Gabon accelerates reforms with a tight fiscal regime

Even amid a drop in the price of oil, the country’s chief export, Gabon has seen stable growth over the past five years, aided in part by a large government spending campaign that has sought to encourage greater diversification. According to the World Bank’s 2015 “Doing Business” report, the country has maintained its edge as the most attractive business environment in the Economic and Monetary Community of Central Africa ( Communauté Économique et Monétaire de l’Afrique Centrale, CEMAC) – which also includes Cameroon, the Central African Republic, Chad, the Republic of the Congo and Equatorial Guinea – and has seen notable improvements in key indicators. Reforms of soft infrastructure, including the establishment of a one-stop shop for investors and businesses, along with means for improved collaboration between the government and private sector, have helped in this regard, supporting headline growth that is forecast at 4.4% in 2015.

However, the country continues to face other difficulties, including a widening income disparity, a growing budget deficit and a build-up in domestic arrears. While Gabon should be able to sidestep the sort of contraction that it experienced in 2009, this has brought the issue of budgetary consolidation to the forefront of the government’s agenda, as authorities attempt to make up for the loss in revenues by expanding in other sectors.

According to Plan

Economic diversification has been at the centre of government goals since 2009, as Gabon follows through with its Emerging Gabon Strategic Plan (Plan Stratégique Gabon Émergent, PSGE). Under the plan, which targets emerging market status for Gabon by 2025, the country hopes to expand activity outside of its core focus on commodities production, including mining, oil and logging, to foster growth in secondary and tertiary segments. The PSGE, which aims to create 325,000 new jobs in non-oil sectors by 2025, relies on three pillars: Industrial Gabon, Services Gabon and Green Gabon. It will also channel investment into related sectors, including manufacturing, telecoms and agriculture. The strategy has guided the bulk of the government’s programmes in recent years, including partnerships with foreign investors on projects like the Nkok special economic zone (SEZ) and the deep-sea port at Mayumba.

Harmonisation of standards is another focus of the PSGE. “The process of standardisation is a key part of the Emerging Gabon strategy, with the ultimate goal of having a sole regulatory body able to issue the norms for each sector of the economy – something that is currently very fragmented,” Huguette Tsono, managing director of the Gabonese Standardisation Agency, told OBG.

The value of the PSGE programme is obvious. As the IMF stated in its 2014 Article IV Consultation, released in February 2015, “A successful, fiscally sustainable implementation of Gabon’s diversification plan would not only be a valuable model for other countries in the region that are aiming to foster non-oil growth, but the resulting improvement in Gabon’s roads and telecommunications infrastructure could foster the region’s integration.”

Diversification Potential

Navigating the current oil shock and minimising the risk of future negative affects will depend on reducing the commodity’s weight on the national economy, though favourable currency exchange in 2015 offered some insulation from price declines. Hydrocarbon exports account for 49% of state budget revenues and up to 85% of exports in terms of value. Although oil revenues and a small population have set Gabon apart as one of the richest nations in the region, pressure to diversify economic growth is mounting. The country’s oil production has been declining for some time, settling at 230,000 barrels per day (bpd) by early 2015, after its 1997 peak of 370,000 bpd. According to sector estimates, production could be as low as 100,000 bpd by 2024, unless new discoveries are made in the meantime (see Energy chapter). But other industries based on natural resources have the potential to become important export earners for the country. After oil, mining remains the second-most-important economic sector due to the country’s considerable manganese reserves, although small gold reserves are also taken to market. The industry currently accounts for 2% of GDP and up to 9% of exports in terms of value, according to the French Treasury (see Mining chapter). In an effort to increase the industry’s added value, the government has signalled that priority for new concessions will be given to companies that are willing to process mineral resources in-country.

