Investment in value-added production drives growth in Gabon's industrial sector

The diversification of the economy through its industrialisation under the Emerging Gabon Strategic Plan (Plan Strategique Gabon Emergent, PSGE) is taking shape with the support of strategic investors in agro-industry, construction materials, forestry and petrochemicals. The secondary sector – including manufacturing and the processing of the country’s various raw commodities, such as gold, oil and wood – is a focal point under one of the PSGE’s three pillars, known as Industrial Gabon.

The aim is to both generate more value-added products to raise tax revenues and foreign exchange earnings for the state and to create jobs, both directly and indirectly. Through the development of small and medium-sized enterprises (SMEs) in the sector, these investors will use local products, goods and services. One of the primary aspects of this policy is the development of three special economic zones, near the main urban and economic centres of Libreville, Port-Gentil and Franceville, making use of local natural resources in each location to focus specifically on timber processing, petrochemicals and the agro-industry, respectively – as well as a host of ancillary services and industries.

The incentives and government support that make up the PSGE (see Economy chapter) have had a noticeable impact on Gabon’s industrial output. The larger announced investments of recent years include a pair of planned fertiliser complexes near Port-Gentil, a new flour mill, a metallurgy plant and a new cement grinding facility.

While the primary sector registered a 1.2% fall in 2014, the secondary sector experienced growth of 5%, according to the “African Economic Outlook” for 2015, prepared by the African Development Bank, the OECD Development Centre and the UN Development Programme. Expansion in the secondary sector was largely driven by growth of 22.7% year-on-year (y-o-y) in refining and 10.5% in timber.

The public construction industry, however, declined 4.5% as a result of a slowdown in investments owing to delays in payments by the state, which had an impact on construction materials. Manufacturing represented 6.9% of total GDP in 2014, up from 6.5% in 2013, while the construction industry accounted for 6.3% of GDP, up from 5.5% in 2013. The agriculture, forestry and fishing sectors, meanwhile, accounted for 3.9%, up from 3.3% in 2013, according to government figures.

Agro-Industry

Agro-industry is a major contributor to industrial GDP. This is in part a reflection of Gabon’s current limited scope for manufacturing, hydrocarbons and mineral processing, but perhaps more notably an indicator of the large agricultural sector and the push in recent years by the government to expand local processing and value addition.

However, despite agro-industry’s significant contribution to the country’s economy, younger people are leaving the sector in favour of jobs elsewhere, particularly in urban centres.

“Agriculture is generally underdeveloped in Gabon but we are now seeing the young generation starting to work in this field,” said Bernard Azzi Oyiba, the general manager of Prix Import. “The sector has huge potential but it needs major investments in education and a change in the Gabonese mentality,” he added.

Feed & Poultry

France’s Castel Group, which owns Société des Brasseries du Gabon (Sobraga), the country’s sole beverage producer, has since 2010 been the majority owner of Société d’ Organisation de Management et de Développement des Industries Alimentaires at Agricoles (SOMDIAA). SOMDIAA has two local subsidiaries, Société Meunière et Avicole du Gabon (SMAG) and Sucrerie Africaine du Gabon (SUCAF Gabon).

SMAG, in which the state holds a 34% stake, produces wheat flour, animal feed, eggs and day-old chicks. It is currently the country’s sole importer of wheat and its only producer of wheat flour, as well as the dominant producer of animal feed and eggs. It registered turnover of €54m in 2014, which it expects to remain stable in 2016 despite the expected launch in 2015 of a rival flour mill in Libreville by Foberd Gabon, a subsidiary of Cameroon’s Fokou Group, with a production capacity similar to that of SMAG of 410 tonnes per hour.

SMAG anticipates that it will lose 30% of its turnover from flour sales once its rival is operational, according to Jacques Collignon, the firm’s managing director. Although this represents 55% of total group turnover, it is expected to be offset through rising sales of eggs and one-day chicks and a reduction in animal feed costs.

