Gabon: Partnered for growth
Improving fiscal management and large-scale investment in infrastructure should lead to solid economic expansion in Gabon this year. The IMF estimates that growth in 2012 will reach 5.6%, which, while down slightly from 5.8% in 2011, surpasses the 5.4% forecast for the Central African region. The Gabonese government forecasts are slightly more optimistic, predicting 6.6% economic growth in 2012, also down slightly from its estimate of 6.8% in 2011.
While the economy remains highly dependent on hydrocarbons revenue, a strengthening record of fiscal management sets a positive tone for the rest of this year. Ratings agency Fitch placed Gabon on a positive outlook in April, based on its assessment of a more effective use of oil revenue, particularly for infrastructure spending that will support economic expansion in the medium term.
In the past, Gabon has had trouble with insufficient fiscal management, overinflated public sector operating costs, and payment delays on public building projects. In an effort to better utilise income for economic growth, the government remodelled the Fund for Future Generations and launched a new sovereign wealth fund (SWF) in February, which will henceforth be managed exclusively by the newly created Strategic Investment Fund (FGIS). The FGIS will also be responsible for managing all of the government’s stakes.
The SWF will be supplied by 10% of annual government revenue, 50% of any revenue in excess of the benchmark oil assumptions in the budget, as well as dividends from public investments. Once the fund reaches the target capital of $1bn, three-quarters of income from SWF investments will be transferred to the treasury as budgetary support.
The fund will take some time to be put in place given the high capitalisation goal, but will ultimately help to more effectively mobilise state income for infrastructure building and other public projects. SWF funds have already been identified as a financing source for the government's share of a public-private partnership (PPP) with Amanresorts, a luxury hotel group, to build high-end ecotourism facilities.
Gabon also demonstrated fiscal responsibility in the recent payment of a $32m coupon on its $1bn Eurobond. Payment funds were temporarily frozen by a partner company in South Africa due to an ongoing dispute that created the delay, but ratings agencies noted that the government moved quickly to resolve the dispute and mobilise the funds within the customary 10-day grace period. Standard & Poor’s affirmed its “BB-/B” long- and short-term sovereign credit ratings with a stable outlook for Gabon in late June, citing the bond payment as a positive step.
These reports confirm a growing investment trend in emerging and frontier markets, such as Gabon, as growth stagnates in more traditional markets in Europe and North America. Also, growing investor interest in frontier markets, combined with Gabon’s relative wealth and stability, bode well for private sector partnerships. Many of the projects that are expected to drive Gabon’s economic growth in 2012 and beyond will be underwritten by private sector and foreign partners.
Foreign investment has already been critical to a number of recent projects. The African Development Bank (AfDB) provided 90% of the funding for the Programme Routier, which has widened and paved 236 km of Gabon’s high-priority roads and will help to support increased economic growth. The AfDB recently approved CFA167bn (€254.6m) in funding for the programme’s second phase, set to begin in early 2013.
The Nkok Special Economic Zone (SEZ) was also launched as a PPP with the Singapore-based multinational Olam, an international supply-chain management firm, and is expected to generate $1bn in investment in the long term. The Nkok SEZ, as well as a planned project to create a second SEZ in Port Gentil, is expected to be a major driver of the economy in the coming years by providing incentives for the development of local industry.
In addition, a joint venture with Olam to create a 50,000-ha oil palm plantation in the northern Woleu-Ntem province received a major funding boost from several financial institutions, which bodes well for future investment levels. A consortium organised by Ecobank that also includes Afreximbank, BGFI Bank and the Development Bank of Central African States (Banque de Développement des États de l’Afrique Centrale, BDEAC), agreed in July to provide $228m to support the first phase of the joint venture.
The government also signed an agreement in July with South Korea and Samsung, part of the Korean energy conglomerate SK Energy, for the construction of an oil refinery in the Port Gentil SEZ. The refinery, slated for completion in late 2015, will require a total investment of CFA700bn (€1.07bn) and should help to strengthen Gabon’s position in the regional market, as two-thirds of production will go to supply Central African and European markets.
The state has set ambitious goals for infrastructure building and industrial development in the next five years, which should stimulate economic growth, particularly in the non-oil economy. While obstacles remain, improving fiscal management and strong international appetite for investment in frontier and emerging markets bode well for Gabon’s medium-term economic growth.