December 2015 Number I GABON ECONOMIC UPDATE Protecting the Poor Despite Slower Growth GABON ECONOMIC UPDATE Protecting the Poor Despite Slower Growth Macroeconomics and Fiscal Management (MFM) Global Practice December 2015 Number I Table of Contents .................................................................................................................. 5 Acronyms and Abbreviations. Exchange Rate.......................................................................................................................................... 5 Acknowledgments.................................................................................................................................... 7 Key Messages............................................................................................................................. 1 Part I: Recent Economic Developments......................................................................... 4 Growth –Slower Expansion...................................................................................................................... 4 Labor Market – increase of formal private employment....................................................................... 9 Monetary policy and inflation – slowdown of inflationary pressures.................................................. 11 Fiscal developments – Reduced Revenue and Expenditure................................................................ 12 External sector – Deficit of the current account in 2015..................................................................... 16 Business Environment – High Cost of Doing Business....................................................................... 18 Part II: Macro Poverty Outlook.......................................................................................18 Macro Poverty Projections – Positive Outlook..................................................................................... 19 Poverty Eradication Projections – Slight Reduction Only....................................................................20 Risks Ahead – Keeping an Eye on Oil Prices and Managing Volatility................................................. 21 Part III: Building Social Protection Systems............................................................ 23 Social Protection Systems – Why Build Them?...................................................................................23 Benchmarking Gabon – How do social outcomes compare?............................................................. 27 Social Protection in Gabon–What are the main challenges?..............................................................35 .............................................................................39 Moving Forward–What should be addressed first?. Data Annex................................................................................................................................41 Bibliography........................................................................................................................... 42 Table of Contents iii Acronyms and Abbreviations ANGT Agence Nationale des Grandes Travaux (National Agency for Major Works) AGR Activités Génératrices de Revenus (Revenue Generating Projects) BEAC Banque des Etats de I’Afrique Centrale (Bank of Central African States) CEMAC Communauté Economique et Monétaire de L’Afrique Centrale (Economic and Monetary Community of Central Africa) CFA Central African Franc CPI Consumer Price index GDP Gross Domestic Product GEF Gabonais Economiquement Faibles (Gabonese with Low Income) ONE Office Nationale de L’Emploi (National Employment Office) PSGE Plan Stratégique Gabon Emergent (Strategic Plan for an Emergent Gabon) SEEG Société d’Energie et d’Eau du Gabon (Gabonese Society for Energy and Water) SNLS Société Nationale du Logement Social (National Social Housing Company) US$ United States Dollar Acronyms and Abbreviations v Acknowledgments The core World Bank Group team for this work was Gregory Smith, Rick Tsouck Ibounde and Privat Yves Ndoutoume (Macroeconomics and Fiscal Management Global Practice), working under the supervision of Souleymane Coulibaly (Program Leader and Lead Economist). The social protection section was drafted with written inputs from Maurizia Tovo and Eric Zapatero (Social Protection and Labor Global Practice). The team would like to thank Mark Thomas (Macroeconomics and Fiscal Management Practice Manager) for his support and guidance. The team is also grateful for administrative support from Sonia Vanecia Boga and Nani Makonnen. Ashley Taylor, Marek Hanusch (Macroeconomics and Fiscal Management Global Practice) and Ruslan Yemtsov (Social Protection and Labor Global Practice) are thanked for providing in-depth comments. Acknowledgments vii Key Messages Part I: Recent Economic Developments OLAM and the increase by 959 of the number of the mining company Comilog’ s staff that would have • Following softer commodity prices (most offset decreases recorded in the construction, significantly oil) and reduced public investment, services and other industries sectors. growth decelerated from 5.6 percent in 2013 to • In response to declining oil prices, the Government 4.3 percent in 2014 and is projected to further adjusted the initial 2015 budget and revised the decrease to 4.1 percent in 2015. Growth in 2015, revenue assumptions. Oil revenue assumptions as in 2014, is mainly driven by services. Although were reduced following a lower estimated oil price still significant, the contribution of the oil sector (falling from US$80 a barrel in the initial budget (crude oil, oil research and services and refinery to US$40 at the point of revision). Consequently, activities) in GDP considerably declined from 46.5 projected oil revenues are now 42 percent lower per cent in 2010 to 28% of GDP in 2014. than in the 2015 Initial Budget Law. • Reduced economic growth in 2014 followed four • As a result of the drastic fall of oil revenue, and previous years of strong growth averaging 6.1 the willingness of the Gabonese authorities to percent per annum. Previously high global oil prices maintain a level of public investment that does not had funded an expansion in large public works compromise growth, the overall fiscal balance for projects since 2010, guided by Gabon’s strategic 2015 is projected to record a deficit (3.3 percent of plan, ‘Plan Stratégique Gabon Emergent’ (PSGE)1. GDP) for the first time since 1998. To cope with the financing gap, the Government successfully issued • Pressure on food prices observed at end-2013 a Eurobond of US$500 million in June 2015 with a and in 2014 which had led to an overall inflation maturity of ten years at a rate of 6.95 percent. of 4.7 percent, measured by the Consumer Price Index (CPI), 1.7 percentage points above the • In the first half of 2015, the balance of trade recorded maximum set as convergence criteria for the a surplus of CFAF 710.3 billion, 45.9 percent down CEMAC zone has slowed down during the first compared to the same period in 2014 due to further semester of 2015. The harmonized price index for declines of the international oil price. The external consumption of households (HPIC) stagnated at balance is estimated to switch to a deficit of 3.2 end-June 2015 against an increase of 6.5 percent percent in 2015 from a surplus of 12.1 in 2014. over the same period in 2014. Part II: Macro Poverty Outlook • Data from the Ministry of economy shows that the slowdown in growth did not affect the formal labor • In spite of expected lower oil prices, economic market. Formal private employment level would prospects remain positive over the medium have increased by 4.4%, mainly due to the creation term. The non-oil economy (mainly manganese, of 2,100 new jobs by the Singaporean multinational wood-processing, agribusiness and services) will 1. The PSGE aims to propel the country to emerging market status by 2025. Key Messages 1 continue to be the major driver of growth in the Part III: Building Social Protection Systems forthcoming years. GDP growth is projected to reach 5.2 percent on average in 2016-2017 and • Despite mineral wealth and a GDP per capita given the decline in oil prices, inflation is expected of US$ 10,6607 (2014) a significant proportion to remain on average at 2.6 percent in 2016-2017. of Gabonese households face low incomes, unemployment, illness and struggle to protect • In spite of lower oil revenues, the fiscal deficit themselves and their families against shocks. is projected to decline from 3.3 percent of GDP The poor are the most vulnerable to these swings, in 2015 to 2.5 percent of GDP in 2016 and 0.6 typically more exposed to economic shocks such percent of GDP in 2017. This is expected on the as the drop in the price of raw materials. account of the enhancement of revenue collection capacities, the reduction of discretionary tax • Gabon has stated its intention to introduce a exemptions and the adoption of a budgeting modern social protection system, however it methodology based on budget spending targets. has not yet reached the objectives set by the Government. It still faces five major challenges to • These positive economic prospects underlie a be addressed: (i) a lack of data; (ii) coordination projected continued decline in poverty reduction by of the system; (iii) ensuring fiscal sustainability; an average of 0.8 percentage points per year during (iv) effective targeting of beneficiaries; and (v) the next two years. Thus, the moderate poverty building lesson-learning into policy. rate (share of people living with less than $3.1 in purchasing power parity) is projected to reach 22.0 • To meet these challenges we recommend to focus and 20.2 percent respectively in 2015 and 2017. on the following in 2015 and 2016: (a) deepen the analysis of poverty and vulnerability; (b) conduct an institutional audit; (c) formulate a deployment plan; and (d) simulate roll-out options. 