The past 40 years of oil production have turned this small but strategically positioned Central African state into an upper middle-income economy. Although figures can vary noticeably, with a GDP per capita in 2012 estimated at $9000 by the Banque des États de l'Afrique Centrale and $12,000 by the IMF, the nation is roughly on a par with Turkey and Argentina. The second-biggest economy of the Economic and Monetary Community of Central Africa (Communauté Économique et Monétaire de l'Afrique Centrale, CEMAC), which the country is chairing in 2013, Gabon has a population of 1.6m, according to the most recent data available from the World Bank. The country’s extractive industries are sizeable by global standards; it is Africa’s sixth-biggest oil exporter and second-largest timber exporter, as well as the world’s second-largest manganese producer. Following the drastic reduction of its Paris Club debt in 2008 – from 80% of GDP to 16.9% in 2012, according to the World Bank – Gabon plans large investments to drive diversification of the economy away from its overdependence on a single commodity: oil.
With a current account and fiscal position persistently in surplus – although oil production is declining – it has the resources to realise its ambitious public investment plans. The issue will be in balancing its books, namely the non-oil fiscal deficit, despite this surplus, and in streamlining its regulatory framework to attract the private investment necessary to finance the target figure of 72% of investments planned by 2025. Despite some tailwinds from global commodity prices and a post-Africa Cup of Nations (Coupe d’Afrique des Nations, CAN) slowdown in construction growth, Gabon’s economic growth, driven primarily by non-oil investment, is set to remain at a healthy 6.2% in 2013, according to the African Development Bank (AfDB).
GROWTH DRIVERS: The economy recovered quickly from the effects of the 2008-09 financial crisis, with GDP growth accelerating to 7% in 2011 and 5.7% in 2012 (above the 4.4% forecast), according to the AfDB, driven by rebounding prices and international demand for its key commodity exports: oil, manganese and timber. An expansionary fiscal policy supporting large infrastructure investments – with budgeted spending growing from CFA2.22trn (€3.33bn) in the revised 2010 budget to CFA3.14trn (€4.71bn) in 2013 and capital expenditure (capex) steady at 40% of this – also played a large role (see analysis). The reliance on primary commodity exports and consistent food imports have contributed to stable trade patterns. “Trade patterns in Gabon tend to be much less fluid than in larger developing economies given relatively stable import and export arrangements,” Pascal Yembiline, the principal country economist at the AfDB, told OBG.
Despite production falling from a peak of 370,000 barrels per day (bpd) in 1997 to 244,000 bpd in 2012, oil remains the key economic driver, accounting for 49% of GDP, 57% of government revenue and 85% of exports in 2012, according to the AfDB. While Brent crude prices, which averaged $112 per barrel in 2012, are forecast to drop to $105 per barrel in 2013 and $100 per barrel in 2014 by the US Energy Information Administration, the use of enhanced recovery techniques is expected to stabilise production at around 243,000 bpd in 2013 according to the Economic Service of the French embassy. Tenders for new deepwater offshore concessions will only bear fruit over the medium term.
MINING: The second key sector is mining – mainly manganese mined by the local joint venture Comilog between the ERAMET Group of France and the state of Gabon – which contributed 6.3% of GDP and 6% of exports in 2012, according to the AfDB. Despite a drop in international manganese prices from a high of close to $3.5 per kg in early 2012 to below $2.4 per kg by year-end due to slowing demand for steel globally, this should be tempered by growing output from Gabon’s two key mines (see Mining chapter).
After a technical incident at Comilog’s industrial Port Owendo, the country’s manganese output of 3.1m tonnes in 2012 fell short of the annual goal of 4m tonnes, although this should be reached in 2013. “One of the key downside macroeconomic risks, as highlighted by the IMF, is the depreciation of exports due to subdued international prices for Gabon’s main commodities and falling production,” Dominique Grancher, economic advisor at the French embassy in Gabon, told OBG. New production sources should help, however. A new mine near Ndjolé run by China’s CICM Huazhou, a subsidiary of the state-owned CITIC Group, should ramp up production of manganese ore from 340,000 tonnes in 2012 to 500,000 tonnes in 2013, while the gold mine by Morocco’s Managem should expand from its first production of 680 kg in 2012 to 1200 kg in 2013.
OTHER DRIVERS: The third main foreign currency earner, timber, is still recovering from the May 2010 ban on unprocessed log exports, although exports have rebounded on the back of investments in first- and second-stage processing to 1.6m cu metres in 2012, from 1.8m cu metres in 2009, according to figures from the Office of the President. Finally, services, which accounted for 32% of GDP in 2012, according to the AfDB, sustained their growth, driven mainly by the telecoms, banking and construction sectors (see Agriculture and Forestry chapter).
