Economy of Equatorial Guinea

Contents

1 Economy overview 2 2004 US senate report 3 In greater depth 4 Infrastructure 5 Energy Developments 6 Economic statistics

Economy overview

The discovery and exploitation of large oil reserves have contributed to dramatic economic growth in recent years. Forestry, farming, and fishing are also major components of GDP. Subsistence farming predominates. Although pre-independence Equatorial Guinea counted on cocoa production for hard currency earnings, the deterioration of the rural economy under successive brutal regimes has diminished potential for agriculture-led growth. A number of aid programs sponsored by the World Bank and the IMF have been cut off since 1993 because of the government's gross corruption and mismanagement. Businesses, for the most part, are owned by government officials and their family members. Undeveloped natural resources include titanium, iron ore, manganese, uranium, and alluvial gold. The country responded favourably to the devaluation of the CFA franc in January 1994. Boosts in production, along with high world oil prices, should further stimulate growth in 2000-2001.

2004 US senate report

A Senate report [1] (http://www.progress.org/2004/oil13.htm) in 2004 found that Riggs Bank helped top officials of Equatorial Guinea steal hundreds of millions of dollars in oil revenues. The Senate Permanent Subcommittee on Investigations probed the corruption case involving Equatorial Guinea and its oil revenues for much of the past year.

The panel's report found that Riggs Bank helped government leaders in Equatorial Guinea siphon oil revenues to accounts set up for them in Washington. Equatorial Guinea has been cited by the U.S. State Department for human rights abuses, corruption, and diversion of oil revenues to government officials.

Beginning in 1995 until 2004, Riggs oversaw as many as 60 accounts containing as much as $700 million, making Equatorial Guinea its largest single customer. Some were government accounts, while others were the private accounts of President Teodoro Obiang Nguema, other government officials, and their families.

The Senate report says millions of dollars in the government accounts, which should have gone to help impoverished Equatorial Guineans, were instead funneled to off-shore tax shelters, with help from Riggs officials.

At a hearing on the matter at which current and former bank officials appeared, Senator Carl Levin, a Michigan Democrat, was clearly outraged. "Somehow there has to be a conscience here. Aren't you troubled?," he said.

The report describes one incident in which the bank manager of the country's accounts, Simon Kareri, brought a 27 kilogram suitcase with $3 million in plastic-wrapped cash to Riggs's Dupont Circle branch to make a deposit into President Obiang's account. Mr. Kareri, who was fired in January, refused to testify at the hearing," he said. "Mr. Chairman, there is nothing I would like to do more than answer your questions today. However, I must heed the advice of my counsel and invoke my fifth amendment rights under the Constitution and refuse to answer the question," he said.

Senators were angered that bank officials never reported any suspicious financial transactions involving Equatorial Guinea.

Lawrence Hebert, president and chief executive officer of Riggs Bank, blamed a lack of an internal system to monitor and identify such suspicious activity. It is an assertion that Senator Levin found ridiculous.

"First of all Mr. Hebert, you do not need a computer system to realize suspicious activity when you have sixty pounds of cash that are being walked into the door with a suitcase," he said.

Mr. Levin criticized bank regulators for not doing enough in their oversight responsibility.

Riggs was fined a record $25 million by federal banking regulators for allegedly failing to report suspicious transactions made to the Equatorial Guinea accounts, but that didn't happen until May 2004.

Senator Levin also took aim at oil companies that are doing business in Equatorial Guinea, many of which have secret contracts with firms that have ties to President Obiang.

The London-based organization Global Witness notes that the Senate committee report found that oil companies made payments into the personal accounts of Equatorial Guinean officials that were used for land purchases, office leases, and even education for the children of the country's leaders.

With oil money stashed away in Riggs Bank for the ruling elite of Equatorial Guinea, argues Sarah Wykes of Global Witness, oil companies cannot make the case that they are a force for positive change in the country.

"Equatorial Guinea is now the third largest producer of oil in sub-Saharan Africa," he said. "It has been called the 'Kuwait of Africa' But it is clear that since oil came on stream, the human development indicators of the country have actually gone backward, so we can say the oil money is not contributing to development at all," she said.

In greater depth

Oil and gas exports have increased substantially (in 2003 Equatorial Guinea was ranked third among African producers behind Nigeria and Angola) and will drive the economy for years to come. Real GDP growth reached 23% in 1999, and initial estimates suggested growth of about 15% in 2001, according to IMF 2001 forecast. Per capita income grew from about $1,000 in 1998 to about $2,000 in 2000. The energy export sector is responsible for this rapid growth. Oil production has increased from 81,000 to 210,000 barrel/day (13,000 to 33,000 m³/day) between 1998 and early 2001. There is ongoing additional development of existing commercially viable oil and gas deposits as well as new exploration in other offshore concessions.