Growing Sector

The third-most-important export sector is forestry, which accounted for 1.3% of GDP in 2014 and remains the economy’s most important segment in terms of overall employment. Although exports of forestry resources account for 5.8% of Gabon’s total exports, the sector has lagged behind due to low competitiveness. However, this has been changing over the past few years, and in 2010 a ban on unprocessed wood exports was implemented. This resulted in the creation of 33 new wood processing companies between 2012 and 2014, according to figures from the African Development Bank (AfDB).

Sales of wood products increased considerably, going from $166m in 2009 to $340m in 2012, proving that the strategy to increase added value for Gabon’s natural resources can fast-track growth. Despite recent improvements, the industry suffered after the failure to sign a partnership agreement with the EU, which means that certain trade tariffs on Gabonese wood exports to the EU will be maintained for the meantime. Much of the improvements for the business sector will also depend on the government’s ability to maintain investment in public works, despite unfavourable budget conditions. “Improving infrastructures is necessary to allow the private sector to work effectively,” Rick Emery Tsouck Ibounde, senior economist with the World Bank in Gabon, told OBG.


According to the World Bank, Gabon is classified as a middle-income country, with an estimated average per capita income of $10,067 in 2014. This is considerably higher than the average in the sub-Saharan region. It is also a testament to the decade of growth that the country has experienced, which enabled Gabon’s GDP to more than double from $9.46bn in 2005 to $17.23bn in 2013, according to World Bank figures.

Growth has been especially relevant over the past five years, with an acceleration of public investment under the PSGE. However, the sharp drop in oil prices in international markets, which began in mid-2014 and has maintained a downwards trend throughout the first half of 2015, has been exposing the weaknesses and strengths of Gabon’s economic expansion. Similarly to what has happened in other countries that are reliant on a single commodity, over-dependence on oil exports has weakened the growth of other sectors, eroding Gabon’s budgetary position as oil export earnings decrease. This, in turn, has limited the state’s ability to stoke growth via public spending and exacerbated the risk of a build-up of domestic arrears.

Economic Expansion

However, despite the adverse conditions, the country should be able to avoid a significant slowdown similar to the one it experienced in 2009, when the economy contracted by slightly over 1%. The current slump in oil prices has hit Gabon after years of sustained growth. In 2012 GDP growth reached 5.7% and in 2013 it was 5.6%, according to estimates from the “African Economic Outlook”. This had initially set a strong expectation for growth to continue, but government forecasts, which had estimated growth rates would reach 6.7% and 7.2% in 2014 and 2015, respectively, were tempered by the fall in oil prices, leading authorities to revise their predictions.

The Gabonese government now expects growth to reach 4.6% for 2015. This is certainly not bad, but it is considerably less than what was initially forecast. The IMF reported that in a context of decreasing oil revenues for Gabon several projects currently under way at SEZs “in agro-industry, mining and wood processing should help sustain the projected non-oil growth”.

Strong economic performance over the past several years, led by hydrocarbons exports and a state-backed infrastructure programme, has allowed Gabon to establish strong fundamentals, but short-term decline is expected due to a reduction in oil export earnings and oil production. According to the IMF, the country’s current account reached a surplus of 21.3% of GDP in 2012, but has since been under pressure, falling to 14.8% of GDP by 2013 and further down to an 11.1% surplus of GDP for 2014. Due to the fiscal strain, the current account is expected to post a 4% deficit in 2015.

However, the current negative stance is expected to be reversed over the coming years, as Gabon’s non-oil economy solidifies. This will likely be achieved through the implementation of policies to add value to other resource-based exports, such as timber and manganese. As a result of these efforts, the IMF expects that non-oil exports will rise from 23% of total exports in 2014 to 40% of Gabon’s total exports by 2020. Achieving this level of diversification has become critical if Gabon is to transform its economy and reduce its heavy dependence on oil. Oil prices are likely to remain below $100 for the next few years at least, and the country’s maturing oil industry is expected to see a 9% reduction in output during the 2014-20 period, unless current exploration efforts yield new viable reserves.


