Following a sharp drop since mid-2014 in the international price of oil, which is by far Gabon’s biggest source of export and fiscal revenues, the country is in the midst of a significant oil price shock. However, the government is better placed to avoid a pro-cyclical response than in previous oil crises, and the financial sector appears to have in large part recovered from the initial shock of the price fall. Furthermore, efforts to reduce the country’s reliance on the commodity were already well under way before the price fall began, with a number of major diversification projects now starting to bear fruit. The authorities have also launched additional initiatives to attract investment to compensate for reduced oil revenue by improving the business environment, as well as measures to boost non-oil fiscal revenue streams.
Oil Price Drop
The first half of the current decade was a good one for oil producers such as Gabon; the average sale price of Gabonese crude rose from $64.10 per barrel in 2009 to $106.10 per barrel in 2011 and remained broadly stable at that level over the next two years, standing at $100.50 per barrel in 2013, according to data from the Bank of Central African States (Banque des États de l’Afrique Centrale, BEAC). However, the situation has reversed since then, with the 2014 figure dropping to $94.60 per barrel as a result of the fall in international oil prices in the second half of that year, before slumping by close to half to $48.60 per barrel in 2015. The international price of Brent crude hit a recent low of $34 in January 2016. To make matters worse, the fall in the price of oil has also been accompanied by a drop in the price of other commodities exported by Gabon, such as manganese, gold and cocoa.
In May 2016 the BEAC expected a still lower price of $32 per barrel in 2016, though this currently appears somewhat pessimistic, with Brent crude having recovered somewhat during the first half of the year and standing at $52 per barrel by early October. As a result of the fall in prices, the total value of Gabonese crude oil production in current prices fell to CFA1.93trn (€2.9bn) in 2015, according to the General Directorate of Economic and Fiscal Policy ( Direction Générale de l’Economie et de la Politique Fiscale, DGEPF), equivalent to 22.7% of GDP and down from CFA2.36trn (€3.54bn) in 2014 (26.2% of GDP).
In May 2016 the BEAC forecast output to drop further to CFA1.56trn (€2.34bn), or 20% of GDP, in 2016. This is in large part due to an anticipated fall in prices, though the BEAC also expects oil output to fall in 2016, back to where it stood in 2014 at 11m tonnes, having risen to 11.9m tonnes in 2015 (see Energy chapter). Production is down from a recent 2010 peak of 12.4m tonnes, a result of the gradual maturing of existing fields. The DGEPF expects output to fall further to an average of 10.27m tonnes over the next five years, hitting 10m tonnes in 2020.
Gabon’s reserves are expected to be fully depleted within 30 years without substantial new discoveries. The government is hoping that it can avoid this, and indeed double output by 2025, through the exploitation of deepwater and pre-salt offshore deposits. However, the lower oil prices have also reduced the attractiveness of exploring for and exploiting such resources, which are much more expensive than shallow-water and onshore deposits. A licensing round for deepwater exploration blocks was launched in October 2015 and due to be completed in March 2016, but it has been extended at least twice, with no indication of when it will be finalised.
Reduced Revenues
The drop in the value of oil is having a substantial impact on public finances; government oil revenues fell to CFA603.3bn (€905m) in 2015, down 42% from CFA1.04trn (€1.6bn) the previous year and equivalent to not much more than a third of revenues in 2011, which totalled CFA1.68trn (€2.5bn), according to BEAC data. Oil receipts accounted for 33.6% of revenues in 2015, down from 44% the previous year and over half (53.8%) in 2010. In May 2016 the BEAC expected the figure to fall to 22.3% of total government receipts in 2016.
As a result, the government has had to sharply curtail spending. For example, the 2015 government budget, initially set at over CFA3trn (€4.5bn), was subsequently reduced to CFA2.65trn (€4bn) by a supplementary finance law. The drop is having an effect on the government’s ability to invest in its diversification efforts in particular, with investment spending cut by more than 30% in 2015. “The main challenge to the diversification strategy is that following the fall in oil prices, the public investment budget has fallen,” Yves Picard, director of the French Development Agency’s Gabon office, told OBG. “However major donors are providing long-term funding, giving grace periods and so on, which will help the situation.”
More than two-thirds, or CFA382.1bn (€573.2m), of planned investment spending totalling CFA562.8bn (€844.2m) in the 2016 budget is backed by foreign financing. The IMF has called on the authorities to prioritise investment on projects with the highest returns, something the government says it is doing.
Impact On Growth
The fall has also had a significant impact on the overall economy, including non-oil growth, and by extension diversification efforts. At constant prices, overall GDP growth fell from 5.6% in 2013 to 4.3% in 2014 and 3.9% in 2015. This figure was cushioned against greater drops by an increase in oil production of 8.6% in 2015. At current prices, GDP fell by 13.1% over 2015. In real terms non-oil growth was hit harder, dropping from 7.5% at constant prices in 2013 to 5% in 2014 and 3.2% in 2015, pulled down by a 3.7% contraction in the construction and public works sector. The IMF noted that, in keeping with previous oil shocks, the drop in oil prices in mid-2014 was also accompanied by a spike in the rate of non-performing loans (NPLs) at Gabonese banks, from around 3% of outstanding loans, at which it had been broadly stable in recent years, to around 8.4% in November 2014 (see Banking chapter).
Signs Of Resilience
However, the country’s situation appears stronger than during previous oil price shocks, with many indicators rebounding from lows in 2015. In a March 2016 study on the impact of the oil price fall on Gabon, the IMF noted that the authorities are better positioned to avoid cyclicality in their spending than during previous oil shocks thanks to factors such as greater access to international financial markets and an improved debt profile. The BEAC also expects non-oil growth to recover to 6.8% in 2016, and the banking sector has recovered substantially since the initial sock, with NPL levels falling back to around 4% in early 2015. Profitability in the banking sector has subsequently recovered, though lending growth has felt more of a sustained impact, dropping from 25% and 20% in 2012 and 2013, respectively, to 4% in 2014 and -5.7% in 2015, according to the IMF.
Counter-Measures
The authorities have been working to reduce Gabon’s reliance on oil since well before the recent drastic fall in oil prices. However, the mid-2014 drop has given such efforts a new urgency, as well as cutting into the public resources available for investment. The government is thus working on boosting other sources of revenue, by, for example, widening the tax base and tackling informality.
The authorities are now also preparing an initiative aimed at boosting diversification by attracting new investment under the National Pact of Adjustment for Competitiveness. While the plan, which was announced in 2015, has yet to be finalised, the initiative will be formulated in response to an analysis of the business environment based around the investment climate pillars used in the World Economic Forum’s “Global Competitiveness Report”. Key measures in the draft version include reducing levels of bureaucracy; increasing competition by abolishing monopolies prevalent in some sectors; encouraging greater public-private cooperation; improving the quality of government services; enhancing companies’ access to finance; and improving the quality and accessibility of telecommunications, IT and other infrastructure-based services, among other things.
The authorities in October 2015 also announced plans for a complementary initiative, the Employment Responsibility Pact, which aims to help bring down the unemployment rate by, for example, improving the employability of young people, boosting training opportunities, facilitating entrepreneurialism to develop self-employment, and bringing more informally employed people into the formal sector.
Senior civil servants met with civil society actors in August 2016 to take steps to move both plans forward. The competitiveness plan is due to be finalised at the first session of the High Investment Council, a body announced in 2014 to help improve the business environment and identify priority areas for private investment. President Ali Bongo Ondimba in August 2016 announced that the council’s first session would be held in the near future, without specifying a date.