2 Gabon Economic Update N1 Part I: Recent Economic Developments Growth –Slower Expansion Data available at June 2015 reveal that strong contraction in construction and public works output Following softer commodity prices and growth and related activities led by the reduction and reduced public investment, growth delay in the implementation of the 2015 budget have decelerated from 5.6 percent in 2013 to been offset by a better than expected extractives 4.3 percent in 2014, and projected to 4.1 industries production and continued expansion of percent in 2015. As in 2014, the growth services. These developments allow estimating a in 2015 is driven by the service sector, continued slowdown in GDP growth from 4.3 percent which includes Government investment in 2014 to 4.1 percent in 2015, the negative growth of and consumption. Global oil prices the construction sector caused by the reduction and have plummeted, after three years of the late implementation of the 2015 budget that was average prices above US$100 per barrel, revised to reflect the context of declining oil prices. constituting a shock to the economy. At end of June 2015, construction and public works A return to a US$100 barrel is not expected over output recorded a contraction of 10 percent that led the medium-term due to the underlying structural to the decline of related activities. The production of changes in supply as well as weak global demand wood industries also recorded a decline of 4.3 percent from major oil importers, such as China (Figure 1). resulting mainly from lower demand from Gabon’s The economy remains dependent on oil production, trade partners. although non-oil natural resources (principally manganese and timber) also contributed to growth. Part I: Recent Economic Developments 3 Negative growth in construction, public works non-oil revenues helped finance the implementation and wood processing were offset by a better than of public works projects from 2010, in the context of expected extractives industries production and the implementation of Gabon’s strategic plan, ‘Plan continued expansion of services. Oil and manganese Stratégique Gabon Emergent’ (PSGE)2. recorded increases of 6.6 and 19 percent respectively at the end of the first half of 2015. Trade expanded by Following lower oil revenues, from reduced prices and 6 percent, and the rail transport sector grew by 20 production, and lower non-oil revenue, the Government reduced public expenditure from 26.7 percent of GDP percent due to improvements of mining activities. in 2013 to 23.6 percent in 2014. Despite this, both Government ‘wages and salaries’ and ‘goods and Lower economic growth in 2014 followed four salaries’ increased leaving public investment to bear previous years of strong growth averaging 6.1 percent. much of the brunt of the expenditure cuts resulting in High global oil prices and a better mobilization of only half of planned public investment being realized. Figure 1: Global Oil Prices (Brent Crude, monthly US$ per Barrel) Sources: World Bank Global Economics Prospects Database. Figure 2: National Income by Sector (%) Although declining slightly, the services sector remained an important driver of growth in 2014, contributing 3.5 percentage points. Sources: Government of Gabon and World Bank Estimates. The PSGE aims to propel the country to emerging market status 2. by 2025. 4 Gabon Economic Update N1 In 2014 public investment declined by 35 percent contributing 3.5 percentage points (Figure 3). The dampening the expansion of output. Prior estimates expansion of the sector started in 2012 with the of 2014 growth were initially around 6 percent and increase of mobile phone companies. In 2014, they the reduction in public investment led to the loss of increased their number of subscribers by 11 percent 2 percentage points of growth. (Further details on following network improvements. An expansion of revenue and expenditure are provided in the Fiscal transport services, by 8.3 percent in 2014, also made a Developments section). key contribution to the sector’s growth. The air services industry recorded the arrival of two new companies, The structure of the Gabonese economy in 2014 Tropical Air Gabon and Allied Limited, which increased (figure 2) reveals a strong dominance of services the number of passenger by 3 percent. Also in the which account for 57.8 percent of real GDP, followed sector, business services continued to benefit from the by oil industry (20.6 per cent), other industries (15.4 rising demand in management, accounting and audit percent) and agriculture (6.3 per cent). However, advisory services. The sector’s contribution would services remain indirectly dependent on the oil sector have been higher if the rail transport activity was not through the application of the State. impaired by technical issues that led to a 6.5 percent decline in freight carried by the national railways Although declining slightly, the services sector operator SETRAG. remained an important driver of growth in 2014, Figure 3: Sector Contributions to Real GDP  omposition of industry sector 2014 (%) Figure 4: C Growth Sources: Government of Gabon and World Bank Estimates. Sources: Government of Gabon and World Bank Estimates. The oil industry provided 0.6 percentage points of GDP The contribution of non-extractives and wood growth in 2014, despite a fall in prices in the second industries (manufacturing, construction, electricity, half of the year. Although still representing a large water, and refining) essentially domestic market share of industrial production (Figure 4), oil production oriented and therefore limited by the size of the has declined since 2010 (Figure 5) following the economy, significantly decreased following the fall of ageing profile of key oil fields3, and further disruption construction and public works activities in relation to in December 2014 following a strike organized by reduction of public and private investments. the national union for oil sector employees (ONEP). (Further information on Gabon’s oil industry is 3. Anguille, Total’s main deposit has been operating since 1960 and Rabi provided in Box 1.). Kunga, the largest oil field ever discovered in Gabon operated since 1991. Part I: Recent Economic Developments 5 Figure 5: oil production (in million of barrels)  anganese Production (tons million) Figure 6: M Sources: Government of Gabon and World Bank Estimates. Sources: Government of Gabon and World Bank Estimates. In the mining sector, with a production of 4 million in after the rehabilitation and the modernization of the 2013, Gabon is among the world’s largest producers production chain of the national brewery SOBRAGA, and exporters of manganese (Figure 6). In 2014 the albeit from a low base. The production of energy also production of manganese declined by 3 percent, increased by 4.6 percent following the introduction compared with 2013, following a technical incident of new generating capacity, via thermal power from that restricted rail freight traffic on the Transgabonais Alenakiri (in the south of Libreville) and the Grand route, the only means by which ore can be Poubara hydroelectric dam (in eastern Gabon) transported to Libreville for export. Gold production that have allowed the national utility concession3 to in 2014 also declined following reduced global prices. meet stronger energy demand from household and industrial customers. Conversely, production in the wood processing industry increased by 10.9 percent in 2014 In the Agriculture sector, food and vegetable following a better supply of logging to factories. production increased by 7 percent in 2014, primarily Agro-industrial production increased by 17.2 percent due to higher demand from restaurants and hotels. Box 1: Gabon’s Oil sector Gabon’s oil sector is made up of seven companies (Perenco Gabon, Addax Petroleum, Maurel & Prom, Vaalco Gabon, Total Gabon, Shell Gabon, POGL) across three fields. Service activities related to the oil sector include logistics, drilling operations, onshore and offshore oil rig construction and maintenance. These activities are concentrated in the area of Port-Gentil. Oil production decreased between 1997 and 2002, but efforts to reverse the decline in production led to stable production between 2003 and 2005. Since then oil production has contracted and current oil reserves are estimated at 3.7 billion barrels. In August 2014, the oil and economy ministers announced seven new contracts for the sale of offshore blocks. These sales were expected to attract investments of around US$ 863 million according to the Government. However, lower oil prices since then have put planned investment in jeopardy. A new hydrocarbons law was adopted in 2014. It was intended to increase the Government’s share in and control over hydrocarbon resources and activities. Gabon will hold an increasingly large stake in all new operations for exploration and extraction, via the national Gabon Oil Company (GOC), created in 2011. The new law also introduces a regulatory regime for midstream and downstream activities. Oil companies (both senior and junior) have voiced complaints about the tax provisions of the new law, which will reduce potential profits, and have suggested they might reduce future investment. The industry also finds the provisions on the award of petroleum rights (based on competing petroleum agreements and petroleum authorizations) confusing, and the nature and duration of petroleum contracts and petroleum authorizations for exploration and production activities are not well aligned. These changes may make it harder for Gabon to realize new investment in the sector, but if successful, Government’s share of the profits will increase. 3. Société d’Energie et d’Eau du Gabon or Gabonese Society for Energy and Water) (SEEG). 6 Gabon Economic Update N1 Table 1: Formal Private employment, 2012-2014 2012 2013 2014 var 14/13 Formal Private employment 61 517 67 766 70 776 4,4% Agriculture 2 209 2 972 5 285 77,8% Oil 4 262 4 304 4 457 3,6% Mining 1 679 1 810 2 251 24,4% Wood 7 536 10 263 10 650 3,8% Agro-Industries 3 310 3 472 3649 5,1% Others industries 1 937 1 917 1857 -3,1% Water, Electricity and Refinery , 2 051 2 056 2 154 4,8% Construction and Public works 5 425 6 715 5669 -15,6% Transport and ICT 11 465 11 484 11869 3,4% Services 11062 12 073 11 780 -2,4% Commerce 7 844 7 900 8240 4,3% Banks and Insurance Assurances 2 737 2 800 2915 4,1% Sources: General Directorate of Economy and Tax policy, Gabon Overall, the agriculture sector has increased its enterprises, banks and financial services, wood and contribution to GDP following the launch of an food industries would have also recorded increases. emergency plan for food security based on the promotion of agro-pastoral products (cassava, The public sector remains an active provider of banana, rice, vegetables, poultry and pork), and employment opportunities. In 2014, despite a fall in fruit farm development programs. Despite this, the oil and non-oil revenue, public sector employment sector remains underdeveloped with its potential increased by 5.5 percent to 109,050 employees. constrained by infrastructure and logistical Almost half the working population (47 percent) bottlenecks; especially limited access to credit. are considered to be working in the informal sector, Consequently, Gabon remains largely dependent on and when workers employed in households and the import of basic goods, such as wheat and rice. associative businesses are considered this figure reaches 57 percent. Informal employment in Gabon Labor Market – increase of formal is dominated by the service sector (transport, food, private employment sewing, mechanical repairs, etc.) and represents 38 percent of total employment in the informal