Sao Tome & Principe

GDP: US$ 99 million (est. 2007)
GDP per capita: US$ 495 (est. 2007)
Annual growth: 6.5% (est. 2007)
Inflation: 17% (est. 2007)

Investment: 43.7% of GDP(2007)
Major industries: Cocoa, but oil and gas to take off before 2010. Tourism a new field for investment.

The economy of this micro-state is still dominated by the export of cocoa which represents 95% of exports by value. The plantations, nationalised at independence, have since been re-privatised as part of the economic reforms introduced in the late 1980s. But the economy is set to change dramatically as it enters the ranks of oil producers.

Several Blocs were awarded in April 2004 and May 2005 after prolonged licensing rounds. The country received its first signature bonus in July 2005 from the licensing of Block 1. Further bonuses are expected during 2006 from the second licensing round. Chevron, the operator of Block 1, announced in May 2006, the first successful exploration well.

Oil production is not likely to begin, however, until 2010. Once it does, growth rates will increase from the current 3.8% driven by oil-related investements. In order to cope with the huge impact of oil receipts, the government adopted an Oil Revenue Management Law in late 2004 to ensure that oil revenue is managed transparently and efficiently. The Law also provides for a government Trust Fund.

The oil fields are to be developed jointly with Nigeria in a Joint Development Zone (JDZ) and managed by a Joint Development Authority (JDA) under an agreement between the two countries signed in 2001 which settled their long-standing maritime boundary dispute.

Under the agreement, Nigeria will take 60% of the profits and Sao Tome 40%. Oil licensing has been controversial. Certain companies (Exxon Mobil and ERHC) were given preferential rights several years ago which gave them an advantage over other bidders.

The government has since renegotiated more favourable terms but alleged irregularities in the adjudication process for awarding the licences delayed the final award of the blocks.

Apart from managing future oil revenues, Sao Tome’s economic policy is tied to its National Poverty Reduction Strategy 2003-2010. This will require external funding of some $30.5 million per annum. But the country carries a high debt with a debt- service ratio of 31.2% in 2003 and rising.

The World Bank notes that the country is one of the most heavily indebted in the world – with a ratio of debt to exports of goods of 1655% in 2002-04.(compared to Angola’s 89% over the same period). The IMF is helping the country to get debt-relief under the HIPC initiative, but completion point is not likely to be reached until at least the end of 2006. All is owed to official creditors with some 61% owed to multilateral institutions and 30% to the Paris Club. This burden is unlikely to be relieved until oil revenues start to flow.