Gabon Economic Update 2024 Gabon Economic Update 2024 SPECIAL TOPIC: Designing Fiscal Policies for Sustainable Forestry May 2024 Macroeconomics, Trade and Investment a © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and con- clusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or li- ability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Washington, DC: World Bank.” All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Gabon Economic Update 2024 Contents Acknowledgments............................................................................................................................................................... iii Abbreviations and Acronyms............................................................................................................................................. iv Overview............................................................................................................................................................................... 1 Chapter 1. Recent Economic Trends and Outlook for Gabon............................................................................................ 6 1. Growth has been decelerating at the global level and in the CEMAC region..............................................................................6 2. Gabon also experienced lower growth in 2023, amid lower global demand combined with wood and mining transport disruptions caused by inclement weather............................................................................................................................8 3. Inflationary pressures started to abate, but poverty increased due to populational growth, high unemployment, and insufficient economic expansion.........................................................................................................................................................9 4. Access to credit expanded, but limited lending to private firms remains a constraint for economic growth in Gabon.................................................................................................................................................................................................................. 14 5. Fiscal revenues increased in 2023, but a strong rise in public spending has reduced fiscal space, contributing to higher debt risks.............................................................................................................................................................................................. 15 6. Gabon’s external position continues to benefit from strong commodity exports, even if with a smaller trade surplus..................................................................................................................................................................................................... 20 7. Outlook: Gabon’s modest recovery is expected to continue, against higher risks.................................................................. 21 8. Sustained growth will require strong reforms and impactful measures to improve business conditions and the management of public finances................................................................................................................................................................ 24 Chapter 2. Designing Fiscal Instruments for Sustainable Forestry and Public Finances.............................................. 28 1. Thanks to conservation efforts and sustainable practices, Gabonese forests are a vital source for wood industry jobs and exports while providing the world with essential climate services............................................................................ 32 1.a. State and trends of forests in Gabon ....................................................................................................................................... 32 1.b. The forestry sector provides a major contribution to the economy and grew to become a key driver in Gabon’s diversification agenda................................................................................................................................................... 34 1.c. Gabon is an important carbon absorber thanks to its forests; going forward, the forestry sector will play an increasing role in the country’s climate commitments................................................................................................ 36 2. Climate and forestry policies from a regional and global perspective........................................................................................ 38 2.a. Global climate financing is becoming an ambitious agenda, but building an effective and substantial mechanism capable of responding to countries’ needs remains a challenge........................................................... 38 2.b. The log export ban in Gabon and CEMAC: could this be an answer to promote higher added value for local industries?................................................................................................................................................................................ 41 2.c. What will be the impact of the EU regulation on deforestation-free products for CEMAC countries?............ 42 3. The role of environmental fiscal policy: trade-offs in the forestry sector.................................................................................... 44 3.a. How can fiscal instruments contribute to public finances and to sustainable forestry?....................................... 44 3.b. What are the fiscal instruments used for forestry in Gabon and what are their impacts for firms, jobs, public finances, and the environment?................................................................................................................................... 46 4. Opportunities for climate-smart fiscal policy reform for forests in Gabon................................................................................. 51 4.a. Calibrating forestry taxes to further incentivize sustainable wood production methods.................................... 51 4.b. A ‘bonus-malus’ system in forestry: using taxes on non-sustainable production to finance tax benefits for sustainable practices............................................................................................................................................................... 52 4.c. Looking ahead: how to achieve fiscal, economic, and environmental goals with fiscal policy reforms for forestry?........................................................................................................................................................................................ 53 References........................................................................................................................................................................... 58 i Gabon Economic Update 2024 List of Figures, Tables and Boxes Figure 1. Real GDP growth (percent), 2019-2025..............................................................................................................................................7 Figure 2. CEMAC reserves and exchange rate, 2017-2023.............................................................................................................................7 Figure 3. Despite diversification efforts, the oil sector still remains key for Gabon’s economy.................................................... 11 Figure 4. Gabon: Supply-side contribution to Real GDP Growth (in percent), 2019-2024.............................................................. 11 Figure 5. Gabon: Demand-side contribution to Real GDP Growth (in percent), 2019-2024.......................................................... 11 Figure 6. Inflation (monthly, y-o-y, in percent), January 2020-January 2024....................................................................................... 12 Figure 7. Employment per sector (percent of formal private and public jobs), 2022....................................................................... 13 Figure 8. Monetary policy rates and credit to the economy, January 2020-December 2023........................................................ 14 Figure 9. Recent evolution of financing conditions for Gabon................................................................................................................. 15 Figure 10. Government revenues (percent of GDP), 2019-2024................................................................................................................. 16 Figure 11. Public expenditures (percent of GDP), 2019-2024...................................................................................................................... 17 Figure 12. Budget execution (budget law vs. actual spending), 2023...................................................................................................... 17 Figure 13. Composition of public debt (percent of total debt), 2023....................................................................................................... 18 Figure 14. Fiscal balance and public debt (percent of GDP), 2019-2024................................................................................................. 18 Figure 15. Recent evolution of Gabon’s trade, 2019-2023............................................................................................................................. 20 Figure 16. Share of Gabonese exports and imports, 2023............................................................................................................................ 21 Figure 17. Declining oil production could take place in the medium term, but production of wood, minerals, and agricultural commodities would expand in the coming years............................................................................................... 23 Figure 18. Despite weak global growth prospects, prices for most of Gabon’s main commodities would increase slightly in coming years, providing an opportunity to build reserves................................................................................. 23 Figure 19. Forest area in Gabon and CEMAC countries (percent of land area)...................................................................................... 32 Figure 20. Proportion of forest area with a long-term management plan, 2020.................................................................................. 33 Figure 21. Deforestation rate in Gabon and selected countries, percentage of forested area........................................................ 33 Figure 22. Gabon’s deforestation trend and categories................................................................................................................................. 33 Figure 23. Gabon’s industrial roundwood production quantity (1000 m3)............................................................................................. 35 Figure 24. Gabon’s top wood export destinations in 2020........................................................................................................................... 35 Figure 25. Exports of primary processed wood products, 2022 (USD millions).................................................................................... 36 Figure 26. Exports of secondary processed wood products, 2022 (USD millions)............................................................................... 36 Figure 27. Gabon’s total and per capita GHG emissions, 1990-2020......................................................................................................... 37 Figure 28. Gabon’s GHG emissions by sector, million tons, 2020................................................................................................................ 37 Figure 29. Wood exports in Gabon (USD milllions)......................................................................................................................................... 41 Figure 30. Forest-related revenues in Gabon..................................................................................................................................................... 46 Figure 31. Concessions and forestry permits attributed in Gabon............................................................................................................ 48 Figure 32. Export duties in Gabon......................................................................................................................................................................... 49 Table 1. Selected macroeconomic and fiscal indicators ..............................................................................................................................9 Table 2. Gabon: Selected fiscal indicators....................................................................................................................................................... 19 Table 3. Gabon’s outlook: Selected economic indicators.......................................................................................................................... 22 Table 4. Social and economic indicators in Gabon (2020-2022)............................................................................................................. 27 Table 5. Selected approaches and policy instruments for sustainable forest management....................................................... 44 Box 1. Political events shaping Gabon’s transition................................................................................................................................... 10 Box 2. World Bank fiscal assumptions........................................................................................................................................................... 19 Box 3. Economic, fiscal and governance reforms adopted in late 2023 and early 2024............................................................. 25 Box 4. CAFI support to Gabon......................................................................................................................................................................... 40 Box 5. Political challenges and the role of governance: cross-cutting issues in sustainable forest management........... 43 Box 6. The impact of forest-related fiscal instruments on the fiscal space...................................................................................... 45 Box 7. Lessons learned from fiscal reforms for forestry in Central Africa......................................................................................... 55 ii Gabon Economic Update 2024 Acknowledgments The 2024 edition of the Gabon Economic Update was prepared by a World Bank team co-led by Erick Tjong (Economist, EAWM2) and by Sonia Barbara Ondo Ndong (Economist, EAWM2), consisting of Chris Belmert Katindi Milindi (Extended Term Consultant, EAWM2) and Ryan Milan (Governance Specialist, EGVPI), under the supervision of Robert Utz (Lead Economist, EAWM2). The report benefited from guidance and comments from Cheick Fantamady Kante (Country Director, AWCC1); Sandeep Mahajan (Practice Manager, EAWM2); Clelia Rontoyanni (Program Leader, EAWDR); and Aissatou Diallo (Resident Representative). Pinar Baydar (Operations Analyst, EAWM2); Ifeoma Clementina (Team Assistant, EAWM2); Antoinette Kounda Kiki (Program Assistant, AWMGA); and Irene Sitienei (Program Assistant, EAWM2) supported the team during the preparation of the report. The team is thankful to the peer reviewers Raju Singh (Lead Economist, DFCII), Kanta Rigaud (Lead Climate Change Specialist, SAWDR), and Stephen Stretton (Environmental Tax Economist, EMFTX) for their constructive contributions. The team gratefully acknowledges the collaboration of the Government of Gabon throughout the preparation of this report. iii Gabon Economic Update 2024 Abbreviations and Acronyms AFD French Development Agency AfDB African Development Bank BEAC Bank of Central African States (Banque des États de l’Afrique Centrale) bbl oil barrel CAR Central African Republic CAFI Central African Forest Initiative CEMAC Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’Afrique Centrale) CFAF African Financial Community Franc (Franc CFA) CIT Corporate income tax CO2 carbon dioxide COBAC Central African Banking Commission (Commission bancaire de l’Afrique centrale) DRC Democratic Republic of the Congo FAO Food and Agriculture Organization GDP Gross Domestic Product GHG Greenhouse gas ILO International Labor Organization IMF International Monetary Fund ITTO International Tropical Timber Organization NDC Nationally Determined Contributions ND-GAIN Notre Dame Global Adaptation Initiative NGO Non-governmental organization OECD Organisation for Economic Co-operation and Development OPEC Organization of Petroleum Exporting Countries PPP purchasing power parity q-o-q quarter-on-quarter REDD+ Reducing Emissions from Deforestation and Forest Degradation in Developing Countries SSA Sub-Saharan Africa USD United States dollar VAT Value-added tax WB World Bank WDI World Development Indicators WGI World Governance Indicators WITS World Integrated Trade Solution y-o-y year-on-year iv Gabon Economic Update 2024 Overview The Gabon Economic Update is an annual World Bank publication that presents an overview of the evolving macroeconomic position in Gabon, followed by a detailed exploration of a specific topic in each edition. The first chapter analyzes recent economic developments, key development challenges, as well as the macroeconomic outlook and risks for Gabon’s future growth. It presents policy actions that could help strengthen fiscal and debt sustainability, contain food inflation, promote job creation, and sustain a resilient growth path. The second chapter of this year’s Economic Update has a special focus dedicated to fiscal policies for the forestry sector. This chapter analyzes how fiscal policy reforms for forestry can contribute to generating more fiscal revenues, creating more jobs, and promoting sustainable production methods. This report is based on data available as of May 2024. Gabon experienced lower growth in 2023, impacted by reduced global demand and transport disruptions that affected the wood and manganese industries. In 2023, Gabon’s economy grew by an estimated 2.3 percent, down from 3.0 percent in 2022. Decreased demand, higher fuel costs, and railway damages from severe weather events impacted wood and mining exports. Despite these chal- lenges, the oil sector propelled growth, with a 3.7 percent increase in output, benefiting from high global oil prices and the exploitation of new oilfields. Other sectors con- tributing to growth included agriculture, construction, and services. The economy showed resilience to political events, such as a coup d’état that occurred amid contested election results in August 2023, with minimal disruption to economic activity and efforts by the new transition gov- ernment to normalize international relations and access to regional and global financing. Despite economic recovery and declining inflation, one in five Gabonese is unemployed, and over a third 1 Gabon Economic Update 2024 of Gabonese live in poverty due to lack of opportuni- high social expectations in late 2023 weighed on the bud- ties for jobs and income generation. Inflationary pres- get. However, allocated spending on education and health sures in Gabon eased in line with tight monetary policy remained low, at respectively 1.6 percent and 1.0 percent by the regional central bank, price controls, and a drop in of GDP – below the averages for countries of Gabon’s in- global inflation. The consumer price inflation fell to 2.2 per- come group, suggesting a potential to prioritize spending cent (y-o-y) in December 2023, down from a peak of 5.8 toward social sectors to support households and reduce percent in late 2022. However, even if inflation has been poverty. contained, baseline prices tend to be high for local stan- dards, as trading costs and tariffs are high, and the country Gabon’s public debt surpassed the regional threshold imports much of its basic food and products. Even small of 70 percent of GDP in 2023, driven by lower growth, increases in living costs can therefore be strongly felt by higher interest rates, and additional arrears caused by the population, especially the poor, as they affect people’s cash flow management issues. Gabon could face chal- ability to purchase basic goods. Poverty affected 35.2 per- lenges to contain the public debt, which increased from cent of households, who lived on less than USD 6.85 per 63.6 percent of GDP to an estimated 70.5 percent between day in 2023. About a third of the country’s youth is disen- 2022 and 2023. Certain additional components, such as gaged from work, education, or training, leading to a loss unpaid spending commitments and Treasury bills, were in human capital. Insufficient job creation and limited in- identified by the authorities since the transition started come-generating activities and social protection contrib- and added to the debt stock. In addition, in 2023 increased ute to poverty. Capital-intensive industries, like oil, do not cash flow pressures in a context of elections led to high- generate enough jobs, and there is a mismatch between er unpaid commitments, and arrears on VAT refunds and job opportunities, skills, and people’s aspirations. In a high- others. Without significant fiscal measures, the debt-to- ly urbanized country, firms face challenges to attract work- GDP ratio will continue to rise. There are high spending ers to agriculture or wood sectors in rural regions. needs to cover wages, social support, and planned invest- ments in the National Development Plan for the Transition Gabon’s fiscal revenues reached a record high in 2023, (PNDT). The country has been dealing with the burden of bolstered by strong oil production and enhanced tax external arrears, which were estimated at CFAF 146 billion collection efforts. Despite a decline compared to 2022, by March 2024 (1.2 percent of GDP), which affects its cred- oil revenues remained high thanks to a higher oil produc- ibility with creditors and could lead to financing instabili- tion, along with high corporate taxes levied on oil firms’ ty under uncertain global economic conditions. Efforts to previous year’s profits, which allowed Gabon’s revenues to improve transparency and visibility of public finances have reach 22.9 percent of GDP. Non-oil tax revenues also saw been made by the transitional government. a substantial increase, aided by tax policies such as ratio- nalization of tax expenditures. However, tax incentives Gabon’s trade surplus remained high in 2023 but continue to be extensively used to alleviate costs for firms was affected by lower oil prices and a weaker perfor- and households, resulting in considerable revenue losses, mance in wood and manganese exports. Even if oil estimated at CFAF 352 billion (2.8 percent of GDP). The dig- production increased, oil prices declined between 2022 italization of customs offices in Oyem in late 2023 and the and 2023, leading to a 15 percent reduction in the value launch of a new platform for tax payments in early 2024 of oil exports. However, crude prices still remained higher are expected to support public revenues moving forward. than in all other previous years since the 2014 oil shock. Furthermore, as mentioned, high energy costs, transport Pushed by high spending needs, public spending saw disruptions, and weaker Asian demand impacted wood a strong increase in 2023, resulting in a slightly high- and mining exports. On the other hand, nominal imports er fiscal deficit. Government spending in Gabon reached remained overall stable. Gabon’s exports are highly con- 23.9 percent of GDP, and the budget closed 2023 with an centrated in a few products, with oil, manganese, and estimated deficit of 1.0 percent of GDP, up from 0.8 per- wood making up 83 percent of exports in 2023. Oil alone cent in the previous year. Public investment saw a signif- constituted 68 percent of exports. The country primarily icant increase of 76.6 percent, with the acceleration of exports to Asian markets, with China being a major con- infrastructure projects and the launch of large projects in sumer, while exports to African countries and the CEMAC the last months of 2023. The relaunch of public sector hir- region are minimal. Challenges such as low regional inte- ing led to a higher wage bill. Also, the cost of the August gration and logistical and regulatory barriers impede the elections and of social measures adopted in a context of potential benefits of regional trade. 2 Gabon Economic Update 2024 Gabon’s economic recovery should continue over the lated fiscal policy instruments would enable policy makers coming years, but the country faces challenges such as to fulfill environmental and climate goals more affordably, lower oil revenues and increased spending pressures, while generating more revenues for the state. which could quickly turn into an unsustainable fiscal and debt situation. New exploration and the growth of Special topic: Fiscal policies for mining, wood, and agriculture would support growth in forestry could be reformed to the medium term. Oil production is expected to decline contribute to more public revenues due to maturing fields, although recent announcements of new oil discoveries may alter such prospects of dimin- while promoting jobs in a sustainable ishing oil production. Exports are likely to stay relatively forestry industry strong, sustained by growth in Asian markets. India is ex- pected to experience higher growth at 6.5 percent in 2026; Thanks to conservation efforts and sustainable prac- although at a lower pace and facing headwinds, Chinese tices, Gabonese forests are a vital source for jobs and growth is expected at 4.3 percent in 2026. Overall, while exports while providing the world with essential cli- Gabon’s economy is poised for a modest recovery, it fac- mate services. Gabon is the fourth most forested country es significant risks from geopolitical tensions, higher bor- in the world, with over 91 percent of its territory covered rowing costs, persistent global inflation, climate shocks, by well-preserved forests. Each year, Gabon’s forests ab- and a potential slowdown in China’s economy. The risks sorb approximately 140 million tons of CO2, underlining of political tensions during the transition and of regional their critical global importance in the fight against climate sanctions could further complicate the economic and fis- change. The country has an impressive and well-preserved cal positions. forest ecosystem. About 14 percent of the forests are locat- ed in protected areas, including the country’s 13 nation- Initiatives to support local entrepreneurs and small al parks. About 59 percent of the forests are dedicated to firms, improve infrastructure, and provide better ac- sustainable and controlled production of forest products cess to credit are underway to address poverty and managed by private companies. The annual deforesta- stimulate job creation. Private sector growth is limit- tion rate has been low compared to most countries in the ed by regulatory, competition, and trade barriers, and region and in the world, at 0.05 percent in 2010-2020. In inadequate access to credit, energy, and skilled labor. its nationally determined contributions (NDC), Gabon Governance issues persist, and living standards and access pledges to remain carbon-neutral up to and beyond to basic services such as water, electricity, sanitation, and 2050. However, despite strong forest conservation pol- health are below what is typical for countries in Gabon’s icies, Gabon still faces challenges to curb illegal logging. income group. The transitional government is implement- Reforms being planned to tackle this issue include a new ing important economic policies including improvements digital system for wood traceability. in the governance of public finances, infrastructure, and support to local firms. While oil remains the main contributor to Gabon’s economy, the forestry sector generates thousands of Going forward, strong actions will be needed to boost jobs both in urban and rural areas and has become a growth and sustainably improve living conditions key driver in Gabon’s diversification agenda. Through without compromising fiscal and debt sustainabili- certification requirements, strict logging thresholds, and ty. It will be crucial to improve transparency of resource incentives for a local wood industry, Gabon has been able revenues, enabling their optimal use towards productive to transform the wood sector into a major source of jobs investments in human capital and in infrastructure. As oil and exports. In 2009, the country banned log exports reserves are finite, the wood sector emerges as a future and set up a special economic zone to spur local timber central pillar for Gabon’s economy and public finances. processing. The timber industry has thus increasingly be- Adopting fiscal measures to adequately manage and ben- come an important pillar of Gabon’s economy, accounting efit from this immense source of revenue and jobs will be for 3.2 percent of GDP and 6 percent of exports in 2023. key. While increasing in importance for public finances, the It is now the country’s largest private employer, providing wood sector only contributed to 1.5 percent of total reve- nearly 15,000 jobs in 2022. However, labor skill gaps are a nue in 2023. Property taxes, wood export duties and land barrier for future development, which are being addressed area fees remain to date the main forest-related sources of through initiatives such as the opening of a new training fiscal revenue in Gabon. Expanding the scope of forest-re- center for the wood industry in February 2024. 