Gabon’s economic recovery continued in 2019, thanks to the momentum of nonoil activities (mines, timber, rubber, and palm oil), with estimated real GDP growth of 3.4% in 2019 (0.8% in 2018), driven by the exploitation of new oil wells (up 11.8%), nonoil exports (18.6%), and total investment (4.5%). The inflation rate declined from 4.8% in 2018 to 3.4% in 2019, approaching the CEMAC community target of 3%.
Following the slump in hydrocarbon prices in 2014, the government implemented an Economic Recov- ery Plan for 2017–20. The budget deficit improved from 1.9% of GDP in 2017 to 0.7% in 2019 thanks to the reduction in payroll (48.1% of tax revenues in 2019 versus 85.3% in 2017). The current account deficit deepened to 3.2% of GDP in 2019, from 2.3% in 2018, due to the increase in imports to cover 80% of Gabon’s food needs. To fund its current account deficit, the gov- ernment had to resort to foreign borrowing, bilateral and multilateral, and cash constraints led to an accu- mulation of domestic arrears. Total public debt rose from 52.5% of GDP in 2016 to 64.3% in 2018 (and is estimated at 62.2% for 2019). The debt viability analysis by the IMF shows that the debt is sustainable.
Tailwinds and headwinds
Real GDP growth is expected to be 3.7% in 2020 and 3.6% in 2021, driven by renewed activity in the nonoil sector, which should offset a decline in the oil sector. The fiscal surplus should stabilize in 2020 (1.0% of GDP) and in 2021 (1.5%). The external account deficit should ease from 0.6% of GDP in 2020 to equilibrium in 2021.
The strategy to diversify the economy fostered devel- opment of new sectors of activity, mainly in agribusi- ness. Thanks to investments by the Singapore Olam
Group (€2 billion since 2010, more than 45% of the total FDI in Gabon over the same period), palm oil and rubber plantations have been developed on an industrial scale. In 2018, three new palm oil processing factories started up and produced 27,045 metric tons of oil.
Following a November 2009 ban on the export of unprocessed logs, the country created a fully devel- oped industrial timber sector, now the largest African exporter of veneers and plywood.
The Gabon Special Economic Zone, created in 2010, now has some 60 international and local compa- nies (building materials, metallurgy, chemicals, and so on) and their activities contribute 14% of the country’s exports. The zone has also invested in airports, ports, and roads.
Gabon harbors 25% of the world’s proven reserves of manganese. National exports grew by 47.7% thanks to an increase in world demand (China, Europe, and India). In 2014, the government decided to process some of it locally, and the investments under way for the local conversion of manganese to ferromanganese should eventually triple the value added produced.
Gabon dropped from 23 to 41 in the Ibrahim Index of African Governance between 2017 and 2018, and slipped three places in 2019 in the Doing Business report.
The high cost of production factors is a barrier to the growth and competitiveness of firms, and the Trans-Gabon Railway, the only means of shipping out resources, is close to saturation, spurring the govern- ment to launch a Gabon Infrastructure Support Pro- gram. The lack of skilled labor is also a constraint to economic diversification. Although firms need skilled workers, vocational and technical training reaches only 8% of students in post-primary education. Last, the economy remains heavily dependent on the oil sector, with 79.5% of exports and 25.5% of GDP in 2018.
Health sector preparedness
According to the World Health Organization, COVID–19 presents a high risk for Gabon given the weak capacities of its health system, the lack of necessary equipment to fight the pandemic, the poor hygienic and living conditions, and the overcrowding in large cities. The 2019 Global Health Security Index ranked Gabon 186 among 195 countries globally, with a low score of 20. The country’s ability to diagnose and care for COVID–19 cases is insufficient.
The authorities have taken measures to strengthen the health response and help businesses and vulnerable house- holds. Measures to meet the population’s basic needs (health, employment, water, electricity, housing, and trans- portation) and to support businesses are estimated to cost FCFA 250 billion (€381 million). Macroeconomic stabiliza- tion measures have also been undertaken. In general, with an assumed oil price of $36 per barrel of Brent crude, the authorities have temporarily estimated the funding needed to reduce the short-term negative impact of COVID–19 on the national economy at FCFA 506 billion (€770 million). The government is counting on a rapid mobilization of technical and financial support from development partners to help the country respond to the health emergency and reduce the impact on the economy and the population. On 9 April, the IMF approved FCFA 88 billion (€133.7 million) of emergency aid through the Rapid Financing Instrument.
