Selected Issues


Selected Issues

Revenue-Friendly Diversification in Gabon1

Gabon has been relying largely on tax exemptions, including in Special economic Zones, to incentivize investors and diversify the economy. Therefore, rapidly growing activities, while creating jobs and increasing exports, have little impact on domestic revenues, suggesting some trade-offs between diversification and domestic revenue mobilization. Achieving a revenue-friendly diversification strategy in Gabon will require strengthening tax policy and revenue administrations and encourage spillovers from special economic zones to generate higher growth and broaden the tax base.

A. Introduction

1. Oil has lifted Gabon to among the wealthiest countries in sub-Saharan Africa. However, the country’s economic performance has disappointed over the last three decades, with real per capita incomes falling by about 20 percent since 1990. This study discusses in depth Gabon’s renewed drive to break its oil dependence—the Gabon Émergent development plan—focusing on the realized and potential growth and fiscal impacts of this strategy that seeks to crowd in substantial foreign investment with the use of tax incentives, Special Economic Zones (SEZs), and public-private-partnerships (PPPs). It concludes with a series of recommendations that seek to bolster non-oil revenue mobilization and Gabon’s diversification efforts.

Figure 1.
Figure 1.

Long-run Real Sector Developments

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A002

Sources: Gabon authorities and IMF staff estimates.

B. A New Drive to Break Oil-Dependence and its Impacts

Gabon Émergent and the New Gabonese Economy

2. Since 2010, Gabon Émergent has embodied an ambitious effort to jumpstart diversification and transform Gabon into an emerging country by 2025.2 The multi-year strategy aimed to channel US$12 billion into a public investment program over 7 years (about 150 percent of 2011 non-oil GDP) to narrow the infrastructure gap in terms of roads, ports, and energy supply. The diversification effort would also seek to leverage private sector money and know-how. Gabon targeted substantial foreign direct investment (FDI) to industries to exploit the country’s abundant natural resources—agri-business, mining, and forestry. Given previous drives for diversification had faltered in the face of a weak business climate and high labor costs, the government sought to incentivize investors through a combination of tax exemptions and the use of special economic zones (SEZs) and public-private partnerships (PPPs). The largest partner in this effort has been Olam International, a Singapore-based agri-business firm (see Box 1).

Direct Economic Impacts

3. Some initial results of Gabon Émergent have been encouraging.3 Despite the overall slowdown of economic activity since the oil shock, Gabon has managed to avert a recession due to the growth of non-oil primary activities in the sectors targeted by Gabon Émergent. Activity in agriculture, mining, and forestry had a positive contribution to economy growth on average of 2.3 percentage points from 2014 to 2017, while the rest of the economy contributed only 0.4 percentage points. At the same time, the value of non-oil exports rose by nearly 25 percent, and their share rose from one-sixth to one-third of all exports, indicating some diversification of the product base. Since these projects were funded by FDI, they were largely immune to the government channel and production activity grew robustly from a low base. These projects have also had a large direct impact on employment, creating some 20,480 jobs4 in the private sector, representing roughly 22 percent of all private formal workers in Gabon5 mitigating impacts of fiscal adjustment on the working population.

4. The direct budgetary impact of Gabon’s tax-exempt SEZs/PPPs has, however, so far been minimal. The incremental costs of regulating the PPPs and the zone are small, and indications are that there are no government subsidies provided for inputs such as electricity or other services, although the zone management entity does guarantee the provision of utilities at prices below domestic market rates. Direct revenues from the PPPs are relatively modest, comprising solely of wage taxes on company employees totaling CFAF 8.54 billion from 2012 to 2017, or around 0.1 percent of GDP. The relatively low tax revenue take is largely due to the provision of fiscal exemptions to SEZ operators. Any assessment of budgetary impacts should also capture the notion of foregone government revenue due to tax relief. Estimates of the total cost need to be treated with caution given data weaknesses and generally poor controls, but assorted studies have place tax expenditures in Gabon at between 4 to 5 percent of GDP. These estimates cover a wide variety of tax instruments, such tax and customs instruments legislated under the investment incentive scheme, but also a wide variety of exemptions granted to specific economic sectors (e.g. mining, cement, small- and medium-sized enterprises), through public contracts (e.g. PPPs), and some taken on an ad hoc basis with no legal underpinning.6

