Economy of Equatorial Guinea - in Greater Depth

In Greater Depth

Oil and gas exports have increased substantially (in 2003 Equatorial Guinea was ranked third among Sub-Sahara African producers behind Nigeria and Angola) and will drive the economy for years to come. The GDP increased by 105.2% in 1997, and real GDP growth reached 23% in 1999, and initial estimates suggested growth of about 15% in 2001, according to IMF 2001 forecast. Per capita income grew from about $1,000 in 1998 to about $2,000 in 2000. The energy export sector is responsible for this rapid growth. Oil production has increased from 81,000 barrels per day (12,900 m3/d) to 210,000 barrels per day (33,000 m3/d) between 1998 and early 2001. There is ongoing additional development of existing commercially viable oil and gas deposits as well as new exploration in other offshore concessions.

Equatorial Guinea has other largely unexploited human and natural resources, including a tropical climate, fertile soils, rich expanses of water, deepwater ports, and an untapped, if unskilled, source of labor. Following independence in 1968, the country suffered under a repressive dictatorship for 11 years, which devastated the economy. The agricultural sector, which historically was known for cocoa of the highest quality, has never fully recovered. In 1969 Equatorial Guinea produced 36,161 tons of highly bid cocoa, but production dropped to 4,800 tons in 2000. Coffee production also dropped sharply during this period to bounce back to 100,000 metric tons in 2000. Timber is the main source of foreign exchange after oil, accounting for about 12.4% of total export earnings in 1996-99. Timber production increased steadily during the 1990s; wood exports reached a record 789,000 cubic meters in 1999 as demand in Asia (mainly China) gathered pace after the 1998 economic crisis. Most of the production (mainly Okoume) goes to exports, and only 3% is processed locally. Environmentalists fear that exploitation at this level is unsustainable and point out to the permanent damage already inflicted on the forestry reserves on Bioko.

Consumer price inflation has declined from the 38.8% experienced in 1994 following the CFA franc devaluation, to 7.8% in 1998, and 1.0% in 1999, according to BEAC data. Consumer prices rose about 6% in 2000, according to initial estimates, and there was anecdotal evidence that price inflation was accelerating in 2001.

Equatorial Guinea's policies, as defined by law, comprise an open investment regime. Qualitative restrictions on imports, non-tariff protection, and many import licensing requirements were lifted when in 1992 the government adopted a public investment program endorsed by the World Bank. The Government of the Republic of Equatorial Guinea has sold some state enterprises. It is attempting to create a more favourable investment climate, and its investment code contains numerous incentives for job creation, training, promotion of non-traditional exports, support of development projects and indigenous capital participation, freedom for repatriation of profits, exemption from certain taxes and capital, and other benefits. Trade regulations have been further liberalized since implementation in 1994 of the ICN turnover tax, in conformity with Central African tax and custom reform codes. The reform included elimination of quota restrictions and reductions in the range and amounts of tariffs. The CEMAC countries agreed to replace the ICN with a value added tax (VAT) in 1999.

While business laws promote a liberalized economy, the business climate remains difficult. Application of the laws remains selective. Corruption among officials is widespread, and many business deals are concluded under non-transparent circumstances.

There is little industry in the country, and the local market for industrial products is small. The government seeks to expand the role of free enterprise and to promote foreign investment but has had little success in creating an atmosphere conducive to investor interest.

The Equato-Guinean budget has grown enormously in the past 3 years as royalties and taxes on foreign company oil and gas production have provided new resources to a once poor government. The 2001 budget foresaw revenues of about 154 billion CFA francs (154 GCFAF) (about U.S.$200 million), up about 50% from 2000 levels. Oil revenues account for about two-thirds of government revenue, and VAT and trade taxes are the other large revenue sources.

Year 2001 government expenditures were planned to reach 158 billion CFA francs, up about 50% from 2000 levels. New investment projects represented about 40% of the budget, and personnel and internal and external debt payments represented about one-third of planned expenditures.

The Equato-Guinean Government has undertaken a number of reforms since 1991 to reduce its predominant role in the economy and promote private sector development. Its role is a diminishing one, although many government interactions with the private sector are at times capricious. Beginning in early 1997, the government initiated efforts to attract significant private sector involvement through a Corporate Council on Africa visit and numerous ministerial efforts. In 1998, the government privatized distribution of petroleum products. There are now Total and Mobil stations in the country. The government has expressed interest in privatizing the outmoded electricity utility. A French company operates cellular telephone service in cooperation with a state enterprise. The government is anxious for greater U.S. investment, and President Obiang visited the U.S. three times between 1999 and 2001 to encourage greater U.S. corporate interest. Investment in agriculture, fishing, livestock, and tourism are among sectors the government would like targeted.

Equatorial Guinea's balance-of-payments situation has improved substantially since the mid-1990s because of new oil and gas production and favorable world energy prices. Exports totaled about francs CFA 915 billion in 2000 (1.25 G$US), up from CFA 437 billion (700 M$US) in 1999. Crude oil exports accounted for more than 90% of export earnings in 2000. Timber exports, by contrast, represented only about 5% of export revenues in 2000. Additional oil production coming on line in 2001, combined with methanol gas exports from the new CMS-Nomeco plant, should increase export earnings substantially.

Imports into Equatorial Guinea also are growing very quickly. Imports totaled francs CFA 380 billion (530 M$US), up from franc CFA 261 million (420 M$US) in 1999. Imports of equipment used for the oil and gas sector accounted for about three-quarters of imports in 2000. Imports of capital equipment for public investment projects reached francs CFA 30 billion in 2000, up 40% from 1999 levels.

Equatorial Guinea's foreign debt stock was approximately francs CFA 69 billion (100 M$US) in 2000, slightly less than the debt stock in 1999, according to BEAC data. Equatorial Guinea's debt service ratio fell from 20% of GDP in 1994 to only 1% in 2000. Foreign exchange reserves were increasing slightly, although they were relatively low in terms of import coverage. According to the terms of the franc CFA zone, some of these reserves are kept in an account with the French Ministry of Finance.

Equatorial Guinea in the 1980s and 1990s received foreign assistance from numerous bilateral and multilateral donors, including European countries, the United States, and the World Bank. Many of these aid programs have ceased altogether or have diminished. Spain, France, and the European Union continue to provide some project assistance, as do China and Cuba. The government also has discussed working with World Bank assistance to develop government administrative capacity.

Equatorial Guinea operated under an IMF-negotiated Enhanced Structural Adjustment Facility (ESAF) until 1996. Since then, there have been no formal agreements or arrangements. The International monetary Fund held Article IV consultations (periodic country evaluations) in 1996, 1997, and in August 1999. After the 1999 consultations, IMF directors stressed the need for Equatorial Guinea to establish greater fiscal discipline, accountability, and more transparent management of public sector resources, especially energy sector revenue. IMF officials also have emphasized the need for economic data. In 1999, the Equato-Guinean Government began attempting to meet IMF-imposed requirements, maintaining contact with IMF and the World Bank representatives. However, the new found oil wealth allowed the government to avoid improving fiscal discipline, transparency and accountability.