by* encouraging* agriculture*and*financial*services*and*further*liberalizing*trade*and*investment*flows.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 3 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Equatorial* Guinea's* economic* policies* support* an* open* trade* and* investment* regime.* Qualitative*restrictions*on*imports,*non`tariff*protection,*and*many*import*licensing*requirements* were*lifted*in*1992*when*the*Government*adopted*a*public*investment*program*endorsed*by*the* World* Bank.* Trade* regulations* have* been* further* liberalized* since* Central* African* Economic* and* Monetary* Union* (CEMAC)* reform* codes* were* introduced* in* 1994.* This* included* elimination* of* quota*restrictions*and*reductions*in*the*range*and*amounts*of*tariffs.*The*CEMAC*countries*agreed* to*the*introduction*of*a*value`added*tax*(VAT)*in*1999.** The*country’s*business*laws*promote*a*liberalized*economy*but*the*overall*business*climate* remains* poor.1* * Efforts* to* create* an* atmosphere* conducive* to* investor* interest* have* not* been* sufficient* and* application* of* the* laws* remains* selective,* corruption* among* officials* is* widespread,* and*business*rules*and*institutions*are*nontransparent.*The*Government*is*attempting*to*create*a* more* favorable* investment* climate* to* promote* foreign* investment,* for* example,* by* adding* numerous* incentives* to* its* investment* code* for* job* creation,* such* as* training,* promotion* of* nontraditional* exports,* support* of* development* projects* and* indigenous* capital* participation,* freedom*for*repatriation*of*profits,*exemption*from*certain*taxes*and*capital,*and*other*benefits.* Overview+ The*discovery*and*exploitation*of*large*oil*reserves*have*contributed*to*dramatic*economic* growth* in* the* past* two* decades,* and* rapidly* rising* oil* income* has* made* Equatorial* Guinea* comparatively* wealthy.* When* Equatorial* Guinea* (EQG)* began* exporting* oil* in* 1991,* yearly* gross* domestic* product* (GDP)* was* merely* US$132* million,* or* US$272* dollars* per* capita;* in* 2009* GDP* equaled*US$*12.2*billion,*US$9,580*per*capita.*Real*GDP*growth*averaged*20*percent*during*2000– 09*(from*over*34*percent*in*the*1990s),*that*is,*almost*four*times*the*average*growth*in*the*Sub` Saharan* Region* due* mainly* to* improved* oil* and* gas* production* and* the* buoyancy* of* public* infrastructure`construction* works.* In* recent* years,* the* economy* grew* at* a* rate* of* 10.7* percent* in* 2008,* from* 38* percent* in* 2004* and* 21* percent* in* 2007,* and* then* decelerated* to* 5.3* percent* for* 2009*as*the*price*of*oil*fell.* The*oil*industry*has*become*the*engine*of*Equatorial*Guinea’s*economy,*a*long*way*ahead*of* other* industries,* including* agriculture* and* forestry* (the* contribution* of* hydrocarbons* to* GDP* in* 2006*was*87*percent).*Forestry,*farming,*and*fishing*are*minor*components*of*GDP.*Although*pre` independence* Equatorial* Guinea* counted* on* cocoa* production* for* hard* currency* earnings,* the* neglect*of*the*rural*economy*under*successive*regimes*has*diminished*potential*for*agriculture`led* growth.* Subsistence* farming* predominates* at* large.* No* longer* eligible* for* concessional* financing* because* of* large* oil* revenues,* the* Government* has* recently* reengaged* with* international* organizations*such*as*the*World*Bank*and*IMF*to*get*assistance*to*improve*its*fiscal*management* program.* Undeveloped* natural* resources* include* titanium,* iron* ore,* manganese,* uranium,* and* alluvial*gold.** Private* FDI* to* the* petroleum* sector* after* 1994* lifted* gross* fixed* capital* formation* above* even*GDP*values*(figure*X.2).*However,*domestic*non`oil*private`sector*investment*did*not*develop* to*keep*pace,*averaging*a*scant*4.3*percent*of*GDP*in*2001–08.*With*the*retrenchment*of*petroleum* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 4 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review sector*FDI*after*2001*and*the*limited*role*of*the*private*sector,*the*Government*has*taken*the*lead* in*filling*the*gap,*transforming*its*high*savings*from*petroleum*revenues*(on*average*28*percent*of* GDP*between*2001*and*2008)*into*public*investments*(12*percent*of*GDP*for*the*same*period*and* rising).** Figure+ X.2+ + + Public+ and+ Private+ Investment,+ Gross+ Fixed+ Capital+ Formation,+ 1990–2009,+ %GDP+ Gross Fixed Capital Formation (% GDP) 100.00 30.00 Public Gross Fixed Capital Formation (% GDP) Public Oil Private 80.00 Oil Private 25.00 Non-oil Private 60.00 Non-oil 20.00 Private 40.00 15.00 20.00 10.00 0.00 5.00 0.00 90 92 94 96 98 00 19 19 19 19 19 20 2002 2003 2004 2005 2006 2007 2008 2009 Source:World Bank + Source:!World!Bank!! Indeed,*after*2000*the*stream*of*income*grew*to*a*torrent*as*rising*hydrocarbon*production* and*soaring*global*prices*brought*the*State*an*estimated*US$25*billion*in*revenues*during*the*next* eight*years.*Meanwhile*the*current*account*and*fiscal*balance*remain*in*surplus*(figure*X.3)*even* though*public*spending*has*vastly*expanded.*The*oil*boom*has*spilled*over*to*the*non`oil*economy,* especially* through* public* investment* in* infrastructure* and* private* construction,* with* the* average* yearly*growth*rate*of*consumption*running*around*20*percent*since*2000.*Yet*indicators*of*social* and*human*development*as*well*as*governance*remain*low,*and*despite*a*per*capita*GDP*(PPP)*of* more* than* US$30,000—as* of* 2009* it* ranked* 27th* highest* in* the* world—Equatorial* Guinea* ranks* 118th* out* of* 182* countries* on* the* United* Nations* Development* Program* (UNESDP)* Human* Development* Index.* The* budget* structure* does* not* favor* social* investment,* with* recurrent* education* and* health* expenditures* in* 2008* accounting* for* only* 11* percent* of* total* current* expenditure*(0.2*percent*of*GDP)*and*6.4*percent*of*total*current*expenditure*(0.1*percent*of*GDP),* respectively.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 5 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Figure+X.3+++Real+and+Fiscal+Data+ a.+GNI+vs.+GDP+growth+ + + + b.+Budget+surplus+vs.+public+spending+ 70 GNI per capita (Atlas method) 16000 25 Budget Surplus 60 Annual GDP Growth 14000 Public Spending 20 GNI per Capita (US$) Annual Growth (in %) 50 12000 10000 % of GDP 40 15 8000 30 10 6000 20 4000 5 10 2000 0 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008 Source: World Bank Source:*World*Bank+ Thus,* despite* nearly* two* decades* of* oil`fueled* growth,* very* serious* challenges* remain,* with* a* looming*threat*that*the*present*pace*will*falter*and*fade*without*new*sources*of*wealth*generation:* • Unsustainable+ economic+ policies.* Petroleum* production* has* started* to* tail* off* and* is* expected*to*run*dry*in*a*couple*of*decades.*Current*economic*policies*based*on*high*public` sector* expenditure* cannot* be* maintained* unless* the* private* sector* develops* and* the* economy* diversifies.* While* efforts* to* discover* and* exploit* new* hydrocarbon* resources,* if* successful,*will*allow*the*Government*to*maintain*current*policies*longer,*the*reserves*are* finite*and*EQG*must*start*now*to*prepare*its*economy*for*the*post`oil*era.* • High+ levels+ of+ poverty.* Despite* abundant* petroleum* revenues,* the* standard* of* living* of* most* of* the* population* has* not* significantly* improved* and* poverty* is* widespread.* Indications* show* that* nearly* three* of* four* people* live* on* less* than* two* dollars* per* day,* about*half*the*population*lacks*access*to*safe*drinking*water*or*sewage*facilities,*and*infant* and*child*mortality*rates*have*risen*since*1990.*Furthermore,*the*contrast*between*high*per* capita* income* and* high* poverty* rates* and* the* widening* gap* in* income* distribution* pose* a* serious* menace* to* social* stability* in* the* medium* term* unless* addressed* adequately* and* quickly.* • High+ unemployment.* Unemployment* is* increasing* among* the* fast`growing* urban* youth* population.* Structural* change* in* the* economy* has* been* accelerated* by* low* agricultural* productivity* and* heavy* migration* from* rural* areas,* which,* with* growing* immigration,* expands*the*need*for*urban*employment*opportunities*and*social*services.*The*demand*for* jobs*is*exacerbated*by*a*large*cohort*of*youth*funneling*into*the*labor*force,*with*244,000*– 491,000*newcomers*to*the*labor*market*projected*during*2010–20.*New*jobs*will*have*to* be* created* in* the* non`oil* economy* since* the* petroleum* industry* is* capital`intensive* and* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 6 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review employs* relatively* few* workers,* most* of* whom* are* highly* skilled* and* often* from* other* countries.* • Weak+governance.*Rising*incomes*have*not*been*matched*by*better*overall*governance*or* stronger* institutional* capacity* in* the* public* sector,* which* continues* to* function* in* many* respects* as* it* did* before* petroleum* was* discovered.* This* hinders* private`sector* participation* in* the* non`oil* economy,* which* is* reflected* in* the* country’s* low* rank* in* the* Doing* Business* Index* (162* out* of* 185* countries* in* 2013).* The* public* sector,* financed* by* high* oil* revenues,* continues* to* be* the* main* economic* agent,* often* operating* ineffectively* while*distorting*market*incentives*and*not*fulfilling*its*redistribution*responsibilities.* The* Government* is* accumulating* savings* while* hydrocarbons* reserves* are* drying* up;* notably,* savings* reached* US$* 8.5* billion* reserves* in* 2009.* However,* a* declining* hydrocarbon* production* trend* and* prices* below* the* recent* highs,* coupled* with* a* substantial* overrun* in* public* expenditure*(mostly*capital*investment),*led*to*an*overall*fiscal*deficit*of*8.0*percent*of*GDP*in*2009* (versus* a* surplus* of* 1.7* percent* of* GDP* in* the* original* budget),* for* the* first* time* since* petroleum* was* first* extracted.* The* medium`term* outlook* is* clouded* by* the* onset* of* declining* hydrocarbon* production,* uncertainty* about* petroleum* prices,* and* most* notably,* unsustainable* public* expenditure,*which,*if*implemented*according*to*Government*projections,*will*deplete*the*stock*of* government*savings*over*the*next*decade.** To* respond* to* these* challenges,* EQG* has* adopted* a* National* Economic* and* Social* Development* Plan* (NESDP,* EQG* 2007)* to* diversify* its* economy* out* of* petroleum* production* and* broaden* the* foundation* of* its* wealth* by* developing* the* skills* and* promoting* the* well`being* of* its* people.*While*the*Government*for*some*time*has*invested*heavily*in*upgrading*the*country’s*ailing* infrastructure,*it*has*started*to*take*additional*measures*to*prepare*the*economy*for*the*transition* ahead.*The*NESDP*was*adopted*in*2007*to*set*a*strategy*for*economic*diversification*and*poverty* reduction* (see* box* X.1).* Early* on,* the* authorities* emphasized* large* investment* programs* to* implement* the* NESDP* and* meet* public* needs.* Petroleum* resources* are* used* to* create* a* more* positive* long`term* framework* for* the* economy* by* way* of* two* complementary* steps:* (1)* obtain* validation* from* the* Extractive* Industries* Transparency* Initiative* (EITI)* to* improve* petroleum* sector* transparency;* and* (2)* push* for* more* sustainable* macroeconomic* policies,* for* example,* by* adhering* to* the* Permanent* Income* Hypothesis* (PIH)* to* ensure* that* the* return* on* petroleum* is* adequately*conserved*for*future*generations.* * Box*X.1***The*National*Development*Strategy*of*Equatorial*Guinea* x! The* 2008–20* National* Economic* and* Social* Development* Plan* (NESDP)* (EQG* 2007),* Equatorial* Guinea*2020:*Agenda*for*the*Diversification*of*Sources*of*Growth,*was*adopted*in*2007*at*an** * T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 7 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review * international* conference* in* Bata.* It* reflects* the* Government’s* view* that* the* recently* favorable* growth* performance* belies* the* fragility* of* present* foundations* for* future* expansion,* since* the* economy*is*overdependent*on*oil*production*that*is*expected*to*run*dry*circa*2035.*The*NESDP*lays* out* an* economic* and* social* vision* through* 2020* for* meeting* these* challenges.* This* strategy* highlights*two*objectives:*(1)*transition*from*an*oil*to*a*diversified*economy;*and*(2)*the*reduction* of*poverty*and*enhancement*of*social*cohesion.*To*do*so,*the*NESDP*emphasizes*job*creation*and* labor*productivity*so*that*the*future*growth*path*is*inclusive*and*reduces*poverty.** The* NESDP* identifies* potential* growth`enhancing* sectors:* energy,* fishing,* agriculture,* tourism,* financial* services,* manufacturing,* and* mining.* It* also* lays* out* the* need* to* improve* several* critical* areas*such*as*governance*and*corruption,*as*well*as*the*need*to*improve*the*business*environment.* The* latter* is* perceived* to* be* a* major* constraint* in* attracting* resources* and* know`how* from* international* investors* to* the* nonpetroleum* economy.* As* a* remedy,* the* NESDP* proposes* a* broad* set* of* reforms* to* simplify* business* regulations,* strengthen* property* rights,* increase* credit* access,* and*reduce*trading*costs.* NESDP*implementation*began*with*approval*of*Decree*Law*2/2008,*which*officially*adopts*the*plan* and*creates*the*institutional*framework*for*its*implementation.*This*framework,*called*“Equatorial* Guinea–Horizon* 2020,”* includes* (1)* the* Governing* Council* formed* by* the* President* and* other* government*officials*which*holds*quarterly*meetings;*(2)*the*National*Commission*for*Monitoring* x! and*Evaluation*of*the*National*Economic*and*Social*Development*plan,*“Equatorial*Guinea–Horizon* 2020,”* headed* by* the* Prime* Minister* and* including* other* members* of* government* and* representatives* of* the* sponsor* board,* workers,* and* civil* society,* which* oversees* the* creation* and* operation* of* sector* technical* committees;* and* (3)* a* National* Agency* ,Horizon* 2020,* for* the* management,* coordination,* monitoring,* and* evaluation* of* the* National* Economic* and* Social* Development* plan.* Agencies* were* also* created* to* be* in* charge* of* implementing* various* policies* adopted* in* the* NESDP,* such* as* the* National* Enterprise* for* Housing* Promotion* (ENPIGE)* and* the* National*Society*of*Fishing*(SONAPESCA).** The*NESDP*does*not*provide*an*overall*cost*of*either*its*implementation*or*its*distribution*among* sectors.*Nonetheless,*it*proposes*two*implementation*phases.*During*the*first*phase*(2008–12)*the* Government* launched* critical* reforms* in* the* areas* mentioned* above,* created* the* institutions* and* public* companies* responsible* for* implementing* the* NESDP,* and* substantially* increased* public* investments*for*achieving*NESDP*objectives.*During*the*second*phase*(2012–20),*the*Government* will* continue* the* reform* process,* building* up* institutional* capacity* at* all* levels* of* public* administration*to*ensure*the*sustainability*of*the*reforms.** The* Public* Expenditure* Review,* produced* through* a* Services* Agreement* with* the* World* Bank* in* 2007,* provided* recommendations* to* raise* public`sector* efficiency* and* improve* public* financial* management*to*ensure*that*the*policy*objectives*laid*out*in*the*NESDP*are*translated*into*annual* budgets*and*implemented*quickly*yet*efficiently*to*achieve*results*on*the*ground.