The key to economic diversification

In 2007, Equatorial Guinea elaborated the National Plan for Economic and Social Development – Horizonte 2020 – to reach that year as an emerging economy. What challenges remain for Equatorial Guinea to reach 2020 being an emerging country and what opportunities do these challenges represent?

The National Plan for Economic and Social Development of Equatorial Guinea – Horizonte 2020 – arises from the second economic conference held in Bata in 2007 after the evaluation of the works undertaken following the first economic conference celebrated in 1997, also in Bata. That means that there was the first economic conference in 1997 in which it was decided to invest part of the revenues coming from hydrocarbons in providing the country with infrastructure and also in accumulating savings for future generations. Ten years later, in 2007, the second economic conference was held in Bata to assess the works undertaken since the first conference until that date, to analyze what has been done and what still remains to be done. In this second economic conference it was decided to continue with the investments in infrastructure as it is a preliminary condition to be able to move forward and aim to develop the economy of the country in the future. Therefore the development of the infrastructures that we nowadays see at a national level continued and at the same time the decision was taken that from 2013 onwards the government would need to establish the necessary dispositions to make possible the development of an industrial industry in the economy of Equatorial Guinea. It is in this occasion that the idea of creating the Holding Equatorial Guinea 2020 is born and whose aim would be to diversify the economy of the country and at the same time make profitable the resources coming from hydrocarbons.

Promoting economic diversification means developing the industrial fabric in the sectors that we consider critical, specifically agriculture, livestock, mining, fishing and services in general. Among these services we can talk also of tourism, transportation, etc. This is a big challenge because as to this moment the GDP of Equatorial Guinea is composed 90% by one sector, the hydrocarbons sector, in which most of the country’s exports are based. In order to have a diversified economy wider production sources should be created, which is why the government has created the Holding as this will be the entity that can associate with investors, both foreign and nationals, who want to invest in these other sectors. This is a big challenge that we have in our hands, how to develop the industrial industry in the sectors that still lack productive activity at an industrial level. There is production but it is still very handicraft so what is produced does not satisfy the current domestic demand.

Among the advantages that could be presented, the first would be the positioning of Equatorial Guinea. Equatorial Guinea is a country which is endowed with plenty of infrastructure. Any investor that would settle in this country could easily access the markets of the neighboring countries, including those of the CEMAC, keeping its productive base in Equatorial Guinea. We can facilitate the distribution to neighboring countries by land or sea as the infrastructures are already there: we have at our disposal ports and roads in good conditions. That is why this would be a good opportunity. Other opportunities present is that the government has created this entity so that any investor who wants to come invest in Equatorial Guinea can find a partner that would also share the risk by investing in the projects that we consider profitable and productive. The Holding as a priority wants to invest in productive projects that could create employment for the active population, which through this employment would have incomes that would contribute to an improvement in their quality of life and at the same time poverty would be reduced, which is one of the goals of the macroeconomic plan of the government. The macroeconomic plan of the government is what is defined as the National Plan for Economic and Social Development and the Holding is only one of the entities that will help reach these targets proposed by that macroeconomic plan.

In the Symposium for the Economic Diversification the Ministry of Trade and Entrepreneurial Promotion said that his department is offering foreign investors a package of laws and administrative and institutional measures with the aim of improving the business climate, eliminating barriers and facilitating investment. President Obiang has stated recently that “We are here to create a climate of trust to facilitate foreign capital investment in Equatorial Guinea”. How would you describe this cooperation between the public and the private sector?

Both sectors are working in close collaboration as the government is the facilitator for the private sector to work without that many obstacles. From this point of view the government has adopted an investment law which is currently in force and offers many advantages for investors, both nationals and foreign. Another proof of this facilitation is precisely the Holding. It is the government who has created the Holding but it acts as a private agent because it is a way to avoid investors dealing directly with ministerial departments as they should deal with a private structure governed by the laws as a private entity. At the same time, when the Holding partners with investors – either nationals or foreign – it handles the administrative matters with the government, meaning that it takes care of all those administrative issues that could take time or be difficult to obtain in the ministries and in this way all the administrative aspect is eased to implement the projects in Equatorial Guinea. At the same time investors would be benefited from the fiscal advantages provided under the framework of the investment law.