Equatorial Guinea has other largely unexploited human and natural resources, including a tropical climate, fertile soils, rich expanses of water, deepwater ports, and an untapped, if unskilled, source of labour. Following independence in 1968, the country suffered under a repressive dictatorship for 11 years, which devastated the economy. The agricultural sector, which historically was known for cocoa of the highest quality, has never fully recovered. In 1969 Equatorial Guinea produced 36,161 tons of highly bid cocoa, but production dropped to 4,800 tons in 2000. Coffee production also dropped sharply during this period to bounce back to 100,000 metric tons in 2000. Timber is the main source of foreign exchange after oil, accounting for about 12.4% of total export earnings in 1996-99. Timber production increased steadily during the 1990s; wood exports reached a record 789,000 cubic meters in 1999 as demand in Asia (mainly China) gathered pace after the 1998 economic crisis. Most of the production (mainly Okoume) goes to exports, and only 3% is processed locally. Environmentalists fear that exploitation at this level is unsustainable and point out to the permanent damage already inflicted on the forestry reserves on Bioko.

Consumer price inflation has declined from the 38.8% experienced in 1994 following the CFA franc devaluation, to 7.8% in 1998, and 1.0% in 1999, according to BEAC data. Consumer prices rose about 6% in 2000, according to initial estimates, and there was anecdotal evidence that price inflation was accelerating in 2001.

Equatorial Guinea's policies, as defined by law, comprise an open investment regime. Qualitative restrictions on imports, non-tariff protection, and many import licensing requirements were lifted when in 1992 the government adopted a public investment program endorsed by the World Bank. The Government of the Republic of Equatorial Guinea has sold some state enterprises. It is attempting to create a more favourable investment climate, and its investment code contains numerous incentives for job creation, training, promotion of non-traditional exports, support of development projects and indigenous capital participation, freedom for repatriation of profits, exemption from certain taxes and capital, and other benefits. Trade regulations have been further liberalized since implementation in 1994 of the ICN turnover tax, in conformity with Central African tax and custom reform codes. The reform included elimination of quota restrictions and reductions in the range and amounts of tariffs. The CEMAC countries agreed to replace the ICN with a value added tax (VAT) in 1999.

While business laws promote a liberalized economy, the business climate remains difficult. Application of the laws remains selective. Corruption among officials is widespread, and many business deals are concluded under non-transparent circumstances.

There is little industry in the country, and the local market for industrial products is small. The government seeks to expand the role of free enterprise and to promote foreign investment but has had little success in creating an atmosphere conducive to investor interest.

The Equato-Guinean budget has grown enormously in the past 3 years as royalties and taxes on foreign company oil and gas production have provided new resources to a once poor government. The 2001 budget foresaw revenues of about 154 billion CFA francs (154 GCFAF) (about U.S.$200 million), up about 50% from 2000 levels. Oil revenues account for about two-thirds of government revenue, and VAT and trade taxes are the other large revenue sources.

Year 2001 government expenditures were planned to reach 158 billion CFA francs, up about 50% from 2000 levels. New investment projects represented about 40% of the budget, and personnel and internal and external debt payments represented about one-third of planned expenditures.

The Equato-Guinean Government has undertaken a number of reforms since 1991 to reduce its predominant role in the economy and promote private sector development. Its role is a diminishing one, although many government interactions with the private sector are at times capricious. Beginning in early 1997, the government initiated efforts to attract significant private sector involvement through a Corporate Council on Africa visit and numerous ministerial efforts. In 1998, the government privatized distribution of petroleum products. There are now Total and Mobil stations in the country. The government has expressed interest in privatizing the outmoded electricity utility. A French company operates cellular telephone service in cooperation with a state enterprise. The government is anxious for greater U.S. investment, and President Obiang visited the U.S. three times between 1999 and 2001 to encourage greater U.S. corporate interest. Investment in agriculture, fishing, livestock, and tourism are among sectors the government would like targeted.

Equatorial Guinea's balance-of-payments situation has improved substantially since the mid-1990s because of new oil and gas production and favourable world energy prices. Exports totalled about francs CFA 915 billion in 2000 (1.25 G$US), up from CFA 437 billion (700 M$US) in 1999. Crude oil exports accounted for more than 90% of export earnings in 2000. Timber exports, by contrast, represented only about 5% of export revenues in 2000. Additional oil production coming on line in 2001, combined with methanol gas exports from the new CMS-Nomeco plant, should increase export earnings substantially.

Imports into Equatorial Guinea also are growing very quickly. Imports totalled francs CFA 380 billion (530 M$US), up from franc CFA 261 million (420 M$US) in 1999. Imports of equipment used for the oil and gas sector accounted for about three-quarters of imports in 2000. Imports of capital equipment for public investment projects reached francs CFA 30 billion in 2000, up 40% from 1999 levels.

