Gabon aspires to emerging market status

Gabon’s ambitious campaign to diversify its economy – now in its fifth year – may have gotten an unexpected boost from the manoeuvring of some of the world’s biggest oil producers. Following the OPEC meeting in November 2014, oil prices plunged. A push by OPEC member states to maintain high production levels in the face of growing US shale output resulted in a major drop in global prices. Brent fell from $95 per barrel in October 2014 to around $56 per barrel in April 2015, far below the heady heights of $147 per barrel in July 2009. Maintaining production levels was part of a strategy by OPEC’s larger producers, such as Saudi Arabia, the UAE and Kuwait, to reduce the profitability of shale production in the US. Those producers benefit from large fiscal buffers and reserves, and were willing to ride out the subsequent short-term loss in revenues to maintain the organisation’s global market share. However, the impact was also felt by non-OPEC producers, not all of whom were able to hedge against lower prices.

Need to Diversify

While Gabon is not a member of OPEC, it was one of those hit hard by the lower prices. Hydrocarbons’ share of GDP fell from 43.7% in 2013 to 35.7% in 2014, while its share of total state revenues in terms of GDP is estimated at 12.8% in 2014 and is expected to fall below 10% in 2015, according to the “African Economic Outlook”, produced by the African Development Bank.

The broader impact on the national economy has been sizable, given the role hydrocarbons play. Currently, exports of Gabon’s black gold account for just under half of state budget revenues, and in terms of value they comprise roughly four-fifths of the country’s exports. With a breakeven price estimated by Fitch at around $100 as of 2014, the ultimate impact of the price cut on Gabon’s overall fiscal health has the potential to be significant. This is exacerbated in part by the fact that the country’s oil output has been slowing ever since it hit its peak in 1997. At that point, the country was producing around 370,000 barrels per day (bpd), but maturing fields and a lack of major new onshore finds had brought that down to an average of 230,000 bpd in 2014. A January 2015 report by the French Embassy in Libreville indicates that sector strikes might have further reduced oil production by around 30-50%. The government is seeking to stabilise production at around 250,000 bpd in the short term and to double it by 2025. However, according to some estimates, production could be as low as 100,000 bpd by 2024 unless new relevant discoveries are made in the meantime (see Energy chapter). As a result, the need to find new sources of growth has become increasingly urgent.

Redressing Growth

Historically, Gabon’s oil revenues, coupled with a small population of around 1.7m people, have allowed the country to set itself apart as one of the richest states in the region. Gabon has a per capita income of around $11,000, according to the World Bank, placing it among the top tier of African economies. However, for years the need for diversification has been clear – not only as a result of plateauing oil production levels, but also due to the lacklustre performance in other sectors, the lack of inclusive growth and regional developmental disparities. From 1988 to 2008, for example, the share of manufacturing fell from 7.6% to 3.5% of GDP, while fisheries and agribusiness were effectively sidelined. More importantly, the benefits of the relatively steady economic growth have been disproportionately concentrated in Libreville, and to a lesser extent Port-Gentil, the country’s two main cities. While the two cities do account for more than half of the country’s population, other regions have seen only limited improvements. To address this, the government has since 2009 set in motion a broad economic strategy that seeks to stimulate activity in new sectors and industries, to better foster job creation, cultivate revenues and improve socioeconomic development.

Emerging Gabon

The strategy is known as the Emerging Gabon Strategic Plan (Plan Strategique Gabon Emergent, PSGE). Under the plan, which targets emerging market status for Gabon by 2025, the country hopes to expand activity outside of its core area of commodities production to foster growth in secondary and tertiary segments. The PSGE relies on three pillars – Industrial Gabon, Services Gabon and Green Gabon – which seek to channel investment into related sectors, including manufacturing, telecoms and agriculture. The Green Gabon component focuses on developing value-added industries in the wood, agriculture and tourism sectors. Meanwhile, Industrial Gabon concentrates on adding value to Gabon’s underexploited mineral and hydrocarbons resources by developing the capacity for increased in-country processing. Finally, Services Gabon targets education and the development of research and innovation industries in health, finance and other services. Massive state-led infrastructure investment – with the IMF estimating the total spending envelope for the associated projects at $12bn – serves as the enabling platform for these three pillars.

Steps Forward

The country has taken steps forward over the past five years in a bid to meet the goals, some of which have had very clear impacts on overall performance. In 2010, for example, a ban on the export of raw logs resulted in a significant increase in local processing capacity, improving domestic value addition and job creation. Special economic zones are also being established, with the two most advanced being Nkok, near Libreville, and Mandji Island, near Port-Gentil. The zones are targeted towards export firms, particularly in the downstream commodity sectors, and provide incentives.

The government has also aggressively sought to modernise the country’s infrastructure. For example, construction is under way on the first land link between Libreville and Port-Gentil, the two biggest cities. Further targets for infrastructure improvement include a 100% increase in power generating capacity, a new deep-sea port in Mayumba, a roughly five-fold jump in the amount of paved roads, and the rollout of a national fibre-optic backbone.

Soft infrastructure has been a focal point for the government as well. By summer 2015, the government was nearly finished with the establishment of a new agency, the National Investment Promotion Agency, which would take over the duties of several agencies to provide investors with a one-stop shop for a variety of services. Moves have also been made to reduce the steps for business registration and improve transparency in the public sector.

Regional Inclusion

In February 2014, the government announced a strong focus on territorial management within the context of the PSGE at a conference in Franceville. To ensure a more inclusive spatial economic development, the government will develop 10 development poles throughout the country, in the guise of economically specialised clusters.