Being part of CEMAC, Gabon’s monetary policy is set by the regional grouping’s central bank, the Bank of Central African States, which has successfully kept inflation under control due to prudent monetary policies. However, a traditionally low level of inflation in Gabon has jumped considerably from 0.5% in 2013 to 4.5% in 2014, largely due to a price freeze on basic consumer goods and a temporary reduction of duties for certain products in 2013, according to the French Treasury. These figures are above CEMAC’s own convergence goals, but authorities expect inflation to go down again in 2015, possibly to the 2-2.5% range, according to estimates by the World Bank, due to the lower value of imports resulting from budget restrictions.

Looking to FDI

Large investments from the government have helped to attract a stable flow of foreign direct investment (FDI), with the largest recipients being resources sectors such as oil, mining and forestry. Between 2010 and 2013 FDI in Gabon rose from $499m to $856m, according to figures from the World Bank. FDI as a percentage of GDP reached 5.6% in 2014, according to preliminary estimates by the IMF and the Gabonese government, but should plateau at around 7.3% of GDP for 2015 and 2016, and then gradually decrease all the way down to 6.5% by 2020.

For several years now authorities have been improving conditions to increase private investment, both domestic and foreign. One big step has been the merging of several investment-oriented agencies, including foreign investment promotion agency, Promo Gabon, and the restructuring of the Private Investment Promotion Agency into the Centre for Enterprise Development. Programmes supported by international institutions such as the World Bank, the International Bank for Reconstruction and Development, and the AfDB are also helping to enhance conditions so that businesses can operate more efficiently (see analysis).

Facing the Challenges

The government’s balance sheet is the clearest evidence of the impact of the fall in oil prices and broader macroeconomic easing. Budgetary restrictions were implemented as soon as oil prices started to fall. In mid-2014 the government had to downgrade its predictions for public spending, reducing its investment expenditure by 50%. With the first 2015 government budget initially anchored on oil prices of $80 per barrel in fourth quarter of 2014, authorities have had to redraw spending plans following a drop in prices to a low of $45 in early 2015 – although prices had since stabilised at around $50 in summer 2015.

However, linked to this new reality, Gabonese authorities have estimated oil revenues will decrease by at least CFA400bn (€600m) in 2015. In early April 2015 the government approved a new budget for 2015 of CFA2.65trn (€3.98bn), down some 14% from 2014. “The budget for 2015 was initially done considering obviously optimistic oil prices, and the budget was revised at a price of $40 per barrel. This is what other oil producing countries in region are also doing,” said Tsouck Ibounde.

Budget Cuts

A big part of the budget cuts will happen in the capital expenditure budget, which the government announced would be reduced by CFA47.1bn (€70.65m) to CFA596.7bn (€895.08m) for the year, compared to CFA925bn (€1.39bn) for 2013. The percentage of the state’s budget allocated to investment has been increasing, rising from 25% of government expenses in the 2007-09 period to 40% for 2010-14, according to figures from the minister of economy provided to local media in March 2015. Similarly, budget cuts were also scheduled for recurrent expenditures, which were set to be reduced by CFA202bn (€303m) and set at CFA1.34trn (€2bn) for 2015.

While the cuts are necessary, they might present certain risks in the short term. By reducing current spending, the Gabonese government will need to reduce wages, at a time when public sector strikes asking for higher pay have negatively impacted sectors such as education, telecommunications and the oil industry. Furthermore, a cut in the public investment budget might have a negative impact across the economy, which remains highly dependent on large public projects. This, however, could be countered by a prioritisation of projects with a major impact, given that the state’s budget of CFA600bn (€900m) leaves plenty of room for infrastructure investment. In early 2015 President Ali Bongo Ondimba asked the government to prioritise spending on projects that are already under way and in need of resources to be completed. The state intends to spend on projects that will have a strong social and economic impact, which means that yet-to-be-finished road projects, energy infrastructure work and expansion of sanitation services are set to remain on track as key government goals.


