Chapter 12. Gabon’s Experience Managing Oil Wealth

Bernardin Akitoby, and Sharmini Coorey
Published Date:
August 2012
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Cheikh Gueye

Gabon is well endowed with natural resources, including timber, manganese, natural gas, and crude oil. Forests cover 85 percent of the country’s landmass, making it the second largest forest area in Africa, and Gabon accounts for nearly 25 percent of international trade in manganese. Proven natural gas reserves were estimated to be about 33 billion cubic meters in 2008. Despite this diversity of resources, since the mid-1970s the oil sector has been the mainstay of the economy. In the 10 years since 2000, oil accounted for, on average, 50 percent of GDP, 60 percent of all government revenue, and 80 percent of all export receipts. With oil reserves estimated in 2011 at 3.7 billion barrels, the seventh-largest volume of reserves in Africa, oil is expected to remain a key, albeit waning, sector for the foreseeable future.

Since independence from France, Gabon has been fairly politically stable. In 1960, a single-party system of government was introduced, which prevailed until 1993. In that year, a multiparty political system was adopted, leading to open elections and formation of a broadly based coalition government. However, to this day the ruling Parti Démocratique Gabonais dominates the political arena, and the multiparty system has not translated into a genuine system of checks and balances with a meaningful participation of civil society.

Yet, despite political stability, a rich resource base, and a small population, human development indicators are lagging. Although per capita income is at the level of an upper-middle-income country, Gabon’s social indicators are little better than in the rest of Africa. Headcount poverty increased from 27 percent in 1995 to 33 percent in 2005 and is estimated to have been 37 percent in 2010.

This chapter analyzes oil wealth management in Gabon to understand why, with its ample natural resources, the country has not attained a level of social welfare commensurate with its income level. Mainly, Gabon needs to adjust its economic and social policies by stepping up its efforts to diversify the economy and strengthen its social infrastructure. To ensure that the country receives value for the investment these steps require, the government needs to build solid fiscal institutions to anchor fiscal policies, improve governance and transparency, and strengthen the business climate. The next section provides an overview of the oil sector. It is followed by a discussion of the economic policies under oil and the outcomes of policies under oil wealth management. The final section lays out lessons and strategic directions.

Overview of the Oil Sector

This section explores production prospects, the legal framework of production, and the refinery and pricing system.

Historical Developments and Production Prospects

Gabon is the fifth-largest crude oil producer in sub-Saharan Africa (SSA), with oil fields covering 253,557 square kilometers, more than three-quarters of which are offshore. Following discovery of the Ozouri field near Port-Gentil in 1956, production and exports rose steadily through the mid-1970s. Production reached 11.3 million tons (83 million barrels a year, or 225,000 barrels a day) in 1977 (Figure 12.1), before falling to less than 8 million tons in 1988, as existing oil fields were being depleted. With new fields coming onstream in the 1990s, production peaked at about 18 million tons in 1998 before declining to about 12 million tons a year in the latter half of the 2000s.

Figure 12.1Gabon: Oil Production Volume, 1973–2025

Sources: Country authorities; and author’s calculations.

Production in currently active fields has peaked, and prospects for new discoveries are highly uncertain. At the current extraction rate and absent new discoveries, Gabon’s oil reserves may be depleted in about 40 years.

Faced with declining reserves, the government is encouraging the optimization of production. Barring new discoveries, these policies aim to maintain daily output at the current level of 250,000 barrels a day by developing smaller, marginal oil fields and redeploying mature fields.

The Fiscal Regime

Over the years, the fiscal oil regime has changed on various occasions. The 1962 mining code included provisions for oil activities. Terms of production were based on individual concession agreements, which awarded the beneficiary the exclusive right to explore and exploit oil. Under this regime, the company owned all assets and installations as well as the oil produced. The main payments to the government were royalties, calculated as a percentage of production valued at official prices, and income tax, calculated as a percentage of gross profits. The 1962 mining code also entitled the state to a 25 percent equity stake in any petroleum production venture.

In 1982, a petroleum law based on production-sharing contracts was passed and remains broadly in place to this day.1 Under this regime, the government is the owner of all oil production; the company acts as a service provider, for which it is rewarded with a production share. After royalties are deducted, there is a split between “cost oil,” which goes to the contractor group to repay investment costs, and “profit oil,” which is divided between the state and the contractor companies. The production-sharing contracts enable a representative designated by the government of Gabon—currently the Direction Générale des Hydrocarbures—to participate in operational and accounting decisions and in the computation of the production shares.

