Gabon: Risk Assessment
Country Risk Rating
|C||A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.|
Business Climate Rating
|C||The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.|
Growth hit by oil price collapse
Growth declined sharply in 2015 under the impact of falling oil prices and the significant drop in oil output as a result of strikes and the rehabilitation of a number of wells. There was then the impact of cuts in investment spending which the government was obliged to make to keep the public finances under control. Growth is expected to continue to decline in 2016 to 3.2%. However, the rise in spending to ease social tensions before the presidential election should boost private consumption, and foreign loans should reinforce investment projects in agriculture and value added industry. Public sector wage hikes in 2014-2015 fuel the increase in prices, therefore inflation should increase in 2016. Inflation should increase in line notably with the gradual rise in commodity prices.
The discovery of new oil deposits did not compensate for the gradual depletion of older wells and the country has to deal with a decline in its oil production. Low oil prices prospects and the decrease in oil production are the source of the slowing down in public investment, thus efforts to diversify and modernize the economy, undertaken by the authorities as part of the Plan Stratégique Gabon Émergent (PSGE), could be impeded.
Despite the country’s oil wealth, poverty (30% of the population live below the poverty line) and unemployment levels remain high (19.7% in 2014). This wealth did not translated into a real improvement in living conditions of the population as a result of large number of obstacles to development such as inadequate infrastructure, in particular transport, shortages of skilled labor and poor business climate, constraints that could one day be overcome if the objectives of the PSGE are achieved.
Public and external accounts into the red
On the fiscal front, the fall in oil receipts, which provided over 45% of government revenues in 2014, forced the government to cut public spending as of 2014. The reduction reached 14% in 2015 but should be much smaller in 2016, as a result of the upcoming elections. Capital spending in particular has been regularly revised downwards although the government stated that it does not want to cut this too heavily in priority areas (transport and information and communication technologies). The budget surplus narrowed in recent years as a result of the huge increase in public investment resulting from the launch of the PSGE. With the fall in oil prices and the downward trend in oil production, this surplus turned into a deficit in 2015. Government debt has more than doubled since 2012, from 20% to 44% of GDP in 2015 (exceeding the 35% of GDP debt ceiling). Furthermore, Gabon has to deal with higher borrowing costs on the bond markets.
In 2015 the country recorded its first current account deficit since 1998 as a result of the sharp decline in oil exports (80% of sales of goods abroad until 2013), and this despite the fall in imports associated with reduced public demand and global prices for basic products. Exports are expected to keep declining, still affected by low oil prices, offsetting the growth of manganese and wood exports. Thus the current account deficit should widen even if imports could dip due to the fall in real incomes. The deficit in the balance of invisibles would slightly diminish as the slowdown in activity will reduce the demand for service imports.
Rising tension as presidential and parliamentary elections approach in 2016
The political situation is becoming increasingly tense as the presidential and parliamentary elections scheduled respectively in August and December 2016 get nearer, and at the same time as the economic situation deteriorates. Defections from within the ruling party and the creation of an opposition front, although its own internal divisions are far from disappearing, should lead to closer election results than in the past. A dissident group has also emerged within the governing party, questioning the lack of democracy within that organization. On top of this, the lack of improvements in living conditions for a large part of the population, the high level of unemployment and public service deficiencies are all feeding into social discontent. However, despite the dissatisfaction with the current administration, the single round presidential election (August 27th) should favor President Bongo for a new mandate of 7 years (in 2009 he was elected with 42% of the vote).