While commodity prices strengthened Gabon’s current account surplus from 8.9% of GDP in 2010 to 14.1% and 12.4% in 2011 and 2012, respectively, according to the IMF, high public investment in infrastructure has expanded its non-oil fiscal deficit from 21% to 28.5% over the same span, according to the World Bank. These public investments, increasingly funded via the regional and offshore fixed-income markets, will likely sustain high growth of over 6% from 2014.
MONETARY STABILITY: Monetary policy is decided at the level of the CEMAC by the regional central bank, the Bank of Central African States, which is backstopped by the central bank of France, Banque du France, and in turn the European Central Bank. Inflationary pressures remain contained in Gabon and, in such a small, import-dependent economy, are largely the result of imported inflation. Inflation cooled from a peak of 5.3% in 2008 to 1.2% in 2011, before rebounding to 2.6% in 2012, according to World Bank data, given stable import prices and an expansion in government price controls of key products in the consumer price index basket.
Indeed, following inflation in key food imports, such as wheat, for which inflation reached 10% in the year to March 2012, according to the UN’s Food and Agricultural Organisation, the government cut value-added tax, suspended import duties and set price controls on 65 basic food staples in August 2012, expanding the basket to 166 in March 2013. The World Bank forecasts that inflation will reach 3% in the next two years, although in some areas, like property in the capital city of Libreville, it has been much higher.
With the regional Central African franc pegged to the euro at €1:CFA655.957 and a regional inflation target of 3% – monetary policy has reflected the eurozone’s record-low stance with a premium, reflecting inflation – rates were cut progressively from 4.75% in June 2009 to 4% in July 2010, with a repurchase rate of 5.75%, unchanged since. Yet given over-liquidity in Gabon’s and the region’s banking systems, and the absence of a local inter-bank market, regional monetary policy lacks a robust transmission mechanism to the real economy. Banks’ assets accounted for only 21% of GDP, with credit to the private sector at an even lower 11% of GDP (19% of non-oil GDP) in 2012, according to the IMF. As such, the fund estimates implicit local interest rates of 8-9% remain high compared to the world average.
HUMAN DEVELOPMENT: Despite its small and concentrated population, with 87% of residents living in urban areas, particularly in the two cities of Libreville and Port-Gentil, Gabon faces development challenges including a 30% poverty rate, unemployment of 27% in 2012 and unequal income distribution. Ranked 106th out of 189 on the UN’s 2013 Human Development Index, the highest in sub-Saharan Africa, Gabon is unlikely to meet all of the Millennium Development Goals by 2015 (such as those for HIV infection, and infant and maternal mortality rates), although it has already attained full primary education enrolment, with the aim of boosting average school attendance from 7.5 years currently to 13 in the coming years. The country initiated a universal health insurance drive in 2007, the National Health Insurance and Social Welfare Fund, which extended coverage to the low-income Gabonese in 2008 and 2009, public-sector employees in 2010 and the private sector in 2011.
JOBS: While the government has retrenched its direct role in some industries since the late 1990s, including in utilities like power and water as well as telecoms, it remains the key economic player alongside a small private sector. Historically the biggest employer, with over 70,000 staff, the state knows that its economic development goals depend on broad-based employment created by a dynamic private sector. The most important sectors’ staffing needs remain marginal, with oil accounting for as few as 2500 jobs, mining roughly 3000 and timber between 15,000 and 20,000, according to the Economic Service of the French embassy. Agriculture and industry, the most promising job creators, accounted for only 3% and 10.7% of GDP, respectively, in 2012. The state’s long-term economic roadmap aims to leverage its natural resource base into higher-value-added industries and create jobs for the population, half of which is under the age of 20.
EMERGING GABON: When the new president, Ali Bongo Odimba, came to power in 2009, he was faced with the short-term challenge of completing infrastructure in time for the CAN in January 2012 and the mid-term prospect of declining revenues from the traditionally dominant oil industry. As a key plank of the administration’s election campaign, the aim of turning Gabon into an emerging economy by 2025 was enshrined in the strategic development plan Emerging Gabon, which was presented in December 2012. The aim is to diversify the economy through three key pillars – Industrial Gabon, Green Gabon and Services Gabon – that will leverage the country’s natural endowments in a sustainable manner for broader-based growth.
