The Coup in Gabon will Disrupt Trade and Slow Investment

Introduction

The August 2023 coup d’état in Gabon inspired cries of victory against the kleptocracy of the Bongo family, rulers of the country for five decades. While muted, the reaction suggests that some in Gabon, a country where a third of the population lives below the poverty line, would like to see change. Whether the military regime put in place by the coup can improve the economy remains to be seen. However, the repercussions of the coup will be felt in Cameroon and subregions as Gabon and Cameroon are both members of CEMAC. This article looks at the history of Ali Bongo’s political rise, followed by a snapshot of the Gabonese economy, before analysing the probable economic impact of the coup d’etat on the Cameroonian economy.

The Gabonese economy and the CEMAC sub-region

Gabon is the fourth-largest oil producer in sub-Saharan Africa. In 2021, Gabon’s oil sector represented 80% of exports, 45% of GDP, and around 60% of tax revenues. The fallout from Russia’s invasion of Ukraine hampered Gabon’s economic growth. Gabonese households have faced rising food prices since 2022, when the inflation rate reached 4.3%, considerably above the CEMAC threshold of 3%. However, the country has taken measures to combat the rising cost of living, including a temporary price cap for 48 imported consumer products from October 2022 to March 2023.

Despite these difficulties, Gabon’s economy is gradually improving thanks to solid performance in the oil, mining, and timber sectors. GDP is estimated to have increased by 3.1% in 2022, up from 1.5% in 2021. In addition, the budget balance has become a surplus, at 3% of GDP for 2022, after a deficit of 1.9% in 2021. This gradual recovery reduced public debt in 2022, representing 52% of GDP, compared to the 60.7% recorded in 2021. According to the Debt Sustainability Analysis published by the IMF in July 2022, this level of public debt is estimated to be sustainable, and risks have eased.

However, as the economy improves, a significant segment of the population suffers from a high youth unemployment rate and a low quality of life for a third of the population. Gabon needs to collect data as it should, so it is difficult to judge socio-economic poverty. but the blow would have impacts on the countries in the sub-region.

Economic impacts of the coup

The coup will impact the Gabonese and Cameroonian economies and the sub-region. The putschists proclaimed the closure of Gabon’s borders, thus putting the country in isolation “until further notice.” In 2018, Gabon exported $9.14M to Cameroon. There were no main exports from Gabon to Cameroon in 2018. During the last 23 years, the exports of Gabon to Cameroon have increased at an annualised rate of 6.81%, from $2.01M in 1995 to $9.14M in 2018. In 2018, Cameroon exported $46.2M to Gabon. This will slow down imports into Gabon and could slow down economic activity in neighbouring Cameroon, which exports chocolate, soup and broth, refined oil, soap, and milk to Gabon for an estimated value of $46.2 million annually. Meanwhile, 85% of Gabonese exports to Cameroon are palm oil, estimated at $9.14 million, which the border closure will block.

Figure 1: Cameroon exports to Gabon

Source: Cameroon Economic Policy Institute (CEPI)

It is essential to specify that companies such as Sofavin have already invested 12.5 billion CFA francs (around 20 million dollars) as part of this agreement, and another $20 million will be invested in 2023. On the other hand, Gabon remains an essential investor in Cameroon. During its bond issue, Gabonese investors were the second subscriber, representing 22.2 billion FCFA in subscriptions, or 12.6%.

The coup will slow the implementation of the AfCFTA in the CEMAC region. The six CEMAC countries have signed and ratified the Agreement Establishing the African Continental Free Trade Area (AfCFTA). They have also all signed the Economic Partnership Agreement (EPA) with the European Union, although only Cameroon has ratified it to date. The coup and border closures will slow the implementation of trade agreements and reduce the positive impacts of trade across the region, especially for Gabon. Remember that trade contributes 35% to national output versus 39% for Cameroon.

The IMF could suspend the disbursement of funds.

On June 27, 2022, the Executive Board of the International Monetary Fund completed the first and second reviews of the Extended Arrangement under the Extended Financing Facility (EFF) for Gabon. Completing the reviews allows for the disbursement of $155.29 million, bringing total disbursements to $263.63 million. Gabon’s third program review is on hold due to external debt arrears, budget slippages, and slowing structural reforms. The coup could compromise the third review and the release of funds and slow down the reforms needed for economic and financial development.

At the regional level, reforms are leading to the development of an IT platform at the BEAC to facilitate the deployment of single treasury accounts (TSA) by member countries, which is ready for operationalisation in the two advanced pilot countries (Cameroon and Gabon) by the end of 2023. This requires the timely organisation of the envisaged peer learning workshop involving all stakeholders (BEAC, treasuries, public entities, banks) and signing a standard agreement between the BEAC and all treasuries. Staff urged other member countries to complete ongoing steps, building on lessons learned from pilot countries. Once operational, the single treasury accounts (TSA) should contribute to a more efficient use of public resources. This would not be a priority for the putschists, so reforms will slow down during the transition.

Conclusion

The recent coup d’état in Gabon had a severe impact on the future of the economy. Investors are already cautious about investing in Gabon, which may cause their local investors to shun Cameroon in favor of their bonds. As the second largest investor in Cameroon bonds, this is a concern. Growth in the region will be lower, financing will be more expensive, and border closures will encourage illegal trade flows. Coup or not, trade will prevent the price of goods from rising further, hence the need for borders to be reopened as soon as possible. Inflation rose to 4.2% in 2022 from 1.1% in 2021 due to higher food prices and the effects of Russia’s invasion of Ukraine.

Henri Kouam

Founder/ Executive Director

This article was first published in local news paper DefI Actuel on 14/09/2023

Version Français: https://camepi.org/wp-content/uploads/2023/12/PDF-LImpact-Economique-du-Coup-dEtat-Gabonais-pour-le-Cameroun-1-1.pdf