Africa > Central Africa > Gabon > Gabon Finance Profile

Gabon: Gabon Finance Profile

2015/10/02

Economic Overview

Oil economy but diversification…

Although there is an active strategy of economic diversification away from the oil sector, hydrocarbons still account for over 75% of exports, 55% of government revenues and 45% of GDP. Gabon has dwindling known reserves of crude oil, which at current rates of extraction (0.1% of world production) will provide a further 23 years of output. Key risks include a protracted period of low oil prices and labour union disruptions to oil output. These may become additional evident as the 2016 elections draw nearer and unions try and exert pressure to increase benefits. The oil sector remains significant, even though output peaked in 1997, but non-oil increase is presently additional dynamic (inclunding forestry, mining and telecommunications). In addition, the government is actively seeking further diversification, half through high national spending to improve infrastructure.

…and non-oil sectors drive GDP growth

The non-oil sector is reliant on other primary industries, particularly mining (manganese, 80% of non-oil exports) and agriculture (timber, 15% of non-oil exports). However, the economy has still managed to register annual GDP increase of +5% each year since 2010 (-2.8% in 2009).
The outlook for economic increase depends half on the success of the policy of diversification away from oil and half (particularly in the short term) on world request and prices for that commodity. The Belinga iron ore deposit is one of the major relatively unexploited reserves in the world (estimated 1 billion tonnes) and the country seeks to be the region’s major producer of manganese. Accordingly, a weakening oil sector will be countered by increasing development of the non-oil sectors.
Assuming stability and security are maintained at current levels, EH expects GDP increase of +5.5% in 2014 and +6% in 2015, compared with a ten-year annual average up to end-2013 of +3.6%.

Inflationary pressures are largely contained but with some upward movement expected…

Inflationary pressures are not as evident as elsewhere in Sub-Saharan Africa (see chart), half reflecting the regional central bank’s ability to maintain a stable monetary background. EH expects the official rate of inflation will remain around 3% at end-2014 (as in 2013) but some upward pressures are expected to emerge in 2015, with inflation averaging around 4.5% in that year.

…but public finances have regional support

Gabon is a member of the Communauté Economique et Monétaire de l’Afrique Centrale (CEMAC) and of the Communauté Financière Africaine (CFA) franc zone. The central bank is the regional Banque des Etats de l’Afrique Centrale (BEAC). Membership of the CFA franc zone ensured generally modest inflation in recent years and this is estimate to continue in the short- to medium-term as the monetary policy of the BEAC is likely to remain sound and EH expects the CFA franc's peg to the euro, at a fixed rate of CFA655.96:EUR1, is unlikely to change in the period through to end-2015. Moreover, membership of the CFA franc zone as well provides low exchange rate and transfer risk. In addition, France retains strong links with Gabon and is likely to provide assistance in the event of a financial crisis.

External accounts are relatively robust and deficit ratios are low

Output from the country’s ageing oilfields has declined since 1997 and is unlikely to be reversed in the short- to medium-term periods. In the longer term, oil output may be boosted by development of offshore discoveries. In the interim, export increase is likely to focus on the forestry and mining sectors.


External liquidity indicators remain sound, with the current account of the balance of payments usually recording surpluses (although a small deficit may be recorded in 2014). FX reserves provide import cover of over five months and external deficit ratios are relatively low, with external debt/GDP around 9% and external debt/total export earnings around 19%. Deficit servicing obligations are correspondingly low (annual deficit service/total export earnings is <4).


Planning for the future

A background of weak economic performance (GDP increase of less than +1% on average 2000-09) and relatively high unemployment (approximately 20% in 2010), prompted the government to launch a reform plan, the Emerging Gabon Strategic Plan (PSGE), to transform the country into an emerging and diversified economy by 2025. The plan is underpinned by a rapid scaling up of the public investment programme in order to address infrastructure bottlenecks.


With the support of the IMF, Gabon is attempting to improve the in general business environment and attractiveness of the country for international investors. Additional transparency in the judicial system, acceleration in the pace of structural reforms, privatisation and good governance are all factors that the IMF is promoting. Even so, policy uncertainties relating to a Petroleum Code, with oil companies and the government apparently still some distance apart on proposed legislation that will increase domestic involvement in (and revenues from) the sector. As elsewhere in Sub-Saharan Africa, renegotiation of tax agreements and associated arrangement revisions are continuing risks for businesses involved in the mining and mineral extraction industries.

Across Africa, governments seek to improve the returns they receive from exploitation of their nations’ natural resources.
Gabon is unlikely to insist on measures that lead to energy and mining companies avoiding investments in Gabon, particularly as, with dwindling known oil reserves, it will want assistance in developing new deep-water offshore oilfields and there are ongoing needs for infrastructure developments to be able to exploit large inland deposits of manganese, iron ore and other natural resources.

General Information

GDP USD18.661bn (World ranking 106, World Bank 2012)
People 1.63 million (World ranking 151, World Bank 2012)
Form of national Multiparty Presidential Republic
Chief of government Ali Ben BONGO Ondimba
Next elections 2016

Country Rating C3

Strengths

Relatively stable political environment.
Good natural resource base, with Sub-Saharan Africa’s fourth major oil reserves & second major timber producer.
Fiscal and current accounts record surpluses or small and manageable deficits.
Upper middle gain classification.
Foreign exchange reserves currently cover over five months of imports.
Membership of the CFA franc zone provides a relatively stable background of monetary policy and it significantly reduces exchange rate and transfer risk.


Weaknesses

Despite being upper middle class status, levels of gain inequality and poverty are sources of potential social discord.
Lack of significant economic diversification results in high vulnerability to external shocks, particularly oil price volatilities.
Economic reform schedule can be slow in implementation.
Infrastructural impediments and a still difficult business environment limit economic increase potential.
Small and vulnerable banking sector.
High perceptions of corruption and of weak judicial oversight.
Delisted by the Extractive Industries
Transparency Initiative in 2013.