The Industrial Gabon pillar will develop domestic processing of raw materials including natural gas, mining, agriculture, fisheries and forestry. This will be achieved through at least five sectoral plans. The first, the mines and hydrocarbons plan, aims to develop new deepwater offshore blocks, develop natural gas production and expand mining exploration by 2016. This will include passing new legislative codes for both hydrocarbons and mining, as well as establishing national operators, namely the Gabon Oil Company and the state-owned Société Equatoriale des Mines.
In addition, new processing facilities are to be developed adjacent to existing mines, beginning with Comilog’s Moanda Metallurgical Complex coming online in 2013 and the strategically positioned greenfield special economic zones (SEZs) in Nkok, already under construction 32 km from Libreville, and the Mandji Island Free Zone near Port-Gentil, which will support the wood and forest economy plan. New integrated development in the Belinga iron ore deposits in the north-east of the country is expected. The agriculture and farming plan aims to create agricultural and herding farms, poultry rearing, and commercial oil palm and rubber plantations, and restart Gabon’s coffee and cocoa industries. A fisheries plan is expected to develop downstream fish processing. Increasingly competing on a global level with its downstream processing, the government aims to more than triple the industrial sector’s 2012 contribution to GDP of 10.7% in 2012 by 2025. To support this, an electricity plan aims to double its power production to 1000 MW by 2020.
The second pillar, Green Gabon, seeks to ensure that the natural endowment of some 22m ha of forest, 1m ha of arable land and 800 km of coastline is developed sustainably. A central element of this will be the publication of a unified territorial use map by the National Agency of National Parks (Agence Nationale des Parcs Nationaux, ANPN) in 2014, which will clarify at times competing land claims between the mining, forestry and agriculture sectors, for instance.
The ANPN’s capacity to curb poaching and illegal resource exploitation is also set to be strengthened. “In terms of protection, the major challenge is poaching for ivory,” Lee White, the executive secretary of the ANPN, told OBG. “Over the last decade we have lost around 60% of forest elephants. Gabon itself has lost about a third of its elephants in that time.”
The administration has placed renewed emphasis on food security and achieving self-sufficiency in staple crops, fisheries and meat, aiming to reverse agriculture’s declining share of GDP, from less than 3% in 2013 to 15% by 2020 – levels last achieved in the 1960s, according to IMF figures.
A complementary policy, Blue Gabon, aims to both preserve the nation’s 231,300 sq km of exclusive territorial waters and develop a downstream fisheries industry, to begin in early 2014. While fisheries, which account for roughly 1.5% of GDP, employed 21,700 people in 2012, 80% of whom were foreign, the government seeks to boost production from below 30,000 tonnes per year in 2012 to 250,000 tonnes by 2025, with a significant share of processing onshore.
The third pillar, Services Gabon, is crucial to supporting the other two, as it addresses the development of a skilled labour force to establish the country as a regional centre for financial services, tertiary education, health and environmentally sustainable development. The country aims to cement its position as a conduit for investment and trade by improving regional connectivity. Central to this is the state’s reform and modernisation plan, which aims to improve the public administration’s capacity, and the private-sector support plan that seeks to ease constraints on firms’ developments. Capex was nearly doubled in 2010 to 35% of the budget to drive infrastructure investment, remaining near 40% since then. With CFA1.04trn (€1.56bn) and CFA1.22trn (€1.83bn) budgeted for capex in 2012 and 2013, respectively, according to the IMF, up from an average of CFA300bn (€450m) in the five years to 2009, the government aims to raise public investment further, to above CFA1.70trn (€2.55bn) in the four years to 2017 (see analysis). While public investment is leading the way in the early years of the Emerging Gabon plan, the state is tapping new channels of funding that depart from a reliance on traditional donors.
FDI: As one of the World Bank’s few middle-income countries in sub-Saharan Africa, Gabon is beyond concessional loans and has accessed international markets with Central Africa’s only Eurobond, a $1bn offering issued in 2007. Gabon is three notches below investment grade, with its ratings reaffirmed at “BB” by Fitch and Standard & Poor’s. Although its ratings outlook was downgraded by both agencies – to “negative” and “stable”, respectively – in 2012 due to weaknesses with debt and fiscal management, and the deteriorating fiscal outlook, Gabon’s arrears on $50m-payments to the sinking fund on the $1bn eurobond built up over 2010-11 were paid in 2012. More significant will be Gabon’s improvements in budget implementation by ministries and newly founded agencies (see analysis).