In 2000, revisions to the code were introduced to improve the terms of new licenses to remedy difficulties in attracting new investment and increased costs associated with greater water depths. Typical royalty levels are now 5–15 percent, compared with a previous average of 20 percent. The level of state participation has also been reduced, and exploration periods have been extended beyond the traditional 10 years. The cap on the cost-oil share for any given year was raised above the previous limit of 50 percent of production to 75 percent to allow oil companies to depreciate equipment more quickly.

Under the two regimes concurrently prevailing in Gabon, state oil revenue comes from four main sources: profit oil, royalties, corporate income tax on petroleum companies and their subcontractors, and dividends (Figure 12.2). In 2011, nearly three-quarters of revenue came from profit oil and royalties.

Figure 12.2Gabon: Main Sources of Oil Revenues, Average 2005–10

Sources: Country authorities; and author’s calculations.

Despite changes to the fiscal regime implemented over the years, the existing agreements have a number of weaknesses that the government is considering changing. These include the precedence of operating agreements (conventions d’établissement) over domestic law and the principle of nondiscrimination enjoyed by the oil companies.2 Any change to the fiscal regime will need to balance maximizing revenue to the state with providing incentives to producers to continue exploiting oil resources.

The Refinery and the Pricing System

Gabon has a single refinery owned by public and private interests and managed by the Société Gabonaise de Raffinage (SOGARA).3 The refinery has an installed capacity of 1 million tons of crude oil a year. For the most part, output is sufficient to meet domestic demand, but SOGARA can also import refined petroleum products to sell to domestic consumers to address any supply shortfalls.

Following the deterioration of SOGARA’s financial situation in 2007 and 2008, the government and private shareholders introduced reforms for the refinery in 2009. These reforms were meant to improve management and drastically reduce operating costs, which were higher than those of most refineries along the west coast of Africa, including Central African Economic and Monetary Community (CEMAC) countries such as Cameroon and the Republic of Congo.4 A retrenchment plan was put in place, new investments (capital injections) made, and the government wrote off part of its claims on SOGARA.

The domestic price-setting mechanism for petroleum products has gone through several rounds of reform. After two unsuccessful attempts in the 1990s, a price adjustment mechanism was finally adopted in 2007. However, its implementation was suspended in 2009 because of social tensions; as a result, estimated fuel subsidies have increased on average to about 3 percent of GDP in 2008 and 2009.5

Economic Policies During the Oil ERA

Gabon’s economic and financial performance since independence has experienced clear phases, largely reflecting the different cycles in world oil markets and domestic oil output.

Before 1973, the Gabonese economy was dominated by services and primary and industrial products (Figure 12.3, left panel), and economic performance was relatively stable (Ministère de l’Economie et des Finances, et des Participations, Gabon, 1986). From 1973 onward, oil assumed a dominant role (Figure 12.3, right panel), accounting for about half of GDP (annual average, 2000–10). Government revenue increased sharply and services grew. At the same time, the rise of the oil economy increased the vulnerability of the overall economy to external shocks and the resulting large fluctuations in output and prices. Moreover, the distribution of oil rents favoring a narrow urban formal sector at the expense of rural areas contributed to a massive rural exodus and a widening of the gap in standards of living.

Figure 12.3Gabon: Components of GDP

Sources: Country authorities; and author’s calculations.

The performance of Gabon’s oil-based economy exhibits four distinct phases: (i) oil-induced economic booms and busts, 1973–85, reflecting cycles in world oil markets that led to large imbalances; (ii) internal adjustment, 1986–93; (iii) external adjustment, including devaluation of the Coopération Financière en Afrique Centrale (CFA) franc, 1994; and (iv) postdevaluation policy changes and the rise of political cycles.

The Boom and Bust Period, 1973–85

With production surging and world oil prices rising in 1974 (Figure 12.4, top panel), fiscal revenue began to climb, and government policy shifted away from its early prudent position to an expansionary stance. The government embarked on a development agenda comprising a large investment program (Figure 12.4, middle panel) and the creation of state-owned enterprises, financed by oil revenue. The public sector grew rapidly.

Figure 12.4Gabon: Fiscal Policies, 1973–85

Sources: Country authorities; and author’s calculations.

Note: CFA = African Financial Community; NOGDP = non-oil GDP.