sector Data from the Ministry of Economy shows that compared to 29 percent in trade and 19 percent in the slowdown in growth did not affect the formal agriculture (Figure 7 and 8). Industries and public labor market (see table 1 below). Formal private employment increased by 4.4% at end 2014 works and civil engineering (mainly construction) compared to the previous year. Job cuts recorded in are 9 percent and 5 percent respectively. Informal the construction and public works sector (-15.6%), activities are carried out largely by a working services (-2.4%) and other industries (-3.1%) would immigrant population which is mainly present in retail have been largely offset, mainly by the increase from markets and shops, urban and intercity transport and 700 to 3000 of the firm OLAM staff, the creation of agriculture. Nationals are more visible in construction, 959 jobs by Comilog, a subsidiary of the multinational carpentry, and services. Eramet. Furthermore, in the oil sector, the decline of the oil research and services companies have Providing 21 percent of jobs, the public sector is been offset by new recruitments by junior crude oil the largest formal employer, proving considerably operators. Numbers of employees of domestic trade more employment than the formal private sector (16 Part I: Recent Economic Developments 7  istribution of Total Employment by Figure 7: D Figure 8: Distribution of employment by Economic sector (%) Institution (%) Sources: National Survey on Employment and Unemployment Source: National Survey on Employment and Unemployment (Enquête (Enquête nationale sur l’emploi et le chômage) 2010 nationale sur l’emploi et le chômage) 2010 percent). Public employment includes permanent peg of the CFA Franc to the Euro, which has helped employees of the civil service, local Government anchor prudent macroeconomic management. staff, and non-permanent Government workers. The Pressure on food prices observed at end-2013 share of agriculture employment is small at 8 percent persisted in 2014. The food price index increased by 3 and Gabon’s population is predominantly urban (85 percent in 2014, leading to an overall inflation figure of percent). 4.7 percent, measured by the Consumer Price Index (CPI) (Figure 9). This rate is 1.7 percentage points Monetary policy and inflation – above the maximum set as convergence criteria slowdown of inflationary pressures for the CEMAC zone. Along with higher food prices, inflation was driven by higher prices for housing and Pressure on food prices observed at end- transport that increased by 7 percent, and 4.8 percent respectively. Higher housing prices result from a 2013 and in 2014 which had led to an large deficit in the supply of housing, especially in overall inflation figure of 4.7 percent, Libreville where the deficit is estimated to be around 1.7 percentage points above the 140,000 dwellings. In order to address this challenge, maximum set as convergence criteria the Government in 2013, created the National Social for the CEMAC zone has slow downed Housing Company (SNLS) that has already built 2,000 during the first semester of 2015. The houses. By contrast, Health services prices fell by 12.4 harmonized price index for consumption percent in 2014 despite the general increase in prices. of households HPIC stagnated at end- June 2015 against an increase of 6.5 The harmonized price index for consumption of percent over the same period in 2014. households (HPIC) stagnated at end-June 2015 against an increase of 6.5 percent over the same As a member of the Economic and Monetary period in 2014. This stability is explained by the fall in Community of Central Africa (CEMAC), Gabon’s prices of health services (17.4 percent), housing (-9.1 monetary policy is determined by the regional central percent) and communications (2.8 percent) while bank, the Bank of Central African States (BEAC). The clothing and food and non-alcoholic beverages prices BEAC conducts monetary policy consistent with the increased by 23.8 and 1.7 percent respectively. 8 Gabon Economic Update N1 Figure 9: I nflation, 2010-2014 from tax disputes between the Government and oil or mining companies. It will be operated according to international standards, in agreement with the BEAC, and will invest in short-term liquid assets (as is the case for all other comparable stabilization funds). The Government has also put in place in July 2015, a new system of remuneration of civil servants aiming at redefining the management of the civil service and to better monitor and control the payroll. Sources: Gabon CPI In 2014, total Government’s revenue declined significantly to 26.1 percent of GDP compared to 30.2 per cent in 2013. Consequently, total expenditure Monetary developments in 2014 were characterized were reduced by 26.7 per cent of GDP in 2013 to 23.6 by a deceleration of credit provided to the economy percent of GDP in 2014. Despite the fall of revenue, which reached only 15 percent of GDP, compared to a budgetary surplus (commitments basis) was 23.6 percent of GDP in 2013, in part as the result of slower growth in 2014. recorded. However, the Gabonese authorities have also had to rely on accumulation payments and VAT arrears to cope with the sharp decline in oil revenues. Fiscal developments – Reduced Revenue and Expenditure A decline in oil revenue (4 percent of GDP) and non-oil In response to declining oil prices, the Government revenue (0.1 percent of GDP) negatively affected the adjusted the initial 2015 budget and revised the revenue fiscal accounts in 2014 (Table 2). The decline in oil assumptions. Oil revenue assumptions were reduced revenues resulted from both reduced global prices and following a lower estimated oil price (falling from US$80 production. Despite the global oil price shock, non-oil a barrel in the initial budget to US$40 at the point of revenues fell by greater extent in 2014. This was on revision). Consequently, projected oil revenues are now account of increased customs and tax exemptions 42 percent lower than in the 2015 Initial Budget Law. As and a strike by the customs and tax departments after the supresssion of special allowances previously result, the overall fiscal balance for 2015 is projected to allocated to financial administration officals. Recent record a deficit (3.3 percent of GDP) for the first time increases to customs and tax exemptions, closely since 1998. Last year’s balance was a surplus of 2.5 linked to the oil industry and public investment, percent of GDP. To cope with the financing gap, the resulted in revenue collection following short of its Government successfully issued a Eurobond of US$500 potential. A World Bank study in 20134 estimated that million in June 2015 with a maturity of ten years at a rate tax exemptions are equal to half of potential customs of 6.95 percent. It also took fiscal adjustment measures revenue and a quarter of potential tax revenue. to adapt to a lower price environment, including a 21 percent reduction in goods and services, the creation of a Stabilization Fund of revenues from Extractive Despite the reduction in total expenditure Industries of Gabon (FSREG in French), which aims at in 2014, Government wages and salaries helping the Government maintain necessary public increased from 6.4 percent of GDP to 7.7 spending even in times of low oil prices. percent. Lower revenue mobilization led to declining total The stabilization fund will receive an annually-fixed expenditure, which fell from 26.7 percent of GDP in share of oil and mining revenues, with the objective of 2013 to 23.6 percent in 2014. The largest reduction reaching US$500 million over the next four years. The was observed in public investment that fell sharply fund will receive: (i) 5 percent of total oil and mining revenue; (ii) any excess of actual revenue about World Bank (2013), ‘Tax Burden on Investments and the Effectiveness 4. of Tax Incentives in Gabon’, Libreville. budgeted revenue; and (iii) 25 percent of the proceeds Part I: Recent Economic Developments 9 Table 2: Fiscal Indicators (% GDP) 2011 2012 2013 2014 E Total revenue 29.0 30.1 30.2 26.1 Oil revenue 15.9 17.5 15.5 11.5 Non-Oil Revenue 13.13 12.6 14.7 14.6 Total Expenditure 27.4 26.6 26.7 23.6 Current expenditure 14.8 16.3 16.3 15.3 Wages and salaries 5.2 5.9 6.4 7.7 Goods and services 3.5 3.7 2.7 2.9 Transfers and subsidies 5.1 5.7 5.5 4.6 Interest payments 0.9 1.0 1.7 1.2 Capital expenditure 11.6 11.4 10.6 6.7 Overall balance (commitment basis) 1.5 2.5 1.8 2.5 Primary balance 2.5 3.5 3.5 3.8 Source: General Directorate of Economy and Tax policy, Gabon to 6.7 percent of GDP from 10.6 percent in 2013, These increases were largely offset by a decline in resulting in only half of planned public project transfers and subsidies that reduced from 5.5 percent financing being realized (Figures 10 and 11). This of total GDP to 4.6 percent of GDP in 2014 as a result decline was in part caused by lower revenue of the partial elimination of industrial diesel subsidies receipts, but also difficulties in implementing the and lower global oil prices. Overall budgetary planned projects. This decline also followed a period execution recorded a surplus in 2014 despite the fall in which public investment had increased from of prices of oil and the decline in non-tax revenues. 5.6 percent of GDP in 2009 to 11.4 percent of GDP However an accumulation of arrears of payments was in 2012 following the Government’s adoption of a observed at end December 2014. US$13 billion infrastructure master plan (linked to the PSGE), for implementation over 2013-16, aimed at providing Gabon with the requisite infrastructure In 2014 the public debt reached 29.5 for socio-economic development and diversification percent of GDP of which 27.5 percent is of the economy. The strategy comprises 21 major external. projects, with the National Agency for Major Works (ANGT) responsible for implementation (Box 2). In 2014 the public debt reached 29.5 percent of GDP, of which 27.5 percent is external. The level of public Despite the reduction in total expenditure in 2014, debt remains below the CEMAC ceiling of 60 percent Government wages and salaries increased from 6.4 of GDP (Figure 12) and the increase since 2011 is percent of GDP to 7.7 percent, and goods and services linked mainly to the issuance of a US$1.5 billion from 2.7 percent to 2.9 percent. Salaries and wages Eurobond in 2013, intended to finance infrastructure increased due to the regularization of administrative projects in the PSGE. This operation also helped situations of civil servants, the introduction of a new reduce the price of the Government’s debt, as the premium, prime d ’incitation à la performance (PIP) and new recruitments of civil servants which went 2013 Eurobonds carry an interest rate of 6.3 percent, from 57,402 in 2012 to 86,555 in 2014. Overall Total lower than the 8.2 percent of the 2007 Eurobond5. public sector staff (Permanent, non-permanent staff and “staff of local collectivities”) increased by 8.6% 5 The 2007 Eurobond proceeds ($1 billion) were used to buy back at from 100,442 in 2012 to 109,050 in 2014. a discount of 15 percent the country’s outstanding debt to Paris Club creditors. 