101797 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$500 million in June 2015 with a and in 2014 which had led to an overall inflation maturity of ten years at a rate of 6.95 percent. of 4.8 percent, measured by the Consumer Price Index (CPI), 1.5 percentage points above the • In the first half of 2015, the balance of trade recorded maximum set as convergence criteria for the a surplus of CFAF 710.3 billion, 45.9 percent down CEMAC zone has slowed down during the first compared to the same period in 2014 due to further semester of 2015. The harmonized price index for declines of the international oil price. The external consumption of households (HIPC) stagnated at balance is estimated to switch to a deficit of 3.2 end-June 2015 against an increase of 6.5 percent percent in 2015 from a surplus of 12.1 in 2014. over the same period in 2014. Part II: Macro Poverty Outlook • Data from the Ministry of economy shows that the slowdown in growth did not affect the formal labor • In spite of expected lower oil prices, economic market. Formal private employment level would prospects remain positive over the medium have increased by 4.4%, mainly due to the creation term. The non-oil economy (mainly manganese, of 2,100 new jobs by the Singaporean multinational wood-processing, agribusiness and services) will 1. The PSGE aims to propel the country to emerging market status by 2025. Key Messages 1 continue to be the major driver of growth in the Part III: Building Social Protection Systems forthcoming years. GDP growth is projected to reach 5.2 percent on average in 2016-2017 and • Despite mineral wealth and a GDP per capita given the decline in oil prices, inflation is expected of US$ 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 and 20.2 percent respectively in 2015 and 2017. focus on the following Since we are in December 2015, I suggest to remove 2015: (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 percent in 2015. As in 2014, the growth of services. The 2015 budget had been revised in in 2015 is driven by the service sector, the course of 2015 to take into account the context which includes Government consumption of declining oil prices. These developments allow and investment. Global oil prices have estimating a continued slowdown in GDP growth from plummeted, after three years of average 4.3 percent in 2014 to 4.1 percent in 2015. prices above US$100 per barrel, constituting a shock to the economy. At end of June 2015, construction and public works output recorded a contraction of 10 percent that led A return to a US$100 barrel is not expected over to the decline of related activities. The production of the medium-term due to the underlying structural wood industries also recorded a decline of 4.3 percent changes in supply as well as weak global demand resulting mainly from lower demand from Gabon’s from major oil importers, such as China (Figure 1). trade partners. The economy remains dependent on oil production, although non-oil natural resources (principally Negative growth in construction, public works manganese and timber) also contributed to growth. and wood processing were offset by a better than Part I: Recent Economic Developments 3 expected extractives industries production and of public works projects from 2010, in the context of continued expansion of services. Oil and manganese the implementation of Gabon’s strategic plan, ‘Plan recorded increases of 6.6 and 19 percent respectively Stratégique Gabon Emergent’ (PSGE)2. at the end of the first half of 2015. Trade expanded by 6 percent, and the rail transport sector grew by 20 The structure of the Gabonese economy in 2014 percent due to improvements of mining activities. (figure 2) reveals a strong dominance of services which account for 57.8 percent of real GDP, followed by oil Lower economic growth in 2014 followed four industry (20.6 per cent), other industries (15.4 per previous years of strong growth averaging 6.1 percent. cent) and agriculture (6.3 per cent). However, services High global oil prices and a better mobilization of remain indirectly dependent on the oil sector through non-oil revenues helped finance the implementation the application of the State. Figure 1: Global Oil Prices (Brent Crude, monthly US$ 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 Following lower oil revenues, from reduced prices and contributing 3.5 percentage points (Figure 3). The production, and lower non-oil revenue, the Government expansion of the sector started in 2012 with the reduced public expenditure from 26.7 percent of GDP increase of mobile phone companies. In 2014, they in 2013 to 23.6 percent in 2014. Despite this, both increased their number of subscribers by 11 percent Government ‘wages and salaries’ and ‘goods and following network improvements. An expansion salaries’ increased leaving public investment to bear of transport services, by 8.3 percent in 2014, also much of the brunt of the expenditure cuts resulting in made a key contribution to the sector’s growth. only half of planned public investment being