SMAG produces both its flour and animal feed at its milling plant in Owendo, which was built in 1968, but has since expanded operations to its current annual production capacity of 75,000 tonnes of wheat flour and 30,000 tonnes of animal feedstock. Its plant has storage facilities with a total capacity of 13,800 tonnes, which it plans to expand to 20,000 tonnes. Wheat-based flour produced in Gabon is mainly used to make bread, and SMAG’s market share in that sector is 95%.

Around 25% of its animal feed is supplied to its chicken farm in N’Koltang, south of Libreville, which is home to some 200,000 egg-laying hens, which produce around 40m eggs per year, equivalent to a 45% market share, as well as 25,000 genetically pure breeder hens, which produce 350, 000-400,000 one-day chicks both to renew its own stock as well as for the national market.

Sugar

SUCAF Gabon, which is the country’s only sugar producer, produces an average of 25,000 tonnes of white and brown sugar per annum from its 5000-ha plantation and refining complex in Ouéllé, near Franceville. Output is sold solely to the domestic market. Its two major industrial clients are Sobraga and Société Industrielle Gabonaise de Laiterie et de Liquides (SIGALLI).

Sales and turnover have been growing at around 2% per annum, in line with population growth, according to Christian Renardet, the company’s director-general. While its domestic market position is protected by an import ban on sugar, wholesale prices have been frozen since 1998, when it acquired the former state sugar producer, Société Sucrière du Haut-Ogouée, in a privatisation.

At the same time, its costs have risen. By SUCAF’s own account, rail transport tariffs charged by Société d’Exploitation du Transgabonais have risen by 20% over the last six years alone, while the average salary of its seasonal workers has almost doubled since 2011 to CFA150,000 (€229). The company employs 403 full-time workers, 600 seasonal workers, 512 subcontractors and has generated a total of around 500 indirect jobs nationwide.

Investment of around CFA20bn (€30.5m) is earmarked by 2020 to increase its production to 35,000 tonnes per annum and in the process fully meet national demand, which currently stands at around 32,000-33,000 tonnes. SUCAF Gabon is expected to plant an additional 1000 ha of sugar cane within the borders of its current plantation. However, to achieve its target, which would require doubling its current production per hectare, it will introduce new, higher-performing strains of sugar, as well as increase yields and automate the refinery’s production processes.

Livestock

SIAT Gabon, the local subsidiary of Belgium-based Société d’Investissement pour l’ Agriculture Tropicale, is the sole commercial producer of beef in Gabon, producing 200 tonnes per year at the country’s only abattoir. It operates a 100, 000-ha ranch with 5000 head of cattle in the southern province of Nyanga. Its meat is sold exclusively to the Prix Import supermarket chain. Currently, the meat business represents just 0.5% of SIAT Gabon’s total turnover, while its primary focus remains on producing rubber and palm oil.

This, however, is set to change. The firm is planning to build a new abattoir, with a capacity of 1000 tonnes, as part of a CFA314bn (€478.7m) investment programme it will undertake through 2025, according to Gert Vandersmissen, the COO of SIAT. The investment commitment was made under an agreement signed in September 2014 with the Ministry of Economy, according to which SIAT Gabon is exempt from taxes on imports and all profits for the next five years. The firm’s investments will also see it quadruple its head of cattle to 20,000 through the import of 2000 heifers per year from Brazil.

Long-Cycle Crops

Long-cycle crops, such as palm oil and rubber, are a key factor in Gabon’s economic growth strategy and they have significant upside potential.

Expected growth in global demand for palm oil and rubber, most notably in Africa, as well as an anticipated recovery in prices, will provide a new source of export revenue for the state as well as create jobs – something that has happened to great effect in both Malaysia and Indonesia, which began cultivating palm oil in the 1960s and are now the largest producers worldwide.

Developments in the sector are largely being carried out by two major conglomerates: Singapore’s Olam International and Belgium’s SIAT. SIAT is currently the country’s only large-scale producer of rubber and palm oil. Its local subsidiary, SIAT Gabon, in which SIAT holds a 95% stake, has concessions for 49,864 ha of palm oil and 25,395 ha of rubber. However, as of the end of 2014, only 10,000 ha of palm oil – of which only 7000 ha are mature – and 13,000 ha of rubber have been planted.