10 Gabon Economic Update N1 Figure 10: Public investment (US$ million) Figure 11: Public Investment by Sector Sources: Government of Gabon, World Bank and IMF Source: Government of Gabon, World Bank and IMF Box 2: Public Investment In order to implement the PSGE, the Government decided to raise the capital budget to US$1.54 billion in 2010 (representing three times the average annual budget allocated over the period 2006 to 2008) to address infrastructure bottlenecks. Consequently, capital expenditure which stood at 5 percent in 2008 increased to 15 percent of GDP between 2009 and 2012. The sector distribution of the investment budget shows the predominance of public works and energy infrastructure, the share of which has increased from 51 to 67 percent of the budget between 2009 and 2013. The capital spending is guided by implementation of a US$13 billion infrastructure masterplan adopted in 2012 for the period 2013-16. The main projects of the master plan include: Power – Infrastructure (US$3 billion), Transport – Infrastructure: roads, railways, ports (US$3.5 billion), development of the mining sector (US$3.3 billion), and development of the tourism sector (US$85 million). To cover its financing needs, the Government compared to the same period in 2014 successfully issued a US$500 million Eurobond in due to further declines of the international June 2015. As result, in 2015, public debt will increase oil price. That allows to predict that the to around 37 percent of GDP in 2015, but Gabon’s external balance will switch to a deficit debt level remains well below the regional CEMAC of 3.2 percent in 2015 from a surplus of threshold. The Eurobonds do carry foreign exchange 12.1 percent in 2014. risk as they are issued in US$. The CFA Central African Franc (CFA) is tied to the Euro, which depreciated by Gabon’s current account surplus is estimated to 10 percent against the US$ over the course of 2014 have declined to 12.1 percent of GDP in 2014, from increasing the repayment cost in local currency. 14.8 percent in 2013, following the decline in oil prices. The value of merchandise exports fell by 10.3 percent External sector – Deficit of the in 2014, following a downturn in the sales of two main current account in 2015 exported products, oil and manganese, which fell by 11.2 percent and 17.9 percent respectively. The two In the first half of 2015, Gabon’s balance products represent more than 90 percent of Gabon’s exports. of trade recorded a surplus of CFAF 710.3 billion, 45.9 percent down Part I: Recent Economic Developments 11 Figure 12: Debt evolution (% of GDP) Figure 13: Exports and Imports (US$ billion) Source: National authorities and IMF Source: Gabonese Authorities and World Bank. Exports fell by 10.3 percent in 2014, Business Environment – High Cost following a downturn in the sales of oil of Doing Business and manganese. The poor quality of Gabon’s business Imports decreased by 5.1 percent over the same climate stands as a major constraint to the period, following a 16 percent reduction in goods non-oil private sector and diversification linked to the construction sector (mainly tools, of the economy. The country ranked 162th machinery, and mechanical appliances) (Figure 13). (out of 189 countries) in the World Bank’s Imports of used vehicles also declined following 2016 Doing Business survey. the Government’s measures to prohibit the sale of vehicles older than three years. Imports of final goods Gabon is among the 27 economies worldwide where decreased by 3.7 percent, due to the improvement the business climate is the most challenging. Specific of the supply of locally produced food livestock, challenges include: agriculture and fishing). Furthermore, imports of intermediate consumption products increased by • Limited financial intermediation. Lending to the 8.2 percent. private sector is equivalent to just 15 percent of GDP, well below the average for emerging-market peers. In 2014 China became Gabon’s major • Low flexibility of the labor market. While there is trading partner, with a trade volume relative ease in hiring, there is rigidity in the number estimated at US$ 1.3 billion of hours worked. In 2014 China became Gabon’s major trading partner, • Registering property is cumbersome and takes a with a trade volume estimated at US$ 1.3 billion (up very long time. Gabon is in 173 place as it requires from US$ 0.91 billion in 2013), followed by France six procedures, 103 days and costs 10.5 percent of (US$ 0.90 billion) and the United States US$ 0.69 property value. billion). Providing 25 percent of Gabon’s imports, France remains Gabon’s largest supplier, followed • Application of the legal framework for securing by Belgium (15 percent), China (9.0 percent), and property rights and contracts is hampered by time the United States (6.4 percent). Conversely trade consuming (38 procedures) and costly procedures with the CEMAC region slowed in 2014, with exports (equal to 34.3 percent of the claim). destined to other CEMAC countries accounting for only 1 percent of the total (compared to 2.1 percent in 2013), suggesting weak integration of the CEMAC economies. 12 Gabon Economic Update N1 Part II: Macro Poverty Outlook Macro Poverty Projections – build 12 new plants since 2010. Similarly, manganese Positive Outlook production is expected to grow on average by 6.1 percent during the 2015-2019 period, thanks to the The fall in world prices led to slower growth exploitation of the deposits near Franceville (for JMG in 2014 and 2015. However, in spite Cement) and Moanda Metallurgical activity Complex of expected lower oil prices, economic (MMC) which was inaugurated in June 2015. The prospects remain positive over the medium MMC has two factories producing respectively metal term. GDP growth is projected to reach manganese and silicomanganese (metal alloy), and 5.2 percent on average in 2016-2017 and has an annual production capacity of 65,000 tons given the decline in oil prices, inflation of silico-manganese and 20,000 tons of manganese is expected to remain on average at 2.6 metal. Public-private partnerships between the State percent in 2016-2017. and the Gabonese multinationals OLAM (oil palm and rubber) and Mauritian IBL should also boost Construction and public works are expected to agro-industry and fisheries. rebound, progressing to an average of 8 percent over the period 2016-2017 in connection with the The stronger growth in mining and wood processing acceleration of the work of preparation of Nations will likely have a positive impact on the transport Africa Cup of 2017. sector, given that 90% of transport activities are related to these industries. Efforts are also The growth in non-oil sector should also benefit from underway to support the agriculture sector via the the development of the sector of wood processing implementation of a national agricultural investment in which the private sector and the state invested to and food security and nutritional plan and the Part II: Macro Poverty Outlook 13 Table 3: Macro Poverty Outlook (Annual % Change) 2014 2015p 2016p 2017p GDP, at constant market prices 4.3 4.1 5.1 5.3 Private Consumption 5.5 2.1 4.2 4.5 Government Consumption 1.6 -4.9 3.5 0.5 Gross Fixed Capital Investment -5.0 -5.5 12.5 3.5 Change in Inventories, % contrib 0,3 0,3 0,3 0,3 Exports, Goods and Services -0.6 0.0 4.2 5,3 Imports, Goods and Services -3.7 -5.9 8.0 8,0 GDP, at constant factor prices 4.3 4.1 5.1 5.3 Agriculture 7.0 7.0 7.0 9.0 Manufacturing 0.6 1.1 2.5 2.1 Services 7.3 6.3 6.9 7.2 Inflation (Consumer Price Index) 4.7 2.1 2.5 2.7 Current Account Balance,% of GDP 12.1 -3.2 -0.8 0.4 Fiscal Balance, % of GDP 2.5 -3.1 -1.0 -0.6 Poverty rate ($3.1 a day, PPA terms) 22.7 22.0 21.1 20.2 Source: World Bank. Note: Historical poverty data, include data emanating from individual surveys and World Bank estimates derived from POVCALNET for intervening years and recent history: a = Annual percentage change; f = forecast; b = Projection using Median Regional Elasticity for SSA, with pass-through= 0.63 based on GDP constant. GRAINE program (la Gabonaise des réalisations Poverty Eradication Projections – agricoles et des initiatives des nationaux engagés) Slight Reduction Only whose objective is to increase Gabon’s agriculture production from 5% to 20% in 2020. There are no accurate and up-to-date poverty numbers for Gabon due to a lack In spite of lower oil revenues the fiscal deficit is of survey data. However, World Bank staff projected to decline from 3.3 per-cent of GDP in estimates suggest that poverty still affects 2015 to 2.5 percent of GDP in 2016 and 0.6 percent 22.7 percent of the population. Improved of GDP in 2017. This is expected on the account of data is required to make an accurate the enhancement of revenue collection capacities, assessment and enhancing the quality and the reduction of discretionary tax exemptions and coverage of Government statistics should be the adoption of a budgeting methodology based on a priority in 2016. budget spending targets. The World Bank’s Statistical Capacity Indicator (SCI) scores the Gabonese systems across three categories (methodology, source data and periodicity)6. In 2014 Gabon ranked below the average for Sub-Saharan Africa in terms of source data. Other key statistical gaps that need to be filled to catch up with other African countries include a poverty survey 6 See: ht tp://datatopics.worldbank.org /statisticalcapacit y/ SCIdashboard.aspx and agricultural census. 