Public investment focused primarily on infrastructure projects aimed at accelerating economic growth through modernization and diversification of the economy. Infrastructure projects included the Trans-Gabon Railway and agro-industrial efforts. In addition to providing more regular transportation services, the Trans-Gabon Railway stimulated a number of economic activities, especially in connection with the exploitation of iron ore and manganese. However, shortcomings in project management—reflecting overall institutional weaknesses—caused the Trans-Gabon Railway project to be very costly, nearly bankrupting the government. The agro-industrial projects also became unprofitable because of serious weaknesses in both design and implementation. For instance, most agro-industrial projects—the linchpins of the diversification strategy—were in remote locations where labor was in short supply and transportation costs to and from urban centers exorbitant because of weak infrastructure.

In contrast, resources allocated to priority social sectors were small. The share of health and education in the investment budget was about 8.7 percent in 1980, peaking at 15 percent in 1983 before leveling off to 8.8 percent in 1986.

Meanwhile, money was flowing into the creation and expansion of public enterprises because the government used oil revenue to invest in most economic sectors. Once operational, however, the newly created state-owned enterprises proved ineffective. Performance was generally poor as a result of (i) lack of financial discipline; (ii) unqualified and surplus staff, along with shortages of skilled staff at critical levels; (iii) poor investment decisions; and (iv) inappropriate pricing and marketing policies. In addition, lack of accountability in management gave rise to a complex web of cross-debt and payments arrears. Under these circumstances, state-owned enterprises were not competitive. The government responded by protecting them with tariff barriers.

In the context of these expansionary policies, flat oil prices (1975–77) along with sharply lower public and private investment gave rise to a protracted recession. Economic activity contracted by 21 percent in 1977 and 28 percent in 1978 before bottoming out in 1979 ahead of the second oil price shock. The renewed high oil prices, however, could not compensate for declining oil production from aging fields (Figure 12.4, top panel). With spending rising anew, imbalances increased. During this period, the non-oil deficit as a share of nonoil GDP (NOGDP) increased from 7 percent in 1973 to 31 percent in 1975 and 65 percent in 1977 (Figure 12.4, middle panel), mostly reflecting capital spending (Figure 12.4, middle panel). The deficit was financed primarily by external debt. By end-1977, external debt had climbed to 40 percent of GDP (Figure 12.4, bottom panel).

Against this backdrop, the Gabonese authorities adopted stabilization programs supported by IMF resources in 1978–82. These stabilization programs were geared toward (i) consolidating public finances to establish a sustainable fiscal position, (ii) improving transparency in the fiscal accounts, (iii) strengthening governance and oil revenue administration, (iv) privatizing state-owned enterprises, (v) improving administrative capacity through civil service reform, and (vi) improving debt management by strengthening capacity. Therefore, the program was mostly underpinned by restrictive fiscal and income policies and public enterprise reform. The program was broadly successful in stabilizing the fiscal position, and the government gradually reduced the external debt stock to less than 20 percent of GDP in 1984. However, oil production declined owing to the depletion of older fields, and average growth during 1980–85 never reached the levels of 1973–76.

The Internal Adjustment Strategy, 1986–93

An abrupt drop in world oil prices in 1986 ended relative economic stability and for the second time sent Gabon into a protracted economic crisis. The subsequent decline in oil revenue (Figure 12.5, top panel), lower government spending, and contraction of oil sector activity contributed to a downturn in overall economic activity.6 In response, the government embarked on an internal adjustment strategy.

Figure 12.5Gabon: Fiscal Policies, 1986–94

Sources: Gabonese authorities; and author’s calculations.

Note: CFAF = African Financial Community Franc; NOGDP = non-oil GDP.

The strategy consisted of a number of economic reform measures supported by IMF resources and by structural adjustment loans from the World Bank and the African Development Bank. The main objectives of the reform efforts were to restore fiscal and external viability and to return to a more balanced growth path while promoting the diversification of the economy over the medium term.

Policy implementation during the internal adjustment period was broadly ineffective, hampered by growing social discontent and continued low world oil prices. Although government revenue remained weak during most of the period, current spending rose (Figure 12.5, bottom panel) owing primarily to overruns in the civil service wage bill, while capital spending bore the brunt of the government retrenchment.7 As a result, the overall balance registered a deficit of about 6 percent of GDP in 1993 compared with 2 percent in 1991 (non-oil deficit of about 20 percent of NOGDP), financed mostly by increasing external debt (Figure 12.5, bottom panel), which grew from about 50 percent of GDP in 1991 to 54 percent in 1993.

