Gabon: Selected Issues
Author: International Monetary Fund. African Dept.
Publication Date:
23 Dec 2019
eISBN:
9781513524481
ISBN:
9781513524481
Language:
English
Keywords:
ISCR; CR; Gabon; spending; governance; revenue; governance indicator; economic growth; private sector investment; tax administration efficiency; advance ruling; Public investment spending; Public investment and public-private partnerships (PPP)
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Selected Issues

Abstract

Selected Issues

Improving Governance for Higher and More Inclusive Growth in Gabon1

Despite recent progress, the perception of a still weak governance and a high level of corruption continue to deter private sector investment and constrain economic growth. Vulnerabilities in the fiscal institutional framework constrain effective revenue collection and reduce the efficiency of public spending, thus limiting fiscal space for priority pro-growth spending. The results of a dynamic stochastic general equilibrium (DSGE) model for Gabon suggest that macro-fiscal gains from governance reforms could be substantial. The potential additional growth can range from 0. 8 to 1.5 percent per year over the next 10 years, and debt can decline by 1.0 to 2.0 percent of non-oil GDP per year over the same period. It is urgent to improve governance and curb corruption to boost domestic revenue, enhance public finance management and the quality of spending, and improve the business environment to promote private investment and facilitate private sector activity.

A. Introduction

1. Gabon still faces significant development challenges. A sizeable endowment of natural resources has helped Gabon become one of Africa’s richest countries, with a per capita GDP in excess of $7,500 in 2018. The benefits of economic growth however are yet to reach all segments of society, with a third of citizens living below the poverty line and an unemployment rate of over a quarter of young people. Key challenges to achieving sustainable and more inclusive growth include a narrow economic base, weak governance and corruption, ineffective institutions and unattractive business environment

2. To address these challenges, the Gabonese authorities have launched an ambitious reform agenda to enhance governance and curb corruption. Improving governance is a key pillar of the authorities’ 2010 strategic development plan (PSGE),2 which has been the anchor of their development policies in recent years. Key initiatives include: (i) the criminalization of corruption offenses through the Penal Code, under which various corruption-related offenses are criminalized (e.g., passive and active bribery, embezzlement and misappropriation of property by a public officials for the benefit of third parties, abuse of functions); (ii) the reinvigoration of the National Commission to Combat Illicit Enrichment (CNLCEI, created in 2004); (iii) the adoption of a Law on Public Procurement in 2012; (iv) the integration in the legal framework of all regional directives on Public Financial Management (PFM) from the CEMAC commission (including the directive on transparency); and (v) the establishment of a National Financial Investigations Agency (ANIF) to investigate money laundering and related corruption activities in collaboration with its regional counterparts.

3. Despite recent efforts, governance weaknesses in Gabon still remain a major challenge to attracting private investment and supporting higher and more inclusive growth. The current discrepancy between adopting governance reforms and their actual effective implementation is a key factor that could explain why such reforms in Gabon have not generated sustained economic payoffs. Progress has been undermined by slow reform implementation, weak enforcement of regulations, and insufficient support to governance institutions. Third-party indicators, both quantitative and perception-based, from various sources including Mo Ibrahim, Transparency International, Natural Resource Governance Institute, and the World Bank point to the need for stepping up efforts to fight corruption and improve governance.3 Vulnerabilities in the fiscal institutional framework (tax policy, revenue administration, procurement, state-owned enterprises, etc.) have constrained revenue collection and weighted on the quality and efficiency of public spending. This has reduced fiscal space for priority growth-enhancing expenditure. Similarly, the perception of high-level corruption, weak enforcement and a large informal economy continue to deter private sector investment and create an uneven playing field amongst businesses, thus negatively affecting economic growth. By constraining investment, total factor productivity and human capital, existing governance weaknesses ultimately hinder growth inclusiveness .4

4. This paper seeks to quantify the impact of governance reforms on growth. It uses a Dynamic stochastic general equilibrium (DSGE) model calibrated to Gabon to simulate the potential benefits from governance and anti-corruption reforms to growth and public debt. Fiscal governance is particularly macro-critical, given the need to preserve debt sustainability, limit fiscal risks, and improve the efficiency of fiscal policy. Similarly, macro-critical is transparency in the oil sector, given the need to ensure that the development of minerals and hydrocarbon reserves provides benefits to a larger part of the population. The paper relies mainly on IMF-led assessments (PEFA and other capacity development activities) and information provided by the authorities, complemented, where appropriate and consistent with Fund policy, by some third-party indicators.5 The remainder of the paper is structured as follows. Section B presents an overview of indicators of inefficiencies in Gabon and comparators that could be related to governance. Section C simulates the potential impact of governance reforms on Gabon’s non-oil sector growth and public debt.6 Section D presents an assessment of the institutional weaknesses that give rise to governance concerns in the fiscal area. Section E discusses the impact of weak governance in the business environment. The last section concludes and suggests possible reforms to improve governance.

B. Overview of Governance Performance

5. Governance in Gabon is weak by the standards of peer emerging market economies (EMEs). After a slight improvement during 2009-12 likely reflecting the launch of the new government’s drive to reform the economy, governance indicators deteriorated, especially in the area of regulation. The Worldwide Governance Indicator of rule of law, which captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and the quality of contract enforcement, property rights, and the courts, as well as the likelihood of crime and violence, signals that Gabon’s governance has been better than the rest of CEMAC and close to SSA average. However, Gabon still has way to go to reach the level of EMEs and upper middle-income countries (UMICs, Figure 1).

Figure 1.
Figure 1.

Gabon: Governance Indicators, 2003-171

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Source: Worldwide Governance Indicators, 2003-17.1 There are uncertainties around the point estimates for governance and corruption indicators related to WGI. The WGI scores are normalized each year to mean zero and hence measure relative performance.

