Home ECONOMY How Equitorial Guinea turned oil into wealth

How Equitorial Guinea turned oil into wealth

by biasharadigest

For one of the wealthiest countries in Africa, Equatorial Guinea is relatively obscure. Not much is heard of the small country with big ambitions.

Equatorial Guinea has a gross domestic product (GDP) per capita (per person) of Sh923,000 or 4.5 times more than Kenya’s Sh203,000, according to the latest estimates from the International Monetary Fund (IMF). That puts it ahead of all African countries, save for the richer island nations (Seychelles and Mauritius).

News coverage of Equatorial Guinea in the international press mostly revolves around its President, Teodoro Obiang Nguema Mbasogo, who is the longest-serving leader in Africa.

Not everyone in Equatorial Guinea is rich — though there is no data on inequality as measured by the Gini coefficient.

The nation with a population of 1.2 million is, however, quietly working to boost the standard of living of its citizens through a socio-economic transformation strategy fuelled by its oil wealth.

The country has in the past decade spent heavily on infrastructure; building new roads, ports, cities and airport terminals to international standards.

This is evident in both Malabo (an island that is also the capital city) and the mainland.

Some of the ongoing projects in the country include construction of a new administrative city in Djibloho, which will also host the upcoming American University of Central Africa.

“We started commercial oil production in 1992 with about 3,000 barrels per day (bpd). Now we are producing 300,000 bpd of oil and gas,” said Francisco Pascual Eyegue Obama Asue, the country’s Prime Minister.

He added that the country takes about 30 percent of the oil revenues while the rest is ceded to oil majors including ExxonMobil as a means of recovering their capital investments in the off-shore production facilities.

This means that Equatorial Guinea makes about half-a-billion shillings per day from oil. This fortune has supported massive spending, some of which have been criticised as extravagant.

One development that has been particularly controversial was the construction of Sipopo, an enclave in Malabo featuring a conference centre and 52 luxury presidential villas that is estimated to have cost Sh67 billion.

Equatorial Guinea, aware of the criticism, says the naysayers should stop interfering.

“Even when this city of Sipopo was built, we were criticized and we did it for the dignity of the people and our continent; that’s why we call this part of Malabo, the city of the African Union,” said President Obiang who has been in power since 1979.

“I am not opposed to the scrutiny of others; They have accused us of everything, but all we have done is seek peace for our country and the world. Equatorial Guinea has been radically transformed, from being one of the poorest countries to having the highest per capita income in the continent. For me the concern is that people live in decent conditions.”

What would eventually cause a rethink in Equatorial Guinea was not the critics but the oil price crash. Crude oil prices fell below the $100 per barrel mark in late 2014 and continued tanking, hitting a nadir of $36 in January 2016.

Cesar Augusto Mba Abogo, the 39-year-old Finance minister, says the oil price crash made the country resolve to diversify its economy.

“Our economic plan aims to reduce the dependence of our prosperity on oil revenues, betting on the emergence of the sectors of fisheries and aquaculture, agriculture and livestock, services (tourism and finance) and energy and mining,” he said.

With more than three-quarters of government revenue coming from oil, the price slump pushed the country into deficits and its economy is projected to remain in negative growth in real terms over the next few years.

Equatorial Guinea, which sought support from the IMF, has also become more conservative in its spending. The government now budgets with a price of oil per barrel of $40 to $50, what it calls the “mid-range price.” Crude oil is currently trading at about $60 per barrel in the international markets.

The country doesn’t have a sovereign wealth fund but runs surpluses or deficits in its budgets depending on government spending, the price of oil and production of the commodity.

Deficits have been the norm since 2014, but the government has been narrowing the gap between spending and revenues.

It remains to be seen how fast and to what extent the country can diversify its economy. Equatorial Guinea relies heavily on government spending and needs to grow its private sector.

With oil production amounting to easy money, countries have found it incredibly difficult to restructure their economies unless they are forced by a major crisis.

