#Gabon-Catastrophic management of the country: Economy Minister Regis Immongault, cynicism or willful blindness?
(translated from French, by CLG)
On December 5, the rating agency Fitch Ratings downgraded the sovereign rating of Gabon, passing it from “stable” to “negative” which, despite what the Minister of Economy says, portends a bleak outlook in the short term for our country.
A few days after, on December 12, another rating agency, Moody’s, attributed the honorable Ba3 rating to Gabon, contradicting Fitch Ratings.
In reaction to the disclosure of Fitch, Gabon Minister of Economy was content to trivialize the news, saying the decision of the rating agency was “rushed” and “questionable” and attributing the negative assessment and difficulties that are ahead for our country to only the decline in oil prices, as if all the oil producing countries saw their sovereign rating deteriorated.
The Fitch agency certainly considered in its rating of the sharp fall in oil prices which, as everyone knows, represent 56% of budget revenues in Gabon and 80% of its exports. But it also takes into account the gradual decrease in the production of oil, the inevitable exhaustion of manna. The evolution of Gabon’s oil production in recent years clearly illustrates the asymptotic trend: 11.6 million tonnes in 2012, 11 million tons in 2013, 10, 9 million tons in 2014.
Combining the collapse of the estimated price to 40% today, and the depletion of the resource, it is unclear how Gabon might be able to maintain its financial stability. The Minister of Economy has chosen as variable of adjustment to reduce its investment program. This massive reduction in public investment will affect more than one third of public spending and be suddenly felt (negatively) in the economic activity in our country.
Then reacting to the disclosure of MOODY’S that assigns Ba3 rating to the Gabon with positive outlook, the Minister of Economy did not hide his glee, saying that the note recognizes “the Gabonese authorities’ priority accorded to the prudent management of public finances, in the current context of falling oil prices. ” But at the same time, he ignores the many government shortcomings identified in the same report, particularly in terms of infrastructure deficit, budget management, income distribution and social policies. What is the interests of Gabon’s Minister of Economy, is not how wealth is managed in the country; the common heritage of all the Gabonese, or how wealth is redistributed among the Gabonese, rather he is more interested in “the confirmation of the classification of Gabon among the best rated sovereigns bonds issuers in sub-Saharan Africa”. If this is leaving in a virtual world, we would have to find another meaning to the word. The Minister of Economy lives in statistics, Gabonese live the reality of poverty.
Without questioning the professional integrity of Moody’s, one can still question the sincerity of his data, in the light of the actual situation of Gabon. Who can believe MOODY’S when it states that “the Gabonese authorities give priority to the prudent management of public finances?” It is surprising that MOODY’S is more lenient than the «Court of Auditors» (Cour des Comptes, sort of Auditor general office) of Gabon which, although a domestic institution, has continued to condemn the suicidal fiscal management by the Gabonese authorities. We do not see where MOODY’S found its “growth prospects, a strong balance sheet and low vulnerability to external chocs because Gabon is member of the ‘franc zone’”, when at the same time it recognizes the existence of “constraints on credit due to the dependence of the Gabonese economy to the oil sector and its weak institutions of economic governance, and socio-economic disparities. ”
In terms of political and macroeconomic stability, Moody’s affirms at the same time that “the Gabonese politics pose a moderate risk of exceptional events” and that “the country has difficulty reconciling political, economic, financial and social imperatives, and that a score considered by the World Bank as low-level representation and accountability of political power “that is, MOODY’S clearly sees risks for Gabon and the risk emanates from the “imbalance between the expectations of the population, including socially “, and ” the preservation of political and macroeconomic stability in a context conducive to social tensions due to high income inequality and due to the erosion of public revenue, due to lower oil prices “!
On February, 19 2013, the International Monetary Fund (IMF) warned the Gabonese authorities about serous risk of drying up of the country’s income, due to the noticeable slowing of global activity, and whose immediate foreseeable consequence was the decrease in global demand for oil.
The Bretton Woods institution was within the persistence of non-oil budget deficit and the slow growth of non-oil private sector. It foresaw the positive outlook for our country were tempered by the vagaries or volatility of oil prices. The Fund then strongly recommended the Gabonese government to implement “a more prudent fiscal policy”, “moderation in public investment” and “to undertake reforms in education and the labor market, to better match supply and demand for jobs. ” The IMF also pointed out as negative the difficult access to finance for SMEs.
The same year, the rating agency STANDARD & POOR’S has assigned BB- rating with a negative outlook for Gabon. STANDARD & POOR’S justified this decision by the mismanagement of public finances, saying that Gabon had “not yet proven much in budgetary matters and on culture of payment, and remains too dependent on oil revenues”. STANDARD & POOR’S finally noted that the relative political stability enjoyed by Gabon and its high income per capita are assets that can enable our country to achieve strong growth around 4.5% in the near future (in 2013 -2016), but this possibility is hampered by the acute lack of infrastructure, poor business environment (170th out of 185 countries), corruption, institutional weakness, heavy dependence on oil, formal and informal barriers to exports to other CEMAC countries and the lack of skilled labor.
