Gabon: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Publication Date:
03 May 2005
eISBN:
9781451813968
Language:
English
Keywords:
ISCR; CR; oil revenue; oil; Gabon; oil windfall; revenue; forestry taxation; arrears from the area; taxation system; Congo Basin country; tax arrears; Agroindustries; Tariffs; Exports; Tax payment compliance; Africa
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This Selected Issues and Statistical Appendix paper on Gabon reviews management of oil revenues, competitiveness, and growth. The nature of Gabon’s problems has not changed during the past 15 years. The need to diversify the economy and the export base; control fiscal expenditure and the wage bill; carefully assess capital expenditure; and reform public sector enterprises are the challenges that the Gabonese need to be prepared to implement adequately. Gabon faces huge medium-term fiscal constraints imposed by the expected steady decline in oil production and its depletion.

Abstract

This Selected Issues and Statistical Appendix paper on Gabon reviews management of oil revenues, competitiveness, and growth. The nature of Gabon’s problems has not changed during the past 15 years. The need to diversify the economy and the export base; control fiscal expenditure and the wage bill; carefully assess capital expenditure; and reform public sector enterprises are the challenges that the Gabonese need to be prepared to implement adequately. Gabon faces huge medium-term fiscal constraints imposed by the expected steady decline in oil production and its depletion.

V. Forestry Sector Reform in Gabon35

1. Forest products, which include both primary and processed products36, account for about 3 percent of world GDP. Trade in such products is dominated by the developed countries, and the world exporters and importers are mainly G7 countries. Africa’s share of the market for forest products is less than 5 percent of total world trade. However, it has a higher presence in the market of tropical timber,37 where its share was about 20 percent of the world’s exports of tropical timber in 2001. The level of transformation in Africa’s exports of forestry products has increased lately, partly reflecting export restrictions and the aim of governments to foster value added in the sector.

A. Gabon and the Congo Basin

2. Forests play an important role in the economy of the Congo Basin. The primary uses of forests are for commercial exploitation, subsistence, and tourism. Forests cover a substantial part of the region, but in the Congo Basin, in contrast to Latin America and Asia, commercial species represent just a small proportion of the stock in the forests 38, which reduces the viability of extensive commercial logging.

Figure 1.
Figure 1.

Forests

(In millions of hectares)

Citation: IMF Staff Country Reports 2005, 147; 10.5089/9781451813968.002.A005

3. Several countries in the Congo Basin have adopted forestry management plans in recent years and have reformed forestry taxation. However, more remains to be done to place the forestry sector on a sustainable path. Moreover, revenues could be much higher than they actually are the amounts collected.39 According to the World Bank/ WWF (2003), conservative estimates of forgone revenues resulting from tax evasion and weak collection in the Congo Basin in 2003 could be on the order of US$25 million annually.40

Figure 2.
Figure 2.

Forests Area Per Capita

(In hectares)

Citation: IMF Staff Country Reports 2005, 147; 10.5089/9781451813968.002.A005

Table 1.

Forest Sector Indicators for the Congo Basin Countries in 2001

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Source: IMF Staff estimates.

4. In Gabon, which has the largest forest area per capita in Africa, 85 percent of the land area is covered by forests. Though forestry sector activities contribute only about 3 percent of GDP, forestry products are the second-largest export after oil, and Gabon is the leading exporter of logs in Africa. It is estimated that about 10 percent of the labor force works in forestry-related activities. Most of the log production is exported, but the government is aiming to foster processing industries and tilting the composition of production to supply the domestic industry. By regional comparisons, the yield of forestry taxation in Gabon is low, for instance, forestry taxes in Cameroon, with a volume of production about 65 percent of that of Gabon, were about CFAF 40 billion in 2003.

Figure 3.
Figure 3.

Cut and Export of Logs, 1996–2004

(In thousands of cubic meters)

Citation: IMF Staff Country Reports 2005, 147; 10.5089/9781451813968.002.A005

Table 2.

Gabon: Forestry Sector Tax Revenues

(In billions of CFAF, unless otherwise indicated)

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Sources: Gabonese authorities; and staff estimates.