5. Assessing the aggregate impact of tax expenditure is challenging. It requires a comprehensive cost-benefit analysis that weighs tax expenditure against potential direct and indirect payoffs. There is insufficient information on business-level strategies in Gabon on which to base such an assessment. Nonetheless, the case for exemptions is questionable, given that the results of investor surveys in Gabon’s SEZ (like such questionnaires in other countries) indicate that investors put more weight on stability, institutional quality, and availability of essential inputs.7 Moreover, the eventual cost may be high, as the literature on exemptions offers strong warning that investors attracted to these arrangements often structure their businesses around relatively short time horizons (“footloose industries”), or use inter-company transfer pricing techniques to shift income from non-tax-exempt enterprises to tax-exempt companies to avoid tax liabilities.

Indirect Economic Impacts

6. Aside from direct job creation and new infrastructure, proponents of SEZs tout their potential to generate indirect economic benefits by facilitating knowledge and skills transfers and creating demand for inputs from the domestic economy (known as backward linkages). There has been limited evidence to date on such indirect benefits in Gabon. Survey data seeking evidence of spillovers from the SEZ/PPPs, finding little to no impact on the domestic economy in terms of domestic prices, agricultural production, or non-agricultural enterprise activity, possibly reflecting the relative newness of the projects (Mouissi 2018).8 More generally, the literature expresses considerable doubt on the strength of positive spillovers in the region (see Box 2).

Risks to Fiscal Sustainability

7. Despite the recent uptrend, non-oil domestic revenue is still low and below other upper middle-income countries. Given the large oil shock and the strong economic intersectoral linkages, Gabon’s non-oil revenue ratio declined by 13 percentage points of non-oil GDP from 2014 to 2016. Recent efforts to streamline tax expenditure and improve revenue administrations have helped increase revenue. But more needs to be done to generate the necessary fiscal space to confront the significant public spending.

8. The notable weaknesses in the performance of non-oil revenues in Gabon in the wake of the oil shock were likely due to several interrelated factors:

  • The protracted oil shocks. As noted above, cost-cutting by Gabon’s oil operators led to a virtual halt in the development of new fields, resulting in volume declines of around 6 percent per annum from 2015 (versus an average of -1 percent over the previous two decades). Oil sector employment and investment shedding also had direct knock-on impacts for non-oil activities, particularly through reduced purchases from domestic service providers. The indirect impacts were also significant, as weaker oil revenues led to cuts in government current and capital spending, slowing economic activity that in turn further dampened tax revenues in a vicious spiral. Indeed, at end 2018, although oil prices were only 30 percent below 2014 prices, oil revenues to Gabon’s budget remained some 60 percent below 2014 levels—less than half of the pre-shock level.

  • Weak tax administration. Recent IMF Fiscal Affairs Department technical assistance have identified significant risks related to Gabon’s tax and customs administration, including weak political and financial support, incoherent strategic planning, and a low level of operational capacity (IMF, 2017). The diagnostic also detected significant weaknesses in compliance and enforcement at both customs and tax administrations, and limited taxpayer segmentation.

  • Poor tax policy prioritization. Gabon’s tax policy appears largely outdated. Trend and benchmarking analysis of a decomposition of revenues suggests that the country’s tax collective effort remains relatively reliant on the taxation of international trade, unlike trends elsewhere where global trade liberalization has seen a shift toward other forms of revenue mobilization (Figure 5, panels 1-2). Moreover, Gabon’s direct tax take is highly volatile, particularly the non-oil corporate income tax component (CIT), suggesting spillovers from the oil sector, and indirect taxation (including excises and value added tax (VAT)) has generally trended lower over the last two decades.9

  • Weak tax performance. Measures of tax performance indicate that corporate income tax productivity is below that of Gabon’s emerging market peers, and the measure of VAT C-Efficiency appears very low versus all comparators (Figure 2, panels 3-4). This weak performance suggests a large tax gap, and a recent IMF tax frontier study placed Gabon on the high end of tax SSA gaps at 5.8 percentage points of GDP (compared to a finding of gaps in the 3-5 percent range for the region, suggesting substantial scope to mobilize additional non-oil revenues through efficiency gains and institutional reforms (IMF, 2018b).

