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. - Source: Coface

Business Climate Rating

D
The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.

Strengths

  • Fifth-largest oil producer in sub-Saharan Africa, Africa’s second-largest producer of wood, tied with South Africa as the world's second-largest producer of manganese
  • Drive to diversify the economy undertaken as part of the Emerging Gabon Strategic Plan 2010-2025
  • Hydroelectric potential
  • Member of CEMAC

Weaknesses

  • Economy heavily dependent on the oil sector
  • High cost of production factors, linked to inadequate infrastructure (transport and electricity)
  • Dependent on imports of food and capital goods
  • High unemployment, endemic poverty, poor wealth distribution, informal economy (50%)
  • Difficult political and social context, pervasive corruption and bureaucracy
  • Stock of domestic and external arrears not yet cleared

Current Trends

A timid recovery against a backdrop of diversification

Gabon entered recession in 2020 following the COVID-19 crisis. It was impacted by a double shock. Heavily dependent on oil revenues (39% of GDP), it was hit by the decline in global demand and the corresponding collapse in oil prices. Furthermore, the government quickly imposed lockdown measures, such as border closures, a national curfew, and a lockdown in the capital, Libreville, enabling it to successfully halt the spread of the virus. These measures principally affected the Gabonese economy through domestic demand. To limit the impact on the population, the government introduced measures worth EUR 381 million (2.9% of GDP) to ensure the basic needs of households and businesses.

In 2021, the activity will return to growth, which, however, is expected to be weak. Oil prices and demand are expected to rise somewhat. Moreover, Gabon does not seem to be strictly respecting its commitment to reduce oil production by 21% within the framework of OPEC+, which suggests that production will increase in 2021. Investment projects in this sector are temporarily on hold but are expected to resume timidly. In the long-term, projects aimed at maximizing production at aging fields and developing recent offshore discoveries should pay off, allowing the country to increase its oil exports. The forestry sector (30% of GDP excluding hydrocarbons, or 5% of total GDP), particularly wood processing, and the mining sector (6% of GDP), especially manganese, shrugged off the crisis and should also see increased activity as supply chains return to normal. They will benefit from investments aimed, in particular, at developing the wood sector. In addition to these investments in the three mainstays of the economy, construction should also benefit from the delayed start of construction on the Kinguélé Aval dam and the Libreville-Franceville Trans-Gabon road, which will last until 2023. The development of agriculture (6% of GDP, but 37% of the population) will continue in palm oil, rubber, cocoa, and coffee, again with the aim of reducing dependence on oil. Household consumption (39% of GDP, in terms of demand) declined in 2020 because of the crisis and travel restrictions. However, thanks to government support, it is expected to recover in 2021, which will benefit services (40% of GDP).

Deficits will continue to reflect the impact of the crisis

After plummeting in 2020 due to the drop in oil revenues (37% of revenues) and the increase in expenditures related to COVID-19, despite a 10% spending cut, the deficit should narrow slightly, but without returning to the pre-crisis surplus. However, consolidation is likely to resume, presumably under a new IMF program, the previous one ending in 2020 with a total of USD 640 million disbursed over three years. While high, debt remains sustainable, even though its external portion reached 50% of GDP in 2020. An audit by the authorities found that an estimated 70% of domestic debt was illegitimate.

The current account deficit widened dramatically in 2020 as a trade deficit emerged following a drop in oil exports (67% of the total) and an increase in imports linked to the health crisis, while traditional food and manufactured goods imports declined only slightly, despite lower domestic demand. In 2021, this deficit is expected to narrow slightly. While oil revenues should show a small increase and those for wood (8%) and manganese (20%) will resume their upward trend, imports will pick up sharply in line with the recovery in domestic demand. The IMF's disbursement of USD 300 million in 2020 under its Rapid Credit Facility should encourage other international donors to contribute to financing the deficit, alongside foreign investors approached for infrastructure and diversification projects.

Leadership succession taking shape

President Ali Bongo Ondimba, who has been in office since 2009 after succeeding his father, won a tumultuous re-election in 2016. He emerged strengthened by the October 2018 legislative elections, which gave his Gabonese Democratic Party (GDP) an absolute majority in the face of an opposition that was divided and weakened by the call for a boycott by Jean Ping, the president’s main opponent. Nevertheless, questions about the president's health, following a succession of strokes since 2018, persist, while his wife and son are playing prominent roles. Moreover, widespread unemployment and the high cost of living are fuelling public dissatisfaction, which may be increased by renewed fiscal austerity. However, regular civil service strikes due to salary arrears could cause the authorities to deviate from their budgetary commitments and thus undermine the perception of governance. This situation, combined with the non-transparency and unavailability of trade information and complex administrative procedures, makes for a difficult business climate.

Source:

Coface (02/2021)
Gabon