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 8 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review NESDP*implementation*has*been*seriously*hampered*by*weak*governance,*limited*information,*and* low*institutional*capacity,*and*thus*far*has*yielded*few*results*beyond*infrastructure*development.* It*is*therefore*critical*at*this*juncture*for*the*Government*to*increase*transparency*and*engage*fully* with* international* actors* (including* the* Bank* and* the* IMF)* to* address* the* low* public* sector* efficiency*and*a*poor*business*environment*and*to*broaden*participation*in*oil*sector*income*to*get* the*plan*on*track*and*moving*forward.* While* improving* the* business* environment* is* key* for* successful* private`sector`led* growth* to* achieve* sustainable* economic* diversification,* the* Government* has* decided* to* begin* the* transformation*process*by*accelerating*public`sector*reforms*to*improve*economic*governance*so* that*current*resource*flows*can*be*managed*more*efficiently*for*long`term*impact.*To*that*end,*it* signed* a* Services* Agreement* with* the* World* Bank* in* 2007* for* improving* compilation* of* the* national* accounts* and* carrying* out* a* Public* Expenditure* Review* (PER)* to* propose* measures* for* more* efficient* public* spending* that* raises* non`oil* sector* productivity,* facilitates* economic* diversification,* and* generates* employment* to* reduce* poverty* and* improve* income* distribution* in* the*medium*term.* Public+Investment+Management+(PIM)+Institutional+Setting+ This* analysis* of* public* investment* management* in* Equatorial* Guinea* highlights* three* critical*weaknesses*that*hinder*economic*governance*in*the*public*sector:* • Lack*of*adequate*information*to*facilitate*effective*policy*making*and*implementation;* • Weak* procedures* for* public* finance* management,* notably* for* administration* of* the* investment*program;** • Insufficient*social*sector*spending*and*an*inadequate*balance*between*capital*and*recurrent* expenditures.* The*scarcity*of*reliable*fiscal*and*general*socioeconomic*information*constrains*authorities* from*designing*and*implementing*adequate*investment*policies.*First,*the*dearth*of*household*and* enterprise* surveys* limits* preparation* of* the* national* accounts,* poverty* assessments,* and* knowledge*about*the*labor*market.*Second,*the*large*and*longstanding*difference*between*national* and* international* sources* for* population* estimates* has* not* been* resolved.2+ Third,* budget* implementation*data*do*not*conform*to*budget*classification,*making*adequate*budget*supervision* and*audit*reports*impossible.*Filling*these*data*gaps*requires*immediate*action*by*the*authorities,* who*could*use*the*National*Agency*2020*to*take*the*lead*as*part*of*its*effort*to*increase*institutional* capacity*for*planning*and*improve*coordination*among*different*agencies*and*ministries*to*better* supervise*implementation*of*the*NESDP.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 9 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Figure+X.4+Budget+Composition+and+Capital+Overruns+ Current expenditure PIP allocations Actual Capital Spending 25 20 15 10 5 0 2005 2006 2007 2008 Sources: EQG authorities and World Bank * Sources:*Equatorial*Guinea*Government*and*World*Bank.* Even* if* better* data* were* available,* current* budget* management* practices* undermine* the* Government’s*ability*to*guide*allocation*expenditure*in*support*of*public*goals.*The*2003*law*that* regulates*public*finances*has*not*been*implemented,*and*customary*practices*reduce*transparency* and* make* the* process* prone* to* irregularities.* Long* and* centralized* budget* procedures* severely* delay* budget* implementation* and* lead* agencies* to* bypass* regular* channels,* resulting* not* only* in* poor*reporting*but*also*in*inadequate*budgetary*supervision.*Particular*attention*is*needed*in*the* Public*Investment*Program*(PIP),*which*represents*80*percent*of*the*total*budget*but*follows*ad` hoc* budgetary* procedures,* involves* too* many* actors,* and* diffuses* accountability.* Further* complicating*the*process,*extra`budgetary*spending*occurs*throughout*the*fiscal*year*(figure*X.4).* This* not* only* circumvents* controls,* it* also* weakens* the* capacity* of* the* authorities* to* manage* the* macroeconomy*and*achieve*longer`term*economic*and*social*goals.* Finally,* the* insufficiency* of* social* sector* public* expenditures* is* inconsistent* with* the* NESDP’s* stated* goals* for* economic* diversification* and* poverty* reduction.* Budget* spending* has* focused* on* improving* the* country’s* outmoded* infrastructure,* mostly* roads,* ports,* and* airports.* However,*NESDP*goals*require*a*radical*shift*of*public*resources*toward*pro`poor*and*productivity` enhancing* social* sectors* to* boost* efficiency* in* the* non`oil* economy* and* cut* poverty.* Current* allocations* do* not* adequately* reflect* NESDP* priorities,* and* the* authorities* need* to* strengthen* the* link*between*public*policy*prioritization*and*the*budget*process.*A*first*step*would*be*to*increase* participation*by*social*sector*ministries*in*budget*preparation*(including*the*investment*program)* and*implementation.* With* donor* aid* practically* nonexistent,* public* investment* management* modality* is* predominantly*financed*by*domestic*revenues.*In*fact,*the*progress*of*project*implementation*has* shifted* more* on* hydrocarbons`related* tax* revenues* to* support* priority* projects.* According* to* the* Ministry* of* Finance* and* Budget* (MOFB),* the* project* portfolio* funded* by* these* funds* ranged* between* 75* and* 80* percent* of* total* revenues* in* 2005–08,* with* a* major* shift* from* social* and* economic* infrastructure* toward* productive* activities.* Analysis* of* capital* expenditures* shows* that* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 10 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review the* domestic* resources* allocated* to* construction* of* new* roads* and* power,* ports,* and* water* irrigation*facilities*averaged*two`thirds*of*total*investments*in*recent*years.* Key+PIM+Stakeholders+ The*responsibilities*of*PIM*are*divided*among*the*following*agencies*and*departments:* • Office*of*the*President’s*Geproyectos* • Ministry*of*Finance*and*Budget*(MOFB)* • Ministry*of*Planning*and*Development*(MOPD)* • Executing*agencies*and*units** • Parliament* Geproyectos* is* the* main* agency* responsible* for* coordinating* infrastructure* project* implementation* and* monitoring* on* behalf* of* the* Office* of* the* President* of* the* Republic.* Geproyectos*is*independent*from*other*ministries*and*accountable*only*to*the*President,*although* three* ministries—MOPD,* MOPWI* (Ministry* of* Public* Works* and* Infrastructure),* and* MOFB—are* members*of*its*board*of*directors.3** The*objectives*of*Geproyectos*are*broad*and*cover*the*entire*investment*process:*from* (1)* planning,* design,* supervision,* execution,* monitoring,* evaluation,* and* control* of* all* public* infrastructure* projects,* construction* that* involves* civil* engineering,* as* well* as* those* projects* earmark`funded*either*by*the*Treasury*or*donors;*to*(2)*elaborating*and*publishing*calls*for*tender* and*assessing*the*bids;*(3)*periodically*informing*the*Government*on*its*activity*and*the*progress* of*works*and*projects*being*implemented*in*the*country;*and*(4)*any*other*attributions*that*may*be* decided.* The*MOFB*plays*a*pivotal*role*in*setting*the*budget*ceilings*for*both*current*and*investment* (PIP)* budgets.* The* ministry* derives* its* mandate* and* functions* from* the* 1995* Constitution* of* the* Republic*of*Equatorial*Guinea*and*other*related*subordinate*laws,*including*the*Public*Finance*Law* (2003)* and* acts* establishing* agencies* and* auxiliary* organizations.* The* Ministry* of* Planning* and* Development* (MOPD)* is* responsible* for* allocating* the* investment* budget* (PIP)* between* the* different* ministries* according* to* the* country’s* economic* and* social* development* priorities* set* in* the*NESDP.* The* scope* of* PIM* encompasses* mainly* the* Central* Government,* which* consists* of* 20* ministries,* and* many* other* public* agencies* (commissions,* universities,* and* research* institutions),*as*well*as*other*autonomous*entities,*statutory*corporations*and*public*enterprises.*The* line* agencies* responsible* for* the* bulk* of* capital* spending* are* the* Ministry* of* Public* Works* and* Infrastructure* (MOPWI),* the* Ministry* of* Education* (MOE),* and* the* Ministry* of* Health* (MOH).* Of* these,*the*MOPWI*is*responsible*for*almost*two`thirds*of*the*spending,*followed*by*MOE*and*MOH,* which* contributed* less* than* 10* percent* of* the* total* budget* estimates* in* 2009.* Lacking* in* the* PIM* institutional*setting*is*the*organizational*and*technical*capacity*at*the*national*and*sector*levels*to* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 11 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review align* public* resources* to* specific* outcomes* and* policy* objectives* and* to* oversee* the* spending* agencies’* compliance* in* procuring* and* executing* contracts* on* behalf* of* the* Government* or* independently*according*to*investment*plans.* Information* about* the* legal* framework* governing* public* finance* management* is* limited,* and* where* it* does* exist* (as* with* the* 2003* Public* Finance* Law),* it* is* not* applied.* Mandated* procedures* are* time* consuming* and* often* circumvented,* which* reduces* transparency* and* accountability.*Consequently*only*an*economic*classification*of*budget*execution*is*prepared,*with* no* reliable* administrative* or* functional* information* about* spending.* This* seriously* inhibits* the* Government´s*ability*to*adequately*supervise*implementation*of*disbursements*and*assess*public* policy* impacts.* The* Government* should* review* budget* administration* to* cut* red* tape,* preserving* adequate*controls*on*the*most*relevant*steps*while*limiting*the*use*of*exceptional*procedures*and* reducing* payment* delays.* It* should* also* ensure+ that* the* same* economic* and* administrative* classifications* are* used* for* the* approved* and* executed* budgets* and* that* an* additional* administrative* classification* is* introduced* in* the* investment* program* to* differentiate* between* infrastructure*and*other*types*of*investment*that*should*be*classified*as*current*expenditures.* Recommendations+from+the+2010+Public+Expenditure+Review++ External* oversight* and* transparency* of* the* public* sector—notably* for* petroleum* revenues—* should* be* strengthened.* Information* about* the* national* budget* and* public* sector* performance* is* not* accessible* to* the* general* public.* There* are* no* external* audit* reports,* and* contract* awards* are* not* published,* which* reduces* the* Government’s* accountability* to* Parliament* and* citizens* and* increases* opportunities* for* misappropriation.* Petroleum* revenues* are* not* formally*audited.*Implementation*of*the*EITI*would*provide*timely*and*relevant*information*on*the* sector.* Finally,* there* is* an* urgent* need* to* raise* institutional* capacity* to* oversee* the* array* of* decentralized*public*sector*institutions*and*present*a*consolidated*budget.*The*Government*should* make* use* of* modern* technologies* and* publish* budget* reports* and* procurement* contract* information*on*the*Internet*to*inform*the*public.* Sector*ministries*need*to*participate*further*in*budget*preparation*and*implementation.*By* 2008* it* was* clear* that* the* current* project* selection* and* implementation* system* was* reaching* its* limits,* and* the* 1,400* projects* in* the* PIP* could* not* possibly* be* implemented* simultaneously* given* existing*capacity*constraints.*The*bottleneck*could*only*grow*since*the*NESDP*calls*for*additional* financing*to*be*directed*toward*sector*ministries*to*get*quick*results*in*poverty*reduction.*Clearly* an* adjustment* is* required* and* the* number* of* projects* in* the* PIP* would* have* to* shrink* while* additional*responsibility*is*delegated*to*sector*ministries*for*selecting*sector*projects*within*sector* envelopes*allocated*by*the*MOFB.*This*change*would*also*allow*better*planning*for*future*project* maintenance* and* operating* costs.* In* that* vein,* sector* ministry* participation* should* be* ensured* throughout* project* implementation* to* ensure* adequate* planning* for* transfer* of* the* social* infrastructure*into*service*and*ensure*its*sustainability*after*operations*begin.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 12 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review The*existing*dual*budget*system*needs*improved*coordination*between*the*MOFB*(which* implements* the* current* budget* and* sets* the* investment* ceiling)* and* the* MOPD* (which* implements* the* PIP).* This* could* be* achieved* by* setting* sector* ceilings* for* current* and* investment* allocations,* making* use* of* the* same* classification* during* budget* implementation,*and*making*both*budgets*more*consistent*with*the*NESDP*goals.*There*is* also*an*overlap*in*authority*and*responsibility*within*the*investment*program*that*creates* confusion.*Insufficient*coordination*between*Geproyectos*(which*is*in*charge*of*investment* implementation*of*infrastructure*projects),*the*MOFB,*the*MOPD,*and*the*sector*ministries* results* in* poor* reporting* on* actual* execution* of* the* PIP.* Geproyectos* does* not* use* the* Public*Investment*Program*as*a*tool*for*investment*prioritization*and*selection;*and*that,* coupled* with* implementation* of* non`PIP* projects,* renders* the* PIP* useless* as* a* tool* for* raising* spending* efficiency.* There* is* a* need* to* overhaul* of* the* institutional* setting* and* provide*assurance*of*adequate*coordination*and*accountability*of*all*stakeholders*in*order* to* make* the* PIP* a* relevant* policy* tool.* Creation* of* a* database* with* updated* project* information* from* all* participating* ministries* (including* sector* ministries)* would* strengthen* the* process,* allowing* a* central* agency* to* annually* report* and* evaluate* implementation*of*the*PIP.* Capital+Budget+Predictability+ Capital* expenditure* is* poorly* planned,* executed,* and* reported,* which* limits* adequate* investment*monitoring*and*weakens*investment*effectiveness.*The*Public*Investment*Program*has* numerous*preparation*and*implementation*shortfalls*that*severely*affect*the*quality*of*investment* data.*The*public*budget*contains*only*an*overall*envelope*for*capital*expenditures*without*specific* breakdown.* Many* PIP* investment* expenditures* currently* classified* as* infrastructure* are* actually* social*spending,*such*as*training*or*inputs*for*hospitals*or*schools.*Also,*it*is*possible*to*execute*a* project*not*included*in*the*PIP,*and*some*projects*in*the*PIP*are*never*implemented.*Management* of*the*investment*program*is*under*the*Office*of*the*President*without*financial*accountability*from* the* MOFB.* This* fosters* duplicate* spending,* wasted* resources,* and* insufficient* monitoring* of* PIP* implementation—a* heavy* toll* given* that* the* PIP* represents* about* 80* percent* of* the* total* public* budget.* The*Government’s*substantial*increase*in*public*investment*since*2004*has*focused*mainly* on*improving*infrastructure.*In*2008*capital*expenditures*reached*21.8*percent*of*GDP*(table*X.1),* up*from*8.4*percent*of*GDP*in*2002.