April 19, 2016    7 minute read

Gabon: The Next African Growth Miracle?

   April 19, 2016    7 minute read

Gabon: The Next African Growth Miracle?

Gabon does not often make the headlines. However, it has one of the highest standards of living in sub-Saharan Africa with a GNP per capita of over $14,000. As is often the case, these figures do not represent the whole picture. Staggeringly high inequality levels mean only a small portion of the country share the majority of the wealth. Gabon is rich in resources such as land, timber, oil and other commodities such as manganese and iron ore. Forests cover 81% of their land.

Strategic Plan Emerging Gabon

The initial plan was set up with the goal of emerging market status by 2025. The slogan ‘Industrial Gabon, Services Gabon and Green Gabon’ hopes that the first foray into the value-added industry after the implementation of the logging ban law forcing internal processing will lead to a rise in the secondary and tertiary industry thus leading them less exposed to the volatile commodity and exchange markets.

Timber Industry

This has been the primary focus of their diversification efforts. The country benefits from extensive forest resources covering the vast majority of their country a total of 220,000 square kilometres out of a total of 268,000. It was one of their most prominent industries before the discovery of oil around 50 years ago. France is currently their largest importer, amounting to 42%. A law was passed in 2010, banning the export of raw logs the hope was to allow for more internal processing thus creating more jobs and increasing profits from the sector. It is estimated revenues have tripled due increased number of companies, increased production and increase in the number of transportation companies operating in the area. However, production levels are already above the official sustainable production estimates and are rising further. Monitoring of the large logging companies has been made difficult due to lack of resources and administrative capacity. The Gabon forests are home to many rare tree species and there has been a rise in illegal exploitation of wood.

Oil Industry

Like many African countries, Gabon’s main source of government income has for the past couple of decades been predominantly oil revenues. It is estimated to account for close to 80% of their export earnings. The oil price crash has destabilised their economy and subsequently forced them to look for other sources of revenue with increased urgency. Oil revenues account for nearly 50% of the national budget, when the price was high at the beginning of the century, Gabon saw a massive movement into the oil sector mainly from timber.

Health Industry

Last year, the French Development Agency introduced a $50 million loan over a 5-year period focused on Gabon’s health sector. Gabon’s introduction of health insurance coverage, focused on their most desperate citizens have radically altered the health care sector. The system has increased efficiency and coverage for the lowest income members of society. The mechanism has been majority funded by a 10% tax on mobile phone companies with operations in Gabon as well as a 1.5% incremental charge on international money transfers. By penalising MNC’s they have managed to shield domestic producers and consumers from higher taxes.

Mining Industry

Gabon has benefited from large endowments of manganese as well as iron ore. Expansion in these sectors from small scale production to a rapidly expanding export sector has been implemented after significant infrastructure investments and capital expenditures.

Infrastructure

In 2014, the World Bank issued a $58 million agreement to construct a major fibre optic infrastructure project to cover Gabon and cross over to their neighbour, the Republic of Congo. Launched in June 2015, The interconnection is currently running at 40%. A total of 208km of optical fibre has been laid so far. After completion Gabon will have increased access to a reliable 3G network, the hope is this will encourage FDI and an increase in MNC’s operating in Gabon. It will also allow increased mechanisation, especially in the mining industry. It will also lower the cost of access to the internet, not just reducing production costs for business but also benefit citizens, who with access to the Internet can gain access to microfinance as well as tools and data planning.

China

Gabon recently hosted some of China’s premier political advisors. Given the overwhelming investment China has made throughout the African nations, closer ties to the superpower are clearly beneficial. Countries such as Djibouti have received vast sums to invest in railways and special economic zones which have transformed their economy. There are currently over 20 projects official Chinese development projects in Gabon and many more projects being constructed by Chinese companies using alternative funds.

Private Funding

Gabon has also benefited from increased funding from the African Finance Corporation, amounting to $140 million. The investment is focused on the ‘Gabon special Economic Zone’ and will be spent on a mixture of infrastructure spread across a myriad of sectors. Gabon joined the AFC at the end of 2015; it was originally established in 2007 and provides debt and equity financing at competitive investment rates. The Corporation mainly focuses on infrastructure projects and currently has 13 members all residing in Africa.

Gabon Special Economic Zone

Originally established in 2010 in response to the economic turmoil associated with the oil price, on which the economy was heavily focused. Efforts to diversify were very much centred on the creation of these zones. In 2015, more stress was put on immediate diversification as the oil price crash destabilised the economy. The Nkok Special Zone employs 7,000 people and has so far brought in over $192 million. Another Special Zone set up in Port-Gentil has also seen remarkable revenues. The result has been an infrastructure project to connect Port-Gentil and Libreville (where Nkok is situated). The project is being funded by the government. The project will be carried out in two phases with the first beginning in March 2014. With the vast majority of the population situated in or near Libreville, this project is hoped to completely overturn the dynamic of the economy. Lowering the distance and cost of transport between the two cities will ease access to labour for businesses as well as transport of materials. The additional investments in Port-Gentil Airport which will be completed in 2016 involved a new terminal and extension of the runway to allow larger international carriers to land.

Politics

The current President Ali Bongo looks likely to be re-elected in 2016, he first gained election in 2009 after the death of his father who was President previously from 1967 until his death in 2009. He was the longest serving ruler in the world, not including royalty. The initial election was met with protests and riots. The opposition rejected the results, which had stated that Bongo won 42% of the vote. Since his election, Bongo has radically changed the economy. His business orientated globalised approach has allowed Gabon to open itself to increased trade and investment from around the world. In 2014, he began a campaign called ‘main propres’, meaning clean hands, as the first anti-corruption campaign. This resulted in many of his party members being fired for inappropriate handling of funds. Some have suggested this was no more than a political publicity stunt. However, it did result in the President being invited to meet Barrack Obama in 2011. The latest election will be held on 28th August this year.

Although the economy is indeed diversifying, the timber and mining industries do not shield the country from the volatile commodity markets and exchange rates. The process has been slow, but Gabon’s open attitude to international cooperation and progressive government committed to lessening inequality problems leads to a promising future outlook for Gabon.

Once the infrastructure projects are complete and the 3G network is fully activated. Gabon could be a viable investment opportunity. It boasts large endowments in commodities, a population with a relatively higher life expectancy, a large coastal border allowing for easy exports as well as the establishment of specialised economic zones.

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