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Strong Reliance on Oil Keeps Pulling Equatorial Guinea’s Economy into Recession

Equatorial Guinea has been one of the fastest growing economies in Africa in the past decade. After the discovery of large oil reserves in the 1990s, it became the third-largest producer (90% of export earnings) of oil in Sub-Saharan Africa, after Nigeria and Angola. More recently, substantial gas reserves have also been discovered.

Several of Equatorial Guinea’s gas and oil fields matured in 2013, and the subsequent decline in production, on which the country was highly dependent, pushed the economy into recession. Although new fields opened, they did not fully offset the fall in the value of crude-oil production in a context of declining international prices.

The revenues generated from the oil sector have contributed to improve the basic infrastructure of the country. The building of roads, schools, hospitals and social housing has made the construction sector become the second largest contributor of the GDP. Meanwhile, the contribution to GDP of other activities, such as agriculture, fishing and forestry, has declined significantly. Currently for the government of Equatorial Guinea it is a priority the development of these sectors.

The Gross Domestic Product (GDP) in Equatorial Guinea was worth 11.03 billion US dollars in 2019, according to World Bank. Without doubt, a large proportion of Equatorial Guinea’s 1.2 million population lives in poverty, with the world’s largest gap between its GDP per capita rates and human development index score. According to UNDP, in 2019, the country was 144th in the world in terms of human development. While the unemployment rate in the country reached to 9.2% in 2019 according to World bank estimates.

The tax-to-GDP ratio in Equatorial Guinea decreased by 0.4 percentage points from 6.3% in 2016 to 5.9% in 2017 [Chart above]. In comparison, the average for the 26 African countries in Revenue Statistics in Africa 2019 remained at 17.2% over the same period. The value of exports of Equatorial Guinea is significantly greater than the cost of imports. United States is the largest trading partner in the country, followed by China, Spain, Italy and France.

The country macroeconomic and fiscal situation has deteriorated following the oil price drop and Covid-19 pandemic. The budget balance, which showed a deficit of 2.6% of GDP in 2017, became a surplus (0.5% of GDP in 2018 and 1.3% in 2019) [Chart above].

In 2019 the economy was still in recession, reaching -6.1% in 2019, from a previous -5.8%. According to the updated IMF forecasts from 14th April 2020, the recession is expected to ease (-5.5%) despite the outbreak of the COVID-19 pandemic; the GDP growth will pick up to 2.3% in 2021, subject to the post-pandemic global economic recovery .

In December 2019, the IMF Executive Board approved a US$282.8 million three-year Extended Fund Facility loan for Equatorial Guinea with provisions for promoting economic diversification, good governance, increasing transparency and fighting corruption. The country is also seeking to join the Extractive Industries Transparency Initiative. The country’s public debt, 45.4% of GDP, remains bearable. It is expected to grow to 46.5% in 2020 and to 47.6% in 2021. Inflation also remains at a relatively low level, 0.6% in 2019 with projections of 1.7% in 2020 and 2021.

The GDP (gross domestic product) in Equatorial Guinea is forecast to amount to US$9.13bn in 2024. The real total GDP (gross domestic product) in Equatorial Guinea is expected to grow by -2% in 2024. In 2023, the total investment in Equatorial Guinea is forecast to amount to US$1.79bn.

The government has launched the National Economic Development Plan “Horizon 2020”, which targets economic diversification and poverty reduction. After having been dedicated to infrastructure development in its first phase, Horizon 2020 now shifted focus on economic diversification, targeting strategic new sectors such as fisheries, agriculture, tourism and finance. After the oil crisis of 2014, Equatorial Guinea launched several reforms and has entered into an IMF Staff Monitored Program (SMP) in May 2018. The reforms include raising non-hydrocarbon tax revenues and reducing the non-hydrocarbon primary deficit, among others.

Slow economic diversification

The equatorial Guinea’s main challenge is to use these flows of substantial revenues efficiently to diversify the economy. The economic and political stability in Equatorial Guinea is attracting growing interest from foreign companies, especially to extract oil deposits. This provides a favourable medium-term forecast, especially in projects of extraction of natural gas.

The country also has untapped deposits of titanium, iron ore, manganese, uranium and gold. The agricultural sector, whose contribution to the national economy was less than 2% of GDP between 2014 and 2018, has good potential of 850,000 hectares of land (versus only 20,000 hectares currently in cultivation).

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