Figure 2.
Figure 2.

Evolution of Revenue Components1

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A002

Sources: Gabon authorities; IMF Fiscal Affairs Department Sub-Saharan Africa Tax Revenue database; IMF Fiscal Affairs Department Tax Rates database; and IMF staff estimates.1 Note Oil and other commodity related revenues are typically captured as non-tax revenues.

9. The outlook for domestic revenue mobilization is subject to significant uncertainty. Revenue forecasting techniques typically are built on an assumption about revenue elasticity (knowns as the elasticity approach). It assumes that changes in tax revenue reflect mainly changes in the tax base if policy is unchanged. This mechanical approach can be adjusted based on judgements related to the anticipated impact of a tax system change or improved compliance (i.e. changes in tax buoyancy). Establishing the recent trend path of revenue elasticity for Gabon is challenging due to a limited and volatile time series, and data weaknesses in terms of discretionary changes in the tax structure that should be stripped out to determine an underlying elasticity. A robust regression of changes in nominal fiscal revenue and the change of non-oil growth appears unrealistically weak elasticity at 0.2.10 A simpler computation based on the evolution of government revenues excluding oil and trade against non-oil GDP indicates an average revenue elasticity of 0.6 during the decade leading up to the oil shock, and a strong deterioration thereafter. Applying this latter estimate as a baseline against plausible non-oil output and elasticity shocks experienced in Gabon suggest that gross financing requirement could increase by 6 percentage points of GDP under a median shock (Figure 3). This baseline incorporates Gabon’s planned revenue mobilization reforms, and if the tax buoyancy anticipated under these reform delivers only half the expected yields due to delays and weaknesses in implementation, gross financing needs double 12 percent of GDP, indicating substantial risks to fiscal and debt sustainability.

C. Recommendations Toward Revenue-Friendly Diversification

Strengthen Tax Administration and Tax Policies

10. Further strengthening revenue administration and improving tax policy is critical. In view of the latest trends in non-oil domestic revenue mobilization and the risk to fiscal sustainability in the event of plausible output and elasticity shocks, Gabon’s urgent priority is to comprehensively tackle the underlying tax administration and policy weaknesses.

  • Streamline the use of tax exemptions, and transparently disclose the fiscal costs. Some tax relief to investors during the startup phase could be justified, and is indeed commonplace across SSA SEZs, but the recent proliferation of tax incentives to the SEZ and outside far exceeds those provided for under Gabon’s 1998 investment charter. Gabon’s tax incentives need to be comprehensively reviewed. The multiplication of tax instruments and exceptional preferences creates a risk of economic inefficiencies, substantial administrative complexity, and invites abuse. Gabon should aim to return to a simple streamlined and standardized system aligned with international best practices. Greater transparency would help to underpin the selective application of tax incentives. Full disclosure of tax expenditures is needed to raise awareness of their costs which is why most developed countries and increasing numbers of developing countries publish tax expenditures as part of the budget.

  • Avoid the use of VAT exemptions as fiscal incentives. VAT exemptions lead to an erosion of the base and create distortions that penalize domestic and risk undermining economic diversification. Gabon should aim to eliminate distortions in VAT administration through efficiency improvements to create a broad and fair system that is easier to administer. Again, greater transparency could help signal a strong commitment to a sound VAT; for example, through regular publications of VAT compliance gap analysis, as was undertaken in Uganda.

Figure 3.
Figure 3.

Tax Elasticity and Risks to Fiscal Sustainability

Citation: IMF Staff Country Reports 2019, 390; 10.5089/9781513524481.002.A002

Source: IMF staff estimatesNote: Distribution of revenues under growth and elasticity shocks based on 6000 random draws from a joint normal distribution.

Encourage Spillovers to Promote Growth

11. Harnessing the catalytic potential of foreign direct investment depends on Gabon’s ability to tap into potential productivity gains from knowledge and technological spillovers. The experience in sub-Saharan Africa on this front has fallen short of expectations. Current trends in global supply chain management raise the bar further in emphasizing the sourcing critical inputs at the global or regional level, accentuating quality, standards, and competitiveness. Meeting this challenge require conditions and market incentives that build upon existing local capacity. Foreign investors can play a role here, since surveys have shown that investors prefer sourcing inputs from immediately accessible partners (World Bank, 2017).