6. Despite recent progress, corruption as a consequence of weak governance, is still perceived to be a serious issue in Gabon. The authorities have placed a high emphasis on tackling corruption (Box 1). However, the 2019 Transparency International survey revealed that still 80 percent of respondents felt that corruption had become worse over the previous 12-months. A survey in 2017-18 reported that 35 percent of the Gabonese paid a bribe in contacts with public services to be compared with 48 percent for the rest of CEMAC. Bribes were most common in contacts with the police, courts, utility companies, and when asking for permits or other documents. It is worth noting that previous surveys suggested that corruption in Gabon was under reported because of fear of retribution.7

C. Measuring the Economic Impact of Governance Reforms

7. This section uses the DIGNAR model to simulate the impact of governance reforms on macroeconomic and fiscal outcomes in Gabon (Melina and others, 2016). The model is a real dynamic neoclassical open economy model with traded, non-traded, and natural resource sectors. It accounts for problems that may be arise during investment surges in resource-rich economies such as investment inefficiency, limited absorptive capacity and learning by doing externalities that can deliver Dutch disease effects.

8. The model is calibrated to capture the main features of the Gabonese economy. The main macroeconomic aggregates are set according to their averages in 2005-18 (Table 1, Appendix I). We then calibrate an implicit tax in firms’ decisions caused by a variety of factors, including weak governance, to match the average ratio of private investment-to-GDP of 22.9 percent. The efficiency of public investment is calibrated at 50 percent, as broadly estimated for the CEMAC region. Finally, we set the efficiencies in collecting the consumption tax at the 1st quartile of the distribution of Emerging Market Economies (EMEs), estimated at 35 percent, and the efficiency in collecting the personal income taxes at 4.7 percent.

Anti-Corruption Framework in Gabon

Gabon has long established an anti-corruption framework, but its effectiveness is undermined by weak institutions and enforcement of the legislation, and lack of transparency.

  • Gabon is a party to the United Nations Convention Against Corruption (UNCAC) since 2007 and the African Union Convention on Preventing and Combatting Corruption (AUCPCC). At the domestic level, the Gabonese government has endeavored to complete the legal framework provided by the Civil and Penal Code on the issue of corruption, through the promulgation in May 2003 of Law 002/2003, instituting a regime to prevent and punish illicit enrichment, and Law 003/2003, setting up the Commission for the Fight against Illegal Enrichment (CNLCEI). The criminal code also defines the CNLCEI as an independent administrative authority whose role consists of the detection, suppression, prevention and investigation of illicit enrichment. The CNLCEI was charged with publishing quarterly and annual reports on its activities, but these reports are not published. Corruption is rarely prosecuted in Gabon. For example, during 2014-17, the CNLCEI identified over 300 cases of corruption in various sectors of the economy and involving most levels of government officials. Only 18 cases were investigated, of which only 10 were forwarded to competent courts, of which only 1 case was brought to trial and led to sanctions (see Annex II).

  • Law 003/2003 has also introduced the mandatory income and asset declaration regime by public officials to help prevent abuse of power, reduce corruption and increase public accountability and public trust in institutions. The Law obligates every official vested with State authority to declare his personal assets before taking up duty, every three years while he is in office and again at the time of leaving office. However, with scarce information available, it is difficult to assess the implementation of the Law and institutional capabilities or the legal instruments to ensure the compliance of government officials at different levels.

9. The DIGNAR model is extended to simulate the impact of governance reforms on output, private investment, private consumption and debt, along the lines of the analysis presented in the new IMF framework for enhanced engagement on governance (IMF, 2018a). It incorporates governance reforms to address corruption vulnerabilities through: (i) a reduction in bribery of public officials (see section II) and other distortions (akin to an implicit tax similar to a bribe rate) which would stimulate private sector investment; (ii) an improvement in public investment processes which would raise public investment efficiency and translate into a larger capital stock (see section IV); and (iii) a more efficient government bureaucracy which would reduce tax evasion, widen the tax base and increase tax revenues.8 We simulate governance reforms that imply moving Gabon forward along these three dimensions over 10 years,9 following two scenarios. For each scenario, we first illustrate the implications of reforming only one aspect of governance at a time, while keeping the remaining two at their initial levels. Then, we assess a comprehensive reform package that tackles all the three channels simultaneously. Figures 6-9 report the paths of selected macroeconomic variables for the ten years after the implementation of the reform.10 Table 1 summarizes the average yearly effect on each variable under the two alternative scenarios.

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10. Improving governance in the relationship of firms with the government stimulates private investment and growth. Figure 3 shows how private investment, private consumption, non-oil output and public debt-to-GDP react to a reduction of the distortionary wedge in firms’ investment and employment decisions (e.g. bribery). This reform would result in an approximate additional annual non-oil growth of 1.12 percent (optimistic scenario) or 0.57 percent (moderate scenario). Public debt decreases in both scenarios (by 3.5 percent of GDP in the optimistic scenario, and 2 percent of GDP in the moderate scenario) over the ten-year horizon. Finally, private consumption increases.

Figure 2.
Figure 2.

Effects of Reforms in all Areas of Governance

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Sources: Gabonese authorities; and IMF staff estimates and projections.
Figure 3.
Figure 3.

Effects of Reducing Firms’ Distortion

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Sources: Gabonese authorities; and IMF staff estimates and projections.

11. Reducing waste/improving efficiency in public capital expenditures translates into a larger stock of public capital, with positive effects on growth and public finances. Figure 4 reports paths of the same macroeconomic variables following an improvement in public investment efficiency. Such a structural reform increases the stock of public capital, which in turn leads to an additional annual non-oil growth of 0.17 percent (optimistic scenario) or 0.09 percent (moderate scenario) relative to the pre-reform era. 11 This reform leads also to a crowding-in of private demand (consumption and investment) and a reduction in the public debt-to-GDP ratio (2.56 percent in the optimistic scenario and 1.25 percent in the moderate scenario).

Figure 4.
Figure 4.

Effects of More Efficient Public Investment

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Sources: Gabonese authorities; and IMF staff estimates and projections.

