The discovery of large oil reserves in 1996 and its subsequent exploitation have contributed to a dramatic increase in government revenue. As of 2004 , Equatorial Guinea is the third-largest oil producer in Sub-Saharan Africa. Its oil production has risen to 360,000 barrels/day, up from 220,000 only two years earlier.
Forestry, farming, and fishing are also major components of GDP. Subsistence farming predominates. Although pre-independence Equatorial Guinea counted on cocoa production for hard currency earnings, the neglect of the rural economy under successive regimes has diminished potential for agriculture-led growth. However, the government has stated its intention to reinvest some oil revenue into agriculture. A number of aid programs sponsored by the World Bank and the IMF have been cut off since 1993 because of corruption and mismanagement. No longer eligible for concessional financing because of large oil revenues, the government has been unsuccessfully trying to agree on a "shadow" fiscal management program with the World Bank and IMF. Businesses, for the most part, are owned by government officials and their family members. Undeveloped natural resources include titanium, iron ore, manganese, uranium, and alluvial gold (Mining in Equatorial Guinea). Growth remained strong in 2005 and 2006, led by oil.
The panel's report found that Riggs Bank helped government leaders in Equatorial Guinea siphon oil revenues to accounts set up for them in Washington. Equatorial Guinea has been cited by the U.S. State Department for human rights abuses, corruption, and diversion of oil revenues to government officials.
Beginning in 1995 until 2004, Riggs oversaw as many as 60 accounts containing as much as $700 million, making Equatorial Guinea its largest single customer. Some were government accounts, while others were the private accounts of President Teodoro Obiang Nguema, other government officials, and their families.
The Senate report says millions of dollars in the government accounts, which should have gone to help impoverished Equatorial Guineans, were instead funneled to off-shore tax shelters, with help from Riggs officials.
At a hearing on the matter at which current and former bank officials appeared, Senator Carl Levin, a Michigan Democrat, was clearly outraged. "Somehow there has to be a conscience here. Aren't you troubled?," he said.
The report describes one incident in which the bank manager of the country's accounts, Simon Kareri, brought a 27 kilogram suitcase with $3 million in plastic-wrapped cash to Riggs's Dupont Circle branch to make a deposit into President Obiang's account. Mr. Kareri, who was fired in January, refused to testify at the hearing," he said. "Mr. Chairman, there is nothing I would like to do more than answer your questions today. However, I must heed the advice of my counsel and invoke my fifth amendment rights under the Constitution and refuse to answer the question," he said.
Senators were angered that bank officials never reported any suspicious financial transactions involving Equatorial Guinea.
Lawrence Hebert, president and chief executive officer of Riggs Bank, blamed a lack of an internal system to monitor and identify such suspicious activity. It is an assertion that Senator Levin found ridiculous.
"First of all Mr. Hebert, you do not need a computer system to realize suspicious activity when you have sixty pounds of cash that are being walked into the door with a suitcase," he said.
Mr. Levin criticized bank regulators for not doing enough in their oversight responsibility.
Riggs was fined a record $25 million by federal banking regulators for allegedly failing to report suspicious transactions made to the Equatorial Guinea accounts, but that didn't happen until May 2004.
Senator Levin also took aim at oil companies that are doing business in Equatorial Guinea, many of which have secret contracts with firms that have ties to President Obiang.
The London-based organization Global Witness notes that the Senate committee report found that oil companies made payments into the personal accounts of Equatorial Guinean officials that were used for land purchases, office leases, and even education for the children of the country's leaders.
With oil money stashed away in Riggs Bank for the ruling elite of Equatorial Guinea, argues Sarah Wykes of Global Witness, oil companies cannot make the case that they are a force for positive change in the country.
"Equatorial Guinea is now the third largest producer of oil in sub-Saharan Africa," she said. "It has been called the 'Kuwait of Africa' But it is clear that since oil came on stream, the human development indicators of the country have actually gone backward, so we can say the oil money is not contributing to development at all," she said.