  • Improve the business climate and governance. Spillovers are more likely if the business environment is attractive also for domestic firms. The SEZ can serve as an incubator for business climate reforms. The one-stop-shop to speed approvals should be replicated across Gabon.11 The zone could be used as an incubator for other potential national reforms, including electronic administrative processes and tax filing.

  • Target low-cost intervention with the greatest potential spillovers. Agriculture accounts for a large share of employment, suggesting that reforms to strengthen the agricultural sector could have a significant positive impact on livelihoods and food security. Gabon’s unrealized potential also appears significant, with only 3.5 percent of useable land currently under exploitation, and the under cultivation relatively unproductive.12 Gabon’s 2016 agricultural development strategy13 intended to attract substantial foreign investment in agriculture through the development of tax-free agricultural zones and leveraging Olam’s infrastructure and know-how via an ‘out-grower’ program called GRAINE. The plan has been slowed for lack of funds, and given a costing of US$2 billion over seven years, its implementation appears out of reach. Meaningful results could still be achieved through a scaled-down investment plan developed with stakeholders. Such a plan should provide a transparent accounting of any envisaged fiscal incentives. Instead of a broad import substitution strategy, a new plan could focus on a few targeted value chains (e.g. cassava and plantains) that are critical crops for food security across income classes in Gabon (World Bank, 2013). Supportive low-cost interventions should aim at the promotion of agricultural research and training, accelerating registration and land titling for agricultural cooperatives, and improving the tracking and evaluation of the government’s agricultural spending.

  • Establish a framework for the upgrading domestic firms. South Korea used ‘a process of constant integration’ to transform its EPZs into major markets for locally manufactured capital and intermediate goods (Schrank, 2001). These firms inspired a demonstration effect, raising standard across the economy. Such results will be more challenging in Gabon, given the yawning gap domestic industry vis-à-vis global market standards for price, quality, and timeliness. Given that the Gabon’s SEZ is developing as a wood cluster, interventions could target the domestic value chain for this sector. This could include accelerating work to formalize the domestic woods sector, particularly the deployment and adoption of a timber traceability system in line with international best practices. While the GSEZ strategy focuses on attracting new wood SMEs into zone by promoting training, knowledge sharing, and potentially access to a €50 million working capital fund, these initiatives should be extended outside the zone to encourage domestic spillovers. To this end, the government could coordinate efforts across stakeholders to develop standards and capacity-building plans for domestic wood SMEs.

  • Investments in health, knowledge and skills are as critical as investment in physical infrastructure. Better human capital also attracts FDI and international know-how. Cleeve and others (2015) show a robustly positive and significant effect of human capital on FDI inflows. Gabon’s oil sector has largely relied upon imported expertise. The Gabonese government is targeting a substantial investment in human capital to buttress its efforts to continue to attract FDI into skill intensive agri-business and wood manufacturing, with support from the African Development Bank and the World Bank. The government should start by improving capacity to monitor and report existing social spending, which is essential for effective implementation of these ambitious plans.

  • Improve statistical collection. The SEZ is playing an instrumental role economic diversification process, but Gabon’s statistical collection, dissemination, and analysis capacity is below that observed in other countries at a similar level of development, hurting its ability to monitor these critical developments. While the World Bank is aiding toward a new enterprise survey that will include the activities of firms in the SEZs to provide a better accounting of its impact on Gabon real and external sectors, and the Gabonese authorities should ensure that the statistical agency is properly resourced to support the production and publication of high frequency indicators.

Olam Gabon Highlights

Olam International is a Singapore-based agri-business firm with 2017 sales revenues of US$19.2 billion. Its Gabon activities are part of a larger company initiative to build integrated valued chains in Africa, with a focus on African markets as net importers of edible oils and other food stuffs.