*Using*data*from*the*PIP,*projects*have*been*bundled*together* to*analyze*allocations*in*the*social,*infrastructure,*economic,*and*productive*sectors.*Data*confirm* the*results*visible*on*the*ground,*which*show*improved*infrastructure*in*roads,*airports,*and*ports* alongside* less* successful* construction* of* social* infrastructure,* such* as* housing,* schools,* and* hospitals.* Approval* of* the* NESDP* signaled* the* Government’s* aim* to* shift* resources* toward* investment* in* social* sectors,* although* limited* implementation* capacity* in* these* social* sectors* has* limited*past*spending*there*to*a*mere*2.5*percent*of*GDP*(figure*X.5).** T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 13 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Table+X.1:+Public+Investment+Program,+2005–08+ !!!!!!Allocation.by.Purpose!(%!of!GDP)! 2005! 2006! 2007! 2008! Social!sectors! 1.4! 5.5! 4.5! 3.1! Public!administration! 0.7! 1.0! 1.2! 1.7! Productive!sectors! 1.7! 1.4! 2.3! 3.8! Infrastructure! 0.7! 0.7! 8.3! 7.1! Total!! 4.5! 8.6! 16.3! 15.7! !!!!!!Capital.Budget.Execution.(%!of!GDP)! 2005! 2006! 2007! 2008! Social!sectors! 1.6! 1.8! 3.1! 2.5! Public!administration! 2.8! 2.7! 2.9! 1.6! Productive!sectors! 1.5! 3.7! 3.6! 13.4! Infrastructure! 4.4! 7.0! 7.3! 4.3! Total!! 10.3! 15.2! 16.9! 21.8! !!!!!!Execution.Rate.! !!!!!!(%!of!allocated!investment)! 2005! 2006! 2007! 2008! Social! 115! 32! 69! 81! Public!administration! 409! 279! 245! 92! Productive!sectors! 86! 277! 159! 355! Infrastructure! 606! 1,022! 88! 60! Total! 225! 178! 104! 139! ! ! ! ! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 14 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Figure+X.5+++Public+Investment+Program,+2005–08+ (%!of!GDP)! PIP Allocations PIP Execution 35 Social Sectors 14 Social Sectors 30 Public Administration 12 Public Administration 25 Productive sectors 10 Productive sectors 20 Infrastructure Infrastructure 8 15 6 10 4 5 2 0 0 2005 2006 2007 2008 2005 2006 2007 2008 Sources: EQG authorities, IMF and World Bank ! Sources:!Equatorial!Guinea!Government,!IMF,!and!World!Bank.!! The*high*infrastructure*investment*(most*notably*roads)*is*expected*to*decline*when*large* projects*are*completed.*Infrastructure*represents*half*of*the*investment*carried*out,*two`thirds*of* which* was* in* roads* (around* 4.1* percent* of* GDP,* 2005–07).* Capital* expenditure* in* airports* and* urban* facilities* represented* around* 1.2* percent* and* 1* percent* of* GDP,* respectively* (8.5* and* 6.3* percent*of*total*infrastructure*expenditure,*2005–07,*respectively,*as*indicated*in*figure*X.6).*This* investment,*which*has*significantly*upgraded*the*deteriorated*road*system*and*the*main*airports,* should* slow* down* as* the* bulk* of* transport* infrastructure* improvements* are* completed,* and* resources*will*likely*shift*toward*investments*in*the*sectors*using*the*newly*installed*infrastructure* (that*is,*in*the*productive*and*social*sectors).* Figure+X.6++++Infrastructure+in+the+Executed+PIP,+2005–08+ (%!of!total!investment!implemented)! ! 35 Airports Roads Urban . 30 . 25 . 20 . 15 . 10 . 5 . 0 2005 2006 2007 2008 . Sources: EQG authorities, IMF and World Bank Sources:!Equatorial!Guinea!Government,!IMF,!and!World!Bank.!! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 15 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Investment*allocations*to*productive*sectors*are*too*low*to*raise*productivity*substantially* in*the*non`oil*economy.*Investment*in*the*productive*sectors*equaled*3.7*percent*of*GDP*in*2007,* mostly*focused*in*ports*(see*figure*X.7).4*As*upgrades*to*the*ports*of*Malabo*and*Bata*reach*their* final*stages,*a*significant*shift*in*public*investment*is*expected*to*increase*productivity*in*the*non` oil* economy.* Given* the* size* of* the* rural* population* and* the* importance* of* agricultural* activity* for* their* livelihood,* the* authorities* should* prioritize* agricultural* investment.* Currently,* agriculture* is* not*considered*a*priority*for*investment*and*accounts*for*less*than*0.5*percent*of*total*outlays.+ Figure+X.7+++Executed+Investment+in+Productive+Sectors,+2005–08+ (%!of!total!investment!executed)! Trade Telecommunications 16 Energy Hidrocarbons Hydrocarbons 14 Ports Forestry and agriculture 12 Tourism 10 8 6 4 2 0 2005 2006 2007 End June 2008 ! Sources: EQG authorities, IMF and World Bank Sources:!Equatorial!Guinea!Government,!IMF,!and!World!Bank.!! Investment* in* social* sectors* will* need* to* increase* to* improve* the* living* conditions* of* the* general* population.* Investment* in* social* sectors* has* hovered* around* 2.5* percent* of* GDP* between* 2005`2008* (about* 16* percent* of* capital* expenditures* implemented* 2005–08,* see* figure* X.8).* Despite*NESDP*recommendations,*budget*allocations*for*social*sector*investments*have*remained* constant* in* absolute* terms* since* 2006;* merely* around* 2.5* percent* of* GDP* has* actually* been* implemented.*However,*this*low*amount*may*be*misleading*since*a*portion*of*social*infrastructure* such* as* schools* or* hospitals* is* often* accounted* as* infrastructure* and* not* as* social* expenditure.* In* any*case,*social*sector*investment*is*far*too*low,*given*the*importance*of*education,*health,*water* and* sanitation,* and* housing* for* poverty* reduction,* and* needs* to* increase* significantly* in* size* to* improve*the*overall*social*and*economic*conditions*of*the*population.** !!! ! ! ! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 16 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Figure+8:+Executed+Investment+in+Social+Sectors,+2005–08+ (%!of!total!investment!executed)! 9 Education Housing 8 Water and Sewage Health 7 Other Social 6 5 4 3 2 1 0 2005 2006 2007 End June 2008 Sources: Equatorial Guinean authorities, IMF and World Bank ! Sources:!Equatorial!Guinea!Government,!IMF,!and!World!Bank.! The* current* institutional* setting* for* PIM* is* reaching* its* limits.* Execution* of* the* PIP* has* exceeded*investment*allocations*each*year;*the*Government*has*spent*twice*the*amount*budgeted* between* 2004* and* 2007,* with* overruns* of* US$385* million* in* 2004,* US$460* million* in* 2005,* and* US$600* million* in* 2006.* This* over`execution,* mostly* concentrated* in* physical* infrastructure* and* public* administration,* is* due* mainly* to* the* Government’s* will* to* carry* out* investments* urgently.* However,* the* current* lack* of* discipline* in* committing* public* funds* is* not* sustainable* and* poses* a* serious*risk*that*may*lead*the*country*to*achieve*little*in*the*long*term.*Moreover,*the*large*size*of* the*2007*capital*budget—around*US$2*billion—and*the*limited*overrun*of*US$37*million*seems*to* mark* the* ceiling* for* the* Government’s* investment* capacity.* Since* the* bulk* of* infrastructure* investment*(characterized*by*large*contracts)*has*been*completed*and,*given*the*NESDP’s*calls*for* greater* productive* investment* to* develop* the* non`oil* economy* and* social* investment* to* fight* poverty,* the* Government* must* begin* to* redefine* its* institutional* investment* arrangements* to* handle* smaller* contracts.* Accomplishing* this* requires* improved* supervisory* capacity* of* sector* ministries* expected* to* take* more* of* the* investment* lead* in* the* years* ahead.* The* section,* “Management*of*Public*Investments*in*Infrastructure”*will*analyze*the*current*institutional*setting* for* public* investment* and* propose* recommendations* to* facilitate* project* implementation,* safeguard*public*funds,*and*raise*efficiency.* Challenges+to+Effective+PIM+ Challenges*to*the*effective*management*of*public*investments*in*Equatorial*Guinea*include:* budget* comprehensiveness* and* transparency* of* information* included* in* the* budget;* substantial* fragmentation* during* budget* preparation* with* sector* ministries* having* a* limited* role* in* the* decision*of*what*investment*projects*are*selected;*combined*with*lack*of*sector*strategies*to*guide* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 17 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review investment.* These* challenges* raise* the* risk* of* selecting* unnecessary* projects.* While* budget* implementation* in* Equatorial* Guinea* is* cumbersome* and* inefficient,* investment* management* has* been*centralized*in*Geproyectos,*overcoming*some*of*the*hindrances*of*the*system*but*raising*the* risks* of* inefficient* control* and* disconnection* of* the* rest* of* public* expenditure,* which* undermines* sustainability*and*maintenance*of*the*projects.***** Budget+Comprehensiveness+and+Transparency+ The*public*budget*does*not*record*all*public*spending,*thus*the*amount*of*extra`budgetary* spending*and*where*it*is*spent*is*difficult*to*evaluate.*The*budget*covers*ministries*and*legislative* and* judicial* institutions,* but* many* other* public* agencies* fall* outside* its* purview.* First,* only* state* subsidies* and* transfers* to* some* autonomous* entities* are* recorded,* while* the* entity* budgets* are* neither*included*nor*consolidated*in*the*National*Budget.*Second,*some*donor`financed*spending*is* not* recorded* in* the* budget.* Third,* the* budget* does* not* provide* an* accurate* picture* of* state* revenues.*In*this*context,*joining*the*Extractive*Industries*Transparency*Initiative*(EITI)*would*be*a* very*positive*step*that*would*allow*more*transparency*and*better*knowledge*of*total*oil*revenues.* Inadequate* budget* classification* and* recording* reduces* government* accountability* and* transparency.*There*is*a*lack*of*widely*available*norms5,*and*formulation,*execution,*and*reporting* of* the* Central* Government’s* budget* use* different* classifications,* leading* to* information* gaps* that* prevent* the* Government* and* Parliament* from* monitoring* compliance* with* initial* budgetary* authorizations.* Indeed,* the* initial* and* revised* budgets* are* presented* using* an* economic* classification* (by* nature* of* expenditure)6* and* an* administrative* (by* organizational* unit,* including* ministries)* classification,* but* data* on* budget* execution* are* reported* using* only* the* economic* classification.* The* Treasury* has* partial* information* on* current* expenditure,* but* it* is* neither* provided* to* sector* ministries* nor* recorded* in* budget* execution* documents.* Thus,* the* Parliament* approves* budget* allocation* by* ministry* and* economic* category* but* is* not* informed* about* actual* expenditure* by* ministry.* As* a* result,* poor* and* unreliable* information* on* budget* execution* translates*into*weak*budgetary*preparation*in*subsequent*years.* The* current* budget* classification* provides* hardly* any* information* on* investment* expenditure,* although* it* represents* 80* percent* of* the* budget.* Only* two* categories* of* investment* expenditure*are*recorded*in*the*State*Budget:*(1)*financing*of*miscellaneous*projects*(Budget*Code* 5310)* for* projects* fully* financed* by* the* State;* and* (2)* co`financing* of* miscellaneous* projects* (Budget* Code* 5380)* for* projects* co`financed* by* donors.* Moreover,* all* investment* expenditure* is* recorded* in* a* single* administrative* unit* (“Diverse* obligations”),* regardless* of* the* administrative* unit*benefitting*from*the*investment.7*Also,*around*30*percent*of*budgeted*investment*in*the*PIP— such* as* training* programs,* pharmaceutical* purchases,* studies,* the* design* of* development* plans— should*in*fact*be*considered*as*current*expenditure.8*If*from*an*economic*standpoint*some*of*this* expenditure* can* be* considered* as* future* investment* (for* example,* in* human* capital),* from* an* accounting* point* of* view,* they* do* not* increase* public* assets* and* therefore* should* be* recorded* as* current* expenditure.* The* Government* should* introduce* more* categories* into* the* budget* classification* to* allow* for* better* monitoring* of* investment* expenditure* and* at* least* differentiate* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 18 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review between*infrastructure*and*other*types*of*investments.*It*would*also*be*useful*to*introduce*accrual* elements*into*the*public*accounts*to*facilitate*audits.* Public* access* to* key* fiscal* information* is* limited.* Information* on* the* public* budget* and* government* performance* is* inaccessible* to* the* general* public.* Annual* budget* documentation,* which*is*the*most*widely*available*information*in*the*ministries,*exists*only*in*printed*form*and*in*a* limited*number*of*copies.*The*information*is*not*obtainable*through*the*press,*a*website,*or*sale*or* notice*boards.*In`year*budget*execution*reports*are*unavailable*in*sector*ministries.*There*are*no* external*audit*reports,*and*contract*awards*are*not*published.9*This*lack*of*transparency*reduces* agency*accountability*and*increases*opportunities*for*misappropriation.** Recommendation* To* increase* transparency,* the* 2010* World* Bank* Public* Expenditure* Review* (PER)* (World* Bank* 2010)* recommends* that* Government* publish* fiscal* information* and* contract* awards* on* the* Internet,*on*boards*outside*the*Ministry*of*Public*Works*and*Infrastructure,*as*well*as*in*magazines* published*in*the*country.*Given*the*lack*of*access*to*published*material*and*to*the*Internet,*only*a* small*percentage*of*the*population*could*access*such*information,*but*this*would*still*represent*an* improvement*over*current*practice.) Budget+Preparation++ Current* and* capital* expenditures* follow* different* budget* rules* and* procedures.* The* Ministry*of*Finance*and*Budget*(MOFB)*is*responsible*for*preparing*and*supervising*the*execution* of*current*expenditures,*and*its*only*role*in*the*investment*budget*is*to*set*the*global*ceiling.*The* Ministry* of* Planning* and* Development* (MOPD)* is* responsible* for* the* investment* budget.* This* produces* inconsistencies10* and* makes* it* difficult* for* sector* ministries* to* decide* on* adequate* distribution*of*capital*and*current*expenditures*in*their*respective*sectors.*Current*expenditure*in* social*sectors,*for*instance,*might*be*shortchanged*even*though*it*yields*a*higher*rate*of*return*than* some* infrastructure* investment.* Unifying* budgetary* responsibilities,* or* at* least* improving* coordination,* would* allow* sector* ministries* to* redress* that* imbalance* by* allocating* current* and* capital*spending*resources*to*each*project*more*effectively.** Budget* preparation* of* current* expenditures* does* not* reflect* national* priorities* and* maintenance* costs.* Under* existing* procedures,* sector* ministries* submit* a* first* budget* proposal* without* receiving* any* guidance* from* the* MOFB,* which* can* lead* to* overspending* in* non`priority* ministries* that* have* been* particularly* ambitious* in* their* initial* request.* Another* problem* is* that* operational*costs*of*many*construction*projects*(such*as*schools*or*hospitals)*are*not*factored*into* project* budgeting* even* though* they* can* be* expected* to* represent* a* higher* proportion* of* the* recurrent*budget*as*more*investment*projects*are*finished.** Recommendations* According* to* the* 2010* PER,* the* MOFB* could* address* the* issues* mentioned* on* budget* preparation*by*(1)*communicating*their*budget*ceiling*to*the*sector*ministries*at*the*beginning*of* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 19 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review the*budgetary*process*so*that*NESDP*priorities*receive*due*consideration*in*the*overall*budget;*and* (2)* setting* some* form* of* multiannual* planning* that* takes* into* account* the* cost* of* operating* and* maintaining*infrastructure*once*it*has*been*installed.