Equatorial Guinea's foreign debt stock was approximately francs CFA 69 billion (100 M$US) in 2000, slightly less than the debt stock in 1999, according to BEAC data. Equatorial Guinea's debt service ratio fell from 20% of GDP in 1994 to only 1% in 2000. Foreign exchange reserves were increasing slightly, although they were relatively low in terms of import coverage. According to the terms of the franc CFA zone, some of these reserves are kept in an account with the French Ministry of Finance.

Equatorial Guinea in the 1980s and 1990s received foreign assistance from numerous bilateral and multilateral donors, including European countries, the United States, and the World Bank. Many of these aid programs have ceased altogether or have diminished. Spain, France, and the European Union continue to provide some project assistance, as do China and Cuba. The government also has discussed working with World Bank assistance to develop government administrative capacity.

Equatorial Guinea operated under an IMF-negotiated Enhanced Structural Adjustment Facility (ESAF) until 1996. Since then, there have been no formal agreements or arrangements. The International monetary Fund held Article IV consultations (periodic country evaluations) in 1996, 1997, and in August 1999. After the 1999 consultations, IMF directors stressed the need for Equatorial Guinea to establish greater fiscal discipline, accountability, and more transparent management of public sector resources, especially energy sector revenue. IMF officials also have emphasized the need for economic data. In 1999, the Equato-Guinean Government began attempting to meet IMF-imposed requirements, maintaining contact with IMF and the World Bank representatives. However, the newfound oil wealth allowed the government to avoid improving fiscal discipline, transparency and accountability.

Infrastructure

Infrastructure is generally old and in poor condition. Surface transport is extremely limited at present, with little more than 700 kilometres of paved roads. The African Development Bank is helping to improve the paved roads from Malabo to Luba and Riaba; the Chinese are undertaking a project to link Mongomo to Bata on the mainland, and the European Union is financing an inter-states road network linking Equatorial Guinea to Cameroon and Gabon. Road maintenance is often inadequate.

Electricity is available in Equatorial Guinea's larger towns thanks to three small overworked hydropower facilities and a number of aged generators. In 1999, national production was about 13 MWh. In Malabo, the American company, CMS-Nomeco, built a 10 megawatt electricity plant financed by the government, which came in line in mid-2000, and plans to double capacity are advancing. This plant provides improved service to the capital, although there are still occasional outages. On the mainland the largest city, Bata, still has regular blackouts.

Water is only available in the major towns and is not always reliable because of poor maintenance and mismanagement. Some villages and rural areas are equipped with generators and water pumps, usually owned by private individuals.

Parastatal Getesa, a joint venture with a minority ownership stake held by a French subsidiary of France Télécom, provides telephone service in the major cities. The regular system is overextended, but France Télécom has introduced a popular GSM system, which is generally reliable in Malabo and Bata.

Equatorial Guinea has two of the deepest Atlantic seaports of the region, including the main business and commercial port city of Bata. The ports of both Malabo and Bata are severely overextended and require extensive rehabilitation and reconditioning. The British company, Incat, has an ongoing project with the government to renovate and expand Luba, the country's third-largest port which is located on Bioko Island. The government hopes Luba will become a major transportation hub for offshore oil and gas companies operating in the Gulf of Guinea. Luba is located some 50 kilometres from Malabo and had been virtually inactive except for minor fishing activities and occasional use to ease congestion in Malabo. A new jetty is also being built at km 5 on the way from Malabo to the airport. It is a project mainly supposed to service the oil industry, but can also relieve the congested Malabo Port due to its closeness. The Oil Jetty at km 5 is supposed to open the end of March 2003. Riaba is the other port of any scale on Bioko but is less active. The continental ports of Mbini and Cogo have deteriorated as well and are now used primarily for timber activities.

There are only air connections between the two cities of Malabo and Bata. A few aging Soviet-built aircraft operated by several small carriers, one state-owned, and the others private, constitute the national aircraft fleet. The runway at Malabo (3,200 meters) is equipped with lights and can service equipment similar to DC 10s and Cl3Os. The one at Bata (2,400 meters) does not operate at night but can accommodate aircraft as large as B737s. Their primary users are the national airline (EGA) and a private company (GEASA). Two minor airstrips (800 meters) are located at Mongomo and Annobon. There are international connections out of Malabo to Madrid and Zurich in Europe and to Cotonou, Douala and Libreville in West Africa.

Energy Developments

After a slow start, Equatorial Guinea has recently emerged as a major oil producer in the Gulf of Guinea, one of the most promising hydrocarbon regions in the world. The main oil fields, Zafiro and Alba, are both located offshore of Bioko island. In 1999 oil production was about five times its 1996 level; Zafiro field, operated by Exxon Mobil and Ocean Energy, produced about 100,000 barrel/day (16,000 m³/day), and CMS Nomeco extracted approximately 6,700 barrel/day (1,000 m³/day). Aggressive field development and promising exploration activities may raise production to nearly 300,000 barrel/day (48,000 m³) within 2-3 years (slightly above the current estimated production of Gabon) according to the official sources.

