Nestled on the southern stretch of the Gulf of Guinea, Gabon, a country of 1.5 million people in an area the size of the U.K. is something of a paradox; Gabon is rich, but does it make sense to do business there?
Unlike much of the rest of developing Africa, whose cities are dynamos of burgeoning commerce and post-independence political excitement, Gabon and its capital – Libreville – remain much has they have always been – outposts of French corporate and political power.
That’s because Gabon has remained firmly under the sway of its former colonial power since its nominal independence in 1960. When the country’s first president, Léon M’ba, was ousted by a military coup in January 1964 after dissolving Gabon’s parliament, French paratroopers intervened to restore order, and M’ba. Ever since, the French military has maintained a garrison in Gabon and the country thereafter slid into authoritarianism that deepened in 1967 when its second president, Omar Bongo Ondimba, succeeded M’ba.
The pro-French Bongo ruled Gabon for 41 years until his death in 2009, and in the process he eliminated parliamentary democracy in favor of a one-party political system run mostly to enrich family, close friends, and political allies.
Corruption, as might be expected, became rampant, and widespread protest in 1990 subsequently forced Bongo to institute multiparty democracy. Rather than ushering in a new era of political leadership, however, elections merely gave Bongo the opportunity to entrench his power further through the use of political patronage that a splintered opposition could not match.
At least, that is, until Bongo died in office. It would seem Bongo’s power lives on even after death as his son and current president, Ali Bongo Ondimba, replaced him. Under the two Bongos and the watchful eye of the French, Gabon has grown relatively wealthy on oil, which was discovered in the 1970s. Since then the economy has grown tremendously, reaching a current annual per capita gross domestic product of $12,000. While this has made Libreville one of the most expensive cities in Africa to live in and given rise to a consumer economy much like one might find in France itself, prosperity is not widely shared and the country groans under the accumulated weight of nearly 40 years of oil-based development.
Given all this, what are business conditions like in Gabon? According to the World Bank, Gabon currently ranks 156th out of 183 countries on its Ease of Doing Business Index – a measure created by the bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses. By way of comparison, the U.S. ranks fourth for ease of doing business, right after Singapore, Hong Kong, and New Zealand.
What does this ranking mean? Take, for instance, the bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. The bank defines business-creation costs as the time and money outlays involved in the series of legal steps an entrepreneur must take to legally establish an in-country firm. Using this framework, the bank then tasks researchers to establish in-country averages.
When this metric is applied to Gabon, the bank finds that Gabon ranks 153rd out of 183 in ease of starting a business, making Gabon a very difficult place to start a commercial enterprise. To start a business in Gabon, one has to complete nine bureaucratic procedures that take a total of 58 days and cost about $1,621, with a minimum capital requirement of more than $2,400 imposed by the government on the start-up. These substantial startup costs represent a significant burden on Gabonese business formation.
Figure 1:
How the World Bank Measures Ease of Starting a Business
Using similar metrics for other aspects of business operations, the bank ranked Gabon in a number of other areas. To obtain a construction permit, Gabon is ranks 67th out of 183. It takes the completion of 16 procedures, taking on average 210 days to complete at a cost of $3,161, or around 43 percent of national income. Obtaining a construction permit is relatively expensive and difficult compared to most Western countries.
Continuing in its assessment, World Bank determined that in order to obtain and register property, Gabon ranks 132nd out of 183 countries. To register property in Gabon requires seven bureaucratic procedures that take, on average, 39 days to complete and cost 10.5-percent of the property’s financial value in fees and other costs. Not insurmountable, but, again, a steep price to pay and an indicator of just how hard it is to develop Gabonese property.
Gabon does a bit worse when it comes to obtaining credit. It ranks 138th out of 183. Here, as depicted in Figure 2, the bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges. When lenders have both strong legal rights and easy access to a wide variety of information about the client’s creditworthiness, reasons the bank, the more available credit will be. When information on borrowers is significantly lacking – as is the case in most of Africa – legal protections for creditors must in turn be very strong. While public credit bureaus have information on nearly a fifth of all adults, creditor rights are relatively weak and there is no information on creditors available from private bureaus.
Figure 2:
How the World Banks Conceptualizes Credit Acquisition
When it comes to protecting investors and minority shareholders, Gabon does even worse. Here, the country ranks 154th out of 183 countries – making it one of the worst places in the world for minority shareholders. Gabon received this score because while it has in place relatively strict conflict-of-interest disclosure requirements, directors are nonetheless not generally held liable and minority shareholder lawsuits are difficult to mount.
Gabon does marginally better in the area of taxation. The World Bank estimates that pleasing the tax man in Gabon requires a total of 26 payments over the course of a year which take up to 488 hours to complete and can consume up to 43.5-percent of a company’s profits. Accordingly, Gabon’s tax burden is ranked 140th out of 183 nations.