Its palm oil plantations, located around Makouké, host a palm oil mill and palm kernel-crushing plant with a capacity of 30 tonnes of fresh fruit bunches per hour. In Lambaréné it operates a palm oil refinery with a capacity of 30,000 tonnes per annum, covering 40% of local demand.

In Lambaréné the palm oil is refined and fractionated into olein and stearin. The olein (20,000 tonnes per annum) is commercialised under the brand name Cuisin’Or and the stearin is used to make laundry soap (6000 tonnes per year) under the brand name Pursavon. The rest of the stearin is used as renewable biofuel in the generator to produce electricity and steam.

On its three rubber estates – Bitam, Mitzic and Kango – SIAT Gabon annually produces approximately 42,000 tonnes of cuplumps (coagulated latex), which is then transformed into crumb rubber at the company’s factory in Mitzic, with a capacity of 2000 tonnes of high-quality crumb rubber per month. Because of its rapid expansion programme, SIAT Gabon is currently planning a second crumb rubber factory close to Lambaréné.

The scope for increased output is sizeable, which is one of the reasons why Olam opted to begin operations in Gabon in 1999. According to a 2012 study by McKinsey & Company, Olam Palm Gabon (OPG) and Olam Rubber Gabon (ORG) are projected by 2022 to increase sector GDP by some 47%, or $172m, the balance of foreign trade by $300m, as well as create an estimated 23,000 jobs.

OPG’s planned 100,000 ha of palm oil plantations are projected to deliver 410,000 tonnes per annum by 2022, which, if successfully executed would – along with SIAT’s existing plantations – make Gabon the second-largest producer in Africa, behind only Nigeria. Total rubber output on its 28,000-ha plantation is projected to peak at approximately 36,500 tonnes per annum in 2022. The first commercial harvest of palm oil is due in the third quarter of 2015 at Kango, followed by Mouila in 2016. Rubber production is due in 2018.

Around 75% of its palm oil production is to be exported, essentially to Olam’s processing plants abroad, with 25% destined for the local market if required. Its entire rubber output is also to be exported, although in line with the government’s aim of creating value-added products through local processing, processing plants are being built on the plantations. One crude palm oil processing plant is being built at each of its two plantations alongside a central palm kern oil processing plant, while a rubber processing plant is set to become operational at its plantation in Bitam.

Beverages

The beverage market’s sole beer producer and largest soft drink and water bottling company is Société des Brasseries du Gabon ( Sobraga), which was established in 1966. With a turnover of around CFA170bn (€255m) in 2014, it ranks among the 10 largest companies in Gabon and is also one of the country’s major private-sector employers, with around 1000 full-time employees and 300 temporary workers at its five production sites and one bottling plant. Sobraga produces six brands of beer, including Régab (the country’s best-selling beer), as well as Castel, 33-Export and Guinness, and soft drinks including Coca-Cola, Orangina, Fanta, Djino, and Imperial Tonic and Sprite.

The company accounted for around 90% of the group’s total turnover in 2014, and has a 90% share of national beer sales. “The first couple of months of 2015 have been difficult, but we are achieving growth on the back of a number of investments over the last few years and through the capture of new markets,” the company’s director-general, Fabrice Bonatti, told OBG.

The group also includes Soboleco, which produces bottled water, and has seen a doubling in terms of revenues and volumes of bottles sold over the last 10 years. It produces two brands of bottled water: Andza, the country’s most popular mineral water, which is produced from natural sources in the Batéké Plateau near Franceville, and Aning’Eau, purified water bottled in Port-Gentil, which was commercialised in April 2013 to serve local consumers.

Sobraga has invested a total of around CFA20bn (€30m) over the last three years with the aim of expanding and modernising its production facilities, most notably dedicating CFA8.7bn (€13.3m) to a new brewery unit at its Owendo plant, which was commissioned in 2013.