3 Gabon Economic Update 2024 Recent years have seen an uptick in international fund- Reforms in tax incentives for agriculture could mini- ing for sustainable forest management in the Congo mize their fiscal cost and allow them to better support Basin region, but international commitments are still sustainable agricultural practices, with benefits for the insufficient. Global commitments still tend to lack quan- economy and the environment. In Gabon, farmers and tifiable and transparent targets, leaving a gap between agribusinesses benefit from VAT exemptions on agricultur- pledges and results. Gabon became the first African nation al inputs and from lower property taxes. Exemptions ap- to receive performance-based payments, securing USD 150 ply for imports of agricultural fertilizers and phytosanitary million through the UN-led Central African Forest Initiative. products, as well as for capital goods used in farming and However, more substantial and sustained support remains livestock breeding. Fiscal instruments are used to promote to be provided by the global community. Gabon has not local agriculture to ensure food security, generate jobs, and been able to obtain funding for the 90 million tons of car- reduce dependence on costly food imports. However, they bon credits that were certified in 2022. Carbon credits and come at a high cost. VAT reductions and exemptions, which other green financing mechanisms are arguably still at an partially go to alleviating costs of farming inputs, represent- embryonic stage and need to be stepped up by interna- ed revenue losses of CFAF 161 billion in 2023, equal to 1.3 tional donors. percent of GDP and 12.4 percent of tax revenues. Tax ben- efits could be redesigned to target agricultural practices Part of the solution could come from fiscal reforms to that maintain or improve forest cover, use environmentally optimize forest resources, as a means to secure higher friendly technologies and practices that contribute to soil public revenues and environmental goals. The forestry conservation and biodiversity, or employ more advanced sector has been increasing in importance for public financ- and greener agroforestry techniques. Reforms can thus pro- es, albeit from a low base, indicating a significant untapped mote agricultural growth and environmental sustainability, potential. In 2023, the sector contributed CFAF 41.9 billion while avoiding both massive foregone taxes and the pitfalls to the state budget (0.3 percent of GDP), almost four times of unchecked expansion and significant deforestation. more than in 2016. The main sources of revenue came from property taxes, wood export duties and land area fees, fol- Ultimately, the integration of sustainability certifi- lowed by corporate income taxes paid by forestry firms. cation into forest-related tax rates represents a for- Going forward, fiscal reforms could be designed to further ward-thinking approach to environmental fiscal policy, integrate climate-smart fiscal policy instruments, which one that combines fiscal and economic goals with pre- can be cost-efficient and lead to significant results. Forest- serving natural assets for the benefit of future genera- related fiscal policy instruments can complement forest tions. Such a strategy acknowledges the complexities of conservation and management strategies, enabling poli- sustainable production and seeks to leverage fiscal instru- cy makers to fulfill environmental and climate goals more ments in service of a combination of fiscal, economic, so- affordably, while generating more revenues for the state. cial, and environmental goals. Fiscal policies that promote sustainable forestry can also be used by countries such as Land area fees applied in Gabon are an example of fis- Gabon to avoid a path where unsustainable exploitation cal policies that incentivize sustainable forestry, which compromises forest ecosystems, taking instead an ap- could be extended to other taxes in the country and proach to forests and other resources that will enable fu- replicated in other countries. Gabon levies a land area ture generations of Gabonese to continue benefiting from fee on forestry firms, in the form of an environmentally tar- the country’s rich natural endowments. As the authorities geted tax that applies at rates varying based on the area’s pursue their plans to revise the forestry code, different fis- level of certification. Firms in certified forestry concessions cal policy options could be considered in a strategy to in- (FSC or PAFC) pay lower taxes, concessions with legality crease fiscal revenues while fostering income generation, certification face a moderate tax increase, and firms oper- jobs, and sustainable exploitation of wood resources. Fiscal ating in uncertified concessions are subject to higher tax- policies that could be envisaged include: es. This system aimed not just at budget neutrality but also at increasing overall tax revenues, by incentivizing sustain- § Expanding the differentiated approach that under- able practices through fiscal measures. Similar approaches lies land area fees to other fiscal instruments, where could be considered for other taxes and fees levied on the more sustainable practices and certified conces- wood sector, which could further promote certification sions are benefited with a lower tax burden, while goals. tax costs increase for firms operating with less sus- tainable production methods. 4 Gabon Economic Update 2024 § Rationalizing tax expenditures for agriculture to § Promoting agroforestry and sustainable land man- improve their targeting and align them with envi- agement practices as key strategies for reducing ronmental goals. pressure on forests. Investments in agroforestry § Reforming the forestry code through a participato- projects that integrate tree cultivation with agri- ry and inclusive processes, that takes into account cultural crops, coupled with training and technical interests of all stakeholders including local commu- support programs for farmers, can facilitate the nities, small producers, and forestry firms. transition to more sustainable agricultural practic- § Promoting digital services for the forestry sector, es, such as crop rotation, organic farming, and soil including processes for attribution and verification conservation techniques, thereby reducing defor- of permits and payment of all charges, taxes, and estation and forest degradation. fees to increase efficiency and transparency. § Enhancing community engagement and partici- § Engaging with local communities in expanding patory forest management practices to ensure the and strengthening the implementation of REDD+ sustainability of conservation efforts. Empowering projects across Gabon’s forests to ensure that they local communities through participatory forest benefit directly from carbon sequestration efforts. management models is crucial for the sustainable This could include financial incentives or alter- use of forest resources. Implementing communi- native livelihood programs. The goal would be to ty-based forest management programs that in- secure more performance-based funding from in- clude clear benefit-sharing mechanisms can incen- ternational donors by demonstrating measurable tivize conservation and sustainable livelihoods. progress in carbon sequestration and community § Increasing efforts to produce and export more benefits. high-level processed wood products such as furni- § Fostering international partnerships and securing ture. This could be facilitated by offering incentives increased funding for forest conservation and cli- such as tax breaks, grants, and technical support, mate resilience projects. Gabon could take steps to although tax incentives need to be carefully de- attract more climate finance, technical assistance, signed and considered in view of their potentially and capacity-building support through interna- high fiscal costs. Reforms could focus on promoting tional cooperation. By engaging with global envi- local production of high-value products for domes- ronmental initiatives, international development tic and international markets. Countries could in- partners, and climate funds, the country can secure vest more in vocational training programs to build more resources needed for forest conservation, a skilled workforce capable of supporting a thriving community adaptation strategies, and sustainable wood processing sector. livelihood programs. 5 Gabon Economic Update 2024 Chapter Recent Economic 1 Trends and Outlook for Gabon 1. Growth has been decelerating at the global level and in the CEMAC region Global economic activity continues to soften, on ac- count of the negative impacts of restrictive financial conditions, tightening monetary policies, and stag- nating trade flows. Global growth has continued to de- cline, going from 3.0 percent in 2022 to an estimated 2.6 percent in 2023. Geopolitical risks and uncertainty have in- tensified and could plunge the world economy into reces- sion. The recent conflict in the Middle East is overlapping with prolonged effects from previous shocks, including the COVID-19 crisis and the Russian invasion of Ukraine. Growth has been concentrated in emerging markets, es- pecially in Asia, while advanced economies have been ex- periencing weaker growth. Growth also decelerated in Sub-Saharan Africa (SSA), amid weaker global demand, persistent inflation, high energy costs, lower prices for metal exports, and high- er instability in certain regions. Growth decreased to an estimated 2.9 percent in 2023 in SSA, against 3.7 percent in the previous year. A weakening global demand and tightening monetary policy to counter ongoing inflation have hindered recent growth. Several countries were af- fected by protracted and intensifying conflicts, including Sudan, Chad, and Niger. Adverse weather events and food insecurity are also on the rise. In addition, specific country challenges include high input prices in Nigeria, an energy crisis in South Africa, and a sharp decline in metal export- ers’ growth due to commodity price volatility. In the CEMAC region, the dynamism of economic ac- tivity experienced a decline, while inflation remained stable (Figure 1). Real GDP growth amounted at 1.7 per- cent in 2023, down from 3.1 percent one year before. 6 Gabon Economic Update 2024 Hydrocarbon GDP fell due to the gradual depletion of oil capitalized, or insolvent, highlighting large recapitalization fields and constraints in gas production, while manufac- needs. The reported non-performing loan ratio increased tured industries showed lower-than-expected outcomes to 19.1 percent as of March 2023 from 17.7 percent of total despite the higher contribution of private non-oil invest- gross loans in 2022. Although the short-term liquidity ratio ments (2.3 points) to GDP growth. CEMAC’s authorities is satisfactory at 187 percent as of March 2023, liquidity is and governments are engaged to boost growth through segmented, with several banks below 100 percent. Overall, regional integration. The recent commitment of interna- less than one-third of banks comply with all prudential re- tional donors to finance thirteen projects under the sec- quirements. Increasing exposure of the banking sector to ond priority regional integrative infrastructure projects the sovereign adds to financial sector risks. In June 2023, (USD 8.8 billion) is promising in this regard. The average government loans and securities accounted for 30 percent regional inflation rate slightly increased to 5.6 percent in of total bank assets, with several banks having exposure of 2023, up from 5.5 percent in 2022. Declining oil and prices more than 50 percent. of imported goods, combined with enforcement of admin- istered prices and restrictive BEAC’s monetary policy, offset External and fiscal positions in CEMAC deteriorated in the inflationary partial phasing out of fuel price subsidies 2023 in a context of lower commodity prices and rev- in Cameroon, Chad, CAR, and Republic of Congo. enues, which prompted the Central Bank to step up its efforts to enforce foreign exchange regulations. The Bank of Central African States (Banque des États Declining prices, especially of oil, adversely impacted de l’Afrique Centrale, BEAC) maintained its tight mon- the CEMAC’s export performance. The current account etary policy stance during 2023 to contain inflation- surplus is estimated to have decreased to an average ary pressures and support the external viability of the of 2.2 percent of GDP in 2023, down from 5.9 percent in exchange rate arrangement. The BEAC policy rate (taux 2022. At end-2023, reserves amounted to an estimated d’intérêt des appels d’offre, TIAO) was maintained at five per- CFAF 6,886 billion, equivalent to 4.8 months of prospective cent following a cumulative increase by 175 basis points imports of goods and services, compared to 5.2 months between November 2021 and March 2023. Weekly liquidi- in 2022 (Figure 2). Lower commodity revenues and high- ty injections were discontinued in early 2023 and the BEAC er public spending impacted the region’s fiscal balance, stepped up its liquidity absorption operations. Banking with a surplus decreasing from 2.9 percent of GDP to 1.1 sector soundness indicators slightly deteriorated in the percent. Despite the positive momentum in accumula- first half of 2023. Capital adequacy slightly declined to 14 tion of foreign exchange reserves in 2022 which carried percent in June 2023, but several banks are severely under- into the first half of 2023, net foreign assets plummeted Figure 1. Real GDP growth (percent), 2019-2025 Figure 2. CEMAC reserves and exchange rate, 2017-2023 8.0 6.0 640 6.0 5.0 620 4.0 4.0 600 3.0 580 2.0 2.0 560 0 1.0 540 -2.0 0 520 -4.0 2017 2018 2019 2020 2021 2022 2023e 2019 2020 2021 2022 2023e 2024f 2025f O cial Reserves (in months of imports, lhs) World SSA CEMAC Gabon Exchange rate, CFAF/USD (rhs) Sources: BEAC, Global Economic Prospects, and World Bank staff calculations. Data for CEMAC countries is based on a weighted average based on GDP. Preliminary data for 2023; World Bank projections for 2024 onwards. 7 Gabon Economic Update 2024 dramatically thereafter due to declining oil prices, with The oil sector, which is still central to the economy an average month-on-month decline of 7.6 percent be- despite ongoing efforts to promote economic diversi- tween May and October 2023. To reverse this trend, the fication, was the main growth driver in 2023. In 2023, regional central bank stepped up the enforcement of the growth was strongly driven by oil production (Figures 3 2018 foreign exchange regulations, especially regarding and 4). Oil output expanded by 3.7 percent to reach 10.8 the repatriation of funds set aside for the rehabilitation of million tons, thanks to the exploitation of new oilfields oil sites and currently located abroad. Discussions are on- and efforts to optimize production in aging fields. Oil pro- going between the BEAC, CEMAC’s Ministries of Finance duction continued to expand in recent months, growing and Hydrocarbons, and oil companies on the scope of by 17.3 percent in the first quarter of 2024 (y-o-y). Global these funds and the legal framework that will govern the demand for oil remained high, reflecting still relatively repatriation process and the management of related ac- high prices at about USD 80 per barrel, even if decreasing counts which will be created in the Central Bank’s books. since 2022 when prices peaked at around USD 100 a bar- Furthermore, the upcoming regional log export ban, ex- rel. Moreover, OPEC+ did not increase production quotas pected for 2028, has the potential to add pressures on for Gabon in 2023, as certain larger oil producers within foreign exchange reserves, as wood represents one of the the organization announced voluntary production cuts in most exported goods in three CEMAC’s countries. Without April and November, in an effort to counter a decline in oil deepening regional integration with the development of prices. However, still in 2023, local oil refining was impact- regional wood value chains, which can reduce demand for ed by two scheduled maintenance operations. imported manufactured wood products, the upcoming log export ban could have adverse effects on foreign reserves. Other sectors driving growth in 2023 included agricul- ture, construction, and services. The agricultural sector, 2. Gabon also experienced lower including mainly oil palm and rubber plantations and the growth in 2023, amid lower global agroindustry, expanded. The construction industry con- tributed significantly to growth, boosted by public works. demand combined with wood and Major works are underway in the water and electricity mining transport disruptions caused sectors to cover local consumption needs and reduce the by inclement weather frequent load shedding that occurs due to insufficient electricity and water production. Investments in public In 2023 the Gabonese economy grew by an estimat- infrastructure projects led to a 6.5 percent growth in the ed 2.3 percent, as economic activities suffered from construction sector in the last quarter of 2023 (q-o-q). lower global demand and transport disruptions. This Meanwhile, the retail trade and services sectors benefit- lower growth, down from 3.0 percent in 2022, was caused ed from demand from oil, construction, and other sectors. by weaker wood and manganese production, which were However, restaurants, bars, and other nighttime services impacted by lower demand, higher fuel costs, and railway continue to suffer the negative consequences of curfews disruptions. Heavy rain and landslides destroyed a kilo- that have remained in place since the August elections. meter of tracks in the country’s only railway at end-2022. Wood and manganese shipments were halted for several The overall economic impact of the coup has not been weeks, disturbing production in the first part of the year. significant. The regime change that took place in August The wood industry in particular also suffered from difficul- 2023 has thus far brought minimal adverse impacts to over- ties in securing log supply due to insufficient rail cars to all economic activities. Following the coup, a large mining meet demand for wood transportation. In addition, firms firm suspended its activities for one day, but other firms, have been facing higher energy bills since the removal of including major commodity exporters, chose to contin- fuel subsidies for industrial consumption from mid-2022. ue their business activities. Likewise, political disruptions In Gabon, the performance of the wood and manganese from the coup have been contained. The authorities have sectors is significantly affected by issues relating to the pledged to respect Gabon’s international commitments quality of transport infrastructure, particularly railways, and progressively normalized international relations, with and energy supply (Table 1). Yet, manganese production several visits by the Head of State and other officials to re- has been showing strong signs of a recovery in early 2024, gional partners (Box 1). following the challenges observed in the previous year. Manganese output grew by 43.2 percent (y-o-y) in the first On the demand side, growth in 2023 was mainly driven quarter of 2024, reaching 2.44 billion tons. by oil and agricultural exports, and by public invest- 8 Gabon Economic Update 2024 Table 1. Selected macroeconomic and fiscal indicators Percent of GDP, unless indicated otherwise 2019 2020 2021 2022 2023e Real GDP growth (%) 3.9 -1.8 1.5 3.0 2.3 Per capita GDP (USD, nominal) 7,524 6,680 8,636 8,840 8,414 Oil sector 21.9 15.5 20.4 27.4 24.2 Agriculture and forestry 5.6 6.6 6.0 5.6 5.8 Industry (including oil) 47.7 41.6 50.9 57.4 52.9 Services 40.5 44.9 38.7 33.2 36.4     Private consumption 37.7 42.0 32.9 30.2 34.1 Public consumption 11.0 13.2 11.4 10.5 11.1 Gross fixed capital formation 21.9 19.9 16.8 15.6 17.2 Exports, goods and services 51.4 47.5 55.5 60.3 55.0 Imports, goods and services 22.0 22.6 16.6 16.6 17.4     Government revenues 19.5 17.6 14.7 20.4 22.9 Public expenditures 18.2 19.8 16.6 21.2 23.9 Fiscal balance 1.4 -2.1 -1.8 -0.8 -1.0 Public debt 59.8 78.3 70.2 63.6 70.5     Current account balance 23.0 20.7 30.1 35.2 28.7 Trade balance 29.4 24.9 36.1 43.6 37.5 Net FDI inflows -0.3 0.7 2.1 4.6 5.5     Inflation (growth) 1.0 1.6 1.1 4.3 3.7 Total population (millions) 2.2 2.3 2.3 2.4 2.4 Nominal GDP (CFAF billions) 9,887 8,815 11,211 13,144 12,444 Nominal GDP (USD millions) 16,874 15,314 20,218 21,118 20,502 Sources: WDI, BEAC, Gabonese authorities and World Bank staff calculations. Note: e = estimate. ments and consumption. Oil and agricultural exports 3. Inflationary pressures started increased by 3.1 percent and 17.6 percent, respective- to abate, but poverty increased ly, in 2023, supported by still high demand from Asia. due to populational growth, high Public spending on infrastructure projects increased, with ongoing projects getting accelerated and new ones unemployment, and insufficient being implemented in late 2023, with further increases economic expansion expected in 2024. Large-scale projects included electric- ity and water expansions, water treatment centers, and Inflationary pressures slowly abated over the course rehabilitations and expansions of national roads, includ- of 2023 and early 2024, reflecting the tightening mon- ing the Transgabonese highway connecting the capital etary policy adopted by BEAC, price controls, and de- to Franceville, Gabon’s third-largest city, located in the clining global inflation. The consumer price index was at Eastern part of the country. Public works on urban roads 2.3 percent in January 2024 (y-o-y), in a gradual but steady were also launched in the country’s main cities. Likewise, decline from its peak in late 2022, at 5.8 percent (Figure 6). public consumption increased over the year, in the runup Inflation in Gabon was therefore brought back below the to the general elections organized in August and increased CEMAC regional convergence criteria of 3.0 percent from spending by the transition authorities. Private investments August 2023 onward. While also decreasing from a peak at in the oil sector also represented an important contribu- 8.9 percent by late 2022, food prices still stood at 4.4 per- tion to the economy in 2023 (Figure 5). cent in January 2024 (y-o-y). Imports also contributed to 9 Gabon Economic Update 2024 Box 1. Political events shaping Gabon’s transition General elections were held in Gabon on August 26, 2023, and electoral results were not announced for four days, amid strong political and social tensions. The country was placed under nighttime curfews and internet service was blocked. On the night of the 30th, incumbent President Ali Bongo, in power since 2009 and competing for a third term, was announced as winner. Shortly after the announcement, the President was deposed by a non-violent coup led by members of the defense and security forces, with broad popular support. The coup has put an end to more than five decades of rule by the Bongo family - Ali Bongo’s late father Omar Bongo had ruled from 1967 until his passing in 2009. Gabon thus entered a two-year transition period, with the stated objective of strengthening governance and institutions. The calendar of transition steps was adopted in November 2023, a key step that allowed the country to normalize its foreign relations. An important milestone in the transition has been the recent organization of a national dialogue on the country’s institutions and future political life. Chaired by the Catholic Archbishop of Libreville, the national dialogue was organized in April 2024 to lay the ground- work for the country’s political future following the transition. It was attended by 676 representatives of political parties, civil society, religious groups, social movements, the diaspora, and other entities. Dedicated committees were formed to analyze about 38,000 individual contributions that were submitted prior to the dialogue. The dialogue produced a report with proposals for the government, which included: establishment of a presidential regime with a seven-year presidential term; suspension of all political parties, and adoption of new rules for creation of future parties; mainte- nance of a two-year transition calendar with a possibility of one-year postponement under exceptional circumstances; promotion of economic diversification with a focus on local industrial production, increased national content, and food security; and stronger focus and resource allocations for the health sector and vocational training. Calendar of key political events and transition steps • August 26, 2023: Presidential, legislative, and local elections held in Gabon. • August 30, 2023: Announcement of electoral results and deposition of the government in a coup led by members of the defense and security forces; establishment of the Committee for the Transition and Restoration of Institutions (CTRI); temporary border closures and suspension of the Constitution and dissolution of public institutions. • September 2, 2023: Transition Charter issued by the CTRI. • September 4, 2023: General Brice Oligui Nguema inaugurated as Transition President and Head of State; new members appointed for a transitional Constitutional Court. • September 7-12, 2023: Appointment of Prime Minister Raymond Ndong Sima and formation of a transitional government, Senate, and National Assembly, which included members from the military and civilians from opposition parties, civil society, and the previous ruling party. • September-December 2023: Normalization of relations with development partners including the World Bank, the African Development Bank, and the IMF. • March 9, 2024: Readmission of Gabon into the Economic Community of Central African States (ECCAS) and lifting of sanctions, which were in place following the coup. • April 2-30, 2024: National dialogue held to discuss social, economic, political, and institutional reforms. • June 2024: Transformation of Parliament into a Constitutional Assembly. • August-October 2024: Preparation of a draft Constitution. • November-December 2024: Adoption of the Constitution by popular referendum. • Early 2025: Adoption of a new electoral code. • April 2025: Revision of the electoral register. • July 2025: Distribution of voter registration cards. • August 2025: Presidential elections and establishment of a new constitutional government. inflation in Gabon, as a result of its strong reliance on food cent in January 2024 (y-o-y), reflecting the effect of subsi- imports, which cover about 60 percent of its nutritional dized fuel consumption. needs. In January 2024, inflation of imported products stood at 3.7 percent (y-o-y), higher than the variation in The government has continued to expand measures to prices of local products (2.2 percent). On the other hand, contain the rise in living costs over 2023 and further on energy prices continued to moderate, standing at -0.7 per- in early 2024. By mid-2023, a revised list of 67 imported ba- 10 Gabon Economic Update 2024 Figure 3. Despite diversification efforts, the oil sector still remains key for Gabon’s economy 15 100% 10 80% 5 60% 0 40% -5 20% -10 0 2018 2019 2020 2021 2022 2023e 2024f 2018 2019 2020 2021 2022 2023e 2024f Oil GDP Non-Oil GDP Real GDP Oil GDP Non-Oil GDP Sources: Gabonese authorities and World Bank staff calculations. Preliminary data for 2023; World Bank projections for 2024. Figure 4. Gabon: Supply-side contribution to Real Figure 5. Gabon: Demand-side contribution to GDP Growth (in percent), 2019-2024 Real GDP Growth (in percent), 2019-2024 4.0 20.0 3.0 15.0 10.0 2.0 5.0 1.0 0 0 -5.0 -1.0 -10.0 -2.0 -15.0 2019 2020 2021 2022 2023e 2024f -3.0 Private consumption Government 2019 2020 2021 2022 2023e 2024f consumption Gross xed capital formation Agriculture Industry and mining Change in inventory Net exports Services Oil GDP growth Sources: Gabonese authorities and World Bank staff calculations. Preliminary data for 2023; World Bank projections for 2024. sic food items benefiting from tax reductions and fixed pric- and fines for non-compliant food sellers. The government es was announced by the government, as part of its program has also maintained a subsidy on wheat flour and extended to contain living costs (Programme de lutte contre la vie chère the age limit for car imports to ten years, to decrease vehicle - Fight Against an Expensive Life), initiated in 2017. This mea- costs. Moreover, while prices were liberalized for industrial sure was adopted following nationwide stakeholder discus- fuel starting in July 2022, subsidies were maintained to con- sions in April, involving consumers, food distributors, and re- trol prices of household fuel consumption, as a way to alle- tail chains. The updated list includes a range of meat, poultry, viate household spending pressures on gasoline, diesel, ker- dairy, rice, and other staple foods, and expands a previous list osene, and butane gas. More recently, new measures were of 48 goods, which had been in place since October 2022. In announced. In January 2024, the authorities announced a late 2023, the authorities stepped up their efforts to monitor further decrease in the price of butane gas, a widely used and enforce such price controls, by increasing inspections energy source for cooking. Then, additional measures were 11 Gabon Economic Update 2024 Figure 6. Inflation (monthly, y-o-y, in percent), January 2020-January 2024 10.0 8.0 6.0 4.0 2.0 0 -2.0 -4.0 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-20 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Consumer Price Index (growth) Food Price Index (growth) CEMAC convergence criteria Source: Gabonese authorities. taken in March, including lower price ceilings of certain food Even in a context of continued recovery and alleviating products and basic construction materials including refined inflationary pressures, poverty is estimated to have cooking oil and cement, to decrease costs of food and access increased, affecting more than one in three Gabonese to housing. Prices were also lowered for air and train tickets. due to high unemployment. High living costs still affect households, a phenomenon exacerbated by high costs of Measures to contain food and energy inflation benefited tariffs, trade, and transportation within the country, which the population, especially the most vulnerable, but they increase costs of imported and local products. In 2022, come at a high cost. In 2023, customs-related VAT benefits Mercer, a consulting firm, ranked Libreville as the second from the Vie chère program costed CFAF 33 billion (0.3 per- most expensive city for international employees in Sub- cent of GDP), and fuel subsidies amounted to CFAF 84 bil- Saharan Africa, and 24th in the world.2 Gabon depends on lion (0.7 percent of GDP). Measures such as tax exemptions imports of food and many other consumer goods, and and fuel subsidies thus have fiscal implications and remain it applied a weighted mean import tariff of 14.5 percent a source of risk to the budget, especially in times of oil price in 2019, one of the highest in the world.3 Official and un- shocks where additional revenues become urgently needed. official fees paid at the border and along trade corridors They also have an opportunity cost, preventing the govern- add about 14 percent of costs of agricultural goods com- ment from building fiscal buffers or from financing its priority ing from Cameroon, whereas costs of trade intermedi- investments projects aimed at boosting growth and improv- ary players add about 39 percent to total costs.4 Living ing living standards. Despite their social goals, the majority standards are thus impacted by high living costs, but of subsidies to gasoline and diesel are actually captured by also by insufficient job creation. Poverty—defined as the the wealthiest households, who are their main consumers of share of Gabonese living on less than USD 6.85 per day, these fuels1 – which indicates that better targeted and less in purchasing power parity—, is estimated to have in- costly policies could be used to support the most vulnerable creased from 32.3 percent in 2022 to 35.2 percent in 2023.5 in a more fiscally and environmentally sustainable manner. Unemployment remains particularly high in Gabon, pre- 1 World Bank. Gabon Economic Update 2023. 