Robert Tashima Speaks At The CEMAC Market Opportunity Conference

GabonEconomy

Event

13 Oct 2011
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Good morning ladies and gentlemen, and many thanks to the organizers for inviting me to speak today. I have been asked to take us this morning through Gabon’s investment landscape. Now, I’ll get to the facts and figures in a moment, but I am honour bound to start with a confession.

For those of you that have been to Gabon, you’ll be able to sympathise: I’m in love with the country. I’m in love with the tropical jungle of Lope and the white sandy beaches of Loango. I’m in love with the amazing food at L’Odika in Libreville and I’m in love with the beauty of Point Denis. And frankly, I’d like them to stay just the way they are.

Which means, giving this presentation leaves me with mixed feelings. There is a part of me that really wants to continue eating my gambas and drinking my Regab beers in peace.

But turning down opportunities for development, for new investment and capital, will not do much for the prosperity of the Gabonese. And to be completely honest, while my selfish concern is that industrial growth could spoil this African eden, as has happened in so many other parts of the world, it need not be that way.

Foresight and careful planning can give Gabon the best of both worlds. The opportunities for economic growth, business expansion and profitable investment are as abundant as okoume trees – and like the precious hardwood, if exploited correctly; they can provide employment, profits and development without jeopardising Gabon’s natural beauty.

The comparison of the country’s growth to a raw commodity is a deliberate one. This African republic – which is around 25,000 sq km larger than the UK but has just 2.5% of the population – boasts vast quantities of natural resources, of everything from oil and gas, to timber, to manganese, to gold, to bauxite, to water and land.

The gains from this amazing bounty have been immense. Gabon has one of the highest per capita GDPs in Africa – just look at the huge foie gras selection in the Mbolo supermarket –and the country benefits from well-paved roads and imported amenities.

However, as the government has come to realize, deriving rent from natural resources doesn’t build wealth, it wastes it. Gabon’s commodity dependency means that it prospers when prices are high and but suffers disproportionately when prices are low. The boom and bust cycles in recent years underline the dangers of this all too well.

As a result, the country’s drive to diversify is spot on –it will open up a raft of new investment opportunities on top of the already rich potential of Gabon’s natural wealth. The campaign to diversify is a response to economic need, but it highlights the government’s political will. And for foreign investors, it translates to greater returns and increased growth.

It won’t be easy – few things are – but the rewards are there.

But first, let’s take a look at the current state of play.

Gabon’s economic scorecard is an encouraging one, particularly compared with the torrent of depressing statistics flowing out of Westminster and Capitol Hill. It certainly provides fodder for those who claim that emerging markets are decoupling from advanced economies.

For now Gabon is far from being decoupled, and still relies on commodity trade as a primary source of income but the rhythm of its economy indicates a looming expiration date for the old model of export growth.

GDP is growing at a rate of 5.3% this year, roughly comparable to last year, and while it is expected to slow slightly in 2012 thanks to lower capital investments, it still outstrips many of its continental peers.

The upper middle-income country boasts a total domestic product of $13bn, with a per capita rate that is around four times the regional average and one of the highest in Africa. Other macro indicators are equally rosy. The scourge of strong growth, inflation, has been kept around 3%, and external debt stock has declined.

Things look equally encouraging on a socioeconomic level. Youth literacy is in the mid-90s, several points above the global average, and life expectancy is above 61 years of age.

This robust performance – which comes with a population that is less than that of greater Birmingham – is due to a number of comparative advantages that give the economy a solid base for expansion.

First and foremost, there is – surprise, surprise – Gabon’s natural wealth, whether it be black gold or yellow gold, manganese or okoume. The steady stream of revenues has underwritten most of the country’s economic development, benefiting everything from infrastructure to the social environment.

Another crucial factor is political stability, which has paved the way for strong growth. The limited risk in the decades following independence minimised regulatory uncertainty and provide confidence for medium and long-term forecasting.

Regional integration also provides a key advantage. Thanks to the efforts of CEMAC, the costs of cross-border activities have dropped. Industries like the financial sector can access a regional capital market and investor base.

Finally, Gabon’s high per capita GDP allows the country to benefit from a very competitive level of purchasing power, which stimulates specific segments such as consumer goods and real estate.

All this essentially goes to say that, particularly when compared to the continental average, the Gabonese economy is more than attractive – it is enviable.

That’s not to say everything is perfect – as the recession in 2009, compounded by the uncertainty of presidential elections, ably proved.

Oil is king in the country, and one can see symptoms of Dutch disease on the margins of the energy sector. The share of manufacturing of GDP, in the ten years between 1998 and 2008 dropped by more than half, to 3.5%, while services fell by more than 20 points to 31%. Wages, which are often set by the energy sector, push labour competitiveness down.

Low prices and weak demand from biggest export markets for timber, oil and minerals led to a decline in the fiscal surplus. GDP contracted and the current account fell significantly.

Sluggish growth in non-oil revenue, together with heavy spending and fuel subsidies, also reduced the effectiveness of policy initiatives, and the country has faced power cuts and water shortages due in part to outdated infrastructure.

And in spite of the surge in oil prices over the past decade, Gabon’s ranking in the UN’s Human Development Index has not improved significantly. Its score has risen by a fraction since the mid-1990s, hindered in part by the fact the oil – which accounts for more than half of GDP – only provides 3% of the jobs.

In many ways, this dependency is further complicated by a selection of other challenges.

Good governance in both the public and private sectors remains a concern, for example, and while the government has taken an increasingly active role in fighting corruption, the country has slid 20 spots down the Ibrahim Index of African governance.

