Population 0.172 million
GDP 0.261 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
4.5 |
4.9 |
4.5 |
5.5 |
|
Inflation (yearly average) (%)
|
13.3 |
14.3 |
10.5 |
6.2 |
|
Budget balance (% GDP)
|
-11 |
-12 |
-8.7 |
-12.3 |
|
Current account balance (% GDP)
|
-50.5 |
-45.6 |
-46 |
-38 |
|
Public debt (% GDP)
|
78.2 |
80.9 |
83.5 |
76.6 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Significant oil potential
- Prospects for tourism sector development
- Support of international financial backers
- Links developed with Portugal and Portuguese-speaking countries
- Dobra pegged to the euro
WEAKNESSES
- Political instability
- Heavy dependence on public aid
- Economy still dominated by agriculture and fishing
- Business environment deficiencies
Risk assessment
Weak growth dependent on oil revenue prospects
Growth will remain moderate in 2013. Encouraged by funding from the IMF and the World Bank the tourism and fisheries sectors, important sources of employment are expected to benefit from public investment. The construction sector will benefit from new infrastructure projects, comprising particularly the construction of an airport, a deep water port and tourism installations. The increase in private investment will boost services (60% of GDP) chiefly the retail trade, the hotel and restaurant businesses. The primary sector (20% of GDP) still relies on coffee and cocoa, the main exports, which continue to concentrate investments in the agricultural sector. Consequently São Tome and Príncipe remains dependent on food imports. Regarding demand, private consumption is expected to increase in 2013 in line with the 21.7% rise in the minimum wage in January 2012. The main barrier to the country’s growth will be the strong slowdown of the Portuguese economy its main trading partner. In the medium term, oil revenues prospects are very substantial for the third smallest world economy. Initially planned for 2011, the commercial exploitation of offshore platforms is now anticipated for 2015. The future revenues will be centralised on a joint account with the American Federal Reserve in order to ensure good management.
Highly vulnerable external accounts
The archipelago remains heavily dependent on international aid despite the multilateral debt relief agreed in 2007 and the three year IMF Extended Credit Facility approved in July 2012. Thanks to incomes from the granting of oil concessions in 2012, the fiscal deficit was reduced but their absence in 2013 will put pressure on public finances. Therefore, international aid will be essential until oil revenues take over at the earliest from 2015. Regarding to the external accounts, there is a significant current account deficit attributable to the country’s geographic isolation. Beside, the country trade deficit will continue to suffer from a rise in imports necessary for the development of oil infrastructures. This substantial imbalance leaves the economy vulnerable to external shocks. Imported inflation has been curbed thanks to the pegging of the dobra to the euro since January 2010. This was made possible thanks to an agreement with Portugal which promised financial support in case of a sharp fall in foreign exchange reserves. Finally the banking system remains largely under-developed. The archipelago has only eight banking institutions, two insurance companies and no stock market. Again in 2013, the rise in non-performing loans is expected to curb credit growth.
A risk of early elections due to gridlock cohabitation
The political situation remains relatively fragile. The hopes and desires raised by oil led to a coup d’etat fomented by mercenaries in 2003, which ended with a Memorandum of Understanding (and an amnesty for those involved in the coup). Another attempt in 2009 was aborted thanks to the early arrest of the protagonists, among them ex-mercenaries of the 2003 coup. The prosperity expected from the oil deposits is taking a long time to materialise. This popular frustration led to the election in August 2011 of the former president, Pinto da Costa, who ruled the country from 1975 to 1990, during the single-party communist era. The fragile cohabitation with the Prime Minister Trovoada, the winner of the legislative elections, galvanises the opposition. They obtained the majority at the Parliament thanks to the formation of a coalition. Political instability reaches its peak in December 2012 with the government dismiss by presidential decree following the censure motion passed by the Parliament. In the perspectives of next parliamentary elections in 2014, political tensions should increase in 2013.
After the recasting of the investment law and the lowering of corporation tax from 45% to 25% in 2009, the pace of reform slowed. Institutional weaknesses continue to limit economic freedom. The judicial system is not able to defend property rights effectively while corruption remains widespread, which compromises the development prospects.
