Download Gabonese Republic

CONFIDENTIAL
Gabonese Republic
JULY 2008
GABONESE REPUBLIC
Executive Summary




1
Strong economic performance in 2007 and in Q1 2008

Robust 5.6% real GDP growth in 2007 (6.2% for real non-oil GDP, 3.4% for real oil GDP)

Overall balance of payments surplus
Improvement in public finances

Primary budget surplus and reduction of the non-oil deficit

Ongoing reforms aiming at increasing permanent income (including non-oil permanent income)

Continued efforts to strengthen control on public expenditures
Active and prudent debt management

Buyback of 86% of Paris Club debt leading to a decrease in external debt to 13.8% of GDP

Creation at the World Bank of an amortization fund (‘Investment Management Account’) in respect of the US$1 bn international
bond issue of December 12th 2007. First payment in the Investment Management Account will occur before 2008 year end.

Continuation of privatizations
Continued efforts to improve transparency and governance

Publication of the 3rd EITI report

Increase to 60% of the share of public contracts awarded on tender

Establishment of a Medium Term Expenditure Framework (MTEF)

Establishment of a Treasury committee in charge of supervising budget execution

Improved investors’ assessment of Gabon’s efficiency, reflected in the continued increase in the price of Gabonese external bonds
in the secondary market
1
GABONESE REPUBLIC
Table of Contents
2
I
ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCE EFFORTS
II
ECONOMIC EXPECTATIONS FOR 2008
III
GABON’ S NEW EXTERNAL DEBT PROFILE
IV
POLITICAL ENVIRONMENT
V
SOCIAL ENVIRONMENT
2
GABONESE REPUBLIC
I
Economic Performance in 2007 and Transparence Efforts
GABONESE REPUBLIC
I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCY EFFORTS
Macroeconomic Developments

Robust growth in 2007


5.6% increase in real GDP

6.2% increase in real non-oil GDP

Recovered growth in the oil sector: real oil GDP growth at 3.4%
Consumer prices

5.9% yoy increase in consumer prices mainly caused by the combined effect of a 26% adjustment in fuel prices in March 2007,
inflation in imported foodstuff and internal demand pressures

Strong external position: 20,1 % in December 2007 as the International bond issue proceeds were taken into account (13% in
March 2007 and 10.3% in March 2008)

Gabon’s contribution to the international reserves of the BEAC has been below expectations

Budget surplus has been below expectations

Non-oil deficit has decreased from 18.0% in 2006 to 13.3% in 2007, while expectations were at 11.6% (IMF program objective)

4
Fuel subsidies have reached FCFA 54.4 bn in 2007 (0.9% of non-oil GDP)

Gabon’s own resources have served to buyback part of Paris Club debt

The State has assumed insolvent public companies’ and public bodies’ debts, as well as local authorities’ deficits
4
GABONESE REPUBLIC
I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCY EFFORTS
Macroeconomic Developments (cont’d)


Monetary situation

6.9% money supply growth due to an increase in net foreign assets and growth of credit to the economy

Decrease in State claims due to temporary accounting of the US$1 bn international bond proceeds on Citigroup Libreville’s balance
sheet. This amount was subsequently transferred to Paris Club creditors in consideration of the Paris Club debt buyback in January
2008
Balance of payments

The trade surplus more than compensates the deficit in services, income and current transfers

Increased capital account deficit in 2007 (FCFA -773.9 bn) due to foreign investments in the oil sector and a still-high public debt
amortization level (FCFA -246.5 bn)
(FCFA bn)
2006
2007
925,5
867,8
Trade balance
2350,7
2531,5
Capital account balance
-536,8
-773,9
193
8,7
Current account balance
Overall balance
5
5
GABONESE REPUBLIC
I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCY EFFORTS
Macroeconomic Developments (cont’d)