2 Mercer 2022. Cost of living city ranking. https://www.mercer.com/en-ph/insights/total-rewards/talent-mobility-insights/cost-of-living/#:~:tex- t=The%20top%2010%20most%20expensive,%2C%20Dushanbe%2C%20Bishkek%2C%20Ankara 3 World Bank, World Development Indicators database. Only ten countries in the world applied a higher weighted mean tariff rate on imports (based on latest data available for each country). 4 World Bank. 2022. Gabon Economic Update. Trading Agricultural Commodities: Reducing Petty Harassment. 5 The poverty rate is defined as the share of Gabonese living on less than USD 6.85 per day, in purchasing power parity, based on the upper middle-income poverty rate (in 2017 PPP). This estimate is based on projections using data from the 2017 national household survey (Enquête Gabonaise pour l’Evaluation et le Suivi de la Pauvreté, EGEP). 12 Gabon Economic Update 2024 venting households from earning incomes. In 2023, an es- substantial part of the population which does not work in timated one in five Gabonese aged fifteen or more would commodity industries cannot directly benefit from growth be unemployed, and nearly a third of youth would neither in these sectors. While the authorities have plans to devel- be working, studying, or be in training, which represents a op sectors with strong growth potential such as agricul- major generational loss in terms of human capital.6 ture, wood, and fisheries, it can be difficult to attract much of Gabon’s urban population to jobs in rural areas. Most formal jobs are in the public sector; the lack of private sector growth and economic opportunities, es- To reverse this situation, initiatives are being devel- pecially for the Gabonese youth, prevents them from oped to support local entrepreneurs and small firms. generating income and rising out of poverty. The pub- Investments are underway to expand access to energy lic administration remains the largest employer in Gabon, and roads. To boost access to credit, in May 2023, Okoumé employing more than 105,000 people—about 57 percent Capital, a subsidiary of the Gabonese Strategic Investment of formal sector jobs—in 2022 (Figure 7). Due to a lack of Fund (FGIS), launched a CFAF 1 billion credit line for local corresponding profiles, two-thirds of job offers tend to firms. More recently, in May 2024 another entity managed go unfilled. Youth are particularly hard hit, with one out by FGIS, the Société de Garantie du Gabon (SGG), signed an of three currently unemployed. Private firms face regula- agreement with Union Gabonaise de Banque, one of the tory hurdles, constraints coming from competition and country’s largest banks, to provide an additional CFAF 1 bil- trade policies, and inadequate access to credit and energy, lion in guarantees to support financing for SMEs. Reforms which all hinder their capacity to invest and create more are also being considered to establish an institutional jobs.7 Private investment is concentrated in the oil sector, framework for self-employed entrepreneurs. The transition which represented 31 percent of investments in 2023. government identified the promotion of private firms and However, as the oil industry requires a smaller number of jobs as central to improve living conditions. As a result, a jobs, it represents only about 5.0 percent of private jobs. new institution named Banque pour le Commerce et l’En- Despite the continuous recovery, a significant contribution treprenariat du Gabon was created in March 2024 to pro- to growth still comes from capital-intensive extractive in- mote entrepreneurship among young people and SMEs dustries, which do not create sufficient jobs. As a result, the throughout the country. About CFAF 4 billion has already Figure 7. Employment per sector (percent of formal private and public jobs), 2022 Private employment (79,963 jobs) Public employment (105,063 jobs) Mining 3% Non-permanent workers Oil 12% 5% Wood General public 19% administration Agriculture State entities 22% 12% 4% Banks and Agroindutry Social a airs insurance 6% 10% 4% Other Retail industries 11% Central 8% administration Water, 13% electricity Education re nery Economic a airs Services 24% 8% 10% Public 7% Transport Development a airs Transport works 1% and telecom 5% 4% 10% Source: Gabonese authorities. 6 According to estimates from the International Labor Organization, in 2023, 20.4 percent of Gabonese aged 15 or above would be unemployed, and 29.3 percent of youth would not be in employment, education, or training. 7 World Bank. 2022. Gabon - Country Economic Memorandum: Toward More Inclusive and Greener Growth. 13 Gabon Economic Update 2024 been allocated to this new entity, but the institution still September 2022 and 2023, from 34.2 percent to 36.7 per- needs approval by COBAC, the regional banking regulator, cent of all credit provided by commercial banks. before it can begin operations. Further actions to create more jobs and stimulate local entrepreneurs are urgently Yet, access to credit remains limited, hindering firms’ needed to achieve more meaningful poverty reduction in ability to secure funds to invest and grow their opera- the coming years. tions. Domestic credit to the private sector reached about 14 percent of GDP in 2023, whereas in the previous year 4. Access to credit expanded, but the average in Sub-Saharan African countries was nearly limited lending to private firms 36 percent of GDP. In addition, with much of the financial sector involved in lending to the government and large remains a constraint for economic firms in extractive industries, SMEs face even more severe growth in Gabon constraints to obtain access to credit, due to high interest rates, the absence of a credit bureau, and lack of transpar- While BEAC maintained a tight monetary policy, credit ent business records and guarantees. to the economy expanded in 2023. As of end-Septem- ber 2023, credit to the private sector had increased by In late 2023, the government settled domestic arrears, 13.8 percent (y-o-y), reaching CFAF 1,810 billion (Figure 8). thereby contributing to injecting liquidity into the This has been driven by demand from firms in extractive private sector and to reducing the ratio of non-per- industries, public works, retail services, and transport, in forming loans. In September 2023, a task force with of- line with expanding investments and overall activity in ficials from different agencies was re-established to audit these sectors, such as private investment in oil explora- the country’s domestic debt. Following its verifications, tion and the implementation and acceleration of public the government proceeded to settling domestic arrears. infrastructure projects. During the same period, lending CFAF 85 billion were disbursed to pay overdue debt to to the state expanded by 18.2 percent (y-o-y), amounting around 300 companies, leading to higher liquidity and an to CFAF 1,769 billion. A significant factor for this rise was improved financial situation for these firms, in turn allow- the increased issuance of Treasury bonds and bills in the ing them to settle payments due to social security and tax- regional market (CFAF 179.8 billion), in line with Gabon’s es. Non-performing loans also decreased slightly, stand- strategy of increasing its reliance on regional financing ing at 7.58 percent of total gross loans at end-2023, a 0.8 sources. Banks’ acquisition of public securities led to an in- percent drop compared to the previous year. Furthermore, crease in the share of lending to the government between the authorities have committed to avoiding the accumu- lation of new arrears to private firms, and also to interna- tional creditors. Other initiatives underway include the Figure 8. Monetary policy rates and credit to the reactivation of interministerial treasury meetings and of economy, January 2020-December 2023 settling payments by order of arrival. Taking measures to institutionalize and ensure the long-term enforcement of 6.0 2000 disciplined and timely debt payments would contribute to 5.0 improving public procurement, with higher credibility and 1500 predictability for firms involved in government purchases 4.0 of goods and services. 3.0 1000 As for financing costs for the government, regional 2.0 500 and international markets remained accessible, but 1.0 at higher costs. In the immediate aftermath of the coup, the credit agency Fitch Ratings had placed Gabon’s out- 0 0 look as ‘rating watch negative’. Gabon’s spread increased 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 substantially due to the strong political uncertainty pre- vailing at the time. It then gradually fell, while remaining Credit to the economy (billions CFAF) slightly above pre-coup levels, reflecting the stabilization TIAO (policy rate, percent) of the political situation. Fitch’s rating was upgraded to stable in January 2024 due to the easing of political un- Source: BEAC. Projection for credit to the economy for 2023Q4. certainty. Regarding the regional market, after a significant 14 Gabon Economic Update 2024 rise following the coup, the cost of borrowing fell sharply. 10 and Table 2). Despite a 20 percent decline compared Gabon was able to raise the full targeted amount in 9 out to 2022, oil revenues remained high thanks to a higher oil of the 13 securities issuances launched on the market since production, along with high corporate taxes levied on oil the coup, both for Treasury bills and bonds. Gabon mobi- firms’ previous year’s profits, which allowed Gabon’s reve- lized CFAF 167.3 billion (equivalent to USD 275 million) in nues to reach 22.9 percent of GDP. Indeed, income taxes regional financing during the last four months of 2023, paid by oil firms—which are paid based on profits from the allowing the country to close the year with total region- previous year—rose by 80.2 percent, to 4.3 percent of GDP. al financing surpassing the budget estimate by CFAF 35.1 Initiatives to mobilize more domestic revenues led to a 44 billion. An additional CFAF 158.4 billion (USD 260 million) percent increase in non-oil tax revenues, to 10.4 percent of was mobilized in January and February 2024. Since April GDP in 2023. Most taxes were levied on consumption (3.4 2024, a further rise in spreads has taken place, which could percent of GDP), income and profits (3.3 percent of GDP, be explained by the organization of the national political excluding oil firms), and imports and exports (3.2 percent). dialogue, around which political tensions have once again Ongoing tax measures include limitations of tax incentives, risen (Figure 9). VAT rate increases, the effective introduction of the single property tax in early 2023, the digitalization of customs 5. Fiscal revenues increased in 2023, offices at the Northern border through its connection to but a strong rise in public spending the Sydonia World system at end-2023, and more recently, the launch of a new digital platform for tax payments in has reduced fiscal space, contributing early 2024. Customs revenues also increased due to high- to higher debt risks er import volumes, inflationary impacts, and improved tax assessment methods for manganese exports. The govern- Fiscal developments ment collected CFAF 276.1 billion in tax and customs reve- nues in January and February 2024, representing about 2.2 Benefiting from strong oil production and oil prices percent of GDP. Revenue collection is expected to remain that remained relatively high, and stepped-up tax col- sustained over 2024. lection efforts, government revenues reached an esti- mated CFAF 2,848 billion in 2023, the highest level in The wide use of tax incentives leads to a substantial recent years. Between 2022 and 2023, total revenues rose loss of revenues. In 2023, tax expenditures were estimat- from 20.4 percent of GDP to 22.9 percent, to a large extent ed at CFAF 352 billion, equivalent to 2.8 percent of GDP due to revenues derived from commodity sectors (Figure and 19 percent of tax revenues. Certain tax exemptions are Figure 9. Recent evolution of financing conditions for Gabon Emerging Market Bond Index Yield curve for Gabonese securities (spread in basis points) on the regional market 1200 12.0 1000 10.0 800 8.0 600 6.0 400 4.0 2.0 200 0 0 3 months 6 months 1 year 1.5 years 2 years 3 years 3.5 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 Gabon spread Africa spread Jul-23 Sep-23 Mar-24 Sources: World Bank and BEAC. 15 Gabon Economic Update 2024 Figure 10. Government revenues (percent of to rationalize and improve controls of tax exemptions and GDP), 2019-2024 incentives could be highly beneficial to public finances, al- leviating fiscal pressures. 25.0 Public spending was considerably higher in 2023; 20.0 higher investments, wage bill, and other costs brought spending to an estimated CFAF 2,970 billion (23.9 15.0 percent of GDP), resulting in a fiscal deficit estimat- 10.0 ed at 1.0 percent of GDP, up from 0.8 percent of GDP in 2022. Total expenditures rose by 12.5 percent in 2023, 5.0 as a result of spending pressures on several fronts (Figure 11). Spending increased in the run up to the August elec- 0 2019 2020 2021 2022 2023e 2024f tions, and as the transition authorities continued a higher spending policy in response to elevated social expecta- Oil revenues (incl. CIT) tions. Spending on goods and services thus increased to Income taxes (excl. CIT on oil) Taxes on trade 2.7 percent of GDP in 2023, whereas capital expenditures VAT and indirect taxes registered a sharp 76.6 percent increase, reaching 3.1 per- Other taxes cent of GDP. In late 2023, as part of a strategy to modernize Grants and other revenues and expand infrastructure, the authorities accelerated the implementation of ongoing investments and launched Sources: Gabonese authorities and World Bank staff calculations. new public works in roads, and energy and water services. Estimates for 2022 and 2023 and World Bank projections for 2024. Also, the wage bill expanded to 6.2 percent of GDP during Other taxes include items such as tax fines and taxes on forestry. Other revenues include state participations, revenues from this period, as a public sector hiring freeze that had been licenses, permits, and others. in force since 2018 was lifted by the transition authorities. Regularizations of existing workers and new hiring led to used in a strategy to contain living costs and have import- a 3.8 percent increase in public employment at the cen- ant social implications in sustaining households’ purchas- tral government, reaching 104,744 public employees. ing power. For instance, exemptions on imports of staple The government also increased spending on debt service foods adopted under the Vie chère program represented and settled domestic arrears in the last months of 2023. about 9 percent of total foregone revenues. Other tax ben- Meanwhile, spending on fuel subsidies remained high at efits are provided to incentivize firms in different sectors. In CFAF 84 billion in 2023 (0.7 percent of GDP), even if it sig- particular, the wood sector is the most heavily subsidized, nificantly decreased from CFAF 193 billion in 2022 due to absorbing 96 percent of incentives for the corporate in- the decline in oil prices and the removal of subsidies for come tax, or CFAF 18.1 billion (5 percent of total tax expen- industrial consumers since mid-2022. More recently, fuel ditures). Wood industries are the majority of firms located subsidies to the Société d’Energie et d’Eau du Gabon (SEEG), in the Nkok special economic zone, in which tax incentives the national electricity utility, were reintroduced in early are provided to support local wood transformation.8 With 2024, raising risks of a resurging fiscal cost in support of respect to domestic VAT incentives, the most benefiting subsidies. sectors are oil refinery (at a cost of CFAF 70.7 billion), wa- ter and electricity distribution (CFAF 18.8 billion), and food Most public spending in 2023 was allocated to defense sales (CFAF 16.8 billion). In view of the high cost of fore- and security, education, and health, but low develop- gone revenues to the budget, it is important to rationalize ment outcomes indicate the need to improve target- tax expenditures, improve their targeting, and strengthen ing, volumes, and efficiency of social spending. The the control of social and economic benefits. It is also neces- 2023 budget law allotted, respectively, 11.4 percent, 9.1 sary to ensure a better alignment and coordination across percent, and 5.6 percent of the total budget to these three government agencies involved in granting and controlling areas. Allocations to education amounted to 1.6 percent them. In recent years, certain actions have been taken to of GDP, half of public spending in this area in Sub-Saharan audit sectors benefiting from tax incentives, and to reduce Africa. Learning outcomes need to be improved to build the amount and period of tax benefits. Yet, stronger efforts human capital, as in 2019 nearly a third of children at the 8 For more information on tax incentives and other fiscal policies for the wood industry, please refer to Chapter 2 of this Economic Update. 16 Gabon Economic Update 2024 Figure 11. Public expenditures (percent of GDP), 0.5 percent of GDP, equal to six percent of the average 2019-2024 spending of countries in its income group.10 25.0 Both revenues and expenditures were higher than initially foreseen in the 2023 Budget law. Due to low- 20.0 er oil prices compared to 2022, oil revenues reached only 75 percent of budgeted amounts. However, tax revenues 15.0 surpassed budgeted amounts by 27 percent in 2023, to a 10.0 large extent due to income taxes paid by oil firms based on profits from 2022, a period of higher oil prices. In ad- 5.0 dition, tax and customs collection rates were particularly 0 high during the last quarter of the year, amounting to, 2019 2020 2021 2022e 2023e 2024f respectively, 125 percent and 140 percent of the goals es- tablished in the budget law as a result of domestic reve- Public investments Transfers and subsidies Wages and compensation Interest payments nue mobilization efforts taken by the new Government as Goods and services Other expenditures part of a strategy to fund higher spending needs. Revenue collection has continued to exceed the budget’s goals in Sources: Gabonese authorities and World Bank staff calculations. January and February 2024. On the spending side, in 2023, Estimates for 2022 and 2023 and World Bank projections for 2024. public spending exceeded budget estimates by 36 per- Other expenditures include spending on social assistance and cent. Actual spending was particularly high for fuel subsi- healthcare (Caisse nationale d’assurance maladie et de garantie sociale, CNAMGS), VAT refunds, and earmarked expenditures. dies (187 percent of the budget allocation) and for goods and services (150 percent), which may be explained by the age of ten were unable to read and understand a simple electoral context (Figure 12). To ensure a more credible and text. Spending on health was estimated at 1.0 percent of feasible budget and reduce fiscal slippage risks, the coun- GDP, yet strong improvements are needed in access to try would need to improve budgetary controls and execu- healthcare services. In 2020, Gabon had an average 0.6 tion, taking actions to contain discretionary spending and physicians per thousand people, nearly one fourth of the decisions that are not aligned with planned expenditures. average upper-middle income country.9 Allocated spend- Enhancing budget realism and credibility would also be ing on social protection and assistance amounted to only crucial. Figure 12. Budget execution (budget law vs. actual spending), 2023 Government revenues Public spending Oil revenues Interest payments Direct taxes (excl. CIT on oil) Payroll Total transfers Customs and subsidies Indirect taxes Investments Tax revenues Goods and services CIT on oil rms Fuel subsidies Total revenues Total expenditures 0% 50% 100% 150% 200% 0% 50% 100% 150% 200% Sources: Gabonese authorities and World Bank staff calculations. 9 World Bank, World Development Indicators database. In 2019, upper middle-income countries had on average 2.2 physicians per 1,000 people. 10 World Bank, Prosperity Data360 database. Upper middle-income countries spent on average 9.0 percent of GDP on social protection in 2014- 2015 (average for 40 countries for which data was available). 17 Gabon Economic Update 2024 Debt Figure 13. Composition of public debt (percent of total debt), 2023 Gabon’s public debt increased from 63.6 percent of GDP to an estimated 70.5 percent in 2023, driven by lower External - growth, higher interest rates, and additional arrears bilateral External - caused by cash flow management issues. The total debt 9% multilateral Domestic - 20% stock stood at CFAF 8,773.1 billion at end-2023. Domestic Treasury bills, and external debt combined represented 57.4 percent of arrears and others GDP by December 2023, and had slightly declined to 56.4 19% percent by March 2024. However, other components were identified by the authorities since the transition started, Domestic- such as unpaid budgetary commitments, arrears on VAT interest refunds and salaries, and Treasury bills, which amounted on arrears External - 2% Eurobonds to 13.1 percent of GDP, bringing total debt to 70.5 per- 17% cent of GDP at end-2023. In addition, in 2023 increased Domestic - cash flow pressures in a context of elections led to high- loans External - 9% commercial er unpaid commitments, VAT arrears and others. In terms 2% Domestic - bonds of composition, apart from these additional components, (regional markets) external debt represented about 59 percent of total debt, 22% comprised mostly of Eurobonds, in addition to multilateral debt, mainly owed to the IMF, AfDB, and the World Bank. Sources: Gabonese authorities and World Bank staff calculations. Bilateral and commercial debt represented a smaller share, Data as of December 31, 2023. The domestic debt category of ‘Treasury bills, arrears, and others’ includes domestic, VAT and owed mostly to Chinese and French creditors. Domestic salary arrears, unpaid budgetary commitments, and legal debt. debt accounted for 41 percent of debt and was owed mostly to creditors in the regional financial markets and, to 2024, arrears had further increased to CFAF 146 billion. The a lesser extent, local banks (Figure 13). recurrent accumulation of domestic and external arrears over recent years raises financing costs and is a hindrance In view of high spending pressures and fiscal risks, en- to higher credibility vis-à-vis the country’s creditors. Indeed, hancing the efficiency of spending and strengthening it can compromise financing stability, especially in an event domestic revenue mobilization are essential to ensure of tighter financing conditions and higher global econom- that the debt trajectory remains sustainable. Gabon’s public debt surpassed the CEMAC’s regional threshold of Figure 14. Fiscal balance and public debt 70 percent of GDP in 2023, and the debt-to-GDP ratio is (percent of GDP), 2019-2024 expected to rise further in the medium term without the adoption of impactful fiscal measures (Figure 14). The IMF 80.0 4.0 Debt Sustainability Analysis performed in early 2024 as- 3.0 70.0 sessed that debt sustainability had deteriorated since mid- 60.0 2.0 2022, with a high risk of debt distress, especially if a strong 1.0 50.0 and sustained fiscal consolidation policy is not adopted. 0 40.0 -1.0 The country could embark on a trajectory of spiraling debt 30.0 -2.0 given the higher interest costs and the high spending 20.0 -3.0 needs coming from the wage bill and social support mea- 10.0 -4.0 sures, coupled with investments planned in the National 0 -5.0 Development Plan for the Transition (PNDT). 2019 2020 2021 2022e 2023e 2024f External debt (lhs) Domestic debt (lhs) The authorities are stepping up their efforts to improve Overall balance (rhs) Primary balance (rhs) debt and cash flow management, but the accumula- tion of external arrears remains a cause for concern. As Sources: Gabonese authorities, IMF, and World Bank staff calcula- of end-2023, the stock of external arrears was estimated tions. Total debt for 2023 and 2024 is comprised of external and at CFAF 123 billion (1.0 percent of GDP), including arrears domestic debt, including arrears on VAT refund, suppliers, and on commercial, bilateral, and multilateral debt. By March salaries, and Treasury bills. 