*This*could*be*done*through*a*project*technical* card* that* indicates,* among* other* things,* investment* and* maintenance* costs,* planned* operational* expenses,*and*an*investment*timeline*to*properly*plan*annual*budgeting.*This*project*technical*card* would* be* updated* regularly* during* construction* and* with* relevant* additional* information* as* needed.* Planning* of* capital* investment* needs* to* ensure* that* projects* correspond* to* NESDP* priorities.*The*PIP*in*the*2008*and*2009*budgets*shows*the*authorities’*determination*to*increase* the*amount*budgeted*for*capital*expenditures.*However*the*institutional*setting*does*not*provide* adequate* information* to* monitor* implementation* and* adjust* budgets* throughout* the* year.11* Therefore* it* is* essential* to* improve* investment* planning* and* provide* better* easily* accessible* information*about*the*list*of*ongoing*projects.** Budget+Execution++ Procedures* for* budget* execution* are* frequently* bypassed,* reducing* budget* control* and* information* quality.* The* official* procedure* for* expenditure* execution* is* described* in* Decree* 52/2005,* but* it* is* actually* used* for* a* very* small* percentage* of* public* spending.* The* procedure* separates* the* administrative* phase* (payment`authorizing* officer),12* the* payment* phase* (public* accountant),*and*the*disbursement*after*the*delivery*of*goods,*works,*or*services*(Treasury).*Figure* X.9*details*the*current*budget*implementation*system.*It*is*a*long*procedure*that*is*centralized*at* the* MOFB,* with* none* of* the* credit* administrators* at* the* sector* ministries* acting* as* payment` authorizing* officers.13* To* expedite* commitment* and* payment* and* avoid* some* of* the* controls* applicable* to* the* administrative* phase,* direct* payments* are* made* for* civil* servant* salaries* (representing*25*percent*of*the*current*budget*in*2008).*Also,*to*accelerate*budget*implementation,* sector* ministries* send* payment* requests* directly* to* the* MOFB* or* the* President,* bypassing* the* system.* This* limits* the* capacity* of* the* MOFB* to* produce* reliable* and* timely* reports* on* budget* execution,* a* gap* that* is* only* partially* bridged* by* quarterly* Treasury* reports* (approximately* two* months*after*the*end*of*a*given*term)*since*the*Treasury*has*incomplete*information*to*carry*out*an* adequate*classification.*Furthermore*most*of*the*procedures*are*manual,*which*increases*the*risk* of*mistakes.** + T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 20 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Figure+X.9++++Normal+Procedures+(1–2+months)+for+Executing+Current+Expenditures+ ! Source:!Decree!No.!52/2005!that!establishes!norms!on!public!accounts!,!Ministry!of!Finance!and!Budget,!and! interviews.!! 1 to 2 months Commitment Liquidation Authorization Payment The line The The Ministry The Service is done/ The Financial The The Minister Treasury pays ministry sends Directorate of Finance President or goods are Control Directorate of Finance and guarantees the commitment of Financial signs the Prime delivered. Line Directorate of the Budget signs the the production order Control proposals of Minister ministry certifies checks that does the order of of the States checks the commitment signs the the expenditure the controls liquidation payment and accounts. It availability and sends commitment and prepares the for service sends it to should match of funds in them to the order liquidation have been the Treasury the the President or done (*) administrative appropriation Prime accounts Minister for produced by authorization the Director of the Budget Note:!(*)!This!step!does!not!appear!in!the!decree.! * There* is* a* risk* that* goods* may* be* paid* for* before* being* delivered.* Most* of* the* control* is* concentrated*on*task*of*the*purchase*commitment,*with*rather*loose*control*of*goods*delivered,14* opening*the*possibility*of*paying*for*a*good/service*that*is*never*provided.*Some*improvement*has* been*made*over*time,*with*the*Treasury*requesting*confirmation*of*delivery*before*payment.*This* is*a*positive*evolution,*and*these*payment*controls*should*be*systematically*carried*out,*notably*by* the*MOFB.* Three* other* budget* execution* procedures* exist* although* they* are* not* formally* regulated:* (1)*an*emergency*procedure*that*allows*payments*before*goods*or*services*are*delivered,*(2)*cash* advances*(not*including*petty*cash),*and*(3)*payment*of*infrastructure*expenditure.** The*emergency*procedure*bypasses*certain*budget*execution*steps.*Sector*ministries*send* the* commitment* request* directly* to* the* payment`authorizing* officer* who* then* transmits* it* to* the* Treasury* for* payment* without* the* Budget* Directorate* (BD)* or* the* Financial* Control* Directorate* (FCD)*intervening.*The*payment*title*is*sometimes*sent*for*ex*post*regularization*to*the*BD*or*the* FCD,*but*this*is*not*always*the*case.*This*procedure*presents*several*problems.*First,*execution*is* not*properly*recorded*by*the*administrative*services.*The*FCD*and*the*BD,*which*are*mandated*to* follow* budget* implementation,* are* unaware* of* these* expenditures* and* therefore* underestimate* budget* execution.* Second,* there* is* no* guarantee* that* the* service* was* rendered* or* the* good* delivered,*which*increases*the*risk*of*misuse*or*corruption.*Third,*accounting*quality*is*poor*since* administrative* controls* for* adequately* recording* the* expense* into* the* budget* appropriation* item* are*lacking.*In*sum,*even*when*budget*execution*data*are*available,*they*are*of*poor*quality*and*do* not*adequately*reflect*the*real*destination*of*the*expenditure.* The* cash* advance* procedure* lacks* appropriate* controls* and* cannot* be* assimilated* with* petty*cash*procedures.15*In*the*EQG*system*there*is*no*need*to*provide*documents*to*account*for* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 21 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review and* record* past* expenditure.* Also,* advances* are* made* to* a* bank* account* of* the* minister* or* the* ministry,* and* they* are* considered* final* budgetary* expenditure* without* need* to* provide* further* justifications.*The*Treasury*does*not*know*what*the*money*will*eventually*be*used*for*and*cannot* classify* the* disbursement* against* the* appropriate* budgetary* appropriation.* A* similar* system* of* monthly* advances* is* used* to* buy* office* supplies* (1/12th* of* the* annual* budget* for* the* line* item* is* paid* every* month* to* each* ministry* and* no* documentation* is* requested).* This* procedure* is* highly* problematic* since* it* is* impossible* to* know* the* final* use* of* the* funds.* It* not* only* raises* the* risk* of* misuse*but*limits*Treasury*control*on*sector*accounts*since*no*record*of*all*existing*bank*accounts* and*their*amounts*is*kept*(even*in*the*economic*services*of*the*sector*ministries).* Recommendations* The* 2010* PER* highlighted* the* need* for* the* Government* to* address* weaknesses* in* budget* execution*quickly.*All*existing*procedures*should*be*formalized*and*developed*on*the*basis*of*the* 2005*Decree,*providing*clear*instructions*for*application.*This*should*be*reinforced*by*a*review*of* budget*implementation*procedure*to*make*it*swifter*and*to*establish*adequate*controls*on*the*most* relevant*steps*(availability*of*credits,*control*of*goods*provision)*to*reduce*the*use*of*exceptional* procedures*and*reduce*payment*delays*so*that*suppliers*willingly*deliver*goods*before*being*paid.* This*could*eventually*entail*delegating*part*of*the*budget*procedure*to*sector*ministries*as*credit* managers.16*Adequate*procedures*should*be*introduced*for*management*of*small*budget*amounts* to* replace* the* current* cash* advance* system,* notably* concentrating* payments* to* sector* ministries* into* a* single* account* per* ministry.* Finally,* regularly* reconciling* information* on* budget* execution* from* the* BD* or* the* FCD* and* payments* made* by* the* Treasury* should* ensure* that* expenditure* is* properly* monitored* by* the* payment* authorizing* officer.* An* integrated* information* system* would* certainly* be* useful,* but* it* is* not* necessary* to* quickly* improve* the* situation.* Only* if* the* current* organization*and*procedures*are*modified*will*an*integrated*information*system*be*productive.** Accounting+ The* current* accounting* system* does* not* allow* registration* of* assets* and* liabilities* and* makes* it* difficult* to* account* for* actual* infrastructure* spending.* The* only* financial* statements* are* budget*execution*reports*that*do*not*contain*accrual*information.*Therefore*the*chart*of*accounts*is* the*same*as*the*budget*classification,*which*does*not*permit*the*registration*of*assets*and*liabilities.* Since*the*pace*of*infrastructure*construction*is*raising*the*complexity*of*accounting*operations,*it*is* very*important*to*develop*asset*registration*that*in*a*first*step*could*introduce*some*additional*and* simple* accrual* aspects* to* the* current* cash`basis* accounting* system.* This* improved* classification* would* provide* a* distinction* between* investment* in* fixed* assets* and* other* public* investments,* providing* the* basic* elements* for* preparing* a* balance* sheet* of* public* sector* assets* with* assets* registered*at*their*acquisition*cost.* External+Scrutiny+and+Audit++ Internal*oversight,*although*formally*present,*provides*very*weak*results.*According*to*the* 2005* decree* that* defines* norms* in* public* accounting,17* the* control* of* budget* execution* is* carried* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 22 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review out*at*five*levels:*within*each*ministry,*by*public*accountants,*by*the*competent*authorities*within* the* MOFB,* by* the* jurisdiction* in* charge* of* controlling* accounts,* and* by* Parliament.* There* is* no* internal* audit* within* each* ministry* and* the* role* of* Inspector* General* of* Finances* (IGF)* should* be* strengthened* to* ensure* adequate* internal* audits* to* reduce* the* risk* of* misappropriation* of* public* goods.*The*IGF+ has*broad*powers*and*a*mandate*across*entities*of*the*Central*Government*to*carry* out*internal*audits.18*In*particular,*the*IGF*can*act*as*a*control*for*any*institution*that*uses*public* funds—including*ministries,*public*companies,*and*autonomous*institutions—and*evaluate*public* policies* following* an* annual* program* of* control.* However,* the* IGF* does* not* use* recognized* professional*auditing*norms*and*in*practice*does*not*act*as*a*control*for*the*Treasury*and*review* public*accounts.*Audits*and*inspections*held*in*ministries*entail*a*significant*risk*of*not*detecting* frauds*and*irregularities*since*they*do*not*foster*audits*of*expenditure*procedures*and*do*not*allow* close* analysis* of* the* reliability* and* integrity* of* financial* information.* Strengthening* the* role* and* professionalism* of* the* IGF* is* crucial* to* identify* problems,* provide* recommendations* in* public* finance* management,* and* ensure* that* procedures* are* defined* and* adequately* enforced.* A* risk` based*approach*to*audit*planning*also*should*be*developed*to*focus*attention*on*the*most*relevant* issues.* Another* issue* is* that* external* independent* control* is* lacking.* There* is* no* national* audit* office* with* jurisdictional* authority* for* certifying* public* accounts* on* a* regular* basis.19* An* external* independent* auditing* office* is* essential* to* ensure* transparency* and* accountability* in* public* fund* management* by* publishing* audit* findings* to* the* public.* To* carry* out* its* role* adequately,* it* is* essential* that* this* office* be* endowed* with* organizational* independence,* enjoy* free* and* unlimited* access*to*information,*and*be*adequately*staffed*and*funded*to*operate.* Management+of+Public+Investments+in+Infrastructure+ The*PIM*system*assessment* is*structured*along*the*eight*step*process*found*in*Rajaram*et* al.* (2010):* (1)* investment* guidance* and* preliminary* screening,* (2)* formal* project* appraisal,* (3)* independent* review* of* appraisal,* (4)* project* selection* and* budgeting,* (5)* project* implementation,*(6)*project*adjustment,*(7)*facility*operation,*and*(8)*project*evaluation.*These* dimensions*are*discussed*in*detail*in*this*section*and*the*performance*indicators*and*dimensions* are* summarized* in* table* X.4,* which* highlights* whether* the* performance* on* a* dimension* significantly*undermines*the*overall*PIM*system*performance.*To*do*so,*four*ratings*A*to*D*are* used,*with*D*representing*a*serious*impact*that*undermines*overall*PIM*and*C*representing*a* risk*that*it*undermines*overall*PIM*system.** Table+X.4:+Preliminary+Core+PIM+Indicators+for+Equatorial+Guinea+ Stage! Indicators!and! Findings! Rating! Dimensions! 1.!Guidance!and! National!development! NESDP!and!sectoral!strategies!missing!for!the! D!! preliminary! strategy;!sectorYwide! most!part.!Lacking!a!statement!of!Government! strategies! priorities,!the!budget!circular!provides!no! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 23 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Stage! Indicators!and! Findings! Rating! Dimensions! screening! guidance.!Priorities!set!out!in!strategic!sector! plans!not!matched!by!the!budget!execution! ratio.! First!level!screening!to! No!revision!of!projects’!consistency!with! D! ensure!strategic! national!priorities!! alignment! 2.!Formal!project! Clarity!of!roles!in! Roles!well!defined,!but!process!has!little! C!! appraisal! planning!process! analytical!content.!! Formal!technical! There!is!no!administrative!guidance!on!the! D! guidance! appraisal!process.!No!financial!guide!provided! ! to!sector!ministries.!There!is!no!costYbenefit! analysis!! 3.!Independent! Sound!project!appraisal! Generally!limited!or!practically!nonexistent! D! review!of!appraisals! ! within!line!ministries!before!the!project!is! submitted!for!appraisal.!Problems!with! project!design!become!apparent!at!later! stages.! Proportionality!of! No!costYbenefit!analysis!! D! appraisal! Effective!coordination! Not!relevant!as!donorY!financed!projects!are! D! and!scrutiny!of!donorY irrelevant.! funded!projects! Capacity!in!national! Limited!technical!capacity!of!MOPD!at!project! D! planning!agency!and! level.!SectorYwide!planning!capability!weak! line!ministries! within!line!ministries.! Independent! None! D! reality/quality!checks! 4.!Project!selection! Fixed!budget!calendar! Not!evident! ! and!budgeting! with!sufficient!time!for! line!ministries!to! prepare!capital!budgets! Comprehensive! None! D! guidance!and!capital! spending!ceilings! Projects!developed! Little!evidence!on!sufficient!design/planning! D! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 24 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Stage! Indicators!and! Findings! Rating! Dimensions! before!submission!to! work!prior!to!submission.!Overall!a!low!base! MOF!in!budget! of!adequately!prepared!projects.! Integration!of!capital! No!integration!between!completion!of!capital! D! and!current!spending! projects!and!programming!of!maintenance! activities! MOPD!checking!of! Not!evident! ! projects! Legislature!has! Not!evident! ! sufficient!time!to! consider!projects! Legislature!passes! Not!evident! ! budget!in!a!timely! manner! 