B. Reform Objectives in the Congo Basin

5. The overall objectives of forestry sector reform in the Congo Basin are to make the management of forest resources sustainable; improve the business and investment climate; put in place a tax system that is simple, transparent, and equitable; and ensure an equitable sharing of forestry rents among private entrepreneurs, the government, and local communities. Cameroon is the country that has made the most progress in achieving these objectives.41

6. The forestry sector in Gabon, as in most of the Congo Basin countries, is largely undeveloped and, if managed in a sustainable manner, could be a considerable source of growth. Given the increasing demand from international markets for both logs and processed products from the region, the development of the sector should be designed to protect the resource and should address the following issues:

  • Source of fiscal revenues. Currently, forestry revenues represent a relatively minor proportion of tax revenues. This may be due to inefficiently designed tax systems, weak compliance, and governance problems. Revenues derived in the sector could contribute substantially to the budget. With the adoption of better-designed systems, strengthened tax administration, and reduction of corruption, revenues from the forest sector would contribute to resource mobilization. The area tax, with concessions allocated through a public auction system, is becoming the best practice in the region.

  • Export earnings. The sector is increasingly positioning itself as the second-largest export after oil in some of the central African countries. Forest products have potentials on account of the increasing demand for tropical logs and processed products from Asian and European markets and the relative abundance of the resource in the region.

  • Labor markets. The industry is labor-intensive, and a considerable proportion of the labor force is employ in the sector, not to mention the segment of the population that depends on the forest for subsistence. A well-developed sector could become a leading employer not only in logging and processing, but also in forest management and tourism.

  • Domestic activity. A processing industry with additional value added generation could be developed. Most of the governments are aiming to this by adopting bans on the export of logs and taxing logs exports at higher rates. Processing industries are expanding under preferential treatment.

C. Gabon’s Forestry Reform Agenda

7. Following many years of almost unregulated exploitation of its forest, Gabon initiated in 2001 a comprehensive process of reform geared towards protection and sustainable management of its forestry resources. To this end, three important measures were implemented, which defined the institutional and legal frameworks, the vision of reform, and guarantee the protection and sustainable use of the forests:

  • The approval in 2001 of a new Forestry Code. The key objectives of the Code are to place forests under sustainable management plans,42 to establish a taxation system that provide incentives for the sustainable management of the forests, and to promote a local transformation industry.

  • The creation of a system of national parks. In 2002, Gabon approved an initiative to establish a system of 13 national parks (3 million hectares, or about 10.6 percent of the country’s area).

  • The approval of a letter of development of the forestry sector in 2004. The letter prepared in consultation with the World bank lays out an agenda for reform, with measures to cope with some of the key obstacles for reaching the objectives of sustainable management.

Sustainable management and concessions

8. The new forestry Code divides the forestry domain in rural and permanent domain of the state. The rural domain comprises the community forests and other forests for use of the municipalities and represent about 8 million hectares. Community forests are subject to exploitation for commercial utilization. Though the law establishes simplified mandatory management plans, in practice these have not been enforced. In addition, local communities have been granted preferential treatment, exempting owners of permits in the rural domain from paying stumpage and other taxes.

9. The permanent domain of the state comprises all the areas that are subject to mandatory management plans, which represent about 14 to 16 million of hectares. The forestry code established end of 2005 as deadline to adopt management plans, which would not be achieved, as of today less than 50 percent of the permanent domain of the state is under forestry management plans.43 The areas subject to management plan consist of protected areas including recreational areas,44 where no exploitation is allowed, and the productive areas where most of the logging takes place. The productive areas encompass three type of exploitation and permits associated. First, big forestry concessions under sustainable management (CFAD), where the area under concession is in a range from 50,000 to 200,000 hectares with a limit of 600,000 hectares by owner; in addition, the concessions are associated to a unit of transformation. This concession could be granted to foreign investors, provided the submission of a management plan. Second, medium size concessions or associated forestry permits (PFA), which are granted exclusively to nationals. The maximum area is 15,000 hectares and must be associated to a CFAD; however, if a management plan is submitted the extension could be up to 50,000 hectares. Third, the good faith permits (gré à gré), these are permits allocated only to nationals with relatively small areas, which are managed by the government. Owners of these permits are obliged to sell their production to a transformation industry.

