Previous Quarterly Editions
Expropriation Risk: 51 48 48 48 Political Violence Risk: 55 52 50 48 Terrorism Risk: 34 34 34 34 Exchange Transfer and Trade Sanction Risk: 36 36 39 38 Sovereign Default Risk: 45 45 48 47
TREND ▼ OUTLOOK ►
Gabon has been struck a double blow by COVID-19. As one of Africa’s most urbanised countries, it has been an easy place for the virus to spread, and due to its heavy reliance on the export of oil and manganese means that it has been hit hard by the slump in world commodity markets caused by the pandemic. The IMF provided extra emergency support of 150 million USD in April 2020 when the government was under short-term fiscal pressure, but more will clearly be needed. The health impact of the pandemic has been severe when compared with many other sub-Saharan countries. Gabon has a population of only 2.1 million people yet by mid-July 2020 it had almost 6,400 cases and 50 deaths. By contrast, Senegal had less than 9,000 cases and 175 deaths from a population of almost 17 million people. As a relatively affluent country, Gabon has been able to test for COVID-19 on a much wider scale than many sub-Saharan countries. It brought in experts from South Korea, imported 200,000 test kits, and received a gift of another 100,000 test kits from the Chinese tycoon Jack Ma. The country now has five testing laboratories after the government opened three additional facilities in an effort to meet an ambitious target of 10,000 tests a day. About 70% of those who test positive are asymptomatic, highlighting the importance of testing. As a result of the pandemic, Gabon’s economy is under severe stress. This year it was expecting to improve on growth of 3.4% in 2019 but is now looking at a contraction of at least 1-2% and a current account deficit around 8.5% rather than the 2% originally forecast. In 2018, oil accounted for almost 70% of exports and 37% of government revenue, and a significant slice of non-oil activity in the economy is also dependent on the hydrocarbons sector. As a result, the new slump in oil prices caused by the virus-related slump in global demand is hitting Gabon hard. The crisis also has implications for future hydrocarbons investment. Gabon had successfully introduced reforms to its petroleum code in order to attract exploration investors. However, in the current weak price environment, more marginal exploration prospects will inevitably struggle to attract interest from oil companies. Foreign-funded capital expenditure is now expected to fall by around 1% of Gabon’s GDP as projects are delayed, with overall foreign direct investment declining by closer to 2% of GDP. The slowdown has already made itself be felt in the sector, with a drilling company in Port Gentil involved in a dispute over its efforts to make 51 workers redundant. The lockdown measures imposed to curb the spread of COVID-19 in urban areas have hurt local economic activity, particularly in sectors such as hospitality. The government began the process of relaxing restrictions at the start of July 2020 but is ready to reimpose them if case numbers begin to spike again.
TREND ► OUTLOOK ▼
In the current climate, the government will seek to retain the goodwill and interest of foreign investors. This is true not only in the oil sector, where it is desperate to sustain exploration activity, but also across the full range of other sectors where investors might provide jobs and generate spin off benefits in fiscal revenue, procurement, and indirect employment. As a result, there is little prospect of a return to the government’s short-lived (and largely failed attempt) to take a tough line with some investors in the oil and gas sector-and the utilities sector- in the years between 2014 and 2018. However, at the start of July 2020, Gabon said that it would not grant visas to European tourists and business travellers after it was excluded from the EU’s "safe list" of countries from which the bloc is allowing non-essential travel.
TREND ▼ OUTLOOK ▲
Gabon is a country with a long history of urban street politics. Demonstrations and strikes are common, and a strong labour movement and a tradition of student activism means that protests over specific issues are common. These provide an essential safety valve for popular frustration in a political system where there is little prospect of a change of power through the electoral process. It would be no surprise if exasperation with aspects of the government’s management of the COVID-19 crisis produced outbreaks of protest, but there is little likelihood at present that these will develop into anything more violent despite the impact that virus-related restrictions have had on livelihoods in urban areas. After passing a law in 2019 that criminalised homosexual relations, the government repealed it at the end of June 2020 after a campaign which was led by the president’s wife. The government gave no specific reason for the change, which was made despite significant church opposition, but opinion in the country is deeply divided on the question, and the current government opposition have made this a political issue.
TREND ► OUTLOOK ►
Terrorism is a perpetual threat across much of Africa. Gabon is a potential target for attack given its substantial Western community and its close ties with France, which is the central external actor in military operations against jihadist groups in the Sahel. However, there is no publicly known evidence of active terrorist cells in the country.
The Central African Economic and Monetary Union (CEMAC) single currency bloc, of which Gabon is a member, has decided to examine options for a currency reform, after the decision of its West African counterpart to replace the CFA franc with a new currency, the Eco, albeit still with a French-guaranteed peg to the euro. But the oil market slump is creating a difficult environment for embarking on such a major change, and it is unclear if or when CEMAC might feel able to follow the West African example.
China is among Gabon’s main export markets for oil and so it may benefit from any early recovery in the Chinese economy. But with prices so low, the oil that Gabon does export will generate far less foreign exchange and fiscal revenue than previously anticipated. Even with extra help from the IMF, Gabon’s public finances and its foreign exchange position will be much weaker over the next 12-18 months than the government originally anticipated. However, the country has also worked hard to maintain its capacity to borrow on international bond markets and the government remains keen to avoid any damage to its long-term credibility.
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