Focus on value-added processing should boost domestic industries

Like many countries in Africa, Gabon’s economy has largely developed on the back of its natural resources, primarily oil, minerals and timber. Most of these are still exported in raw form, bringing limited economic benefit to the country. However, the industrial sector – and the revenues and jobs it creates – is a focal point for the government’s development plans, with several initiatives looking to encourage domestic processing and manufacturing. Today, industrial activity is limited to agro-industry, beverages, construction materials and some timber, petroleum and mineral processing, but the state has outlined a plan to establish several industrial clusters by 2025 and double the sector’s contribution to GDP.

Industry was identified as one of three economic development pillars under the Emerging Gabon strategy launched in 2009. Under its Industrial Gabon plan, the state is working to encourage investment in downstream processing for all natural resource operations. Ultimately, Gabon aims to establish a network of industrial parks and special economic zones (zones économiques spéciales, ZES) and to expand into higher-value sectors such as information technology manufacturing and petrochemicals.

Sector Make-Up

In the short-term, the government is focused on boosting value-added processing in the hope of capturing more of the country’s natural resource wealth. Local processing requirements are gradually being introduced across the board, beginning with the 2010 ban on raw timber exports, which is helping to increase export value and reduce Gabon’s reliance on hydrocarbons for export revenues. The transition has occasionally been rocky, given the abruptness of the measure and the low level of industrial activity and infrastructure today, but industrial sector GDP has grown by 80% since 2009 to reach €2.45bn in 2013.

Including the construction sector, industry contributed some 18.8% of GDP in 2013, up from 16.4% in 2009, according to the Ministry of Economy and Planning. The sector’s GDP increased two-fold over the same period, with the biggest gains in construction and public works, which in 2013 generated CFA565bn (€848m, 6.5% of GDP), and petroleum services, which amounted to some CFA496bn (€744m, 5.7% of GDP). Oil, timber and mineral processing represent less than one percentage point each. By 2025 the government aims for industry to contribute more than one quarter of GDP.

Agro-Industry

Food and beverage production has consistently accounted for 1.5% of GDP in the last five years, and sector production increased steadily over that period to reach CFA132bn (€198m) in 2013. Much of current production falls under the umbrella of two French companies that merged in 2011, Castel and Société d’Organisation de Management et de Développement des Industries Alimentaires et Agricoles (SOMDIAA), both of which have extensive African networks.

The Gabonese subsidiary of France’s Castel Group, Société des Brasseries du Gabon (Sobraga), brews several beer brands locally – Régab, Castel, Guinness and 33-Export – and also produces beverages that include Coca-Cola, Orangina, Fanta, Impérial Tonic and Sprite. Sobraga ranks among the 10 largest local businesses in terms of turnover. It maintains seven production sites nationwide and inaugurated a new CFA8.7bn (€13.05m) brewery unit at its Owendo plant in 2013. Sobraga estimates that this unit, in addition to ongoing equipment upgrades, will boost monthly brewing capacity at Owendo to 9m litres. The firm’s general manager, Fabrice Bonatti, told OBG that sales were a source of optimism for the region. “Considering the results of recent years, when there has been a steady and solid growth, the future of the sector is more than optimistic.”

SOMDIAA owns two key brands: Société Meunière et Avicole du Gabon (SMAG) produces over 40m eggs per year (satisfying roughly 70% of domestic demand), 1400 tonnes of animal feed, and is the sole wheat importer and flour producer on the market. SMAG has invested CFA2bn (€3m) since 2011 to expand its wheat storage capacity to 13,800 tonnes in response to rising demand. The second brand, Sucrerie Africaine du Gabon, produces sugar from sugar cane plantations near Franceville; the firm produced a record 26,850 tonnes in 2011, primarily for local consumption. Finally, Société Industrielle Gabonaise de Laiterie et de Liquides makes several products under international brands, including milk (Candia), yoghurt (Yoplait) and fruit juice (Réa).

Cash Crops

The low level of domestic production of consumer perishables, beverages and foodstuffs is due to the nature of the country’s agricultural output, which is focused on cash crops. This means Gabon imports the vast majority of its food at a cost of €375m per year, but also exports large quantities of high-revenue-earning rubber and palm oil.

Olam and Société d’Investissement pour l’ Agriculture Tropicale (SIAT), a subsidiary of the eponymous Belgian group, both manage industrial plantations of rubber and palm oil, and Gabon aims to become a key producer of these staples. SIAT Gabon has been present since 2004, and manages some 7500 ha of palm plantations in Makouké and an oil refinery in Lambaréné. The company produces around 11,000 tonnes of palm oil per year, much of which is marketed locally under the brand Cuisin’Or. SIAT also has 9500 ha of rubber plantations, with processing taking place at SIAT’s factory in Mitzic. The company is planning a major investment to expand rubber plantations to 30,000 ha in the next 20 years.