External Adjustment and the Devaluation of the CFA Franc in 1994

The rise in public consumption at the expense of investment, combined with sluggish implementation of structural reforms, resulted in rising wage costs and a further deterioration of competitiveness. The relatively small depreciation8 of the real exchange rate in 1985–93 was not enough to restore competitiveness and stop the falling terms of trade (Figure 12.6). Therefore, despite a substantial increase in oil production, GDP growth decelerated because of large cuts in the government investment budget and a decline in private investment.

Figure 12.6Gabon: External Sector Developments

Sources: Country authorities; and author’s calculations.

After a decade of insufficient internal adjustment efforts in almost all countries in the CFA zone, economic policies in Gabon and in the rest of the zone countries moved forward with a drastic external adjustment measure. On January 12, 1994, the CFA franc was devalued by 50 percent against the French franc. This devaluation of the CFA franc was supported by restrictive fiscal, income, and credit policies. Moreover, a number of tax, price, and structural reforms were implemented in the stand-by arrangement concluded with the IMF (March 1994–March 1995).

In contrast with past experience, Gabon’s performance under this stand-by arrangement was broadly satisfactory, aided, in part, by higher oil exports. Public finances improved markedly in 1995. The primary surplus as a ratio of GDP more than quadrupled from the 1992–94 average of 2.5 percent of GDP to 10.6 percent of GDP in 1995.9 The non-oil primary deficit fell from 15 percent of non-oil GDP in 1994 to 11 percent in 1995. Gabon appeared to be on its way to addressing its economic imbalances.

Economic Policies after the CFA Franc Devaluation and the Rise of Political Cycles

Although satisfactory program performance in 1994–95 set the stage for a return to fiscal prudence, economic policies under the new multiparty system became increasingly influenced by politics, a situation that endured until the 2011 legislative elections, when election-related spending resulted in fiscal slippages.

The first example of fiscal policy becoming mired in the political cycle was in the run-up to the 1998 presidential election. Despite rising global oil prices and domestic production, the deficit as a percentage of NOGDP rose significantly as the government adopted an expansionary fiscal stance (Figure 12.7). The late August 1997 supplementary budget provided for additional current spending amounting to about 3.5 percent of NOGDP; as a result, the non-oil deficit deteriorated to more than 20 percent of NOGDP. This deterioration continued in 1998, as weakened expenditure control and monitoring procedures and falling oil prices led to a widening of the non-oil primary deficit to about 35 percent of NOGDP. On the structural front, although legislation was approved in 1996 that allowed privatization of water and electricity services, implementation fell behind in the heated political environment.

Figure 12.7Gabon: The Effect of Political Cycles on the Primary Balance

Sources: Country authorities; and author’s calculations.

Note: NOGDP = non-oil GDP.

After the 1998 elections, momentum for structural reforms in the public sector and in debt management resumed. Commitment was strong initially, and the government designed an economic program for 2000–01 and requested an 18-month stand-by arrangement from the IMF. This economic program called for (i) consolidation of budget balances and (ii) progress in governance. The fiscal stance improved significantly at the outset, and progress was made in public service reforms, debt management, and oil revenue administration. Ultimately, however, political cycles prevailed, and governance reforms and privatization programs waned in the run-up to the December 2001 legislative election, only to resume again in 2002 with further support from rising oil prices in 2003.

Lapses in reforms resumed ahead of the 2005 presidential election and the 2006 legislative poll when fiscal discipline proved difficult to maintain in view of record oil prices. The non-oil primary deficit widened to 17½ of NOGDP in 2005 and 18 percent in 2006. In the aftermath of the poll, the government once again formulated a comprehensive medium-term economic program aimed at reinvigorating structural reforms and reestablishing fiscal discipline. The key objective of the program was to seize the opportunity offered by high oil prices to place public finances on a sustainable footing and to prepare for the non-oil era. To support this program, the government requested a three-year stand-by arrangement with the IMF in May 2007.

Policies implemented under this arrangement helped garner support from external creditors to reduce Gabon’s outstanding stock of debt. In a July 2007 agreement, Paris Club creditors consented to a buyback of Gabon’s private development assistance debt at a 15 percent discount rate in net present value terms10 (Figure 12.8).