5.!Project! Published!guidelines! None! D! implementation! Detailed! Some!planning!for!financial!and!physical! D! implementation!plan! execution!of!projects.!But!nobody!held! with!clear! accountable!for!progress!of!project! accountabilities! implementation.! Open!competition!for! Not!evident! ! procurement! Effective!procurement! None! D! complaints!mechanism! Commitment!controls! Commitment!controls!set!up!only!at!the!time! C! payment!orders!are!entered!into!the!system.! Commitments!of!contracts!not!entered!in!the! system,!track!down!of!supplier!deliverables,! project!implementation!difficult.!Timely! implementation!of!projects!unpredictable.! Predictability!of!funding! Over!budgeting!common!in!infrastructure! ! projects.!! Regular!process! Serious!problems!in!financial!reporting;! D! reporting! serious!inconsistencies!in!accounting.! Active!monitoring!of! MOFB!and!MOPD!lack!monitoring!units!to! D! progress! assess!onYsite!progress,!physical!inspection!of! output!deliverables,!and!quality!of!works.!Line! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 25 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Stage! Indicators!and! Findings! Rating! Dimensions! ministry!systems!are!not!effective.!! Sound!internal!control! Internal!controls!on!cost!overruns!of!major! D! projects,!tracking!down!of!project!extensions,! preventive!controls!for!avoiding!delays!in! project!implementation,!all!missing.!Internal! audit!for!overseeing!compliance!of!contracts,! value!for!money!missing.!Weak!institutional! capabilities!at!line!agency,!local!government,! and!project!levels.! Formal!project! Not!evident! ! completion! 6.!Adjustment!for! Constant!project! ! ! changes!in!project! adjustments! circumstances! Explanation!required! Explanations!are!required!and!provided!and! C! for!variances!from! their!validity!is!negotiated!and!adjusted.!! budget!and!plan.! Mechanisms!for!project! Not!evident! ! adjustment! Periodic!review!of!costs! Costs!are!reviewed!but!not!the!benefits.!! C! compared!to!benefits! for!major!projects! Mechanism!to!stop! .! ! projects! 7.!Facility!operation! Effective!handover!of! Delivery!of!assets!to!service!operator!not! ! assets! formalized!in!an!official!document!for!most! projects.!For!those!documented!disclosure! publicly!is!generally!missing.! Assets!fit!for!purpose! External!contractor!often!used!to!undertake! B! inspections!to!monitor!assets!built!fit!the! expected!quality!of!expenditures.! Asset!registers! Journals!do!not!exist!for!land,!building,!other! D! properties,!and!the!existing!ones!are!not!kept! up!to!date!as!projects!get!implemented.! Assets!are!not!recorded.!! Sufficient!O&M!funding! Not!evident! ! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 26 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Stage! Indicators!and! Findings! Rating! Dimensions! 8.!ExYpost!assessment! Basic!comparison!of! No!external!audit!office!in!place! D! (project!evaluation)! project!costs,!timelines,! and!deliverables!against! budgets!and!plans! Formal!arrangements! No!external!audit!office!in!place! D! for!project!evaluation! against!plan!and! appraisal! Effectiveness!or!value! No!external!audit!office!in!place! D! for!money!audits! Proportionality!of! ! ! evaluation! Response!to!evaluation! No!follow!up!on!actions!recommended!in!the! D! findings.! evaluations! + Investment+Guidance+and+Preliminary+Screening+ Formal*guidance*from*the*National*Economic*and*Social*Development*Plan*(NESDP)*cannot* be*translated*into*the*investment*program,*given*the*plan’s*wide*development*priorities*and*long* timeframe* (12* years).* To* facilitate* planning* of* investment* projects,* the* NESDP* should* be* complemented*with*sector*strategies*and*action*plans*that*present*detailed*sector*priorities*in*the* medium*term.*These*sector*investment*strategies*could*be*prepared*by*each*sector*ministry,*with* impetus*and*cross`ministry*coordination*from*the*MOPD*or*the*National*Agency*2020.* The* 2008* PIP,* with* projects* to* be* implemented* between* 2008* and* 2010,* does* not* reflect* strategic*investment*allocations.20*The*PIP*continues*the*Government’s*ambitious*investment*effort,* which* saw* public* investment* in* infrastructure* increase* sixfold* between* 2004* and* 2008,* when* it* represented*approximately*80*percent*of*the*budget.*Close*to*1,400*projects*were*identified*by*the* Government*for*implementation*during*2008–10,*compared*to*just*159*projects*executed*in*2004.* The*increase*was*particularly*rapid*in*2008*and*2009*in*response*to*NESDP*priorities*for*investing* oil* revenues* in* infrastructure* to* create* the* conditions* for* sustained* economic* growth* after* petroleum*reserves*are*depleted.*However,*the*PIP*is*not*regularly*updated*and*cannot*be*used*to* monitor* investment* implementation* or* assess* strategic* investment* decisions.* Furthermore,* not* only* is* the* PIP* not* an* instrument* for* yearly* budget* allocations,* it* is* not* being* used* for* strategic* medium`term*budget*allocations*as*described*in*the*later*section,*Project*Selection*and*Budgeting.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 27 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Public* investment* decisions* are* concentrated* in* the* Presidency.* Ultimate* investment* allocation*is*decided*by*the*Presidency,*without*the*need*to*record*the*investment*project*into*the* budget*being*implemented,*bypassing*any*formal*screening*and*budgetary*system*in*place.* Attempts* to* improve* investment* in* social* sectors* have* not* succeeded.* The* authorities* established*a*Social*Development*Fund*in*2005*with*support*from*USAID*to*improve*social*services* delivery*by*enhancing*the*administrative*and*technical*capacity*of*selected*ministries*and*raising* budget* allocation* to* social* sectors* (health,* education,* gender,* and* sanitation).* The* Social* Development* Fund* helps* the* ministries* to* prepare* projects,* participates* in* project* selection,* and* assists*in*project*implementation*and*monitoring,*but*results*have*been*below*expectations.** Formal+Project+Appraisal+ Projects* are* seldom* appraised* because* quick* implementation* is* at* a* premium,* given* the* dire*needs*of*the*country,*thus*raising*the*risk*of*inappropriate*project*selection.*There*is*no*formal* guidance*about*project*presentation*and*assessment.*Although*some*large*projects*(for*example,*in* the* mining* sector)* go* through* a* study* phase* before* being* implemented,* this* is* not* the* norm* for* most*projects.*Sector*ministries*propose*projects*for*inclusion*in*the*PIP,*but*only*after*the*project* has* been* included* do* they* send* the* proposed* terms* of* reference* (often* with* little* detail)* to* the* Ministry* of* Public* Works* and* Infrastructure* (MOPWI)* and* Geproyectos* for* technical* review.* Therefore,*project*proposals*do*not*include*cost`benefit*or*cost`effectiveness*analyses,*which*make* it*difficult*to*choose*the*most*efficient.*The*socioeconomic*value*of*projects*(that*is,*an*assessment* of*the*number*of*potential*beneficiaries,*the*potential*project*impact,*and*project*feasibility)*should* be* included* by* sector* ministries* when* presenting* proposals* for* inclusion* into* the* PIP.* A* more* thorough*analysis*could*be*performed*before*implementation*with*the*help*of*the*project*manager* (Geproyectos).*This*would*require*clear*formal*guidelines*about*project*preparation*and*appraisal* and*increased*capacity*in*staff*and*skills*at*Geproyectos.+ Priority*is*given*to*expedited*investment*implementation,*with*efficiency*and*effectiveness* of* less* concern.* High* petroleum* revenues* have* loosened* budget* constraints,* and,* given* the* country’s*dire*needs,*the*Government*considers*that*all*new*infrastructure*is*useful*so*there*is*not* much*need*to*prioritize.*However,*since*institutional*capacity*is*limited,*the*Government*will*not*be* able*to*implement*the*1,400*projects*envisioned*in*the*2008*PIP,*which*means*that*formal*project* appraisal* is* required* to* select* which* are* the* most* relevant.* Ensuring* that* adequate* time* and* resources*are*committed*to*project*identification*and*formulation*is*therefore*critical*for*the*design* and*effective*implementation*of*relevant*and*feasible*projects.*Maintenance*and*operating*costs*of* infrastructure* also* should* be* evaluated* prior* to* project* selection.* Furthermore,* it* is* unclear* whether*environmental*assessments*of*infrastructure*projects*are*carried*out.*Cost`benefit*analysis* and*pricing*environmental*costs*are*always*difficult*exercises,*but*the*authorities*need*to*integrate* them* into* the* project* assessment* process* to* limit* the* negative* impact* that* a* large* investment* program*may*have*on*the*environment.+ Limited* technical* capacity* of* ministry* staffs* hinders* investment* efforts,* and* outsourcing* project*appraisal*should*be*considered.*The*number*of*civil*servants*working*on*public*investment* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 28 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review management*is*low*and*their*capacity*is*limited.21*The*Government*should*review*staffing*numbers* by*skill*type*and*functions*in*each*ministry*and*prepare*a*precise*analysis*of*missing*skill*sets*to* define*a*much*needed*human*resources*policy,*a*training*strategy,*and*a*hiring*policy.*Given*limited* staff*pools*some*skill*sets*might*be*difficult*to*find*for*each*ministry,*but*technical*personnel*could* assist* several* sector* ministries* at* a* time.* While* this* capacity* is* built* up,* the* authorities* should* consider* outsourcing* project* appraisals* to* an* international* contractor.* Not* only* could* this* raise* overall* investment* efficiency* by* carrying* out* project* appraisals* that* are* currently* not* properly* done,* but* it* would* also* help* build* institutional* capacity* by* training* local* staff* in* internationally* accepted*appraisal*methodologies.+ Guidance* on* project* appraisal* is* essential* to* ensure* better* investment* allocation* and* facilitate*implementation.*The*Government*preference*to*expedite*investment*implementation*does* not*require*neglecting*the*appraisal*phase,*as*is*the*case*today.*The*aim,*after*all,*is*to*make*sure* that* Equatorial* Guinea* raises* investment* efficiency* by* implementing* projects* that* work.* The* key* assessments*required*include*the*following:*(1)*confirmation*that*the*investment*is*consistent*with* the* NESDP* and* policy;* (2)* stakeholder* analysis,* including* evaluation* of* institutional* capacity;* (3)* complementarities* with* other* ongoing* and* planned* initiatives,* incorporating* lessons* learned;* (4)* an* objective* hierarchy* assessment* (objective,* purpose,* results,* and* indicative* activities);* (5)* assessment* of* resource* and* cost* requirements;* (6)* assessment* of* management,* monitoring,* coordination,* and* financing* arrangements* (including* financial* management* and* internal* control/reporting);*and*(7)*environmental*analysis.** The* formal* guidance* should* describe* which* techniques* and* tools* for* economic* evaluation* are* more* appropriate* to* the* scale* and* scope* of* the* project—with* larger* projects* requiring* more` rigorous*tests*of*financial*and*economic*feasibility*and*sustainability.*It*is*particularly*important*to* assess* whether* the* project* is* relevant* (whether* it* meets* demonstrated* and* high`priority* needs)* and* feasible* (whether* it* is* well* designed* and* whether* it* would* provide* sustainable* benefits* to* target*groups).*The*project*appraisal*process*should*consider*project*proposals*of*different*scales* and* take* into* account* the* key* macro,* sector,* and* project`specific* uncertainties,* such* as* inflation,* cost*overrun,*and*change*in*output*and*key*input*prices*over*the*project’s*life.*The*appraisal*of*each* project*according*to*these*criteria*should*be*reflected*in*key*documents,*such*as*project*technical* cards.+ Independent+Appraisal+Review+ No*independent*project*review*is*being*performed.*The*MOPWI*is*responsible*for*its*own* investment*projects*in*roads,*social*housing,*and*urban*infrastructure*and*also*for*all*infrastructure* projects* presented* by* the* sector* ministries* in* which* it* intervenes* as* a* technical* ministry.* Sector* ministries* often* identify* a* project* and* rely* on* the* MOPWI* for* project* designing* and* feasibility* assessment* as* well* as* implementation.* These* designs,* however,* are* not* reviewed* by* any* other* independent*institution*and*sometimes*are*only*prepared*after*the*project*has*been*incorporated* into* the* PIP.* Geproyectos,* the* national* agency* with* technical* capacity* and* expertise* in* public* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 29 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review investment,* participates* throughout* the* investment* project* cycle* and* could* not* be* expected* to* carry*out*an*independent*review*of*project*appraisals.+ New*structures*stemming*from*the*NESDP*could*carry*out*independent*technical*reviews.* Three*new*institutions*have*been*created*to*realize*the*NESDP.*The*Equatorial*Guinea*High*Council* 2020*(Consejo*Superior*Guinea*Ecuatorial*2020),*chaired*by*the*President,*is*in*charge*of*providing* strategic* leadership,* validating* the* priorities* for* implementation* of* the* NESDP* and* evaluating* its* progress.22* The* National* Agency* 2020* (Agencia* Nacional* Guinea* Ecuatorial* 2020)* is* a* technical* institution* in* charge* of* coordinating* and* making* the* NESDP* operational.23* However,* its* final* role* will* depend* on* the* place* assigned* to* it* within* the* current* institutional* setting* in* which* informal* arrangements*are*prevalent.*Two*main*roles*might*be*delegated*to*the*National*Agency*2020:*(1)* carrying* out* independent* reviews* of* project* proposals* that* have* been* adequately* appraised* by* Geproyectos*or*the*MOPWI;*and*(2)*devising*an*NESDP*action*plan*and*budget*with*new*reporting* tools*that*allow*for*monitoring*and*evaluation*of*NESDP*implementation.24+ Project+Selection+and+Budgeting+ Many* institutions* intervene* in* the* decision`making* process* with* unclear* roles* that* vary* according*to*the*sector*of*the*project.*The*project*selection*procedure*is*not*formalized,*and*it*is*not* clear* who* formally* authorizes* project* implementation,* which* dilutes* responsibilities* and* transparency.*There*is*substantial*institutional*overlap*in*the*current*institutional*setting,*with*the* participation* of* three* main* actors:* the* Ministry* of* Planning,* the* Ministry* of* Infrastructure,* and* Geproyectos.* Sector* ministries* also* intervene* but* to* a* lesser* extent* and* with* varying* intensity* according* to* the* sector.* The* MOFB’s* role* consists* of* setting* the* overall* investment* ceiling.* Geproyectos* shares* with* the* MOPD* and* other* sector* ministries* the* authority* for* planning* public* investments* and* with* the* MOPWI* for* assessing* infrastructure* projects.* Geproyectos* and* the* MOPWI* both* intervene* in* the* implementation* of* investment* projects,* and* they* prepare* the* tendering* process,* choose* the* contractor,* co`sign* contracts,* and* are* co`responsible* for* project* monitoring.*There*is*also*overlap*between*the*National*Agency*2020*and*Geproyectos,*since*both* report*to*the*Presidency*on*infrastructure*projects*that*are*part*of*the*NESDP.