realized. The air services industry recorded the arrival of In 2014 public investment declined by 35 percent two new companies, Tropical Air Gabon and Allied dampening the expansion of output. Prior estimates of 2014 growth were initially around 6 percent and Limited, which increased the number of passengers the reduction in public investment led to the loss of by 3 percent. Also in the sector, business services 2 percentage points of growth. (Further details on continued to benefit from the rising demand in revenue and expenditure are provided in the Fiscal management, accounting and audit advisory Developments section). services. The sector’s contribution would have been higher if the rail transport activity was not impaired Although declining slightly, the services sector by technical issues that led to a 6.5 percent decline in remained an important driver of growth in 2014, freight carried by the national railways operator. 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 The contribution of non-extractives and wood of GDP growth in 2014, despite a fall in prices industries (manufacturing, construction, electricity, in the second half of the year. Although still water, and refining) essentially domestic market representing a large share of industrial production oriented and therefore limited by the size of the (Figure 4), oil production has declined since 2010 economy, significantly decreased following the fall of (Figure 5) following the ageing profile of key oil fields, construction and public works activities in relation to and further disruption in December 2014 following a reduction of public and private investments. strike organized by the national union for oil sector employees (ONEP). (Further information on Gabon’s oil industry is provided in Box 1.). 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 0.6 percent to 107,644 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). 4.8 percent, measured by the Consumer Price Index (CPI) (Figure 9). This rate is 1.5 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 4.8 percent, Libreville where the deficit is estimated to be around 1.5 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 (HIPC) 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 (HIPC) 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. In 2014, Total Government’s revenue declined Sources: Gabon CPI significantly to 26.1 percent of GDP compared to 30.2 per cent in 2013. Consequently, total expenditure were reduced by 26.7 per cent of GDP in 2013 to 23.6 Monetary developments in 2014 were characterized percent of GDP in 2014. Despite the fall of revenue, by a deceleration of credit provided to the economy a budgetary surplus (commitments basis) was which reached only 15 percent of GDP, compared to recorded. However, the Gabonese authorities have 23.6 percent of GDP in 2013, in part as the result of also had to rely on accumulation payments and VAT slower growth in 2014. arrears to cope with the sharp decline in oil revenues. A decline in oil revenue (4 percent of GDP) and non-oil Fiscal developments – Reduced revenue (0.1 percent of GDP) negatively affected the Revenue and Expenditure fiscal accounts in 2014 (Table 2). The decline in oil revenues resulted from both reduced global prices and In response to declining oil prices, the Government production. Despite the global oil price shock, non-oil adjusted the initial 2015 budget and revised the revenue revenues fell by greater extent in 2014. This was on assumptions. Oil revenue assumptions were reduced account of increased customs and tax exemptions following a lower estimated oil price (falling from US$80 and a strike by the customs and tax departments a barrel in the initial budget to US$40 at the point of after the supresssion of special allowances previously revision). Consequently, projected oil revenues are now allocated to financial administration officals. Recent 42 percent lower than in the 2015 Initial Budget Law. As increases to customs and tax exemptions, closely result, the overall fiscal balance for 2015 is projected linked to the oil industry and public investment, to record a deficit (3.3 percent of GDP) for the first resulted in revenue collection following short of its time since 1998. Last year’s balance was a surplus of potential. A World Bank study in 20134 estimated that 2.5 percent of GDP. To cope with the financing gap, tax exemptions are equal to half of potential customs the Government successfully issued a Eurobond of revenue and a quarter of potential tax revenue. US$500 million in June 2015 with a maturity of ten years at a rate of 6.95 percent. It also took fiscal adjustment Despite the reduction in total expenditure measures to adapt to a lower price environment, in 2014, Government wages and salaries including a 21 percent reduction in goods and services, increased from 6.5 percent of GDP to 7.6 the creation of a stabilization fund which aims at helping percent. the Government maintain necessary public spending even in times of low oil prices. Lower revenue mobilization led to declining total expenditure, which fell from 26.7 percent of GDP in The stabilization fund will receive an annually-fixed 2013 to 23.6 percent in 2014. The largest reduction share of oil and mining revenues, with the objective of was observed in public investment that fell sharply reaching US$500 million over the next four years. The 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. budgeted revenue; and (iii) 25 percent of the proceeds of Tax Incentives in Gabon’, Libreville. 