18 Gabon Economic Update 2024 Table 2. Gabon: Selected fiscal indicators Percent of GDP (unless otherwise stated) 2020 2021 2022 2023e 2024f Total Revenue and Grants 17.6 14.7 20.4 22.9 20.0 Oil revenues 6.8 5.3 10.4 10.5 8.4 Non-oil tax revenues 9.9 8.7 7.2 10.4 10.1 Non-tax revenues 0.9 0.7 2.9 2.0 1.5 Grants and other revenues 0.0 0.1 0.0 0.0 0.0 Total Expenditures 19.8 16.6 21.2 23.9 23.9 Current Expenditures 16.2 13.3 14.3 14.6 15.1 Wages and Compensation 7.7 6.1 5.9 6.2 6.2 Good and Services 2.3 2.1 2.5 2.7 2.4 Transfers and Subsidies 2.8 2.4 3.4 2.9 3.4 Interest Payments 3.4 2.8 2.5 2.8 3.1 Other expenditures 0.8 0.9 5.1 6.1 4.9 Public Investments 2.7 2.4 1.8 3.1 3.9 Overall Balance (commitment basis) -2.1 -1.8 -0.8 -1.0 -3.8 Primary Balance 1.2 0.9 1.7 1.9 -0.7 Total public debt  78.3 70.2 63.6 70.5 73.7 Total external debt 46.0 37.8 34.4 34.1 34.7 Nominal GDP (CFAF billions) 8,815 11,211 13,144 12,444 12,565 Sources: Gabonese authorities and World Bank staff calculations. Preliminary data for 2023; World Bank projections for 2024 (please refer to Box 2 for further details on projections). Due to data availability issues, total debt in 2020 did not include components such as VAT and salary arrears, and Treasury bills. Box 2. World Bank fiscal assumptions The fiscal forecast presented for 2024 are based on a 3.0 percent growth rate. Oil revenues are expected to decline in 2024 while the ongoing trend of rising government spending, observed over 2022 and 2023, is expected to continue. Major public investments are underway, to expand infrastructure and public services, and higher social expectations in the context of the transition are translating to rising spending on social support. Thus, the government will face chal- lenges to further mobilize domestic revenues to meet its financing needs and to ensure the sustainability of the fiscal and debt position. The key assumptions for 2024 are based on the following factors and trends: • Oil revenues (including CIT on oil): expected to decline to 8.4 percent of GDP, in line with government projec- tions, due to lower oil prices (about USD 80 per barrel in 2024). • Non-oil tax revenues: expected to decline slightly to 10.1 percent of GDP, compared to 11.3 percent of GDP foreseen in the 2024 budget law given that other taxes and non-tax revenues are expected to be lower than government projections, as actions to expand taxes such as the single property tax would take more time than expected by the government. Also, projections are more conservative for non-tax revenues (such as ‘’comptes des correspondants’’) which are considerably lower in historical periods. • Current expenditures: expected to increase to 15.1 percent of GDP, compared to 14.1 percent of GDP foreseen in the 2024 budget law notably due to new social measures introduced by the transition authorities such as expansion of fuel subsidies and transfers and a higher wage bill, as spending on these items tends to surpass budget allocations (projected 6.2 percent of GDP vs. 6.1 percent allocated for wages and projected 3.4 percent of GDP vs. 2.8 percent allocated for transfers and subsidies). • Capital expenditures: expected to increase to 3.9 percent of GDP, roughly in line with government projections, to cover large investment projects foreseen in the 2024 budget law. 19 Gabon Economic Update 2024 Box 2. World Bank fiscal assumptions (continued) Economic recovery has been slower than expected and deterioration in public finances more pronounced than initially anticipated. A comparison of short-term forecast made in early 2023 with preliminary estimates indicates that the fiscal position has been deteriorating in 2023 and is expected to further decline in 2024 comparing to initial projections, on the back of higher spending pressures mentioned above. Besides the deteriorating fiscal position, estimated growth in 2023 was lower than initially forecasted, notably due to transport disruptions that affected wood and manganese output. On the other hand, inflation is expected to be lower in 2024 than previously foreseen, due to lower global infla- tion, expanded price controls, and a continuously tight monetary policy. Furthermore, data revisions carried out by the Central Bank resulted in higher external positions, comparing to earlier projections. Comparison of 2023 vs. 2024 forecast 2023 Economic Update 2024 Economic Update Indicator 2023f 2024f 2023e 2024f GDP growth (%) 3.1 3.0 2.3 3.0 Inflation (%) 3.2 2.5 3.7 2.4 Fiscal balance (% of GDP) 2.1 2.6 -1.0 -3.8 Current account balance (% of GDP) 21.4 23.1 28.7 29.2 Source: World Bank staff calculations. Projections for 2023 Economic Update were based on information available as of April 2023. Estimates and projections for 2024 Economic Update are based on information updated as of April 2024. ic uncertainty, which would see capital flight towards low- wood and mining exports, which decreased by, respectively, er-risk markets. To address this issue, between late 2023 and 10 percent and 3.5 percent during this period. As a result, early 2024 the transition authorities have been carrying out total exports declined by 12.6 percent, in nominal terms. On steps to improve transparency and visibility of public financ- the other hand, nominal imports remained overall stable in es. In late 2023, approximately CFAF 380 billion was used by 2023. The trade balance is thus estimated to have declined the government to settle external arrears, while domestic to 37.5 percent of GDP in 2023, down from 46.3 percent of arrears were paid at a cost of CFAF 85 billion. This effort, in GDP in the previous year, whereas the current account sur- addition to the restoration of the constitutional court and plus decreased from 35.2 percent of GDP to an estimated the installation of a transitional assembly and parliament, 28.7 percent over the same period (Figure 15). enabled the country to regain access to concessional financ- ing from multilateral agencies, much of which had already Figure 15. Recent evolution of Gabon’s trade, been suspended prior to the transition due to non-payment 2019-2023 of debt within due dates. A settlement strategy is planned to cover remaining external arrears in 2024. 9,000 50 8,000 6. Gabon’s external position 7,000 40 6,000 CFAF billion continues to benefit from strong % of GDP 5,000 30 commodity exports, even if with a 4,000 20 smaller trade surplus 3,000 2,000 10 1,000 Gabon’s trade surplus remained high in 2023 but was 0 0 affected by relatively lower oil prices and a weaker 2019 2020 2021 2022 2023e performance in wood and manganese exports. Even if Exports (lhs) Imports (lhs) oil export volumes increased, crude prices declined from Trade balance (rhs) Current account USD 97.1 to USD 80.8 between 2022 and 2023, lead- balance (rhs) Oil exports (lhs) ing to a 15 percent reduction in the value of oil exports. Furthermore, as previously mentioned, high energy costs, Sources: BEAC, Gabonese authorities, and World Bank staff transport disruptions, and weaker Asian demand impacted calculations. 20 Gabon Economic Update 2024 Gabon’s export basket remains highly concentrated, and trade costs. It also increases exposure to imported with products derived from three commodities—oil, inflation, as evidenced by higher wheat prices following manganese, and wood—accounting for 83 percent of the war in Ukraine. Currently in preparation, the National all exports in 2023. Oil alone accounted for 68 percent, Development Plan for the Transition focuses on developing the remaining share comprised mostly of manganese, agriculture and fisheries as a strategy to lower food pric- wood, and agricultural goods, notably palm oil and rubber es, create more jobs, and enhance food security. Indeed, (Figure 16). Gabon also continued to rely strongly on Asian Gabon has potential to become a more prominent export- markets, which consumed about two thirds of its exports er of oil palm, coffee, cocoa, rubber, and other goods, as in 2023, with China alone absorbing more than a third of it has around five million hectares of fertile land, of which total exports. The Asia and Pacific region absorbed 81 per- more than 90 percent is not exploited. Also, in 2023 fish cent of Gabonese oil exports in the first quarter of 2024. production amounted to about 30,000 tons, 13 percent of Meanwhile, only three percent of exports were directed the estimated potential for sustainable fisheries. The abun- to African countries, and one percent to the CEMAC re- dance of fertile land and fish stocks offers a potential for gion. Despite the opportunities that could come from the Gabon to sustainably develop agricultural and fishing ac- African Continental Free Trade Area, low levels of integra- tivities, diversifying exports and reducing unemployment. tion, logistical and infrastructure challenges, and regulato- ry barriers such as road inspections and difficulties in bor- 7. Outlook: Gabon’s modest recovery der compliance remain barriers for realizing the potential is expected to continue, against from intraregional trade. higher risks Another yet to be realized potential comes from agri- culture, as Gabon has abundant arable land and fish Despite a challenging international context, over the stocks. A large share of imported consumption goods coming years Sub-Saharan African economies are ex- was comprised by food imports, which represented about pected to have a stronger rebound compared to 2023, 20 percent of total imports,11 even though government on account of gradually easing inflationary pressures programs have been carried out over the years in an at- and financing conditions.12 These would stimulate con- tempt to boost agricultural production. The country relies sumption and investment across the region, especially on imports to cover 60 percent of its nutritional needs, in non-resource rich countries. Moderate fertilizer prices which contributes to high living costs due to high tariffs would benefit agriculture in the region, whereas metal Figure 16. Share of Gabonese exports and imports, 2023 Gabonese imports, 2023 Gabonese exports, 2023 Consumption goods Intermediary goods Oil Agriculture Minerals Capital goods Services Wood Services Source: Gabonese authorities (General Directorate of Economy). 11 General Directorate of Customs. Statistiques douanières : Commerce extérieur et Résultats de la Fiscalité douanière. 2023. 12 World Bank. 2024. Global Economic Prospects. January. 21 Gabon Economic Update 2024 exporters would recover from recent price shocks. Overall, to start in 2025. The wood industry would benefit from a growth in SSA would rise from 2.9 percent in 2023 to 3.8 stable supply of logs to firms in the Nkok special economic percent in 2024 and a further 4.1 percent in 2025. However, zone, whereas increased oil palm and rubber production, lower growth is expected in CEMAC countries, averaging and new palm oil, biodiesel, and gas industries would also at about 2.7 percent over 2024-2025. Going forward, Sub- support growth. Large-scale public works would ben- Saharan Africa faces risks associated to rising political insta- efit the construction sector, while services would grow bility and violent conflicts, financial distress, and adverse following the stronger demand for the transportation of impacts of more severe and frequent droughts, floods, and commodities and from the overall demand generated by other shocks on agriculture and food insecurity. intensifying economic activity. Against this backdrop, Gabon’s modest economic re- Gabon’s exports are expected to continue benefiting covery is expected to continue, driven by a more prom- from the global demand for oil and other commodities, inent non-oil economy. Gabon is projected to grow by especially from Asian markets.13 Even if global growth is about 2.7 percent over 2024-2026 (only 0.7 percent in per set for a further decline in 2024, Gabon’s main export desti- capita terms), mainly sustained by non-oil activity (Figure nations would continue to experience higher growth than 17 and Table 3). Maturing oilfields could result in declining most other regions. The Chinese economy is projected to oil output in the medium term, even though this scenar- grow by 4.5 percent in 2024, against 5.2 percent in 2023, io may be reverted by recent discoveries of important oil whereas India is set to grow by 6.4 percent in 2024, up from reserves, announced in May 2024. Mining, wood, and agri- 6.3 percent in the previous year. While China is experiencing cultural output is projected to expand, supporting overall headwinds and is set to have lower growth than in recent growth. Manganese production would accelerate due to decades, its demand for commodities is still expected to the exploitation of new deposits at Okondja and Okouma, translate into sustained prices for many of Gabon’s top ex- while iron ore extraction, which started in late 2023 in the ports (Figure 18). In particular, oil exports are set to contin- new deposit of Belinga, one of the world’s largest reserves, ue to be strong in 2024, as first quarter data shows an 11.2 would be augmented by exploitation at Baniaka, planned percent growth (y-o-y), even if exports could decline from 2025 onwards due to a potential depletion of oil reserves. Nevertheless, sustained global demand combined with Table 3. Gabon’s outlook: Selected economic a good performance in non-oil commodities, particularly indicators mining and wood, would contribute to Gabon’s external Indicators 2023e 2024f 2025f 2026f balances. This would be contingent on strong performance Annual percentage change of exports of other commodities, notably manganese, iron, Real GDP 2.3 3.0 2.3 2.8 and timber, in line with government efforts to promote Oil sector 3.7 2.3 -1.6 -2.0 these sectors. Imports, on the other hand, would remain relatively stable, and would be driven largely by the imple- Agriculture and forestry 2.1 3.6 5.5 6.6 mentation of infrastructure projects and private investment. Industry (including oil) 3.5 2.2 0.0 4.2 Services 1.5 3.3 3.1 1.1 As for Gabon’s fiscal situation, diminishing oil revenues Inflation 3.7 2.4 2.3 2.2 and rising spending pressures pose important risks to Percent of GDP  the budget. Oil prices are expected to decline gradually over the coming years, impacting government revenues. Government revenues 22.9 20.0 18.8 18.1 Meanwhile, public spending is set to increase in the medi- Public expenditures 23.9 23.9 24.7 23.1 um term, pushed notably by large-scale infrastructure proj- Fiscal balance -1.0 -3.8 -5.9 -5.0 ects and social support measures such as the expansion of Public debt 70.5 73.7 79.1 81.8 fuel subsidies and of scholarships for secondary education. Current account balance 28.7 29.2 28.8 28.4 As a result, larger fiscal deficits are expected for the coming years, which would lead to an increase in the debt-to-GDP Trade balance 37.5 37.8 38.0 37.9 ratio. Furthermore, liquidity pressures could pose risks to Sources: WDI, BEAC, Gabonese authorities and World Bank staff financing capacity, as the country could face challenges to calculations. Note: e = estimate. Projections were made based on data as of April 2024. mobilize financing at international and regional markets. 13 OPEC. 2023. World Oil Outlook 2045. Chapter 3. Oil demand. https://woo.opec.org/chapter.php?chapterNr=1768&tableID=2997 22 Gabon Economic Update 2024 Figure 17. Declining oil production could take place in the medium term, but production of wood, minerals, and agricultural commodities would expand in the coming years 82 12 250 9 80 8 10 200 7 78 8 6 76 150 5 6 74 4 100 4 3 72 50 2 70 2 1 68 0 0 0 2020 2021 2022 2023 2024f 2025f 2026f 2020 2021 2022 2023 2024f 2025f 2026f Oil (million barrels) (lhs) Palm oil (thousand tons) (lhs) Manganese (million tons) (rhs) Rubber (thousand tons) (rhs) Sawn wood (million cubic meters) (rhs) Source: Gabonese authorities. Government projections for 2024 onwards. Note: oil production projections were made based on data avail- able as of April 2024 and do not take into account the potential impacts of recent oil reserve discoveries announced in May 2024. Figure 18. Despite weak global growth prospects, prices for most of Gabon’s main commodities would increase slightly in coming years, providing an opportunity to build reserves Global growth (%) 1400 8.0 1200 6.0 1000 4.0 800 600 2.0 400 0 200 -2.0 0 Crude oil, Sawn wood Manganese Palm oil Rubber Brent (USD/cubic (USD/ton) (USD/ton) (USD cents/kg) -4.0 (USD/barrel) meter) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024f 2025f 2022 2023 2024 2025 2026 Sources: Global Economic Prospects, World Bank staff calculations, and Gabonese authorities. Preliminary data for 2023 and World Bank growth projections for 2024 onwards. Aggregate growth rates are calculated using real U.S. dollar GDP weights at average 2010-19 prices and market exchange rates. In April 2024, the subscription period of Treasury bonds trepreneurial activities. The share of Gabonese living on issued at the regional market was extended for a month, less than USD 6.85 per day is projected to slightly increase which may indicate an insufficient subscription rate re- by about 0.8 percent per year, reaching 36.9 percent of the lated to the political context and a potential increase in population by 2026. The main factors contributing to high- liquidity pressures. er poverty would be an unequal income distribution and lack of economic participation both in terms of jobs and in- In the absence of cash transfer programs, poverty is ex- come-generating activities. The economy remains strongly pected to increase over the coming years, fueled by in- focused on oil and mining industries, which are not job-in- equality, insufficient job creation, and still limited en- tensive. Overall per capita incomes would rise but remain 23 Gabon Economic Update 2024 unevenly distributed, requiring stronger actions to tackle key. Social spending could be stronger and more target- poverty. Social support measures are being expanded but ed, to improve support for vulnerable households. With are almost entirely dedicated to subsidies, as cash transfer regards to revenues, tax collection measures are being programs are nearly absent. Also, social protection spend- taken, including higher wood and mining export duties, ing remains a fraction of typical spending observed in up- higher excise taxes on beverages, and plans to digitalize per middle-income countries. VAT invoices. Yet, further actions may be needed, such as fully digitizing tax and customs administrations, broaden- Overall, while a continued recovery is expected, the ing the tax base, optimizing tax policy, and rationalizing economy faces significant risks. These include geopo- tax and customs exemptions. litical risks linked to trade disruptions due to intensifying war in Ukraine, the ongoing conflict in the Middle East, or Second, improving livelihoods and reversing the trend an escalation of regional tensions in the Sahel. Other fac- of increasing poverty will require strong governance tors that could disrupt growth include higher borrowing reforms. Despite the adoption of recent reforms, gover- costs and inflation, more intense and frequent climatic nance challenges remain. Governance reforms are under- shocks, or weaker growth in China and an associated drop way and improvements in legislation and processes are be- in commodity prices. Gabon also faces high social pres- ing discussed, in areas such as governance of state-owned sures since a political transition was inaugurated, which, entities, public procurement, public investment manage- combined with recent SOE acquisitions and the costs to ment, and cash flow management. Accelerating key ac- support higher wage bills and large investment projects, tions in these areas could derive meaningful gains in terms could lead to uncontrolled public spending and a spiraling of transparency, governance, and an optimal utilization of debt. Furthermore, as mentioned, potential delays in the public funds. For example, it will be important to ensure political transition could trigger regional sanctions, com- the full operationalization of the Treasury Single Account promising Gabon’s strategy of increasing its reliance on and reform procurement legislation to improve efficiency regional markets. and reduce single-source contracting. Likewise, a new SOE governance law, currently under consideration, could help 8. Sustained growth will require strong improve state supervision and transparency over SOEs and reforms and impactful measures to other state-owned assets, including their fiscal risks, allow- ing for better targeting of fiscal transfers to public enti- improve business conditions and the ties. Furthermore, it will be crucial to improve institutional management of public finances controls and transparency of extractive revenues. Gabon’s finances remain highly dependent on oil and higher rev- Economic recovery would continue in the coming enues are expected to come from the mining sector years, but higher growth will need first of all sustain- over the medium term. The country is working to ensure able macroeconomic and fiscal policies, to prevent the compliance with the Extractive Industries Transparency country from embarking on an unviable fiscal trajecto- Initiative (EITI), a global initiative that promotes open and ry. Important fiscal and growth-enhancing policies are be- accountable management of hydrocarbon and mineral re- ing pursued by the transitional government (Box 3). Yet, in sources. The authorities are working on arrangements to view of significant spending needs and fiscal risks, actions enable the publication of oil contracts, which would be a are needed to avoid compromising fiscal and debt sustain- significant step towards higher transparency of state oil ability. Higher fiscal deficits are forecasted in the medium revenues. The publication of an EITI report in mid-2024 will term, amid potentially declining oil revenues, tightened be a key step to allow its first validation under the EITI stan- financing conditions, and rising spending pressures. Costly dards, since its reintegration in 2021. investments are needed to improve access and quality of roads, energy, water, health, education, and social pro- Third, the access and quality of basic public services tection services. To ensure a sustainable fiscal path, it is need to be improved, to build human capital, address essential to calibrate spending plans with fiscal capacity Gabon’s substantial development challenges, and step and improve spending controls. In particular, ensuring a up preparedness to face climate threats. Gabon has one sustainable wage bill, containing the costs of fuel subsidies of the highest income levels in Sub-Saharan Africa, being and SOE acquisitions, and prioritizing investments fore- one of the few countries in the region that has reached seen in the National Development Plan for the Transition upper middle-income status. However, living standards (PNDT) to align them with viable financing sources will be and access to basic services such as health, water, elec- 24 Gabon Economic Update 2024 tricity, and sanitation are below those in most countries population in 2022, comparing to 93 percent in upper mid- of Gabon’s income group. The country faces several de- dle-income countries. These challenges are intertwined, velopment challenges in these and other areas (Table 4). as limited access to improved sanitation and safe water For example, access to sanitation was at 50 percent of the sources, especially in some of Gabon’s regions, has led to Box 3. Economic, fiscal and governance reforms adopted in late 2023 and early 2024 Gabon’s transition government has been implementing a new political vision, with the adoption of several reforms. Over the past months, the authorities have been implementing a series of measures aimed at improving the transparency, effectiveness and governance of public finances, enhancing the management of public debt, and boosting growth and job creation. Economic inclusiveness, living conditions, and job creation: • Adoption of new tax exemptions and price controls on food, butane gas, transport services, and construction material, and reintroduction of fuel subsidies for the electricity utility to contain living costs. • Award of public procurement contracts of up to CFAF 150 million exclusively to local SMEs. • Acquisition of Assala Energy, a major oil producer, to increase local state participation in the oil sector. • Creation of Fly Air Gabon Holding, a new airline company owned by the state, which acquired 56 percent of Afrijet, a local airline, with the goal of expanding air transport services. • Transfer of 35 percent of participation in the major food retailer group CECA-GADIS to the state, to promote the ac- cess of local products to markets. This asset was considered to have been previously unduly obtained from the state. • Creation of the Société de Construction et de Restauration des Edifices Publics (SOCOREP), in charge of con- struction of public buildings, to reduce the high costs paid by the state for rented offices. • Preparation of a new development plan, the 2024-2026 National Development Plan for the Transition. • Sale of state participations in SUCAF Gabon, a sugar refining company partially owned by the state, in a move- ment to balance the government’s other investments in SOEs and to enable private investment to boost sugar production and meet domestic demand. • Creation of the Banque pour le Commerce et l’entreprenariat du Gabon to promote entrepreneurship among young people and SMEs throughout the country. About CFAF 4 billion has already been allocated to this new entity, but the institution is still awaiting COBAC approval before it can actually begin operations. Fiscal and public financial management measures: • Relaunch of public sector recruitment, promotions, and regularization of temporary public workers. Hiring in sectoral ministries and agencies included 2519 staff for health, education and training, 300 for housing, 200 for agriculture and fisheries, and 500 for government media. • Increase in the public sector retirement age from 60 to 62 years old and of employees’ and the state’s social contributions to ensure the financial sustainability of the pensions system. • Seizures of assets that had been previously unduly acquired by public officials. • Audits of entities including Delta Synergie, a holding company managing a portfolio of about twenty participa- tions in firms in several sectors. Established in 1993 by then President Omar Bongo, its goal was to contribute to the development of the private sector in Gabon and help building ‘national champions’ in various business sectors. This audit aims to target mechanisms that may have allowed assets to be unduly acquired by certain businessmen and politicians. • Launch of Digitax, a new digital platform to extend online tax filing and payments to all taxpayers. • Relocation of the Gabonese Strategic Investment Fund (FGIS) from the Presidency to the Ministry of Economy and Participations to improve coordination with the national agenda and development goals. Debt management: • Re-establishment of a debt taskforce to certify and audit all public debt. • Re-establishment of Treasury Committee meetings to improve agency coordination of treasury flows and reduce accumulation of arrears. • Plan for oil revenues to be directly paid to the Treasury Single Account. • Re-establishment of the principle of payments by order of arrival (‘’journée comptable’’) and processing of bud- getary payments earlier in the process, to reduce arbitrary decisions and accumulation of arrears. 25 Gabon Economic Update 2024 a high related mortality rate, of 17.5 per 100,000 people, attract investments to more remote regions, and policies more than three times the average in upper middle-in- are being considered to improve support for entrepre- come countries.14 Moreover, human health and infrastruc- neurship and income generating activities. Besides these ture are exposed to climate risks such as floods, landslides, constraints, Gabon has poor logistics and inadequate sea level rise, and other natural events. Storms and floods trade infrastructure, which hamper the country’s export are becoming more intense and have been causing dam- potential by inflating trade costs. In 2023, Gabon ranked ages to infrastructure and livelihoods in different parts 115th out of 139 countries in the World Bank’s Logistics of the country, requiring climate adaptation efforts to be Performance Index (LPI). This is especially problematic be- considered in future investments and strategies to expand cause the country’s exports are chiefly directed to more public services. distant markets, which require advanced logistics and ef- ficient air and maritime transport connectivity. In addition, Fourth, inclusive growth will also rely on building la- stronger digital infrastructure can also contribute to busi- bor skills to tackle unemployment and labor market ness activity. While Gabon has the most developed market mismatches, especially in sectors with high potential for digital services in Central Africa and is the sixth-ranked such as forestry and agriculture. While basic education player in this field in Africa according to the International enrollment has increased significantly and Gabon was the Telecommunications Union, there are opportunities to best-performing country among African Francophone strengthen digital capacity. In particular, the greater use countries in the Program for Analysis of Education Systems of digital technologies can provide job opportunities for (PASEC) 2019, the quality of the education system remains the youth and foster the development of the local digital low when compared to peers, stifling educational attain- industry.17 ment and skill development.15 The demand for jobs far ex- ceeds supply. Affecting one in three young Gabonese, lack Finally, policies for the forestry sector and other target- of job opportunities is another serious challenge, a prod- ed sectoral reforms could help optimize fiscal revenues uct of labor skills mismatches and an economy that tra- and build better conditions and incentives for sustain- ditionally relies on capital-intensive extractive industries. able growth. Economic diversification has been a long- The government is creating training centers, but rapid term goal in Gabon and has remained a government pri- population growth and insufficient opportunities remain ority in the transition’s development plan. To ensure that a challenge to future inclusive growth. As most Gabonese rents from natural resources will be optimized and contrib- live in the capital and in other urban centers, a significant ute to development goals, going forward it will be import- challenge is to attract workers to growing sectors in rural ant to focus not only on extractive revenues but on those areas such as forestry and agriculture. Building and attract- from other major growth drivers. Reforms could be con- ing skills in green growth sectors is especially important at sidered to improve fiscal policies and ensure a sustainable this critical juncture in the country’s development. exploitation of resources in key renewable sectors that are expected to drive growth in the post-oil era, such as ag- Fifth, reforms are needed to remove regulatory and riculture and, especially, wood, which is already the first logistical hurdles, to create a better business environ- provider of formal private jobs. The country is discussing a ment and enable private firms to invest and create modernization of the forestry code, which could pave the more jobs in the country. According to firms interviewed way for important fiscal reforms in this sector. Designing by the World Bank, gaps in electricity and transportation appropriate tax policies to foster sustainable wood pro- are among the top barriers to business activities. Lack of duction—the special topic discussed in Chapter 2—can skills, corruption, informality, and access to credit were bring substantial benefits for Gabon’s workers, firms, state also cited as major obstacles.16 Important investments are budget, and forests. being made, with hydropower, power transmission, road development, and credit support projects underway. The government is also discussing a new investment law to 14 World Bank. World Development Indicators database. 15 World Bank. 2022. Gabon - Country Economic Memorandum: Toward More Inclusive and Greener Growth. 