+ The*PIP*is*prepared*by*the*Ministry*of*Planning*and*Development*(MOPD),*based*on*limited* information* provided* by* sector* ministries.* Sector* ministries* are* not* requested* to* justify* their* investment* proposals,* and* there* is* no* minimum* screening* requirement* for* projects* (Figure* 10* shows* the* steps* of* PIP* preparation).* Ministries* provide* a* list* of* projects* for* implementation,* sometimes* with* their* estimated* total* cost* and* duration.25* Further* information* is* sometimes* provided* on* the* content* and* justification* of* projects* and* their* cost,* but* mostly* for* projects* that* should* be* classified* as* current* expenditure.* For* infrastructure* projects* there* is* very* little* information,* and* sector* ministries* may* only* indicate* a* project’s* name* and* costs* without* a* justification.* No* explanations* are* provided* on* the* methodology* used* for* cost* evaluation,* and* the* timetable*is*not*justified.*No*distinction*is*made*between*projects*that*were*approved*in*previous* years* but* not* yet* begun* and* ongoing* projects,* sometimes* because* projects* are* implemented* by* a* different* institution* (that* is,* Geproyectos)* and* the* ministry* does* not* have* the* information.* For* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 30 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review ongoing* projects,* there* is* no* information* on* the* amount* already* executed* and* the* amount* that* remains.* The* MOPD* does* not* have* information* on* project* implementation* and* cannot* correctly* budget* ongoing* investment* to* identify* the* surplus* for* new* projects.* This* could* soon* become* an* overwhelming*problem*as*the*portfolio*of*ongoing*projects*grows*and*the*fiscal*constraint*tightens.*** Figure+X.10++++Preparation+of+the+Public+Investment+Program+ Ministry of Ministry of Ministry of Public Finance and Planning and Line Ministries Works and Geproyectos Budget Development Infrastructure Fiscal Total amount of Identification of Identification of Framework capital projects projects investment • no Budget distinction Preparation ongoing capital investment/discr Portfolio Portfolio etionary surplus of of • no projects projects sector envelopes Inclusion of Budget demands sent negotiations by ministries Multi-year Annual Appropriation appropriation appropriation: n List of New projects s projects but not vote on a programmed in single annual the PIP appropriation for all investment expenditure Budget execution No possibility to know which projects of the PIP are being Geproyectos implemented because of lack of reporting on execution of projects payments (no list; no stable means of identifying a project such as a unique commission number) knows how much No asset registration has been paid to each company but cannot link this to the PIP ! Source:!World!Bank!2010.!! Projects*included*in*the*PIP*do*not*necessarily*reflect*NESDP*priorities.+ There*is*no*ceiling* per* ministry,* and* ministries* do* not* spell* out* their* priorities* but* provide* an* aggregate* investment* program* for* implementation.* To* build* the* PIP,* the* MOPD* adds* all* the* ministerial* demands.* If* the* total* estimated* cost* of* the* projects* is* under* the* investment* ceiling* set* by* the* MOFB,* then* all* the* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 31 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review projects*are*approved.*However*if*they*exceed*this*amount,*the*MOPD*has*limited*information*for* deciding* on* which* projects* to* reject.* The* informal* rule* applied* for* the* initial* 2009* budget* was* to* accept*all*projects*presented*by*social*ministries*and*reduce*the*budgeted*amount*of*the*remaining* projects*for*2009*by*scheduling*more*costs*in*2010*or*2011,*taking*into*account*possible*delays*in* implementation.26* Thus,* final* budgetary* envelopes* by* sector* depend* mostly* on* the* capacity* of* a* ministry*to*come*up*with*projects*rather*than*on*strategic*importance.*In*spite*of*a*small*number*of* projects* being* labeled* “Priority* Projects* Horizon* 2020,”* it* is* uncertain* whether* these* or* other* projects* in* the* PIP* are* consistent* with* the* strategic* goals* of* the* Government.* Furthermore,* approximately* 30* percent* of* projects* included* in* the* PIP* should* not* be* considered* as* investment* but*as*recurrent*expenditures.+ The* PIP* has* no* connection* with* the* budget* process.* There* is* a* quasi`total* disconnect* between* the* investment* program* and* executed* investments* that* follow* parallel* and* unrelated* procedures.* Few* projects* in* the* PIP* are* actually* implemented,* but* no* accurate* report* tracks* PIP* implementation.* There* is* no* gatekeeping* process* to* prevent* unscreened* or* new* projects* from* being* included* in* the* PIP* during* the* course* of* the* year.* The* decision* to* start* a* project* lacks* transparency.*Also,*since*only*one*appropriation*for*capital*investment*is*made*annually*and*there* are*no*sector*envelopes*in*the*PIP,*the*Treasury*does*not*refuse*payment*of*any*investment*project* as*long*as*the*total*investment*budget*is*not*exhausted.+ Infrastructure*maintenance*and*operating*costs*are*not*taken*into*account*when*selecting* projects.*They*are*neither*considered*when*assessing*a*project,*nor*in*choosing*between*contractor* bids,*and*are*only*estimated*once*is*the*work*finished.27*A*ministry’s*capacity*(in*both*financial*and* human* resources* terms)* to* operate* and* maintain* a* particular* infrastructure* is* not* a* criterion* for* project* selection,* even* though* differences* in* operational* and* maintenance* costs* between* projects* in*the*medium*to*long*run*can*be*substantial*and*taking*them*into*account*could*lead*to*different* projects* and* contractors* being* chosen.* There* is* today* a* high* premium* for* contractors* proposing* projects*that*are*cheap*to*build,*even*if*they*turn*out*to*be*costly*to*maintain.+ The* decision`making* process* requires* improved* and* more`transparent* procedures.* After* coordination*and*agreement*among*the*different*institutions*have*been*reached,*procedures*should* be*written*down*and*codified.*Legislation*should*be*developed,*and*a*clearly*designated*institution* should*be*authorized*to*select*projects*in*the*PIP*and*the*procedure*to*start*projects*that*are*not* included*in*the*PIP.*Sector*ministries*should*act*as*clients*of*Geproyectos,*presenting*their*project* requests*for*technical*review*and*ensuring*that*the*findings*are*taken*into*account*during*project* preparation* and* implementation.* In* this* new* framework,* Geproyectos* would* be* the* project* manager* for* all* infrastructure* projects,* and* the* National* Agency* 2020* could* concentrate* on* interministerial* coordination,* independent* project* evaluation,* and* reporting.* Increasing* transparency* and* availability* of* information* for* all* the* relevant* actors* will* also* be* crucial* for* improving*public*finance*management*in*infrastructure.* Although* the* current* system* is* very* ineffective,* a* few* quick* measures* could* significantly* increase*investment*efficiency.*First,*sector*ministries*need*to*identify*the*cost*of*ongoing*projects* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 32 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review so* that* the* MOPD* can* calculate* the* surplus* that* can* be* allocated* to* new* projects.* Second,* the* available*investment*budget*should*be*divided*into*sector*envelopes*that*reflect*national*priorities.* Third,* the* PIP* should* provide* a* good* picture* of* projects* with* a* reasonable* chance* of* implementation*in*the*medium*term,*particularly*with*regard*to*next*year’s*projects*since*many*on* the*list*have*slim*probabilities*of*getting*off*the*ground*due*to*the*limited*capacity*of*some*sector* ministries* to* implement* many* projects* simultaneously.* Fourth,* project* costs* need* more* frequent* updating.*Presently*they*are*often*rough*estimates*provided*by*ministries*at*an*early*stage*that*do* not*get*revised*during*implementation,*even*when*the*cost*agreed*on*contractually*turns*out*to*be* very*different*from*what*had*been*anticipated.28*Fifth,*multiyear*planning*can*be*improved.*It*is*not* currently* done* on* the* basis* of* a* careful* analysis* of* project* features* but* rather* as* a* way* to* adjust* high* investment* requests* to* annual* budgetary* constraints* by* spreading* the* overall* funding* for* a* project* over* three* years.* Sector* ministries* should* provide* better* information* on* the* expected* calendar*of*projects*so*that*the*MOPD*can*improve*both*multiyear*planning*and*annual*budgeting* and*provide*the*Government*and*Parliament*with*more*realistic*figures.*And*sixth,*the*PIP*includes* a*large*amount*of*current*spending*that*should*not*be*counted*as*investment.*Better*screening*by* sector* ministries* and* the* MOPD* and* new* budget* classification* to* identify* infrastructure* projects* would*help*ensure*that*only*investment*projects*are*included*in*the*PIP.* ! ! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 33 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review ! Project+Implementation+ Financial* execution* of* infrastructure* projects* is* concentrated* at* the* Treasury* and* at* Geproyectos,* with* limited* involvement* of* other* ministries.* The* procedure* is* not* formally* documented*and*an*informal*procedure*has*filled*the*legal*vacuum*(see*figure*X.11).*The*Treasury* has*all*the*information*on*financial*execution.*It*records*infrastructure*payments*in*a*single*section* and* keeps* track* of* payments* per* company* as* approved* in* the* payments’* commission* documentation.29*However*the*information*available*makes*it*impossible*to*compare*this*execution* report*with*the*PIP*because*(1)*many*of*the*projects*implemented*are*not*included*in*the*PIP*and* (2)*when*they*are,*they*have*different*names*and*do*not*share*the*same*budget*code.*Furthermore,* this* information* on* budget* implementation* is* not* transmitted* to* sector* ministries* or* the* MOPD,* which*therefore*cannot*monitor*execution*of*the*PIP.** The*current*system*could*be*improved*substantially*by*rationalizing*the*financial*execution* system* in* the* infrastructure* sector.* This* could* be* done* by* (1)* identifying* projects* by* a* unique* number* (as* used* in* the* PIP)* in* contracts* and* payments* and* (2)* sharing* the* payment* information* available*at*the*Treasury*with*sector*ministries*and*the*MOPD.* There*is*no*procurement*regulatory*framework,*which*raises*the*risks*of*corruption* and* the* selection* of* non`optimal* proposals* and* contractors.* The* lack* of* procurement* regulations*gives*Geproyectos*and*the*MOPWI*the*freedom*to*opt*for*a*bidding*process*or*a* direct* award* of* contract.* If* bidding* is* chosen,* there* are* no* rules* on* tendering,* so* that* decisions*on*publicity*requirements,*criteria*of*choice,*and*obligatory*timelines*are*made* ad*hoc.*Also,*no*process*exists*for*resolving*complaints*involving*the*procurement*process.* This* lack* of* formal* procedures* raises* the* risks* of* collusion* and* corruption,* increases* the* probability* that* suboptimal* projects* or* contractors* will* be* chosen,* and* in* general* negatively*affects*the*final*price*and*quality*of*the*project.** The*authorities*are*aware*of*these*risks,*and*the*NESDP*highlights*the*need*for*building*a* procurement*regulatory*framework*to*enhance*public*investment*efficiency.*The*plan*also*calls*for* establishing* databases* on* standard* prices* and* unit* costs* of* construction.* Following* these* recommendations,*the*Government*should*expedite*preparation*and*adoption*of*a*system*that*is*in* line*with*the*OECD/DAC*(Development*Assistance*Committee*of*the*Organization*for*Economic*Co` operation* and* Development)* recommendations* and* should* create* databases* with* unit* costs* for* crosschecking*with*contract*costs.* Given* of* its* staff* limitations,* the* Government* is* unable* to* monitor* all* projects* throughout* the* country* and* must* rely* mostly* on* external* inputs* from* private* supervision* contractors.* Up* to* four* entities* are* responsible* for* monitoring* projects:* Geproyectos,* MOPWI,* specialized* private* companies,* and* sometimes* sector* ministries.* For* the* most* complex* projects,* supervision* and* control* of* the* work* is* outsourced* to* private* contractors* that* act* as* monitoring* agencies.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 34 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Construction* contractors* are* required* to* submit* progress* reports* to* these* monitoring* agencies,* which*audit*both*financial*and*physical*implementation*and*send*periodic*reports*to*Geproyectos* and* the* MOPWI.* In* addition,* at* least* one* engineer* from* Geproyectos* and* a* technician* from* the* MOPWI*are*assigned*to*monitor*each*project.*They*are*expected*to*certify*work*progress*through* field*visits,*a*mission*similar*to*what*the*private*monitoring*agencies*do.*However,*given*the*limited* number*of*public*engineers*and*the*abundance*of*projects,*only*sporadic*visits*are*possible,30*and* the*technical*team*must*rely*mostly*on*information*provided*by*the*private*contractors*to*assess* work* progress* and* risk* management.31* Sector* ministries* are* usually* not* associated* with* project* implementation,*except*for*a*few*such*as*the*Ministry*of*Mines*that*implement*their*own*projects.* A* “risk`based”* monitoring* system* at* Geproyectos* and* the* MOPWI* should* be* developed.* Monitoring* tasks* by* public* officials* should* be* redefined* and* written* down.* Monitoring* by* both* Geproyectos* and* MOPWI* should* vary* according* to* the* risks* or* the* importance* of* the* project.* A* public* engineer* from* Geproyectos* or* the* MOPWI* would* still* be* in* charge* of* monitoring* each* infrastructure* project.* Projects* with* high* risk* would* be* closely* monitored,* while* projects* with* lower*or*smaller*risks*would*receive*less*systematic*monitoring.*Outsourcing*project*monitoring*to* a*private*company*seems*an*adequate*procedure*and*can*lead*to*substantial*reduction*in*the*risk*of* noncompliance* while* also* providing* added* technical* advice.* Nonetheless,* this* work* must* still* be* supervised* by* public* engineers* and* will* require* streamlined* procedures* to* ensure* that* public* employees* have* all* project* documentation* and* updated* information.* Under* the* proposed* system* public* engineers* would* carry* out* fewer* tasks* and* carry* out* more* internal* controls* to* ensure* monitoring* agencies* are* correctly* performing* their* work.* Geproyectos* and* the* MOPWI* should* submit* progress* reports* to* sector* ministries* to* facilitate* a* more* effective* control* on* project* implementation* and* ensure* that* infrastructure* is* adapted* to* the* needs* of* the* administration* that* will*operate*it.* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 35 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Figure+X.11++++Procedure+for+Execution+of+and+Infrastructure+Expenditure+ Geproyectos Construction Supervision Public Payments President Treasury Companies Companies engineers commission Present a Certify that on Certify that on written the field the the field the demand for situation situation payment corresponds to corresponds to what the what the company company proposes proposes Companies present their demands orally. Commission examines demands and accepts or refuses them Produces a document stating for each company how President much it can be signs a paid and the payment names of the order corresponding projects The Treasury pays on the basis of these two Excel sheet with documents payments per company. No link with PIP (not the same names). Not transmitted to MoPD ! . Staying+on+Track+during+Implementation+++ Adapting*to*changed*circumstances*in*project*implementation*is*difficult*because*available* information* is* too* segmented,* hindering* adequate* project* monitoring* and* control.