Despite these warnings from two of the largest financial institutions in the world, despite reminders to the recurring order of the Court of Auditors and critical opposition, including the National Union, the government of Gabon, which Régis Immongault is part of, maintained an absurd fiscal policy based on unrealistic macroeconomic assumptions, all topped by a gargantuan public finance management.
Thus in the amended 2014 Finance Act, while already perceptible signs pointed to a contraction in global economic activity in the range of 15-20% compared to 2013, the government has relied on a growth rate of 5.1%. We know what happened: our country is paying the price of this fiscal casualness that led the government to incur expenditures inconsistent with the reality of revenue collected. We can see this with the difficulties of of an administration unable to meet its financial obligations, and business problems which most depend on government contracts.
With the collapse of the expected revenue and its impact on the overall country’s revenues, the government will have choice to reset all assumptions underlying the budget law of the year 2015. Indeed, even before being enacted, the 2015 budget proves unenforceable as it is based on a decline of 20% in oil prices, to 96.6 US dollars a barrel, and a stronger US dollar, up 2.1% against the CFA franc. However, oil prices fell by 40% already.
Let us recall that a similar situation has already occurred in our country. That was in 1986. That year, our country had faced a decrease of oil production by 50%, compared to 1985. This has resulted in a severe economic and financial crisis that lasted nine years, until 1994.
For four years, from 2010 to 2014, Ali Bongo and his successive governments have enjoyed particularly favorable economic and financial conditions: oil production, although on a downward trend, still represents around 10.9 million tonnes in 2014; higher oil prices were stable between 90 and 100 US dollars in annual average until early 2014; huge annual budgets of around 3,000 billion CFA francs (about 5.6 billion USD) on average; higher growth rates of around 5 to 6% and inflation contained below the community threshold of 3%. This providential combination of positive factors which should give a decisive impetus in Gabon and its economic take-off, was unfortunately marred by amateurism and incompetence of people in power, the so-called “emerging”, and their «financial incontinence».
Regarding investments, nothing, or almost nothing, of what was announced has emerged, especially if one considers that the achievements recorded in recent years, particularly in terms of roads in the south of the country, coincide with the ending of the last projects launched by late President Omar Bongo, and whose funding was already available.
One can therefore only be surprised that none of the major projects launched by the so-called “emerging government” has so far been successful. Some emblematic examples: Gabonese still waiting for the «5000 houses annually » promised by Ali Bongo at the start of his term. Such a project was likely to boost growth in the construction sector and generate jobs. Why no one is even talking about the construction project of the International Airport of ANDEM near KANGO?
In Libreville, people are wondering why the «Champs Triumphal» site project that was to transform the face of the Gabonese capital has been stopped for months, and why the five promised interchanges roads, with models to support the claim, ended up being just three simple bridges? And why the works for the Omnisport President Omar Bongo stadium, which was supposed to host the 2012 African Cup of Nation final game, struggle to be completed? And they are surprised by the slow, unexplained, works on Highway PKA 15 – Ntoum, which the announced completion time was about 24 months? And they want to know how many classrooms have been built and how many hospitals were delivered in four years? At what proportion the unemployment, particularly among young graduates, has declined, and why despite the inflation officially estimated at 2.5% annual average, lower than the community standard set at 3%, is life so dear and expensive in their country?
Regarding social policy, Gabonese want to understand why 30% of them live below the threshold of absolute poverty and 60% of them in relative poverty, while the country’s wealth grows by 5% on average per year for four years? Why 43% of the Gabonese population still lives on an income of around 10 000francs CFA (about 18 USD) per month and 21% with a monthly income of around 100 000 CFA francs (about 180 USD) in a country of 1, 500 000 and produces for 3000 billion CFA francs (about 5.6 billion USD) extra each year, for four years? They are surprised that with a growth of 5% annually for four years, unemployment among young people, especially graduates, is still around 30%? They would finally like to know where our country is with the MDGs (Millennium Development Goals), whose maturity was determined to arrive during the year 2015?
Where Régis Immongault is playing cynicism or willful blindness is when he denies the existence of a political crisis in Gabon that could compromise the election date in 2016. While all observers including the UN recognize that Gabon is well in crisis, and this crisis is potentially explosive as shown in the news, Economy Minister said he agreed that Gabon is “stable” and that “all the conditions are met for the 2016 election to go smoothly. “He does not see the strikes triggered every day in almost all sectors of government and the private sector, and are likely to paralyze the country. In the era of President Omar Bongo, political stability combined with high growth rates have been real assets that could have enabled our country to develop in a more harmonious and rational manner. But the bad financial governance, denounced during the father era by all observers, worsened under the “son”, with the bonus of a chaotic economic policy that seems to have neither head nor tail.
Structural policies initiated by Ali Bongo are inconsistent and disjointed, both in their development and in their implementation. Because they do not carry a shared vision of Gabonese on the economic and social future of their country, the recipes offered by the so-called «Emerging Gabonese» go against what, for people, is essential. As everyone can see, sectoral strategies of various departments are characterized by a glaring lack of transversality, overall prioritization and common vision. What they propose is a collection of disjointed sectoral strategies, with no coherence and no operational content. However, in terms of economic governance, structural policies must have a logical hierarchy of relevant conduct, appropriate methodological approach, a comprehensive vision based on an optimized operational matrix.