10. A key issue has been the allocation mechanism of the permits. The World Bank in the context of the preparation of the letter of development policy in first half of 2004 advocated (i) a moratorium in the allocation of the gré à gré permits until a transparent mechanism is in place. A decree adopting the moratorium was signed on October 9, 2004; (ii) public information, including information on the holders of the permits, to this end the government published in February 2005 on the web page of the Ministry of Economy and Finance a list of the permit holders; and (iii) a system of auction to allocate concessions. The government is currently assessing how to implement an auction system and is looking at the way it is done in Cameroon.

Forestry taxation

11. Just until recently, Gabon had a cumbersome system of forestry taxation, with at least 20 different taxes and fees burdening the sector activities, particularly exports. In addition, a timber marketing board (SNBG) had the monopoly of the exports of the two principal varieties of timber, Okoumé and Ozigo, and charged a fee on exports to finance its operations. The government took in December 2004 the decision to eliminate the monopoly of the timber marketing board (SNBG)45 in international commercialization of Okoumé and Ozigo. The decree approved establishing a period of transition, in which the SNBG will downsize its operations and will transform itself in an institution with functions of surveillance and control of the forestry sector. With this decision, the fees which amounted to about 10 percent of the sale prices and which were borne by the private sector will be abolished. Following lengthy negotiations between the government and forestry companies, in 2004 a reform reduced the taxes to three:

  • An area tax, based on the size of the concession. This tax was previously differentiated by zone, with the rate varying accordingly: Zone A CFAF 20 per hectare, Zone B CFAF 12, Zone C CFAF 8, and Zone D CFAF 4. The new tax is based only on the size of the concession and was set at CFAF 600 per hectare. This tax exempts most of the permits in the rural domain. A transitory provision allows concessions under sustainable management plans to reduce their tax obligation by 50 percent.

  • A stumpage tax, based on the value of the logged timber. The rate varies in a range from 2.6 percent to 7.7 according to the zone in where the tree is located to reflect costs associated with difficulties of exploitation. The incentive is to reduce waste and to facilitate the valuation of the real cost of the activity. The tax exempts the special permits and family exploitations and discriminates between logs for exports (the tax base is calculated by subtracting 15 percent of the price of the log) and logs for domestic processing (the tax base is calculated by subtracting 60 percent of the price of the log).

  • An export tax on logs of 17 percent, with the rate lowered from the level set in 2002 of 22 percent. Processed exports are exempted.

12. A gradual phasing out of the export tax on logs has been advocated as it distorts incentives, penalizing exports in favor of domestic transformation. The most appropriate instrument for achieving the sustainable management objective is the area tax as the stumpage tax is difficult to administer. The stumpage tax is still far away of its original target of about CFAF 7 to 8 billion annually, and even farther of compensating the export tax revenues. The exemptions of the stumpage tax introduce distortions, which make difficult its consolidation and the phasing out of the export tax.46

13. Gabon is currently consolidating the recently implemented tax reform. Main actions include the recovery of tax arrears from the area and stumpage taxes and the enforcement of the payment of the stumpage tax particularly from logs utilized in domestic processing. In a further stage it is envisaged the gradual phase out of the export tax and the strengthening of the area tax as the main source of revenue.

The bias toward domestic transformation

14. As expressed in the Forestry Code, the government aims to process 75 percent of total production domestically by 2012. This is not new, as over the years Gabon has intended to develop a domestic processing industry. However, with the approval of the Forestry Code, not only the government reassured the intention of developing a domestic processing industry, but also established a set of fiscal benefits that granted more incentives to processing. Those incentives include an exemption of the stumpage tax of 60 percent of the price of the log, a full exemption of the export tax, devolution of the value added tax paid on inputs for processed exports. Furthermore, as explained above, the permits for forestry production are mandatory associated with domestic processing units.

15. Distortions introduced, have indeed increased the rate of domestic transformation, but have generated at least three costs: (i) a revenue losses for the government; (ii) a bias against the export of logs; (iii) efficiency losses in the economy as some new enterprises coming on line could not be competitive.47

D. Next Steps

16. The future of the reform for Gabon’s forestry sector should take into account the following factors:

  • To ensure the sustainable exploitation of Gabon’s forests it is crucial to consolidate the system of national parks and other protected areas; and to enforce the adoption of sustainable management plans in the productive and the rural domains. The consolidation of the national parks and other protected areas requires approval of the law,48 which would provide the legal framework for the national parks, protecting the biodiversity of their surroundings and defining new protected areas.

