Risks Clouding Outlook After Contentious Election
After an election that led to countrywide unrest, Gabon, sub-Saharan Africa’s 5th-largest oil producer, is facing risks that cannot be undone in the short-term. Uncertainties persist into 2017, with oil at significant lows and high unemployment continuing to pose problems for the country. Reforms are needed within the public and private sectors. A country highly dependent on its oil sector, Gabon’s oil revenues represent close to 35% of government fiscal receipts; a high number that underscores the urgent need for action.
Weak Oil Prices Weighing On Growth
Activity in Gabon continued to slow in 2016 under the impact of low oil prices, but increased spending aimed at alleviating social tensions ahead of 2016’s presidential election, and foreign financing helped to some extent sustain consumption and investment. However investment levels may have suffered as a result of the disturbances following the announcement late 2016 of disputed election results declaring incumbent president Ali Bongo the winner.
Investments already made in the mineral ore and wood processing industries as well as those in the agriculture sector (palm oil and rubber) should provide a boost to growth this year. Inflation moved higher in 2016, reflecting wage rises, but should remain under control in 2017.
The country continues to face a gradual decline in its oil production as crude oil reserves are depleted. Output has been in decline for almost twenty years, and analysts explain this downward turn is expected to continue into the foreseeable future, although improvements in extraction technologies and the discovery of smaller deposits are likely to slow the rate of decline.
The collapse in oil prices globally coupled with lower production have limited the government’s ability to invest and slowed the efforts to diversify and modernize the economy undertaken by the government as part of the Emerging Gabon Strategic Plan (PSGE) launched in 2010.
There is work needed concerning the effectiveness of investments, together with a number of obstacles to growth that need to be cleared (unreliable electricity supply, inflexible job market and shortage of skilled and trained workers, and concerns around the security of contracts).
Finally, the benefits of growth are far from being shared across all layers of society. Despite abundant natural resources and per capita income amongst the highest in Sub-Saharan Africa, poverty remains endemic and unemployment high.
Public, External Accounts In The Red
The public account surplus of Gabon started to dwindle as far back as 2010 following the huge public investments made with the implementation of the PSGE. The budget fell into the red in 2015 as a result of the collapse in oil revenues, which forced the government to cut public spending. The continuing plunge in oil receipts in 2016, at the same time as spending was increased for the elections and the preparations for the Africa Cup of Nations (2017), led to a further deepening of the deficit.
This, however, should stabilize against GDP in 2017 thanks to the slight recovery in oil prices. The public debt, whilst still at a moderate level, increased rapidly in recent years, rising from 19.7% in 2012 to 44% of GDP in 2015 as a result of a Eurobond issue and the depreciation of the CFA franc. There has also been a rise in its borrowing costs on the financial markets for Gabon.
In 2015, the country also recorded its first current account deficit in seventeen years, following the collapse in oil exports (down to 77% of total exports) and this despite the contraction in imports linked with falling domestic demand and world commodity prices. Exports also continued to fall in 2016, still suffering from lower oil sales which largely offset the increase in manganese and wood sales. In 2017, the current account deficit is likely to shrink slightly thanks to the slow rise in crude oil prices and the continuing expansion in non-oil exports.
An Acute, Post-Electoral Crisis
The disputed re-election of Ali Bongo in August 2016 triggered violent confrontations between the supporters of the opposition candidate, Jean Ping, and security forces (two days of riots, deaths and hundreds of arrests). The Constitutional Court confirmed the victory of the outgoing president in September, which did not stop the European Union observers continuing to denounce the failings of the Gabonese electoral system.
Calm has since returned to the country but its political landscape needs to be rebuilt as legislative elections planned for December 2016 have been postponed until July of this year. There is enduring social unrest, further exaggerated by the rising level of inequality and failings in terms of basic services throughout the country.
The long-term development of the country remains limited by governance shortcomings.
Photo Credit: Copyright Nicola Zingarelli.