12. Expanding the tax base through an improvement in tax administration efficiency will boost growth and reduce government debt. Expanding the tax base allows the government to reduce the tax rate, which boosts private consumption, investment, employment and, ultimately, annual per capita non-oil output (by 0.12 percent in the optimistic scenario and 0.9 percent in the moderate scenario) (Figure 5).12 It is worth noting that, prior to the reform, the model assumes that the inefficiency in tax collection is rebated to households through a lumpsum transfer. It follows that a lower inefficiency translates into lower income for the households, which initially cut their consumption due to this negative income effect.13 Non-oil output will increase, and public debt fall by 12.7 percent of GDP in the optimistic scenario and 7.75 percent in the moderate scenario, after 10 years. Clearly, the decline in public debt would be stronger if the tax rate were to be kept fixed at the pre-reform level.

Figure 5.
Figure 5.

Effects of Improving Revenue Mobilization

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Sources: Gabonese authorities; and IMF staff estimates and projections.

13. A comprehensive governance reform package affecting all three channels will deliver a much higher growth and fiscal space (Figure 2). This reform package will lead to significant increase in private investment, private consumption, and non-oil output. Public debt will fall, allowing the tax rate to fall given the fiscal reaction function, and to further stimulate private demand. Overall, the main contribution to the improvement in macroeconomic conditions stem from removing the distortions affecting private firms’ decisions. However, the additional boost provided by the other reforms is non-negligible thus highlighting the importance of a comprehensive reform package.

Table 1.

Gabon: Average Annual Effects of Improving Governance1/

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Private investment, private consumption and non-oil output are in percentage deviations from the initial year. The change in public debt is expressed in percent of GDP.

D. Strengthening Governance Through Sound PFM Institutions

14. Despite noticeable efforts over the recent years, further reforms to strengthen PFM institutions are needed and would lead to stronger outcomes in preventing corruption.

The last PEFA evaluation undertaken in 2016 showed improvements in several PFM areas where reforms have been implemented (e.g., performance-based budgeting, taxpayer registration). At the same time, progress lacked in other aspects (e.g., credibility of the budget) and several areas have degraded (e.g., predictability and control of budget execution) (Annex IV). While the transposition of the regional CEMAC directives on public finance management into national laws and regulations has contributed to enhancing the legal framework, its implementation has not kept pace. This situation affects the ability of PFM institutions to fully play their role in preventing and containing corruption. This section discusses the PFM reforms that would significantly improve governance and reduce the vulnerability to fraud and corruption.

Bolstering Revenues Through Enhanced Rule-based Practices and Better Controls14

15. The large number of unmonitored tax and custom exemptions and expenditure increases the risk for arbitrary attribution and fraud. Numerous tax and customs exemptions and expenditure15 are granted in Gabon, some of them without legal basis, causing significant fiscal revenue losses. The estimated impact of tax exemption in 2016 varies from 3.6 to 7.2 percent of nonoil GDP, depending on the scope and year considered. Aside from the financial impact on the budget, these exemptions pose several problems, including: (i) the lack of justification on their social and economic advantages paving the way for fraud and dead-weight effect; (ii) the difficulties to control and monitor them due to organization and capacity issues; (iii) the lack of transparency due to the absence of a comprehensive and up-dated list of all tax exemptions; and (iv) the flexibility on the tax-exemption attribution process which doesn’t seem to be supported by clear rules nor supervised by a central and unique authority.

16. Weak controls of tax payers and poor collaboration between tax and custom departments hamper tax collection. Tax arrears are large (CFAF 180.5 billion in 2017),16 and are often cleared using the “compensation croisée” mechanism leading to the payment and recording of the residual tax obligation once the netting has been done; this complicates fiscal analysis. Finally, tax and custom payments are still made in cash even for very large amounts while bank transfer could help reduce potential fraud and strongly support the efforts for a unified cash management system through the Treasury Single Account.17. On these aspects, Gabon could benefit from the successful experience of other SSA countries.18

17. Vulnerabilities to fraud and corruption in revenue collection can be reduced by enhancing controls, collaboration between departments and capacities of all stakeholders. It will be important to: (i) reform and better control and monitor tax and customs exemptions19; (ii) stop any cash payment for both customs and tax revenue and enforce bank transfer or payment by using an improved dedicated IT systems (e.g., ASYCUDA World and E-TAX and extend the coverage of these tools to all tax payers (e.g., extension of E-TAX to large and middle-sized companies); and (iii) strengthen tax and customs agencies management, control and collection capacities; and encourage and facilitate collaboration such as systematic data exchange, particularly in the occurrence of fraud, cross-cutting surveillance and joint controls.

Ensuring Budget Credibility

18. Weak budget credibility and the absence of compliance with budget rules increase the risk of diverting public funds from their initial objectives as approved by Parliament. Despite the adoption of the new organic law on budget, derived from the CEMAC directives20 and the implementation of various innovations such as multiyear budget forecast, program-based budgeting or zero-based budgeting budget credibility remains weak.21 Furthermore, budget rules are not always observed, and budget laws are largely modified during budget execution regardless of rules and limits stated in the Organic Law. For instance, in 2017 the sum of administrative modification of the initial appropriation through budget internal transfers (without approval of the Parliament) reached 12 percent of the initial budget, over the authorized ceiling for this type of modification.22 These modifications are detrimental to line ministries especially those operating in the social sectors (e.g., health ministry’s appropriations were cut by some 32 percent in 2018). This lack of adherence to legal rules undermines the Parliament’s authority and oversight and reduces the transparency of budget execution.

19. Compliance with Parliament authorization and existing budget rules will help improve budget credibility. It is critical that budget law is realistic in terms volume and distribution between line ministries items as well as being comprehensive for both revenue and expenditure. Implementing automated controls through the budget IT system will also ensure that rules and ceilings are respected.

Improving Public Investment Management

20. Weak investment planning undermines the overall public investment performance. The 2019 Public Investment Management Assessment (PIMA) showed the current process is undermined by several weaknesses which hamper the impact of investment on growth and development. These weaknesses affect the efficiency of public investment: spending on public investment doubled between 2008 and 2013 to reach 13.7 percent of GDP, the highest in Gabon’s history, whereas, at the same time, public capital stock-to-GDP ratio declined (Figure 6). The estimated efficiency score of Gabon based on infrastructure quality is 0.5, compared to the average scores of 0.69 and 0.80, respectively, for CEMAC and SSA. Weaknesses in current Public Investment Management (PIM) processes and practices include:

Figure 6.
Figure 6.

