Gabon: We can live with low oil prices

Many oil-producing countries have had to adjust to the recent fall in oil prices. Minister for Economy, Investment and Foresight, Régis Immongault, explains how Gabon is coping. 

When the ratings agency Fitch downgraded Gabon’s investment grade in May to B+, it didn’t come as a surprise. Many oil-producing countries have suffered a similar fate.

But Régis Immongault, Gabon’s Minister for the Economy, Investment and Foresight, is not too concerned. The former Minister of Mines, Industry and Tourism is confident Gabon can weather the storm and insists investment plans will remain on track. Immongault doesn’t think the downgrading was entirely justified – in fact, Moody’s, another ratings agency, maintained its ranking – but he suggests the move vindicated the country’s strategy of developing infrastructure and diversifying the economy. Oil is vital to Gabon, he admits, but not as important as some assume.

“The fact that we are withstanding the fall in the oil price a lot better than in previous occasions shows that diversification of the economy is a reality,” he says. “The oil sector is a big contributor to the economy, true, accounting for 50% of government revenues and 85% of export revenues. But as a percentage of GDP, it was some 20% and this will continue to fall in 2015.

“We are succeeding in diversifying our economy and our emphasis as a government will continue to be to prime the private sector and create the conditions for it to blossom – that is, good infrastructure and a conducive business environment. We want mining, timber, agriculture, fishing and services to all be important axes of economic growth and this is happening today.”

However, some policies put in place to diversify the economy have endured criticism. A beneficiation law in 2010 which stopped companies exporting timber in its raw form resulted in a considerable slowdown in activity in 2011. But Immongault says that despite that fall, the industry has since picked up – with 25% growth in 2014 – and claims Gabon is succeeding in creating a hub in the transformation of wood.

“Today, the major challenge we are facing in this particular sector is a skills deficit [because it is growing so rapidly], so the law has had the desired impact,” he says. “It is within our means to become a leading player in this industry. If you come and visit we can take you to specialist training centres we have built and invested in to tackle the skills shortage.”

Moving up the value chain

Industrialisation is at the centre of the country’s economic project. By 2020, the country does not want to export anything in its raw form other than oil. And for this, Immongault says, the country is investing in hard and soft infrastructure, with an emphasis on specialist skills and vocational centres.

“We have built institutes to train people in mining, petroleum services, woodwork, and this is throughout the country. There needs to be an element of value addition for all export products. And there is no reason we can’t become a hub to service the whole sub-region.  We have a very strong financial services sector, even if the sector needs to play a bigger role within the wider economy.

“Our plan is to create a conducive environment, focusing on building the infrastructure and enhancing what is comparatively speaking a well-educated workforce to develop a wide pool of workers with technical skills.”

Despite the fall in oil prices and an adjustment of the 2015 budget, Immongault stresses that all major investments to deal with the infrastructure deficit will be maintained. Some projects may be delayed, but spending adjustments will have minimal impact on the infrastructure projects seen as instrumental to the government’s 2025 Emerging Gabon vision, says Immongault.

“All priority projects in terms of infrastructure investments have been maintained – ports, roads, power and rail. None will be impacted in terms of hard infrastructure.”

At the same time, he is adamant that fiscal discipline will be maintained. “Adjustments in spending will be focused on reducing recurrent expenditure. Debt-to-GDP ratios are good. The CEMAC [Economic and Monetary Community of Central Africa] central bank has a debt limit of 70% to GDP and we are currently at 27%. This will increase slightly this year but is well within our own ceiling and the one set by our regional body. I can tell you that many countries would like to have our current debt ratios.”

He admits that the government needs to work harder to widen the fiscal base, but believes the current situation provides an opportunity to see through major reforms.

For instance, the country has set up an oil and mining revenue stabilisation fund in line with IMF and credit rating agency recommendations.

Every year, the government will set aside a fixed share of oil revenues above $40 to build a $500m reserve, which can be used for countercyclical measures and compensate for fluctuations in prices. Subsidies are also being removed, opening up the sector to private players and bringing refined products prices in line with international markets.

An eye on the finances

Immongault is also confident public finances are being run efficiently and says it was important to ensure the fall in the oil prices did not result in an economic crisis through too much austerity.

“We need to balance it so that the fall in the price does not result in an economic crisis, and we need to counter the effects of this so that it has a minimum impact on our fiscal position and its impacts on the economy.

“This is an opportunity to show markets that we can weather such storms and can be disciplined and that our economy is resilient, diversified and well-managed.”

Having gone to market with a $500m bond in 2013, he does not rule out tapping international interest in emerging market sovereigns in 2015 either.

“We went to market in 2013 and we indicated that it would not be a one-off. Last year we didn’t issue any bonds but it is an option we will explore in 2015.”

Immongault also suggests that the government is working to improve transparency, and is confident that taken together, all these above measures will renew confidence. Gabon can prove, he believes, that even when the sun isn’t shining, you can still make hay.

Omar Ben Yedder