Figure 12.8Gabon: Debt and Debt Service, 1990–2011

Sources: Country authorities; and author’s calculations.

Notwithstanding this major economic policy achievement, the three-year program began falling apart during the first half of 2009 because of political uncertainty created by the protracted illness and subsequent death of long-standing President Omar Bongo and slippages in current spending. This led to an increase in the non-oil primary deficit to 14 percent of NOGDP in 2009, well above the sustainable level estimated at 6.5 percent of NOGDP.

In the last quarter of 2009, Gabon went through a political transition, and the new government embarked on an ambitious reform program. The objectives of this reform included (i) economic diversification through private sector development and increased domestic value added in key industries; (ii) improvements in the business environment, including through strengthened governance; and (iii) efforts to protect Gabon’s environment. A key element of this program was a large scaling-up of investment—the 2010 budget tripled capital expenditure.

Economic and Social Outcomes After the 40-Year Oil ERA

This section takes stock of economic policies in Gabon during the past 40 years that led to weak economic and social development outcomes. Past capital spending has not translated into improved infrastructure and high and sustained nonoil growth. Economic diversification has remained elusive. Oil wealth has not led to significant and durable poverty reduction. Why not?

Past capital spending has neither improved infrastructure nor resulted in high and sustained non-oil growth.11 Despite past public investment spending, non-oil growth picked up only moderately in the 2000s and still lags that of SSA as a whole (Figure 12.9). The major factor underlying this outcome is ineffective policy implementation owing to weak institutions—rentier states are generally characterized by a lack of strong institutions for revenue collection and expenditure monitoring.12 In Gabon, this deficiency is reflected in the poor execution of expenditure in priority sectors and in infrastructure because of lack of managerial and administrative capacity and weaknesses in public financial management in general. Project appraisal and selection were centralized at the Ministry of Planning and Development until 2009, and line ministries charged with execution were barely involved. At the same time, funds intended for maintenance have occasionally been diverted to more costly rehabilitation projects and construction projects, and road projects were not always selected according to strict cost-benefit criteria. Funds committed to the Ministry of Infrastructure are always far higher than funds disbursed—investment budget execution averaged about 30 percent. The resulting infrastructure gap is a crucial element holding back non-oil growth. These institutional weaknesses were confirmed by the 2006 Public Expenditure and Financial Accountability exercise for Gabon (World Bank, 2006) and the country’s score on the 2011 Public Investment Management Index, which captures the institutional environment underpinning public investment management across the different phases of project management.13

Figure 12.9Gabon: Non-Oil Growth Compared with Growth in SSA, 2004–10

Sources: Country authorities; and author’s calculations.

Note: SSA = sub-Saharan Africa.

Another telling outcome is the lack of economic diversification and continued oil dominance. The diversification trend has improved since the 1990s, but oil continues to account for 80 percent of exports. The lack of diversification is partly due to the poor business climate, including Gabon’s rigid labor market. The tradable sector is constrained by high wages (the highest minimum wage in SSA) and lack of skilled labor. The structurally high wages were caused by the redistribution of rents through the high wage policy in the public sector during the oil booms and its spillovers to the private sector.14 With regard to the broader business climate, Gabon is lagging far behind in the overall 2012 World Bank Doing Business rankings, in particular in starting a business and enforcing contracts. Input costs are also elevated compared with other countries in the region. A recent study on competitiveness in the CEMAC ranked Gabon and Cameroon as having the most expensive input costs in the union.15

Another factor holding back diversification is that private sector activity, especially of small and medium enterprises, is constricted by the shallowness of the financial system (Figure 12.10). Windfall gains from natural resource abundance can lead to expansion of the nontradable goods sector and, therefore, to demand for financial services, including consumer credit. But the lack of a sound institutional framework, paramount for the development of any financial system, is hampering financial access in Gabon.16 Moreover, the number of depositors and borrowers has lagged behind the average of SSA and frontier market countries, reflecting weak capacity to allocate resources efficiently and mobilize savings. Credit to the private sector is well below the average in SSA’s oil-exporting countries.

Figure 12.10Gabon: Claims on Nonfinancial Private Sector

Source: IMF African Department Database.

Note: SSA = sub-Saharan Africa.