When it comes to engaging in cross-border trade, Gabon improves, though only marginally. In Gabon, to import goods into the country one needs eight documents for customs officials to inspect. On average, it takes a total of 20 days to import goods into Gabon and costs $1,955 (excluding tariffs) per container shipped into the country.
The cost to export goods is similar. Gabon requires six documents to be inspected by customs’ officials. The total cost (excluding tariffs) is $1,945 per container, with delivery taking up to 22 days from point of origin. Compared to global averages this nets Gabon a ranking of 134th out of 183 on ease of engaging in cross-border trade.
Gabon is also a difficult place to do business when it comes to contract enforcement. It ranks 148th out of 183 countries. On average, World Bank analysts report it takes 38 legal procedures to take a contract from dispute to resolution, completed over the course 1,070 days, or nearly three years in court or attending to other legal issues. The financial cost of pursing a contract claim typically accounts for 34.3-percent of the value of the claim – clearly a big impediment to the legal enforcement of contracts.
Finally, in terms of closing or liquidating a business Gabon ranks 139th out of 183 countries. It takes nearly five years to close an estate at a cost of 15 percent of the value of the estate for a recovery rate of 15.2 cents on the dollar.
Table 1 presents a summary of these rankings as well as Gabon’s overall ease-of-doing business rating. By these measures, Gabon is a difficult place to do business. It does best in the area of construction permits, where it ranks as a middling performer, but falls steeply in all other areas. Starting or running a business in Gabon is not for the faint-of-heart.
Table 1:
World Bank Ease of Doing Business
Assessment and Rankings: Gabon
As far as external investment goes, Gabon represents both the best and the worst of post-independence Africa. One the one hand, the country is relatively rich in oil — though production there seems to now be in decline — as well as other valuable natural resources such as timber and manganese. Likewise, the country’s relatively high GDP means there is a vibrant consumer and service-based economy in the country to take advantage of. Growth has not been spectacular, but, rather, steady and consistent over the past 10 years, and has now picked up to around 5-to-6 percent growth per year.
Figure 3:
Gabonese Economic Growth,
Percent Increase, 2003 – 2012
That being said, Gabon suffers from several problems that lurk just underneath the surface. First, political stability is premised on France’s willingness to intervene militarily to restore order. This naturally keeps conflict at a relatively low level. Continuing bouts of unrest continue to break out sporadically across the country and while elections may have given the Bongos a touch of popular legitimacy, Gabon remains a one-party authoritarian state where elections are mostly for show. What this means is that Gabon’s stability is really just an artifice – absent French willingness to back up the Bongos, widespread popular discontent could bring down the country quickly and possibly violently.
Second, while Gabon’s ruling elites seem content to have their country remain a neocolonial appendage of what remains of the old French Empire, the country’s economy remains for the most part unreformed and firmly in the hands of its ruling elite. This may work well enough when oil profits are fat, but Gabon’s declining oil output suggests that barring a huge investment in the oil industry that leads to more oil being squeezed from Gabon’s rocks, those fat days are numbered. Once the oil goes, the rest will follow in short order.
This leads to Gabon’s third major problem, which is the inability of the country to develop an economy based on anything other than the export of oil and other raw materials. While this has been a common problem throughout much of developing Africa, for Gabon this is particularly problematic due to its high GDP and strong currency – the CFA Franc.
For investors and those doing business in Gabon the CFA Franc provides needed currency stability, and given that it is backed by Paris and, therefore, the Euro, the currency remains one of the strongest in Africa. Indeed, the CFA Franc was one of the few African currencies to actually gain on the dollar in the past year. However, the strong CFA Franc only makes sense when it is used to support a wealthy country that imports a great deal from abroad. For Gabon and its rich elite, this rings true, but for exporters of anything other than oil or other high-value natural resources it is crippling.
Manufacturing and agriculture are thus uncompetitive given the CFA Franc’s high value, meaning that the two sectors most likely to provide stable, high-employment growth are firing on, at best, half cylinders. Gabon is, therefore, a textbook case of both the Dutch Disease and the oil curse. Furthermore, since natural resource development, especially oil, is notoriously skimpy in its use of labor, the onus for job growth has fallen on the service sector. Unfortunately, that service sector is crippled by the country’s corruption and monopolistic elite.
What this all boils down to is that Gabon, at best, is a country investors should be wary of. If one is seeking to build productive assets in the country in anything other than oil, timber, or mineral extraction, one would be wise to steer clear as the overpriced currency and corruption will make business hard going.
If, on the other hand, one is looking to invest in oil-backed Gabonese bonds, in high-end consumer goods aimed at the Gabonese elite, or in the oil sector, the outlook isn’t so grim.
Jeffrey Cavanaugh holds a Ph.D in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFK Insider, Mint Press News and BAM South.