Public Investment and Public Capital Stock, 1990-2017

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Sources: Gabonese Authorities; and IMF staff calculations and estimates.

  • Lack of coordination: multiple stakeholders intervene in the planning process, without coordinating and using reliable tools, such as a consolidated and shared list of projects. As a result, budget allocations do not cover all projects which are also not reported in fiscal statements;23

  • Absence of systematic prior technical, economic, and financial analysis: in practice many projects costs are assessed after selecting contractors and criteria for projects selection and prioritization are not always known nor publicly disclosed;

  • Bypass of public procurement rules: although public procurement code strictly limits the use of non-competitive methods, single tenders’ procedures to select contractors remain the common rule; they counted for 89 percent of total value of contracts in 2017;

  • Absence of controls during the implementation phase of the projects: this can also lead to payments without any physical execution. The analysis of a high-profile road project conducted in the context of the PIMA also revealed that the lack of appraisal, selection criteria and of competition to select the successive contractors, has resulted in more than 15 percent of cost overruns;

  • Lack of transparency in the recourse to Public Private Partnerships (PPPs): criteria to justify the recourse to a PPP are not known and there is no assessment of the fiscal impact of such contracts. Furthermore, the public procurement oversight body (ARMP) can’t oversee PPPs tenders under current legislation.

21. Greater transparency and accountability in public investment management is a key priority to improve governance. A renewed legal framework for PIM processes and responsibilities is a prerequisite, along with the preparation by a central body of a Public Investment Program based on objective and published criteria for projects selection. Decisive measures should also be taken to comply with the legal threshold on single tenders’ procedures as well as expending the scope of the ARMP to PPPS. Experience from other countries show that making quarterly statistics on awarded contracts and procedures available to the public can help reduce their use. In the same vein, disclosure of reporting on project implementation and associated fiscal risks are crucial to increase transparency and ensure value for money in the use of public resources. The PPP legal framework adopted in 2017 should be revised and completed to impose a systematic consultation of the Budget department to assess the fiscal sustainability of PPPs contracts, to strictly limit exemptions to the principle of competitive procedures, and to define clear rules on unsolicited bids.

Enhancing Oversight and Control of Autonomous Agencies and Extrabudgetary Funds

22. Some progress has been made to enhance financial oversight of autonomous central government’s (CG) agencies and extrabudgetary funds (EBFs)24. Autonomous agencies and extrabudgetary funds (EBFs) are financed through a combination of own source revenues, and earmarked revenues and transfers from the State budget. Their governance and statute are regulated by multiple and sometimes non-consistent laws and decrees, creating legal loopholes and risks of non-compliance with the overall PFM legal framework. Since 2018, all earmarked revenues are detailed in the budget law. Implementation of a set of key measures has also been launched to ensure a more transparent and controlled use of public resources by these entities (e.g., elimination and merging of several autonomous agencies; creation of a supervision unit in the Budget Department; systematic use of proper accounting documents).

23. Fiscal sustainability will benefit from consolidated and strengthened oversight and controls of EFBs and agencies. Despite recent efforts, significant weaknesses remain, including (i) the lack of strategic guidelines to monitor and mitigate fiscal risks; (iii) the absence of connection with the central IFMIS in many cases (less than 24 percent); and (iii) and weak external audit.25 These weaknesses, combined with cash management constraints, can lead to an accumulation of expenditure arrears. The effective implementation of information systems in all autonomous agencies and extrabudgetary units and the operationalization of the Budget oversight unit are prerequisites to better control expenditure execution and fiscal performance, particularly from the special accounts.

Improving Cash Management

24. Cash management reforms should continue. The Gabonese authorities took a decision to close public accounts outside of the Central Bank. Further improving cash management will require completing the implementation of the Treasury Single Account, progressively forbid any cash transaction outside the TSA, and implementing due cash management tools and mechanisms including the Treasury committee and regulation mechanisms to prevent the creation of arrears.

Enhancing Internal Control and Audit, Fiscal Reporting and External Oversight

25. Internal controls and audit are weak, and transparency of fiscal reporting is low. Despite some progress with the adoption in 2017 of the new decree on expenditure process which helped lay down the responsibilities of each stakeholder involved in the expenditure process and strengthened controls26, further improvements are needed. Currently, reconciliation and clearance of suspense accounts take place only once a year, and a large amount of previously accumulated stocks remain non-cleared. The coverage of internal audits is limited to 7 percent of total budgeted expenditures, and internal audit activities do not apply standardized professional procedures. Also, the timeliness, comprehensiveness and accessibility of fiscal reports27 remain limited. Operations of autonomous agencies, EBFs and unorthodox spending are not systematically included in ex-post financial reports, and IT systems used to manage revenues, expenditures, wage bill, cash and debt are not interconnected.

26. Subsequently, external oversight by the Court of accounts, the Parliament and the civil society are not fully effective. The limited fiscal transparency hinders the implementation of external controls and safeguards needed to deter or reveal potentially fraudulent activities. Furthermore, the limited independence of the Court of accounts undermines the quality of external audit. Legislative scrutiny of the Court’s reports is also poor. Lastly, despite a legal framework encouraging the publication of budget documents and fiscal information,28 many of these are not accessible to the public and, if accessible, they are made available with significant delays or in very user-unfriendly form. 29

27. Internal control and audit, fiscal reporting and external oversight remain key areas for reforms to strengthen governance in Gabon. Decisive measures have been implemented by the authorities (e.g., internal controls on non-salary spending, limitation of the use of exceptional procedures, systematic issuance of purchase orders at the commitment stage though the IFMIS, periodic issuance of in-year fiscal reports). However, efforts to increase fiscal transparency and oversight should be accelerated: (i) internal control and audit frameworks need to be further developed through standardized methodologies and interconnection of IT systems; (ii) internal audits on wages would enhance the integrity of the payroll and help identify ghost workers; (iii) timely and accessible publication of basic fiscal data and reports through a standardized format would strengthen external oversight and comparisons over time. Lastly, undertaking the open budget evaluation would also help improve fiscal transparency and monitor progress in this area.