Footprint. Since 2010, Olam International and the Republic of Gabon have entered into four PPPs covering palm oil, rubber, fertilizer and logistics as part of a Gabon Special Economic Zone (GSEZ). To date, total FDI across these projects has totaled approximately US$3.5 billion, with most projects now shifting into the production phase, although the ammonia-urea fertilizer plant (US$1.5 billion) has been substantially delayed. Olam Gabon is the county’s largest private sector employer, with 17,480 direct employees at end-2017 across all units, generating half of all new private sector jobs in Gabon since 2010 (Mouissi, 2018).

Fiscal incentives. Olam and GSEZ investors have access to single window clearance for approvals and certifications. Across all projects, activities are exempted from payment of corporate income tax for 10 years, and 10 percent during the following 5 years. Other tax relief include 0 percent on customs duties of industrial equipment, 0 percent tax on dividends and property, and a VAT exemption of 25 years. There is also unconditional repatriation of profits and capital.

Olam’s palm and rubber projects. Planting completed in 2018. About 64,000 Ha is under palm oil cultivation and 11,000 Ha for rubber, among the largest such projects in SSA in recent years. The company is on track for its palm business to be 100 percent RSPO certified by 2021. Volumes will ramp up to full capacity by 2023-24 at around 350,000 tons of palm oil per annum, placing Gabon amongst Africa’s top 5 producers.

Special Economic Zone. The GSEZ was established in 2011 and started operation in 2014. It is the result of a PPP between Olam and the Gabonese Republic.1 A multi-sectorial industrial park, this wide-area zone (1,126 ha) is managed and marketed by Olam, and investors began set up in 2015. The site includes single-window business services to participants and below-market-rate utilities (water and electricity) financed by GSEZ. The zone has grown to include 141 investors covering 95 different companies employing a total 2,200 workers at end 2018. Cumulative investment by clients into the zone reached US$380 million by end 2017, and commitments could see an additional US$600 million invested there through 2020. It is emerging as a wood cluster, with about three-quarters of its clients involved in harvesting and processing. This is boosting Gabon’s exports of value-added wood products, particularly veneer and plywood, where the country is now a globally competitive producer. Olam anticipates that total GSEZ exports could rise to US$1 billion by 2020, with a focus on Indian and Chinese markets.

Infrastructure. Olam has invested in infrastructure complementary to GSEZ, including a mineral port in Libreville, a multipurpose port, dedicated rail and stock, and transmission lines to support rural electrification. The ports are being operated as standalone profit-generating units, and accessible to the wider economy, improving Gabon’s competitiveness and reducing domestic prices. Direct shipping has been established with ports with Asia. A subsidiary of the GSEZ has been awarded a 50-year concession for an international airport for Libreville, and preliminary work on the US$500 million project got underway in 2018.

GRAINE. Olam and the Republic of Gabon have sought to develop a smallholder-based farmer cooperative called GRAINE2, which will leverage company infrastructure to facilitate small scale cash and industry crops (mainly palm oil). However, the scheme is making slow progress. Although the program has registered some 17,000 members since its launch in 2014, only 7,000 Ha was planted as of 2017 (versus the ultimate program target of 120,000 Ha). Under severe cash constraints, the government has been unable to finance needed rural feeder roads and training facilities. While Olam is continuing to develop it SOTRADER agricultural marketing arm, it has scaled back its proposed investment under GRAINE by about four-fifths to US$180 million, leading to much lower projections for other agricultural products.

1 In 2016, the Africa Finance Corporation became a partner in GSEZ with a commitment to invest up to US$140 million in the project.2 Gabonaise des Réalisations Agricoles et des Initiatives des Nationaux Engagés.

Special Economic Zones

Special Economic Zones (SEZs) are legal, logistical, and tax arrangements, typically intended to help attract foreign investment into export-oriented manufacturing. Through such zones, countries aim to overcome critical constraints related to service provision, infrastructure, land titling, and red tape. Indeed, there popularity has grown over time, with an estimated 4,300 zones around the world, although the definitions of SEZs differs substantially across countries (World Bank, 2017).