14 Gabon Economic Update N1 Despite the lack of hard data, projections of would impact on the economy as Gabon does not macroeconomic prospects and poverty from the have sufficient fiscal buffers to endure a significant World Bank (Table 3) indicate that poverty, estimated fall in oil revenue. A further decline in oil prices would at a rate of 3.1 dollars a day (in PPP) will experience certainly reduce available resources for financing the a slight decrease of 22.7 percent in 2014 to 22.0 implementation of structural projects and the wider percent in 2015 which would continue gradually to PSGE. 21.1 percent in 2016 (Figure 14). A further decline in prices would impact Risks Ahead – Keeping an Eye on Oil on the economy as Gabon does not Prices and Managing Volatility have sufficient fiscal buffers to endure a significant fall in oil revenue. Figure 14: Poverty Incidence (%), 2005-2017 If oil prices rise once again then there is an opportunity to ensure sizeable primary deficits are avoided and a more sustainable fiscal framework is pursued in 2015 and 2016. Most forecasts suggest a return to a US$100 barrel is very unlikely. China is the largest importer of Gabon’s manganese exports and with China’s lower growth projections for 2016 might come reduced appetite for manganese. On the domestic front, relaxed fiscal policy and weak public investment management capacity are the Source: World Bank Estimates. main risks facing Gabon, plus potential economic uncertainty from the 2016 elections. For the coming There are upside and downside risks years Gabon will remain reliant on crude oil for growth regarding oil price as projections from and revenues. the global oil market face significant uncertainty. If growth falls below the If growth falls below the medium-term projections medium-term projections then the then the expected decrease in poverty will likely not expected decrease in poverty will likely not materialize. Structural reforms are needed to mitigate materialize unless a more effective social lower economic growth, accelerate improvements protection system can be developed. of the business climate to support the non-oil private sector and diversification of the economy. Gabon’s medium-term growth prospects are subject Furthermore, there remains a key need to protect to risks from both domestic and external sources. the poor from the volatility brought on by dependence There are upside and downside risks regarding oil on oil brings and the prospect of slower economic prices as projections from the global oil market face growth over the medium-term. Global experience significant uncertainty. Oil prices fell by 50 percent in the second half of 2014 and have been volatile in shows that social protection can be a powerful way to 2015. As the market continues searching for a new promote growth and fight poverty in many emerging equilibrium price, Gabon needs to stand ready to economies if a well-designed system is put in place. react accordingly. If prices drop into a lower bound Further discussion of social protection measures then the 2015 budget assumptions may need to be takes place in Part III: Building Social Protection revisited for a second time. A further decline in prices Systems. Part I: Recent Economic Developments 15 16 Gabon Economic Update N1 Part III: Building Social Protection Systems Social Protection Systems – Why the Gabonese population living with an income below Build Them? the minimum wage guarantee (80 000FCFA/month) in 2013. Similarly, the national survey of employment and unemployment (ENEC) conducted by the Despite mineral wealth and GDP per Ministry of economy in 2010 estimated the national capita of US$ 10,660 (2014), a significant unemployment rate at 20.4%. proportion of Gabonese households face low incomes, unemployment, illness, The Demographic and Health Survey conducted in and struggle to protect themselves and 2012 General Directorate of Statistics revealed that their families against shocks. Volatility in one-third (32%) of the Gabonese population is living the economy, emanating from an acute dependency on oil production and export, in precarious habitats, i.e. non-durable housing, and is passed down to citizens. The poor are the where access to drinking water, sanitation and living most vulnerable to these swings, typically space are unhealthy. more exposed to risk and less able to access opportunities. The 2012 Demographic and Health Survey (DHS) also revealed that the rate of infant and child mortality The McKinsey Company, in the context of the (children less than 5 years) is still very high (65 per preparation for the ‘social pact’, conducted a study 1,000 live births) as well as the maternal mortality on poverty in Gabon which estimated at about 30% rate that was estimated at 316 per 100,000 live births. Part III: Building Social Protection Systems 17 There remains a need to protect the livelihoods of Social protection is no longer the preserve of low-income households in Gabon, especially given developed countries and systems are being built slower economic growth. Global insights gathered by across the world in almost every country to help the World Bank suggest the importance of building people and families find jobs, and invest in health, a social protection system. The World Bank Group education, and well-being of their children. defines social protection and labor systems, policies, and programs as those that help individuals and Recent swings in global commodity prices societies manage risk and volatility and protect them and increased vulnerability to financial crises from poverty and destitution—through instruments that has encompassed job loss, financial turmoil, improve resilience, equity, and opportunity (see Box 3). and volatility in food and fuel prices. Instruments include safety nets, pensions, insurance, labor programs and access to services; that can each Increased interdependence, risk, and vulnerability are impact on economic growth and poverty reduction via central features of today’s global economy. Recent the national economy (macro level), local economy swings in global commodity prices and increased (meso level) and via households directly (micro level). vulnerability to financial crises has encompassed job loss, financial turmoil, and volatility in food and There remains a need to protect the fuel prices. These challenges are increasing risks to livelihoods of low-income households in individuals and families, while urbanization, migration Gabon despite slower economic growth. and modernization are changing individuals’ and Box 3: Social Protection Definition and Goals Social protection and labor systems, policies, and programs help individuals and societies manage risk and volatility and protect them from poverty and destitution—through instruments that improve resilience, equity, and opportunity. As such, social protection and labor systems have three intertwined goals: 1. Resilience against the impact of drops in well-being from a range of shocks. Key sources of resilience are social insurance programs that minimize the negative impact of economic shocks on individuals and families—such as unemployment and disability insurance, old-age pensions, and scalable public works programs. Complementary programs in other sectors are also extremely important for resilience—such as crop and weather insurance and health insurance. Private and informal arrangements (such as savings, assets, and family or community-based support) are vital, too. 2. Equity for the poor through protecting against destitution and promoting equality of opportunity. Social assistance programs (also known as safety net programs—including cash transfers and in-kind transfers, such as school feeding and targeted food assistance) address chronic poverty. They also protect poor individuals and families from irreversible and catastrophic losses of human capital (nutrition, health, and education). They also lay the foundation for equality of opportunity, notably by helping families feel secure enough to invest in their future and their children. 3. Opportunity for all through promoting human capital in children and adults and “connecting” men and women to more productive employment. Institutions that promote opportunity are often integrated with those supporting resilience and equity. Cash transfers incentivize investments in human capital by promoting demand for education and health and by helping address gender inequalities. Public works programs provide cash payments to the poor, while increasing physical capital investments. And labor market programs provide unemployment benefits, build skills, and enhance workers’ productivity and employability. Source: World Bank (2012), ‘Resilience, Equity and Opportunity’, Washington D.C. 18 Gabon Economic Update N1 families’ traditional sources of resilience against programs); and (v) reducing inequality in society and these risks. A long-term increase in prosperity has making growth-enhancing reforms more politically welcomed many to the rising middle-class, but feasible. many others continue to confront deep poverty and inequality and remain disconnected from opportunity The strongest evidence on the relationship between because of a lack of skills, information, or finance. social protection systems and growth is from This lack of access to opportunity affects human improving the functioning of the labor markets and development outcomes and is a source of inequality. thus improving access to productive opportunities, Persistent shortfalls experienced by many in Gabon and for allowing families to invest in human capital. remain in nutrition, education and health (notably Countries around the world are increasingly aware of maternal and child health). these effects, and, therefore, are incorporating them into program design, although successful models are Main benefits of social protection not yet well established. Evidence is more limited in other areas—such as the role of the social protection Social protection and labor systems, programs and policies buffer individuals from shocks and in improving savings, and the early evidence on equip them to improve their livelihoods and create how they can increase entrepreneurial activities by opportunities to build a better life for themselves reducing downside risk. and their families. This is especially important for a country dependent on natural resources. Social protection measures are also increasingly recognized as a vehicle for ensuring social stability While social protection systems and labor policies and implementing social contracts to ensure that and programs are designed for individuals and rights and state obligations are fulfilled and social families, they can also be broadly transformative – cohesion is strengthened. by providing a foundation for inclusive growth and social stability. These policies and programs help Despite their strengths, social protection systems create opportunities essential to save lives, reduce should not be regarded as a panacea. These systems poverty, and promote inclusive growth. will achieve optimal outcomes only if first they function well and second they are complemented by Social protection systems and labor policies the provision of basic social services of an appropriate and programs can be broadly transformative quality. While cash transfers may increase the –by providing a foundation for inclusive demand for such services, it is vitally important that growth and social stability. the Government meets this demand with high quality public service. While social protection systems may A lesser known feature of social protection systems be a vital component in a well-designed program to is that they provide a foundation for inclusive growth, which can have a transformational effect on people’s support low-income households, the program must lives. There is evidence that social protection remain