Gabon: Focus on value-added industry
Industrial development is still relatively modest in Gabon, as the economy has traditionally relied on revenues from unprocessed exports of its abundant natural resources, including timber and oil, as well as minerals such as manganese and iron ore. However, while hydrocarbons exports still constitute the primary source of foreign currency receipts, Gabon’s petroleum reserves are diminishing, lending a new urgency to the government’s diversification strategy, Gabon Emergent, which in turn is drawing in a number of new private foreign ventures.
Both government policy and new public-private partnerships (PPPs) are increasingly oriented toward the build-up of local industry. For example, a PPP signed with the South Korean energy conglomerate SK Energy in July will expand Gabon’s upstream capabilities through the construction of a new oil refinery in Port-Gentil, which should help to strengthen Gabon’s position on the regional and European energy markets.
Plans for two new special economic zones (SEZs) in Nkok, near Libreville, and Île Mandji in Port-Gentil, should help to facilitate the introduction of several industries, including petroleum and derivative products, petrochemicals and timber processing. The SEZ at Nkok, which is owned by Singapore agricultural conglomerate Olam and is already underway, and the planned site in Port-Gentil will both provide incentives for forestry companies looking to establish operations in these areas.
The new SEZs will play an important role in the government’s effort to push wood processing in Gabon into more sophisticated second- and third-stage processing and derivative industries. Currently, the country, which has some 14m ha of exploitable rain forest, has an export ban on unprocessed timber, which was phased in starting March 2010.
Processing capacity was vastly underprepared for the ban but has since begun to move slowly upwards to better accommodate export demand. SEZs offer a number of incentives, such as a 10-year income tax exemption, freedom of financial transfers, as well as reduced travel costs and labour restrictions, all of which will be critical in attracting industrial operations that are not currently present in Gabon.
The new tactics are beginning to come to fruition, most recently following the announcement that India-based Ellora Paper Mills has reportedly signed an agreement to launch a paper pulp factory at Nkok, a vote of confidence which will likely pave the way for other timber-derivative operations.
For established companies in the timber sector, the transition has been a difficult one. A number of smaller raw timber providers dropped out of the market, as exporters slowed their activities and focused on building up their processing capability to comply with the raw timber ban. Many of the major firms have invested heavily in processing plants and equipment, which should eventually help local industry reach higher levels of product quality and sophistication. While much of the activity is still concentrated at the first stage, many companies are looking to develop new, higher-cost products to make up for losses in 2010/11.
Both public and private investment have been critical to this effort. The national forestry operator, the National Timber Company of Gabon (Société Nationale des Bois du Gabon, SNBG), recently completed the construction of three new processing facilities in Owendo, which are expected to increase the company’s transformation capacity to 250,000 cu metres per year and considerably expand its second-stage processing capacity.
In addition to support from the government − a major stakeholder of SNBG − the investment was facilitated by a CFA9bn (€13.72m) loan awarded to SNBG by the Development Bank of Central African States, in partnership with two regional banks, Banque Internationale pour le Commerce et l'Industrie du Gabon (BICIG) and Ecobank.
Private operators have also fuelled their own investment projects to boost local capacity. Swiss firm Precious Woods, known for working with rare species of wood, expanded the capacity of its hardwood sawmill in 2011, which has permitted the company to offer new products. The introduction of air-dried rotary cut veneer and various products made of lesser-known species such as Faro, Omvong and Niové, have helped to expand the company’s customer portfolio in 2011.
While increasing capacity bodes well, the forestry sector still has a long way to go before reaching full industrialisation. The volume of wood exports decreased by 71.6% from 2010/11, as the new regulation came into effect before local processing could adjust. The slowdown of exports has been further complicated in 2012 by transport bottlenecks, which are expected to hamper domestic production through the end of the year.
While sector industrialisation cannot be expected overnight, the government’s efforts to step up local value-added activity have begun to show positive results, boosting local production and attracting further investment from the private sector. The remaining challenge is to ensure that improvements to the transport network and workforce training match the pace of industrialisation.