16 World Bank. 2009 Enterprise Surveys database. 17 World Bank. 2020. Gabon Systematic Country Diagnostic; World Bank. 2022. Gabon - Country Economic Memorandum: Toward More Inclusive and Greener Growth. 26 Gabon Economic Update 2024 Table 4. Social and economic indicators in Gabon (2020-2022) Position relative to Value the upper middle- income group (upper tercile – middle – Indicator 2020 2021 2022 Trend lower tercile) ECONOMIC STRUCTURE AND PRIVATE SECTOR DEVELOPMENT Foreign direct investment, net inflows (% of GDP) 9.2 11.2 7.5 Down Middle tercile Industry (including construction), value added (% of GDP) 41.6 50.9 57.4 Up Upper tercile Services, value added (% of GDP) 44.9 38.6 33.2 Down Lower tercile Agriculture, forestry, and fishing, value added (% of GDP) 6.6 6.0 5.6 Down Middle tercile INFRASTRUCTURE Gross fixed capital formation (% of GDP) 21.9 19.9 16.8 Down Lower tercile Access to electricity (% of population) 90.3 91.1 91.8 Up Lower tercile World Bank Logistics Performance Index (LPI) Score: 2.2 Score: 2.1 Score: 2.4 Score: 0 to 5 Rank: 143 Rank: 150 Rank: 115 Up Lower tercile Rank: Out of 139-167 countries In 2016 In 2018 In 2023 HUMAN CAPITAL (EDUCATION) Government expenditure on education, total (% of GDP) 2.9 3.4 2.7 Down Lower tercile Output per hour worked (GDP constant 2017), international $ at PPP 28.4 27.2 25.8 Down Upper tercile DIGITALIZATION Individuals using the Internet (% of population) 68.7 70.8 71.7 Up Lower tercile CLIMATE CHANGE ND-gain index on climate vulnerability and readiness 43.0 42.5 42.6 Stable Lower tercile (0-100, higher is better) EMPLOYMENT Employment in agriculture (% of total employment) 30.0 30.2 29.9 Stable Upper tercile Employment in industry (% of total employment) 15.8 16.1 16.2 Up Lower tercile Employment in services (% of total employment) 54.0 54.0 54.5 Up Middle tercile Labor force participation rate, total (% of total population ages 15-64)¹ 47.5 48.0 50.4 Up Lower tercile Labor force participation rate, male (% of male population ages 15+)¹ 53.9 54.3 57.3 Up Lower tercile Labor force participation rate, female (% of male population ages 15+)¹ 37.1 37.8 39.5 Up Lower tercile Vulnerable employment, total (% of total employment)¹ 31.5 31.4 31.3 Stable Middle tercile Vulnerable employment, male (% of male employment)¹ 28.2 28.1 28.0 Stable Middle tercile Vulnerable employment, female (% of male employment)¹ 37.7 37.6 37.4 Stable Middle tercile WORLDWIDE GOVERNANCE INDICATORS Percentile rank among all countries (ranges from 0 (lowest) to 100 (highest) rank) Voice and Accountability 21.7 23.1 24.2 Up Lower tercile Political Stability and Absence of Violence/Terrorism 45.8 45.8 49.5 Up Middle tercile Government Effectiveness 15.2 19.5 24.5 Up Lower tercile Regulatory Quality 17.1 21.9 25.5 Up Lower tercile Rule of Law 26.7 24.8 22.2 Down Lower tercile Control of Corruption 20.5 20.9 16.0 Down Lower tercile Sources: WDI, WGI, ILO, ND-Gain. Data for 2020-2022 unless otherwise stated. 1 Employment data based on modeled ILO estimates. The labor force participation rate refers to the percentage of the working age population who are in the labor force (including job seekers). The unemployment rate refers to the percentage of the labor force that is currently without a job. Vulnerable employment refers to the sum of self-employed workers and unpaid family workers. 27 Gabon Economic Update 2024 Chapter Designing Fiscal Instruments 2 for Sustainable Forestry and Public Finances Introduction The six nations encompassing the Congo Basin— Cameroon, Central African Republic, Equatorial Guinea, Gabon, Democratic Republic of the Congo, and Republic of the Congo—are custodians of the world’s second largest tropical forest and its largest remaining unbroken forest landscape. This basin serves as a vital carbon sink, crucial for both regional and global ecolog- ical balance and climate stabilization. It is a rich reservoir of biodiversity and a cherished home for 60 million inhab- itants, for whom these forests are not only indispensable natural resources but also an integral part of their cultural legacy. Indigenous peoples and local communities in this region depend on and sustainably manage these ecosys- tems. Sustainable forest management and well-regulated wood production are important sources of economic ac- tivity and revenue in the Congo Basin. Historically, the Congo Basin has experienced relative- ly low deforestation rates compared to other tropical forest regions; however, 2021 marked an alarming in- crease in forest loss. Deforestation in the Congo Basin increased in 2021 compared to the baseline period 2018- 2020 by nearly 30,000 hectares (or 4.9 percent), reaching a total of 636,000 hectares lost in 2021. To achieve the global goal of halting deforestation by 2030, a reduction in forest cover loss of 10 percent per year from the 2018-2020 base- line will be needed. According to a recent regional assess- ment, only two Congo Basin countries—the Republic of the Congo and Gabon—are currently on track to meeting this goal. Each year that passes without sufficient progress makes it increasingly difficult to meet global forest protec- tion goals and increases the annual reductions that will be required in future years. Beyond deforestation, the risks of forest degradation and fragmentation loom large, threat- ening the integrity of the world’s most extensive intact for- est landscape. 28 Gabon Economic Update 2024 Carbon sequestration services provided by the Congo tric approach into broader macroeconomic development Basin forest are estimated at least US$55 billion an- plans and fiscal policy regimes can assist these nations in nually, corresponding to 36 percent of the GDP of the achieving sustainable development and enhancing rural region covered by the forest in 2021.18 In addition, the livelihoods, while concurrently preserving their forest eco- Congo Basin forests also mitigate global warming through systems. The realization of these objectives in the Congo their cooling effects through transpiration. Other import- Basin demands the supportive engagement of industrial- ant ecosystem services provided by the forests, some of ized nations, the private sector, and philanthropic entities, which also have global public good characteristics, include investing in the sustainable use and management of these biodiversity, controlling floods and erosion, and filtering indispensable forest resources. water supplies. Carbon-finance, development aid, and private sector The Congo Basin countries face difficult trade-offs be- mobilization for forest protection can play an import- tween forest preservation and economic opportunities ant role in compensating Congo Basin countries for the that involve deforestation. The primary threats to these economic opportunities foregone by preserving their core intact forests arise from industrial mining, logging, forests. The Congo Basin nations need the backing of in- and commercial agriculture, which pave the way for fur- dustrialized countries, the private sector, and philanthrop- ther development and deforestation in pristine forest terri- ic organizations to invest in the sustainable utilization and tories. Although subsistence agriculture remains the most management of these vital forests. However, at present fi- common direct cause of deforestation in the region, it typ- nancial compensation for the provision of the global pub- ically occurs in already fragmented areas. Challenges such lic good of carbon sequestrations amounts to less than as insecure land tenure for local communities, governance one percent of the estimated value of these services. At issues, weak institutional frameworks, and insufficient law the same time, forest projects are among the lowest cost enforcement intensify the encroachment and direct pres- interventions per ton of CO2 averted.19 sures on these forests. Given the Congo Basin countries’ need for accelerated growth and job creation, finding an International benefactors have recognized the para- adequate balance between forest preservation objectives mount importance of the Congo Basin forests, com- and the use of forest resources and land for economic de- mitting USD 1.5 billion between 2021 and 2025 to aid, velopment is essential. International climate finance can but, these commitments, though laudable, have not play an important role by providing resources that, at the fully materialized into concrete actions. The 2022 global minimum, provides adequate compensation for foregoing Forest Declaration Assessment revealed that a year follow- alternative economic uses of forest resources. It could also ing COP26, the world witnessed the loss of 6.8 million hect- help finance alternative investments that would generate ares of forest, resulting in the emission of 3.9 billion metric sustainable growth and employment. tons of greenhouse gases. A mere six years remain to fulfill the ambitious objective of stopping and reversing defor- Governments in the Congo Basin region of Central estation by 2030. Under the Forest Carbon Partnership Africa are engaged in concerted efforts to mitigate Facility, the World Bank is working with eleven countries, deforestation, though their prioritization of economic including Cameroon, the Central African Republic, the growth and poverty alleviation may inadvertently con- Republic of Congo, and Gabon, to enhance readiness for flict with forest conservation goals if not strategically the issuance of high integrity carbon credits which would aligned. In 2021, during the UN COP26 climate conference, facilitate the transfer of resources to communities from over 140 countries, covering more than 90 percent of glob- companies and governments. al forest cover, pledged to cease deforestation and land degradation worldwide by 2030, as part of the Glasgow Fiscal policy is an often underused policy instrument Leaders’ Declaration on Forests and Land Use. All six coun- to foster the sustainable use of forest resources and tries of the Congo Basin have endorsed this declaration, growth, but can play an important complementary acknowledging the critical need to safeguard forests both role to other instruments such as regulation, informa- globally and within their region. Integrating a forest-cen- tion and voluntary instruments. In particular, fiscal poli- 18 Mitchell I. and S. Pleek. 2022. This is a lower bound estimate, using the value of USD 50 per ton used by the US government. However, Mitchell and Pleek estimate that the value could be as high as USD 150 per ton. 19 Mitchell I. and S. Pleek. 2022. 29 Gabon Economic Update 2024 cy tends to be effective where economic agents respond biobanking, liability instruments (noncompliance fines) well to price signals and where limited governance capac- and performance bonds. The various fiscal instruments ities constrain the effective enforcement of regulations.20 will interact in the achievement of the aforementioned Expenditure policies can also support sustainable forest objectives. In addition, economic policies that do not di- management, but limited fiscal space tends to severely rectly address forest issues, such as agricultural policies or constrain their use. While scaled up climate finance for mining policies, may also affect the use of forest resources. the Congo Basin countries is essential to help moderate It is thus important that they are embedded in a compre- trade-offs between sustainable forest management and hensive and consistent approach for the sustainable man- economic development objectives, environmental fiscal agement of forest resources. policies can help widen fiscal space and create important pre-conditions for leveraging greater international and pri- The effective use of forest-related fiscal instruments vate financing of domestic climate action. can play an important role in expanding fiscal space, in- cluding for increased expenditures that would help to Effective use of fiscal instruments can help (a) capture promote the sustainable management of forests. This is a fair share of resource rents for the state, contributing particularly important in the Gabonese context, where en- to overall fiscal space; (b) promote industrial policy ob- hancing domestic revenue mobilization to be able to meet jectives, such as increased domestic value addition and large expenditure needs and reduce the dependence on employment; and (c) foster environmental manage- revenues from the hydrocarbon sector is a policy priori- ment and sustainable use of forests. Key instruments in- ty. Public finances remain highly dependent on oil, which clude the taxation of natural resource rents, results-based accounted for nearly half of total government revenues expenditure policies (payments for ecosystem services, in 2023. Recent discoveries can prolong the benefits de- REDD+),21 subsidies, environmental taxation (taxes, rived from oil wealth. However, oil revenues could start to charges and fees), tradable permits, biodiversity offsets/ gradually decline along with lowering prices and maturing 20 World Bank. 2021. Designing Fiscal Instruments for Sustainable Forests. Washington D.C.: The World Bank. 21 Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD+) is a voluntary climate change mitigation framework developed by the United Nations Framework Convention on Climate Change (UNFCC) to promote conservation, sustainable manage- ment of forests, and enhancement of forest carbon stocks. 30 Gabon Economic Update 2024 oilfields, as it may take time for new fields to enter into § Use of forest-related fiscal policy instruments in production. Also, in the context of its political transition, Gabon; Gabon is facing higher social expectations and spending § Opportunities for climate-smart forest fiscal policy needs. Large projects are underway and the state needs re- reform in Gabon; sources to expand public services and improve infrastruc- § Looking ahead: how to achieve fiscal, economic, ture. Fiscal reforms in sectors such as forestry can therefore and environmental goals with fiscal policy reforms contribute not only to fostering environmental goals but for forestry? also to mobilizing more revenues to meet spending needs and to avoid a deteriorating fiscal position. The analysis and discussion focus narrowly on fiscal revenue instruments directly targeting forest produc- Fiscal policies for sustainable forests are closely inter- tion and preservation to highlight first order oppor- twined with potential international compensation for tunities for the use of fiscal instruments. However, it is climate services provided by the Congo Basin countries. important to note that concrete policy design and imple- First, environmental fiscal policies can help to achieve sus- mentation will need to consider a whole range of com- tainable management of forests as the basis for leveraging plementary issues. First and foremost, forest-related fiscal carbon finance. At the same time, given the Congo Basin instruments are a subset of economic instruments for sus- countries’ very limited fiscal space, international and pri- tainable forest management and complement regulatory vate financing are also essential to implement programs approaches and information and voluntary instruments. for forest conservation and to establish adequate monitor- Second, deforestation and use of forest resources also de- ing, reporting, and validation systems. pend on non-forest policies. An important example of such non-forest policies are agricultural policies such as agricul- The special topic (i) examines the current socio-eco- tural subsidies that may lead to increased demand for land nomic context of forest policy in Gabon, (ii) discusses and lead to deforestation. Water sector policies are another the role and current use of forest-related fiscal instru- important example, given the central role of healthy river ments, and (iii) proposes options and trade-offs in the systems for sustainable forests. Policies that lead to unsus- design of forest-related fiscal policy reforms. The key tainable water extraction or river pollution would result in goals of such reforms are to adequately capture resource negative impacts on river and forest ecosystems. Another rents, promote forest-based value-addition and employ- example would be policies that affect peoples’ livelihoods ment, mitigate deforestation and forest degradation, and and their demand for forest products. For example, where promote sustainable growth, while creating preconditions wood is used by many households, provision of alterna- for leveraging greater international and private financing tive energy sources would reduce the demand for wood. of domestic climate action. There remains a notable lack Finally, it is also important to mention the importance of of comprehensive knowledge in this area, particularly in land use planning frameworks and their interaction with terms of how fiscal policy instruments are currently em- fiscal policies. For example, ecological reserves would need ployed at the country level, of these policies’ effects on var- to be managed differently from community managed for- ious incentives, and of how particular fiscal policy reforms ests and taxation/fines allocated according to the land use may contribute to the goal of leveraging greater climate planning. finance from international donors and the private sector. This chapter aims at informing policy dialogue towards a The present analysis draws on and contributes to the spectrum of strategies to craft a fiscal system that is more World Bank’s broader engagement on the Congo tailored to forest conservation and sustainable growth Basin forests. This includes work on Country Climate management. and Development Reports, Public Finance Reviews, and Country Economic Memoranda which have been or are The sections of this special topic are centered on the being prepared for most CEMAC member countries and following topics: which often include forest-related analysis. In several coun- § State and trends of forests in Gabon; tries, including Cameroon, the Central African Republic, § Contribution of forests to Gabon’s economy and to and Gabon, the World Bank has specific project activities climate action; to support the sustainable utilization and management of § Regional and international context; forests. The World Bank is currently also preparing natural § The role of environmental fiscal policy: Trade-offs in capital accounts for several Congo Basin countries, which the forestry sector; will provide in-depth valuations of the services provided 31 Gabon Economic Update 2024 by the Congo Basin Forest. Another important aspect of try; and semi-deciduous forests in the northeast, where the World Bank’s work is to look at options for monetizing trees like Limba, Wengé, and Ayous are found.23 In Gabon, the carbon and ecosystem services provided by the Congo 14 percent of the forest is located in protected areas, in- Basin forest, looking at options such as nature-linked cluding the country’s 13 national parks. Approximately 59 bonds, debt for nature swaps, or helping countries meet percent of the forest is dedicated to sustainable and con- the prerequisites required for accessing carbon finance. trolled production of forest products managed by private Recognizing the importance of helping countries achieve companies, based on management rights granted by the greater benefits and value added from their forests, a proj- government. In 2021, half of Gabon’s forests were subject ect that would, inter alia, support value chains in the forest to long-term management plans24 (Figure 20). sector in the CEMAC region is currently being prepared. The World Bank has also recently established the Global Over the years, the Gabonese government has been Challenge Program: Forests for Development, Climate, and implementing policies and programs aimed at recon- Biodiversity (GCP-F). The program recognizes that conser- ciling forest conservation with sustainable economic vation will remain a vital part of sustainable forest man- development. This includes initiatives such as the cre- agement, but it will broaden the approach to put people ation of national parks and protected areas, as well as at the center by generating meaningful economic oppor- efforts to promote responsible forest management and tunities and mobilizing significant private sector resources sustainable use of forest resources. Notable environmental to develop cross-sectoral forest-based economies. Specific protection decisions made in recent decades include the activities for the roll-out of the program to the Congo Basin 2001 Forest Code, which mandates sustainable manage- countries are currently being designed. ment of all forest concessions; the National Parks Law of 2007 that created 13 national parks covering 12 percent of 1. Thanks to conservation efforts forest land; the log export ban imposed in 2009; the cre- and sustainable practices, Gabonese ation of the National Council on Climate Change in 2010; the adoption of the national climate plan in 2012; the forests are a vital source for wood adoption of laws on sustainable development and envi- industry jobs and exports while ronmental protection in 2014; the ratification of the Paris providing the world with essential climate services Figure 19. Forest area in Gabon and CEMAC 1.a. State and trends of forests in Gabon countries (percent of land area) Gabon is the fourth most forested country in the 100.0 91.3 100.0 87.0 90.0 world, with over 91 percent of its territory covered by well-preserved forests, spanning about 22 million 80.0 80.0 64.2 70.0 hectares (Figure 19). The country has an impressive and 60.0 60.0 well-preserved forest ecosystem. About a quarter of the 42.9 50.0 total terrestrial and marine territory is located in protected 40.0 35.8 40.0 areas. The deforestation rate, although low compared to 30.0 20.0 20.0 17 most countries in the region and in the world, has slightly 10.0 increased from 0.02 percent in 2000-2010 to 0.05 percent 0 0 R . a R in 2010-202022 (Figures 21 and 22). There are three main CA roon ep ine bo n CA ,R u Ga types of forests in Gabon: evergreen forests in the west, me go .G Am Ca Co n Eq uth dominated by famous species such as Okoumé (Aucomea So klaineana); dense humid forests located in the central Source: FAO. part of Gabon, covering a significant portion of the coun- 22 FAO. 2024. SDG indicators database. https://www.fao.org/faostat/en/#data/SDGB 23 Timber trade portal. 2024. Forest resources. https://www.timbertradeportal.com 24 A long-term forest management plan is a detailed document that outlines strategies and actions to sustainably manage a forested area for an extended period, often spanning multiple decades. These plans are formulated to harmonize environmental, social, and economic factors to safeguard the forest ecosystem’s long-term vitality and productivity while addressing stakeholders’ diverse needs. Forest management plans are usually updated regularly. 32 Gabon Economic Update 2024 Figure 20. Proportion of forest area with a long- Figure 21. Deforestation rate in Gabon and term management plan, 2020 selected countries, percentage of forested area 100.0 97 0 91.3 90.0 -0.1 80.0 -0.2 70.0 64 66 -0.3 58 60 60.0 51 -0.4 50.0 -0.5 40.0 36 28 -0.6 30.0 20.0 17 17 -0.7 10.0 -0.8 0 -0.9 on R a A p. n ld n a ia e bo n on zil ia ria es ia ola C b CA eric SS , Re abo Wor eroo eric As urop ro Bra liv ge g DR Ga m o G m E Ga me Bo Ni do n An hA ng m A Ca rth Ca In ut Co So No 2010 2020 World average Source: FAO. Source: FAO. Figure 22. Gabon’s deforestation trend and categories 0.07 0.06 Disturbance area (Mha) 0.05 0.04 0.03 0.02 0.01 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total forest disturbances (degradation or reforestation) Total deforestation (direct or after degradation) Forest regrowth Source: Vancutsem et al. 2021. Agreement in 2016; and the signing of a decree on climate Despite strong forest conservation policies, Gabon change in 2021.25 Additionally, various research centers still faces challenges to curb illegal logging. A small yet and forest projects are active, including the Institute of heavily urbanized population and an economy fueled by Tropical Ecology Research and the Institute of Agronomic oil revenues have contributed to limiting the impact of and Forestry Research.26 Furthermore, through AGEOS, its human activity on Gabonese forests. In 1970, 30 percent geospatial agency, the country made efforts in data collec- of the Gabonese population resided in urban areas. This tion, using advanced technical resources such as drones percentage increased to over 90 percent by 2020, while and satellite imagery, complemented by field research. the average for Sub-Saharan Africa was 41 percent.27 25 Gabon’s second NDC. 2022. 26 AFD. 2021. 27 World Bank. World Development Indicators database. 33 Gabon Economic Update 2024 Furthermore, Gabon stands out for its very low population both in urban and rural areas. Oil remains the leading density, with only eight inhabitants per square kilome- sector of the economy, accounting for nearly 70 percent ter, compared to an average of 45 for Sub-Saharan Africa. of exports and 23 percent of GDP in 2023. However, faced While the high urbanization and low density rates have with challenges related to a potential gradual depletion of contributed to forest preservation, strong initiatives have oil reserves and price volatility, the government has been been implemented in favor of forest conservation, which seeking new avenues to diversify its economy. Through allowed the country to achieve considerable results. Oil certification requirements, strict logging thresholds, and continues to play a major role in the economy, but since incentives for a local wood industry, Gabon has been able 2010 Gabon’s development strategy has set forestry as a to transform the wood sector into a major source of jobs key driver for economic diversification, which increased and exports. The timber industry has thus increasingly be- pressure on forests. Overall, the authorities have been able come a major pillar of Gabon’s economy, accounting for 3.2 to develop the forest economy in a sustainable way. Yet, percent of GDP and 6 percent of exports in 2023.29 It is now despite the implementation of certification requirements the country’s largest private employer, providing nearly and attempts to monitor the wood product chain, illegal 15,000 jobs in 2022.30 Increased employment in the sector logging remains a practice in the country.28 Reforms being is largely attributed to the expansion of wood processing planned to tackle this issue include a new digital system industries in the Gabon Special Economic Zone (GSEZ) in for wood traceability. Nkok since 2009. The sector is seen as a crucial element in the economic diversification strategy being prepared 1.b. The forestry sector provides a under the National Development Plan for the Transition major contribution to the economy and (PNDT). It already figured as a key future growth driver grew to become a key driver in Gabon’s in the Emerging Gabon Strategic Plan (PSGE), the devel- diversification agenda opment plan launched in 2009. The wood industry has indeed a strong potential to become an even more promi- While oil remains the main contributor to Gabon’s econ- nent growth driver. Yet, challenges persist to combat illegal omy, the forestry sector generates thousands of jobs logging and to achieve higher levels of wood transforma- 28 Nature Economy and People Connected. 2017. Timber Legality Risk Assessment - Gabon. May. 29 General Directorate for the Economy and Fiscal Policy, Ministry of Economy and Participations of Gabon. 30 Government of Gabon. 2023. Tableau de Bord de l’Economie. Situation 2022 – Perspectives 2023-2024. No. 53. October. Ministry of Economy and Participations. General Directorate for the Economy and Fiscal Policy. 34 Gabon Economic Update 2024 tion. Reforms to improve the fiscal policy for this sector can Figure 23. Gabon’s industrial roundwood help achieve the goals of further developing a sustainable production quantity (1000 m³) local wood processing industry, to boost job creation and to increase the value-added of its exports. 4500 4000 Gabon stands out from other CEMAC countries in terms of its relatively developed wood processing industry. 3500 Since the decision to ban logs exports in 2009, timber pro- 3000 duced in Gabon has increasingly been processed locally. 2500 The decision initially sparked difficulties for exporters and 2000 led to a drop in exports, from 3.9 million m3 in 2009 to 1.9 1500 million m3 in 201131 (Figure 23). However, since then, ex- ports have rebounded and caught up to pre-2010 levels, 1000 with more value added, benefiting the economy and tax 500 revenues. The number of wood processing units increased 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 from 82 in 2009 to 197 in 2020, of which 70 were located in the Nkok Special Economic Zone.32 Source: ITTO. Currently, over 50 percent of Gabon’s forest product exports are directed to Asian markets, which have Gabon manages to offset this by adding more value to its become the main destination for wood produced in production and exports. In 2022, the country exported over Central Africa over the past few decades (Figure 24). USD 700 million worth of primary processed wood (Figure In 2022, Gabon’s main trading partners for wood exports 25). Most of these exports consisted of sawn wood and ve- were China, France, India, Italy, Belgium, and Morocco.33 neer, which are more processed forest products than indus- Although it produces less industrial roundwood than trial roundwood. Production of secondary processed wood, Cameroon, which is the largest producer in the region, such as furniture and moldings, has steadily increased in re- Figure 24. Gabon’s top wood export destinations in 2020 Morocco, 5% S. Africa, 1% France, 13% Italy, 8% India, 11% Taiwan, Japan Netherlands, 3% Phili... China, 1% 1% USA, 3% 1% Greece, 2% UK, 2% Dominican UAE Rep., 2% China, 34% 1% Belgium, 6% Spain, 1% Asia Europe Africa North America Oceania South America Source: WITS 31 ITTO. 2024. The International Tropical Timber Organization (ITTO). https://www.itto.int/biennal_review/ 32 Timber trade portal. 