Gabon: Capital Investment in Export-oriented Sectors to Hasten Growth
Gabon is expected to witness uninterrupted economic growth for the next two years as the country capital investment in export-oriented sectors continue, Fitch Solutions said in a new report on West Africa countries.
The projection is coming after Gabon’s real gross domestic products (GDP) contracted by 3.3% in 2020 as oil production shrank by 1.0%.
The development which was in part due to Gabon’s adherence to OPEC+ production cuts was compounded by the sharp decline in international oil prices as a result of the global economic slowdown, with the price of Brent crude falling to an average USD43.2 per barrel (/bbl) from USD64.2/bbl in 2019.
As a result, oil export revenues fell by 40.1%, and the Fitch Solutions estimate that net exports subtracted 4.0 percentage points (pp) from real GDP growth in 2020.
Private Consumption to Help Drive Growth In 2021
According to the report, Fitch Solutions expects real GDP growth to accelerate to 3.6% in 2021, as private consumption and business investment strengthens, and oil exports recover.
While the number of reported Covid-19 cases has ticked up in 2021, they remain well below the highs seen in May-August 2020, notwithstanding the Q420 reopening of restaurants and public schools, and the relaxation of a night-time curfew.
“The government continues to adopt a comprehensive testing strategy – an estimated 15.0% of the population has already been tested, one of the highest rates of testing per capita in Sub-Saharan Africa – and while we do not rule out an uptick in reported cases in the coming quarters, we do not expect the authorities to re-impose stringent lockdown measures given the potential impact on social stability”, it added.
Equally, Fitch Solutions Pharmaceuticals & Healthcare team does not expect vaccines to be rolled out in Gabon on a large scale until H2-2021 at the earliest, reduced Covid-19 infection rates over time should bolster consumer confidence.
“Therefore, we expect private consumption to add 1.6pp to real GDP growth in 2021, compared with 0.3pp in 2020”.
Meanwhile, relaxation of restrictions will reduce constraints on business activity and spur increased investment, and Fitch Solution projected that investment will add 0.6pp to growth in 2021, as against 0.1pp in 2020.
The country’s net exports will also support growth in 2021. Gabon’s allocated OPEC+ cuts are scheduled to taper to 24,000 barrels/day (b/d) over February 2021-April 2022, from 32,000b/d over August 2020-January 2021.
Meanwhile, a recovery in global growth to some 5.4% in 2021 following an estimated contraction of 4.0% in 2020 will see increased demand for commodities including oil.
Due to new developments in the global economy, the International Monetary Fund (IMF) has raised global economic forecast to 6% from 5.5% for 2021.
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This is expected to strengthen economic recovery in oil producing nations amidst increasing global oil prices and better than expected demand outlook, though with some downside from surging coronavirus cases in Europe and other nations.
In the report, Fitch Solutions said Gabonese output will rise by 1.5% year on year in 2021, and this, combined with a forecast increase in the average price of Brent crude to USD53.0/bbl, will see the USD value of net oil exports rise by 29.6%.
“While this will be partially offset by an increase in imports as consumer demand strengthens somewhat, we expect net exports to contribute 0.9pp to real GDP growth in 2021”, it added.
The report noted that higher oil export earnings will also facilitate a modest rise in government consumption.
In 2018, (most recent data available) oil accounted for some 37.0% of total government revenue, and an increase in earnings will therefore give the government some fiscal space to stimulate the economy.
The amended budget approved in June 2020 allocated an additional USD194.0 million -1.2% of GDP – to support the economy.
The support was through food stamps, electricity and water subsidies, direct support to small businesses and tax holidays, and Fitch Solutions said it expects further fiscal stimulus in 2021.
Reflecting this, the firm forecasted that Gabonese government consumption will add 0.5pp to real GDP growth in 2021, up from 0.3pp in 2020.
Non-Oil Sector Investment to Bolster Growth In 2022
Fitch said in the report that growth will accelerate modestly to 3.9% in 2022, noting that OPEC+ cuts are set to end in April 2022, and its expectation is that domestic oil output will increase by 3.0%, and the value of net oil exports to rise by 1.3%.
It however noted Gabon’s maturing fields, and high base effects from prices in 2020, acting as a constraint on more rapid rises.
“While we also forecast an increase in imports, we expect net exports to add 0.8pp to headline growth next year. Meanwhile, domestic demand will continue to recover, especially as prospects for a large-scale distribution of a vaccine in 2022 increase.
“We see consumer confidence strengthening as the virus is contained and restrictions are eased further, and we expect private consumption growth to accelerate to 4.3%.
“A brighter macroeconomic outlook will also incentivise private investment, particularly as the government seeks to promote private-sector participation in efforts to diversify the economy away from oil and towards sectors such as agriculture, minerals and tourism.
“As a result, we forecast that fixed investment growth will rise to 3.7% in 2022”, the firm said in the report.
Gabon: Capital Investment in Export-oriented Sectors to Hasten Growth