As a result of the failure of oil wealth to yield non-oil growth and diversification, natural resource abundance has not created a significant and durable reduction in poverty. The incidence of poverty increased from 27 percent in 1995 to 33 percent in 2005, and an estimated 37 percent in 2010. In addition, social outcomes are disappointing, especially in the education and health sectors. The proportion of the budget allocated to health and education is lagging compared with middle-income countries. The share of Gabon’s budget allocated to education and health averaged 13 percent in 2008 and 5 percent in 2009, whereas middle-income countries averaged 20 percent and 11 percent in those two years, respectively (World Bank, 2011). Gabon also tends to underexecute budgeted priority social spending. As a result, despite Gabon’s relatively high per capita income, health indicators such as life expectancy and infant and child mortality have fallen behind those of middle-income countries (Figure 12.11) and are not significantly better than the average for SSA. The quality of education has been declining as shown by a rise in the share of students repeating a grade, from 30 percent in 2006 to 38 percent in 2008, and life expectancy has stagnated at 62 years between 1990 and 2009, while life expectancy for the middle-income group has increased significantly.

Figure 12.11Gabon: Social Indicators Comparison, 2009

Sources: World Bank, World Development Indicators.

Lessons and Strategic Directions

Gabon needs to adjust its policies to increase economic diversification and to improve social indicators to reduce vulnerability and give the Gabonese people a quality of life commensurate with the nation’s income level. To ensure that the country gets value for money and returns to fiscal sustainability over the medium term, the government needs to build solid fiscal institutions to anchor fiscal policies, improve governance and transparency, and strengthen the business climate.

Anchor fiscal policies and improve quality of spending. As demonstrated by the boom-bust fiscal cycles experienced during the past four decades, no reliable anchor has stabilized fiscal policies in Gabon. Fiscal policy needs to be rooted in a credible medium- to long-term strategy aimed at eliminating procyclicality and ensuring long-run fiscal sustainability, with near-term policies that address urgent development needs. Budget reforms should be accelerated, including the establishment of sectoral medium-term expenditure frameworks, allowing public investment plans to be embedded in a realistic multiyear investment plan. To that end, the government may explore the costs and benefits of implementing a fiscal rule. To be credible and effective, such a rule should be enshrined in higher legislation, with appropriately strong accountability procedures and enforcement mechanisms. Cross-country experiences offer many examples of anchoring rules for Gabon to explore, such as the oil budget price rule applied in Nigeria.17

Similarly, stepping up spending efficiency would help to strengthen any anchoring rule because it would ease the path to sustainability. Risk analysis of investment projects and fiscal plans should be enhanced. A global medium-term expenditure framework and sector strategies should be established to guide sector managers in selecting investment projects and planning expenditures.

Further strengthen governance and transparency. Joining the Extractive Industries Transparency Initiative process in 2007 with the status of “close to compliant” was an important step toward instilling a culture of transparency in oil revenue management. However, more effort is needed, including an overhaul of the fiscal regime of the oil sector. A new petroleum code should align the fiscal regime with best practices, favoring a bidding process over the discretion that underpins the current code. In particular, the code should require (i) a published model contract, (ii) an allocation of blocks18 by an open bidding process rather than direct negotiation, (iii) publication of signed contracts (a good transparency practice), and (iv) an obligation to disclose payments according to Extractive Industries Transparency Initiative standards.

To further strengthen governance of oil revenue management, the creation of new extrabudgetary funds for managing oil revenue should be avoided. Extrabudgetary funds substantially increase the risk that governance and accountability will suffer.

More generally, improved governance calls for genuine participation by civil society in the oil revenue management process. Therefore, an in-house participatory mechanism needs to be built into oil revenue management at all levels of Gabonese society, from the definition of strategic directions for the country to budget preparation and execution. Frequent and meaningful public participation would enhance the legitimacy of government actions in managing oil resources and support a collaborative dialogue.

Improve the business climate to promote the private non-oil sector. Gabon has made headway in improving its business climate, moving up four places in its ranking on the World Bank’s 2012 Doing Business Index to 156 (of 183 countries), compared with the previous year. Improvements were made in access to credit (although not for small and medium enterprises), issuing construction permits, and time to resolve insolvency. However, given the country’s still-low rank, much remains to be done to streamline procedures to make the business environment friendlier and to abolish burdensome regulations involving lengthy procedures. Meanwhile, to enhance labor force productivity, further investment must be made in infrastructure and in human resources development.