  • Regarding forestry taxation, in the short term the 2004 reform should be consolidated, a second stage of reform should aim at removing distortions and increasing tax revenues. The consolidation of the tax reform encompasses the recovery of tax arrears from the area and stumpage taxes and the enforcement of the payment of the stumpage tax, particularly on logs used in domestic processing. The second stage should be geared toward the gradual phase-out of the export tax and the strengthening of the area tax as main source of revenue. The stumpage tax should also be strengthened.

  • New permits should be allocated through an auction system. The current system for allocating permits lacks transparency. The experiences of other countries have shown that competitive bidding is the easiest method for identifying the proper rents. An allocation system based on auctions would make information available to the public and guarantee that new permit holders adopt management plans.

  • The government should avoid picking winners and losers in the forestry sector. Developing the sector should be framed in the overall objective of diversifying the economy. To this end, measures to benefit the sector are those that reduce its transaction costs, for instance, eliminating the monopoly of the transport syndicate and eliminating additional surcharges, like the 1.5 percent fee charged by customs for entering information in the computer system. Fiscal incentives should be considered on general treatment to investment across sectors in the economy, for example accelerated depreciation under the corporate income tax.

  • On the transformation of the SNBG, it is important to guarantee that the transformed SNBG, which is envisaged to have limited control functions, be significantly downsized. The reformed SNBG should not be financed by the private sector and should be limited to reinforce activities of the ministries of forestry, taxes, and customs.

Bibliography

  • Christy, Patrice, Roland Jaffré, Omer Ntougo, and Chris Wilks, 2003, “La forêt et la filière bois au Gabon,” Multipress-Gabon.

  • Ministère des eaux et forêts, 2002, “Code forestier,” (Gabon).

  • World Bank/ WWF, 2003, “Forest Law Enforcement in Selected African Countries,” (Switzerland).

STATISTICAL APPENDIX

Gabon: Basic Data

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Table 1.

Gabon: Gross Domestic Product by Sector at Current Prices, 1998–2004

(In billions of CFA francs)

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Source: Ministry of Economy, Finance, Budget, and Privatization.
Table 2.

Gabon: Gross Domestic Product by Sector at Constant 1991 Market Prices, 1998–2004

(In billions of CFA francs)

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Source: Ministry of Economy, Finance, Budget, and Privatization.
Table 3.

Gabon: Gross Domestic Product, 1998–2004

(Annual percentage changes)

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Source: Ministry of Economy, Finance, Budget, and Privatization.

The oil sector consists of the oil-extracting industry, refining, research, and oil services.

Table 4.

Gabon: Supply and Use of Resources at Current Prices, 1998–2004

(In billions of CFA francs)

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Source: Ministry of Economy, Finance, Budget, and Privatization.
Table 5.

Gabon: Supply and Use of Resources at Constant 1991 Prices, 1998–2004

(In billions of CFA francs)

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Source: Ministry of Economy, Finance, Budget, and Privatization.
Table 6.

Gabon: Supply and Use of Resources at Current Prices, 1998–2004

(Annual percentage changes)

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Source: Ministry of Economy, Finance, Budget, and Privatization.
Table 7.

Gabon: Supply and Use of Resources at Constant 1991 Prices, 1998–2004

(Annual percentage changes)

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Source: Ministry of Economy, Finance, Budget, and Privatization.
Table 8.

Gabon: Savings and Investment Balances, 1998–2004

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Source: Ministry of Economy, Finance, Budget, and Privatization.

Including nonfinancial public sector enterprises.

Owing to data limitations, the split between the savings of the oil and the non-oil private sectors is subject to some uncertainty.

Table 9.

Gabon: Savings and Investment Balances, 1998–2004

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Sources: Ministry of Economy, Finance, Budget, and Privatization; and staff estimates.

Including nonfinancial public sector enterprises.

Owing to data limitations, the split between the savings of the oil and the non-oil private sectors is subject to some uncertainty.

Table 10.

Gabon: Discovered Oil Fields During 1990–2004

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Source: Ministry of Mining, Energy, Petroleum, and Water Resources.