Gabon has issued roughly $2bn worth of sovereign bonds in recent years, and while the current oil price slump may lead to further issuances, the conditions for borrowing have worsened slightly. In late 2014 credit ratings agency Fitch Ratings downgraded Gabon’s outlook from stable to negative. The agency based its analysis on falling oil revenues and the need for budget cuts, which might negatively impact the economy. “Financing for infrastructure projects will now put more emphasis on international institutions and private partners, and less on the national budget, which is heavily affected by the current fall in oil prices,” Serge Dimitri Mba Bekale, manager for tax and legal at EY Gabon, told OBG.

In 2013 the country issued a $1.5bn eurobond, partly as a way to replace existing debt. The Gabonese government will likely borrow additional money to make up for any lack of investment capacity caused by a tighter budget, and in June 2015 a $500m, 10-year sovereign bond was released, with a yield of 6.95%. Régis Immongault, the minister of oil, economy and investment, told the press, “The eurobond is for infrastructure – energy, water, education and health facilities. It is a strong signal of support for our reforms and economic policies. Investors recognise our proactive approach of dealing with the recent oil price volatility.”

The Gap

“The current level of debt, estimated by the IMF at 35% in 2014, is below the regional convergence criteria of 70%, and allows some margin to work with. But an increase in debt in 2015 is expected. This is sustainable if the debt is used for projects that can help economic diversification, increase the competitiveness of non-oil sectors, reduce poverty and create jobs,” Tsouck Ibounde told OBG. Gabon’s external debt remains manageable and allows it to procure funding to support major infrastructure projects without heavily increasing its external debt burden, but the real challenge for its budgetary position over recent years has been the large amount of internal debt and infrastructure alone cannot solve logistical bottlenecks.

Getting rid of arrears has been part of the official agenda, as Gabon tries to restore liquidity to the economy and increase business confidence. Public investment spending was curbed in 2014, the 2015 budget was revised, assuming much lower oil prices, and initial steps have been taken to address weak public banks, improve the business environment and ensure government services are more efficient. According to IMF figures, the 2014 adjustment led to a surplus of 4.5% for non-oil GDP and allowed the government to pay around CFA435bn (€652.5m), and new measures include value-added tax reimbursements, rescheduling debt payments and a reduction of fuel subsidies.

Human Development

With considerable natural resources, one of the continent’s highest per capita incomes and a population of only 1.7m, the Gabonese state has traditionally benefitted from sufficient fiscal room to invest in health care and education services for its citizens. This has translated into higher human development indicators as compared to the regional average. Gabon’s net enrolment rate is around 96% and the adult literacy rate was 82.3% in 2012, according to World Bank statistics, which are among the highest in Africa.

Similarly important has been the focus on improving health care provision. Per capita expenditure on health care jumped from $187 in 2005 to $441.40 in 2013, much higher than the average in developing sub-Saharan countries, which moved from $59.50 to $101 per capita over the same period, according to the World Bank. Investment in health care has also allowed life expectancy from birth to increase to 63.4 years of age in 2013, compared to 60 years of age in 2005. This is also considerably higher than the average of 56.9 years in developing nations throughout sub-Saharan Africa. Improving health conditions have also helped Gabon to reduce maternal mortality from 300 per 100,000 live births in 2005 to 240 per 100,000 live births by 2013. An estimated 90% of the population has access to public health services through the country’s National Fund for Health Insurance and Social Security.

Gabon still battles with a relatively high poverty rate, with a third of the population living below the poverty line, according to IMF figures. In its report the IMF said, “Weak institutions and governance, a shallow financial sector and a poor business environment have been obstacles to transforming the oil wealth into better living conditions for the population.” To address this, the government has designed Programme Graine in partnership with Singaporean firm Olam International to assist farming cooperatives and stem migration to urban areas. New vocational initiatives include the Mining and Metallurgy School, expected to open in September 2015, and an expansion of branches of the national employment office.

