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Gabon's Economic Potential

Keith Boyfield - November 2011

Gabon: 50 years after independence from France will its market orientated strategy to achieve emerging nation status be realised?

Gabon is not well known in the Anglo Saxon investment community but this Francophone central African country, which bestrides the equator, is important for a host of reasons, and it is likely to exert an even stronger economic influence in the years ahead. Measured in terms of income per head it was ranked ninth in Africa in 2010 with a level of GDP per capita of US$6,997 measured at Purchasing Power Parity, sandwiched between Algeria above and Namibia below. Real GDP bounced back to an annual growth rate of 5.7% in 2010, compared to 5.6% in 2007. The slow-down was mainly attributable to the global financial crisis.     

Like many African economies, Gabon is resource rich, which explains its recent growth and future economic potential. Gabon has oil: indeed, quite a lot of it. In January 2011, it is estimated that Gabon had proven reserves of 2 billion barrels, which equates to nearly six times more than Nigeria – measured in terms of per head of population. The country has the second largest reserves of  manganese ore in the world. Furthermore, there have been recent discoveries of iron ore and total deposits now amount to nearly one billion tons; there are also reserves of gold, diamonds, lead, zinc, niobium and phosphates. Gabon has turned out to be a cornucopia of mineral wealth and the government reckon that over 900 sites offer the potential for mineral extraction. 

Until the discovery of oil, with a small population but with over 22 million hectares of rain forest, the main export earner for the country was timber. More than 80% of the country is covered with forest and a key aspect of Gabon’s development plan now is the onus placed on responsible and sustainable development. Vast swathes of rain forest have been reserved as nature reserves and the Government is seeking to promote eco-tourism for the rich. The goal is to attract 100,000 tourists a year to Gabon by 2020.

As noted in our essay ‘Malthus Postponed: The potential to promote palm oil production in Africa’ (World Economics, volume 12 number 2), there has been a significant surge in investment in commercial palm oil plantations throughout equatorial Africa by major agro-business concerns, which are predominantly based in Malaysia and Indonesia. Gabon is one of the beneficiaries of such investment with Olam International, the Singapore quoted multinational, having signed a contract to develop an initial 50,000 hectares of palm groves valued at US$236 million, creating a total of 12,000 jobs directly and indirectly. The envisaged second phase of investment will create a total of 300,000 hectares of palm plantation by 2016/17, generating a further 40,000 jobs and annual export earnings of US$800 million on current projections. 

Gabon also has ambitious plans to develop its educational and health sectors to invest in its human capital. A special economic zone for higher education is being developed and a major investment is currently being undertaken in building and expanding health care facilities. These new facilities are urgently needed: on a research visit this autumn to Gabon it was striking to see at first hand the raft of initiatives currently under way in the construction, energy, health and education spheres. 

Driving around the dilapidated capital city of Libreville and travelling across this beautiful country one cannot help wondering what Gabon had been doing with its oil wealth? It is as though the country is only now stirring from a long hibernation that has endured for several decades. The costs associated with servicing overseas debt offer one explanation, but agreements reached with the Paris Club have resolved this significant claim on the economy. Corruption is another explanation: officials have siphoned off cash in the past for their own ends. Transparency International ranks Gabon in 110th place out of 179 in its Corruption Perceptions Index 2010 with a score of 2.8 on a scale to ten. Denmark tops the table at 9.3.
 

                           Street Scene Libreville


Gabon Emergent: The President’s Vision
Dr Ali Bongo was elected as President in September 2009. He succeeded his father, El Hadj Omar Bongo, who had dominated the country’s political scene for four decades. The current President, with a doctorate from the Sorbonne, is highly rated and commands the respect of many outside observers, including William Hague, Britain’s foreign secretary, who is reported to reckon Dr Bongo is one of the shrewdest leaders in Africa.

Dr Bongo understands that he needs to crack down on corruption within the government, otherwise much needed investment will be frightened off. ‘The perception is that you can’t do business in Gabon because it is a corrupt country. Well, that’s not true’, the President told me when I interviewed him in Franceville, one of Gabon’s three main centres of population. “There is a new Africa. Come, see for yourself”.

He faces a crucial challenge. The President recognises that he needs to shake up his country, establish a fit for purpose infrastructure and encourage an entrepreneurial spirit. ‘The safest thing to do in my country is to go into the civil service’, says Dr Bongo. ‘The challenge for me is to convince Gabonese people to become entrepreneurs’. Unemployment officially runs at 20% – but in reality hovers around 30% cent for those who have recently left high school. Dr Bongo has opted to go out personally and promote his country, recognising that jobs need to be created for Gabon’s rapidly growing population. Hence, his appearance at a major investment forum in London this Spring, sponsored by The Times and his visit to the USA in June when he met President Obama.


 


Gabon President Ali Bongo 
In a move to trigger the entrepreneurial spirit the President has set out a strategy – ‘Gabon Emergent’ – which seeks to provide a master plan to achieve this goal. The strategy focuses on three pillars: ‘Gabon Vert’, a plan to develop Gabon’s natural resources in a sustainable manner; Gabon Industriel, aimed at the local development of primary materials, thereby earning more from higher value added exports; and thirdly, ‘Gabon des Services’, centring on educating and training a highly skilled workforce across a diversified range of activities.

Gabon has been particularly ambitious in creating a network of Free Zones and Special Economic Zones (SEZs), which offer a raft of incentives, such as an income tax holiday for the first ten years followed by a 10% tax concession for the following five years, no tax on dividends, a total exemption on VAT and custom duties and freedom to repatriate profits. What is more, there is a 50% concession on electricity generated from a raft of new power stations. 

Attracted by these inducements investors from around the world, notably China, India and Indonesia, are entering the country in order to capitalise on these opportunities. A good example is the Nkok SEZ, some 50 kilometres east of Libreville, which I visited. This is the fastest  SEZ ever built with more than 45 investors from nine countries – Benin, Cameroon, China, Gabon, Ghana, India, Malaysia, Singapore and the USA – committing funds. The results are already impressive and the scheme is well on the way to achieving its target of creating 7,000 direct jobs as well as over 10,000 indirect jobs. 

The crucial question is: will Gabon’s ambitious development strategy be fulfilled? The World Bank estimate there are currently around 3,500 SEZs operating in 130 countries - in aggregate they export annually US$850 billion in goods and services. However, the record of SEZs in Africa has been relatively disappointing on account of their underperformance in comparison with similar zones in Asia and Latin America. Senegal’s export processing zone (EPZ) is a case in point, originally established in 1974, it closed after 25 years as a result of excessive bureaucracy, uncompetitive utility charges and unrealistically high expectations. A similar experience characterises Nigeria’s forlorn EPZ launched in 1991. However, the experience in Ghana, Kenya and Tanzania has proved far more positive.
What may well prove a critical factor in ensuring the success of Gabon’s SEZ is the co-ordinated effort being made to establish an integrated infrastructure base incorporating reliable energy supplies, decent highways and the latest broadband technology. Impressive advances are in the process of being made in the energy context, as I saw myself on a visit to the recently constructed Alenakiri natural gas power plant outside Libreville. While progress will not be achieved overnight, the signs for Gabon Emergent are remarkably encouraging and may well prove a model for how these economic initiatives can be implemented across the continent. 


• Keith Boyfield is the Africa Editor of The Journal of World Economics, Chief Economist of Leriba Limited and a Fellow of the Institute of Economic Affairs.


 
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