6
Developments in the key sectors of the Gabonese economy
 Oil
 Domestic production of crude oil recorded by all companies operating in Gabon in 2007 has reached 12,128 million tons, 1.7%
higher than in 2008 (11,927 million tons), notably because of
 efforts made by the various operators in mature fields
 starting exploitation of marginal oilfields
 0.5% increase in exports by end-December 2007, standing at 11,307 million tons
 The main destination, the USA, absorbs three quarters of Gabonese crude oil supply
 Decline in oil revenues vis-à-vis 2006 notably because of
 the recovery of investment by oil companies (amortization has accelerated) in 2007
 the decline in production of principal operating companies (Total, Shell) and increased production companies whose
marginal tax is lower
 Manganese
 Strong demand for manganese in a context of pressures on global ore supply, leading to
 an increase in production of manganese by 11.9% compared to 2006, reaching 3,333 million tons
 an increase in exports and sales of 13.7% and 13.8% respectively
 an increase in value of sales of 43.2% for a total of FCFA 272,483 bn in 2007 compared to FCFA 190 bn in 2006, bolstered
by increasing prices of manganese ores
 Timber
 In 2007, 9.6% increase of exports of timber (all species combined), reflecting strong demand from China (largest consumer of
Gabonese timber with 1,103 million cubic meters)
 Refining
 14.9% increase of the volume of processed crude oil processed, reaching 821,011 metric tons (MT) against 716,776 MT in
2006
 Imports of refined products, including diesel, by the Sogara to meet local demand
6
GABONESE REPUBLIC
I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCY EFFORTS
Macroeconomic Developments (cont’d)

Evolution of key figures
% of annual change, unless otherwise stated
Real sector
GDP, constant prices
Oil GDP
Non-oil GDP
GDP, current prices
GDP deflator
Oil GDP
Non-oil GDP
Consumer prices
Yearly average
End of period
% of annual change, unless otherwise stated
External sector
Exports, f.o.b. (FCFA)
Of which: oil
Imports, f.o.b. (FCFA)
Export volume
Import volume
Terms of trade (-: deterioration)
Nominal effective exchange rate (-: depreciation)
Real effective exchange rate (-: depreciation)
Central Government finance
Total revenue
Oil revenue
Non-oil revenue
Total expenditure
Current
Capital
7
Expected
May 2007
5.6
5.3
5.7
2.3
-3.1
-11.6
6.1
5.5
4.5
-2.1
-4.7
15.1
5.5
16.4
-6.1
Effective % of annual change, unless otherwise stated
Money and credit
End 2007
Credit to the economy
5.6
Broad money (M2)
3.4
Velocity of broad money (non-oil GDP)
6.2
% GDP, unless otherwise stated
11.1
Gross national savings
5.2
Public sector
4.1
Private sector
8
Gross fixed investment
Public sector
4
Private sector
5.9
% GDP, unless otherwise stated
Central government
Non-oil primary balance (% of non-oil GDP)
9.7
Primary surplus (base case)
7.2
Domestic bank financing
17.7
Nex external financing
3.4
External current account balance (including official transfers)
15.7
External public debt (including to the IMF)
4.4
2.1
5.1
0.4
-7.4
14.4
-4
-6.2
3.4
5.4
19
3.9
1.2
-0.5
3.3
2007
2007
May 2007
20.5
14.4
2.5
End 2007
17.5
7.2
2.6
-
40.9
144
26.5
26.2
4.5
21.7
-11.6
9.7
-3.3
-3.9
16.9
27.6
-13.3
7.6
-8.1
4.4
14.8
*
34.9
Total gross public debt
36.7
*
44.5
Memorandum items
Nominal GDP (FCFA billion)
Nominal non-oil GDP (FCFA billion)
Price of Gabonese crude oil (thousands FCFA per barrel)
5,106
2,713
28.6
5,544
2,777
33.3
* Exceptionally high public debt figures between international bond issue (December 2007) and Paris Club debt buyback (January 2008)
7
GABONESE REPUBLIC
I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCY EFFORTS
Efforts towards diversification of the economy


8
20% increase in non-oil receipts, thanks to

The computerization of tax services

The establishment of a single tax interlocutor
Strengthened control of public expenditure and higher capital expenditures in 2007

3.4% increase in capital expenditure

Current expenditures over non-oil GDP have decreased to 30.2% in 2007 from 34.6% in 2006
8
GABONESE REPUBLIC
I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCY EFFORTS
Efforts towards increased transparency

Transparency


9
Management of oil revenues

3rd EITI report submitted in March 2008
 Survey and comparison of payments to the State reported by the oil companies

Reconciliation of oil revenue data from both Gabon’s budget and and the EITI report
Fiscal policy transparency and strengthening of implementation follow-up

Presentation of the 2008 budget in very tight timing

New functional Central Government expenditures classification used for budget preparation

Increase to 60% of the share of public contracts awarded on tender

Establishment of a Medium Term Expenditure Framework (MTEF) taken into account in the preparation of the budget
current and capital expenditures

Restructuring and development of the health insurance system financing
 Employer contributions for employees and civil servants
 Creation of a 10% tax on mobile phone operators’ income (fully included in the budget) for economically weak Gabonese
people in the framework of the Caisse d’assurance maladie
9
GABONESE REPUBLIC
II
Economic Expectations for 2008
GABONESE REPUBLIC
II ECONOMIC EXPECTATIONS FOR 2008
Forecasts for 2008 have been revised compared to forecasts made in Dec 07