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 In 2014 the public debt reached 29.5 at providing Gabon with the requisite infrastructure percent of GDP of which 27.5 percent is for socio-economic development and diversification of the economy. The strategy comprises 21 major external. projects, with the National Agency for Major Works In 2014 the public debt reached 29.5 percent of GDP, (ANGT) responsible for implementation (Box 2). of which 27.5 percent is external. The level of public debt remains below the CEMAC ceiling of 60 percent Despite the reduction in total expenditure in 2014, 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) 2013 Eurobonds carry an interest rate of 6.3 percent, and new recruitments of civil servants which went lower than the 8.2 percent of the 2007 Eurobond5. from 57,402 in 2012 to 86,555 in 2014. Overall Total public sector staff (Permanent, non-permanent staff 5 The 2007 Eurobond proceeds ($1 billion) were used to buy back at and “staff of local collectivities”) increased by 50 % a discount of 15 percent the country’s outstanding debt to Paris Club creditors. from 72,913 in 2012 to 109,050 in 2014. 10 Gabon Economic Update N1 Figure 10: Public investment (US$ 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 products represent more than 90 percent of Gabon’s exports. balance 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. in 2013), suggesting weak integration of the CEMAC Exports fell by 10.3 percent in 2014, economies. following a downturn in the sales of oil Business Environment – High Cost and manganese. of Doing Business Imports decreased by 5.1 percent over the same The poor quality of Gabon’s business period, following a 16 percent reduction in goods climate stands as a major constraint to the linked to the construction sector (mainly tools, non-oil private sector and diversification machinery, and mechanical appliances) (Figure 13). of the economy. The country ranked 162th Imports of used vehicles also declined following (out of 189 countries) in the World Bank’s the Government’s measures to prohibit the sale of 2016 Doing Business survey. vehicles older than three years. Imports of final goods decreased by 3.7 percent, due to the improvement Gabon is among the 27 economies worldwide where of the supply of locally produced food livestock, the business climate is the most challenging. Specific agriculture and fishing). Furthermore, imports of challenges include: intermediate consumption products increased by 8.2 percent. • Limited financial intermediation. Lending to the private sector is equivalent to just 15 percent of GDP, In 2014 China became Gabon’s major well below the average for emerging-market peers. trading partner, with a trade volume estimated at US$ 1.3 billion • Low flexibility of the labor market. While there is relative ease in hiring, there is rigidity in the number In 2014 China became Gabon’s major trading partner, of hours worked. with a trade volume estimated at US$ 1.3 billion (up from US$ 0.91 billion in 2013), followed by France • Registering property is cumbersome and takes a (US$ 0.90 billion) and the United States US$ 0.69 very long time. Gabon is in 173 place as it requires billion). Providing 25 percent of Gabon’s imports, six procedures, 103 days and costs 10.5 percent of France remains Gabon’s largest supplier, followed property value. by Belgium (15 percent), China (9.0 percent), and the United States (6.4 percent). Conversely trade • Application of the legal framework for securing with the CEMAC region slowed in 2014, with exports property rights and contracts is hampered by time destined to other CEMAC countries accounting for consuming (38 procedures) and costly procedures only 1 percent of the total (compared to 2.1 percent (equal to 34.3 percent of the claim). 12 Gabon Economic Update N1 Part II: Macro Poverty Outlook Macro Poverty Projections – decline in oil prices, inflation is expected to remain on Positive Outlook average at 2.6 percent in 2016-2017. The fall in world prices led to slower growth Construction and public works are expected to in 2014 and 2015. However, in spite rebound, growing on average by 8 percent over of expected lower oil prices, economic 2015-2017, in the context of the accelerated pace of prospects remain positive over the medium the Africa Cup of Nations that will be hosted by Gabon term. GDP growth is projected to reach in 2017. 