Equatorial Guinea: Economy

Oil and gas exports will drive the economy for years to come. Real GDP growth was estimated at 7.4% for 2008, although it fell to -1.8% for 2009. Per capita income rose from about $590 in 1998 to $2,000 in 2000, $5,300 in 2004, and approximately $10,000 in 2007. Equatorial Guinea has other resources, including its tropical climate, fertile soils, rich expanses of water, deepwater ports, and reserves of unskilled labor. However, its hydrocarbon riches dwarf all other economic activity. The government is seeking to diversify the economy by encouraging agriculture and financial services. The ongoing construction boom is also enhancing related skills. The once-significant economic mainstays of the colonial era--cocoa, coffee, and timber--are also receiving attention, though they remain miniscule in comparison to the energy sector.

Equatorial Guinea's economic policies comprise an open investment regime. Qualitative restrictions on imports, non-tariff protection, and many import licensing requirements were lifted in 1992 when the government adopted a public investment program endorsed by the World Bank. The Government of Equatorial Guinea has sold some state enterprises. It is attempting to create a more favorable investment climate, and its investment code contains numerous incentives for job creation, training, promotion of nontraditional 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 Central African Economic and Monetary Union (CEMAC) reform codes in 1994. This included elimination of quota restrictions and reductions in the range and amounts of tariffs. The CEMAC countries agreed to the introduction of 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 nontransparent circumstances. A wage law now regulates separate wage levels for the petroleum, private, and government sector.

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 Equatoguinean budget has grown enormously in the past 5 years as royalties and taxes on foreign company oil and gas production have provided new resources to a once poor government. The 2008 government revenue was about $7.056 billion. Oil revenues account for more than 81% of government revenue. Value added tax and trade taxes are other large revenue sources for the government.

The Equatoguinean 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 cooperative efforts with the 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 maritime border with Nigeria was settled in 2000, allowing Equatorial Guinea to continue exploitation of its oil fields. In October 2002, the government launched operations of a national oil company, GEPetrol, under the Ministry of Mines and Hydrocarbons. The government is anxious for greater U.S. investment, and a new Marathon Oil liquefied natural gas (LNG) production refinery was the biggest new step in that direction to date. Much more is on the way, as U.S. hydrocarbon producers announced $7 billion in new investments, starting in 2008. In addition, China recently won exploration and drilling rights in a new offshore block, and began drilling in 2009.

The government has expressed interest in privatizing the outmoded electricity utility. Several ports and a new terminal were built to accommodate the needs of the oil industry. A French company operates cellular telephone service in cooperation with a state enterprise, though the sector was opened to competition in 2007.

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 $15.82 billion in 2008. Crude oil exports now annually accounts for more than 94% of export earnings. Timber exports, by contrast, now represent only about 2% of export revenues. Imports into Equatorial Guinea also are growing very quickly. Imports totaled $3.211 billion in 2008.

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 (EU) 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 International Monetary Fund (IMF) Enhanced Structural Adjustment Facility (ESAF) until 1996; since then the IMF has held regular Article IV consultations (periodic country evaluations). In 2008, IMF executive directors praised Equatorial Guinea’s strong economic performance and macroeconomic policies that they felt had strengthened fiscal stability. However, the directors also noted that the country needed to strengthen governance and transparency in order to create a business environment more conducive to sustain growth, generate employment, and reduce poverty, which remains widespread.

In 2007, the government undertook a $336 million dollar Social Development Fund project, which engaged U.S. Agency for International Development (USAID) expertise and regulation, to improve the quality of life and raise standards in education and health care. The contract between the Government of Equatorial Guinea and USAID was renewed for an additional year in December 2009.

Trade and Investment
With investments estimated at over $12 billion, the United States is the largest cumulative bilateral foreign investor in Equatorial Guinea. Exports to the U.S. totaled over $2.39 billion in 2009 and consisted overwhelmingly of petroleum products. In the same year, U.S. exports to Equatorial Guinea totaled $304 million and consisted mainly of machinery, articles of iron or steel, measuring instruments, and chemical products.

Infrastructure
Infrastructure has improved dramatically in the last few years. Numerous, large-scale infrastructure investments have recently been completed or are underway. Surface transport options are increasing as the government has invested heavily in road pavement projects. In 2002, the African Development Bank and the European Union co-financed two projects to improve the paved roads from Malabo to Luba and Riaba; and to build an interstate road network to link Equatorial Guinea to Cameroon and Gabon. A Chinese construction company is completing a project to link Mongomo to Bata on the mainland. In November 2003, the government announced an ambitious ten-project program to upgrade the country's road network and improve the airport facilities at Bata, the country's second city. These projects have since been completed and additional airport expansion and new-city corridors are now under construction.

Equatorial Guinea's electricity sector is owned and operated by the state-run monopoly, SEGESA. Equatorial Guinea's electricity generating capacity is now more than adequate to meet demand on both the continent and the island of Bioko, although the power supply is unreliable. The country's distribution network remains incapable of delivering reliable electricity to end users, due to aging equipment and poor management, as demonstrated by regular blackouts in Malabo. As a result, small diesel generators are widely used as a back-up power source. A project to modernize the grid is underway, with scheduled completion by 2010. Equatorial Guinea is estimated to have 2,600 megawatts (MW) of hydropower potential.

Potable water is available in the major towns but is not always reliable because of poor maintenance and aging infrastructure; consequently, supply interruptions are frequent and prolonged in some neighborhoods. A major project to upgrade the public water system in the cities of Malabo and Bata was expected to be completed in 2009. Some villages and rural areas are equipped with generators and water pumps, usually owned by private individuals.