In 2010 Gabon signed a joint venture with Olam to develop 300,000 ha of oil palm plantations in the northern Woleu-Ntem region. The plantation will cover 50,000 ha in its first phase and entails $100m in investment over five years. In March 2012 Gabon and Olam signed a second agreement to create a rubber plantation and processing plant for a total investment of €137m. The plantation will cover an area of 28,000 ha in its first phase, which began in 2013, and will ultimately be extended to 50,000 ha. The first harvest is projected for 2020 once the trees have reached maturity, and initial output estimates vary between 2 and 2.2 tonnes of natural latex per ha. At full capacity it is expected to generate 62,000 tonnes per year (see Agriculture chapter).

Construction Materials

Domestic demand for construction materials typically grows by 3-5% annually, with a spike in 2011/12 that was related to road, stadium and hotel construction ahead of the 2012 Africa Cup of Nations football tournament. Demand may slow in 2014-15 as several major construction projects have been paused, but ambitious public programmes in road, housing and other infrastructure building will continue to support growth in the future. Only a select number of products are made locally, with the remainder met by imports. Current production is limited to cement, wood products and aluminium processing. For the most part, firms in this sector are part of larger international groups, as domestic sales are limited by the small market, and regional exports are complicated by high transport costs and existing competition in the sub-region.

Société de Transformation d’Aluminium ( SOTRALGA), part of Côte d’Ivoire-based building materials provider Yeshi Group, is the market leader in aluminium sales. SOTRALGA performs second-stage processing, transforming rolled aluminium imports from Cameroon into building and roofing materials.

Ali Fakih Oboungou, the director-general of SOTRALGA, told OBG, “Gabon’s construction materials industry shows steady demand and solid margins. However, links to other export markets in the region are necessary to create a context for growth.”

CimGabon is currently the only domestic cement producer. However, the market was flooded with low-cost imports from China and Vietnam when it was deregulated in 2006, slashing the market share of local products from 50% in 2011 to 35% in 2013.

In May 2014 Germany’s Heidelberg Group, which owned three-quarters of CimGabon to the state’s 25%, sold its share to Moroccan cement producer Ciments de l’Afrique (CIMAF), which will take over the firm’s cement plant in Ntoum and two grinding plants in Owendo and Franceville. This acquisition is expected to be a precursor for CIMAF’s parent company, Moroccan real estate developer Addoha, to become more involved in affordable housing construction in Gabon. In June 2013 CIMAF announced that it would invest €30m to build a clinker grinding plant in Owendo with a planned initial capacity of 500,000 tonnes per year and a possibility to expand to 1m tonnes. The plant is set to come on-line in 2015 and should create 200 permanent jobs.

Forestry

Timber is one of Gabon’s most abundant natural resources, with 85% of the country, or 22m ha, covered by rainforest. Raw timber exports have historically been an economic mainstay and an important source of employment for populations in the interior. Yet timber processing contributes less than 1% of GDP, and the state banned raw timber exports in 2010 in its first move to introduce local processing requirements. Ultimately, this move will help to support the development of domestic industry, as well as help to boost the value of exports; however, output has fallen sharply in the last three years as firms invest in new infrastructure.

According to the Central African Forest Observatory, production peaked at some 3.95m cu metres of timber in 2009 prior to the ban, but dropped to around 1.8m cu metres in 2010 as processing capacity was unable to catch up. Output fell again to 1.71m cu metres in 2012, but should increase in the next five years as new factories come on-line.

The government is working to support the sector, given its impact on rural employment, exports and fiscal revenues. The state received CFA1.93bn (€2.9m) in forestry receipts in 2011, including land, logging and income taxes and Customs duties, down sharply from CFA9.25bn (€13.9m) registered in 2008 prior to the timber ban. In 2011 Gabon’s Caisse des Dépôts et Consignations acquired a 35% interest in French tropical wood company Rougier International for €24m; according to Rougier, the investment will allow the firm to expand its operations in the Congo River Basin, and the company expects to see solid growth in 2014 after four years of net losses.

State-owned operator Société Nationale des Bois du Gabon (SNBG) has also invested heavily in new processing plants. In November 2013 it opened its third unit, which is dedicated to plywood and veneers, and will raise SNBG’s annual production capacity to 250,000 cu metres per year. According to state media, SNBG aims to reach turnover of CFA4.5bn (€6.8m) in 2014. As these and future plants come on-line, demand for raw timber should increase, creating new sources of economic activity for rural populations and for small and medium-sized enterprises.