5.2 percent on average in 2016-2017 and given the decline in oil prices and inflation Growth in the non-oil sector is also expected to be is expected to remain on average at 2.6 bolstered by expansion of the wood processing sector percent in 2016-2017. where the Government and the private sector has constructed 12 new factories over the past six years. The non-oil economy (mainly manganese, Similarly, manganese production is projected to wood-processing, agribusiness and services) increase by 9.5 percent in 2015, and on average by will continue to be the major driver of growth in 6.1 percent over the period 2015-2019, following the forthcoming years. The Moanda-Franceville exploitation of deposits near Franceville (by JMG metallurgic cluster, which recently star ted Cement), and producers. Stronger growth in the the production, and public partnerships with mining sector and wood processing will likely impact Singapore-based OLAM and Mauritius-based favorably on the transport sector; since 90 percent of Ireland Blyth Limited (IBL), are expected to boost transport activity relates to these industries. palm oil, rubber and the fishery sector value chain, respectively. GDP growth is projected to reach Ef for ts are also under way to suppor t the 5.2 per-cent on average in 2016-2017 and given the agriculture sector via the implementation of a Part II: Macro Poverty Outlook 13 Table 3: Macro Poverty Outlook (Annual % Change) 2013 2014 2015p 2016p 2017p GDP, at constant market prices 5.6 4.3 4.1 5.1 5.3 Private Consumption 8.2 5.5 2.1 4.2 4.5 Government Consumption 11.8 1.6 -4.9 3.5 0.5 Gross Fixed Capital Investment 7.0 -5.0 -5.5 12.5 3.5 Change in Inventories, % contrib 0,3 0,3 0,3 0,3 0,3 Exports, Goods and Services -0.4 -0.6 0.0 4.2 5,3 Imports, Goods and Services 2.5 -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 (Household Consumption 1.7 -18.9 3.0 0.5 Deflator) 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 -3.3 2.5 -0.6 Poverty rate ($3.1 a day, PPA terms) 23.2 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. national agricultural investment and food security Poverty Eradication Projections – and nutritional plan and the GRAINE program (la Slight Reduction Only Gabonaise des réalisations agricoles et des initiatives des nationaux engagés) whose objective is to increase There are no accurate and up-to-date Gabon’s agriculture production from 5% to 20% in poverty numbers for Gabon due to a lack 2020. of survey data. However, estimates can be made that suggest that poverty still affects Lower oil revenues will likely lead to further 22.7 percent of the population. Improved deterioration of the fiscal balance in 2015. data is required to make an accurate assessment and enhancing the quality and In spite of lower oil revenues the fiscal deficit is coverage of Government statistics should be projected to decline from 3.3 per-cent of GDP in a priority in 2015. 2015 to 2.5 percent of GDP in 2016 and 0.6 percent of GDP in 2017. This is expected on the account of The World Bank’s Statistical Capacity Indicator the enhancement of revenue collection capacities, (SCI) scores the Gabonese systems across the reduction of discretionary tax exemptions and three categories (methodology, source data and the adoption of a budgeting methodology based on periodicity)6. In 2014 Gabon ranked below the average budget spending targets. 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 Positive economic prospects underlie a projected have sufficient fiscal buffers to endure a significant continued decline in poverty reduction by an average fall in oil revenue. A further decline in oil prices would of 0.8 percentage points per year during the next two certainly reduce available resources for financing the years. Thus, the moderate poverty rate is projected to implementation of structural projects and the wider reach 22 and 20.2 per-cent respectively in 2015 and PSGE. 2017 (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. If oil prices rise once again then there is an Figure 14: Poverty Incidence (%), 2005-2017 opportunity to ensure sizeable primary deficits are avoided and a more sustainable fiscal framework is pursued in 2015 and 2016. While higher oil prices of around US$60 to US$ 70 a barrel might be possible, 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 2015 might come reduced appetite for manganese. On the domestic front, relaxed fiscal policy and weak Source: World Bank Estimates. public investment management capacity are the main risks facing Gabon, plus potential economic There are upside and downside risks uncertainty from the 2016 elections. For the coming regarding oil price as projections from years Gabon will remain reliant on crude oil for growth the global oil market face significant and revenues. uncertainty. If growth falls below the medium-term projections then the If growth falls below the medium-term projections expected decrease in poverty will likely not then the expected decrease in poverty will likely not materialize unless a more effective social materialize. Structural reforms are needed to mitigate protection system can be developed. lower economic growth, accelerate improvements of the business climate to