E. Improving the Business Environment

28. The reforms introduced since 2009 (Annex V) have helped improve the investment climate. With the support from the World Bank’s Gabon Investment Promotion and Competitiveness Project, the authorities created in 2014 the High Investment Council (HCI), which aims to increase the amount of cooperation between the public and private sectors and stimulating private sector growth more generally and create jobs. In September 2014, the government also launched the Gabon National Agency for the Promotion of Investment (ANPI-Gabon) to facilitate and promote investment in the country. The ANPI-Gabon acts as one-stop administrative shop for investors in addition to overseeing the implementation of Gabon’s investment promotion plan, among other roles. Since it started operations in 2018, it has been active in reducing the amount of time to start a new company. The ANPI also provides all services needed for the creation, modification, and closing of an enterprise in one place. The authorities have also abolished since 2013 the requirement for paid-in minimum capital to establish a business. Consequently, the cost of starting a business and the minimum capital have been reduced well below SSA average.

Table 2.

Gabon: Indicators of Starting a Business, 2009-18

article image
Source: The World Bank Doing Business Report, 2009-2018.

29. Further improvements to the legal/regulatory aspect of the business environment are needed to attract private investors. The 2019 Doing Business report also indicates that Gabon’s regulatory performance is better than the rest of CEMAC, except for enforcing contracts and registering property where it was a weaker performer. However, Gabon scores below SSA average, EMEs and UMICs in all aspects of doing business, except in the area of starting a business (Figure 7).

Figure 7.
Figure 7.

Doing Business Indicators, 2019

(0=lowest, 100=best performance)

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Source: World Bank Doing Business Report, 2019.

30. There is scope for improving regulations related to foreign trade. Further simplification of trading procedures could promote economic efficiency and also remove incentives and opportunities for border-related corruption, thus supporting good governance and integrity. The OECD trade facilitation indicators (Figure 8), which measure the full spectrum of border procedures show that Gabon is far below best practice in all areas and particularly so in information availability, appeal procedures, advance rulings, and governance and impartiality.

Figure 8.
Figure 8.

Indicators of Trade Facilitation, 2017

(Percent of best practice)

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Source: OECD Trade Facilitation Indicators. https://sim.oecd.org

31. There is a need to simplify bureaucratic procedures and increase the efficiency of legal and regulatory systems to reduce opportunities for rent-seeking behavior and corruption. The persistence of inefficiencies and a lack of transparency gives rise to corruption risks. It also exposes businesses to poor enforcement of claims through local courts.

Figure 9.
Figure 9.

Most Problematic Factors for Doing Business

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Source: World Economic Forum, Global Competitiveness Report, 2012-13 and 2016-17.Note: Note: From the list of factors, respondents to the World Economic Forum’s Executive Opinion Survey were asked to select the five most problematic factors for doing business in their country and to rank them between 1 (most problematic) and 5. The score corresponds to the responses weighted according to their rankings.

  • The limited access to online systems together with multiple layers of red tape significantly increase the potential for rent-seeking behavior. According to the World Bank, the initial process of registering a new firm takes 50 days on average, well above the Sub-Saharan Africa (SSA) average of 26.8 days and the OECD average of 8.3 days (Table 4). Investors considering constructing their own premises will face further delays in completing the necessary permits and registering the property, with up to 329 days on average complete the whole process. The process of winding up business operations through insolvency proceedings is similarly extremely time-consuming and difficult, taking an average of five years to complete. The low recovery rate of just 14.8 cents on the US Dollar, below the wider SSA regional average, will further deter investment in high-risk ventures as significant losses will be made if they fail. Firms face high cost to trade across-borders due to bureaucratic bottlenecks and congestion, particularly at ports. These added delays create opportunities for rent-seeking behavior by security and port officials.

  • Thee enforcement of contracts is hindered by lengthy delays and limited transparency in the legal system. This hinders objective decision-making in the legal system and gives rise to risks of corruption and nepotism. In addition, there are no specialized commercial courts, and training in specific and technical aspects of law is deemed insufficient, which causes considerable delays in the legal process and can result in incorrect decisions. Trust in judiciary courts is low according to recent surveys (Figure 10). Resolving a contractual dispute through the Gabonese legal system can consequently take around 1,070 days, the longest time regionally and among the highest globally. Recent surveys also indicate weak market trust in the judiciary amidst persistent perception of political interference and corruption. The World Bank’s 2019 Doing Business Report indicates that courts are clearly not an efficient option for creditors who want to enforce a contract. The cost of contract enforcement in Gabon is significant at 34 percent of the claim value, but well below the average in the rest of CEMAC (49 percent) and SSA (42 percent). The cost of registering property in Gabon at 12 percent of the property value is slightly below the average of CEMAC (13 percent), but well above the SSA average (8 percent), and the average EMEs and UMICs, which are both at 6 percent (Figure 11).

Figure 10.
Figure 10.

Trust in the Judiciary Courts, 2015

(Percent of respondents who answered “a lot” or “somewhat”)

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Source: Global Corruption Barometer Africa 2019: Citizens’ views and experiences of Corruption , Transparency International.
Figure 11.
Figure 11.

Cost of Enforcing a Contract and Registering Property, 2019

(Percent of contract claim and property value, respectively)

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A001

Source: World Bank Doing Business Report 2019.

F. Conclusion and Policy Recommendations

32. Tackling governance weaknesses and reducing the opportunities for corruption is key to achieve the Gabonese authorities’ ambitious targets of broad-based and inclusive growth. The potential economic growth dividends could be significant if anti-corruption and governance reforms focus on reducing bribes to public officials, improving transparent public spending and investment processes, and reducing tax loopholes. Depending on the magnitude of the reforms implemented, the potential additional growth can range from 0.8 to 1.5 percent per year over the next 10 years, and debt can decline by 1.0 to 2.0 percent of non-oil GDP per year over the same period.