part of a realistic and integrated budget systems support growth outcomes through five strategy. There are many important lessons that pathways: (i) building and protecting human capital; can be gathered from international experience (for (ii) empowering poor individuals to invest or to adopt example from South Africa; Box 4). higher risk-higher return activities; (iii) promoting greater labor market mobility; (iv) acting as stabilizers of aggregate demand or enhancing productive assets and infrastructure (for example, through public works Part I: Recent Economic Developments 19 Box 4: South Africa’s Social Grant System South Africa boasts the largest cash transfer program in Sub-Saharan Africa. It includes several types of means-tested grants targeted to the elderly, poor families with children, foster families, people with disabilities, and war veterans. Roughly 15 million people receive a social grant (about 30 percent of the national population). The child support grant (CSG) reaches about 10 million people, while the old age grant, which applies to poor people over 60 years of age, reaches about 2 million people. According to household survey data, social grants make up over 60 percent of the income of the poorest 20 percent of recipient households, with child grants being the largest contributor. Children who were enrolled in the CSG at birth completed significantly more grades of schooling and achieved higher scores on a math test than children who were enrolled at the age of six. These effects were particularly significant for girls. Enrollment in the CSG reduced the likelihood of illness among children by 9 percentage points. The main effects on adolescents were reduced sexual activity and teen pregnancies and less drug and alcohol use. Source: Woolard, Ingrid and Murray Leibbrandt. (2010) “The Evolution and Impact of Unconditional Cash Transfers in South Africa.” Southern Af¬rica Labour and Development Research Unit, University of Cape Town7. Benchmarking Gabon – How do When Gabon is benchmarked against other countries social outcomes compare? with similar per capita incomes, it stands out a poor performer in terms of human development and particularly in terms of its citizen’s health (Figure 15). Gabon is an upper-middle-income country, Many countries achieve the same outcomes with with life expectancy of 63 years, far below lower-income per capita or higher outcomes with the average for upper-middle- income similar levels of income. countries of 74 years. Health outcomes are also closer to those seen in low-middle- A 2014 World Bank study on health financing in income countries. Among the reasons Gabon helps make sense of the poor performance. It cited for Gabon’s poor health outcomes finds that while the Government has set an ambitious are poverty and limited social protection goal for itself, several challenges exist in meeting programs. This underscores the need for these objectives in the medium term. These include: a functioning social protection system in sustainable financing; improving equity in access and Gabon as a priority. delivery of health services; with a particular focus on  lobal Comparison of Social Outcomes Figure 15: G 7 Summary accredited to: World Bank. 2012a. Managing Risk, Promoting Growth: Developing Systems for Social Protection in Africa—The World Bank’s Africa Social Pro¬tection Strategy, 2012–2022. Washington, D.C.: World Bank 20 GABON ECONOMIC UPDATE N1 Source: World Development Indicators, World Bank and UNDP Human Development Index. primary care, public health program, and quality of 3. Ensuring minimum access to the social services- care; and increasing the population’s coverage under to reduce inequalities in access to public services existing social protection programs. 8 to avoid further marginalization of the GEF. Social Protection in Gabon – 4. Policy targeted economic and social integration Aspirations and current Architecture aiming to ensure better economic / social integration of rural and peri-urban populations (for example quality of housing, mobility and Gabon has stated its intention to introduce connectivity). a modern social protection system, but it still has not yet achieved the objectives set by the Government. The SIHG relies on weak data but considers 95,000 households as GEF; approximately 30 percent of the population. The Aspiration for Gabon’s Social Protection system The SIHG relies on weak data but considers 95,000 households as GEF; approximately 30 percent of the The path of supporting Gabon’s low-income population12. The SIHG further suggests that 55 percent households (GEF) 9 is defined by the Human of GEF live in six departments that are essentially urban. Investment Strategy10 (SIHG), launched in December And that the 17 departments with a poverty rate greater 2013. The strategy has four components: than 50 percent are predominantly rural. 1. Economic safety nets and cash transfers – to support With the SIHG the government has shown its the poor in meeting their dietary, health, educational determination to develop an integrated social minimum needs (involves conditionality). protection system capable of providing economic and social assistance to GEFs, but also help those who have 2. Revenue generating projects (or AGRs)11 – with an the ability to become economically self-sufficient. To objective of helping GEFs to become economically this end, two types of intervention are considered: social self-sufficient. transfers and labor programs for employment. These 8 Saleh, Karima, Bernard F. Couttolenc, and Helene Barroy. Health interventions are complemented by two geographically Financing in the Republic of Gabon. World Bank Studies. Washington, DC. 9 From the French language term: Gabon économiquement faibles. targeted components, one to improve the supply 10 Stratégie d’Investissement Humain du Gabon of social and public services in the 25 departments 11 Activités Génératrices de Revenus (AGR). 12 As referenced in the Stratégie d’Investissement Humain du Gabon. estimated to be below the national average and the Part I: Recent Economic Developments 21 other for better economic integration of remote rural grants for starting income generating activities (IGA) areas and semi-urban areas. are identified as the way to take 10-20 percent of the Taking into account the experience and global trends GEF to become micro-entrepreneurs. In the interests of on social transfers, the SIHG essentially envisages sustainability, this approach would be accompanied by the introduction of conditional cash transfers with support for the development of microfinance. conditionalities based on the use of education and health services (education, medical care). Such transfers would The SIHG quotes financing requirements be granted to GEFs via 7 programs, each targeting a ranging from US$133 to 182 million per year specific vulnerable group. It should be noted that, given (CFA 80 to 110 billion) each year until 2016. the nature of the target group, the transfers would not be conditional in the case of widows, elderly and street The SIHG quotes financing requirements ranging from children and orphans. In terms of employment assistance, US$133 to 182 million per year (CFA 80 to 110 billion) Table 4: Human Investment Strategy Financing Requirement Component Objective Key Components Proposed Annual Financing Range Economic safety nets and Double the income of the 7 conditional aid programs US$ 77 to 94 million plus cash transfers poorest 95,000 GEFs (e.g. to families with investment over US$ 34 to meet their needs and children, single mothers, to 42 million (excluding nutritional care, health the elderly, widows, land to build 15-20 and education the disabled, young reception facilities) people aged 18-25, and the education of street children). Conditionally granted to encourage beneficiaries’ autonomy. Supporting revenue Allow about 10% to 20% Project portfolio in 3 US$ 3 to 5 million generating projects (AGR) of the GEF to become key areas: agriculture, micro-entrepreneurs and livestock and fisheries develop 8,500-11,000 (65% of income-generating projects in the territory in activities), tourism and 5 years crafts (30%), services and small-scale processing (5%). Average project size: CFA 1.5 million. Ensuring minimum Reduce inequalities in Upgrading of the 25 most US$ 34 to 42 million access to the social access to social services precarious departments on services and public services all dimensions considered: between poor areas and health, education, access prosperous areas to water, electricity etc. Requires the deployment of innovative models such as the sharing of services, mobility or social services employee local recruitment Policy targeted to Ensure better economic Projects set-up in rural US$ 17 to 34 million economic and social and social integration of areas. Support to the integration rural pockets of poverty peri-urban poor, via and peri-urban the introduction of low-cost housing and the development of mass transit systems. Source: SIHG. 22 Gabon Economic Update N1 each year until 2016, depending on the extent of the — The Ministry of Health and Social Welfare (MoSPS)14, social protection to be provided. Only broad information responsible for the SIHG. It governs the policy framework is provided on how the funds would be split across the in the sector and regulates active institutions. four components (Table 4). To meet the SIHGs financing requirements, US$ 8.3 to 9.9 million (CFA 5 to 6 billion) — The National Health Insurance and Social Guarantee would be required from the Ministry of Health and Social Fund (CNAMGS)15. It was set up in 2007 to provide Welfare; US$8.3 to 11.6 million (CFA 5 to 7 billion) from compulsory health insurance and social security. The the Ministry of Education and US$ 16.6 to 33.1 million CNAMGS recently absorbed responsibility for tasks (CFA 10 to 20 billion) from the Ministry of Public Works. carried out by the National Social Security Fund (CNSS)16. — The National Social Assistance Fund (FNAS)17. It has The Current Architecture–for Gabon’s Social been operational since October 2013. Protection system — NGOs and religious entities also provide various The SIHG provides recent guidance for social types of assistance to vulnerable groups, but there protection, although Gabon has been working on is limited Government monitoring, regulation, establishing a functional Social Protection system coordination or assessment of their work. since the 1950s13. The current major actors of the social protection system are: It is hard to accurately gauge total Government expenditure on social protection. The SIHG provides recent guidance for social protection, although Gabon has been working on establishing a functional social protection system since the 1950s Table 5: Size of Selected Social Protection Systems Country/ Description Number Coverage (% Annual Ave. Fiscal Beneficiaries population) Household Incidence (million) Benefit (US$) (cost % GDP) South Africa: all social security 15 30% 450 to 2,000 6% grants Ethiopia: productive Safety Net 8 10% 137 1.2% Program Rwanda: Mutuelles de santé 10 91% 235 1.2% Brazil: Bolsa Familia 44 25% 84 to 540 0.5% Mexico: Oportunidades 28 25% Varies by grant 0.3% India: Mahatma Gandhi National 235 20% 0.009% Rural Employment Guarantee Act Gabon: FNAS + CNAMGS 0.83 50% 68 0.6% (CNAMGS only) (CNAMGS only) (CNAMGS + FNAS) Source: World Bank’s Africa Social Protection Strategy 2012-2022 and authors’ calculations. 