11
Key features
 Very good performance of manganese and timber (contributing to non-oil GDP)
 Lowered expectations for oil production
 Higher expected oil price – benchmark price: US$111 per barrel
Upward revision of 2008 real oil GDP from 2.4% to 4.4%
 This forecast takes into account SOGARA’ s increased refining capacity
 Real non-oil GDP growth forecasts remain unchanged at 4.7%
 Price indexes expectations have been revised upwards, notably because of expected continuous increase in commodities’ prices
 The rate of growth of GDP deflator has been revised upwards, from 4.9% to 12.2%
 Consumer prices are expected to increase by 3.8% (3.0% before revision)
Fiscal policy
 Fiscal surplus revised upwards: FCFA 896.5 bn (12.6% GDP), vs FCFA 661.6 bn (11.3%) before
 Establishment of strict measures
 FCFA 190.1 bn ceiling on goods and services expenses
 Non-SOGARA subsidies and transfers capped at FCFA 152.3 bn
 Capital expenditures limited to FCFA 279.9 bn, of which FCFA 73. 6 bn to be externally drawn
 Difficult short-term fuel prices adjustment and need to curb rising food prices because of the social context
 Non-oil primary deficit should be at 11.2% instead of 10.0% as initially forecasted
 Fiscal revenue loss of approximately FCFA 7 bn due to a suspension of rights and customs duties, value added taxes and all
Para fiscal taxes to mitigate rising food prices
 Almost FCFA 5.7 bn expenditure in 2008 to support the price of flour
 Fuel subsidies revised upwards to FCFA 102.3 bn
 Wage bill forecast has been revised upwards from an initial FCFA 311.8 bn figure to FCFA 317.5 bn, vs FCFA 301.2 bn in
2007, to record already-taken measures (creation of new institutions and reintegration of temporarily seconded civil servants)
11
GABONESE REPUBLIC
II ECONOMIC EXPECTATIONS FOR 2008
Reforms to increase Gabon’s permanent income

Reforms of public finance management

Publication in the national press by end-June 2008 of the list of projects selected for the 2008 “fêtes tournantes” and their costs


Establishment of a Medium Term Expenditure Framework (MTEF) used for the 2009 budget preparation and better estimate 2008
expenditures

Audit of cross-debts between the State, businesses and public bodies and of accumulation of arrears vis-à-vis third parties planned
for late 2008

12
Implementation of these projects in accordance with the budgetary procedures
Consolidation after verification of the financial statements of public companies and local budgets, so that the preparation of a
TOFE for the entire public sector is made possible by 2010

Establishment of a treasury committee charged with examining budget execution and identify priorities, as well as with designing a
quarterly cash plan in line with the program

Modeling of oil resources and revenues by KPMG, that will

Provide more reliable forecasts

Permit a better evaluation of the contracts with oil companies
12
GABONESE REPUBLIC
II ECONOMIC EXPECTATIONS FOR 2008
Reforms to increase Gabon’s permanent income (cont’d)

Financial sector liberalization



Government support to regional authorities in their efforts to monitor that banks comply with prudential ratios

Preparation of an action plan to reduce the State’s involvement in banks by end-December 2008 and eliminate the requirement
for banks to subscribe to equipment goods issues up to 10% of their deposits

Removal of BEAC’ s statutory advances scheduled for January 1st 2009:
 Currently, BEAC may grant statutory advances to a member State up to a ceiling equivalent to 20% of budget revenues
reckoned during the previous year
 The removal of these statutory advances began in 2002 and should be completed by January 2009
External liberalization


Ongoing efforts to foster an environment conducive to financial sector development
Contribution to the regional debate regarding external trade liberalization

Reduction in CEMAC’s Common External Tariff (CET)

Removal of the distortions in the rates applied by the different countries of the CEMAC impeding private sector’s growth
Privatizations

Continued privatization programme

13
Final disposal to Morocco Telecom of the majority stake of the State in Gabon Telecom
 The audit of 2006 financial statement was published on the website of the Ministry of Finance
 The State has assumed the new social plan to consolidate the financial position of the new company
13
GABONESE REPUBLIC
III Gabon’s New External Debt Profile
GABONESE REPUBLIC
III GABON'S NEW EXTERNAL DEBT PROFILE
Buyback of 86% of Paris Club debt

Financing the buyback




An international sovereign bond issue (US$1 bn)

A regional bond issue (FCFA81.5 bn) in CEMAC

Statutory advances granted by BEAC (FCFA130 bn)

