The much-anticipated world's biggest October issuance of carbon credits by Gabon towards the protection of its rain forests, is projected to be the largest on record, raising potentially more than US$2 billion; and has put the small francophone country on the map ahead of COP 27.
A visit by Amazon CEO Jeff Bezos to the country is testament to the viability of the carbon credit market not only in Gabon but also other countries in the Congo Basin. The billionaire pledged US$35 million to Gabon, as part of the 'Bezos Earth Fund's' US$110 million donation to the region, to support conservation efforts. The Fund is committed to disbursing grants worth US$10B between 2020 and 2030, towards nature protection and combating climate change.
Gabon has been exploring innovative ways to exchange debt and raise loans through carbon credits. During the 2022 Commonwealth Heads of Government Meeting (CHOGM) in Rwanda, Gabon's Minister of Water, Forests, Sea, and Environment Lee White, noted that the country intended to exploit its forests in a sustainable manner to generate income.
The economy of Gabon has in the recent past been heavily dented, by both the Covid-19 pandemic and the Russian-Ukraine crisis. The latter resulted in the widening of the budget deficit from 2.1 per cent in 2020 to 3.4 per cent, whilst the former has caused inflationary pressures leading to a fiscal deficit marked by sharp drops in domestic revenue mobilization, exports and Foreign Direct Investment (FDI).
Despite ranking as the seventh-largest oil producer in the continent and a member of the Organization of the Petroleum Exporting Countries and allies (OPEC+), the West Coast country ranks as one of the African countries with the largest debt-to-GDP ratio, currently standing at 72.1 per cent. According to the 2022 Africa Economic Outlook (AEO) report published by the African Development Bank (AfDB), inflation is expected to be 2.9% in 2022 and 2.5% in 2023.In addition, in 2021,public debt stood at 74.7 per cent of GDP down from 77.4 percent in 2020;and is forecast to decline further to 70.1 percent of GDP by 2023.
Gabon's economy has been heavily reliant of its resource extraction industry to drive growth .The country is rich in natural resources such as manganese, timber, gold and oil. The oil sector accounts for 50 percent of GDP, and makes for 80 percent of exports and 60 percent of its state budget revenues. However, over time oil production has been declining from its peak due to dwindling oil reserves caused by ageing oil fields, and a lack of investment.2022 levels of oil production indicate a daily output of 195,000 bpd, compared to its peak at 370,000 bpd in 1997, negatively impacting the economy. However, given the 2019 revisions made to the Hydrocarbon Code which improved flexibility to the regulatory framework, the country seeks to attract investment and development. Due to high income inequality, poor fiscal management of natural wealth, coupled with over-dependence on oil which have stagnated the economy, a large proportion of the population remains poor. Gabon is reliant on imports and the government heavily subsidizes commodities, including food.
Rebuilding Gabon's Economy
Looking into the future, to record an economic rebound, Gabon should maximize the potential of its already established sectors which include:
Ahead of COP 27, the October carbon credit sales could be a game changer for Gabon's economy. Gabon's forests are part of the Congo Basin, renowned as the 'lungs of Africa.' The country had created 187 million carbon credits and planned to sell half of them on the offset market. However, its only permitted to sell credits worth 90 million tonnes under the Reducing Emissions from Deforestation and forest Degradation, plus the sustainable management of forests, and the conservation and enhancement of forest carbon stocks (REDD+); a mechanism of the UN Framework Convention on Climate Change responsible for creating the carbon credits.
Should the country sell its credits for US$25 a tonne, for a start it would net US$2.25 billion. To boot, if they are bought at a high price, the country will reap triple benefits from mitigating climate change, posterity of the trees and job creation; which could largely spur the economy where one the existential hurdles has been unemployment. According to econometric models by Trading Economics, unemployment rate in Gabon is expected to reach 23 per cent by the end of 2022.
Furthermore, White predicts that should the carbon credits generate at least US$1 billion, the country can additionally build proper infrastructure and develop a sustainable forestry economy.
In 2021, Gabon became the first country in Africa to get paid for reducing carbon emissions and forest degradation. The trees absorb a total of 127 million tonnes of CO2 every year, the equivalent of removing 30 million cars from the world's roads.
In adherence to the Paris climate agreement, countries and companies have been in a race towards carbon neutrality. Since an abrupt switch to renewables is not viable, they have instead been buying carbon credits. With perspective that credits are purchased directly from the source, the country profits by getting all the money and the entire rainforest is sheltered.
Being a member of the OPEC+ and the 7th major oil producer in Africa, Gabon's economy will record massive growth if the sector is strategically tapped into. On the brighter side, OPEC's oil production cuts will benefit oil producing countries. Furthermore, Gabon is among the countries set to benefit from the construction of three multinational oil and gas pipeline systems running over 6,500km, in an effort to revolutionize energy access by boosting oil and gas supply.
The network will also be shared by Equatorial Guinea, Cameroon. Chad, DRC and Angola. Into the bargain, the network is projected to comprise of at least three refineries and gas-fired power plants, liquefied natural gas terminals and storage depots.
Through the fairly new hydrocarbon code adopted in 2019, with an aim to provide more attractive opportunities for companies looking to invest in Gabon's oil and gas sector and liberalize the market; Gabon should take advantage and appeal to investors.