13 Gabon has social protection legislation and a social insurance funds dating back to 1956. Various revisions followed and various fund structures have been utilized, although many have not proved sustainable and suffered from inadequate financing. For example, the national social guarantee structure (or CNGS), a non-contributory compulsory public insurance fund set-up in 1983 closed in 2007 in account of insufficient funds. Since then new structures have been established, including the CNAMGS, currently responsible for compulsory health insurance. 14 Ministere de la sante, de la prevoyance sociale et de la solidarite nationale. 15 La Caisse Nationale d’Assurance Maladie et de Garantie Sociale (CNAMGS). 16 Caisse Nationale de Sécurité Sociale (CNSS). 17 Le Fond Nationale d’Aide Sociale (FNAS). Part I: Recent Economic Developments 23 Given the complexity of the social protection system of employers and employees, which is active in Gabon, poor data and the level of uncertainty since 2011. associated with the national budget, it is hard to accurately gauge total Government expenditure on 3. The Health Insurance Fund for public officials, social protection. The 2015 budget suggests US$ financed by the social contributions of employers 56.5 million would be spent on economic safety nets and employees and active since 2014. and solidarity transfers (CNAMGS funds) and income generating activities (FNAS funds). Comparison is As of October 2014, 830,118 Gabonese were covered by made between estimates of the Gabonese system the CNAMGS funds (Table 6) and earmarked resources and other countries’ systems (Table 5). If realized, are used to finance the various programs. The impetus this would put estimated annual Government for CNAMGS was to bring various schemes under one expenditure on social protection around 0.6 percent umbrella agency. Nevertheless, the three schemes run of GDP. However, following reduced projections independently from each other, as there is no pooling for oil revenues the 2015 budget has been revised of resources or cross subsidization. CNAMGS has downwards by US$ 83 million relative to 2014 (see earmarked resources for its funding. About 45 percent the Fiscal developments section in Part II) and it is of its resources came from contributions from formal unlikely that this expenditure will be realized in full. sector workers (civil servants and private sector); the Note that this number also excludes general social other half (55 percent) from general and earmarked expenditure (for example on health and education) taxes. The total resources in the three funds was and spending via the GRAINE initiative (that supports approximately US$ 77.9 million (CFA 47 billion) in rural livelihoods). Each of the core parts of the system 2013. In 2013 spending from the funds on health care are explored in turn. reached US$ 16.6 million (CFA 10 billion) for public sector beneficiaries and US$ 13.2 million (CFA 8 billion) CNAMGS for private sector beneficiaries. The CNAMGS is a public welfare institution mandated As of October 2014, 830,118 Gabonese by law, with autonomy for its administrative and were covered by the CNAMGS funds and financial management. Its objectives include earmarked resources are used to finance contributing to improving access to health for all the various programs. Gabonese, regardless of household income. It is primarily a universal health insurance provider As a share of total spending, CNAMGS administrative (including maternity benefits), but it is also mandated expenses are reported as significant. In 2012 per with providing various allowances to vulnerable capita spending for registered beneficiaries in the people. To achieve its mandate there are three CNAMGS program was approximately US$ 65 (CFA separate and distinct funds: 37,000). That same year, operating costs represented 40 percent of CNAMGS’s total health spending per 1. The Social Guarantee Fund for low income capita. households (or GEF), set up in 2009. This fund is financed by a mandatory health insurance fee FNAS (ROAM18), a 10 percent levy on the turnover of mobile phone companies, a levy of 1.5 percent The FNAS is a public institution with jurisdiction over on money transfers abroad and a national budget the collection, centralization and the allocation of allocation (mandated in the Finance Act). social benefits. Until recently, social aid (in cash and in kind, including fee exemptions) was distributed once 2. The Health Insurance Fund for private sector a year to some 8,000 beneficiaries, unconditionally. employees, financed by the social contributions The intention is that FNAS will improve the governance 18 La Redevance Obligatoire à l’Assurance Maladie (ROAM). 24 Gabon Economic Update N1 Table 6: Registration in CNAMGS Funds Fund Person Insured Legal Children Total Dependents Social Guarantee Fund/ GEF 259,478 12,622 241,801 513,901 Health Insurance Fund- private 81,940 2,444 30,683 115,067 Health Insurance Fund -public 84,862 4,843 111,445 201,150 Total 426,280 19,909 383,929 830,118 Mexico: Oportunidades Percentage of population 49.6% Source: CNAMGS (as of October 2014) of social aid and to help vulnerable people become included 22,000 workers and their dependents self-reliant. Its mandate is to centralize and distribute (65,000 people); about 7 percent of the population. social aid, the latter by supporting the income- generating activities of economically weak households. FNAS initiatives are complemented with a labor market program implemented by the National The FNAS is a public institution with Employment Office (ONE). This program is focused jurisdiction over the collection, centralization on salaried employment and is active in five and the allocation of social benefits. provinces out of nine, with plans to cover the whole country. ONE manages a Fund that targets first time Since its establishment in 2012 the fund has job-seekers (generally young people with diplomas) leveraged in excess of US$ 2.39 million (CFA 1.44 and laid-off workers coming from the private sector. Billion) to support more than 16,000 low-income The former are helped by subsidizing three-month beneficiaries located throughout the country. Social internships, essentially with private companies; in assistance is granted by FNAS to any national fulfilling 2013 the FIR supported 649 interns out of 5,537 social eligibility requirements. Support is provided candidates; 64 percent of the interns were hired at in the form of micro-credit (up to US$8,289 or CFA the end of the internship. The latter are given the 5 million) and financial services and to support opportunity to either do a paid internship or to attend activities that generate revenue (AGR) in areas with 19 a training provided by specialized private entities. high potential for employment, such as agriculture, Services to dismissed workers are only available if livestock, fishing, tourism, crafts, and services. FNAS the company laid off at least 10 people (because in expects to finance 1,500-2,000 group projects (e.g., this instance the company has to prepare a social implemented by cooperatives) a year with subsidies plan and make an assessment of the laid-off workers’ equal to 80 percent of needed capital. competences). Since establishment the FNAS has Social Protection in Gabon–What are leveraged in excess of US$ 2.39 million the main challenges? (CFA 1.44 Billion) to support more than 16,000 low-income beneficiaries. Gabon’s quest to develop social protection Private insurance systems have also been active in systems must tackle five major challenges Gabon, financed by employers, but coverage has (i) a lack of data; (ii) coordination of the remained limited to just workers in the formal sector system; (iii) ensuring fiscal sustainability; (iv) and their dependents. Estimates of coverage in 2005 effective targeting; and (v) lesson learning 18 La Redevance Obligatoire à l’Assurance Maladie (ROAM). Part I: Recent Economic Developments 25 The approach to social assistance remains in social insurance or labor market program schemes, transition, with the Government working hard to put but there is a lack of an overarching coordinating in place an approach that relies on a clear normative mechanism for social protection stakeholders. framework, and modern tools. Overall, the key elements of a safety net system are not yet in place. Some attempt has been made to Major challenges for building the systems (discussed streamline the social assistance programs, in turn below) are fivefold. but coordination remains limited. A lack of data The SIHG provides the basis for a coordination process that can act simultaneously on two fronts. When it comes to measuring poverty and inequality First, by the deepening of diagnostic tests to continue in Gabon there is distinct lack of up-to-date statistics. planning on a more solid foundation (for example The last accurate measure of poverty took place in by providing greater detail and including a costed 2005 and a new survey was planned to take place action plan). And second, through the design and in 2014, but this was delayed and results are not production of various tools needed to implement the expected until 2016. recommended actions. The data guiding the SIHG is incomplete and dated, The global trend is to avoid numerous fragmented which makes targeting the GEF and designing social assistance programs and instead opt for the social protection system very difficult. Many a systemic approach, which avoids duplication, assumptions have been made, even on the number promote coordination with other sectors (especially of GEF and the threshold for defining a GEF (set at education and health) and makes shared use of the US$133 or CFAF 80,000 without any clearly stated administrative systems. relationship to the cost of the food basket and absolute poverty line). Ensuring Fiscal sustainability A more precise estimate of the poverty line and the Functional social protection systems require a number of GEF is urgently needed. This will help sustained, long-term commitment. Once programs in establishing the amount of transfers required have been established, the Government will be (not too high to avoid discouraging empowerment committed to allocating public