Oil Refining

Gabon exports 90% of its crude oil to markets such as the US, India, Europe, Indonesia, Australia and Japan. The remaining 10% is processed in the country’s sole refinery, operated by Société Gabonaise de Raffinage in Port-Gentil. The refinery has a capacity of 24,000 barrels per day (bpd), but production is well below national demand in both quantity and quality, in part a result of ageing equipment, and Gabon imports around 50% of its diesel oil and 70% of butane. The government signed an agreement with South Korea’s Samsung Construction & Trading in July 2012 to build a $1.4bn, 50, 000-bpd refinery by 2016, although groundbreaking is still some way off. Gabon also announced a $500m investment deal with Swiss firm Gunvor in 2013 to create a joint fuel-trading firm that will eventually serve Africa’s Atlantic coast. However, implementation plans have yet to be made public.

Fertiliser

Finally, a $2.3bn partnership signed with Moroccan phosphate producer Office Chérifien des Phosphates (OCP) in March 2014 aims to establish two fertiliser production units fuelled by Gabonese natural gas, one for the production of ammonia and another to transform this into fertiliser. The sites are expected to reach a combined output of 2m tonnes of fertiliser by 2018, which could meet up to 30% of demand on the African continent. OCP executives estimate that growing agricultural production in Africa will require roughly 10m tonnes of fertiliser in the coming years, yet African farmers consume just a fraction of fertiliser employed in countries such as China and Brazil. This project builds on an existing plan to develop fertiliser production in Port-Gentil. Gabon Fertiliser Company was created in 2010 to manage the construction of a production unit with financial support from Olam (62.9%) and India’s Tata Chemicals (25.1%). However, the project is undergoing a restructuring process, following an announcement in 2013 of Olam’s intention to shift to a minority stake and Tata’s decision in 2014 to forego its share (see analysis).

Special Economic Zones

In an effort to attract foreign direct investment and encourage specialisation in key industries, Gabon is planning to establish several ZESs. The first of these is the Nkok ZES, a 1126-ha zone located 30 km north-east of the capital dedicated to timber processing and related industries. The zone is a 60:40 joint venture between Olam and the government; phase one, which began in August 2010, will entail CFA120bn (€180m) in investment for land preparation, 17 km of road construction, and water and electrical infrastructure.

The zone’s first 450-ha tranche was inaugurated in 2011; construction has begun on 14 investment projects, and over 80 firms from North America, Asia and Central Africa have signed conventions to enter the zone. These include timber processing facilities, a paper mill, water treatment stations and social housing. The largest commitment so far came from Abhijeet Group of India. It reserved a 60,000-sq-metre plot and plans to build an $800m iron-alloy processing facility with an annual capacity of 360,000 tonnes of ferro-manganese and 40,000 tonnes of silico-manganese; the project also includes plans for a $400m, 300-MW power plant.

While Nkok is open to all industries, 40% of industrial space will be reserved for forestry. The zone is expected to be able to process as much 1m cu metres of wood per year, and authorities estimate that it will ultimately attract $1bn in investment. Investors will be exempt from corporate tax for 10 years, pay a reduced 10% rate for the next five years, and are permanently exempt from Customs duties and value-added tax. The zone will also offer subsidised rates for water and electricity. A second ZES is planned on Mandji Island near Port-Gentil, the hub of the hydrocarbons industry. Olam will serve as the anchor investor, alongside the state and private investors. Environmental and feasibility studies will be complete by the end of 2014, when the final plans for the zone will be approved. Mandji Island is meant to capitalise on the country’s oil and gas wealth and encourage processing in hydrocarbons, petrochemicals and related industries. Gabon also aims to construct a ZES dedicated to agriculture and agro-industrial processing in Franceville. The National Agency for Public Works outlined plans for a 26,000-ha free zone and an 840-ha commercial area. The site will connect to the primary regional highway, 5 km of the Transgabonais railway and 10 km of Franceville’s airport. The full project will require €354m structured as a public-private partnership.

The state also aims to develop seven IT parks to encourage the development of digital services such as business process outsourcing, call centres, and some IT manufacturing and assembly. The flagship project, Mandji Island Cybercity, is set to be built adjacent to the future ZES, and will accommodate a wide range of tech investors.

Outlook

Port and Customs processing remains an obstacle for the industrial sector, given Gabon’s reliance on imported products and inputs. A series of Customs worker strikes in the first quarter has considerably slowed import processing at Owendo, which stands to impact industries across the board in 2014.

The government had prioritised the implementation of local processing across a number of sectors; while the transition has not always been smooth, the economy stands to benefit significantly in the medium term from the uptick in value-added activity. Officials have recognised, however, that in order to meet the ambitious goals that have been set for the sector, Gabon will need to strengthen the business climate, expand the qualified labour pool and ensure risk is shared through public-private partnerships.

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The Report: Gabon 2014

Mining & Industry chapter from The Report: Gabon 2014

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