Setembro 09, 2020

Study offers tips for Equatorial Guinea’s trade enhancement

From a focus on fisheries to WTO membership, analysis of the country’s economic situation offers ways to move forward

Known for being a small country with big hydrocarbon reserves, Equatorial Guinea’s economic expansion has, accordingly, been mainly driven by hydrocarbon exports and investment. But, a steep drop in prices in 2014 and declining production has highlighted the importance of diversified and sustainable sources of income that can also have broad welfare effects for citizens.

One way to understand the country’s challenges, and the opportunities for a more diversified economic base, is via recent analysis of the country’s trade. The study looks at Equatorial Guinea’s supply-side and institutional constraints, and ways to take advantage of opportunities for growth.

This type of research, termed a Diagnostic Trade Integration Study (DTIS) and available to all least developed countries (LDCs) and those recently graduated, is requested by a country’s government and developed by the Enhanced Integrated Framework (EIF) together with partners, in this case the World Bank Group.

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What did Equatorial Guinea’s DTIS find? What recommendations were made to the country to enhance its trade? What is the country doing in response? Highlights are below.

1) Equatorial Guinea is highly dependent on oil production and exports, and therefore highly vulnerable to price fluctuations.

The DTIS notes, “In 2017, the oil and gas sector accounted for 59% of GDP, 96% of goods exports, and 80% of government revenues.”

The abundance of hydrocarbon resources in Equatorial Guinea has, for the last few decades, resulted in significant GDP and GDP per capita growth in general and especially in comparison with other sub-Saharan African economies. But, with oil prices now at low levels and probable lower oil output in the medium- to long-term, the country should look to other sources of income to get out of recession and alleviate fiscal and social constraints.

The study cites sectors like agriculture, fisheries and the agro-industry that contributed less than 4% to Equatorial Guinea’s GDP in 2017, so there is a lot of room to grow. As prospects in the hydrocarbon sector are subject to major external factors and headwinds, the country must find ways to make other sectors of the economy more competitive.

2) Fisheries may have potential.

“What is interesting in the context of the country is that there is not a huge land surface, but what they don’t have in terms of land they have in terms of sea. Equatorial Guinea has the largest square area of sea territory of the whole Central African Economic and Monetary Community [CEMAC]. So, it is relatively small compared to other CEMAC members like Cameroon and Gabon in terms of land, but huge when you talk about ocean resources,” said one of the report’s authors, José Signoret, Senior Economist at the World Bank.

The country has a number of small-scale fishermen focused primarily on subsistence fishing, but there is very little information or data related to production. There is little industrial fishing, and there are no industrial fishing landings at the country’s main ports in Malabo, Luba, Kogo, Corisco or Annobón, with small-scale fishermen using beaches as landing sites. With the lack of industrial fishing that the study notes, there is space for the sector to expand, and for the country to leverage its rich fish resources.

The DTIS recommends that Equatorial Guinea could improve its fisheries by developing its aquaculture potential; enhancing the post-harvest value chain, including the country’s cold storage capacity; increasing the public capacity to monitor, control and surveil the industry; establishing an effective management plan of the country’s fisheries; and creating more landing sites.

3) Equatorial Guinea is not yet a WTO member.

“Equatorial Guinea is the only country in CEMAC that is still not a part of the WTO. The country has shown interest in joining and that is how partly this DTIS came to life,” said Signoret.

“The country should not continue to be at the margins of the multilateral trading system,” he added.

As the DTIS highlights, the country has much to gain from cementing trade and business environment reforms through its WTO accession process. Negotiations through accession to WTO membership can lead to significant trade and investment reforms that boost competitiveness. In addition, WTO membership provides for permanent and unconditional most-favoured-nation status, as well as protection against arbitrary measures imposed by trading partners. And, the private investment reforms that are part of WTO accession help to foster competitiveness that attracts foreign direct investment.

The DTIS identified the WTO accession process as a key policy target. This seems to be in line with current objectives, as identified in the country’s most recent national development plan discussions. However, substantial technical support may be needed to achieve this target from the donor community.

"Full membership to the WTO is a priority for the authorities in Equatorial Guinea," said Domingo Mba Esono, Deputy Minister for Trade and Promotion of Small and Medium‑Sized Enterprises in Equatorial Guinea. "It is extremely important and necessary for all parties involved in foreign trade to be involved in the WTO accession process."

4) Connectivity is key.

The issue of connectivity in the country remains a problem. But this is not an issue of physical infrastructure so much as the lack of proper logistics services and stringent border controls. Equatorial Guinea reports some trade with Cameroon and Gabon, but actual cross-border land trade is seriously underestimated.

An issue in Equatorial Guinea, especially during the period of the DTIS assessment and as noted in the analysis, is land border closures. These border closures undermine the benefits of trade with neighboring countries to which they intend to form a common market.

Exports are highly concentrated in terms of products (oil and gas) and they are going all over. “In terms of imports, the country tends to buy a lot more from the EU, China and the US than from next door,” said Signoret.

There are also issues with goods moving within the country.

“They are not fully connected internally either, there could be agricultural items on the island of Malabo at surplus, that are at the same time at shortage on the mainland, or vice versa. So there is a missing market opportunity at place largely driven by a trade logistics issue,” Signoret said.

The DTIS states, “Maximizing the return on investment from the country’s ports, airports and road networks will require modernising and harmonising trade facilitation policies and procedures, both within the country and with key trading partners. The trading process needs to become clearer, more predictable, and more consistent, and above all, it must become faster and cheaper.”

To address these problems, the Government has adopted, inter alia, the Automated System for Customs Data (ASYCUDA) to make the country's customs administration more efficient and more transparent. As a member of the International Maritime Organisation, Equatorial Guinea is working on creating a legal tool to make the Convention on Facilitation of International Maritime Traffic applicable. Finally, since security is key to the development of barrier‑free trade, Equatorial Guinea and Cameroon signed a cooperation agreement on cross‑border security in July 2020.

5) Ease of doing business could be improved.

The DTIS states, “The adoption of business environment reforms has been associated with higher rates of business creation, better protection of property rights, and higher levels of GDP growth. Specifically, regulations implemented in an effective, transparent, and accessible manner that strengthen property rights are important for economic growth and employment creation.”

Equatorial Guinea is ranked 177th out of 190 countries in the World Bank’s Doing Business 2019, ahead of the Republic of Congo (179), Chad (180), and the Central African Republic (CAF) (184). The DTIS recommends increasing access to information, applying common regulations and creating an investment promotion agency, among others.

In response to this recommendation, the Government instructed the Ministry of Trade and the Ministry of Finance, Economy and Planning to look into creating an investment promotion agency. In addition, a committee to improve the business climate has been established to steer the reforms proposed in the DTIS and make recommendations on next steps.

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