2024. Forest resources. https://www.timbertradeportal.com 33 WITS. 2024. 35 Gabon Economic Update 2024 cent years, although there are still opportunities to increase between agricultural development and the preservation production levels. In 2022, exports of secondary processed of forests and biodiversity will be critical. With support wood reached USD 21 million (Figure 26). from the UN-led Central African Forest Initiative and other partners, a national land use plan (Plan National d’Affecta- Efforts are underway to tackle labor skills gaps and tion des Terres) is being developed by the government to enable further expansion of the wood industry. The ensure the protection of forest areas. An Interministerial value added by wood processing helps increase income commission was created in 2017 to determine land uses for businesses and workers and allows the country to earn for the national territory, to align economic activity with more tax revenues. When properly managed, local wood social and environmental goals, and optimize the use of processing can lead to economic and environmental ben- natural resources. The plan had established land uses for efits, contributing to job creation, income growth, exports different sectors, including forestry, protected zones, agri- and tax revenues, while maintaining high conservation culture, fisheries, urban areas, transport infrastructure, oil levels and a sustainable use of forest resources. The avail- and mining activities. It sets the institutional framework ability of labor skills is a challenge for higher level of wood for concessions and permits for forest and agricultural land transformation, as the country faces mismatches between use.34 With a continued effective implementation and com- skills and jobs, which leads to high unemployment rates, pliance with the land use plan and conservation policies, in particular for the youth. To meet this need, a vocational there is room for further development of agricultural and training center dedicated to the wood industry was built fishing activities in a sustainable manner, aligned with the in the Nkok area with World Bank support in 2023. Training country’s goals. programs started in February 2024, and should contribute to the sector’s expansion, with benefits for wood revenues 1.c. Gabon is an important carbon and job creation. absorber thanks to its forests; going forward, the forestry sector will play an The strategy to increase local agricultural production increasing role in the country’s climate to create more jobs and reduce dependence on costly commitments food imports could pose a challenge for forest con- servation, which the authorities aim at addressing Each year, Gabon’s forests absorb approximately 140 through the land use plan. Finding a delicate balance million tons of CO2, underlining the critical global im- Figure 25. Exports of primary processed wood Figure 26. Exports of secondary processed wood products, 2022 (USD millions) products, 2022 (USD millions) 900 25 800 20 700 600 15 500 400 10 300 5 200 100 0 n a on go ire R 0 bo an ro n vo CA a a Ga Gh me Co d ’ I n n go an ine ire R Ca te roo Ga bo Co n Gh vo CA Cô me . Gu e d’I Ca Eq t Cô Mouldings Cane & bamboo Builder workwood Ind. Roundwood Plywood Sawnwood Veneer Other SPWPs Wooden furniture Source: ITTO. Source: ITTO. Note: SPWP = Secondary Processed Wood Products. 34 Commission Nationale d’Affectation des Terres. https://www.cnat-gabon.com/ 36 Gabon Economic Update 2024 portance of Gabonese forests in the fight against cli- Figure 27. Gabon’s total and per capita GHG mate change. After the oil and gas sector, land use change emissions, 1990-2020 and forestry are the second largest contributors to total emissions, accounting for 6.3 million tons, or 25 percent of 25.0 35.0 Total, tons of CO2 (millions) total emissions (Figure 28). Following this are industry sec- Per capita, tons of CO2 30.0 tors, electricity, waste, manufacturing, and construction, 20.0 totaling 4.8 million tons. Total greenhouse gas emissions 25.0 have only slightly increased over the past 20 years, rising 15.0 20.0 from 20 million tons in 2000 to 21 million tons in 2020, rep- 15.0 resenting 0,04 percent of global emissions. Regarding per 10.0 10.0 capita emissions, they decreased from 29.3 tons in 2000 to 10.5 tons in 2021, thanks to reduced deforestation through 5.0 5.0 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 conservation efforts (Figure 27). In terms of emissions per capita, Gabon ranks second in CEMAC after Equatorial Guinea, which stood at 11.3 tons per capita in 2021.35 Total GHG (lhs) Per capita GHG (rhs) In its nationally determined contributions (NDC), Source: Climate Watch. Gabon pledged to remain carbon-neutral up to and beyond 2050, with a net carbon absorption capacity Figure 28. Gabon’s GHG emissions by sector, of at least 100 million tons of CO2 per year. Adopted by million tons, 2020 governments around the world following the 2015 Paris Agreement on climate change, NDCs present each coun- Gases from try’s contributions to achieving the goals of this treaty. energy production 8.8 In the case of Gabon, the state made a strong pledge to Land use change and forestry 6.3 remain carbon-neutral. However, the government empha- Industry 1.7 sized that this will require international support in terms Electricity of financing, technical support, technology transfer, unin- and heat 1.7 terrupted access to the timber market, and support to ef- Waste 0.8 forts to exit the oil and gas economy. Unlike other NDCs Manufacturing in the region, such as those of Cameroon, Congo, and & construction 0.7 CAR, Gabon’s NDC does not provide an estimation of the Bunker fuels 0.6 amount needed to meet the stated commitments. In 2030, in a “controlled” scenario, emissions for the forestry sector Buildings 0.6 are estimated at 30,4 million tons of greenhouse gases Agriculture 0.5 (GHG), representing an emissions reduction of 54,7 million Transport 0.2 tons or 64 percent compared with the “business as usual” scenario. In its NDC, the government considers sustainable Other fuel combustion 0.0 harvesting and local processing of wood into finished and 0 2.0 4.0 6.0 8.0 10.0 semi-finished products for export as the main mechanisms to maintain forests’ sequestration capacity.36 Source: Climate Watch. Securing land tenure for forest communities and en- granting participation rights to local actors in forest gover- forcing the benefit-sharing of forest revenue is central nance can enhance forest management.37 When commu- to combating deforestation, improving local communi- nities have a direct stake and decision-making power in ties’ social conditions, and strengthening social cohe- managing their local forests, they are more likely to adopt sion. Research shows that when effectively implemented, sustainable practices that align with their long-term inter- 35 Climate Watch. 2024. https://www.climatewatchdata.org/data-explorer/historical-emissions?historical-emissions-data-sources=cli- mate-watch&historical-emissions-gases=all-ghg&historical-emissions-regions=CMR&historical-emissions-sectors=&page=1 36 Gabon NDC. 2022. Nationally determined contributions (NDCs). https://unfccc.int/documents/497489 37 Klooster and Masera, 2000; Smith and Scheer, 2003; Veit, 2019. 37 Gabon Economic Update 2024 ests. By receiving a portion of the revenues from activities 2. Climate and forestry policies from a such as sustainable timber harvesting, non-timber forest regional and global perspective product collection, or eco-tourism initiatives, communities become invested stakeholders in the responsible man- agement of these natural assets. Additionally, the income 2.a. Global climate financing is becoming generated through revenue sharing can be reinvested in an ambitious agenda, but building an community development projects, education, healthcare, effective and substantial mechanism or alternative livelihood opportunities, further strengthen- capable of responding to countries’ ing the connection between forest conservation and local needs remains a challenge well-being. Community-based forest management and forest revenue benefit sharing foster a sense of ownership Recent years have seen a notable uptick in internation- and responsibility among community members, encour- al funding for sustainable forest management in the aging them to protect the forests from overexploitation Congo Basin region, but international commitments and illegal activities. For full effectiveness, community for- are still insufficient and often lack quantifiable and estry programs need clear tenure rights, capacity building, transparent targets, leaving a gap between pledges and support from higher levels of governance. and results. This trend of rising global commitments is exemplified by the UN-led Central African Forest Initiative Gabon was one of the early adopters of community (CAFI) and the Congo Basin Joint Donor Statement issued forestry, recognizing the need to restore usage rights at the UN Climate Change Conference in 2021 (COP26). to local communities. The creation, implementation, and Supported by several major donors, it earmarked an am- management of community forests in Gabon are governed bitious USD 1.5 billion for distribution across six Central by the 2001 forest code. This law grants local communities African countries from 2021 to 2025.40 Letters of intent the right to use forests while promoting sustainable forest signed between CAFI and national authorities have fur- management principles. Permits for community forests ther solidified commitments, amounting to USD 465 were initially launched in the Ogooué-Ivindo province in million. Yet, when set against the stark backdrop of the 2013 and relaunched in 2022. Gabon has 85 community Congo Basin’s needs for forest protection—a sum that forests under definitive conventions, 39 under provisional dwarfs these commitments—one cannot help but per- conventions, and 45 reserved by decision. These categories ceive a mismatch between scale and ambition. Also, there cover more than 750,000 hectares, representing 3 percent is a discrepancy between commitments and realizations, of the country’s total forest area.38 Community forestry in as evidenced by the Congo Basin’s relative international Gabon offers an opportunity for local populations to bene- underfunding for climate action, when compared to oth- fit from forest resources and to participate in income-gen- er tropical forest regions. The Amazon Fund has received erating activities and sustainable management practices. USD 1.3 billion in donations since its establishment in 2008, The forest code also foresees that concession holders need and additional USD 640 million had been pledged in 2023. to contribute to public interest activities developed by local communities. Implementing regulations were intro- At the national level, policies are being implemented duced in 2014 through a collaborative process, resulting but distributive and interagency coordination chal- in the establishment of a fee paid by forestry operators lenges can hinder climate action and social goals. aimed at supporting local communities. A pilot phase led Regarding national climate financing, a first key step taken to the signing of benefit-sharing agreements between 26 in Gabon has come through regulation No. 019/2021 of local communities and eight forestry concession holders September 13, 2021 on climate change, which established in 2016. However, insufficient implementation has led to the Climate Issues Management Body, an entity responsi- legal disputes involving communities that did not receive ble for setting up a national carbon credit market. On bud- benefits, indicating that there is a potential for efforts to getary policies, certain governments in the Congo Basin further strengthen community forestry and benefit-shar- earmark budget lines for forest conservation and protect- ing mechanisms.39 ed area funding, but the objectives and actions of differ- 38 Kahondwa, P. 2024. 39 Client Earth. 2021. 40 The COP26 Congo Basin Joint Donor Statement was supported by the Bezos Earth Fund, Belgium, the EU, France, Germany, Japan, the Rep. of Korea, the Netherlands, Norway, Sweden, the UK, and the US. 38 Gabon Economic Update 2024 ent ministries often are hindered by lack of coordination, diluting the potential impact of these funds. The situation is further complicated when considering funding distribu- tion. Funding allocated to local communities, communal forests, rural women, smallholder farmers, and indigenous populations remains scarce. Global initiatives to reduce emissions from deforesta- tion have emerged as potential financial lifelines for the Congo Basin forests, but so far these have been insufficient to meet their goals. Initiatives include volun- tary carbon markets and the UN-led REDD+, a framework to encourage developing countries to reduce emissions through sustainable forest management. Gabon became the first African nation to receive performance-based pay- ments through REDD+, securing USD 17 million of the anticipated USD 150 million through CAFI (Box 4). While this development is laudable, it underscores a broader is- sue: the funding flows through REDD+ are a trickle rather than the needed torrent. More substantial and sustained support from the global community remains needed. For instance, Gabon has not been able to obtain funding for the 90 million tons of carbon credits that were certified in 2022. Carbon credits and other green financing mech- anisms are arguably still at an embryonic stage and need to be stepped up by international donors if serious efforts are to be made to support countries that continue to main- tain forests and that provide other environmental public goods. In the absence of stronger global climate financing instruments, part of the solution to achieve financ- ing and environmental goals can come in the form of fiscal reforms to optimize forest resources. Gabon has been aiming at carbon credits to mobilize the necessary resources to achieve forest protection and CO2 mitigation goals, but global solutions need to be further developed to meet financing needs. Although strides have been made towards financing forest conservation in Gabon and the Congo Basin more broadly, the situation remains fraught with challenges and complexities. The remedy could lie in refining fiscal policies to optimize forestry revenues de- rived from sustainable uses, and in channeling existing do- mestic funds more effectively towards forest protection in line with social and economic goals. Forest-related fiscal policy instruments and re- sults-based financing are interconnected through their shared goal of promoting sustainable forest manage- ment and conservation. Fiscal policy instruments, such as Pigouvian taxes and subsidies, are designed to influence 39 Gabon Economic Update 2024 Box 4. CAFI support to Gabon The Congo Basin forest is the world’s largest carbon sink. Despite its historical preservation, this tropical forest, the world’s second largest, is currently under growing pressure. While forests serve as vital carbon sinks, they can also become sources of greenhouse gas emissions if they are destroyed or degraded. Land use and forestry sectors are major contributors to greenhouse gas emissions in Central Africa. Yet, emissions remain significantly lower than the absorption capacity of these forests, estimated at 1.1 billion tons of CO2 annually, equivalent to 3 percent of global emissions. Central African nations face various development challenges, including persistent poverty, lack of economic opportunities, food insecurity, and gaps in public services and energy access, all of which impacts sustainable forest management. Successful forest preservation in Central Africa requires substantial international support for transforma- tive reforms and ambitious investments on the ground, alongside pragmatic efforts to address the underlying causes of deforestation. To contribute to forest preservation, in 2015 a CAFI monetary transfers (2015-2024), in USD millions coalition of mainly European governments and international organizations including the UNDP, FAO, and the World Bank created the Central 300 Africa Forest Initiative (CAFI). Led by the UN, it 246.9 aims to slow down forest loss and degradation in 250 the Congo Basin. This multi-donor coalition was 200 thus set up to improve coordination and mobilize resources to support Central African countries. 150 CAFI aims to be both a trust fund that supports di- rect investments related to forest and biodiversity 100 preservation and a high-level political dialogue 58.9 platform. This initiative works closely with the UN- 45.7 50 REDD Program and builds on the work of other 17.8 1.1 1.3 1.7 initiatives in the region, such as the Congo Basin 0 a n R p n al C Forest Fund. In 2021, Gabon became the first u ine eroo CA o, Re a bo gi on DR country to benefit from a USD 17 million envelope . G m n g G R e Eq Ca Co from CAFI thanks to its proven efforts to reduce over 5 million tons of CO2 with REDD+ initiatives implemented during 2016 and 2017 compared to Source: UN. annual emission levels from 2006 to 2015.41 This first payment was made under the agreement signed with Gabon in 2019 for a total USD 150 million to be distributed over ten years. Although encouraging, this payment remains insufficient considering the country’s immense needs in forest management and its broader contribution in providing a global public good through forest preservation. the behavior of forest stakeholders by making sustainable like REDD+ (Reducing Emissions from Deforestation and practices more financially attractive. For instance, in Nepal, Forest Degradation), which mobilizes financial resources fiscal policy instruments have been used to address issues based on verified emission reductions. The integration related to revenue sharing and benefit distribution among of fiscal policy instruments with results-based financing community forest user groups, although inconsistencies in can enhance the effectiveness of both approaches by these policies have hindered their effectiveness.41Similarly, providing continuous financial incentives for sustainable in India, intergovernmental fiscal transfers have been em- practices while ensuring accountability and measurable ployed to support forest conservation, but the design of outcomes. For example, Gabon’s use of a ‘bonus-malus’ these transfers is crucial for achieving desired conservation (feebate) fiscal instrument mechanism in forest policy—as outcomes. On the other hand, results-based financing links applied to the land area fee—demonstrates how aligning financial rewards to the achievement of specific, pre-de- fiscal measures with sustainability certification standards fined results, such as reduced deforestation or improved can improve fiscal resource distribution and policy perfor- forest governance. This approach is central to initiatives mance. Overall, the synergy between fiscal policy instru- 41 CAFI. 2022. 40 Gabon Economic Update 2024 ments and results-based financing can create a robust creation of educational institutions to nurture a new gen- framework for achieving sustainable forest management eration of professionals in the timber sector, supported by and conservation goals. a harmonized forest code and a unified forest taxation pol- icy. The African Development Bank is expected to play a 2.b. The log export ban in Gabon and pivotal role in financing this transformative project. CEMAC: could this be an answer to promote higher added value for local Ahead of other countries in the region, Gabon had al- industries? ready enacted a total ban on log exports in January 2010, which helped to increase the contribution of CEMAC countries have moved towards a planned log local wood industries to economic diversification. A re- export ban to promote local timber processing and gional ban on log exports across the entire Congo Basin sustainable forest management, but ensuring enabling will represent a veritable turning point and should have business conditions will be key for firms to be able to significant economic impacts. This policy has significant- generate higher local added value for wood products. ly shaped the timber sector in Gabon, leading to the de- This significant policy shift, initially slated for January 2023, velopment of a substantial number of timber processing has been subsequently postponed in certain CEMAC mem- units. As mentioned, wood exports dropped immediately ber states, to allow sufficient time to adapt. Setting up the after the ban, but have since then regained in importance right conditions for local production is needed to avoid and shifted to higher value-added products. Overall ex- this ban from becoming an additional regulatory burden port levels have remained below those registered during on firms. The development of local wood industries will commodity boom years in the early 2000s, but exports require not only appropriate fiscal and forestry policies, of higher levels of processing have strongly increased. but also labor skills, access to roads, energy, financing, and Exports of processed wood, including sawn wood, veneer, other necessary conditions. This initiative is a facet of a and plywood, were more than two times higher in 2022 broader regional strategy, the Sustainable Industrialization compared to their peak before the log export ban, in 2008. Strategy of the Timber Sector in the Congo Basin, designed Exports of furniture, moldings, and other products involv- to reconcile environmental stewardship and industrial ing higher processing levels remained relatively smaller development. The strategy envisions the establishment but have multiplied by twelve between 2008 and 2022 of special economic zones focused on wood processing, (Figure 29). The Gabonese log export ban has been credit- a regional committee to oversee industrialization efforts, ed with enhancing the value added by the timber industry and the development of plantations in accordance with to the national economy, tripling the sector’s contribution sustainable practices. Furthermore, it advocates for the to Gabon’s GDP and employment. Figure 29. Wood exports in Gabon (USD millions) 1200 1000 800 600 400 200 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Roundwood Sawnwood, veneer & plywood Furniture, moldings & others Source: ITTO. ‘Furniture, molding & others’ includes wooden furniture, builder woodwork, moldings, cane and bamboo, and other processed wood materials. 41 Gabon Economic Update 2024 This export ban, however, may inadvertently catalyze the EU do not originate from deforested land in other parts a shift in forest exploitation activities to other nations of the world. This includes wood products, meat products, within the Congo Basin, underscoring the inherent lim- cocoa, coffee, palm oil, soy, rubber, charcoal, and printed itations of unilateral measures. Gabon continues to en- paper products. The regulation has three key elements: force its log export ban and further seeks to strengthen its due diligence requirements, risk-based controls, and pen- local timber processing capabilities. Yet, regional coordina- alties for non-compliance. First, companies will need to tion is essential. The collective ban by the CEMAC countries provide a “due diligence” statement confirming that their would not only be a policy shift but a broader realignment, products do not come from deforested land and have not recognizing the intertwined fates of nations in the region led to forest degradation, including of irreplaceable pri- in their attempts to limit deforestation and promote sus- mary forests, after December 31, 2020. This also includes tainable forest management. It represents a recognition compliance with relevant legislation of the producing (ex- that the preservation of the Congo Basin necessitates a porting) country on human rights and rights of indigenous shared vision and collective action. peoples. Second, the EU will classify countries or regions as low-, standard-, or high-risk. Products from low-risk coun- 2.c. What will be the impact of the EU tries will undergo a simplified due diligence procedure, regulation on deforestation-free products whereas higher-risk countries will be subject to more rigor- for CEMAC countries? ous checks. Third, companies that fail to comply with these rules could face significant fines, with a maximum amount Adding to the complexity of CEMAC regional initia- set at 4 percent of the firm’s EU annual turnover. tives, the European Union, a major export market for CEMAC, has taken significant steps to restrict the im- The EU deforestation regulation could incentivize sus- port of commodities linked to deforestation. A new tainable forest management in Congo Basin countries, EU Regulation on Deforestation-Free Products entered but may have limited impact on Gabon since its log into force on June 9, 2023, and will be applicable from export ban already aligns with the EU’s environmental December 2024. It was adopted as part of a broader effort objectives. By requiring stringent due diligence and trace- to mitigate climate change and biodiversity loss, and to ability, the EU regulation sets a higher standard for envi- integrate forest conservation into trade policies. This reg- ronmental monitoring, reporting, and verification systems, ulation aims to ensure that a range of products sold within which could encourage countries to adopt more sustain- 42 Gabon Economic Update 2024 able practices. This, in turn, could lead to policies and prac- moting sustainable forest management, giving Gabon an tices that prioritize forest conservation and sustainable advantageous position. land use, aligning with the EU’s environmental standards to maintain access to its market. Over time, the EU’s approach Also, Gabon and other CEMAC countries are involved could lead to more stringent environmental standards in in the Forest Law Enforcement, Governance and Trade other regions. However, its effect may be less pronounced (FLEGT) Voluntary Partnership Agreements (VPAs) in some countries since it will depend on various factors, with the EU, which aim to ensure that EU’s timber im- such as the relevance of other importing markets; the reg- ports are legally sourced. The agreements involve de- ulatory cost burden and local political will; the capacity of fining a legality standard and setting up a Timber Legality local industries to comply with these standards; and the Assurance System that covers the entire supply chain, and support from international bodies and NGOs in facilitating have led to increased transparency, stronger civil society compliance. As for Gabon, its log export ban and efforts organizations, and more forest revenues being distributed in promoting processed timber are aligned with the new to communities (Box 5). Cameroon, for instance, has seen EU regulation. Its timber industry focuses on exporting a important progress in managing timber supply chains and variety of finished and semi-finished wood products, main- strengthening independent monitoring, demonstrating ly to markets in Asia, the EU, and North America.42 These the impact of FLEGT licenses and VPAs on improving forest higher-value products are in a better position to comply governance and reducing illegal logging activities.43 For with EU and other international regulations and standards, the case of Gabon, the country began negotiating a VPA including those aimed at reducing deforestation and pro- with the EU in September 2010. Despite initial progress, ne- Box 5. Political challenges and the role of governance: cross-cutting issues in sustainable forest management The promotion of sustainable forest management in CEMAC countries faces several cross-cutting issues, including weak governance structures and political economy constraints. Effective governance is crucial for sustainable for- est management. Yet many regions, including CEMAC, suffer from inadequate governance capacity, which hampers the adoption of forest certification and other sustainable practices. Institutional and structural obstacles, such as in- sufficient funding and lack of technical forestry operations training, further impede the effective involvement of local communities in forest management, which can lead to overexploitation and degradation. Additionally, the presence of multiple, overlapping, and independent actors along the value chain can create trust and credibility issues, complicating the implementation of policies like the Voluntary Partnership Agreement (VPA) with the European Union. Political economy issues, such as the influence of economic sectors like agriculture, bioenergy, and mining, can also pose significant challenges, necessitating coherent international policy cooperation and integrative actions to align these sectors with sustainable forest management goals. Moreover, the high transaction costs associated with imple- menting and enforcing rules to reduce overharvesting can deter effective forest governance, especially under condi- tions of environmental and institutional uncertainty. The uneven progress in sustainable forest management achieved in different parts of the world highlights the need for long-term forest management plans and clear ownership of forests to prevent deforestation and degradation. Despite the global expansion of sustainable forest management, the gap between developed and developing countries often remains wide, necessitating multi-dimensional solutions involving coordination among various stakeholders. Finally, the socio-economic benefits of forests are often undermined by poor governance, which calls for systematic analyses and targeted efforts to improve administrative systems and promote positive changes. Addressing these cross-cutting issues is essential for achieving sustainable development and ensur- ing the resilience of forest ecosystems and a more socially and economically optimal use of forests in CEMAC countries. 