Equatorial Guinea responded with an 82-point report claiming that the Senate had been "duped" by "pressure groups, naming specifically a $40,000 contract between a lobbying group and Severo Moto Nsa, an EquatoGuinean living in self-imposed exile who uses his website to make wild accusations against Obiang. The rebuttal also claims that the payments to government members were disclosed in the government accounts and were not illegal.
Equatorial Guinea has other largely unexploited human and natural resources, including a tropical climate, fertile soils, rich expanses of water, deepwater ports, and an untapped, if unskilled, source of labor. Following independence in 1968, the country suffered under a repressive dictatorship for 11 years, which devastated the economy. The agricultural sector, which historically was known for cocoa of the highest quality, has never fully recovered. In 1969 Equatorial Guinea produced 36,161 tons of highly bid cocoa, but production dropped to 4,800 tons in 2000. Coffee production also dropped sharply during this period to bounce back to 100,000 metric tons in 2000. Timber is the main source of foreign exchange after oil, accounting for about 12.4% of total export earnings in 1996-99. Timber production increased steadily during the 1990s; wood exports reached a record 789,000 cubic meters in 1999 as demand in Asia (mainly China) gathered pace after the 1998 economic crisis. Most of the production (mainly Okoume) goes to exports, and only 3% is processed locally. Environmentalists fear that exploitation at this level is unsustainable and point out to the permanent damage already inflicted on the forestry reserves on Bioko.
Consumer price inflation has declined from the 38.8% experienced in 1994 following the CFA franc devaluation, to 7.8% in 1998, and 1.0% in 1999, according to BEAC data. Consumer prices rose about 6% in 2000, according to initial estimates, and there was anecdotal evidence that price inflation was accelerating in 2001.
Equatorial Guinea's policies, as defined by law, comprise an open investment regime. Qualitative restrictions on imports, non-tariff protection, and many import licensing requirements were lifted when in 1992 the government adopted a public investment program endorsed by the World Bank. The Government of the Republic of Equatorial Guinea has sold some state enterprises. It is attempting to create a more favourable investment climate, and its investment code contains numerous incentives for job creation, training, promotion of non-traditional exports, support of development projects and indigenous capital participation, freedom for repatriation of profits, exemption from certain taxes and capital, and other benefits. Trade regulations have been further liberalized since implementation in 1994 of the ICN turnover tax, in conformity with Central African tax and custom reform codes. The reform included elimination of quota restrictions and reductions in the range and amounts of tariffs. The CEMAC countries agreed to replace the ICN with a value added tax (VAT) in 1999.
While business laws promote a liberalized economy, the business climate remains difficult. Application of the laws remains selective. Corruption among officials is widespread, and many business deals are concluded under non-transparent circumstances.
There is little industry in the country, and the local market for industrial products is small. The government seeks to expand the role of free enterprise and to promote foreign investment but has had little success in creating an atmosphere conducive to investor interest.
The Equato-Guinean budget has grown enormously in the past 3 years as royalties and taxes on foreign company oil and gas production have provided new resources to a once poor government. The 2001 budget foresaw revenues of about 154 billion CFA francs (154 GCFAF) (about U.S.$200 million), up about 50% from 2000 levels. Oil revenues account for about two-thirds of government revenue, and VAT and trade taxes are the other large revenue sources.
Year 2001 government expenditures were planned to reach 158 billion CFA francs, up about 50% from 2000 levels. New investment projects represented about 40% of the budget, and personnel and internal and external debt payments represented about one-third of planned expenditures.
