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Equatorial Guinea - Economy History

Equatorial Guinea, formerly known as Spanish Guinea, is composed of the territories of Fernando Poo and Rio Muni on the west coast of Africa. Fernando Poo has an area of 785 square miles and had a population of 62,6l2 in l960. Rio Muni has an area of 6,730 square miles and had a population of l83,377 in l960. Each of the territories had a predominantly agricultural economy. Most of the cultivated area was farmed for Spanish absentee landlords. Cocoa and coffee are the principal exports. Rio Muni accounted for about 80 percent of the coffee and Fernando Po, for about 90 percent of the cocoa. Bananas, palm oil, palm kernels, and manioc are other exports. Several large European-owned forest concessions in Rio Muni provide exports of hardwoods. The several small enterprises which existed included a sawmill, a furniture factory, and a cement plant. The per capita income was US$l32 in l963.

During the 11 years following Equatorial Guinea's independence, the country was dominated by a dictatorship which devastated the economy and impoverished the population. The economy was based almost exclusively on agriculture, fishing and forestry, accounting for 50 percent of GDP, about 97 percent of exports and the principal sources of income for about 80 percent of the population. Although well endowed with natural resources, Equatorial Guinea was characterized by a very weak public administration and a shortage of labor. In the 1970s, the economy was mismanaged, public administration ceased to function and the population survived at a barely subsistence level. A large part of the educated population was killed, approximately one- third of the population fled the country, and the formal education system ceased to function for about six or seven years.

Cocoa, coffee and timber have traditionally been the country's main source of incomes. During the early period of independence, Equatorial Guinea experienced a drastic economic decline; GDP per capita in current terms fell sharply, from US$ 260 in 1970 to about US$ 170 in 1979, mainly because of the severe decline of the country's agricultural production. Cocoa exports fell from nearly 40,000 tons in 1968 to less than 20,000 tons at the beginning of the 1970s, following the departure of the foreign plantation owners and to about 7,000 tons a year after the exodus of some 30,000-40,000 Nigerian contract workers in the mid-1970s.

In an attempt to restore cocoa production, the government nationalized most plantations, introduced mandatory labor, and brought large numbers of people from the countryside to work on the state-owned plantations. However, poor public sector management, the inadequate and unmotivated labor supply, and reduced application of insecticides and fungicides led to a further decline in yields and in area cultivated. Exports fell to a record low of 5,200 tons in 1980. When the government started seizing harvests without payment, cash crops were almost completely abandoned and barter trade became the dominant form of exchange.

Declines in the other agricultural sectors were equally striking; timber production declined from 360,000 cubic meters in 1968 to an annual average of 6,000 cubic meters in the late 1970s, and coffee and palm-oil production virtually disappeared. Basic services in health, education, water and electrical supplies could not be maintained; foreign investment literally stopped, and the trading system, operated by state enterprises, broke down.

The devastation of Equatorial Guinea's economy in the 1970s was accompanied by the complete disarray of its public finances. Public financial transactions were recorded only sporadically, and the accounts of the Treasury, the Bank of Equatorial Guinea - the former Central Bank and public enterprises were not kept separately. In August 1979, a military junta overthrew the dictatorship regime, led by Macias Nguema and established a new government, Presided by Lt. Col. Obiang Nguema Mbasoro and which then began to rebuild the economy and social institutions.

The new government reintroduced regular budgetary and banking procedures with technical assistance from IMF, and in April 1980, the first formal budget since 1974 was enacted followed by a stabilization program, agreed upon with the IMF, aimed at establishing financial discipline. During the first years of its rule, the government concentrated on returning the country to political stability, re-establishing the legal and administrative framework needed to support the economic reconstruction process, and attracting and coordinating the expected foreign aid. Rebuilding ministries and public agencies has been a difficult and a slow process though. The Government of Equatorial Guinea was confronted with two equally important issues which are: (i) to create favorable conditions for raising food and cash crop production and increasing exports, and (ii) to rebuild the public administration and social institutions needed to support the country's reconstruction.

Private sector involvement was slow and hesitant in the reconstruction process given the shortage of local entrepreneurs and the weakness and inconvertibility of the domestic currency. In that context, most economic activities remained under governmental control. The rehabilitation of the cocoa sector was slow because both domestic and foreign labor showed little interest in working there, because of the combination of the experience with forced labor under the former regime and inadequate economic incentives.

In an effort to attract foreign aid, the government presented a three year reconstruction program 1982-1984 to an International Donor conference in April 1982. The program identified agriculture and infrastructure as the main development priorities, and several donors expressed interest in financing projects. In addition, given the weak public administration and the limited capacity, the government decided to transfer responsibilities for some key sectors - petroleum and forestry - of the economy from the Ministries concerned to the presidency in order to centralize the decision-making process, minimize coordination problems, and to efficiently allocate the limited existing skills. This new economic program was not sustained.

In 1985, Equatorial Guinea became a member of the Bank of Central African States (BEAC). Efforts to rebuild the economy were renewed, but overall growth was marginal; although timber production increased appreciably and activity in the commerce and trade sectors expanded, the production and export of cocoa, the country's main foreign exchange earning, stagnated far below levels achieved before independence and worsening terms of trade contributed to large and unsustainable fiscal and external imbalance.

In 1988, the government adopted its first medium-term adjustment program covering the period 1988-1991. This program was supported by: (i) a first annual arrangement under the IMF's structural adjustment facility (SAF); (ii) a rehabilitation import credit (RIC) and sectoral loans from IDA; and, (iii) assistance from other international and bilateral donors. However, during 1988-1989, economic performance fell short of what had been envisaged under the adjustment program. Many of the program's objectives were not met owing to slippage in policy implementation, caused in part by limited administration capacity and by the continued erosion in world market prices of cocoa and coffee. After having grown by about 2.5% in 1986-1997, real GDP growth slowed to an average of less than 2% in 1988-1989, as production and exports of timber and cocoa declined.

In 1990 -1991, the government took a number of important steps to bring the structural adjustment program back on track. The reforms consisted mainly of efforts to diversify economic activity and to strengthen the production sectors, especially by (i) launching in October 1990, of a IDA-financed project to diversify agriculture in favor of food crops and non-traditional exports; (ii) the adoption of forestry action plan aimed at revitalizing production and exports, while strengthening the management and conservation of the country's natural resources and more notably; (iii) the signing, in April 1990, of a new contract with a foreign company to start the exploitation of the country's oil resources.

Export of oil started in April 1992 with petroleum production6 estimated at 6,000 barrels per day in 1992. According to the terms of oil contract, total oil revenues accruing to the government from 1992 to 1994 was to be about US$10 millions. Oil revenues were expected to increase substantially afterwards, especially from 1996 when profit sharing was to start and the government was set to receive some US$60 to 90 million, on a cumulative basis, during the period 1995-2000. Oil revenue increased from below CFAF 2 billion in 1994 about 12 percent of oil export proceeds to CFAF 31 billion in 1998 around 13 percent of oil export proceeds. The ratio of government oil revenue to oil exports was small, as the production-sharing contracts initially signed by Equatorial Guinea were based on model contracts from a 1981 petroleum law designed to attract investors to an underdeveloped area with uncertain oil prospects.

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Page last modified: 22-10-2016 19:46:19 ZULU