Years after the diversification policy was articulated, progress has been less than satisfactory.

Equatorial Guinea

Equatorial Guinea has vast maritime resources, enabling thriving fishing activities. PHOTO | COURTESY

“At this point, we have to be self-critical: the economic structure of our country has not known the transformation we intend,” the country’s Ministry of Finance, Economy and Planning said in a review.

Equatorial Guinea does have the potential to grow the targeted sectors, but some of this will require overcoming decades of insularity that was partly enabled by self-sufficiency based on oil.

The country has vast fish resources in its sea territory off the coast of West Africa. With an equatorial climate featuring high temperatures, heavy rainfall and dense forests, Equatorial Guinea can undertake large-scale agricultural production.

The country is working with the African Development Bank (AfDB) to initiate projects that would have enough scale to enable export of produce to the regional markets.

In terms of tourism, Equatorial Guinea has the potential to attract visitors with its Spanish heritage including Catholic cathedrals, open roads that cut through pristine forests and animals such as gorillas, elephants and birds.

The country will, however, need to be more welcoming to visitors. Equatorial Guinea was ranked the second least accessible nation in the continent in the 2018 Africa Visa Openness Index, which measures how open a country is in terms of what it asks of citizens from other countries.

Equatorial Guinea charges $100 (Sh10,000) for a single entry visa or nearly double Kenya’s $51 (Sh5,100).

The government says it is keen on relaxing its visa rules and also plans to launch a portal to allow for online visa applications to attract visitors. But even then, it is not keen on mass tourism.

“We want to welcome visitors but without throwing our doors open to everybody,” Mr Asue said. He added that the country is intent on avoiding the fate of scores of African States that have suffered from terrorist attacks.

The 2009 raid on President Obiang’s palace in Malabo by gunmen believed to be from Nigeria’s Niger Delta is cited repeatedly by various bureaucrats as a reason to be wary of loose borders.

During the recent AfDB meeting in Sipopo, a naval boat was moored off the coast of the venue for the entire five days.

In terms of incentives offered to attract more foreign capital and boost private sector growth, the government says the country’s infrastructure and political stability are its major strengths. A policy is also in the works to guide how foreign firms can repatriate capital.

Having spent big on infrastructure, Equatorial Guinea says it is now focusing on social services. The government is building thousands of rent-to-own houses.

A family, for instance, can rent a fully furnished two-bedroom apartment at 80 euros (Sh9,300) per month and own it after 15 years. The government is also giving free vaccinations against malaria and tuberculosis.

There are also plans to offer free healthcare and other services to citizens aged 65 and above. The government says one of the biggest challenges it faces is the country’s negative image.

“We are battling negative perception abroad. Despite our progress, many still perceive us as a poor and undemocratic country,” Mr Asue says.

Much coverage about Equatorial Guinea in international press has been about allegations of waste of public resources and lack of human rights and transparency in governance.

The lavish spending by the president’s son and the country’s Vice President, Teodoro Nguema Obiang in foreign capitals has also not helped.

Multiple governments have seized assets worth billions of shillings from the younger Obiang including fleets of luxury cars, hard cash and watches on allegations that they were acquired through corruption, money laundering and other crimes.

The IMF is among the institutions that have called on Equatorial Guinea to improve its governance and transparency.

Travelling through the country and going through official publications, one gets the impression that President Obiang’s power is absolute.

There is a dearth of outdoor advertising for products in Equatorial Guinea but nearly all the billboards carry the president’s image, mostly celebrating his birthday (June 5).

Bureaucrats can hardly make a speech without thanking the president for the country’s development. Last week, ambassadors in foreign capitals sent congratulatory messages to mark the younger Obiang’s birthday (June 25).

The country has taken steps to reform and even has a Vice-Prime Minister in charge of Human Rights, Don Alfonso Nsue Mokuy.

Equatorial Guinea has lately played a role of a host of Pan-African events such as football tournaments and AU meetings as part of its diplomacy and soft power strategy.

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