support the non-oil Gabon’s medium-term growth prospects are subject private sector and diversification of the economy. to risks from both domestic and external sources. Furthermore, there remains a key need to protect There are upside and downside risks regarding oil the poor from the volatility brought on by dependence prices as projections from the global oil market face on oil brings and the prospect of slower economic significant uncertainty. Oil prices fell by 50 percent growth over the medium-term. Global experience in the second half of 2014 and have been volatile in 2015. As the market continues searching for a new shows that social protection can be a powerful way to equilibrium price, Gabon needs to stand ready to promote growth and fight poverty in many emerging react accordingly. If prices drop into a lower bound economies if a well-designed system is put in place. then the 2015 budget assumptions may need to be Further discussion of social protection measures revisited for a second time. A further decline in prices takes place in Part III: Building Social Protection would impact on the economy as Gabon does not 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$ 11,567 (2013), 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 in improving savings, and the early evidence on and policies buffer individuals from shocks and how they can increase entrepreneurial activities by equip them to improve their livelihoods and create reducing downside risk. opportunities to build a better life for themselves and their families. This is especially important for a The strongest evidence on the relationship country dependent on natural resources. between social protection systems and growth is in improving the functioning of the While social protection systems and labor policies labor markets. and programs are designed for individuals and families, they can also be broadly transformative – Social protection measures are also increasingly by providing a foundation for inclusive growth and recognized as a vehicle for ensuring social stability social stability. These policies and programs help and implementing social contracts to ensure that create opportunities essential to save lives, reduce rights and state obligations are fulfilled and social poverty, and promote inclusive growth. cohesion is strengthened. Social protection systems and labor policies Despite their strengths, social protection systems and programs can be broadly transformative should not be regarded as a panacea. These systems –by providing a foundation for inclusive will achieve optimal outcomes only if first they growth and social stability. function well and second they are complemented by the provision of basic social services of an appropriate A lesser known feature of social protection systems quality. While cash transfers may increase the is that they provide a foundation for inclusive growth, demand for such services, it is vitally important that which can have a transformational effect on people’s the Government meets this demand with high quality lives. There is evidence that social protection public service. While social protection systems may systems support growth outcomes through five be a vital component in a well-designed program to pathways: (i) building and protecting human capital; support low-income households, the program must (ii) empowering poor individuals to invest or to adopt remain part of a realistic and integrated budget higher risk-higher return activities; (iii) promoting strategy. There are many important lessons that greater labor market mobility; (iv) acting as stabilizers can be gathered from international experience (for of aggregate demand or enhancing productive assets example from South Africa; Box 4). 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). Many countries achieve the same outcomes with Gabon is an upper-middle-income country, lower-income per capita or higher outcomes with but life expectancy is 63 years, far below the similar levels of income. average for upper-middle- income countries of 74 years. Health outcomes are also A 2014 World Bank study on health financing in closer to those seen in low-middle-income Gabon helps make sense of the poor performance. It countries. Among the reasons cited for finds that while the Government has set an ambitious Gabon’s poor health outcomes are poverty goal for itself, several challenges exist in meeting and limited social protection programs. This these objectives in the medium term. These include: underscores the need for a functioning social sustainable financing; improving equity in access and protection system in 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: XFA 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 — The Ministry of Social Security and National Solidarity The SIHG provides recent guidance for social offers limited social services to some vulnerable groups protection, although Gabon has been working on (e.g., an elementary school for deaf children). establishing a functional Social Protection system