42 Timber products produced in Gabon include: (i) industrial roundwood and sawn timber, which are primary products with lower transforma- tion levels. In the case of sawn wood, it involves cutting logs into planks, which are easier to transport and fetch higher prices on international markets; (ii) veneer and plywood, which are made by slicing large logs into thin layers, and are then either used as is (veneer) or glued together to form plywood (this process adds value to the wood and is particularly favored in the manufacturing of furniture and for construction purposes); (iii) particle board and fiberboard, which are engineered wood products made from wood chips, sawmill shavings, or even sawdust, and a binder, which are pressed, extruded, and commonly used in furniture manufacturing; (iv) moldings and joinery, which include processed wood used for door frames, window frames, and other detailed woodwork in buildings. 43 Chatham House. 2024. 43 Gabon Economic Update 2024 gotiations underwent delays, but Gabon expressed intent and may not be as cost-effective as alternative economic in 2019 to relaunch negotiations. The regional and inter- measures. Certain economic instruments, such as policies national forest regulations and governance arrangements based on results-driven spending, also require specific gov- demonstrate a multi-faceted approach in CEMAC countries ernance structures, institutions, and administrative frame- to combat deforestation and promote sustainable forest works. Some of these policies, like REDD+, are dependent management. By incorporating both legislative measures on financial support from international benefactors. and collaborative initiatives, these efforts aim to ensure the conservation and sustainable use of forest resources, Conversely to other instruments, climate-smart fiscal contributing to global objectives of biodiversity conserva- policy instruments applied to the forestry sector are, in tion and climate change mitigation, while promoting local principle, a cost-efficient strategy that can lead to sig- industries, job creation, and higher-value exports. nificant results. Forest-related fiscal policy instruments can complement forest conservation and management 3. The role of environmental fiscal strategies. A holistic approach, incorporating regulations, policy: trade-offs in the forestry sector informational measures, and various economic strategies adapted to the local reality, including policies based on re- sults-driven spending, is crucial for a comprehensive and 3.a. How can fiscal instruments effective conservation framework. Indeed, environmental contribute to public finances and to taxes can enhance the effectiveness of these strategies, sustainable forestry? enabling policymakers to fulfill environmental and climate goals more affordably, while contributing to public financ- Numerous strategies exist for forest conservation, yet es. When thoughtfully crafted, these fiscal instruments their efficacy varies significantly, particularly in the have the potential to produce benefits for the environ- context of nations with limited resources and strong ment and the national budget (Box 6). development needs. Countries in different parts of the world have adopted an array of policies, including regu- Forest taxes are often used to boost government reve- latory mechanisms, voluntary instruments, and economic nues, but they tend to involve imperfect, asymmetrical incentives (Table 5). Regulatory mechanisms, such as man- information, especially in regards to tropical timber and dated standards and prohibitions, have shown promise in fragile states. They aim at capturing the “stumpage value” meeting conservation goals. Nevertheless, they demand of a production forest, that is, an economic rent, a profit in substantial administrative and enforcement infrastructure excess of “normal” return.44 By focusing on the “stumpage Table 5. Selected approaches and policy instruments for sustainable forest management Regulatory approaches Information & voluntary instruments Economic instruments • Restrictions or prohibitions on use • Ecolabeling and certification • Results-based expenditure policy (e.g. restrictions on trade on illegal timber) (e.g. sustainability certification) (payments for ecosystem services, • Restrictions or prohibitions on access and • Green public procurement REDD+) use (e.g. designation of protected area) • Voluntary approaches • Subsidies • Permits and quotas (e.g. negotiated agreements between • Environmental taxation (taxes, charges • Quality, quantity, and design standards firms and governments) and fees, royalties) (e.g. minimum harvesting diameters) • Corporate environmental accounting • Tradable permits • Spatial planning (e.g. ecological corridors) • Conditional credit • Biodiversity offsets/biobanking • Planning tools and requirements • Liability instruments (noncompliance (e.g. environmental impact assessments, fines) strategic environmental assessments) • Performance bonds Source: World Bank. 2021, adapted from OECD. 2013. 44 Gillis. 1992. The stumpage value corresponds to the market price of the wood production (that is, a mix of logs, sawn wood, by-products, and finished products) minus the cost associated with logging, forest management, transport, processing, marketing, and a “normal” profit. Corporate taxation should also be deducted to obtain the stumpage value of a forest management unit. 44 Gabon Economic Update 2024 value,” or the net value of forest production after accounting land area, output levels, or the sustainability of production for various costs, governments can leverage taxes as a tool methods, and the chosen approach will shape incentives for securing revenues that might otherwise be lost to inef- for forest conservation and will have varying administra- ficiencies and information gaps. Forest taxation, therefore, tive and governance challenges. can be viewed as a way of capturing the forest economic rent not collected by corporate taxation, in a context of The revenue-generating potential of forest taxes can asymmetrical information between companies and govern- support policies to keep forested land under its current ments about the prices and costs of timber operations. In use, especially if environmental fiscal strategies are certain cases, species are traded in small quantities on few used. Such taxes can serve as a counterbalance to pres- markets, making the information on sales prices difficult sures to promote land conversion to other uses such as to obtain. Relative prices are constantly evolving, not only agriculture. However, traditional forest taxes do not act as among species but also between logs and processed prod- environmentally targeted taxes, since tax rates in practice ucts. In addition, companies can reduce their tax base, often do not vary based on the size of negative externalities (e.g., through transfer pricing practices, and due to understaffing emissions) but on the area exploited or volume of timber. tax authorities can face difficulties to ensure tax compliance. While taxes could in principle be levied based on associat- Forest taxes can thus play a critical role by contributing to ed environmental damages, this could entail high admin- more revenues for the state. istrative and monitoring costs. An alternative solution is designing environmental fiscal policies, which can offer a A well-designed forestry taxation system requires care- pathway to mitigating deforestation. Options include en- ful planning and understanding of potential impacts. A vironmental taxes on exports, fee-and-rebate (‘feebate’) tax targeting timber production, for instance, might inad- systems where a fee is imposed on high emission products vertently encourage practices detrimental to forest health, and a rebate is provided to low emission goods, and eco- as it could stimulate illegal logging to avoid taxation. Tax logical fiscal transfers. These innovations underscore the policies need to incentivize methods that align with sus- potential of fiscal policy to drive forest conservation ef- tainable forest management principles, ensuring that tax- forts, even within the constraints of limited resources. They ation not only serves fiscal objectives but also contributes can also help ensure equitable and effective tax collection to forest conservation. Forestry tax rates can be based on from forest resources. Box 6. The impact of forest-related fiscal instruments on the fiscal space Forest-related fiscal instruments significantly impact the fiscal space by influencing government revenues and expendi- tures through various mechanisms. Instruments such as Pigouvian taxation and subsidies, and market-based systems like feebates and certification schemes can either enhance or constrain the fiscal space depending on their design and implementation. For instance, the introduction of feebates, which are budget-neutral mechanisms, can promote sus- tainable forestry without reducing government revenues, as seen in the promotion of certified timber and agricultural commodities in Central Africa. However, the effectiveness of these instruments can be limited by high administration and compliance costs, as well as the niche market shares that they often occupy, which has been observed in the case of voluntary certifications supported by developed countries. Several cross-country examples illustrate the varied impacts that forest-related fiscal instruments can have on public finances. In Brazil, the REDD+ strategy, which includes both results-based funding and market instruments, demon- strates how financial resources can be mobilized for emission reductions, thereby impacting the fiscal space through the redistribution of funds across various government levels. In Nepal, inconsistencies in fiscal policy instruments, such as multiple taxation and unclear revenue-sharing mechanisms, have hindered the sustainable management of forest resources and affected the financial situation of community forest user groups, thereby impacting local fiscal space. In Poland, the forest fund model redistributes resources from high-income to deficit-reporting forest districts, although it faces challenges in ensuring fair and optimal distribution. Additionally, the implementation of financial accounting stan- dards like AASB 1037 in Australia, which mandates the reporting of forest assets’ net market value, can influence fiscal space by recognizing changes in asset values as revenues or expenses. The impact of forest-related fiscal instruments on the fiscal space is multifaceted, requiring a balanced approach that considers both economic and regulatory mea- sures to achieve sustainable forest management and at the same time contributing to fiscal stability. 45 Gabon Economic Update 2024 3.b. What are the fiscal instruments used siderations such as environmental targeting and negative for forestry in Gabon and what are their externalities,45 revenue generation, administrative capacity, impacts for firms, jobs, public finances, and strategic state capacity in managing varied vested inter- and the environment? ests in the forest sector. In 2023, the forestry sector contributed CFAF 41.9 bil- Recurrent annual charges lion to the state budget (0.3 percent of GDP), almost four times more than in 2016. Public finances in Gabon remain Recurrent annual charges usually consist in proper- strongly dependent on oil revenues, but the forestry sector ty taxes and land area fees. Property taxes are charged has been increasing in importance, representing about 1.5 on a percentage of the value of the property, which can percent of total government revenues in 2023. The main include or exclude the value of the trees. Area fees are a sources of revenue came from property taxes, followed by fixed charge per area of land,46 and are generally simpler wood export duties, land area fees, and corporate income to implement since property taxation depends on regular taxes paid by firms in the sector. Since the log export ban ap- land evaluation. However, area fees are typically deter- plied in 2010, revenues from forestry have been increasing mined by valuations of the forestry concession, which may in line with rising wood production. Yet, trade disruptions need to be adjusted over time, usually through competi- and lower demand associated with the COVID-19 crisis im- tive auction. pacted revenues in 2020 (Figure 30). This section presents a survey of fiscal instruments for the forestry sector in Gabon, Gabon levies a land area fee on forest firms, an envi- analyzing how they contribute to fiscal, economic, and envi- ronmentally targeted tax that applies to the sector ronmental goals. Fiscal instruments are presented by degree at rates varying based on the area’s level of certifica- of complexity, going from more traditional instruments to tion.47 The 2024 rates are: CFAF 300 per hectare for FSC those which attempt to balance and integrate multiple con- or PAFC/PEFC certified concessions; CFAF 600 per hectare Figure 30. Forest-related revenues in Gabon Government revenues from forestry 45.0 2.5% 40.0 35.0 2.0% Percent of revenue 30.0 Billion CFAF 1.5% 25.0 20.0 1.0% 15.0 10.0 0.5% 5.0 0 0% 2016 2017 2018 2019 2020 2021 2022 2023 Wood export duties Forest allocation fee Land area (forest) CIT paid by forestry rms Property taxes paid by forestry rms Forestry share of total revenue (%) Sources: Government of Gabon and World Bank staff calculations. CIT = corporate income tax. 45 Tax instruments that aim at addressing negative externalities are based on the Pigouvian principle (named after economist Arthur Pigou), which intends to ensure that the producer of goods and services that cause harmful effects for society will cover that cost. 46 World Bank 2021. 47 The General Directorate of Forests (Direction Générale des Forêts) issues forestry permits and estimates the amount to be paid. This information is passed on to the Tax Authority (Direction Générale des Impôts), which is responsible for collection and control. Rates are available in the Tax Code (Code des Impots, art. 318 and 326) and the budget law and the Tax Authority (Direction Générale des Impôts) needs to be consulted for infor- mation on revenue collection. The tax rate for non-certified concessions was increased in 2024. Rates had already been increased for non-certi- fied concessions before, from CFAF 400 per hectare in 2012 to CFAF 800 per hectare in 2021. 46 Gabon Economic Update 2024 for legally certified concessions; and CFAF 1,000 per hect- for municipalities in rural areas where wood activities take are for non-certified concessions.48 In addition, a fee of place. In 2023, forestry firms paid CFAF 16.1 billion for the CFAF 1,000 per foot is charged for technical services pro- property tax, or 0.13 percent of GDP. vided by the forestry services. In 2023, the land area fee contributed with CFAF 9.1 billion to the budget, or 0.07 The land area tax can be considered as an ecological percent of GDP, and its contribution should increase due to tax in Gabon, given that a national land use plan is re- the higher rates charged for this fee for non-certified con- spected and upstream environmental issues are taken cessions starting in 2024. into account in the allocation of permits. Gabon’s area fee stands in stark contrast to traditional, environmentally In addition, Gabon charges a single property tax non-targeted area fees used in other countries, which have (Contribution Foncière Unique) on firms, which was in- complex, often unpredictable, effects on logging behavior. troduced in 2023, replacing previous property taxes. The response of loggers to fiscal pressures from area fees It applies to the value of land property and not to trees. that do not integrate environmental considerations has, This tax is levied at a 20 percent rate for legal entities and in other countries, shown that increased fees sometimes 5 percent for individuals. The CFU is not conditional on the beckon towards more intensive logging. Higher fees can sustainability of the landowner’s or user’s forestry manage- induce a myopic rush towards exploitation, urging loggers ment or agricultural practices.49 Revenues generated by towards premature extraction, as they impose a fixed cost the property tax are earmarked to fund local governments, regardless of the volume of timber extracted or the meth- and the wood sector’s contribution is especially important ods of extraction.50 48 The Forest Stewardship Council (FSC), Program for the Endorsement of Forest Certification (PEFC), and Pan African Forest Certification (PAFC) are reputable systems for certification of sustainable forest management. 49 Up-to-date information on tax rates is available in the budget law published on the website of the Budget Directorate. Information on amounts collected is obtainable from the tax authority (Direction Générale des Impôts) for amounts collected. 50 Vincent, Gibson, and Boscolo. 2003. 47 Gabon Economic Update 2024 Logging licenses and the auctioning of forest the same time, forestry ministries tend to favor technical concessions criteria over financial ones, and can overestimate their ca- pacity to monitor and enforce the fulfillment of commit- In Gabon, logging licenses are allocated through com- ments once the permit has been allocated. Gabon’s expe- petitive auction, which integrate sustainable forestry rience could thus inspire other countries in Central and and land management criteria. As of 2024, companies Western Africa to expand the use of auction mechanisms in Gabon operate through 571 active forestry permits, in a for allocating forest permits. territory demarcated within 120 forest concessions (Figure 31). Permits are issued by the General Directorate of Forests Output taxes: royalties from harvested timber, in line with the national land use plan, which integrates en- stumpage yield taxes, and export duties vironmental concerns.51 As they are issued through a bid- ding procedure, license fees work as a tax on logging rents. Typically, output taxes commonly take the forms of Forestry operators could be willing to bid up to the value royalties from the market value of harvested timber of their expected net profits derived from the concession. or a stumpage yield tax, which can have different eco- Such auctioning can thus fulfill two objectives: (i) increasing nomic and environmental implications. Royalties are tax collection by using competition among companies for usually a percentage of the timber market value at the access to resources; and (ii) countering discretionary alloca- time of harvest, and can thus fluctuate based on demand tion of permits through the comparison of proposals and, and supply conditions. A stumpage yield tax, in contrast, ideally, the publicity and transparency of the allocation pro- is a fixed charge levied on the volume of wood extracted, cedure. As forest allocation fees are attributed for a number regardless of market value. The choice of output tax has of years, these fees generated more substantial revenues for implications for revenue variability. Royalties tend to be the state in 2020, at CFAF 1.7 billion, or 0.02 percent of GDP. more volatile, with higher revenues when prices are high, but lower revenues when prices are down. In contrast, a The political economy constraints on competitive auc- stumpage yield tax provides a more predictable and stable tioning of forestry concessions are often considerable, revenue stream. Also, royalties share the price risk between and Gabon’s case could serve as example for other the timber owner and the harvester (or the government countries. The auctioning of forest permits is often strong- in some cases). When prices are high, both benefit, and ly opposed by insiders in the private sector, including the when they are low, both earn less. On the other hand, a logging and deforestation-linked commodities sectors. At stumpage yield tax places more risk on the timber harvest- Figure 31. Concessions and forestry permits attributed in Gabon 900 800 700 600 500 400 300 200 100 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 Forestry permits Forest concessions Source: Government of Gabon, General Directorate of Forests. 51 Information on the number of permits and forest concessions is available can be made available upon request by official mail to the General Directorate of Forests (Direction Générale des Forêts). 48 Gabon Economic Update 2024 er, as they have to pay a fixed rate regardless of the tim- Figure 32. Export duties in Gabon ber’s selling price. Moreover, these two output taxes can have mixed, ambiguous impacts on harvesting decisions. Export duties, 2016-2023 (billion CFAF) Value-based royalties can be an incentive to harvest more 50 when prices are high, potentially leading to unsustainable 45 practices if not well-regulated. In contrast, a fixed stump- age yield tax might encourage more consistent harvesting 40 practices, but could discourage harvesting if the fixed tax 35 becomes economically burdensome during periods of 30 low timber prices. Furthermore, stumpage yield taxes can 25 modify incentives as there is room to modulate tax rates 20 according to the objective of promoting certain species 15 over others, or prioritizing specific locations. Each system 10 has advantages and challenges, and the choice should be made based on economic objectives, administrative ca- 5 pacity, and forestry management goals. 0 2016 2017 2018 2019 2020 2021 2022 2023 Gabon does not collect royalties from harvested tim- Manganese Wood products Gold ber and no longer applies a felling tax, but imposes a fixed levy on timber harvested, which goes into a local Source: Government of Gabon, General Directorate of Customs development fund. Following the ban on log exports, a and Indirect Taxes. Prior to 2020, a felling tax was levied at exports, which was replaced with an export duty in the 2020 felling tax was introduced. This tax was more complex than budget law. a conventional stumpage yield tax since its rate varied ac- cording to several factors involving the species of wood tax revenues (Figure 32). Their contribution to the budget and the land use plan.52 In 2020, the felling tax was abol- should increase in coming years, in line with the higher tax ished and replaced by a wood export duty. As for Gabon’s rates applied since 2024. To ensure administrative control, fixed levy on timber, it is applied at a rate of 800 CFAF per the Customs Directorate is present when containers are cubic meter and aim at benefiting local populations in filled and checks export declarations to verify compliance wood extraction areas. with what was recorded at the time of stuffing. Meanwhile, an export duty on timber is also payable Timber export duties in Gabon are lower than in certain in Gabon based on the category of wood processing, neighbors, which allows the state to generate revenues incentivizing higher added value in exports. With the while representing a smaller incentive for econom- abolishment of Gabon’s felling tax in 2020, export duties ic and environmental distortions. Even though export started to apply on processed timber, at rates that vary in duties were increased in 2024 in Gabon, the economic order to incentivize greater value addition to the domestic burden of these taxes remain relatively lower, comparing timber processing industry. Wood export duties were in- to some countries in the region. In the Central African creased in 2024, in an effort to mobilize more revenues for Republic, rates vary from 11 percent for logs to 5 percent the state. In 2024 the tax rates initially introduced in 2020 for sawn timber and 2 percent for 3rd and 4th stage process- were raised from: 7.0 percent to 8.5 percent for products ing levels. In Cameroon the timber export tax is applied having undergone primary processing; from 3.0 percent at a 75 percent rate, while firms located in an industrial to 5.0 percent for products that underwent secondary free zone pay a reduced rate of 60 percent on logs and 15 processing; and from zero to 3.0 percent for products that percent on processed wood. Exceptionally high rates can underwent tertiary processing.53 Export duties applied generate undesirable, if unintended, spillover effects. They on timber generated CFAF 13.6 billion of fiscal revenues can decrease competitiveness, disincentivizing exports in 2023, equal to 0.11 percent of GDP and 0.74 percent of and investment, and incentivize smuggling, corruption, or 52 The tax rate is defined by Order 005 of 2021 on the wood price list and updated, if necessary, in the budget law. Updated information on the felling tax rate is thus available in the budget law published on the website of the budget directorate (Direction Générale du Budget). 53 The 2024 budget law specifies the export duty rates. Information regarding revenues collected can be requested to the customs directorate (Direction Générale des Douanes et Droits Indirects). 49 Gabon Economic Update 2024 underreporting of exports. If there is an economic push to vary: they may be treated as ordinary income or as capi- process timber domestically due to high export taxes but tal gains. Typically, long-term capital gains taxes are lower local processing is wasteful or inefficient, it could lead to than ordinary income tax rates. When timber proceeds are greater environmental degradation compared to export- taxed as capital gains, this usually provides a significant tax ing logs for more sustainable processing elsewhere. benefit because of lower rates normally applied. Business income taxes and tax incentives In Gabon, companies are subject to the corporate in- come tax regardless of their field of activity and there Forestry businesses are also subject to general taxes are no special provisions for forestry companies. on business income, which carry specific implications However, cooperatives selling agricultural products bene- due to the sector’s long investment cycles. Apart from fit from partial or total exemption from corporate income paying sector-specific taxes like export taxes or stumpage tax. The corporate income tax rate is 30 percent for ordi- yield taxes, firms in the wood sector are subject to corpo- nary companies and 35 percent for mining and oil com- rate income taxes. In forestry, the period from planting panies. Over the years, corporate taxes paid by forestry trees to harvesting can extend over many decades, which firms increased steadily, from CFAF 1.2 billion in 2016 to need to be considered in how income taxes are designed CFAF 3.2 billion in 2023, or 0.03 percent of GDP. Yet, firms and implemented. In many jurisdictions, income from tim- in the wood sector, many of them operating in the Nkok ber is not taxed on an accrual basis, where income is rec- special economic zone, benefit the most from income tax ognized as it is earned. Instead, it is taxed on a realization incentives. In 2023, they received CFAF 18.1 billion in ben- basis, meaning the income is recognized at the point of efits, equal to 96 percent of all corporate income tax ben- harvest. This method recognizes the proceeds from timber, efits and 5 percent of total tax expenditures. Efforts have minus the associated costs, only when the timber is actual- been gradually made to limit the periods and amounts of ly harvested and sold. The taxation of these proceeds can tax benefits.54 54 Further information on rates and relevant adjustments is obtainable in 2024 budget law and data on total revenues collected from business income taxes are handled by the tax authority (Direction Générale des Impôts). 50 Gabon Economic Update 2024 Tax expenditures for agriculture and value added Reforms in tax incentives for agriculture in Gabon could tax exemptions for farm inputs minimize their fiscal cost and allow them to better sup- port sustainable agricultural practices, with benefits Without proper regulatory frameworks and sustain- for the economy and the environment. Tax incentives are able land use planning, tax expenditures can under- used in Gabon to promote local agriculture as a means to mine environmental conservation efforts. Tax expendi- ensure food security, generate jobs, diversify the economy, tures for agriculture and VAT exemptions for farm inputs and reduce dependence on costly food imports. Fostering are designed to promote agricultural expansion and pro- local food production is one of the key targets of the 2024- ductivity. However, when not aligned with environmental 2026 National Development Plan for the Transition, a new objectives, they cause ecological disruptions, biodiversity strategy being conceived by the transitional government loss, and increased deforestation. These incentives can to build a resilient and inclusive economy. However, tax inadvertently encourage the conversion of forested lands incentives come at a high cost. Tax benefits such as low- into agricultural fields, especially in regions where agricul- er VAT rates on inputs and lower property taxes could be tural expansion is the primary driver of deforestation. By redesigned to target agricultural practices that maintain reducing the cost of agricultural inputs, VAT exemptions or improve forest cover, use environmentally friendly tech- can make it more economically viable for farmers to culti- nologies and practices that contribute to soil conservation vate larger areas, including areas potentially encroaching and biodiversity, or employ more advanced and greener on forested lands. agroforestry techniques. To mitigate the negative environ- mental impacts while leveraging the economic benefits In Gabon, farmers and agribusinesses benefit from of agricultural development, it is crucial to integrate fiscal VAT exemptions on agricultural inputs. Exemptions ap- policies strategically. Reforms can thus promote agricultur- ply for imports of agricultural fertilizers and phytosanitary al growth and environmental sustainability, while avoiding products, as well as for capital goods used in farming and both massive foregone taxes and the pitfalls of unchecked livestock breeding.55 Also, companies engaged in logging expansion and significant deforestation. activities receive a specific treatment with regards to the VAT. The VAT does not apply to small firms in all sectors, 4. Opportunities for climate-smart fiscal as companies with annual sales of less than CFAF 60 mil- policy reform for forests in Gabon lion are not subject to this tax, but this threshold rises to CFAF 500 million for companies engaged in wood extraction. 