33. Addressing governance weaknesses effectively hinges on sustaining reform momentum through a multi-pronged strategy. Strong political ownership and sustained involvement from civil society play a vital role in improving governance and reducing tolerance towards corruption. There is a renewed emphasis of the President and his new government, which now includes a ministry of the promotion of good governance and the fight against corruption) on tackling governance. Palpable progress is underway in holding public official responsible for corruption crimes. These welcome efforts would benefit from additional reforms in the fiscal, law enforcement and market regulation. Further progress needs also to be made to enhance the participation of civil society in the governance process, including by increasing fiscal transparency and public disclosure of information.

34. Strengthening anti-corruption institutions will also be needed. This requires:

  • Enhancing the independence and effectiveness of key governance institutions such as the CNLCEI, including by ensuring the adequacy of the legal and institutional framework for the fight against corruption, including by ensuring full criminalization of corruption offences under the UNCAC in domestic; enhancing their human and financial capacities; and through increased transparency.

  • Criminalize all corruption offenses in line with the UNCAC requirements including bribery, embezzlement and misappropriation of property by a public official for the benefit of third parties, and the abuse of functions, and improve enforcement to ensure a dissuasive sanctions against the perpetrators of corruption and the confiscation of their ill-gotten proceeds.

  • Enforcing asset disclosures and enhance their effectiveness by: expanding the coverage to family members of public officials and their beneficial owners and to political parties; implementing electronic filing of asset disclosure; ensuring the verification of asset declarations, enhance sanctions for failure and false declarations, and enabling public access to financial declaration of public officials.

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Annex I. A Description of Third-Party Corruption Indicators Used in the Paper

The paper uses multiple third-party indicators from different sources to compare governance performance in Gabon relative to other groups. Two categories of indicators are considered quantitative and perception-based indicators. Despite measurement issues, quantitative indicators appear to be an acceptable basis for comparing countries. Qualitative indicators may suffer the “emotional bias”, but they reflect public confidence in the integrity of public institutions and can have an impact on the economy through business sentiment and investment.

  • Afrobarometer: Produced by a pan-African research network that conducts public attitude surveys on governance, economic conditions, and related issues in more than 35 countries in Africa. It is carried out through a partnership of research institutions based in the different countries. The surveys are based on a series of face-to-face interviews with a random sample of either 1,200, 1,600 or 2,400 people in each country.

  • Corruption Index from the International Country Risk Guide (ICRG). This index varies between 1 and 6 (with lower values indicating higher corruption) and captures the extent of corruption within the political system, in particular in reference to “excessive patronage, nepotism, job reservations, ‘favor-for-favors’, secret party funding, and suspiciously close ties between politics and business.”

  • Corruption Perception Index from Transparency International. This index varies from 0 to 100, with lower values indicating higher corruption. It is constructed by averaging 12 different data sources that capture the perceptions of business people and country experts about the level of corruption in the public sector.

  • Control of Corruption indicator from the Worldwide Governance Indicators (WGI). This index varies from -2.5 to +2.5 (with lower values denoting higher corruption) and is constructed by aggregating multiple underlying data sources. It captures “perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as capture of the state by elites and private interests.”

  • Trade Facilitation Indicators (TFIs): Produced by the OECD. The indicators provide perceptions of experts based on information of border procedures reported in the TFI database.

  • Worldwide Governance Indicators (WGI): Produced by Daniel Kaufmann, Natural Resource Governance Institute and Brookings Institution, and Art Kraay, World Bank Development Research Group. The dataset summarizes the views on the quality of governance provided by many enterprise, citizen and expert survey respondents in over 200 countries. These data are gathered from several survey institutes, think tanks, nongovernmental organizations, international organizations, and private sector firms. WGI reports margins of error to encourage caution in making comparisons across countries and across time. Caution is also needed as the quality of underlying data can vary across countries and data sources.

  • World Economic Forum (WEF)’s ethics and corruption index and WEF’s irregular payments and bribes index is a survey-based index compiled by the WEF in its Global Competitiveness Report. Ethics and corruption are the average of two variables: Diversion of public funds: In your country, how common is diversion of public funds to companies, individuals, or groups due to corruption? (1 = very common; 7 = never occurs) and Public trust of politicians: How would you rate the level of public trust in the ethical standards of politicians in your country? (1 = very low; 7 = very high). Similarly, irregular payments and bribes index average score across the five components of the following questions: In your country, how common is it for firms to make undocumented extra payments or bribes in connection with (1) imports and exports; (2) public utilities; (3) annual tax payments; (4) awarding of public contracts and licenses; (5) obtaining favorable judicial decisions? In each case, the answer ranges from 1 [very common] to 7 [never occurs].

Annex II. Summary Findings of the Gabonese National Commission to Combat Illicit Enrichment

Table 1.

Factors Favoring the Perpetration of Economic and Financial Offenses

article image
Source: Analysis of the reports of the minutes of hearings, CNLCEI 2016.
Table 2.

Summary of Illicit Practices that Led to Committing Offenses

article image
Source: Archives CNLCEI.

Annex III. Key Model Features and Calibration to Gabon

The Debt, Investment, Growth and Natural Resources (DIGNAR) model developed by Melina and others (2016) is used to capture reforms in the three areas of governance along the lines of IMF (2018a): (i) a reduction in bribes and other distortions that discourage firms from investing and creating jobs; (ii) an increase in public investment spending efficiency; and (iii) a decline in tax evasion.

The Macroeconomic Model

To assess the macroeconomic implications of governance reforms, this note uses the Debt, Investment, and Growth and Natural Resources (DIGNAR) model developed by Melina and others (2016), extended to capture three aspects of governance (IMF, 2018). The use of a general equilibrium model allows us to analyze the impact of reforms simultaneously on non-oil output, the private sector and government debt dynamics.1 DIGNAR is a real, dynamic, open economy model in which public capital is used as input of production. Firms optimally choose the amount of capital and labor to use, while government levies distortionary taxes to keep debt under control. We then extend the model to account for the abovementioned transmission channels of governance.