The CEMAC securities yield curve extended to 5 years with 9 benchmark points along the curve (3m-6m-1-1.5-2-3-3.5-4 and 5 years).
The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are the auction method and the underwriting method.
In line with the cost and risk profile of the public debt portfolio projected at end-2018, the main objective of the 2019-2021 debt strategy is to reduce the exposure of the public debt portfolio to exchange rate risk and mainly its vulnerability to movements in the US dollar and other currencies with floating exchange rates. Indeed, in 2018, the debt strategy devoted a significant level of external and domestic financing to supporting investment and refinancing public debt due to the widening budget deficit. The aim was to boost domestic economic growth and promote the improvement of debt ratios over the medium term. At end-2018, the outstanding public debt amounted to CFAF 5,405.5 billion compared to CFAF 4,807.6 billion as at 31 December 2017, an increase of CFAF 597.9 billion. This result stemmed from the 22.2% increase in domestic outstanding debt. The outstanding external public debt at end-2018 stood at CFAF 3,631.5 billion and that of the domestic debt at CFAF 1,774.0 billion. The debt ratio stood at 57.3% in 2018 against 55.4% in 2017, following a more rapid increase in the debt stock in relation to GDP. The 2019 public debt strategy is in line with that of the previous year, characterised by persistent budget deficit of 6.3% of Gross Domestic Product (GDP). This deficit will be financed by programme loans, project loans and bond issues.
For 2020, financing will be made up of programme loans of 2.9% of GDP and project loans of 1.9% of GDP. Local bond issues will account for 1.5% of GDP. The year 2021 will be marked by a mobilisation of funds, as a percentage of GDP, of 0.3% for programme loans, 3.2% for project loans and 1.5% for regional bond issues.
The recourse to domestic commitments falls within the framework of the pursuit of the regional financial strategy adopted by the Government since 2015 whose objective is to ensure State participation in the development of the sub-region's financial market and the strengthening of its positioning as a reference issuer. On the other hand, these loans contribute to the mitigation of the exchange rate risk of the public debt portfolio. The regional bonds will be issued both on the free subscription public securities market organised by the Bank of Central African States (BEAC) and on the Central African Securities Exchange (BVMAC). The loans raised on the BEAC market will have a maturity of between 2.0 and 5.0 years and will be redeemable at maturity. Bonds issued on the BVMAC market will have maturities ranging from 5.0 to 7.0 years and will be redeemable annually.
International bonds will be issued for redemption at maturity with a maturity of at least 10.0 years.
Gabon has not defined a limited number of benchmarks. The State issues on the maturities of 13, 26 and 52 weeks for short-term securities, but also on the long-term maturities 2 years, 3 years , 5 years and 7 years.
Yield curve calculation models
The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve.
The Brandt interpolation method is used in the CEMAC region.
Yield curve managed by
The BEAC is responsible for calculating the yield curve on a monthly basis.
Challenges in building an efficient yield curve
- Illiquid and limited secondary market: buy-and-hold investors
- Narrow investor base: only banks are involved in the bond market
- Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.
- Lack of issuance strategy in CEMAC states
- Lack of reliable data
- Lack of long-term maturity
- Two countries had never issued on the domestic market as of end-2015
Guide to Buying Bonds
Procedures for market participation
The BEAC organizes the auction on behalf of the states. The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.
At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.
The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.
Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program.
The six National Treasures issue in turn at regular intervals. Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year. Each National Treasury can issue T-Bonds monthly. The auctions are scheduled to take place every Wednesday.
However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day.
A shift schedule was developed for planned Wednesday auction sessions:
- Cameroon: 1st Wednesday of the month
- Central Africa - Congo: 2nd Wednesday of the month
- Gabon: 3rd Wednesday of the month
- Equatorial Guinea-Chad: 4th Wednesday of the month
These emissions will occur at regular time intervals and are publicly known.
The total amount of the twelve issuances will be released in the Finance Act each year. For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year. This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the emission will not be announced at this time.
However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.
On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.
The settlement of transactions takes place at T+3.
The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.
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Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.
Openness to international investors
Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.
This is no restriction on foreign ownership in the CEMAC zone.
Restrictions on FX and profit repatriation
There are no restrictions on obtaining foreign exchange.
The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.
Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease payments.