I. Introduction

1. On a per capita basis, Gabon is one of the richest countries in sub-Saharan Africa. For the past three decades, oil production has yielded significant income and now accounts for nearly half of GDP, 80 percent of export earnings, and over half of fiscal revenue. But despite its wealth, Gabon has continued to face problems. Oil booms and political cycles have resulted in a ratcheting up of public expenditure, followed by painful adjustment when prices have fallen. Unable to service its heavy debt burden, Gabon accumulated external payment arrears requiring repeated, expensive rescheduling. Meanwhile, available information suggests that social indicators remain quite weak. Since 1997, oil production has fallen by 30 percent. Significant investment in recent years, driven by technological progress as well as high oil prices, has temporarily stemmed the decline. But barring significant new discoveries, which are not on the horizon, the steady drop in output is expected to resume.

2. Against this background, the challenge for Gabon is to prepare itself for the post-oil era. This requires both adjusting macroeconomic policies, notably fiscal policy, and accelerating structural reforms aimed at promoting the diversification of the economy. The selected issues papers analyze these requirements in more detail.

3. Chapter II looks at how oil revenues are managed in Gabon and the role that the Fund for Future Generations (FFG) can play. Many resource-rich countries have established funds aimed at helping governments achieve stabilization or savings objectives, often with mixed results. Indeed, accumulating deposits in a fund alone says very little about net government savings or intergenerational equity. This paper takes sustainable fiscal policies as a given (treated in more detail in Chapter IV) and asks a more narrow question: what is the impact of Gabon’s FFG on present and future generations? The paper concludes that while the FFG does shift benefits from current to future generations, it falls well short of achieving inter-generational equity. It also suggests, given the secular decline in oil production, that at least in the next few years, reducing government debt rather than accumulating FFG deposits may be the optimal use of Gabon’s oil revenues.

4. Chapter III examines competitiveness and the sources of non-oil growth in Gabon. Data availability and Gabon’s long-standing membership in the CFA franc zone impose some limitations on classical competitiveness analysis. However, buoyant world market prices of Gabon’s main non-oil exports—timber and manganese—have helped it remain competitive in recent years, despite the sharp appreciation of the euro, to which the CFA franc is pegged. At the same time, the large and well paid civil service that Gabon maintains has likely contributed to the high cost structure in the formal sector and may have shifted activities to the informal economy. Available data also suggest a sustained shift of economic activity from the tradable to nontradable sector, suggesting a deterioration of export competitiveness. The paper concludes that Gabon faces some Dutch disease-like challenges, which, to overcome, require persistent structural reforms to promote investment and economic diversification.

5. Chapter IV conducts a series of scenario analyses for 2005-23 to test the constraints facing fiscal policy as a result of the steady decline in oil production and related government revenue. Using a number of different plausible assumptions, the paper illustrates that Gabon will face a significant challenge when oil revenues begin to fall. Non-oil revenues are already quite high by sub-Saharan African standards, and most of the adjustment will need to be shouldered by controlling expenditure, notably the government wage bill. However, the paper also shows that Gabon has a unique opportunity to enter a virtuous cycle if it uses the current windfall revenue from high prices wisely. If it maintains budgetary discipline, and manages its oil windfall prudently, foreign debt can fall by more than half by 2010. If, on the other hand, Gabon relaxes fiscal policy today, foreign debt will remain at current levels and unsustainable financing gaps will open up.

6. Finally, Chapter V examines the recent reforms in Gabon’s forestry sector, a key source of potential future growth. Following many years of almost unregulated exploitation of its forest, Gabon has initiated a series of reforms since 2001 geared toward protecting its forestry resources and managing them sustainably. The creation of national parks was accompanied by a simplification of forestry taxation to provide incentives for sustainable management and promote domestic transformation. More recently, the decision to eliminate the timber marketing board and introduce more transparency in the allocation of forestry permits also aims to make timber a long-term, sustainable economic resource for Gabon.