* There* is* no* single* and* centralized* information* system,* and* project* documents* are* scattered* among* different* public* institutions* and* private* monitoring* agencies.* Some* information* does* not* exist* at* all:* for* instance,*there*is*no*updated*list*of*projects*(see*table*X.3*for*a*summary*of*available*information).* When* adequate* reports* exist,* such* as* those* prepared* by* engineers* from* Geproyectos* after* field* trips,32*they*are*not*framed*to*meet*decision*makers’*needs.** T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 36 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review The*current*“reporting”*system*cannot*be*relied*on*to*be*timely,*thorough,*and*accurate.*A* new* system* is* needed* to* adequately* inform* managers* on* the* physical* and* financial* progress* of* their* projects.* This* system* will* need* to* provide* information* about* the* pace* of* project* implementation,*constraints*encountered,*significant*remedial*or*supportive*actions*required,*and* document*changes*in*forward*plans,*including*budgetary*requirements*and*reallocations.*Finally,*it* will*need*to*be*flexible*enough*to*adapt*information*requirements*to*the*different*decision*levels,* that*is,*it*will*require*a*hierarchy*of*data*collection*and*reporting*formats*to*meet*the*information* needs*of*different*levels*of*management.+ + T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 37 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Table+X.3++Available+Information+for+Infrastructure+Projects+ Nature!of!the! Availability! Organization! Comments! information! (NA!=!not! where!it!can!be! available)! found! List!of!budgeted! Available! MOPD! This!list!does!not!reflect!the!reality!of!infrastructure! projects! projects!in!EQG!(e.g.,!number!and!nature!of!projects,! and!costs).! Updated!list!of! NA! NA! This!list!is!not!available!per!sector.!There!is!a!list!of! infrastructure! payments!to!contractors,!but!it!cannot!be!used!for! projects!under! project!monitoring.! implementation! First!year!the! Available! MOPD! This!is!irrelevant!if!the!project!was!not!budgeted.! project!was! (if!the! budgeted!and! project!was! amount! budgeted)!! budgeted! Initial!contract! Available! MOPWI!or! This!cost!can!differ!from!the!one!recorded!in!the! cost!estimate! Geproyectos! budget.!It!does!not!include!operation!and! maintenance!costs,!which!are!not!evaluated!until!the! project!is!finished.! Revised!cost! NA! Geproyectos!! It!could!be!retrieved!from!the!minutes!of!the! estimates! payments!commission.!! Delays! Partially! Monitoring! Information!that!should!be!available!at!the!project! Available! Agency,! manager!level!is!not!systematically!reported!and! Geproyectos,!and!! available!at!a!glance.! MOPWI!! Execution!to! Partially! Treasury!and! There!is!a!list!of!payments!made!to!contractors!(which! date! Available! Geproyectos! can!be!part!of!a!project!or!several!projects!at!a!time).! This!list!does!not!correspond!to!the!PIP.!It!is!not! possible!to!reconcile!both!lists!and!know! implementation!by!project.! Rate!of!return!of! Partially! NA! project!(initial!or! Available! Not!calculated.! revised)! Note:!This!table!does!not!apply!to!nonYinfrastructure!investment!expenditure.!! ! ! Source:!World!Bank! ! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 38 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Geproyectos’* Payments* Commission* makes* strategic* decisions* on* project* changes* with* limited* technical* information.* The* Payments* Commission* is* formed* by* high`level* representatives* that*include*the*Director*of*Geproyectos;*the*Minister*of*Infrastructure;*the*Ministers*of*Planning,* Economic*Development,*and*Public*Investments;*and*the*Treasurer.*Sector*ministries*do*not*attend* the* commission’s* meetings,* but* contractors* often* do.* The* main* purpose* of* the* Payments* Commission,* after* all,* is* to* approve* contractors’* payment* requests,* although* these* meetings* also* consider* and* decide* on* modifications* in* project* funding* or* planning.* Thus* projects* are* not* necessarily* reviewed* and* revised* on* a* regular* basis,* but* are* taken* up* intermittently* when* contractors*have*asked*for*a*meeting*to*resolve*payment*requests.*Therefore,*despite*the*fact*that* the* budget* process* for* investment* projects* diverges* from* formal* budget* procedures,* it* does* not* improve*the*system*to*know,*among*other*things,*if*there*are*payment*delays.* Technical* committees* need* to* be* created* to* complement* the* Geproyectos* Payments* Commission.*These*technical*committees,*operating*at*a*lower*level*of*responsibility,*would*help*to* prepare* the* Payments* Commission* meetings* and* could* specialize* by* sector,* including* all* relevant* sector* ministries.* They* would* be* formed* by* staff* at* the* administrative* level* (general* directors,* general* secretaries* and/or* directors)* and* would* review* project* progress* and* performance* periodically,* taking* technical* decisions* to* ensure* adequate* project* implementation.* Decisions* implying*changes*in*funding*or*payments*would*still*be*reserved*to*the*payments*commission.* Information* on* physical* and* financial* execution* and* project* changes* needs* to* be* made* available* to* ministries* outside* Geproyectos.* Given* the* lack* of* appropriate* information,* the* MOPD* has*started*to*place*staff*in*sector*ministries*to*obtain*updated*knowledge*of*project*execution*and* build* up* capacity* for* project* preparation* and* monitoring.* This* activity* should* be* encouraged* and* accompanied*by*a*clarification*of*roles*between*Geproyectos,*the*MOPD,*and*the*National*Agency* 2020,* since* all* will* have* a* reporting* task.* Coordination* will* be* essential* to* avoid* duplications,* improve*information,*and*raise*efficiency.*This*also*requires*that*sector*ministries*receive*updated* information*on*project*implementation.* A* project* database* with* relevant* information* and* updated* indicators* should* be* created.* Project* technical* cards* should* be* designed* to* provide* this* information,* containing* at* least* the* project’s*(1)*name*and*budget*code,*(2)*objective*and*description,*(3)*outcome*indicators,*(4)*initial* and*revised*cost*estimates,*(5)*initial*and*revised*timeline,*(6)*responsible*sector*ministry,*and*(7)* person* in* charge* of* monitoring.* The* centralization* of* infrastructure* management* in* Geproyectos* makes* it* easier* to* gather* this* information.* With* these* project* technical* cards,* Geproyectos* could* create*a*database*geared*to*different*phases*of*the*project*cycle,*in*particular*at*the*implementation* stage.*One*key*need*will*be*to*identify*projects*using*the*same*single*budget*number*attributed*in* the*PIP.* ! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 39 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review Facility+Operation+ There*is*no*asset*registration.*There*is*no*accrual*accounting*and*all*investment*is*recorded* under* a* single* budget* line,* making* it* difficult* to* differentiate* fixed* assets* from* the* rest* of* public* investment*(including*around*30*percent*of*PIP*projects*that*actually*are*current*expenditures).*A* first*step*toward*clarifying*the*situation*is*to*create*a*new*budget*line*for*recording*all*fixed`asset* investments*to*inventory*new*physical*infrastructure.* Operational* costs* are* not* considered* until* the* infrastructure* is* transferred* to* the* sector* ministry,* which* weakens* project* sustainability.* Sector* ministries* seldom* carry* out* a* thorough* project* appraisal* before* implementation* and* often* do* not* participate* during* the* construction* phase.* Operational* and* maintenance* costs* therefore* go* unassessed* until* the* infrastructure* is* finished* and* handed* over* to* the* sector* ministry* responsible* for* its* functioning.* Sector* ministries* must* be* involved* in* the* implementation* to* adequately* prepare* for* the* transfer* to* operational* status,*budget*recurrent*costs,*and*hire*qualified*personnel*in*advance.+ Evaluation+ The* National* Agency* 2020* could* conduct* project* evaluations* to* ensure* that* key* lessons* learnt* from* ongoing* projects* feed* into* future* projects.* Such* evaluations* would* be* particularly* useful*in*Equatorial*Guinea*because*many*infrastructure*projects*in*the*PIP*are*of*similar*type*and* will*be*copied*in*the*future*(for*example,*schools).*The*ability*to*judge*how*effectively*government* resources*have*been*spent*would*be*very*useful*in*helping*successor*projects*avoid*past*mistakes* and*build*on*proven*good*practices.*The*National*Agency*2020*may*be*the*best`placed*institution*at* this* time* to* carry* out* such* investment* program* evaluations* and* prepare* investment* implementation*reports.*New*programming*and*project*identification*should*draw*on*the*results*of* such*monitoring*and*evaluation.+ Conclusions+for+the+chapter+ Limited* institutional* capacity* and* concerns* over* the* sustainability* of* the* on`going* large* current*investment*program*has*led*the*authorities*to*work*with*international*partners*to*improve* the*efficiency*of*the*investment*system.*Since*Equatorial*Guinea*started*hydrocarbon*production*in* the*1990s,*there*has*been*a*significant*effort*to*improve*the*dilapidated*infrastructure*and*lack*of* capital*in*the*country.*This*process*accelerated*in*the*recent*years*when*the*Government*embarked* in* a* large* investment* effort* to* implement* the* National* Economic* and* Social* Development* Plan* adopted* in* 2007* that* aims* to* improve* infrastructure* to* diversify* the* economy* out* of* petroleum* production* and* improve* the* standard* of* living* of* the* population.* The* large* program* under* implementation,* coupled* with* limited* institutional* capacity* and* prospects* of* lower* petroleum* revenues* in* the* medium* term,* led* the* authorities* to* commission* the* World* Bank* to* review* its* public*investment*management*system*with*the*aim*to*raise*their*capacity*and*improve*the*overall* efficiency* of* the* system.* * This* translated* into* a* Public* Expenditure* review* in* 2010* and* forms* the* basis*for*the*recommendations*included*in*this*chapter.** T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 40 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review In*general,*public*expenditure*is*thwarted*by*cumbersome*administrative*procedures*that* encourage* informal* short* cuts* that* render* the* formally* adopted* National* Budget* irrelevant.* This* leads* to* incomplete* and* unreliable* budget* data,* insufficient* monitoring* of* budget* disbursement,* risk* of* corruption,* and* the* proliferation* of* ministerial* bank* accounts* whose* balances* are* not* adequately* monitored.* More* importantly,* it* prevents* the* authorized* Budget* from* being* used* as* a* tool* for* resource* allocation* and* implementation* control.* The* highest* priority* should* be* given* to* ensuring* that* simpler* and* quicker* procedures* are* enforced* to* encourage* ministries* to* use* the* official*channels*so*that*information*from*the*executed*budget*is*systematically*reported*and*can*be* compared*to*the*voted*budget.*Transparency*and*audits*are*also*very*weak*and*need*to*improve*in* the*medium*term*to*improve*budget*quality.* The* public* investment* system* revolves* around* Geproyectos,* with* limited* involvement* of* the*sector*ministries*and*use*of*the*PIP*as*a*tool*for*investment*allocation*or*control.*Geproyectos* reports* directly* to* the* Presidency* and* is* not* constrained* by* the* PIP.* Project* appraisal* is* seldom* carried* out,* and* the* public* investment* cycle* has* no* clear* connection* with* the* budget* process.* No* procedure* prevents* unscreened* projects* from* being* implemented,* even* if* they* have* not* been* included* in* the* PIP.* Moreover,* reporting* does* not* allow* reconciliation* of* investment* implementation*data*with*data*stemming*from*the*PIP*formally*adopted,*which*makes*the*PIP*an* irrelevant* tool* for* making* investment* decisions.* Furthermore,* internal* controls* for* project* supervision* are* weak* and* rely* on* limited* technical* staff,* private* monitoring* agencies,* and* contractors.** The*overall*poor*governance*of*infrastructure*investment*raises*the*risks*of*corruption*and* reduces* public* investment* efficiency* at* a* time* when* the* Government* needs* improved* and* streamlined*budget*procedures*to*implement*the*large*investment*program*set*in*the*NESDP.*The* current* institutional* setting* for* investment* management* is* reaching* its* limit* and* will* need* to* be* reformed* to* respond* to* the* need* of* increasing* expenditure* in* social* sectors* and* lowering* in* infrastructure.** Although* the* budget* system* underperforms,* a* few* measures* could* be* taken* to* make* the* budget* a* relevant* tool* for* management* and* resource* allocation.* Implementation* of* the* recurrent* budget* requires* streamlined* procedures* that* allow* for* more* delegation* from* the* payment` authorizing* officer* (currently* the* President* of* EQG)* to* lower* administrative* levels.* This* selective* delegation* would* ensure* larger* responsibility* of* the* MOFB* in* budget* implementation* and* would* help* to* reinforce* the* budget* system—with* improved* disbursement* reporting* better* aligned* with* enacted*budget*appropriations*and*strengthened*internal*controls.** On* the* investment* side,* PIP’s* project* quality* needs* to* be* raised* by* carrying* out* project* appraisals* and* allocating* resources* on* the* basis* of* NESDP’s* strategic* guidance.* This* should* be* complemented*by*greater*transparency*in*the*decision`making*process,*eliminating*the*possibility* of*implementing*unscreened*projects*not*included*in*the*PIP,*and*by*a*better*reporting*system*that* allows*comparing*projects*implemented*with*the*PIP*formally*adopted.** T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 41 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review These* efforts* will* require* a* clearer* definition* of* responsibilities* among* all* institutions* participating* in* the* investment* cycle,* including* more* involvement* of* sector* ministries* during* the* preparation*and*implementation*phase.*Finally,*internal*controls*should*be*strengthened*to*better* supervise*private*monitoring*agencies*and*focus*on*the*most*relevant*or*risky*projects.