The Owendo plant now accounts for 70% of total national output, including 9m litres of beer per month. In early 2014 it also inaugurated a new plastic bottling production line at its Andza plant in Léconi, near Franceville, doubling its production capacity to 12,000 bottles per hour. The new production line also marked the launch of 33cl format bottles for Andza – a novelty for the local market.

Also active in the beverage segment is Société Industrielle de Laiterie Librevilloise (SIGALLI), which is the only dairy product and fruit juice producer in Gabon. SIGALLI’s main activity is the production, sale and marketing, under licence, of Yoplait yogurt. Fruit juice is SIGALLI’s second-largest activity, and the firm also distributes Candia milk and Fromageries Bel products, both under franchise.

Building Blocks

The construction materials sector is currently in the midst of a slowdown, reflecting lower state spending on major public building works – a function of lower oil prices – and a build-up of arrears to local contractors (see Construction chapter).

However, while the government’s budget is likely to remain subject to exogenous pressures over the near term (see Economy chapter), market conditions are expected to improve over the coming 18 months or so, following the announcement in March that Gabon will once again host the Africa Cup of Nations football tournament in 2017.

Domestic demand for construction materials experienced a spike in the 2010-12 period, ahead of the 2012 Africa Cup of Nations, when Gabon co-hosted the tournament. Social housing is also a major focal point for the government, which should help ensure a steady increase in demand.

The local construction industry continues to rely heavily on imports of key materials, with locally manufactured products limited to cement, steel reinforcement bars, wood and processed aluminium products. However, even many of the primary materials, such as clinker for cement, steel and aluminium, are imported as well. The high cost of importing finished and primary materials, along with higher-than-average labour costs, also weighs heavily on the domestic construction industry, affecting certain projects, such as the government’s plans to develop much-needed social housing.

Price Pressures

Cement is a case in point, ranging in price between CFA70,000 and CFA85,000 (€107-130) per tonne in Libreville, and higher elsewhere when adding in high transport costs, compared to CFA65,000 (€99) in Morocco, according to CIMAF, the sub-Saharan African subsidiary of Morocco’s cement producer CIMAT. CIMAF owns 75% of CimGabon, Gabon’s sole cement producer.

Lowering the price of cement is one of the main aims of CimGabon in its bid to win back domestic market share, reinvigorate the construction industry and support the government’s social housing programme. CimGabon has seen its share of the 650,000-tonne-per-year market fall to just 25%, eroded by years of under-investment and increased competition from Chinese imports.

To achieve this, CimGabon is investing €35m in a modern grinding plant in Owendo. The plant, with packaging and delivery facilities, is set to come online in August 2015. With a capacity of 500,000 tonnes per year, it will more than double the company’s current production capacity, but at lower cost than its existing sites.

With the new plant, CimGabon will have total production capacity of 950,000 tonnes per year, allowing it to once again meet domestic demand in full, as well as potentially export to neighbouring markets such as the Republic of the Congo and Equatorial Guinea.

CIMAF acquired its two grinding plants at Owendo and Franceville, as well as a site at Ntoum that was closed down in April 2014, from the former majority owner of CimGabon, Germany’s HeidelbergCement, in May 2014. The two plants have a capacity of 300,000 and 150,000 tonnes per year respectively. However, at present the two existing plants are producing at just 35% of their capacity due to the high competition from Chinese firms.

Clinker

CimGabon is studying the possibility of redeveloping the Ntoum site, which formerly produced aggregates from an adjacent quarry. Exploration studies are under way to analyse the size of the site’s limestone deposits to supply an eventual clinker plant with a proposed capacity of 1.2m tonnes per year in an investment estimated at €140m.

The production of clinker, a key ingredient of cement, at Ntoum would be a boon for CimGabon and CIMAT, according to Salim Kaddouri, the director-general of CimGabon. “We currently import all our clinker, which is very expensive,” he said. “If we could produce it locally, our cement would become much cheaper and allow us to become self-sufficient in cement production as we have all the other materials we need here. Moreover we can then export this clinker to our other regional plants.”