The Equato-Guinean Government has undertaken a number of reforms since 1991 to reduce its predominant role in the economy and promote private sector development. Its role is a diminishing one, although many government interactions with the private sector are at times capricious. Beginning in early 1997, the government initiated efforts to attract significant private sector involvement through a Corporate Council on Africa visit and numerous ministerial efforts. In 1998, the government privatized distribution of petroleum products. There are now Total and Mobil stations in the country. The government has expressed interest in privatizing the outmoded electricity utility. A French company operates cellular telephone service in cooperation with a state enterprise. The government is anxious for greater U.S. investment, and President Obiang visited the U.S. three times between 1999 and 2001 to encourage greater U.S. corporate interest. Investment in agriculture, fishing, livestock, and tourism are among sectors the government would like targeted.
Equatorial Guinea's balance-of-payments situation has improved substantially since the mid-1990s because of new oil and gas production and favorable world energy prices. Exports totaled about francs CFA 915 billion in 2000 (1.25 G$US), up from CFA 437 billion (700 M$US) in 1999. Crude oil exports accounted for more than 90% of export earnings in 2000. Timber exports, by contrast, represented only about 5% of export revenues in 2000. Additional oil production coming on line in 2001, combined with methanol gas exports from the new CMS-Nomeco plant, should increase export earnings substantially.
Imports into Equatorial Guinea also are growing very quickly. Imports totaled francs CFA 380 billion (530 M$US), up from franc CFA 261 million (420 M$US) in 1999. Imports of equipment used for the oil and gas sector accounted for about three-quarters of imports in 2000. Imports of capital equipment for public investment projects reached francs CFA 30 billion in 2000, up 40% from 1999 levels.
Equatorial Guinea's foreign debt stock was approximately francs CFA 69 billion (100 M$US) in 2000, slightly less than the debt stock in 1999, according to BEAC data. Equatorial Guinea's debt service ratio fell from 20% of GDP in 1994 to only 1% in 2000. Foreign exchange reserves were increasing slightly, although they were relatively low in terms of import coverage. According to the terms of the franc CFA zone, some of these reserves are kept in an account with the French Ministry of Finance.
Equatorial Guinea in the 1980s and 1990s received foreign assistance from numerous bilateral and multilateral donors, including European countries, the United States, and the World Bank. Many of these aid programs have ceased altogether or have diminished. Spain, France, and the European Union continue to provide some project assistance, as do China and Cuba. The government also has discussed working with World Bank assistance to develop government administrative capacity.
Equatorial Guinea operated under an IMF-negotiated Enhanced Structural Adjustment Facility (ESAF) until 1996. Since then, there have been no formal agreements or arrangements. The International monetary Fund held Article IV consultations (periodic country evaluations) in 1996, 1997, and in August 1999. After the 1999 consultations, IMF directors stressed the need for Equatorial Guinea to establish greater fiscal discipline, accountability, and more transparent management of public sector resources, especially energy sector revenue. IMF officials also have emphasized the need for economic data. In 1999, the Equato-Guinean Government began attempting to meet IMF-imposed requirements, maintaining contact with IMF and the World Bank representatives. However, the new found oil wealth allowed the government to avoid improving fiscal discipline, transparency and accountability.
Electricity is available in Equatorial Guinea's larger towns thanks to three small overworked hydropower facilities and a number of aged generators. In 1999, national production was about 13 MWh. In Malabo, the American company, CMS-Nomeco, built a 10 megawatt electricity plant financed by the government, which came in line in mid-2000, and plans to double capacity are advancing. This plant provides improved service to the capital, although there are still occasional outages. On the mainland the largest city, Bata, still has regular blackouts.
Water is only available in the major towns and is not always reliable because of poor maintenance and mismanagement. Some villages and rural areas are equipped with generators and water pumps, usually owned by private individuals.
Parastatal Getesa, a joint venture with a minority ownership stake held by a French subsidiary of France Telecom, provides telephone service in the major cities. The regular system is overextended, but France Telecom has introduced a popular GSM system, which is generally reliable in Malabo and Bata.