While Gabon is using technical assistance from traditional multilateral partners like the AfDB, World Bank, IMF, the French Development Agency and the EU, it has increasingly sought investment from non-traditional sources. Foreign direct investment (FDI) inflows have accelerated from $269m in 2007 to $696m in 2011 and $702m in 2012, when the total FDI stock reached $4.27bn, according to data from the UN Conference on Trade and Development. Most telling, the sources of inward FDI flows have become more varied, with the traditional dominance of French investments challenged by new FDI from the US, Singapore, China, Turkey, India and others (see analysis).
BUSINESS CLIMATE: While the path has not always been smooth for foreign investors, reflected in the government’s repeal of oil concessions in May 2013, foreign investors have been generally positive and their interest sustained. Gabon’s offers of tax breaks in SEZs, guarantees of raw commodity supplies in mining (such as the 30-year guarantee of manganese supply to the Indian company Abhijeet Group) and timber following the 2010 ban, and ambitious infrastructure plans have proven to be pulls for FDI. Yet the rapid development that Gabon is aiming for, including the development of local suppliers and contractors alongside more varied FDI, will also require additional structural changes in the business climate for both local and foreign investors. Gabon’s five-rank drop on the World Bank’s “Ease of Doing Business 2013” report to 170th was not encouraging, nor was its exclusion from the Extractive Industries Transparency Initiative (EITI) in February 2013. The nation’s slide from 100th to 102nd on non-governmental organisation Transparency International’s 2012 Corruption Perceptions Index also did not provide grounds for optimism.
Yet Gabon hopes to reintegrate EITI, blaming technical reasons for its expulsion, and the state has reformed its land permit granting system by creating the new National Agency for Urban Planning, Topographical Works and Land Registry to reduce administrative procedures from 134 to seven and processing time from up to a decade to six months. The government additionally cut corporate tax from 35% to 30% in January 2013 and established 10-year tax holidays (followed by five years at 10%) for SEZ investors. The Banque Gabonaise de Développement, meanwhile, is expanding its lending to small and medium-sized enterprises (SMEs), while new SME credit guarantee schemes are supporting five commercial banks’ lending to midsized firms. In addition, the Agency for the Promotion of Investment and Exports is increasing its role in promoting and coordinating investment through the development of one-stop-shop shops, which are intended to centralise the functions of 13 public administrations. “For the past three years, the business environment has improved in Gabon. The amount of time to start a company has significantly decreased,” MarieJosée Ongo Mendou, the managing director of Business Consulting Gabon, told OBG.
LABOUR: With only about 250,000 Gabonese formally employed, the state knows one of its main challenges is leveraging its small pool of labour into higher-skilled positions. Minimum wages of CFA150,000 (€225) a month are higher than in the region in general, although the state has sought to compensate for this through incentives to invest and mechanise. The relatively young population, half of which is below the age of 20, presents Gabon with a potential demographic dividend if it is successful in expanding local technical and professional training capacity. Larger investors run their own training centres; for example, Société d'Investissement pour l'Agriculture Tropicale (SIAT) Gabon, which runs three rubber-tapping schools.
In addition, the EU is funding and preparing for an internship programme that it hopes to launch in 2014, aiming to train some 3000 pupils and place them in internships in local firms from 2014 to 2018. The Ministry of Education, meanwhile, signed a three-year contract with Aviation Industry Corporation of China in June 2013 to create and equip three new professional training schools at a cost of CFA17bn (€25.5m) each.
The CEMAC heads of state committed in June 2013 to allow the free movement of people within the region from January 2014, although each state is expected to set its own criteria. This would be significant for Gabon’s agriculture and agro-processing sectors; with oil palms requiring harvesting every 13 days and processing within 24 hours, for instance, there is little room to manoeuvre with regards to staffing needs. Although 32% of SIAT Gabon’s staff is foreign, most investors still say immigration procedures remain cumbersome.
“The cost of labour is roughly four times higher than in Cameroon or the Democratic Republic of the Congo,” Gert Vandersmissen, SIAT Gabon’s director-general, told OBG. “Given the shortage of labour in Gabon, removing barriers to the free movement of labour in the CEMAC would be the single biggest stimulus to the commercial agriculture industry in Gabon.”
OUTLOOK: With abundant resources to fund its aims, Gabon’s relatively new administration is putting forth an ambitious investment proposition that is convincing a growing number of investors. Strengthening capacity to implement plans and forging ahead with public-private partnerships for infrastructure will be key to achieving the goals laid out in Emerging Gabon.
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