Business Environment

In the last few years, national investment has been led by the public sector, but given the increasingly restrictive fiscal environment, the government is looking to encourage private sector activity to sustain growth and diversification efforts. The country’s ranking in the World Bank’s 2015 “Doing Business” report is 144th out of 189 countries – a fall of six places compared to 2014. And although there is clearly considerable room for improvement, it fares competitively against other major Francophone markets in sub-Saharan Africa, including Côte d’Ivoire (147th), Senegal (161st) and Cameroon (158th).

To improve the country’s ranking, the government is undertaking reforms such as the establishment of the Gabon National Agency for the Promotion of Investment, as well as the creation of the High Council for Investment and the National Pact of Adjustment for Competitiveness (Pacte National d’Ajustement pour la Compétitivité, PNAC). Created in January 2015, the PNAC is charged with increasing cooperation between the private and public sectors to assist in the transition from what is still a largely rentier economy to a production-driven one.

The government expects this will be done by reducing bureaucracy to encourage more investment from the private sector, as well as boosting the available resources for professional training. Some of these measures are already being implemented. The government is also hoping to establish a better national training system to improve the quality of the local labour pool. Currently under discussion is a tax for professional training, which is expected to be around 2% of the salaries paid by a firm. A similar decree was passed in 2000, but was never applied, due in large part to protests from the private sector over the ultimate utility of the tax.


There are challenges that dampen Gabon’s appeal, including limited transport links, a burdensome visa process and recent disputes between the government and private firms. The build-up of domestic arrears has led to cash flow problems for government contractors and a slowdown for smaller local sub-contractors. Depending on their industries, economies of scale could be a concern for investors due to the limited size of the domestic market – 1.7m people. Adrien Degbey, a partner at Delta Grant Thornton (Gabon), told OBG, “One issue for firms settling in Gabon is that the market may be not be large enough for economies of scale. Investors should consider this point and all cross-border opportunities offered at the CEMAC level from the beginning of their projects.”

A Taxing Matter

A series of public disagreements with international oil companies has also affected perceptions. In April 2015 the country’s Ministry of Mines, Petroleum and Hydrocarbons announced it was considering fining Royal Dutch Shell up to $100m for past taxes. In February 2014 Gabonese authorities had reportedly demanded a total of $805m in back-taxes from French oil company Total, a demand which was settled in late 2014. Another ongoing dispute between Tullow Oil and Gabon led to the expropriation of the company’s 7.5% stake in the Onal oilfield.


Gabon has benefitted greatly from its considerable natural richesse, which has underwritten a strong macroeconomic performance over the past five years. Growth based on oil exports has allowed the government to embark on infrastructure development, which, if successfully executed, could make the country more competitive and less exposed to exogenous risks. However, the continued dependence on oil has left the country vulnerable to external shocks, and the low-price environment of 2014 and 2015 will likely cause complications for the next two to three years, as the authorities grapple with lower budgets and greater debt challenges. Although this has forced the country to maintain a tenuous balance, requiring it to accommodate an infrastructure and social development plan under higher budget pressures, it is also an opportunity to streamline the economy.

Budget constraints are pushing the Gabonese government to improve allocation of resources. Authorities are engaged in a major reform to change budgetary procedures by increasing the level of planning and closely linking expenditure to goals and objectives. Serge Dadja Tabo, country director of KPMG Gabon, told OBG, “The Gabonese government launched an audit in 2014 to isolate bad expenses and over-billings. The government wants to send a message that they are dedicated to allocating money more efficiently.”

More closely programmed budget expenditure might help to improve monitoring of the state’s expenses, which remains undermined by weak statistics. Boosting the country’s private sector will also be crucial to inclusive growth. Heavy reliance on public spending to act as an engine of growth has meant that when the state’s investment capacity is reduced, the effects are visible in the general economy quite rapidly. Overall, the economy has strong fundamentals to endure the current oil price shock, but the government needs to move fast to make the changes necessary to support private sector growth and investment in the longer term.


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