Another building materials producer, Société de Transformation d’Aluminium (SOTRALGA), has also sought to maintain its turnover and market share in the face of growing competition, according to the company’s managing director, Ali Fakih Oboungou. “We are observing in the market the presence of lower-quality products imported from Asia that are gaining market share as construction companies are now not very focused on quality,” he told OBG.

The firm, which specialises in aluminium roofing, primarily for the residential housing sector, holds a market share of 66%-70%, with turnover in the last few years averaging CFA5.8bn-6bn (€8.8m-9.1m).

The subsidiary of Yeshi Group, a Cote d’ Ivoire-based building materials provider, SOTRALGA began production at its plant in Owendo in 1976 and has since added two further production lines in 2010 and 2014. It imports 1200-1400 tonnes of rolled aluminium per year from Cameroon at prices fixed by the London Metals Exchange, with its finished products sold to retailers such as Bernabé Gabon, BATI Plus and Sogame Equipe, as well as directly to clients. In January 2015 it began producing steel reinforcement bars at a plant in Akournam, largely for sale to small local businesses for small housing construction, with the aim of producing 3000-5000 tonnes per year.

Timber

After a transitional period for the sector following the introduction of a ban on exports of raw timber at the beginning of 2010 (see Agriculture & Forestry chapter), 2014 saw somewhat of a recovery. This occurred on the back of steadily improving conditions in international markets, rising domestic demand and efficiency improvements resulting from investments. “Globally, timber demand is higher than the supply, thus the globalisation of the industry is quite positive for Gabonese companies that can acquire new markets,” Frédéric Ober, managing director of Precious Woods, told OBG.

The timber industry saw growth of 10.5% in real GDP terms in 2014, driven by an increase in wood processing – most notably the production of veneer, according to the “African Economic Outlook” for 2015. Timber accounted for 9% of total exports in 2014, with an estimated value of CFA442.3bn (€674.3m), according to figures from the central bank and the government.

Two of Gabon’s major producers – France’s Rougier and Switzerland-based Precious Woods – reported increased international demand for legally produced and Forest Stewardship Council-certified tropical timber, while the former noted that the dynamic domestic market had benefitted all the leading producers. Sales of its logs to local industry rose to almost 47% of all logs that it sold in 2014.

Rougier Gabon reported a rise in turnover to €12.4m in 2014, up from just under €11m in 2013, with an operating loss of €2.2m, as compared to a loss of €10.2m the previous year. Precious Woods registered a near doubling of gross profit from 13.5% to 25.6% year-on-year driven by a 29.5% increase in net sales to $30.2m. Its log harvest volume grew by 9.5%, sawmill output rose by 13.2% and production at its veneer plant increased by 26.8%.

Fertilisers

Two fertiliser projects are planned for the special economic zone on Mandji Island near Port-Gentil. The most advanced is an integrated ammonia-urea fertiliser plant that is being developed by the Gabon Fertiliser Company (GFC), a joint venture between Olam International (80%) and the government (20%).

The project, which is slated to begin operation in 2017, will entail the construction of an ammonia plant producing 2200 tonnes per day and a urea plant with a capacity to produce up to 1.4m tonnes of granular urea per year. All ammonia produced at the plant will be converted to urea.

GFC is currently working to achieve financial closure for the project, which is estimated to cost around $1.5bn-2bn, as well as to secure a natural gas supply of up to 3m cu metres per day as feedstock for the production of urea, as well as for a captive power plant.

To bring down costs, GFC could share some of the infrastructure, including power generation capacity, natural gas supply and transport capacity, with the developer of the second fertiliser complex – a joint venture between Moroccan state-owned phosphate producer OCP and state-owned mining group Société Equatoriale des Mines (SEM).

An agreement was signed between OCP and the government of Gabon in March 2014 for the joint production of nitrogen, phosphorus and potassium (NPK) complex fertilisers. The $2.3bn project foresees the construction of an ammonia plant with annual output of about 1m tonnes, and a plant producing NPK complex fertilisers, with an annual capacity of 750,000 tonnes. OCP will produce phosphoric acid and NPK fertilisers in Morocco, with the partners sharing production of ammonia and phosphoric acid to be mixed with imported potash.