since the 1950s13. The current major actors of the social — NGOs and religious entities also provide various protection system are: types of assistance to vulnerable groups, but there is limited Government monitoring, regulation, The SIHG provides recent guidance for coordination or assessment of their work. social protection, although Gabon has been working on establishing a functional social It is hard to accurately gauge total protection system since the 1950s Government expenditure on social protection. Table 5: Size of Selected Social Protection Systems Country/ Description Number Coverage (% Annual Ave. Fiscal Beneficiaries population) Household Incidence (million) Benefit (US$) (cost % GDP) South Africa: all social security 15 30% 450 to 2,000 6% grants Ethiopia: productive Safety Net 8 10% 137 1.2% Program Rwanda: Mutuelles de santé 10 91% 235 1.2% Brazil: Bolsa Familia 44 25% 84 to 540 0.5% Mexico: Oportunidades 28 25% Varies by grant 0.3% India: Mahatma Gandhi National 235 20% 0.009% Rural Employment Guarantee Act Gabon: FNAS + CNAMGS 0.83 50% 68 0.6% (CNAMGS only) (CNAMGS only) (CNAMGS + FNAS) Source: World Bank’s Africa Social Protection Strategy 2012-2022 and authors’ calculations. 13 Gabon has social protection legislation and a social insurance funds dating back to 1956. Various revisions followed and various fund structures have been utilized, although many have not proved sustainable and suffered from inadequate financing. For example, the national social guarantee structure (or CNGS), a non-contributory compulsory public insurance fund set-up in 1983 closed in 2007 in account of insufficient funds. Since then new structures have been established, including the CNAMGS, currently responsible for compulsory health insurance. 14 Ministère de la Santé et de la Prévoyance Sociale. 15 La Caisse Nationale d’Assurance Maladie et de Garantie Sociale (CNAMGS). 16 Caisse Nationale de Sécurité Sociale (CNSS). 17 Le Fond Nationale d’Aide Sociale (FNAS). Part I: Recent Economic Developments 23 Given the complexity of the social protection system on money transfers abroad and a national budget in Gabon, poor data and the level of uncertainty allocation (mandated in the Finance Act). associated with the national budget, it is hard to accurately gauge total Government expenditure on 2. The Health Insurance Fund for private sector social protection. The 2015 budget suggests US$ employees, financed by the social contributions 56.5 million would be spent on economic safety nets of employers and employees, which is active and solidarity transfers (CNAMGS funds) and income since 2011. generating activities (FNAS funds). Comparison is made between estimates of the Gabonese system 3. The Health Insurance Fund for public officials, and other countries’ systems (Table 5). If realized, financed by the social contributions of employers this would put estimated annual Government and employees and active since 2014. expenditure on social protection around 0.6 percent of GDP. However, following reduced projections As of October 2014, 831,118 Gabonese were covered by for oil revenues the 2015 budget has been revised the CNAMGS funds (Table 6) and earmarked resources downwards by US$ 83 million relative to 2014 (see are used to finance the various programs. The impetus the fiscal developments section in Part II) and it is for CNAMGS was to bring various schemes under one unlikely that this expenditure will be realized in full. umbrella agency. Nevertheless, the three schemes run Note that this number also excludes general social independently from each other, as there is no pooling expenditure (for example on health and education) of resources or cross subsidization. CNAMGS has and spending via the GRAINE initiative (that supports earmarked resources for its funding. About 45 percent rural livelihoods). Each of the core parts of the system of its resources came from contributions from formal are explored in turn. sector workers (civil servants and private sector); the other half (55 percent) from general and earmarked CNAMGS taxes. The total resources in the three funds was approximately US$ 77.9 million (CFA 47 billion) in The CNAMGS is a public welfare institution mandated 2013. In 2013 spending from the funds on health care by law, with autonomy for its administrative and reached US$ 16.6 million (CFA 10 billion) for public financial management. Its objectives include sector beneficiaries and US$ 13.2 million (CFA 8 billion) contributing to improving access to health for all for private sector beneficiaries. Gabonese, regardless of household income. It is primarily a universal health insurance provider As of October 2014, 831,118 Gabonese (including maternity benefits), but it is also mandated were covered by the CNAMGS funds and with providing various allowances to vulnerable earmarked resources are used to finance people. To achieve its mandate there are three the various programs. separate and distinct funds: As a share of total spending, CNAMGS administrative The Social Guarantee Fund for low income expenses are reported as significant. In 2012 per households (or GEF), set up in 2009. This capita spending for registered beneficiaries in the fund is financed by a mandatory health CNAMGS program was approximately US$ 65 (CFA insurance fee. 