4.a. Calibrating forestry taxes to further Agricultural producers also benefit from property tax incentivize sustainable wood production benefits in Gabon. Land located in rural areas of less than methods five hectares, farmed within a radius of 25 kilometers from urban agglomerations, and used exclusively for market gar- The fiscal and ecological benefits of forestry taxes dening are permanently exempt from the single property hinge on the precise targeting of the tax base and on tax. Buildings used for agricultural or rural purposes, such the design of a taxation approach that incentivizes sus- as barns, sheds, stables, cellars, wine cellars, wine presses tainable wood industries. The environmental impact of and others used either to house livestock or to store crops, timber activities varies greatly depending on the produc- are exempt for five years. Moreover, land outside the urban tion methods utilized. Taxes on timber products increase perimeter that has been newly used for raising livestock, or the costs of production but ideally, environmental forestry cleared and seeded, is also temporarily exempt. Finally, the taxes should encourage sustainable production by adjust- property tax is levied based on flat rates per hectare, which ing tax rates to reflect the ecological footprint of different vary according to the type of crop.56 production methods. Varying tax rates can thus be im- 55 The list of eligible products is produced jointly by the Ministry of Economy and Participations and the Ministry in charge of Agriculture. Infor- mation on the amount of the related tax expenditure is available in the tax expenditure report appended to the budget law, including informa- tion on the applicable rate and total tax expenditures. 56 Based on the 2024 budget law, single property tax rates of 5 percent apply to the actual rental value for properties held by individuals or companies registered in Gabon and whose partners are all individuals. In other cases, it is taxed at 20 percent. For undeveloped rural properties, the tax base is constituted by the market value which is set at a flat rate per hectare, varying according to the type of crop: (a) land cultivated with coffee, cocoa, oil palms, rubber: CFAF 600; (b) other crops: CFAF 250; (c) land in the 2nd category with adjacent industrial food processing plants for that product: CFAF 150; (d) undeveloped land: CFAF 150; (e) land used for raising large livestock: CFAF 150. 2024 budget law. 51 Gabon Economic Update 2024 posed in accordance with the sustainability of production mental goals. As mentioned, they could encompass wood practices. This innovative approach emphasizes the impor- products such as timber and paper, and potentially other tance of differentiating tax burdens based on environmen- commodities such as agricultural and mineral products. By tal impact of economic activities. This shift represents a nu- adopting and expanding this strategy, governments can anced understanding of fiscal incentives, acknowledging create a more effective, information-driven framework for that the sustainability of timber production varies across encouraging sustainable practices in the forestry sector different harvesting techniques. and beyond, paving the way for a more sustainable and environmentally responsible global economy. Fiscal pol- The integration of sustainability certification into tax icies that promote sustainable forestry generate global policy offers a promising solution to administrative and benefits by maintaining carbon absorption. In addition, information challenges that can hinder the implemen- they can also be used by countries such as Gabon to avoid tation of tax policies for sustainable forestry. Despite the a path where unsustainable exploitation compromises potential of commodity tax systems to drive sustainable forest ecosystems, taking instead an approach to forests practices, the practical challenge of varying tax rates based and other resources that will enable future generations of on production methods often lies in the fiscal authorities’ Gabonese to continue benefiting from the country’s rich limited insight into the specifics of these methods. This infor- natural endowments. mational gap hinders the ability to align tax rates precisely with sustainability practices. To overcome this obstacle, au- 4.b. A ‘bonus-malus’ system in forestry: thorities can leverage the detailed assessments conducted using taxes on non-sustainable by certification agencies. This allows them to align tax rates production to finance tax benefits for more closely with the environmental impact of production sustainable practices methods. Offering tax discounts or waivers for products certified as sustainable introduces an incentive structure A ‘bonus-malus’ system in forestry consists in applying for producers to adopt more environmentally friendly prac- higher taxes on non-sustainable production to fund tices. This approach not only addresses the informational tax reductions for sustainable practices. This system is gap but also promotes market formalization by incentiviz- intended to be budget-neutral, where the revenue from ing legality and sustainability in production processes. The higher taxes (maluses) directly funds the reductions (bo- collaboration between fiscal authorities and certification nuses).57 This model is particularly relevant in budget-con- agencies thus exemplifies a synergistic approach to envi- strained environments in Congo Basin countries. It requires ronmental policy, wherein the strengths of each entity are careful calibration to ensure it does not lead to revenue harnessed to achieve a common goal. This partnership has losses for the state. For instance, when applied to taxation the potential to enhance market dynamics by creating a based on concessions’ certification levels, the mechanism’s dual incentive structure, where certified producers benefit success depends on accurate forecasting of the transition from both tax advantages and consumer preferences for from non-certified to certified units. sustainable products, contributing to placing a country’s exports on a more competitive position in global markets. A bonus-malus system in forestry taxation can encour- Moreover, this approach fosters international cooperation age sustainable forestry practices, but could bring high by aligning domestic fiscal policies with global sustainabil- costs for local firms and small producers and requires ity goals, offering a model for international collaboration in robust management and forecasting capabilities. A forest conservation. mismanaged system that fails to evolve in line with chang- es in production patterns can lead to fiscal imbalances. Ultimately, integrating sustainability certification into Another potential challenge is the accessibility of certifica- forest-related tax rates represents a forward-thinking tion systems for national firms and small producers, often approach to environmental fiscal policy, one that com- due to high audit costs. One solution could be to allocate bines fiscal and economic goals with preserving natural a portion of sectoral taxation to a special fund dedicated assets for the benefit of future generations. Such a strat- to partially subsidizing audit costs, thus reducing financial egy acknowledges the complexities of sustainable pro- barriers for firms. Supporting smaller producers through duction and seeks to leverage fiscal instruments in service financial subsidies for certification could also enhance in- of a combination of fiscal, economic, social, and environ- clusivity and effectiveness. 57 Karsenty. 2024. 52 Gabon Economic Update 2024 Land area fees applied in Gabon are an example of fis- cal policies that incentivize sustainable forestry, which could be extended to other taxes in the country and replicated in other countries. In Gabon, a differentiated forestry taxation system was introduced, which resembles a bonus-malus mechanism: certified forestry concessions (FSC or PAFC) received a tax reduction, concessions with legality certification faced a moderate tax increase, and firms operating in uncertified concessions are subject to higher taxes. This system aimed not just at budget neu- trality but also at increasing overall tax revenues, by in- centivizing sustainable practices through fiscal measures. The varying rates applicable to forest extractors based on concession’s certification levels produce an incentive to- wards higher certification levels. Similar approaches could be considered for other taxes and fees levied on the wood sector, which could further promote certification goals. They could also be envisaged to promote other sustain- able practices in timber but also other commodities such as agriculture and fisheries. 4.c. Looking ahead: how to achieve fiscal, economic, and environmental goals with fiscal policy reforms for forestry? Combining fiscal instruments with better forest governance through improved enforcement, monitoring, and transparency can help Gabon safeguard its forests while enhancing the forestry sector’s role in the economy. The effectiveness of ecological tax reform in the for- estry sector is not just a matter of fiscal policy design but also a reflection of a country’s governance capaci- ty and the strategic alignment of tax mechanisms with conservation objectives. As the preceding discussion has shown, the integration of taxes with performance bonds and certification schemes presents an innovative ap- proach to leveraging fiscal tools for environmental stew- ardship. By incentivizing sustainable practices through in- novative combinations of certification schemes and fiscal mechanisms, countries can foster a more responsible man- agement of forest resources, aligning economic incentives with environmental goals. Such fiscal strategies, however, are not standalone solutions but components of a comprehensive policy mix that addresses the multifaceted challenges of for- est conservation. From regulatory measures to economic instruments and informational campaigns, the success of 53 Gabon Economic Update 2024 forest conservation and sustainable development strate- interests of all stakeholders including local commu- gies and efforts hinges on the ability to implement a co- nities, small producers, and forestry firms. herent, integrated strategy that leverages the strengths § Promoting user-friendly digital services for the of each approach. The role of governance, in this context, forestry sector, including processes for attribution cannot be overstated. A robust governance framework is and verification of permits, payment of all charges, essential not only for the effective implementation of tax taxes, and fees to increase efficiency and transpar- policies but also for fostering the collaboration and trans- ency, and real-time tracking of forestry activities, parency necessary for sustainable forest management. ensuring these platforms are available also in more remote areas to increase efficiency and transparen- Going forward, Gabon could reform fiscal policies for cy. As part of capacity building activities, the gov- forestry to promote the sustainable of both its forests ernment could provide training for forestry officials and public finances. Over the coming years, Gabon is and concessionaires on the use of digital tools to expected to face high spending needs, to cover public in- improve efficiency and transparency. vestments in public infrastructure and in the expansion of § Engaging with local communities in expanding public services, measures to support living standards, and and strengthening the implementation of REDD+ a rising public sector wage bill. On the revenue side, the projects across Gabon’s forests to ensure that they country’s fiscal challenges include rising financing costs benefit directly from carbon sequestration efforts. in view of global tightening of financing conditions, and This could include financial incentives or alter- prospects of declining oil revenues due to the maturity of native livelihood programs. The goal would be to oilfields. As oil resources may gradually disappear, pres- secure more performance-based funding from in- sures could mount on intensifying the use of forests and ternational donors by demonstrating measurable other natural resources. progress in carbon sequestration and community benefits. Gabon aims at reforming its forestry code, which could § Fostering international partnerships and securing provide a momentum for broader fiscal policy reforms increased funding for forest conservation and cli- for the forestry sector. The reform of the 2001 forestry mate resilience projects. Gabon could take steps to code is part of policy actions considered in the National attract more climate finance, technical assistance, Development Plan for the Transition, with the aim of and capacity-building support through interna- modernizing forest legislation. Ongoing governance ini- tional cooperation. By engaging with global envi- tiatives in the sector include the adoption of digital wood ronmental initiatives, international development traceability systems to improve transparency, efficiency, partners, and climate funds, the country can secure and combat illegal logging. Different fiscal policy options more resources needed for forest conservation, could be considered in a strategy to increase fiscal reve- community adaptation strategies, and sustainable nues while fostering income generation, jobs, sustainable livelihood programs. exploitation of wood resources. Fiscal policies that could § Promoting agroforestry and sustainable land man- be envisaged include: agement practices as key strategies for reducing pressure on forests. Investments in agroforestry § Expanding the ‘bonus-malus’ mechanism that un- projects that integrate tree cultivation with agri- derlies land area fees to other fiscal instruments, cultural crops, coupled with training and technical where more sustainable practices and certified support programs for farmers, can facilitate the concessions are benefited with a lower tax burden, transition to more sustainable agricultural practic- while tax costs increase for firms operating with es, such as crop rotation, organic farming, and soil less sustainable production methods. conservation techniques, thereby reducing defor- § Rationalizing tax expenditures for agriculture to estation and forest degradation. improve their targeting and align them with en- § Enhancing community engagement and partici- vironmental goals. The authorities could consider patory forest management practices to ensure the implementing a monitoring system to ensure that sustainability of conservation efforts. Empowering the benefits generated by tax incentives are used local communities through participatory forest effectively and aligned with environmental goals. management models is crucial for the sustainable § Reforming the forestry code through a participato- use of forest resources. Implementing communi- ry and inclusive processes, that takes into account ty-based forest management programs that in- 54 Gabon Economic Update 2024 clude clear benefit-sharing mechanisms can incen- include more moderate tax rates on sustainable practices, tivize conservation and sustainable livelihoods. improved enforcement mechanisms, higher rates and pen- § Increasing efforts to produce and export more alties for non-compliance, strengthening the fight against high-level processed wood products such as furni- illegal logging, and adopting other fiscal policies that en- ture. This could be facilitated by offering incentives courage sustainable practices in both the domestic and such as tax breaks, grants, and technical support, export markets. A well-integrated fiscal approach for the although tax incentives need to be carefully de- forestry sector needs to consider the effects of fiscal pol- signed and considered in view of their potentially icies on revenue collection, on firms and jobs, and on the high fiscal costs. Reforms could focus on promoting environment. Lessons learned from previous fiscal reforms local production of high-value products for domes- for forestry in Central Africa indicate the need to carefully tic and international markets. Countries could in- consider political economy aspects and how sector inter- vest more in vocational training programs to build ests could hamper reform efforts (Box 7).5859 60 a skilled workforce capable of supporting a thriving wood processing sector. Strengthening regional cooperation through harmonized regulations, better law enforcement, Addressing fiscal and environmental challenges in and improved forest fiscal policy alignment the forestry sector requires a balanced approach that will better equip Congo Basin countries to face considers both the economic benefits of taxation and cross-border challenges, enhance institutional the potential for negative outcomes. Solutions might capacities, and attract more international funding. Box 7. Lessons learned from fiscal reforms for forestry in Central Africa Reforms that seek to promote competitiveness and enhance revenue collection from forestry in Central Africa have had only partial success since the 1990s. Since the early 1990s, reforms of forest concession regimes in Central Africa have been designed with World Bank support. Previous reforms focused on increasing public revenues through competitive markets or taxation and dismantling fraudulent and uncompetitive behavior (‘patronage systems’) in forest permit allo- cation. This included proposals to shift taxation from exported wood to the volume cut or the area of the concession, which was intended to reduce waste and inefficiency. Over time, the focus of forestry reforms shifted towards REDD+ initiatives, which emphasize reducing emissions from deforestation and forest degradation. This shift reflected a broad- er change in international environmental policy priorities. However, the actual impact of these initiatives on forest man- agement practices and deforestation rates has been mixed.58 These reforms aimed to improve governance and transparency in the forestry sector, and increasingly, environmental goals. However, in certain cases, reforms faced resistance from vested interests, including from timber companies and government officials, which resulted in partial implementation. This underscores the complex political economy sur- rounding forestry reforms.59 The ongoing challenge is to design and implement fiscal policies that effectively balance economic incentives with conservation goals, ensuring that forestry practices contribute to sustainable development and environmental protection. Past experience highlights the importance of aligning fiscal instruments with sustainable forestry management goals and of ensuring inclusive and participatory policy making processes. Previous reform attempts demonstrated that prac- tical difficulties hinder the implementation of reforms. They indicate the need for building robust and transparent sys- tems to manage and monitor forestry activities. Also, it is important not to underestimate the non-timber values of for- ests, which are crucial for livelihoods of forest-dependent people.60 Previous efforts show that inclusive policy-making processes are needed, to involve all stakeholders, including local communities and forest-dependent populations, and ensure support for forestry reforms both from environmental sustainability and economic development perspectives. 58 Hoppe et al. 2023. 59 Karsenty. 2016. 60 The World Bank is developing a robust natural capital accounting in the Congo Basin forests, including the value of forest ecosystem services and other non-timber benefits. 55 Gabon Economic Update 2024 Better coordination of forest preservation policies in sion, capture greater land-use sector rents, promote fairer Congo Basin countries will help ensure consistent en- revenue distribution, and lessen administrative burdens forcement across borders, reduce illegal activities, and for firms engaged in cross-border operations. Regional improve sustainable management practices. Although alignment encourages a more conducive business that Congo Basin countries have legal frameworks that aim at can attract more investment in sectors such as timber, ag- regulating forest management and protection, the lack of riculture, and eco-tourism, benefiting local populations regional guidelines and enforcement can hinder the imple- through job creation, technology transfer, and infrastruc- mentation of these laws. Strengthening the Central African ture development. Coherent policies also bolster regional Forestry Commission (COMIFAC), particularly through its integration by facilitating trade and cooperation, enhanc- Central African Forest Observatory (OFAC), is essential for ing overall cohesion, and making the region more attrac- harmonizing national institutional frameworks and data tive to international donors and organizations focused on collection. Harmonizing fiscal policies, particularly to en- climate change and sustainable development.61 courage the expansion of forest management plans and certifications and to align agricultural and mining policies Regionally integrated forestry initiatives are essen- with forest protection efforts, can significantly contribute tial to avoid beggar-thy-neighbor policies, which to forest preservation in the region. can undermine collective progress by shifting un- sustainable logging practices to less regulated coun- Regional political efforts within CEMAC to harmonize tries. Harmonized regulations promote sustainable for- forest-related fiscal policies are crucial for fostering est management by ensuring the uniform application environmental conservation, business environment of environmental standards, thereby protecting forests improvements, and regional integration. While aligning and biodiversity across borders. Evidence from regions countries to commit to a log export ban to promote the such as the European Union, Amazon Cooperation Treaty domestic timber sector is a significant step, further actions Organization, and East African Community demonstrates could be used to strengthen regional cooperation in this that policy alignment effectively combats environmental area. Impactful policies could include enhancing the cover- degradation and fosters sustainable practices.62 By em- age, quality, and monitoring, verification, and enforcement bracing coordinated fiscal policies, CEMAC countries can of sustainability certifications for forest-linked commodi- safeguard their forests, bolster economic growth, and ties. These certifications can ensure that products meet en- enhance regional resilience against worsening climate vironmental and social standards, improving market access impacts. and prices for the region’s exports. Regional coordination can be fostered to harmonize different practices. Adopting Regional forest-fiscal alignment can also significant- recurrent annual charges on commercial land use, such as ly enhance CEMAC countries’ attractiveness to inter- land area taxes, can discourage deforestation and promote national donors, organizations, and conservation sustainable land management. Implementing feebates, funds. Lending groups such as the World Bank, Global with taxes varying based on production sustainability, Environment Facility (GEF), and Green Climate Fund (GCF) incentivizes eco-friendly practices, while reforming costly could be more likely to bolster investment in regions and environmentally harmful tax expenditures, like subsi- where policies are harmonized, as this reduces the risk and dies for agricultural inputs, can further support sustainable complexity of project implementation. Potential funding forest management. and technical assistance can be unlocked for development projects such as reforestation, biodiversity conservation, Aligning CEMAC member countries with best-practice and sustainable land management,63 strengthening ac- frontiers of forest-fiscal policies can mitigate compet- tivities including those under the Central African Forest itive disparities among member countries, creating Initiative (CAFI). The World Bank, under the aegis of its a stable and predictable investment environment to Global Challenge Program on Forests for Development, attract more sustainable investments. Through envi- Climate, and Biodiversity, is initiating a regional Congo ronmentally targeted (Pigouvian) standardization of forest Basin Sustainable Forest Economies program to increase taxation and regulations, governments can reduce tax eva- regional coherence on governance and fiscal policies. The 61 OECD. 2019. 62 European Commission. 2020; ACTO. 2021. 63 World Bank 2021; GEF 2022. 56 Gabon Economic Update 2024 program also aims at strengthening regional institutions for all. To this end, countries also need to enhance their such as CEMAC, COMIFAC, and OFAC to foster the use of readiness to effectively mobilize available climate finance digital technologies particularly Earth Observation (EO) options. The World Bank, through a regional ASA initiative, and Artificial Intelligence (AI) for forest and biodiversity is supporting these nations in building the necessary ca- monitoring and monitoring, reporting, and verification pacity to attract more results-based climate financing.65 systems. Financial instruments and mechanisms such This approach considers the comprehensive value of forest as the Forest Carbon Partnership Facility (FCPF) and the ecosystems and environmental services, including carbon REDD+ (Reducing Emissions from Deforestation and Forest sequestration, biodiversity conservation, soil conservation, Degradation) initiative can provide additional vital sup- and water retention. port. Engaging more with investors and climate-related aid organizations can be achieved through regional coopera- tion platforms, joint project proposals, and demonstrating a strong commitment to policy coherence and sustainable development. This collaborative approach can not only se- cure more financial resources but also bring in expertise and technology essential for long-term environmental and economic sustainability.64 The Congo Basin countries’ efforts to preserve their forests provide an essential global public good in the form of climate regulation and biodiversity services and require significantly scaled-up international support and compensation. The international community must urgently provide more substantial financial support and a fair compen- sation for the Congo Basin forests’ carbon sequestra- tion and ecosystem services. Despite their pivotal role in global climate regulation and biodiversity preservation, these forests receive inadequate financial recognition for their critical environmental contributions. While acting as a significant carbon sink and providing vital ecosystem services that benefit the entire world, the Congo Basin forests are underfunded. The Congo Basin countries face a substantial financing gap for their climate services, receiv- ing only a small fraction of the required funds. This stark disparity highlights the urgent need for increased and equitable investment in the conservation and sustainable management of these forests. Adequate financial backing is crucial to sustain conservation efforts, combat deforesta- tion, and promote sustainable development in the region. Fair compensation for these ecosystem services would not only help preserve these vital forests but also bolster the economic stability and growth of Congo Basin countries, paving the way for a more equitable and sustainable future 64 UNFCCC 2018. 65 The World Bank, through its Congo Basin Forests Advisory Services and Analytics (ASA), is assisting CEMAC countries and the DRC in develop- ing natural capital accounts to capture the comprehensive value of forest assets and ecosystem services, thereby enhancing national planning and decision-making for sustainable forest management. Additionally, the initiative supports these countries in building the necessary capacities and readiness to leverage both existing and innovative options for results-based climate finance. 57 Gabon Economic Update 2024 References ACTO. 2021. Annual Report Amazon Regional Observatory (ARO). Brasília: ACTO/ARO. https://ora.otca.org/wp-content/uploads/2022/10/Informe-ORA-2021-29-AUG-ING_Final.pdf AFD. 2021. 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