Gabon Plans Sale of Stakes in Key Firms
Gabon has announced its intentions to sell shares in three key national entities: (a) Société d'énergie et d'eau du Gabon (SEEG), the state water and electricity distribution company, (b) Gabon Telecom, the largest telecoms company in the country, and (c) L'Union gabonaise de banque (UGB), the second largest bank in Gabon. Purchase of these shares will be limited to “national savers” exclusively.
Significance – Navigating structural constraints and legacy issues
Oil has long accounted for a gross portion of Gabon’s economy – between 2010-2015 for example, it averaged 80% of exports, 60% of government revenue and 45% of GDP according to the World Bank. However, peak production was in the late 1990s. And since then, oil output has progressively declined while, more recently, prices have also slumped. Even before the pandemic then, oil’s contribution to the economy had fallen to 22.7% of GDP[1]. Meanwhile, public debt has accrued dramatically, predicted to be 76% of GDP in 2020 by Fitch compared to around 20% of GDP in 2012 and 64% of GDP in 2016.
As a frontier market, Gabon’s access to funding is limited and expensive, forcing the authorities to look at innovative sources of cost cutting and fundraising. The 2021 fiscal law that allows for the sale of certain state assets and the proposed sale of shares in SEEG, Gabon Telecom and UGB should be seen in that light. However, while there are attractive elements to the enterprises each carry certain legacy issues:
Contract Abrogation with SEEG: Government seized a 49% share in SEEG (it already owned the other 51%) from the French firm Veolia in 2018, paying the company USD52 million in compensation following arbitration. This was done purportedly due to pollution though few accepted those claims. Despite the government now wholly owning the entity, its indebtedness to the firm (in used utilities) is said to stand at USD118 million.
Gabon Telecom, Outstanding Payments: The government is also indebted to Gabon Telecom to the tune of around USD18 million and it is said to want to maintain some of its current 49% ownership (alongside Maroc Telecom) to retain oversight of a key sector. The mobile telecommunications market is already well saturated with a connection rate of 136% (3 million connections across three operators) in 2020. On the other hand, internet penetration stands at 62% indicating room for growth, especially with demand for digital services growing with the Covid-19 pandemic.
A crowded field for UGB: Gabon’s ten banking institutions serve a population of just over 2 million. UGB has the lion’s share of accounts (40%) but only 19% of the country’s loan portfolio. Recent Economic and Monetary Community of Central Africa (CEMAC) regulations also place restrictions on moving money out of the regional financial bloc and have drawn criticism from the banking and industrial sectors alike.
Outlook – In search of revenue
For these ventures to be successful, investors will have to be prepared with a long-term perspective, a willingness to invest and a strategy that includes close stakeholder engagement. Meanwhile, the government’s strategic objective i.e., rationalising government expenditure, is contingent on time horizon:
In the short term at least, direct revenues for government from the sale of shares in the three entities will likely be small in comparison to its outstanding debts.
However over time and depending on the precise nature of ‘national savers’, the savings for the public purse could be significant as the burden of contribution to the privatised entities’ operations is reduced.
Moreover, the precise mechanism or vehicle by which Gabonese “national savers” may invest in the three businesses has not yet been outlined. A crucial detail. Nevertheless, these are three strategically important businesses and the government’s willingness to sell shares in them is an indicator of the seriousness of the need for reform.
Gabon has set itself an ambitious target to replace its oil revenues with those from sustainable logging by 2030 and is working on diversifying the economy in the face of falling oil prices and demand. Although previous reform programmes have not resulted in the desired outcomes, the country is expected to engage the IMF over a possible programme in the first half of this year.
[1] Telecommunications, transportation and other services sector activities account for ever larger shares of the Gabonese pie but have not grown fast enough to attenuate the country’s macroeconomic challenges.
Image: Delrick Williams, CC BY-SA 4.0
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