Channel 1

The cost of bad governance is a distortion that discourages firms from investing and hiring (e.g. a bribe that needs to be paid to government officials to obtain the required authorizations). For simplicity, we assume that the distortion is proportional to the level of production. Let the firm’s production function be:

Yt=f(Kt,Lt,KtG),(1)

where Yt is non-oil output, Kt is the stock of private capital, Lt is labor, KtG is the stock of public capital and f(·) is an increasing and concave function of the production factors. The firm’s profit, Πt, is given by:

Πt=(1−kt)Yt−wtLt−RtkKt,(2)

where Kt ∈ (0,1) is the distortion, wt is the real wage, and Rtk is the gross return to private capital. Standard profit maximization implies that the real wage and the return to private capital are equalized to the marginal products of labor and capital respectively, that is:

wt=(1−kt)∂f(⋅)∂L,(3)
Rtk=(1−kt)∂f(⋅)∂K,(4)

The implicit tax introduces a wedge (1 - kt) < 1 between the real wage and the marginal product of labor, and between the gross return to private capital and the marginal product of capital. For given wt and KtG, an increase in distortion kt Requires ∂f(⋅)∂Lt and ∂f(⋅)∂Kt requires and to increase in equilibrium, and hence the demands for labor and capital to decline, given diminishing marginal returns. This will translate into lower employment, lower investment, and thus lower non-oil output. It must be emphasized that many are the reasons, besides governance, why developing countries underinvest. However, what is relevant for the analysis is that a structural reform in the area of governance will reduce wedge (1 - kt) and will stimulate private investment, employment and, in turn, non-oil output.

Channel 2

Bad governance will lead to a lower efficiency of public investment, that is, a decline in the fraction of government capital expenditures that effectively translates into public capital. Consider the law of motion of public capital:

Kt+1G=(1−δG)KtG+∈t+ItG,(5)

where δG is the depreciation rate, ∈t ∈ (0,1) is public investment efficiency and ItG is public investment spending. This equation states that the stock of public capital available at the beginning of period t + 1 is equal to the stock of capital that has not depreciated up to the end of period t plus effective public investment ∈tItG. Note that effective public investment is only a fraction of public investment expenditures. We thus assume that fraction 1 - ∈t goes wasted. A lower efficiency translates into a lower stock of public capital being accumulated and, via equation (1), lower non-oil output. Again, bad governance is not the only determinant of inefficiencies in public investment, but what matters for our analysis is that an improvement in governance helps reduce them.

Channel 3

Bad governance could also affect in revenue mobilization. The assumption is that, because of bad governance and other factors, e.g. capacity shortages, a fraction of tax revenues goes wasted and does not enter the government flow of funds. To illustrate this point, let us report a simplified version of the law of motion of government debt in real terms in which the only expenditure is for public investment and the only source of revenue is a consumption tax:

Bt+1=RtBt+ItG−(1−ϑt)τtCCt,(6)

where Rt is the real gross rate of interest on government bonds, Bt·; τtG is the consumption tax rate; Ct is private consumption and ϑt ∈ (0,1) is the inefficiency in revenue mobilization. For a given level of tax revenue, a higher ϑt will result into a higher level of government debt. Equivalently, in order to keep debt at a given level, a government with a higher inefficiency in ta collection, needs to set the tax rate at a higher level, depressing private demand and non-oil output.

Calibration to Gabon

The initial steady state of the model is calibrated to capture salient features of the Gabonese economy in the past 13 years (2005-18 averages). Table reports the specific calibration.

Table 1.

Gabon: Key macroeconomic Variables, 2005-18

(Average)

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Sources: Gabonese authorities; and IMF staff estimates.

The choice of the parameters is discussed in section III.

Annex IV. Comparison of the Results of the 2013 and 2016 PEFA

article image
Source: PEFA 2016.

Annex V. Business Reforms in Gabon, 2009-18

2018

Starting a Business was made easier by reducing the paid-in minimum capital requirement and by making the notarization of incorporation documents optional.

Dealing with Construction Permits was made faster by streamlining the process and increased transparency by publishing regulations related to construction online free of charge.

2017

Resolving Insolvency was made easier by introducing a new conciliation procedure for companies in financial difficulties and a simplified preventive settlement procedure for small companies.

2016

Starting a Business made easier by reducing the paid-in minimum capital requirement. Registering Property was made less costly by lowering the property registration tax.

2015

Protecting Minority Investors was strengthened by introducing greater requirements for disclosure of related-party transactions to the board of directors and by making it possible for shareholders to inspect the documents pertaining to related-party transactions and to appoint auditors to conduct an inspection of such transactions.

Paying Taxes was made easier for companies by introducing an electronic system for filing and paying VAT.

2014

Starting a Business was made easier by replacing the requirement for a copy of the founders’ criminal records with one for a sworn declaration.

Dealing with Construction Permits was made easier by reducing the time required to obtain a building permit and by eliminating the requirement for an on-site inspection before construction starts.

Paying Taxes was made less costly for companies by reducing the corporate income tax rate.

2012

Getting Credit was improved through amendments to the OHADA Uniform Act on Secured Transactions that broaden the range of assets that can be used as collateral (including future assets), extend the security interest to the proceeds of the original asset and introduce the possibility of out-of-court enforcement.

2009

Getting Credit In Gabon and other members of the Central African Monetary Union, the regional public credit registry provided online access to information for banks, simplifying the task of filing and retrieving information in the public registry and allowing expanded coverage of borrowers.

Source: World Bank, Doing Business 2018.
1

Jemma Dridi, Alessandro Cantelmo (Former RES), Bruno Imbert and Gwenaelle Suc (both FAD), Justine Lekogo (former local economist in Gabon). We would like to thank the Gabon team and participants of the governance brainstorming session (FAD/LEG/SPR and the World Bank) for their comments and suggestions. We are also grateful to G. Melina for support on the DSGE model and to J. Swanepoel for a helpful background note.

2

The PSGE also aims to improve diversification, achieve sustainable development, human capital development and infrastructure development. The PSGE is planned in three phases. In July 2012, the government published a document which highlights the objectives for the period 2011-16. The second phase started since 2017 and covers the period 2017-19. The final phase would cover the period 2020-25.