* Recommendations+ ShortSTerm!Recommendations! Issues!to!Address! Action!to!Take! Budget!and!PIP!preparation!does!not!reflect! Define!sector!envelopes!during!the!budget!preparation! national!priorities.! phase.! Budget!and!PIP!preparation!does!not!take! Improve!multiannual!planning!by!taking!into!account! into!account!maintenance!and!operational! the!operational!and!maintenance!costs!of! costs.! infrastructure!projects.! Inadequate!budget!classification!and! Use!the!same!economic!and!administrative! recording!reduces!Government’s! classification!for!current!and!investment!expenditure!in! accountability!and!transparency.! the!initial!budgets!and!in!reports!on!budget!execution.! Procedures!for!budget!execution!are! Streamline!and!formalize!budget!procedures!to!ensure! frequently!bypassed,!reducing!budget! allocations!are!used!for!their!intended!purpose,! control!and!quality!of!information.! expenses!are!properly!recorded,!and!budget!execution! is!monitored.! Many!institutions!intervene!in!the!decisionY Increase!transparency!in!the!decisionYmaking!process,! making!process!with!roles!that!vary! clarifying!the!role!of!the!different!actors!in!infrastrucY according!to!the!sector!of!the!project,!and! ture!project!management!and!appoint!one!institution! no!independent!review!of!projects!is!carried! to!carry!out!independent!reviews!of!project!appraisals.! out.! Technical!capacity!of!staff!in!all!ministries,! Define!a!human!resources!policy!for!hiring,!retaining,! notably!sector!ministries,!is!very!limited!and! and!training!enough!qualified!staff!to!effectively!assess! hinders!investment!efforts.! and!implement!investment!projects.!Accelerate!the! MoPD!institutional!capacity!building!program!in!sector! ministries.!! Projects!are!seldom!appraised,!raising!the! • Approve!a!formal!and!wellYpublicized!guidance!for! risk!of!inadequate!project!selection.! project!appraisal,!tailored!to!the!technical!capacity! of!ministries!and!to!the!nature!and!size!of!projects.! • Outsource!project!appraisals!to!raise!investment! efficiency!and!enhance!institutional!capacity! The!PIP!has!no!connection!with!the!budget! Reduce!the!current!practice!of!launching!often! process.! unscreened!projects!that!are!not!in!the!PIP,!and!ensure! appropriate!procedures!are!followed!for!projects! included!during!the!year.! Available!information!on!project!execution!is! Design!a!new!reporting!system!based!on!project! too!segmented!and!hinders!adequate! technical!cards!with!all!relevant!information!(including! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 42 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review project!monitoring!and!control.! the!same!project!number!used!in!the!PIP),!with!regular! updating!by!Geproyectos!and!information!on!project! implementation!disseminated!to!the!MoPD!and!sector! ministries.! The!Government!cannot!effectively!monitor! Set!up!a!monitoring!system!with!various!degrees!of! all!projects!throughout!the!country!and! monitoring!according!to!the!risk!of!each!project.!Make! relies!on!external!inputs!from!private! supervision!personnel!accountable!for!progress!of! monitoring!agencies.! projects!under!their!jurisdiction,!and!involve!sector! ministries!in!the!monitoring!and!regular!review!of! projects!by!requiring!Geproyectos!and!the!MOPWI!to! submit!progress!reports!to!them.! Geproyectos’!Payments!Commission!makes! Create!technical!steering!committees!at!the!senior! strategic!decisions!on!project!changes!with! level!to!review!progress!and!performance!of!projects!in! limited!technical!information.!! a!given!sector.!They!will!periodically!meet!and!follow! up!on!project!implementation!using!improved! reporting!tools.! Operational!costs!are!not!considered!until! Operational!and!maintenance!costs!should!be!assessed! the!infrastructure!is!transferred!to!the!sector! at!project!preparation!and!the!sector!ministry!should! ministry!which!negatively!affects!project! participate!in!project!implementation!to!ensure!that! sustainability.! maintenance!plans!are!in!place,!recurrent!cost! requirements!are!reflected!in!future!budgets!and! adequate!human!resources!hired.! MediumSTerm!Recommendations! Issues!to!Address! Action!to!Take! The!current!accounting!system!does!not! Create!a!new!budget!line!in!the!economic!classification! allow!for!registration!of!assets!and!liabilities! to!differentiate!between!infrastructure!investment!and! and!does!not!account!for!actual! other!investments!and!provide!some!basic!information! infrastructure!investment.! on!assets!accumulation.! Internal!control!is!very!weak!and!raises!the! Professionalize!the!internal!audit!function!to!obtain!an! risk!of!corruption.! accurate!analysis!of!the!reliability!and!integrity!of! financial!information!and!reduce!the!possibility!of! corruption.! External!oversight!does!not!exist.! Create!a!national!audit!office!with!jurisdictional!power! and!adequate!means,!and!ensure!broad!dissemination! of!its!audit!reports.! There!is!no!procurement!regulatory! Elaborate!a!procurement!regulatory!framework!and!a! framework,!which!raises!the!risks!of! unit!cost!database!for!comparison!with!contractor! corruption!and!selection!of!nonYoptimal!bids! proposals.! and!contractors.! No!project!evaluation!is!conducted,! Develop!ex!post!evaluation,!in!particular!for! neglecting!key!lesson!learning!that!would! “standardized”!projects!to!learn!from!past!experiences.! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 43 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review raise!the!efficiency!of!future!investment! projects.! ! Notes+ 1. Equatorial* Guinea* ranks* 162* out* of* 185* countries* on* the* 2013* World* Bank* “Doing* Business”* ranking.* 2. National* sources* project* 1.6* million* inhabitants* in* 2011* while* United* Nations* (UN)* sources* report*around*720,000*(UN*2011).* 3. The* National* Office* of* Planning,* Evaluation* and* Project* Monitoring* in* Equatorial* Guinea* (Geproyectos)* was* created* by* Decree* No.* 106/2004* of* Aug.* 18,* 2004,* modifying* Decree* No.* 37/2003.* 4. The*large*investment*in*productive*sectors*in*2008*is*explained*by*greater*State*participation*in* petroleum* exploitation* blocks* though* the* purchase* of* Devon’s* shares.* The* authorities* accounted*this*as*an*investment*in*productive*sectors,*although*it*is*more*properly*accounted* as* an* acquisition* of* financial* assets* rather* than* an* investment.* Furthermore,* even* when* considered* as* an* investment* it* poses* a* problem* since* sinking* resources* in* petroleum* exploitation* contradicts* the* NDP* recommendation* to* diversify* the* economy* toward* greater* non`oil*production.* 5. Laws*and*decrees*are*not*widely*available,*and*access*to*some*legislation*is*denied*for*reasons* of*confidentiality.*The*2003*law*on*public*finances*is*not*available*in*any*ministry.* 6. Includes*wages*and*salaries,*purchases*of*goods*and*services,*interest,*transfers*and*subsidies,* investment*expenditure,*debt*amortization,*and*special*funds.* 7. For*comparison,*current*expenditure*distinguishes*26*administrative*units.* 8. Word*Bank*estimations*are*based*on*the*2008–10*Public*Investment*Program*Budget.*Current* spending*represents*about*34*percent*of*programmed*investment*for*the*Ministry*of*Education* and*26*percent*for*the*Ministry*of*Health*in*2008.* 9. The* only* public* information* on* contract* awards* is* at* the* construction* site* where* signs* are* posted* with* the* name* of* the* company* in* charge* of* the* project,* the* government* agencies* involved,*and*the*total*cost.* 10. Under*the*current*system*for*example,*inconsistencies*can*arise*if*the*demands*for*current*and* investment* expenditure* evolve* differently* during* budgetary* negotiations* with* the* MOFB* and* the*MOPD.** 11. An* example* of* this* was* the* preparation* of* the* amended* budget* for* 2009,* which* sought* to* decrease*investment*in*line*with*lower*revenues*from*lower`than`projected*oil*prices.*The*law* T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 44 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review presenting* this* amended* budget* states* * that* “the* lack* of* information* on* priorities,* the* degree* and* rhythm* of* execution* of* the* projects* currently* being* implemented,* as* well* as* on* the* exact* evaluation*of*the*annual*cost*of*each*of*them,*has*not*allowed*us*to*do*a*complete*analysis*of*the* portfolio*of*projects.”** 12. The*President*is*the*main*payment`authorizing*officer;*the*Prime*Minister*and*the*Minister*of* Finance*are*second`order*payment`authorizing*officers.* 13. An* expense* can* take* one* to* two* months* to* get* paid* since* the* sector* ministry* initiates* the* procedure.* 14. Sector*ministries*are*responsible*for*ensuring*that*the*service*has*been*rendered*or*the*goods* delivered.*The*general*directorate*for*financial*control*of*the*MOFB*is*supposed*to*check*they* have*done*so*before*the*mandate*of*payment*is*sent,*but*in*practice*it*does*not.* 15. Petty* cash* is* funding* advanced* by* the* Treasury* to* sector* ministries* to* carry* out* budget* expenditures.*Documents*to*account*for*the*expenditure*are*submitted*retrospectively*from*the* sector*ministry*to*the*Treasury*for*recording.*With*petty*cash*management,*expenditure*is*not* recorded* when* the* cash* advance* is* made* but* when* the* justifications* are* provided* and* have* been* verified* by* the* accountant.* The* accountant* is* then* able* to* determine* the* nature* of* the* expenditure*and*apply*the*correct*classification.* 16. Arguments* against* budget* decentralization* are* often* based* on* the* incapacity* of* sector* ministries*to*apply*the*rules*properly.*Given*the*current*situation*in*which*there*is*no*control* by* the* MOFB* on* considerable* parts* of* the* budget* that* are* controled* de* facto* by* sector* ministries,*the*proposed*evolution*could*only*lead*to*an*improved*control*of*public*funds.* 17. Decree* No.* 52/2005* of* March* 17,* 2005,* establishes* public* accounting* norms,* Articles* 119* to* 127.* 18. As*of*January*2009*there*were*11*Inspectors*and*1*General*Inspector.* 19. The* IGF* represents* Equatorial* Guinea* at* the* International* Organization* of* Supreme* Audit* Institutions*(INTOSAI).* 20. Budgets* prior* to* 2008* did* not* include* a* detailed* list* of* the* projects* included* in* the* PIP.* They* only*mentioned*the*total*amount*budgeted*for*investment.* 21. For*example,*Geproyectos*has*only*around*twenty*technical*staff,*the*Roads*Directorate*at*the* MOPWI*has*only*four*engineers,*and*the*Directorate*of*Construction*and*Housing*at*the*MOPWI* has*six*engineers,*together*with*one*architect*and*four*technical*architects*(delineantes).** 22. Decree*No.*63/2008*of*Nov.*20,*2008,*created*the*Superior*Council*of*Equatorial*Guinea*2020.* 23. Decree*No.*61/2008*of*Nov.*20,*2008,*created*the*National*Agency*of*Equatorial*Guinea*2020.** T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 45 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review 24. The*NDP*also*creates*the*Comité*Nacional*de*Concertación*“Guinea*Ecuatorial*2020”*for*further* coordination*with*stakeholders*not*included*in*the*Consejo*Superior*Guinea*Ecuatorial*2020.* 25. There*is*no*breakdown*between*years*according*to*the*calendar*of*implementation.* 26. However,*this*in*practice*has*little*importance*since*there*is*only*one*budgetary*appropriation* for*all*public*investment*in*Equatorial*Guinea.* 27. The* company* that* carries* out* a* project* construction* guarantees* to* pay* maintenance* costs* for* two*years.* 28. For*two*projects*reviewed,*only*32*per*cent*and*60*per*cent*of*the*costs*were*actually*budgeted.* 29. Geproyectos*also*has*information*on*payments*per*contractor,*but*they*are*not*aggregated*by* project.** 30. For*example,*engineers*from*Geproyectos*inspect*projects*on*site*that*last*two*to*three*weeks,* every*three*months.* 31. Contracts* are* often* not* available* at* government* dependencies* even* when* the* agencies* are* charged*with*monitoring*contract*terms,*and*they*can*only*be*found*at*the*supervision*agencies* managed*by*private*contractors.* 32. Field*trip*reports*by*Geproyectos*engineers*are*well*structured*and*provide*useful*information* such* as* project* name,* location,* contractor,* private* monitoring* agency,* contract* amount,* implementation* delay,* project* starting* date,* date* of* inspection,* comments,* execution* quality* (five* possible* grades),* percentage* of* execution* at* the* date* of* the* last* mission,* and* current* percentage* of* execution.* However,* some* information* such* as* delays* is* not* systematically* reported.* + References++ EQG* 2010* (Government* of* Equatorial* Guinea).* * Equatorial* Guinea* 2020:* Agenda* for* the* Diversification* of* Sources* of* Growth.* National* Economic* and* Social* Development* Plan* (NESDP),* Government*of*the*Republic*of*Equatorial*Guinea,*Malabo.* Rajaram,*A.,*T.*Le,*N.*Biletska,*and*J.*Brumby.*2010.*“A*Diagnostic*Framework*for*Assessing* Public*Investment*Management.”*Policy*Research*Working*Paper*5397,*World*Bank,* Washington,*DC.* UN*(United*Nations).*2011.*World*Population*Policies*2011,*United*Nations*Department*of* Economic*and*Social*Affairs/Population*division)** T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 46 COUNTRY CASE STUDY: EQUATORIAL GUINEA 2009 ! Equatorial Guinea Public Investment Management Review World*Bank.*2010.*“Equatorial*Guinea*Public*Expenditure*Review.”**Report*No.*51656`GQ* World*Bank,*Washington,*DC.** * * * * !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1! Equatorial!Guinea!ranks!162!out!of!185!countries!on!the!2013!World!Bank!“Doing!Business”!ranking.! 2 !National!sources!project!1.6!million!inhabitants!in!2011!while!United!Nations!(UN)!sources!report!around!720,000! (UN!2011).! 3 !The!National!Office!of!Planning,!Evaluation!and!Project!Monitoring!in!Equatorial!Guinea!(Geproyectos)!was! created!by!Decree!No.!106/2004!of!Aug.!18,!2004,!modifying!Decree!No.!37/2003.! 4 !The!large!investment!in!productive!sectors!in!2008!is!explained!by!greater!State!participation!in!petroleum! exploitation!blocks!though!the!purchase!of!Devon’s!shares.!The!authorities!accounted!this!as!an!investment!in! productive!sectors,!although!it!is!more!properly!accounted!as!an!acquisition!of!financial!assets!rather!than!an! investment.!Furthermore,!even!when!considered!as!an!investment!it!poses!a!problem!since!sinking!resources!in! petroleum!exploitation!contradicts!the!NDP!recommendation!to!diversify!the!economy!toward!greater!nonYoil! production.! 5 !Laws!and!decrees!are!not!widely!available,!and!access!to!some!legislation!is!denied!for!reasons!of!confidentiality.! The!2003!law!on!public!finances!is!not!available!in!any!ministry.! 6 !Includes!wages!and!salaries,!purchases!of!goods!and!services,!interest,!transfers!and!subsidies,!investment! expenditure,!debt!amortization,!and!special!funds.! 7 !For!comparison,!current!expenditure!distinguishes!26!administrative!units.! 8 !Word!Bank!estimations!are!based!on!the!2008–10!Public!Investment!Program!Budget.!Current!spending! represents!about!34!percent!of!programmed!investment!for!the!Ministry!of!Education!and!26!percent!for!the! Ministry!of!Health!in!2008.! 9 !The!only!public!information!on!contract!awards!is!at!the!construction!site!where!signs!are!posted!with!the!name! of!the!company!in!charge!of!the!project,!the!government!agencies!involved,!and!the!total!cost.! 10 !Under!the!current!system!for!example,!inconsistencies!can!arise!if!the!demands!for!current!and!investment! expenditure!evolve!differently!during!budgetary!negotiations!with!the!MOFB!and!the!MOPD.!! 11 !An!example!of!this!was!the!preparation!of!the!amended!budget!for!2009,!which!sought!to!decrease!investment! in!line!with!lower!revenues!from!lowerYthanYprojected!oil!prices.!The!law!presenting!this!amended!budget!states!! that!“the!lack!of!information!on!priorities,!the!degree!and!rhythm!of!execution!of!the!projects!currently!being! implemented,!as!well!as!on!the!exact!evaluation!of!the!annual!cost!of!each!of!them,!has!not!allowed!us!to!do!a! complete!analysis!of!the!portfolio!of!projects.”!! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T* PAGE 47