The host countries tend to highlight their potential to catalyze strengthening of the business environment. Typical potential benefits of SEZs include: (i) job creation at potentially attractive wages; (ii) new infrastructure facilities, including power and transport, creating logistics linkages that can be accessed by the wider economy; (iii) skills and technology transfer, as workers internalize training that is useful for subsequent employment; (iv) positive spillovers, as demand in the zone develops for inputs that can be produced in the domestic economy (backward linkages) rather than imported.

Despite the popularity of SEZs, there is considerable debate on whether the zone benefits the wider economy. Most economic studies of SEZs have focused on the success factors for specific zones, for example the legal and institutional environment, the business environment, strategic planning, infrastructure, and zone management.

There is limited empirical analysis on the role of SEZs in spurring national economic development due to the lack of comparable cross-country data on SEZ performance. One study has found generally weaker performance on investment, exports, and employment generation among African SEZs (in Ghana, Kenya, Lesotho, Nigeria, Senegal, and Tanzania) compared to non-African countries (the Dominican Republic, Honduras, Vietnam, and Bangladesh), partly due to a weaker business environment in African zones (Farole, 2011).

The general finding in the literature is that spillovers depend on the characteristics and strategies of SEZ-based firms, local endowments, and the institutional environment of the host country. The more interaction between firms inside and outside the SEZ, the stronger the impacts of spillovers and local productivity gains come from the transmission of knowledge and technology, or through upgraded standards for local production and labor (Farole and Winkler, 2014). A recent World Bank study sought to build a dataset comparing structural characteristics of zones against the increasing intensity of nightlights emitted by SEZs and the surrounding countryside, providing some sense of the dynamism of zones and countries. Based on a sample of 346 zone in 22 countries between 2007 and 2012, it found that SEZs appeared to have no catalytic effect on the countries they operated in, although they did have a positive effect on the immediate 20 km region (World Bank, 2017). The empirical literature on FDI also expresses considerable doubt on spillover benefits in developing countries due to their limited absorptive capacity (Duarte and others, 2014).


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Toomas Orav (SPR)


Plan Stratégique Gabon Emergent : Vision 2025 et orientations stratégiques 2011-16, Government of the Republic of Gabon. July 2012.


This paper does not seek to resolve the debate on the merits of tax exemptions, which have been commonly used in Gabon and elsewhere as a lever to attract investment, including with SEZs.


In contrast, the Gabonese authorities estimate that direct employment in the relatively mechanized oil industry at 3,000.


Based on estimates provided by the International Labor Organization.


James (2013) estimated total tax expenditure in Gabon at 5 percent of GDP. An unpublished World Bank study calculated exemptions on customs tariffs, corporate income tax, and VAT exemptions at 4 percent of GDP (World Bank, 2017). The IMF’s Fiscal Affairs Department estimates tax expenditures accorded to exemptions on CIT, VAT, and customs at 4 per cent of GDP (IMF, 2018a). These estimates include exemptions beyond those to incentivize investment, e.g. a program since 2008 to reduce the cost of domestic food stuffs (Programme contre la vie chère) with a cost of 0.6 percent of GDP in 2018 in terms of foregone revenue. The Gabonese authorities have since eliminated about 85 percent of the products covered by this program.


A 2018 survey of investors in the Gabon’s SEZ provides further reinforcement, as incentives ranked fourth among key issues for investors behind availability of raw inputs, country socio-political stability, and the ability to import labor and repatriate profits (Mouissi, 2018).


Currently, 32 Gabonese communities are covered by 5 social contracts with Olam, including interventions for school rehabilitation, electrification, and road networks.


The one-off increase in indirect tax mobilization in 2013-14 is likely an accounting artifact linked to the recording of gross VAT collections without an offset for the VAT reimbursements due.


The “Golden Rule” considers that tax system should be such that elasticity of tax revenues to the tax base should ideally be close to 1.


The World Bank’s 2019 Doing Business survey indicates that Gabon scores lower than average in sub-Saharan Africa in starting a business, dealing with construction permits, and registering property.


Gabon’s estimated cassava yields ranging from 3.2 to 8 tons/ha, versus an international norm of 13 tons/ha (World Bank, 2013).


Stratégie de développement de l’Agriculture au Gabon, 2016-23. Ministry of Agriculture of Gabon.

Gabon: Selected Issues
Author: International Monetary Fund. African Dept.