The collapse of oil prices has plunged this small—and potentially wealthy—Central African state into a prolonged financial crisis and Bongo’s regime has been unable to resolve it. Gabon’s government had juste illegally seized French environmental services group Veolia’s SEEG unit and intends to terminate its contract to distribute water and electricity in the country: the latest in a larger, overarching economic and political crisis.
Gabon’s Economy: A Downward Spiral
Gabonese President Ali Bongo has known of Gabon’s suffering from a prolonged economic crisis since 2014, when a steep drop in oil prices hit the oil industry worldwide. At the time, he told French journalists: “The shock of falling oil prices is tough for Gabon”, speaking of the OPEC member state; a major oil-producing country in the Gulf of Guinea.
Production in Gabon is in decline. The recovery is slow and may not come at all. In the past five years, the oil sector accounted for 80 percent of exports, 45 percent of gross domestic product, and 60 percent of budget revenue, on average according to World Bank data.
With revenues declining and the population feeling the squeeze, Ali Bongo faces the strongest opposition in years, plus some social upheaval, including a spate of strikes in the private sector and public services. Teachers, magistrates and customs officials all demand an improvement of their working conditions and the payment of several months of wage arrears.
The budget was cut by over 5 percent in 2017 because of declining oil production and prices. Income per capita rocketed from $3,090 in 2000 to $10,410 in 2014 as oil prices shot higher. But as oil prices slid, it fell in 2015, for the first time in 15 years.
“Depleting oil revenues are pushing Gabon’s economy towards the cliff edge” said Maja Bovcon, senior Africa analyst at global risk firm Verisk Maplecroft.
Scene of daily life along a main street of Libreville, the capital and largest city of Gabon.
As a result, and for the first time in Gabonese history, on June 19, 2017, the International Monetary Fund (IMF) approved a three-year extended arrangement (from 2017 to 2020) under the Extended Fund Facility (EFF) for Gabon for $642 million.
“The collapse of fiscal revenues from oil and manganese, which account for half of the government’s revenues, has caused significant difficulties in the public treasury,” says Yves Picard, director of the French Development Agency (AFD) in Gabon. “There was nothing left in the public purse, and the strikes multiplied in public services. Investors do not come anymore. The African Development Bank (AfDB) has provided 200 million euros and is expected to contribute 300 million by the end of the year, but the agreement with the IMF was essential. This agreement gives it three years of breathing space to wait for a rise in oil prices and not to sharply reduce deficits.”
A bad business climate, on top of widespread political instability
Gabon is also still reeling from a disputed election in August/September 2016 that turned violent in the coastal capital Libreville, harnessing anger among poor people, who say oil revenues never trickle below the Gabonese elite. Since he was first controversially elected in 2009, Ali Bongo, whose family has ruled the country of nearly 2 million since 1967, has said he will diversify the economy beyond oil into industry, mining, forestry and agriculture. He aimed to rein in spending and increase social programs, though it is unclear how much progress has been made so far.
The last Gabonese presidential election was marred by numerous inconsistencies, arrests, human rights violations and post-election violence. Bongo was initially handed victory, after surprising results in the eastern Haut-Ogooue province, but opposition leader Jean Ping called the election a sham, declared himself president and demanded a recount. The Haut-Ogooue is the native province of the Bongo family where initial results showed Ali Bongo won 95 percent of the votes on a 99.9 percent turnout.The case went to the Constitutional Court (chaired by Marie-Madeleine Mborantsuo, a close relative of the presidential family) which ruled in Bongo’s favor.
Protesters in Libreville against Gabonese President Ali Bongo, after the 2016 presidential election.
Today, the business climate in Gabon is in particularly bad shape: endemic corruption, numerous strike actions by employees of both the Government and the private sector, unpaid wages in all sectors, an increasing number of overdue invoices, and so on.
“Gabon does not have a good reputation for doing business, but with the oil crisis, the situation has worsened: the Gabonese State shows the highest share of long overdue receivables, pushing companies like Sodexo or Veolia to engage in a power struggle, or leave the country” confides a senior executive working for a major bank in Central Africa.
Due to this atmosphere, the list of foreign firms leaving Gabon is getting longer: BNP Paribas, Bouygues, Sodexo, Shell, Panalpina, Sinopec…
The French credit insurance company Euler Hermes is worried about the consequences of “the current political turmoil in Gabon (…) Political uncertainty is not appreciated by investors, and negatively affects their confidence. Without these investors, it will be difficult for Gabon to finance the diversification of the national economy. Moreover, Foreign Direct Investment (FDI) has already decreased by 38% in 2015”.
The illegal expropriation of the French environmental services group Veolia’s SEEG unit sends a very bad message to international investors
The conflict unleashed by the Bongo’s regime against Veolia’s SEEG unit is the most recent episode of the economic uncertainty in Gabon.
“The liquidity crisis forces the Gabonese Central Bank to put in place capital controls without saying so; businesses have a hard time getting paid by the state and getting foreign currency” emphasises Stéphane Colliac, senior economist Africa at Euler Hermes.
The Gabonese State has debts due or payable to Veolia-SEEG: 62 million euros, according to the information supplied by Helman le Pas de Sécheval, secretary general of Veolia, to the Agence France Presse (AFP). At the end of 2016, Veolia-SEEG already claimed 100 million euros in arrears.
Ali Bongo inaugurates new hydraulic facilities built by Veolia-SEEG in Libreville, in 2016.
Veolia, which provides drinking water to 100 million people across the world, has been operating in Gabon since 1997 via the Société d’eau et d’électricité du Gabon (SEEG) which is a co-ownership (Veolia owns 51 percent, the Gabonese State, and others, own 49 percent).
On Friday 16th, February, Gabon’s government intended to terminate this cooperation through the Water and Energy Minister, Patrick Eyogo Edzang: “In the interest of preserving continuity and quality in the public provision of drinking water and electric energy, the Gabonese state has proceeded exceptionally to the temporary requisition of the company”.
Veolia-SEEG said it “regrets the sudden decision taken… to break the concession’s convention and the brutal use of Gabonese forces who requisitioned the enterprise”.
Several specialists in Gabon’s economy are worried about by the Government’s decision: “The concerns are legitimate. The state took a significant risk by cancelling Veolia’s contract without a new partner. In addition, the brutal method employed may seem like a foil to some investors who might have been interested. Such decisions impact the business environment and challenge the ability of the Gabonese government to meet its contractual commitments” said Mays Mouissi, a well-recognized economist from Gabon.
The brutal breach of contract with Veolia is “a very bad signal sent to potential foreign investors,” regrets Mr. Ntoutoume Ayi, an economist close to Jean Ping, the main opponent of President Ali Bongo.
Helman le Pas de Sécheval, secretary general of Veolia, shares this view: “Veolia is taking all necessary measures to enforce the law (…) This illegal expropriation and inconsistency of the Gabonese government will hurt not only Gabon but also Africa as a whole. The water and energy sectors demand vision, long-term investments and stability. This is what international investors expect”.
Gabon needs to pay attention to its international reputation and business climate. In an extreme case, foreign firms could refrain from investing, while domestic ones could flee the country for a more peaceful environment.