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SÃO TOMÉ AND PRÍNCIPE Economic Freedom Score 25 Least free 0 World Rank: 136 Regional Rank: 50 75 Most 100 free 53.3 29 Freedom Trend Tomé and Príncipe’s economic freedom score is 53.3, SItsãomaking its economy the 136th freest in the 2015 Index. score has increased by 4.5 points from last year, reflect- 56 ing impressive improvements in seven of the 10 economic freedoms related to regulatory efficiency, the management of public finance, and the rule of law. São Tomé and Príncipe has recorded the largest score improvement of any country graded in the 2015 Index, yet it is still ranked 29th out of 46 countries in the Sub-Saharan Africa region, and its score is below the world average. This year’s gains in economic freedom have erased losses recorded in 2013. An improvement of 3.8 points since 2011 has been led by a gain of over 30 points in business freedom, moving São Tomé and Príncipe out of the “repressed” category. Despite these improvements, however, economic freedom is not firmly established. Rampant corruption is exacerbated by oil exploration and development aid. The government dominates the domestic economy, and the bureaucracy hinders business formation and labor market efficiency. Efforts to attract capital for oil exploration have not translated into a well-crafted investment regime, hindering chances for development of a competitive financial system. BACKGROUND: Manual Pinto da Costa, who served as president for 15 years following independence from Portugal in 1975, returned to office in 2011.Under São Tomé and Príncipe’s democratic constitution, the president shares power with a prime minister who requires the confidence of the parliament to retain power. In 2012, Prime Minister Patrice Trovoada won legislative elections, but he received a vote of no confidence and was replaced by current Prime Minister Gabriel Costa. São Tomé’s economy, one of Africa’s smallest, is agriculture-based and highly vulnerable to external shocks. São Tomé remains dependent on foreign assistance. Oil production is expected to begin in late 2015, but both São Tomé and Nigeria claim unexploited offshore oil fields. How Do We Measure Economic Freedom? See page 475 for an explanation of the methodology or visit the Index Web site at heritage.org/index. 54 52 50 48 46 2011 2012 2013 2014 2015 Country Comparisons 53.3 Country World Average 60.4 Regional Average 54.9 Free Economies 84.6 0 20 40 60 80 100 Quick Facts Population: 0.2 million GDP (PPP): $0.4 billion 4.0% growth in 2013 5-year compound annual growth 4.3% $2,194 per capita Unemployment: n/a Inflation (CPI): 8.1% FDI Inflow: $30.0 million Public Debt: 85.3% of GDP 2013 data unless otherwise noted. Data compiled as of September 2014. 379 SÃO TOMÉ AND PRÍNCIPE (continued) THE TEN ECONOMIC FREEDOMS Score RULE OF LAW Country World Average Property Rights 25.0 Freedom from Corruption 42.0 0 20 40 60 80 Rank 1–Year Change 124th 72nd +5.0 +9.5 100 Although the government has undertaken numerous reforms (e.g., an August 2013 anti–money laundering law), development aid and offshore oil exploration have fueled corruption among the ruling elite. Bribery, embezzlement, and mismanagement of public funds are regarded as endemic. The judiciary is independent but weak, underfunded, understaffed, inefficient, and susceptible to political influence. Property rights are not protected effectively. Fiscal Freedom 87.8 GOVERNMENT Government Spending 41.4 SIZE 33rd 149th 0 20 40 60 80 +0.9 +13.5 100 The top individual income tax rate is 13 percent, and the top corporate tax rate is 25 percent. Other taxes include a sales tax and a dividend tax. Overall tax revenues equal approximately 14 percent of gross domestic product. Government spending equals 44.2 percent of domestic production, and public debt is equivalent to 85 percent of the economy. REGULATORY EFFICIENCY Business Freedom 65.1 Labor Freedom 45.8 Monetary Freedom 70.7 93rd 152nd 143rd 0 20 40 60 80 +12.5 +1.1 +2.4 100 The time needed to start a company has been reduced to four days, and licensing requirements have been simplified. In the absence of a well-functioning labor market, informal labor activity remains significant. The government stated its intention to cut fuel and power subsidies and fix problems in the state-owned water and electricity firms in 2014 but took no action. OPEN MARKETS Trade Freedom 75.2 Investment Freedom 50.0 Financial Freedom 30.0 103rd 109th 131st 0 20 40 60 80 –0.1 0 0 100 The average tariff rate for São Tomé and Principe, a member of the Economic Community of Central African States, was 7.4 percent as of 2008. Pork imports are not allowed. Foreign investment generally receives national treatment. The underdeveloped financial sector, consisting of eight firms, does not provide adequate access to banking services for a large portion of the population. Long-Term Score Change (since 2009) RULE OF LAW Property Rights Freedom from Corruption 380 –5.0 +15.0 GOVERNMENT SIZE Fiscal Freedom Government Spending +12.8 +19.4 REGULATORY EFFICIENCY OPEN MARKETS Business Freedom +20.0 Labor Freedom –2.2 Monetary Freedom +9.3 Trade Freedom +15.2 Investment Freedom +10.0 Financial Freedom 0 2015 Index of Economic Freedom