3

Further details are presented in Annex I. Despite measurement difficulties in some cases, quantitative indicators appear to be an acceptable basis for comparing countries. Perception-based indicators could be subject to emotional bias, but they reflect public confidence in the integrity of public institutions and can have an impact on the economy through business sentiment and investment.

4

For a detailed discussion on how corruption has significant negative effects on key channels that affect inclusive growth, see section III of the 2016 IMF Staff Discussion on Corruption: Cost and Mitigating Strategies.

5

Guidance Note for the Use of Third-Party Indicators in Fund Reports, September 2018.

6

We focus on the effects on non-oil GDP since we consider resource production and prices to follow exogenous processes, see Melina and others (2016) for more details.

7

According to a survey in 2015, about 49 percent of the respondents in Gabon who had been requested to pay a bribe did not report the incident to the authorities because of fear of retaliation (Afrobarometer, 2017a and 2017b).

8

More details on the technical aspects of the model and its calibration to Gabon are provided in Annex III.

9

This broadly coincides with the horizon contemplated by the authorities in their development plan (PSGE).

10

Specifically, time -1 on the horizontal axis denotes the pre-reforms period while reforms are implemented and start displaying their effects in period 0.

11

The relatively small impact can be explained the fact that reducing wastes in public capital expenditures does not directly affect the private sector which is the driver in the model. While increasing the efficiency of public investment increases a bit the available stock of public capital, as a result, GDP is affected through second-round effects which in a moderate scenario might be small.

12

The relatively small impact can be explained the fact that expanding the tax base through an improvement in tax administration efficiency does not directly affect the private sector which is the driver in the model. Mobilizing more revenues has the main effect of reducing public debt.

13

Since the increase in the tax collection efficiency is higher under the optimistic scenario, the income effect is stronger, and consumption initially falls relative to the moderate scenario. However, the 10-years increase in consumption is higher under the optimistic scenario since with a higher tax collection efficiency the tax rate is allowed to decrease by more.

14

PEFA PI-3,19,20

15

According to the OECD definition, a tax expenditure is a transfer of public resources resulting a reduction in tax liabilities relative to a standard, rather than a direct expense. This definition establishes three characteristics that make it possible to identify a tax expenditure: (1) a deviation from the tax standard or reference system (LIC) to be defined, (2) represents a loss of revenue to the government and (3) it would be possible for the State to put in place a direct transfer with the same effects.

16

Source: Tax department.

17

Implementation of automated tools and procedures for revenue collection would allow real time transfer to the TSA, avoiding delays and potential frauds, strengthening recording and, therefore, facilitating in-year cash management.

18

In Senegal cash payments are banned for amounts above 100.000 CFA since July 1, 2015.

19

See Revenue Administration: Short-Term Measures to Increase Customs Revenue in Low-Income and Fragile Countries, Technical Notes and Manuals, IMF, 2019.

20

Directive 01/11-UEAC-190-CM-22 on budget laws.

21

Budget credibility is measured by the difference between initial budget and actual. A difference of more than 5% is considered as a sign of low credibility (source PEFA methodology). For a comparison see also Lledó and Poplawski-Ribeiro (2013) and Guerguil, Poplawski-Ribeiro, and Shabunina (2014).

22

The CEMAC directives clearly institute a 2% limit of the initial budget for transfers (article 25) (article 45 of the LOLFEB).

23

e.g., investment operations led by the Gabonese Fund for Strategic Investments (FGIS).

24

The Government Finance Statistics Manual 2014 defines the general government sector as resident institutional units that fulfill the functions of government as their primary activity. The general government (GG) sector comprises:

  • All government units of central, State, provincial, regional, and local government, and social security funds imposed and controlled by those units

  • All nonmarket nonprofit institutions that are controlled by government units. It includes public enterprises, legally constituted as corporations, but that are nonmarket producers.

Central government (CG) includes budgetary, extrabudgetary and social security funds. Extrabudgetary units are institutions that are engaged in extrabudgetary transactions, may use extrabudgetary accounts, may have their own governance structures and, often, a legal status that is independent of government ministries and departments.

25

Except the audit of the CNAMGS (report dated January, 2017), the Court of Accounts did not complete any audit of extrabudgetary units in recent years. The CNAMGS audit revealed several irregularities such as “irregular remunerations paid to top managers” and “irregular benefits”. It also questioned the high acquisition costs of the CNAMGS building and of service vehicles “close to the cost of luxury vehicles” (http://www.ccomptes.ga/index.php/telechargements/category/2-audits?download=6:audit-cnamgs).

26

30 percent of all payments were made bypassing regular controls.

27

Standards of the IMF transparency code set that transparency of fiscal reporting relies on its timeliness, comprehensiveness and accessibility.

28

Law 21/2014 on transparency and good governance for public finance.

29

Such as: execution of investment projects, public procurement statistics, fiscal risks arising from PPPs or state-owned enterprises.

1

We focus on the effects on non-oil GDP since we consider resource production and prices to follow exogenous processes, see Melina and others (2016) for more details.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Gabon: Selected Issues
Author: International Monetary Fund. African Dept.
Volume/Issue:
Volume 2019: Issue 390
Publisher:
International Monetary Fund
ISBN:
9781513524481
ISSN:
1934-7685
Pages:
65
DOI:
https://doi.org/10.5089/9781513524481.002

Gabon: Governance Indicators, 2003-171

Effects of Reforms in all Areas of Governance

Effects of Reducing Firms’ Distortion

Effects of More Efficient Public Investment

Effects of Improving Revenue Mobilization

Public Investment and Public Capital Stock, 1990-2017

(Percent of GDP)

Doing Business Indicators, 2019

(0=lowest, 100=best performance)

Indicators of Trade Facilitation, 2017

(Percent of best practice)

Most Problematic Factors for Doing Business

Trust in the Judiciary Courts, 2015

(Percent of respondents who answered “a lot” or “somewhat”)

Cost of Enforcing a Contract and Registering Property, 2019

(Percent of contract claim and property value, respectively)