resources to this efforts, but enough to make a difference) and to program for the long term as they are difficult to correctly sequence interventions. Improved data abolish, for both political and economic reasons. would also help the government understand the Therefore, when funding social protection systems, specific needs of different vulnerable groups, the Government must carefully analyze the fiscal the factors that increase their vulnerability or implications and sustainability of the programs, interventions that could increase their resilience. especially given the revenue challenges being faced This fits with a general and critical need for in 2015 (described in Part 1: Recent Economic improved statistics in Gabon. Until there is good Developments). Good strategies are realistic in terms data, programs cannot be well targeted, and until of what can be implemented, in the time frame of the programs can be well targeted public expenditure strategy and in terms of available resources. will not be efficient and effective. Furthermore, social protection systems must be Coordination of the system provided with predictable and smooth funding each and every year to be effective. Volatile oil and non-oil Some attempts have been made to streamline the social revenue inflows lead to volatile public expenditure assistance programs, but coordination remains limited. (especially public investment). Some programs are integrated into social assistance, 26 Gabon Economic Update N1 The SIHG that guides the development of the social These settings are typically economic, but can be protection system was ambitious even for a national geographical and categorical as well. The use of an budget based on US$80 per barrel (as it was in 2014 identification system would deter fraud and could and initially for 2015). There is also competition for be based on biometric data. Equally, conditionality additional resources from growing public sector has meaning only if they are checked in a systematic wages and salaries and increased public investment and reliable manner, hence the need to also set up as per the infrastructure strategy. The revised budget a system for collecting and transmitting information for 2015 projects revenue based on US$40 per barrel that will require the collaboration with medical and and aims to maintain high levels of public investment, educational structures. Only then might better making unlikely the possibility of substantial savings targeting be achieved. for social programs in 2015 and 2016. A good example of weak targeting is evident The SIHG that guides the development of in the Government’s provision of scholarships the social protection system was ambitious (approximately US$100 million per year) for students even for a national budget based on to study both within and outside of the country. Since US$80 per barrel. beneficiaries are at the secondary and tertiary level and no particular effort is made to identify candidates Efforts are needed to present a realistic budget with low means, it is likely that scholarships go proposal for developing social protection systems, disproportionately to non-poor students. based on available resources and other competing strategies (e.g., infrastructure development) that also Lesson Learning call for additional resources. There is currently an absence of effective monitoring Preparation of the 2016 budget will most likely and evaluation (M&E) of the social protection require the Government to make tough choices with programs. Effective M&E is required to track limited revenue. Hard choices will need to be made progress, measure results, detect potential problems between allocating discretionary resources to public and challenges in a timely fashion, and ensure the investment to alleviate infrastructure bottlenecks on systems are iteratively developed based on lessons the one hand, and increasing financial commitment learnt. An Information Management System (IMS) to social protection system expenditures on the other. would help in this regard as it would computerize various program components and automatically link Targeting and beneficiary identification them to facilitate their administration and monitoring. is best applied systematically to ensure An IMS would require specific applications consistent treatment. including: (i) the targeting system and registration of beneficiaries, (ii) the single register of programs, Effective Targeting (iii) the creation of pay-slips, (iv) the reconciliation of payments, (v) a complaints management system, Targeting is often categorical (e.g. adolescent and (vi) a module for the development of monitoring mothers) or subjective (i.e. not guided by data and and evaluation reports. In terms of evaluation, clear objective criteria) and leakages appear to be interventions need to be designed with impact common. This is complicated by the data limitations assessment techniques in mind, including conducting mentioned above, and a lack of a comprehensive baseline surveys before launching programs, so that beneficiary registry (though there are plans to the quality of the interventions can be assessed and establish one ).20 improved upon. Targeting and beneficiary identification is best applied 20 CNAMGS has been asked to carry out a ‘census’ to update the registry systematically to ensure consistent treatment. of economically weak families. Part I: Recent Economic Developments 27 There is currently an absence of effective  ormulate a Deployment Plan: to complement (c) F monitoring and evaluation of the social the SIHG the Government should formulate a protection programs. clear, realistic and time bound plan to support implementation of the strategy. This should utilize findings from the institutional audit Moving Forward–What should be and surveys discussed above and help shift addressed first? the approach away from programs and will represent an investment in the building blocks of a modern social protection system. To meet the challenges we recommend focus on the following actions in 2015 and Simulate Roll-Out Options: There are numerous (d)  2016: (a) Deepen Analysis of Poverty and deployment options to consider for the different Vulnerability; (b) Perform an Institutional social protection instruments. Simulations will Audit; (c) Formulate a Deployment Plan; help understand, analyze and rank the different and (d) Simulate Roll-Out Options. options in terms of their: (i) relevance to different vulnerability profiles, (ii) expected impact on Deepen Analysis of Poverty and Vulnerability: (a)  poverty reduction and impact on human capital, This should be a key priority for the Government. (iii) cost measured as a percentage of GDP, A number of parameters of the SIHG need to (iv) cost-effectiveness analysis based on the cost be reviewed following the provision of accurate of lifting a given number of people out of poverty; and timely data. To obtain this information, the and (v) technical and administrative viability, World Bank can assist with two key studies. by taking into account existing capacities and First, a more accurate estimate of the absolute the technical difficulties of the implementation poverty line, i.e. the minimum expenditure to associated with each option. ensure acceptable living conditions. Secondly, and if there is further delay with the household survey, a participatory poverty assessment that would involve more qualitative analysis using focus groups and interviews with key stakeholders at the central, provincial and local level. This methodology allows understanding the multidimensional nature of vulnerability and World Bank (2012), ‘Resilience, Equity and survival strategies that households’ employ. Opportunity’, Washington D.C. Perform an Institutional Audit: this should (b)  World Bank. 2012a. Managing Risk, Promoting assess the human, operational and financial Growth: Developing Systems for Social Protection in capacities of public institutions engaged in the Africa—The World Bank’s Africa Social Pro¬tection social protection system. The audit would help Strategy, 2012–2022. Washington, D.C.: World Bank. guide future technical assistance aimed at improving institutional set-up and functions. 28 Gabon Economic Update N1 Data Annex Table A1: Average monthly prices (in CFAF) of the most consumed products in Libreville 2009 2010 2011 2012 2013 2014 Produits Ordinary rice grains sold in bulk 525 584 516 550 573 588 Wheat flour sold in bulk 1041 869 996 1294 949 1249 French bread baguette 643 727 806 758 790 727 Fresh beef stew 3917 3908 4024 4000 4367 4500 Cotis de porc 1641 1608 1808 1853 1845 5,3 Frozen turkey wings 1421 1372 1610 1759 1342 1522 Chicken thighs frozen 1253 1315 1326 1377 1236 1302 Fresh porcupine 4408 4006 5561 7926 11318 7867 Fresh “Capitaine“ (Fish) 2700 3106 3094 3433 3100 4000 Fresh “Bar“ (Fish) 2375 2967 3065 3375 3050 3500 mackerel smoke 2201 2646 2595 2851 2576 2917 Peanut oil 2553 2006 2340 2630 2630 2320 Tomato (fruit) 958 937 797 1230 835 839 Onion imports 880 873 844 885 888 1117 Sheets of folong 480 676 576 533 1086 680 Sheets of Sorrel 696 846 899 1416 785 987 Taros 450 432 500 652 478 539 Ripe banana plantain 547 551 599 580 759 536 Cassava sticks like fang 340 464 549 663 555 660 Cassava sticks like Obamba 717 852 787 785 738 823 Domestic gas bottle of 12.5kg 6000 6000 6450 5450 5450 5450 Gasoline 535 535 535 535 535 535 Diesel 450 470 470 470 470 470 Source: Direction Generale de la Statistique Data Annex 29 30 Gabon Economic Update N1 Bibliography Ministère de L’Economie, de la Promotion des Saleh, Karima, Bernard F. Couttolenc, and Helene Investissements et de la Prospective, Direction Barroy. Health Financing in the Republic of Gabon. Générale de l’Economie et de la Politique fiscale, Note World Bank Studies. Washington, DC. de conjoncture à fin Juin 2015, Août 2015. Stratégie d’Investissement Humain du Gabon. Fonds Monétaire International, Rapport du FMI No.15/47, Gabon, Consultations au titre de l’article IV. World Bank’s Africa Social Protection Strategy 2012-2022. World bank, Growth and Employment report, Report No. 82538-GA, Gabonese Republic. Report on Growth and Employment Paving the way toward inclusive growth, June 2013. Database Ministère de L’Economie, de la Promotion des Ministry of Finances Investissements et de la Prospective, Direction Générale de l’Economie et de la Politique fiscale, Note Caisse Nationale d’Assurance Maladie et de de conjoncture à fin décembre 2014, Février 2015. Garantie Sociale du Gabon World Development Indicators, http:// data.worldbank.org/data-catalog/ world-development-indicators World Bank, databank.worldbank.org. UNDP Human Development Index. Bibliography 31 Libreville Business Square LBS (ex GML) 3ème Etage B.P. 4027 Libreville, Gabon Phones : (+241) 01.74.36.05/01.72.37.85 (+241) 04.08.56.13/01.20.99.35 32 Gabon Economic Update N1