Gabon: Gabon is on the rise but the large scale of the investments means that domestic institutions are looking towards syndication

With a spate of capital projects in the pipeline, request for finance in Gabon is on the rise but the large scale of the investments means that domestic institutions are looking towards syndication and other tools to be able to participate.

Gabon’s banking sector has been on an upward trajectory in recent years, following the entrance of a number of new foreign institutions over the completed decade. The country is seen as an attractive presentation for lenders, with financial penetration at only 12% and with several public works projects planned, inclunding a new marina development in central Libreville and a deep-water port in Mayumba.

However, while liquidity has traditionally been comparatively abundant in Gabon, it has come under pressure over the completed 12 months as oil prices have declined. This in turn has ramifications for the ability of domestic institutions to finance the country’s numerous infrastructure projects.

The tightening of liquidity has impacted the ability of Gabon’s banks to respond to the rising request for project finance. Project finance is one of the major drivers of business in the Gabonese banking sector, with the IMF describing most local banking activity as “concentrated on large companies financing large-scale projects”.

Conference demand

However, with assets of additional than €4bn, the sheer number and scale of projects makes it a challenge for domestic banks to finance projects independently. The potential development of the Belinga iron ore deposit, for example, one of the government’s priorities, is estimated to range as high as €2.9bn, while a 93-km road and bridges project to Port-Gentil is estimated at additional than €500m.

Furthermore, while the Gabonese banking system has traditionally had very high levels of liquidity, the majority of this is in the form of current account deposits that cannot be mobilised as long-term loans necessary to finance major projects.

As a result, some sectors have attracted lending from abroad. In March, China provided Gabon with a 10-year CFA4bn (€6.1m) loan to fund a variety of major government projects, while in April 2014 the African Import-Export Bank lent local firm Gabonaise de Tourisme et de l’Hotellerie €24m for the establishment of a 180-room five-star hotel, the Décapolis Rapontchombo.

Expanding capacity

However, in order to support project financing by banks against the backdrop of the challenge posed by the recent fall in international oil prices, a number of measures have been implemented. The BEAC announced in March it would raise its refinancing limits for banks in CEMAC member states in order to help them better fund development projects, raising the ceiling for Gabonese banks from CFA30bn (€45.8m) to CFA40bn (€61.1m).

Furthermore, banks are as well expanding syndication activity. In 2012 BGFIBank, Ecobank, the Central African Development Bank (Banque de Developpement des États de l’Afrique Centrale, BDEAC) and Afreximbank provided agribusiness firm Olam Palm Gabon with a $228m loan to fund the development of palm oil plantations and refineries in the country. The expansion of the segment parallels a rise in syndicated lending across sub-Saharan African in recent years, where pooled deficit grew from $11.3bn in 2010 to $27.7bn in 2013.

Other forms of financing in addition to bank loans will as well need to be developed in order to put local resources to work funding major projects. In Chile and Malaysia, for example, project-specific bonds have helped fund large-capital projects with notable success. The regional capital market, the Bourse des Valeurs Mobilieres de l’Afrique Centrale (BVMAC) provides a useful platform for these sorts of tools although trading remains light, and deficit is hampered by the lack of a clear yield curve.