Since 1973, oil has played a dominant role in the Gabonese economy, creating the potential for splendid economic and social development for the well-being of all Gabonese. However, 40 years of policies in the oil era have so far resulted in weak social outcomes and an economy vulnerable to the swings of international commodity markets. Because oil is expected to be depleted sometime in the next 40 years, Gabon should prepare now for the post-oil era by diversifying its economy and investing in its social infrastructure to strengthen competitiveness. The country needs to build solid institutions to ensure effective implementation of economic policies, strengthen transparency and governance to make government institutions friendlier to business, and improve the business climate to promote domestic investment and to attract foreign direct investment.


Contracts signed under the 1962 mining code remain under that regime. Some are still in effect.

The principle of nondiscrimination means that if one company considers a given clause in some other company’s operating agreement to be more advantageous, the first company is legally authorized to adopt this most favorable fiscal treatment.

The government of Gabon holds a 25 percent stake. Private interests comprise TOTAL (43.8 percent), Shell International Exploration and Production Inc. (17 percent), ExxonMobil Corporation (11.7 percent), and Agip Exploration B.V. (2.5 percent).

Ministère de l’Economie et des Finances, 2009, “Plan de Redressement de la Sogara,” Libreville, Gabon.

Except for Equatorial Guinea, Gabon has the lowest retail fuel prices in the CEMAC region. Pump prices were last raised in February 2009 for kerosene (Coopération Financière en Afrique Centrale [CFA] franc 275/liter), August 2009 for super gasoline (CFA franc 530/liter), and April 2010 for diesel (CFA franc 470/liter).

GDP fell by almost 7 percent in 1986 and by a further 13 percent in 1987.

The investment budget was slashed from 34 percent of NOGDP in 1986 to a mere 7.4 percent in 1988, while current expenditure rose from 26 percent of NOGDP to 29 percent. Wage increases continued in the early 1990s in response to growing civil unrest.

This depreciation was the result of the internal adjustment implemented in 1986–93.

Much of the improvement was due to the impact of the devaluation, as GDP and government oil revenue in CFA franc terms rose in proportion to the devaluation. Conversely, dollar-denominated debt stocks rose in CFA franc terms.

Creditors holding 86 percent of eligible claims—US$2.3 billion—participated. For this operation, Gabon issued a US$1 billion 10-year bullet bond on the international market with an 8.20 percent coupon. This buyback reduced the net present value of the corresponding debt by about 11 percent and was intended to smooth debt-service obligations, although the bullet payment meant a large payment at maturity. To calm markets’ fears about its capacity to repay, Gabon created an amortization fund at the World Bank.

A national agency for major public works was set up in 2010, entrusted with the planning, management, and implementation of large public infrastructure projects. The American engineering corporation Bechtel is providing the agency with technical expertise.

The tax system for non-oil revenue collection in Gabon is complex. In 1995 the value-added tax system replaced the turnover tax system, but even the value-added tax uses three rates (5 percent, 10 percent, 18 percent).

Among the Public Expenditure and Financial Accountability ratings from A (best) to D (worst), Gabon scored 17 C’s, 3 D’s, and 3 B’s on 23 indicators. On the evaluation of the level of financial risk based on 12 indicators of budget execution, 6 were rated “high,” 4 were rated “moderate,” and 2 were ranked “low.” Compared with 30 middle- and low-income countries, Gabon falls in the lowest of five performance brackets. On the Public Investment Management Index scale of 1 (low) to 4 (high), Gabon scores low. It is also in the lowest quintile of the 71 low- and middle-income countries in the sample.

In addition, the labor market is hampered by the educational system’s failure to adapt its technical and vocational programs to the needs of labor markets, and the programs lack qualified teachers. The absence of qualified and trained workers weighs on factor costs and results in a lack of competitiveness in the Gabonese business environment.

“Groupement Interpatronal du Cameroun (Gicam),” in L’Union (a daily newspaper in Gabon), May 23, 2011.

The number of commercial bank branches per 100,000 adults increased from 3.67 to 4.69 between 2004 and 2009, surpassing the average for SSA and frontier market countries, reflecting a strengthening of financial infrastructure.

Every year in Nigeria, the government and the legislative branch—the national assembly—agree on budgeted revenues based on a given oil price (reference price) and an estimate of production volume. If actual revenues are more than budgeted revenue, the difference is saved and allocated based on predefined rules.

A block in the context of the extraction of petroleum (and natural gas) is a subdivision of an underground petroleum reservoir.

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