2009 Index of Economic Freedom

Quick Facts

Population:

• 0.5 million

GDP (PPP):

• $13.5 billion
• 5.3% growth
• 16.3% 5-year compound annual growth
• $27161 per capita

Unemployment:

• 8.0%

Inflation (CPI):

• 4.6%

FDI Inflow:

• $1.7 billion

Equatorial Guinea's economic freedom score is 51.3, making its economy the 142nd freest in the 2009 Index. Its overall score fell 0.3 point because of declining financial freedom and worsened corruption. Equatorial Guinea is ranked 29th out of 46 countries in the Sub-Saharan Africa region.

Equatorial Guinea ranks above average in three of the 10 economic freedoms: fiscal freedom, government freedom, and monetary freedom. Tax rates remain high at 35 percent, but the overall tax burden is reasonable. Fiscal freedom and government size scores are distorted by huge oil revenues flowing into the country.

Equatorial Guinea is beset by serious self-imposed economic constraints. Financial freedom, investment freedom, and freedom from corruption are very weak. The lack of financial freedom precludes entrepreneurial growth, and the investment regime lacks transparency. The government provides price-distorting subsidies, and corruption is prevalent in nearly all facets of the economy. Although the average tariff rate was reduced, it is still too high and, together with poor infrastructure and burdensome regulations, severely impedes trade.

Background Back to the top

Though small in size, Equatorial Guinea is sub-Saharan Africa's third-largest oil producer. Oil and gas accounted for 93 percent of GDP, 94 percent of government revenue, and 99 percent of exports in 2005. Government management of oil wealth is not transparent. The combination of massive oil wealth and a small population makes Equatorial Guinea one of Africa's richest countries per capita, yet standards of living remain low for most of its people, who rely on subsistence farming, hunting, and fishing. Despite the end of one-party rule in 1991, opposition parties have won few victories. Teodoro Obiang Nguema Mbasogo, who seized power in a 1979 coup, began a fourth seven-year term as president in 2002 and maintains tight control of the military and the government.

Business Freedom 45.7 Back to the top

Equatorial Guinea's burdensome regulatory environment impedes the overall freedom to conduct a business. Starting a business takes more than three times the world average of 38 days. Obtaining a business license takes about the world average of 18 procedures and 225 days. Lack of transparency and uneven application of commercial regulations are still major problems. Modern bankruptcy procedures have not been developed.

Trade Freedom 59.4 Back to the top

Equatorial Guinea's weighted average tariff rate was 15.3 percent in 2005. A burdensome and corrupt customs process, extensive and non-transparent regulations, infrastructure that is inadequate to support trade, export licenses for timber and cocoa, and government subsidies of cocoa exports add to the cost of trade. Ten points were deducted from Equatorial Guinea's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 75.5 Back to the top

Equatorial Guinea has high tax rates. Both the top income tax rate and the top corporate tax rate are 35 percent. A value-added tax (VAT) was introduced in February 2008 to bolster non-oil revenues. In the most recent year, overall tax revenue as a percentage of GDP was 1.7 percent. The oil sector accounts for nearly 90 percent of total government revenue.

Government Size 86.3 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 21.4 percent of GDP. Increasing oil production and high oil prices have allowed the government to adopt an expansionary fiscal policy in recent years, particularly through investment in public infrastructure. Transparency and responsible management of oil revenues are crucial to long-term fiscal stability.

Monetary Freedom81.4 Back to the top

Inflation is moderate, averaging 4.6 percent between 2005 and 2007. The government sets the price of electricity and subsidizes both electricity and cocoa production. Five points were deducted from Equatorial Guinea's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom30.0 Back to the top

The government welcomes foreign investment, but excessive bureaucracy and non-transparent regulation, corruption, and lax or arbitrary enforcement of investment law are serious impediments to investment. Foreign investment is not screened, and foreign equity ownership is not subject to limitation, although additional advantages can be gained by having a national majority partner. Residents and non-residents may hold foreign exchange accounts, subject to approval processes. Capital transactions, payments, and transfers to countries other than France, Monaco, and regional partners are subject to restrictions.

Financial Freedom40.0 Back to the top

Equatorial Guinea's small financial system is not fully developed. The banking sector, which has expanded as a result of high economic growth in recent years, dominates the financial system. However, the high costs of finance and limited access to credit instruments further hinder dynamic entrepreneurial activities. The banking sector consists of four main banks, all primarily foreign-owned. The government maintains ownership in two banks. Compliance with banking regulations is mixed, and the number of non-performing loans has not declined in recent years. The insurance sector is very small, consisting of three insurance companies and one reinsurance company. Equatorial Guinea, a member of the Central African Economic and Monetary Community (CEMAC), has no stock exchange or securities market. Capital transfers within the CEMAC region are unrestricted, but there are restrictions on capital accounts transactions with other countries.

Property Rights30.0 Back to the top

Some government officials have attempted to extort money from foreign companies by threatening to take away concessions. The judicial system is open to political influence. Equatorial Guinea is a member of OHADA (Organisation pour l'Harmonisation en Afrique du Droit des Affaires), a regional organization that trains judges and lawyers in commercial law to help reform the enforcement of contracts. Enforcement of intellectual property rights is weak.

Freedom From Corruption19.0 Back to the top

Corruption is perceived as rampant. Equatorial Guinea ranks 168th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Due in large part to the "curse of oil," corruption among officials is pervasive, and many business deals are concluded under non-transparent circumstances. President Obiang's net worth is estimated at $600 million.

Labor Freedom46.1 Back to the top

Restrictive labor regulations hinder employment and productivity growth. Restrictions on increasing and contracting the number of work hours are rigid. The non-salary cost of employing a worker is high, and dismissing a redundant employee is costly.