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 the collection, centralization and the allocation of 18 La Redevance Obligatoire à l’Assurance Maladie (ROAM). social benefits. Until recently, social aid (in cash and in 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) kind, including fee exemptions) was distributed once and their dependents. Estimates of coverage in 2005 a year to some 8,000 beneficiaries, unconditionally. included 22,000 workers and their dependents The intention is that FNAS will improve the governance (65,000 people); about 7 percent of the population. of social aid and to help vulnerable people become self-reliant. Its mandate is to centralize and distribute FNAS initiatives are complemented with a labor social aid, the latter by supporting the income- market program implemented by the National generating activities of economically weak households. Employment Office (ONE). This program is focused on salaried employment and is active in five The FNAS is a public institution with provinces out of nine, with plans to cover the whole jurisdiction over the collection, centralization country. ONE manages a Fund that targets first time and the allocation of social benefits. job-seekers (generally young people with diplomas) and laid-off workers coming from the private sector. Since its establishment in 2012 the fund has The former are helped by subsidizing three-month leveraged in excess of US$ 2.39 million (CFA 1.44 internships, essentially with private companies; in Billion) to support more than 16,000 low-income 2013 the FIR supported 649 interns out of 5,537 beneficiaries located throughout the country. Social candidates; 64 percent of the interns were hired at assistance is granted by FNAS to any national fulfilling the end of the internship. The latter are given the social eligibility requirements. Support is provided opportunity to either do a paid internship or to attend in the form of micro-credit (up to US$8,289 or CFA a training provided by specialized private entities. 5 million) and financial services and to support Services to dismissed workers are only available if activities that generate revenue (AGR) in areas with 19 the company laid off at least 10 people (because in high potential for employment, such as agriculture, this instance the company has to prepare a social livestock, fishing, tourism, crafts, and services. FNAS plan and make an assessment of the laid-off workers’ expects to finance 1,500-2,000 group projects (e.g., competences). implemented by cooperatives) a year with subsidies equal to 80 percent of needed capital. Social Protection in Gabon–What are the main challenges? Since establishment the FNAS has leveraged in excess of US$ 2.39 million (CFA 1.44 Billion) to support more than Gabon’s quest to develop social protection 16,000 low-income beneficiaries. systems must tackle five major challenges (i) a lack of data; (ii) coordination of the Private insurance systems have also been active in system; (iii) ensuring fiscal sustainability; (iv) Gabon, financed by employers, but coverage has effective targeting; and (v) lesson learning remained limited to just workers in the formal sector 18 La Redevance Obligatoire à l’Assurance Maladie (ROAM). Part I: Recent Economic Developments 25 The approach to social assistance remains in Coordination of the system transition, with the Government working hard to put in place an approach that relies on a clear normative Some attempts have been made to streamline the social framework, and modern tools. Overall, the key assistance programs, but coordination remains limited. elements of a safety net system are not yet in place. Some programs are integrated into social assistance, Major challenges for building the systems (discussed social insurance or labor market program schemes, in turn below) are fivefold. but there is a lack of an overarching coordinating mechanism for social protection stakeholders. The approach to social assistance remains in transition, with the Government working Some attempt has been made to hard to put in place an approach that streamline the social assistance programs, relies on a clear normative framework, but coordination remains limited. and modern tools The SIHG provides the basis for a coordination A lack of data process that can act simultaneously on two fronts. First, by the deepening of diagnostic tests to continue When it comes to measuring poverty and inequality planning on a more solid foundation (for example in Gabon there is distinct lack of up-to-date statistics. by providing greater detail and including a costed The last accurate measure of poverty took place in action plan). And second, through the design and 2005 and a new survey was planned to take place production of various tools needed to implement the in 2014, but this