Macroeconomic performance: One of Central Africa’s largest hydrocarbon produc- ers, Gabon is gradually recovering from the unfavor- able economic climate created by lower energy prices. Despite oil production declining by 4.3%, real GDP growth reached an estimated 2.0% in 2018, up from 0.5% in 2017. The upturn was spurred by nonoil sec- tors, particularly commercial agriculture (13% growth), manganese mining (45%), logging (14%), lumber (10%), and telecommunications (18%). Unemployment remains a major concern because the hydrocarbon sector, the primary driver of the economy, generates few jobs and because the economic crisis’s impact on employment can be only partially offset by other economic sectors, such as wood processing and export agriculture.
The fiscal deficit improved from 6.6% in 2016 to 3.6% in 2017 to an estimated 0.3% in 2018, largely through fiscal consolidation, a component of the Central African Economic and Monetary Community (CEMAC) response to reduced oil prices. Gabon con- cluded a three-year agreement (2017–19) with the Inter- national Monetary Fund for an Extended Credit Facility, supported by the African Development Bank and other international partners.
One important move by the Bank of Central African States in 2018 was to tighten monetary policy while raising the interest rate from 2.95% to 3.5%. Inflation was an estimated 2.8% in 2018, down from 3.0% in 2017 and below the CEMAC requirement of 3%.
The current account deficit dropped to 1.5% of GDP in 2018 from 4.9% in 2017. Despite lagging oil produc- tion, total export revenue has increased thanks to stable oil prices as well as lumber and manganese exports.
Tailwinds and headwinds: Short-term outlooks project real GDP to grow by 3.4% in 2019 and 2020. Growth will be spurred by nonoil sectors (agriculture, mining, and manufacturing) thanks to the ongoing diversification of the productive base of the economy. On the demand side, exports (6.3%
growth) and investment (3.0% growth) will be the pri- mary growth factors. Inflation is projected to remain low at 2.3% in 2019 and 2.5% in 2020. The budget bal- ance and current account balance are also projected to improve.
The growth outlook will hinge on authorities’ ability to continue implementing reforms to consolidate the macroeconomic framework. Sound budget execution and cash flow management will be important to avoid the recurrent problem of accumulating external arrears, which reduces the country’s solvency. Given the weight of the oil sector, another risk factor is declining oil production, particularly if new fields do not become productive.
Like other CEMAC countries, Gabon faces serious challenges. These include low reserves, low economic activity, and insufficient protection for the most vul- nerable groups of the population. To overcome these challenges and shore up progress, Gabon must remain aligned with the coordinated efforts of CEMAC coun- tries and continue the fiscal consolidation already under way. To this end, Gabon must protect priority expen- ditures and continue reforms aimed at improving the business climate and governance to stimulate growth and diversification of the economy, with the private sector the main growth catalyst.
Gabon views structural transformation of the economy as a key development strategy. Specifically, Gabon has promoted the local processing of timber, palm oil, and manganese. As a result, manufacturing accounted for roughly 10% of GDP in 2017, compared with 6% in 2012.
A timber processing industry emerged in Gabon after the 2009 ban on the export of raw logs. This has been made possible through a special economic zone and public–private partnerships. Gabon is now Africa’s largest exporter of wood veneers and plywood and one of the world’s top 10 producers.
Three plants for processing palm oil have opened. The country is exporting palm oil-derived products, which has boosted the agrofood sector.
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.
CEMAC states may issue new lines on the financial market in Libreville or in Douala. They can also use the auction market for government securities which is organized by the Central Bank, the Banque des Etats de l’Afrique Centrale (BEAC). The states have no proper debt strategy in place.
There are 9 benchmarks maturities for government securities in local currency in the CEMAC zone: 3m-6m-1-1.5-2-3-3.5-4 and 5 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.
|Rating Agency||Current rating||Outlook|
|Moody’s||No rating||No outlook|
|Standard and Poor’s||BB-||Stable|
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.