Apart from the administrative procedures and the fiscal advantages, how can an investor approach to present his business plan and later start working in Equatorial Guinea together with the Holding? How can an investor exactly benefit by collaborating with the Holding?

If any investor would be interested it is a matter of contacting the Holding, presenting the project and from there onwards, if that investor is searching for partners to enter the project, he would partner with us. We do not give loans but we fully participate as a partner. Then, we study the projects and if we consider that it is a project that is going to generate productive activity – as we care about it being a productive activity that is going to create employment and provide the opportunity to build the human capital in the Republic of Equatorial Guinea through the transmission of know-how, then from there onwards the Holding joins fully as a partner financing part of this investment, both in capital and in the operations. That means that the Holding does not just offers the capital and washes its hands but that it fully participates in the operations while respecting that the private carries the direction of the company or project to be implemented.

The Equatoguinean government has established a national co-investment fund together with the Holding Equatorial Guinea that will support private national and foreign initiatives in the productive sectors considered critical, which comprises a capital of one billion dollars.

The Holding was legally created in May but the offices are here since November 2014. The national co-investment fund has been created precisely because it is the fund that is available to the Holding to co-finance the projects that the Holding considers important and interesting to develop the country’s economy. We are aware that we must fully enter as partners or co-finance projects that promote activity at an industrial level in the sectors that we define as critical.

How many project applications have you received so far?

We have received several projects but so far we have created only two mixed enterprises: one that is going to produce chickens and another one that will transform yucca into flour. These are the two projects that in a short period will be setting up the factories to begin their operations. The other projects we have received have not been approved by the Holding to offer its finance because they come with an erroneous concept; they consider the Holding as a bank and they think we are going to provide a deposit for them to start executing their project. They do it this way because that is how it was working in the construction sector: you bring a project and you know that we want to build a hospital, you present us a hospital and if we agree a deposit of 30% is given for the construction to start and the payment is gradually done as the certifications of the execution of the construction are brought. However, the Holding does not work in this manner as the private part that brings the project must also bring a capital contribution which we complete. We even go further: if a private has a project and has a capital contribution that does not allow him to be the major shareholder, there are regional structures (such as the Central African Development Bank which provides long-term finance for projects). This means that if you possess 25% of the cost of the project, the remaining 26% needed to achieve the majority of shares can be financed by this regional structure and then the Holding would contribute with the rest. These structures are willing to do it if the partner is the Holding and they would do it at an inferior cost relative to the market rate.

Please comment on the prioritized sectors and the potential they represent.

There is a lot of potential in these sectors because in Equatorial Guinea agriculture has never been exploited at an industrial level, nor fishing or mining. That is why these are sectors that any investor that would be interested in developing an industrial tissue in them would have the advantage that any pioneer has. We can compare a little bit with the American companies that were the first in settling in the oil sector. They were pioneer companies and they have obtained substantial benefits; in fact, the first companies, because of the volume of crude that they found had to sell their shares in the stock market. I think that at the level of any of the sectors that we want to develop, any company that would enter to exploit them would have the advantage of being pioneers in those industries. Furthermore, the national market is available and the same time they could also access the markets of the neighboring countries.

We believe that is very important and that is why we have been told that we should see Equatorial Guinea as the gateway to the CEMAC and Central Africa, which is a much bigger market, using the infrastructures the country already possesses. What other competitive advantages of the country would you highlight?

First of all, I think the strategic geographic positioning in which Equatorial Guinea is placed is an advantage. Secondly, the country is endowed with infrastructure to be able to access the markets of the neighboring countries. Thirdly, Equatorial Guinea is a country that possesses certain stability, it is not a country affected by conflicts and that peace and quiet, that safety of both property and people, are factors in favor for Equatorial Guinea to be able to attract any investor. On the other hand, we have the advantage that the benefits of the investments that will be made in the country can be easily repatriated as we possess a convertible currency. Concerning the wire transfer of benefits or the reimbursement of loans, they do not involve any problem because the currency that circulates in the country is convertible. Then, we do not contemplate the problem of a fall in the exchange rate because the CFA franc has a fixed parity with the Euro, which also implies an advantage when someone invests in the Republic of Equatorial Guinea. 

