Gabon: Investing in the future
Continuing a strong upward trend seen since 2010, Gabon’s GDP is expected to grow 5.7% this year, according to the National Monetary and Financial Council (Comité Monétaire et Financier National, CMFN). The economy expanded by 6% in 2011, supported by rising global oil prices and ambitious government spending under the national development strategy, Emerging Gabon. Further public and private investment in sectors such as construction and energy should support continued growth in 2012.
Strong economic performance in recent years has allowed Gabon to pursue its ambitious development strategy while maintaining fiscal stability. The current account surplus jumped from 6.1% of GDP in 2009 to 14.9% in 2011, due to recovering global demand and an increase in export revenue, according to the IMF. Rising global oil prices and a push to export timber stocks before a nationwide ban on raw timber exports came into effect contributed to the increase in export revenue. The IMF expects the current account balance to hover around 12.3% in 2012.
Gabon was also able to post a fiscal surplus in the immediate aftermath of the economic downturn. While the country was hit by the global slowdown, with its economy contracting in 2009, oil prices improved rapidly, increasing revenue and allowing the government to maintain high investment levels while raising the fiscal surplus to 3.4% of GDP in 2011. A rapid increase in oil prices in the first quarter of this year is expected to create a 6% surplus in 2012, creating a more stable footing for future investment.
Growing fiscal and current account surpluses have also permitted the country to reduce its debt levels. IMF data show that gross government debt dropped from 25.1% of GDP in 2010 to 21.8% in 2011, and this is expected to drop below 20% by 2013. The Fitch Ratings agency estimated that external debt contributed 28% of current external receipts in 2011, and projected that Gabon will become a net external creditor in 2012.
Meanwhile, the government has affirmed its commitment to improving the management and efficiency of public spending. As part of this goal, Gabon signed a $2m technical assistance agreement with the World Bank in January 2012, through which the state will work to strengthen public expenditure and develop additional growth sectors.
Specifically, the agreement will promote a more efficient use of public resources through improved debt management techniques and a revision of the tax system. In addition, investment in transport infrastructure and industry-specific programmes, such as the creation of a comprehensive map of mining resources, are expected to boost economic efficiency.
In a vote of confidence for the country’s economic diversification and governance reforms, Fitch revised Gabon’s outlook to “positive” and affirmed its rating of “BB-” in April. The agency also noted that new leaders in the administration following the December 2011 legislative elections have indicated a willingness to improve public governance, which should increase Gabon’s attractiveness among foreign investors.
Furthermore, the country has established a sovereign wealth fund to more effectively leverage hydrocarbons revenues for overall economic development. The Council of Ministers adopted the legal framework for the fund, the Fonds Souverain de la République Gabonaise (FSRG), in February 2012. The fund will be launched once an initial capital of CFA500bn (€762,200) has been reached, which will be achieved through a 10% tax on annual hydrocarbons revenues, 50% of extra-budgetary public revenue, as well as additional revenue streams related to the government’s stake in public enterprises.
Once the initial capital goal is met, the FSRG will be supplied by surplus hydrocarbons revenue beyond a projected income level set out in the annual budget, as well as 25% of gains generated by the sovereign fund. The remaining three-quarters of fund-generated revenue will be transferred to the Treasury and will be an additional resource for the national budget.
These efforts to use hydrocarbons revenues to boost value-added industry are critical. Although economic diversification programmes are underway, much of Gabon’s economy continues to rely on hydrocarbons exports.
In 2011, for example, oil revenue represented 87.3% of exports and 59.8% of state revenue, Reuters news agency reported recently. Oil production, meanwhile, declined by 2.1% year-on-year in 2011, but the sector has been buoyed by global oil prices, which increased by 39.4% in 2011. A decrease in global oil prices, while unlikely due to recent instability in Libya and Iran, presents the most significant short-term economic risk. In the absence of major discoveries, declining reserves will increase the urgency of economic diversification efforts.
Indeed, the government has stepped up investment in public works and energy production to provide the necessary infrastructure to support economic diversification. The national public works authority, the Agence Nationale des Grands Travaux (ANGT), for example, has announced an ambitious slate of projects for 2012 that includes improving road networks in Libreville and provincial capitals, and constructing new university and high school buildings, hospital infrastructure in the interior of the country and urban housing. “The African Cup of Nations has been a launching pad for many important infrastructure and construction projects,” Henri Ohayon, the director-general of ANGT, told OBG.
Investment in the energy sector will also be critical for economic expansion in the short-term. The former minister of energy and hydraulic resources, Régis Immongault, indicated that the state hopes to increase electricity production to a minimum of 1200 MW by 2020 through the construction of three hydro-electric dams, gas-fuelled power plants, and investment in renewable energy sources. The ministry plans a total investment of €2.29bn from 2010 to 2020, and is seeking private sector investment to accelerate progress in developing clean energy solutions.
Provided that the necessary infrastructural factors fall into place, Gabon’s public investment programme and increasing investor confidence bode well for economic growth in 2012.