Gabon’s own resources for the balance
Remaining Paris Club debt outstanding stands at US$260 mn (Germany, Canada, USA, Japan)
Agreement with the World Bank concerning the creation of an account (IMA: Investment Management Account) dedicated
to repayment of the principal of the international bond debt

15
Buyback of US$1.6 bn Paris Club debt owed to bilateral creditors who have accepted the Government’s tender, with resources
coming from
Gabon will pay up to US$50 mn per year in this fund

These funds will be used to either buy back and cancel Gabon’s debt on the secondary market or invest in high quality zero
coupon bonds maturing not later than Gabon’s international bond issue . Residual bonds not covered by the IMA is expected to
reach approximately 40% of original bond issue at maturity, December 12th 2017

The agreement has already signed between Gabon , BEAC and the World Bank
15
GABONESE REPUBLIC
III GABON'S NEW EXTERNAL DEBT PROFILE
Gabon’s external debt profile (excluding IMA)
US$ billion
1.20
1.00
0.80
0.60
0.40
0.20
2008
2009
2010
2011
2012
Int Fin
16
2013
Reg fin
2014
2015
2016
2017
2018
2019
Residual Paris Club debt service
16
2020
GABONESE REPUBLIC
III GABON'S NEW EXTERNAL DEBT PROFILE
Gabon’s external debt profile (including IMA)
US$ billion
0,8
0,6
0,4
0,2
2008
2009
2010
2011
Fin int
17
2012
IMA
2013
Fin reg
2014
2015
2016
2017
2018
Service Club de Paris Residuel
17
GABONESE REPUBLIC
III GABON'S NEW EXTERNAL DEBT PROFILE
Continuous improvement in the appreciation of Gabon in the secondary
market
9
8,5
8
7,5
Philippines (BB-/BB-)
Jamaica (B+/B+)
Ukraine (B+/BB-)
Indonesia (BB-/BB-)
Gabon (BB-/BB-)
Ghana (B+/B+)
7
6,5
6
5,5
18
20
08
20
08
/0
8/
20
/0
8/
20
08
06
/0
7/
20
08
23
/0
7/
20
08
09
/0
6/
20
08
25
/0
6/
20
08
11
/0
5/
20
08
28
/0
5/
20
08
14
/0
4/
20
08
30
20
08
/0
4/
16
20
08
/0
4/
02
/0
3/
20
08
19
/0
3/
20
08
05
/0
2/
20
08
20
/0
2/
20
08
06
/0
1/
20
08
23
/0
1/
20
07
09
/1
2/
26
12
/1
2/
20
07
5
18
GABONESE REPUBLIC
III GABON'S NEW EXTERNAL DEBT PROFILE
Terms of the bond issues
GABON’S INTERNATIONAL BOND ISSUE
19
GABON’S REGIONAL BOND ISSUE
Issuer
Gabonese Republic
Issuer
Gabonese Republic
Rating
BB- (S&P, Fitch)
Rating
BB- (S&P)
Format:
RegS/144A
Format:
COSUMAF Bond Issue
Amount
US$1,000 million
Amount
FCFA81.5 billion
Coupon
8.20%
Coupon
5.5%
Issue price
100%
Issue price
100%
Price
Mid-swaps + 356 bps
Maturity
December 5, 2013
Maturity
December 12, 2017
Profile
Sinkable
Profile
Bullet
Cotation
BVMAC
Spread over UST
426 bps
Cotation
London Stock Exchange
Co-lead managers
CITI, JPMORGAN
19
GABONESE REPUBLIC
IV Political Environment
GABONESE REPUBLIC
IV POLITICAL ENVIRONMENT
The political environment in 2008
21

Political stability has been maintained

Formation of a new Government in January 2008 with a 20% reduction in the number of ministries

Organization of transparent local elections in April 2008

International recognition of Gabon with the election of Mr. PING to the Presidency of the AU commission in March 2008

Active participation in resolving conflicts in the subregion (CAR, Chad…)
21
GABONESE REPUBLIC
V
Social Environment
GABONESE REPUBLIC
IV SOCIAL ENVIRONMENT
The social environment in 2008


23
The main claim of the ‘Expensive Life’ action group relates to rising transport costs

One of the main factors to take into account when adjusting fuel prices is the impact on transport costs

A possible solution could be an improved management of transport facilities
The Caisse d'Assurance Maladie

Starts effectively in 2009

census of economically weak Gabonese people

An additional tax on Western Union transfers is envisaged to complement the tax on mobile telephony (FCFA10 bn)
23