was delayed and results are not recommended actions. expected until 2016. Functional social protection systems require The data guiding the SIHG is incomplete and dated, a sustained, long-term commitment which makes targeting the GEF and designing the social protection system very difficult. Many The global trend is to avoid numerous fragmented assumptions have been made, even on the number social assistance programs and instead opt for of GEF and the threshold for defining a GEF (set at a systemic approach, which avoids duplication, US$133 or CFAF 80,000 without any clearly stated promote coordination with other sectors (especially relationship to the cost of the food basket and education and health) and makes shared use of the absolute poverty line). administrative systems. A more precise estimate of the poverty line and the Ensuring Fiscal sustainability number of GEF is urgently needed. This will help in establishing the amount of transfers required Functional social protection systems require a (not too high to avoid discouraging empowerment sustained, long-term commitment. Once programs efforts, but enough to make a difference) and to have been established, the Government will be correctly sequence interventions. Improved data committed to allocating public resources to this would also help the government understand the program for the long term as they are difficult to specific needs of different vulnerable groups, abolish, for both political and economic reasons. the factors that increase their vulnerability or Therefore, when funding social protection systems, interventions that could increase their resilience. the Government must carefully analyze the fiscal This fits with a general and critical need for implications and sustainability of the programs, improved statistics in Gabon. Until there is good especially given the revenue challenges being faced data, programs cannot be well targeted, and until in 2015 (described in Part 1: Recent Economic programs can be well targeted public expenditure Developments). Good strategies are realistic in terms will not be efficient and effective. of what can be implemented, in the time frame of the strategy and in terms of available resources. 26 Gabon Economic Update N1 Furthermore, social protection systems must be mentioned above, and a lack of a comprehensive provided with predictable and smooth funding each beneficiary registry (though there are plans to and every year to be effective. Volatile oil and non-oil establish one20). revenue inflows lead to volatile public expenditure (especially public investment). Targeting and beneficiary identification is best applied systematically to ensure consistent treatment. 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 clear objective criteria) and leakages appear to be 20 CNAMGS has been asked to carry out a ‘census’ to update the registry common. This is complicated by the data limitations of economically weak families. Part I: Recent Economic Developments 27 and evaluation reports. In terms of evaluation, Perform an Institutional Audit: this should (b)  interventions need to be designed with impact assess the human, operational and financial assessment techniques in mind, including conducting capacities of public institutions engaged in the baseline surveys before launching programs, so that social protection system. The audit would help the quality of the interventions can be assessed and guide future technical assistance aimed at improved upon. improving institutional set-up and functions. 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 survival strategies that households’ employ. 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 Denerale de la Statistique Data Annex 29 30 Gabon Economic Update N1 Bibliography World Bank (2012), ‘Resilience, Equity and Report on Growth and Employment Paving the way Opportunity’, Washington D.C. toward inclusive growth, June 2013. World Bank. 2012a. Managing Risk, Promoting Ministère de L’Economie, de la Promotion des Growth: Developing Systems for Social Protection in Investissements et de la Prospective, Direction Africa—The World Bank’s Africa Social Pro¬tection Générale de l’Economie et de la Politique fiscale, Note Strategy, 2012–2022. Washington, D.C.: World Bank. de conjoncture à fin décembre 2014, Février 2015. Saleh, Karima, Bernard F. Couttolenc, and Helene Ministère de L’Economie, de la Promotion des Barroy. Health Financing in the Republic of Gabon. Investissements et de la Prospective, Direction World Bank Studies. Washington, DC. Générale de l’Economie et de la Politique fiscale, Note de conjoncture à fin Juin 2015, Août 2015. Stratégie d’Investissement Humain du Gabon. Fonds Monétaire International, Rapport du FMI World Bank’s Africa Social Protection Strategy No.15/47, Gabon, Consultations au titre de l’article IV. 2012-2022. World bank, Growth and Employment report, Report No. 82538-GA, Gabonese Republic. Database Ministry of Finances Caisse Nationale d’Assurance Maladie et de 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