Gabon: Changes come to the oil sector

Buoyed by public investment in infrastructure and an abundance of natural resources, Gabon added to three years of solid increase in 2013, with an extra strong economic performance.

According to the IMF, Gabon’s economy grew by 6% in 2013, additional than double the projection for the regional average in the Central African Economic and Monetary Community (Communaute Economique et Monetaire de l’Afrique Centrale, CEMAC). The latter, which was prepared by the Bank of Central African States, was revised down during the year from 5.8% to 2.6%, due to lower levels of internal request, public spending and oil production in some member states.

As part of the government’s broader “Emerging Gabon” diversification campaign, plans to boost investment in natural resource processing, infrastructure for power production and data and communications technology (ICT) will put the economy on track to expand by up to 6.8% in 2014, according to recent IMF estimates, while supporting a national drive to reduce commodity dependency.

Changes come to the oil sector

The government adopted a additional active role in the oil and gas industry last year, in line with its plans to increase the domestic share of natural resource wealth and build up local processing industries.

The newly-created Gabon Oil Company (GOC) expanded its operations by signing lifting agreements with Total and Shell, which will allow it to commercialise the national’s share of oil production. It as well took over two fields before held by Addax, a subsidiary of China’s Sinopec following a lengthy arbitration.

However, an overhaul of the Hydrocarbons Code, which was expected this year, has presently been put back to 2015, according to the oil ministry. The new code is set to bring better transparency to the industry and tougher enforcement terms for companies to ensure they meet arrangement standards. It will as well entitle the GOC to a 15% stake in all contracts.

While delays in ushering in the code could spell uncertainty for foreign firms, interest in Gabon’s offshore potential is rising on the back of discoveries across West Africa.

Total Gabon’s discovery of an offshore gas condensate deposit in the pre-salt layer last August brought a new wave of investor interest, ahead of Gabon’s October tender round for 43 available offshore blocks. The oil ministry awarded 13 new deep and ultra-deep water blocks to 11 companies, inclunding several new firms. Government officials estimate that oil production could double to 500,000 barrels per day (bpd) once the newly licensed blocks are operational, putting the sector on course for increase next several years of contraction.

Investors eye iron ore

Despite coming up against challenges in 2013, inclunding insufficient transport infrastructure, Gabon’s mining sector, which marks the second-major source of natural resource wealth, will see solid increase in the near term. Comilog, a subsidiary of France’s Eramet, is expected to have produced 4m tonnes of manganese in 2013, up 24% year-on-time(y-o-y).

While some industry players are eyeing new possibilities in gold mining, the large but unexploited Belinga iron ore deposit is as well generating significant interest, presently that a dispute with the concessionaire, China’s Comibel, has been officially resolved.

Gabonese authorities estimate that the deposit could hold up to 1bn tonnes of iron ore, although it will require a significant investment in transport infrastructure before the resource can be exploited. A new concessionaire is expected to be selected next year.

Diversifying income

Higher revenue from natural resource exploitation and processing will help to support Gabon’s public spending programme and replace the budget surplus in 2014.

A new Eurobond issue and partial buyback of an existing 10-year bond in early December, which raised $1.5bn on international deficit markets, will as well help fund transport and power infrastructure projects. The government announced planned expenditures of CFA3.33trn (€5.03bn) in its 2014 budget, which was approved in October, up 5.83% y-o-y.

Gabon is working to reform the tax system as part of a bid to strengthen the business environment and broaden the tax base. The Direction Générale des Impôts announced that 6445 operators had been brought under the formal tax system in 2013, as efforts to reduce the impact of the informal economy are stepped up.
v
The government as well lowered the corporate tax rate from 35% to 30% at the beginning of the year, as part of an ongoing effort to increase transparency and streamline tax payment mechanisms. Its efforts helped push Gabon up six places in the 2014 World Bank Doing Business statement.

While slow internet connectivity and high prices have hindered the development of Gabon’s digital economy, the country should benefit from several ICT infrastructure upgrades in both the immediate and longer term. A second submarine fibre-optic cable, Africa Coast to Europe (ACE), which has been connected in Libreville and Port-Gentil and should be commercialised in 2014, will triple national capacity. The government has as well outlined a plan to gradually extend broadband networks to key provincial capitals over the next five years.

The government’s infrastructure and industrialisation plans, along with a growing private sector, will support new increase across the economy. However, the country will as well need to focus on providing the education and training which will prove essential for conference the next demands of an emerging economy.