Seeking Economic Transformation, Africa’s Gabon Gets Help From Asia
Gabon, a tranquil nation in equatorial Africa rich in natural resources, has set out to diversify its economy. The francophone country’s economy has long depended upon exports of oil, manganese, and timber.
Now, the government, along with its private-sector partners, wants to encourage the transformation of those raw materials locally, the better to add value to the economy and jobs for the Gabonese.
One of the centerpieces of Gabon’s economic strivings is the development of the Special Economic Zone (SEZ) located near the capital of Libreville, where nearly half of the country’s population of 1.8 people live. The zone is being developed as a public-private partnership with Olam International, an agribusiness and supply-chain company headquartered in Singapore.
Besides the SEZ, Olam is also involved in developing a mineral port in Libreville and palm oil and rubber plantations and operations in the hinterland.
The government owns 60 percent of the zone, contributing capital and tax benefits to Olam and companies choosing to locate there. Olam has contributed capital, technical expertise, and more, noted Gagan Gupta, who heads Olam’s operations in Gabon.
“We also bring credibility with the banks,” he said. “We bring our best management practices that we developed in Malaysia and elsewhere.”
Manufacturing companies operating in the zone operate tax free for their first ten years and pay 10 percent of otherwise required taxes for five years following that. The first phase of the zone is now almost completely developed and occupies over 1,200 acres. Further development of the zone will include the building of docks on the Owendo River which will accommodate 800-ton barges to ferry goods to the port of Libreville, on the Atlantic coast.
The zone also hosts a government office which provides a single window for processing applications for permits, visas, and other matters requiring government input. Zone occupants confirm that the office provides expedited services.
Transforming Natural Resources
The development of the Special Economic Zone is part of a larger government plan “of transforming the natural resources” to be found in Gabon, noted Regis Immongault, the country’s minister of economics.
“This zone was created to encourage transformation in the sector of the wood industry,” he added, although not all of the companies located in the SEZ deal with timber.
One company that does fit that description is Otim Veneer Sarl which is run by Nikhil Marathe and his father Sharad, both entrepreneurs from India who relocated to Gabon to get into this business, which produces veneers from local timbers.
Gabon’s rain forests, which cover about 80 percent of the country, boast 400 different species of hardwoods, around 30 of which have been commercialized.
Veneers are used to make plywood, and Otim plans on opening a plywood operation in the zone within the next few months. Currently the company exports some 15 40-foot containers per month to India, its fastest growing market, as well as to the United States, Mexico, and Europe.
Besides the advantages of doing business in the SEZ, Gabon’s attraction for Otim includes plentiful timber resources at prices cheaper than other potential sources such as those in Myanmar, Indonesia, and Malaysia.
The government’s single window within the zone is one of the primary advantages of doing business there, according to Nikhil Marathe. “All the relevant departments are here,” he said. “They provide an ease in getting paperwork done. Time is money in business.”
Otim currently employs 40 employees in its veneers operations and expects to hire another 40 when the plywood plant opens. Marathe anticipates exporting 20 containers of plywood per month once that operation hits stride.
There are currently as many as five veneer plants operating in the Special Economic Zone, according to Gupta; by the end of next year, he expects 15 such operations to be running.
Recycling Non-Ferrous Metals
Another company operating in the zone is Sogametal, run by Indian entrepreneur Anil Kumar, who, like the Marathes, moved to Gabon for its economic opportunities. Sogametal, which recycles and exports non-ferrous metals, is an example of the growth of processing industries in Gabon. Before companies like Sogametal were introduced, raw scrap metal was typically collected and exported from Gabon for processing elsewhere. Now, the metals, which are acquired from mining operations, are melted down into ingots before being exported, creating some 20 jobs at the factory.
Kumar expects his operation to employ as many as 50 in the near future, 70 percent of them Gabonese. “Most of our technicians come from India,” he said, because of the lack of skills among the local labor pool. But within two years, Kumar expects 90 percent of the employees to be Gabonese.
Sogametal was attracted to the Special Economic Zone for its lower business costs. The favorable tax treatment the company enjoys, Kumar noted, “increases our profit margins.”
Logistics in Gabon
Logistics represents one snag in Gabon’s business environment. “Logistics is complicated but manageable,” said Marathe. And the port of Libreville is one of the most expensive in the region, admitted Gupta.
Olam’s mineral port, currently under construction, will reduce typical port costs in Gabon by 30 to 40 percent, Gupta added.
A recent report on trade logistics from the World Bank ranked Gabon at number 143 out of a total of 160 countries, with a score of 2.19 out of a possible 5. In fact, Gabon was singled out in the report, along with a few other countries, “that fare below their potential for a given level of income.”
How can the underachievers improve their trade logistics?
“Governments can’t do it alone,” said Jean-François Arvis, one of the authors of the World Bank report. “You need public-private coalitions in those countries to improve services and integrate the country into global value chains.”
If Arvis is correct, it would appear that Gabon is on the right track.