Fiscal policy, particularly in terms of arrears payments, has also been a concern and financial penetration is extremely limited.

There are even more fundamental hurdles. The country’s small population restrains domestic production capacity and creates bottlenecks in terms of project execution.

As a result, since the presidential elections in 2009, the country has embarked on a number of reforms not only to streamline its business environment – through the auditing of state payrolls, for example, and the implementation of the journee continue workday – but more importantly, by encouraging growth in non-traditional non-commodity sectors.

The objective is to transform Gabon from a market almost wholly dependent on raw materials – and wholly vulnerable to fluctuations in global demand and prices – to a more sustainable industrialised and diversified economy.

Indeed, this need for diversification is embodied by Emerging Gabon, the government’s grand strategy for economic development. The initiative is based around increasing growth in three key areas: services, industry and the environment.

Each segment is the focus of a variety of reforms ranging from minor tweaks, such as improving lending terms for small farmers, to major legislative changes, such as banning unprocessed timber exports.

Doing this requires structural adjustments of major swathes of the country’s economy – sometimes through a process of disruptive changes – but the benefits of doing so are immense.

I don’t need to list the various pluses of diversification here - they are fairly well known - but suffice it to say that by pushing the economy up the value chain, Gabon will realise both immediate and long-term gains, while creating a range of attractive options for foreign investors.

Unemployment, for example, which reaches as high as 30% for youth, will see an immediate benefit not just from capital investments but also from the growth in more labour-intensive industries, such as tourism.

As part of this, knowledge transfer will also increase and the government has already taken a number of steps to improve the capacity of the local education sector to cater to the needs of the jobs market, with a new hydrocarbons institute in Port Gentil and three new university campuses.

Another positive consequence is the resulting distribution of social and economic gains. As infrastructure catering to new industries is improved – whether it be paved roads, electrical transmission or broadband connections – residents will also benefit, and the decline in unemployment will help provide for more inclusive growth.

The shift in impetus to new sectors will also open up space for additional movement in the private sector, which is still fairly small. The privatisation of the Chamber of Commerce and the establishment of the Centre for Enterprise Development have already created new forums for business advocacy, and the push for new public-private partnerships will bear fruit in the years to come.

Most importantly, however, increasing value-added activities and diversifying into industry and services will create (and indeed has created) significant new opportunities for foreign investment – particularly in three key areas.

Resource Processing

The first key area is that of resource processing.

The government is keen to capitalise on the base of natural wealth that it already has, without relying on raw material exports.

This has been exemplified by the emphasis given to timber processing. Logging is already the largest private employer in the country, and following the implementation of the ban on unprocessed exports, significant effort has gone into improving capacity. The ability to produce intermediate goods that fetch a higher price is a crucial aspect of the Emerging Gabon strategy and a new special economic zone is under construction to provide a host of facilities to producers and clients, including log storage and bio waste management.

In the mining sector, processing capacity has traditionally been fairly low, and many of the current active foreign producers process output elsewhere. However, hundreds of millions of Euros are being invested into a pair of manganese plants, and a variety of new infrastructure projects are looking to improve connectivity between mines and industrial zones.

Infrastructure – transport and electricity

The success of economic diversification – and the Emerging Gabon project as a whole – hinges in large part on the presence of enhanced infrastructure, in terms of energy, water, transport and telecoms.

In sub-Saharan Africa, roads are the dominant mode of internal transport, which makes the presence of a motorway system crucial for growth. Currently, around one-tenth of the major roads in Gabon are paved, but the government has begun a massive programme to invest in routes while increasing participation from the private sector. A new multimodal transport agency has been set up to encourage interconnectivity, and freight handling and Customs procedures have been updated and automated, reducing transit times.

In water and electricity, the country has prioritised the construction of new generating facilities, and is relying increasingly on the private sector to help it do so. The primary utility provider in Libreville is already under private concession, and the first BOT scheme for generation and transmission was recently issued. With new hydroelectric plants and an interconnected grid also on the cards, opportunities are manifold.

Tourism

Another sector that is closely tied to Emerging Gabon is tourism. The potential here to stimulate revenue growth is enormous, particularly in light of the rich biodiversity of the country. Seriously, if you’ve stayed at the lodge in Lope, you’ll know what I mean. Between the flora and fauna, and the generous pours of the bartender, there’s very little incentive to leave.

Gabon is already in the process of increasing the number of arrivals and benefits from an impressive network of national parks that cover some 11% of the territory.

However, it is set for even faster expansion in the coming years, thanks to the flurry of infrastructure upgrades and new facilities being built in advance of next year’s Africa Cup of Nations.

Similarly, the introduction of new fiscal incentives, combined with the establishment of a Tourism Satellite Account, which will allow a more precise statistical measurement of the sector’s contributions, will help incite new investments and government support.

These three sectors are only a few that stand to benefit from Gabon’s increasing emphasis on diversification, but they highlight some of the clearest examples of the opportunities afforded by the move into more non-traditional sectors.

There is no doubt that Gabon has firmly established itself as a middle-income country, with a sizeable base of natural resources and a comfortable flow of revenues. But with commodity volatility increasing, export demand slowing, and domestic concerns such as unemployment becoming evermore pressing, diversification is not simply a good idea – it is a must.

Given this, it seems inevitable that the next time I return to Libreville, the passport queue will be longer and a reservation for a table at L’Odika will be required, but frankly, Gabon’s approach to development is predicated on maintaining the country’s natural assets as well as modernising its economic potential. And that means that there will more restaurants to choose from, and hopefully, more parks to explore.