Equatorial Guinea has two of the deepest Atlantic seaports of the region, including the main business and commercial port city of Bata. The ports of both Malabo and Bata are severely overextended and require extensive rehabilitation and reconditioning. The British company, Incat, has an ongoing project with the government to renovate and expand Luba, the country's third-largest port which is located on Bioko Island. The government hopes Luba will become a major transportation hub for offshore oil and gas companies operating in the Gulf of Guinea. Luba is located some 50 kilometres from Malabo and had been virtually inactive except for minor fishing activities and occasional use to ease congestion in Malabo. A new jetty is also being built at km 5 on the way from Malabo to the airport. It is a project mainly supposed to service the oil industry, but can also relieve the congested Malabo Port due to its closeness. The Oil Jetty at km 5 was supposed to open the end of March 2003. Riaba is the other port of any scale on Bioko but is less active. The continental ports of Mbini and Cogo have deteriorated as well and are now used primarily for timber activities.
There are both air and sea connections between the two cities of Malabo and Bata. A few aging Soviet-built aircraft operated by several small carriers, one state-owned, and the others private, constitute the national aircraft fleet. The runway at Malabo (3,200 m) is equipped with lights and can service equipment similar to DC 10s and Cl3Os. The one at Bata (2,400 m) does not operate at night but can accommodate aircraft as large as B737s. Their primary users are the national airline (EGA) and a private company (GEASA). Two minor airstrips (800 m) are located at Mongomo and Annobon. There are international connections out of Malabo to Madrid and Zurich in Europe and to Cotonou, Douala and Libreville in West Africa.
In 1995 Mobil (now Exxon Mobil) discovered the large Zafiro field, with estimated reserves of 400 million barrels (64 million m³). Production began in 1996. The company announced a 3-year U.S.$1bn rapid development program to boost output to 130,000 barrel/day (21,000 m³) by early 2001. Progress was delayed due to a contractual dispute with the government and by unexpectedly difficult geology. The difference with the government was eventually resolved.
In 1998 a more liberal regulatory and profit-sharing arrangement for hydrocarbon exploration and production activities was introduced. It revised and updated the production-sharing contract, which, until then, had favoured Western operators heavily. As a result domestic oil receipt rose from 13% to 20% of oil export revenue. However, the government's share remains relatively poor by international standards.
In 1997 CMS Nomeco moved to expand its operation with a U.S.$300m methanol plant. The plant entered production in 2000 and help boost natural gas condensate output from Alba field.
In August 1999 the government closed bidding on a new petroleum licensing round for 53 unexplored deepwater blocks and seven shallow water blocks. The response was small due to combination of factors, including falling oil prices, restructuring within the oil industry, and uncertainty over and undemarcated maritime border with Nigeria (which was not resolved until 2000).
In late 1999 Triton Energy, a U.S. independent, discovered La Ceiba in block G in an entirely new area offshore the mainland of the country. Triton expects a U.S.$200m development program to enable La Ceiba and associated fields to produce 100,000 barrel/day (16,000 m³/day) by late 2001, despite disappointments and technical problems at the beginning of the year.
With an upturn in oil prices, exploration intensified in 2000. In April 2000 U.S.-based Vanco Energy signed a production-sharing contract for the offshore block of Corisco Deep. In May 2000, Chevron was granted block L, offshore Rio Muni, and a further three production-sharing contracts (for blocks J, I, and H) were signed with Atlas Petroleum, a Nigerian company.
In early 2001 the government announced plans to establish a national oil company, to allow Equatorial Guinea to take a greater stake in the sector and to facilitate the more rapid transfer of skills. However, critics fear that such a company may become a vehicle for opaque accounting and inertia of the sort that has hindered development in neighbouring countries including Angola, Cameroon, and Nigeria.
Since 2001 the government has created GEPetrol, a national oil company; and Sonagas, a national natural gas company. The company EG LNG has been created to construct and operate the Bioko Island LNG plant and terminal.
See also: Equatorial Guinea