In 1995 Mobil (now Exxon Mobil) discovered the large Zafiro field, with estimated reserves of 400 million barrels (64 million m³). Production began in 1996. The company announced a 3-year U.S.$1bn rapid development program to boost output to 130,000 barrel/day (21,000 m³) by early 2001. Progress was delayed due to a contractual dispute with the government and by unexpectedly difficult geology. The difference with the government was eventually resolved.

In 1998 a more liberal regulatory and profit-sharing arrangement for hydrocarbon exploration and production activities was introduced. It revised and updated the production-sharing contract, which, until then, had favoured Western operators heavily. As a result domestic oil receipt rose from 13% to 20% of oil export revenue. However, the government's share remains relatively poor by international standards.

In 1997 CMS Nomeco moved to expand its operation with a U.S.$300m methanol plant. The plant entered production in 2000 and help boost condensate output from Alba field.

In August 1999 the government closed bidding on a new petroleum licensing round for 53 unexplored deepwater blocks and seven shallow water blocks. The response was small due to combination of factors, including falling oil prices, restructuring within the oil industry, and uncertainty over and undemarcated maritime border with Nigeria (which was not resolved until 2000)

In late 1999 Triton Energy, a U.S. independent, discovered La Ceiba in block G in an entirely new area offshore the mainland of the country. Triton expects a U.S.$200m development program to enable La Ceiba and associated fields to produce 100,000 barrel/day (16,000 m³/day) by late 2001, despite disappointments and technical problems at the beginning of the year.

With an upturn in oil prices, exploration intensified in 2000. In April 2000 U.S.-based Vanco Energy signed a production-sharing contract for the offshore block of Corisco Deep. In May 2000, Chevron was granted block L, offshore Rio Muni, and a further three production-sharing contracts (for blocks J, I, and H) were signed with Atlas petroleum, a Nigerian company.

In early 2001 the government announced plans to establish a national oil company, to allow Equatorial Guinea to take a greater stake in the sector and to facilitate the more rapid transfer of skills. However, critics fear that such a company may become a vehicle for opaque accounting and inertia of the sort that has hindered development in neighbouring countries including Angola, Cameroon, and Nigeria.

Economic statistics

GDP

Purchasing power parity - $960 million (1999 est.)

GDP - real growth rate

15% (1999 est.)

GDP - per capita

Purchasing power parity - $2,000 (1999 est.)

GDP - composition by sector

• Agriculture: 20%
• Industry: 60%
• Services: 20% (1998 est.)

Population below poverty line

NA%

Household income or consumption by percentage share

• Lowest 10%: NA%
• Highest 10%: NA%

Inflation rate (consumer prices)

6% (1999 est.)

Labour force

NA

Unemployment rate

30% (1998 est.)

Budget

• Revenues: $47 million
• Expenditures: $43 million, including capital expenditures of $7 million (1996 est.)

Industries

Petroleum, fishing, sawmilling, natural gas

Industrial production growth rate

7.4% (1994 est.)

Electricity - production

21 GWh (1998)

Electricity - production by source

• Fossil fuel: 85.71%
• Hydro: 14.29%
• Nuclear: 0%
• Other: 0% (1998)

Electricity - consumption

20 GWh (1998)

Electricity - exports

0 kWh (1998)

Electricity - imports

0 kWh (1998)

Agriculture - products

Coffee, cocoa, rice, yams, cassava (tapioca), bananas, palm oil nuts; livestock; timber

Exports

$555 million (f.o.b., 1999)

Exports - commodities

Petroleum, timber, cocoa

Exports - partners

United States 62%, Spain 17%, China 9%, France 3%, Japan 3%, (1997)

Imports

$300 million (f.o.b., 1999)

Imports - commodities

petroleum, manufactured goods and equipment

Imports - partners

United States 35%, France 15%, Spain 10%, Cameroon 10%, United Kingdom 6% (1997)

Debt - external

$290 million (1999 est.)

Economic aid - recipient

$33.8 million (1995)

Currency

1 Communauté financière africaine franc (CFAF) = 100 centimes

Exchange rates

Communauté financière africaine francs (CFAF) per US$1 - 647.25 (January 2000), 615.70 (1999), 589.95 (1998), 583.67 (1997), 511.55 (1996), 499.15 (1995)

Note: Since 1 January 1999, the CFAF is pegged to the euro at a rate of 655.957 CFA francs per euro

Fiscal year

1 April–31 March

See also: Equatorial Guinea