As with the GFC project, the start of operations will depend on gas availability. OCP and SEM require 900m cu metres per annum over 25 years.

Setting a Timeline

A feasibility study, which is being conducted internally by OCP, was initiated in March 2015 and is due to be finalised in early 2016, by which time the partners expect to have a clearer idea of gas availability. “The timing will depend on the availability of gas, but if everything goes to plan, construction would take four years, implying the start of production in 2020-21,” said Fabrice Nzé-Békalé, the CEO of SEM (see analysis).

Special Economic Zones

The fertiliser plants are being built on Mandji Island, near Port-Gentil. The site is part of a broader push by the government to establish a set of three new special economic zones that will help to incentivise investment.

Development of the first of the three special economic zones (SEZs) at Nkok, near the capital of Libreville, continues apace, with eight companies operating as of May 2015. A further 10 are expected to be operational by the end of the year. Construction work on the first 450-ha tranche of the eventual 1126-ha zone at Nkok began in August 2010, with infrastructure investment to date totalling approximately $576m.

As of February 2015, a total of 80 investors have committed to invest, representing an estimated total foreign direct investment of approximately $1.7bn, according to figures from Singapore’s Olam International, which operates the zones in a public-private partnership with the state, through a joint venture company, Gabon Special Economic Zone (GSEZ). GSEZ is responsible for the development and management of the Nkok SEZ and its infrastructure, as well as for a second planned SEZ on Mandji Island near Port-Gentil.

The Nkok SEZ is designed as a multi-sectoral economic zone with a particular focus on timber processing and related industries. Four of the eight companies currently operating are involved in wood processing: Krishna, Shinago and Otim Veneer from India, and GWI of Malaysia.

Singapore-based Africa Alloys Gabon and Lebanon-based Chaudronnerie du Gabon have opened up metal processing operations, while Spain’s Consulting House, which builds prefabricated houses, and local firm Beton GAB, which produces bricks, have also relocated there.

“Thanks to the entry into force of the Mining and Hydrocarbons Codes, a lot of companies have been created so far in the related sectors. This will definitely help boost the economy and Gabon’s growth,” Marie-Josee Ongo Mendou, associate manager of Business Consulting Gabon, told OBG.

The second SEZ, on a 1500-ha area of land on Mandji Island, will focus on the development of petrochemicals and related industries, capitalising on its proximity to the country’s hydrocarbons fields. One of the first industries that is expected to become operational on the site as early as 2017 is the GFC integrated ammonia-urea fertiliser plant.

The third SEZ, focusing on agro-industrial processing, is planned to be developed in Boumango near Franceville. The Ministry of Agriculture signed an agreement in January 2015 with MEDZ, a subsidiary of Morocco’s state-owned institutional fund, Caisse de Dépôt et de Gestion (CDG), to assist it with the design and development of this pilot agro-industry zone with a view to developing others across the country (see analysis).

Training

There are also ongoing efforts to improve training across both industry and mining. For example, Compagnie des Mines de l’Ogooué (COMILOG) is joining forces with the government to open a School of Mines and Metallurgy. The school will aim to produce engineers and technicians ready for immediate employment upon graduation. It will open in September 2016, with an initial 60 places for students.

Outlook

The ability to maintain foreign direct investment in the industrial sector will be all the more vital in the near term in building on the initial steps taken to transform Gabon into an emerging, diversified economy by 2025 in light of the government’s budgetary constraints.

The country’s natural resources offer enormous potential for fuelling economic growth in the years ahead, but their dispersed nature and geographic spread poses logistical difficulties, which will need to be addressed to fully realise their potential. The development of three special economic zones, meanwhile, will require major infrastructure investments to ensure success.

Transportation infrastructure needs to be upgraded as well to ensure the competitiveness of the export-oriented sectors such as mining, as well as develop the remote areas. The need for further development in electricity generation and fibre-optic networks, as well as in the training of a qualified workforce, will also be a key priority going forward.