Telecommunications have improved dramatically in recent years. Parastatal GETESA, a joint venture with a 40% ownership stake held by France Telecom, provides telephone service in the major cities through an efficient, digital fixed network and good mobile coverage. GETESA's fixed-line service has 20,000 subscribers and the mobile service is used by over 200,000. Internet access is widely available and is increasing, providing improved access to information.

Equatorial Guinea has two of the deepest Atlantic seaports of the region, including the main business and commercial port city of Bata. The ports of both Malabo and Bata have been severely overextended. A half-billion dollar renovation project for the Port of Malabo is nearing completion, and a renovation of the Bata port was scheduled to begin soon. In partnership with the U.S. petroleum company Amerada Hess, the British company Incat made significant progress in a project to renovate and expand Luba, the country's third-largest port, located on Bioko Island. Luba has become a major transportation hub for offshore oil and gas companies operating in the Gulf of Guinea. Luba is located some 50 kilometers from Malabo and was previously virtually inactive except for minor fishing activities and occasional use to ease congestion in Malabo.

The influx of oil workers has increased international air activity. Major international carriers now connect Malabo directly to Paris, Madrid, and Frankfurt am Main. A major American airline announced that it is interested in beginning service to the airport in the capital, Malabo. The runway at Malabo's international airport (3,200 meters) is equipped with lights and can service Boeing 747s. The runway at Bata (2,400 meters) does not currently operate at night but can accommodate aircraft as large as B737s. Bata is undergoing an upgrade with runway extension and expansion. Two minor airstrips (800 meters) are located at Mongomo and on the island of Annobon. Air service between the island and continental territories is restricted to 3 small airlines. In March 2006 the European Union blacklisted airlines based in Equatorial Guinea from flying into the EU. A project to gain International Civil Aviation Organization (ICAO) accreditation for various parts of the airline industry is underway.

Energy Developments
Equatorial Guinea is now the third-largest producer of crude oil in sub-Saharan Africa, after Nigeria and Angola. Equatorial Guinea's oil reserves are located mainly in the hydrocarbon-rich Gulf of Guinea. Large amounts of foreign investment primarily by U.S. companies have poured into the country's oil sector in recent years. Equatorial Guinea's total proven oil reserves are estimated at 1.1 billion barrels.

In October 2004, the government capped oil production at 350,000 barrels per day (bbl/d) to extend the life of the country's petroleum reserves, but lifted the cap the next year to allow expansion. With the addition of LNG production that came on line in 2007, total hydrocarbon production peaked in 2008. It is now in decline. Three fields--Zafiro, Ceiba, and Alba--currently account for the majority of the country's oil output.

In 2001, GEPetrol was established as Equatorial Guinea's national oil company. It was originally to be the primary state-run institution responsible for the country's downstream oil sector activities. However, since 2001 its primary focus has become managing the government's stakes in various Production Sharing Contracts (PSCs) with foreign oil companies. GEPetrol also partners with foreign firms to undertake exploration projects and has a say in the country's environmental policy implementation. In its recent block-licensing negotiations, Equatorial Guinea has pursued increases in the government's stake in new PSCs. In early 2008 it announced a $2.2 billion purchase of U.S.-based Devon Energy's stake in the country's oil fields, increasing its participation to 20% in the Zafiro field operation.

The Zafiro field is Equatorial Guinea's largest oil producer, with output rising from an initial level of 7,000 bbl/d in August 1996 to approximately 280,000 bbl/d by 2004. Ceiba, Equatorial Guinea's second major producing oil field, is located just offshore of Rio Muni and is estimated to contain 300 million barrels of oil. Production at Ceiba rose dramatically during the 2-3 year period following improvements and upgrades to the facility. Alba, Equatorial Guinea's third significant field was discovered in 1991. Original estimates of reserves at Alba were around 68 million barrels of oil equivalent (BOE), but recent exploration has increased estimates significantly to almost 1 billion BOE. Unlike the Zafiro or Ceiba fields, exploration and production at Alba has focused on natural gas, including condensates.

Ceiba's discovery has significantly increased interest in petroleum exploration of surrounding areas, with many new companies acquiring licenses in exploration blocks further offshore in the Rio Muni basin. International companies with interests in one or more exploration blocks include Chevron (U.S.), Vanco Energy (U.S.), Atlas Petroleum International (U.S.), Roc Oil (Australia), Petronas (Malaysia), Sasol Petroleum (South Africa), and Glencore (Switzerland). In October 2004, Noble Energy Equatorial Guinea, an Equatoguinean subsidiary of American Noble Energy, Inc. signed a contract to exploit a new oil field off the island of Bioko. Recently, Equatorial Guinea gave the Chinese National Offshore Oil Company (CNOOC) the rights to its newest oil field.

Equatorial Guinea's natural gas reserves are located offshore Bioko Island, primarily in the Alba and Zafiro oil and gas fields. Natural gas and condensate production in Equatorial Guinea expanded rapidly in the 5-year period following new investments by major stakeholders in the Alba natural gas field. Alba, the country's largest natural gas field, contains 1.3 trillion cubic feet (Tcf) of proven reserves, with probable reserves estimated at 4.4 Tcf or more.Marathon Oil, other investors, and the state-owned gas company, SONOGAS, joined together in a $1.5 billion deal to construct a liquefied natural gas (LNG) facility on Bioko Island. The world-class facility shipped its first product in May 2007. In early 2008 Marathon and the government announced plans to construct and operate LNG trains 2 and 3, pending confirmation of feedstock gas from national and neighboring gas fields.

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