Ranking among the most forested countries in the world, with 88 per cent of the country covered by dense tropical rainforests, Gabon has been tapping into the timber industry, which makes for the second highest export. The industry serves as a great avenue in boosting the country's economy. Among the numerous tree species is the okoumé; a hardwood tree that forms the backbone of the country's timber industry. Furthermore, Gabon manufactures and exports veneer, thinly sliced hardwood that is laid over produced wood to give cabinets, floors and furniture a polished look.
The francophone country has made notable progress in the sustainable management of its timber resources, keen to ascertain that all forest concessions are FSC-certified. In light of this, in 2021 Gabon launched a System of Control of Legality and Traceability (SCLT) of Gabonese timber. The system monitors the legality and traceability of timber exports; with the chief objective of preserving forests and improving transparency in the timber sector.
The country has a key target of certifying all its wood products; validating the sustainability of its forestry operations. In addition, the country has strived to develop an environmentally friendly and economically profitable timber industry, evidenced in banning log exports, in order to encourage the construction of local wood processing plants. In light of this, the country launched the Nkok Special Economic Zone in 2012, where a third of the national production of Gabonese wood transits.
Gabon's tourism sector albeit brimming with potential has remained neglected and underdeveloped, yet it could mint the country a fortune and greatly boost the economy. Gabon's forests are home to unique wildlife including 60 per cent of the world's remaining forest elephants. The rainforest is inhabited by antelope, monkeys, gorillas, numerous tropical birds, and several varieties of elephants.
The country also boasts of a national park system which consists of a network of 13 parks, established during the 2002 World Summit in South Africa. One of them, the Lopé National Park (originally Lopé- Okanda Wildlife Reserve, founded in 1946), together with related archaeological sites popularly known as the 'Ecosystem and Relict Cultural Landscape of Lopé-Okanda'; were collectively designated as a UNESCO World Heritage site in 2007.
Since the country borders the Atlantic Ocean, its coastline is a touristic site, home to unique species of flora and fauna such as the olive ridley turtles, the largest congregations in the Atlantic lay their eggs on the sandy beaches, while hippos play on untouched beaches and African dwarf crocodiles inhabit the country's watery caves and wooded streams. The forest clearings are home to the world's remaining western lowland gorillas and chimpanzees, together with African forest buffalo and over 700 species of birds. Going forward, the government should attract investments in the sector as it can contribute largely to the economy.
Boasting a coastline of 550 miles, Gabon is well poised to explore its potential in the blue economy to bolster its overall economy. Already, the country is renowned globally as a conservation leader in terms of ocean protection. The country has been determined to protect 30 per cent of its terrestrial, freshwater and marine habitats.
Experts note that Gabon's network of Marine Protected Areas (MPAs) provides a blueprint that could be used in many other countries. MPAs are protected areas of seas, oceans, estuaries or Great Lakes. They restrict human activity for conservation purposes, typically to preserve natural or cultural resources. Since announcing its new MPA network in 2014, the country has created 20 protected areas, further increasing protection of Gabonese waters from less than 1 per cent all the way to 26 per cent. The country's President, Ali Bongo, advocates for a sustainable blue economy, and his vision is steadily becoming a reality, by scaling conservation and fisheries management measures across its entire EEZ.
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Gabon's strategic location bordering the Atlantic Ocean makes fishing and aqua culture on the whole, key contributors to the economy. FAO believes that the fisheries and aquaculture sector can play an important role in creating jobs, especially for young people, and in meeting the challenge of food security and nutrition. As in many coastal countries in Central Africa, fish is a popular food in Gabon. Annual fish consumption is around 35 kilogrammes per person, one of the highest rates on the African continent, but 25,000 tonnes must be imported each year to meet the needs of the local market. Since 2017, FAO has been working with the government of Gabon to further develop commercial aquaculture by establishing five fisheries centres, both maritime and continental and improving farmers' skills through training workshops to increase production.
Boasting one million hectares of arable agricultural land, Gabon can use the sector to rebuild its economy. The country's sectors include food crops, rubber and palm oil and employs around 20 per cent of the population. According to a report by World Bank, the sector accounted for an estimated 6.7 per cent of Gabon's GDP in 2020.
In addition, sidelined sectors that could also aid in reviving the Gabonese economy include textile plants, cement factories, chemical plants, breweries, shipyards and cigarette factories. In addition, the services sector which according to data from the World Bank, accounts for 45.7 per cent of GDP and employs 59 per cent of the active workforce, could further boost the economy. According to the International Labour Organization (ILO), Gabon's youth unemployment rate is as high as 38 per cent and many young graduates struggle to find jobs, in tandem venturing into entrepreneurship. The SME sector could also greatly contribute to the economy but the government should promote a conducive environment for entrepreneurs to thrive.
Some significant changes that Gabon should make to rebuild its economy include: improving its business climate which has in a 2018 report been deemed 'poor,' in order to diversify its economy. By the same token, the World Bank recommended that the country should improve human capital, the quality and cost of core infrastructure and building a fair and transparent business environment; which are the three building blocks for economic and export diversification.
The Gabonese government has deployed several measures such as implementing a public-private partnership, and codes for hydrocarbons and mining, which will additionally boost these key sectors of the economy.