We know that another critical sector is financial services and that the intention is to transform Equatorial Guinea in some sort of financial hub.

From my point of view I would say that that is not necessarily the current priority. To us the priority right now is to develop the industrial industry. If we would have to establish an order for the execution of the program it would be first to analyze how we can make food products to be produced at a large scale in order to avoid the import of these basic products. From there on what is financial services would come later but we should first ensure the production in the agriculture, livestock and fishing sectors.

What is the role of the Holding at the moment of improving or building an image of Equatorial Guinea abroad?

The Holding has been created with the purpose of showing international investors that when they come to Equatorial Guinea they come not to deal directly with the government but with an entity governed as private. Then, the investor instead of dealing directly with the government he can deal with the Holding to invest in the sectors in which there is not a developed industrial industry. The Holding will make everything at its reach to attract possible investors either foreign or nationals, as they do not need to be only foreign, there can also be national investors with interesting initiatives who also need finance and then the Holding would intervene by partnering with these private investors and helping them minimize the risk. Every investment has a risk but when the Holding enters as a partner it already involves a minimization of the risk for investors and I think it is a way of making the international world see that there is a part of our economy that we want to develop. We have the economic and financial capacity to do it but we still lack the technology and the expertise in these sectors. We are aware of that and we know there is financial capability but there is also a lack of knowledge to enable the development of industrial activity in those sectors we want to promote and that is why the Holding has been created.

The US is more focused than ever in Africa and a sign of that is the recent US-Africa Leaders’ Summit to which President Obiang assisted. The resulted of this summit are 37 million dollars to be invested in Africa, which has created a positioning race in the countries of the region to attract that capital. However, Equatorial Guinea has the advantage that the US is a historic partner that has been here since the beginning of the economic development of the country extracting oil. What would be your indication when inviting them to invest in sectors other than the hydrocarbon one?

The message I would like to convey to American companies is that in the same way they found investment opportunities in the oil sector nowadays there are still other investment opportunities they can find in the sectors of agriculture, livestock, fishing, mining and even tourism, because they possess the expertise and the technology. I think that by creating a joint-venture in the oil activity they also have the possibility of creating a joint-venture with the Holding in those other sectors I have just mentioned. It is a great opportunity and the companies that settle would really enjoy having a partner like the Holding and at the same time all the fiscal advantages provided by the investment code of the Republic of Equatorial Guinea. In addition, the sectors are still unexploited as the production is still handicraft so all the advantages are there and they would be the pioneer companies.

The only promising sector in Equatorial Guinea is not oil, we also have other promising sectors in which you can invest and obtain profitability after some time. It is always though that in Africa there is only oil but in addition there are those other sectors which are still unexploited.

I think that having been able to study the mistakes others have made has helped Equatorial Guinea to act the way it has been acting since the oil activity has been developed in the country. Other countries have been exploiting oil for years but lack the infrastructure Equatorial Guinea possesses today. I think it is one of the things Equatorial Guinea has intended to do: apart from the years we have been extracting oil you can see where those funds and resources have been invested in the country. That is why the government has elaborated the macroeconomic plan that has been implemented throughout the years and as time goes by you can see what has been done and also what remains to do.

What is the vision or philosophy that you implement at the time of leading the Holding Equatorial Guinea?

I would say it is not a philosophy but a purpose and it is that purpose the one that guides us. What do we want to do in the Holding? We want an industrial industry in the Republic of Equatorial Guinea and from there onwards to see what are the possibilities and how to make possible that from now to some years we can consume products that are transformed in Equatorial Guinea. For example, we have fruits but we import juice. Then the question is how to achieve the consumption of juice of the fruits produced in Equatorial Guinea. We have cocoa but we import chocolate. This logic is the one that leads us to say: “We will try to develop the transformation of our raw materials into elaborated products to reduce imports”. We will not reduce them completely but at least in food products. If the industrial activity in agriculture and farming is developed we could transform many products. It is a logic that leads us to choose the investments we are going to do and define the priorities while executing the plan presented by the macroeconomic policy of the government.