2009 Index of Economic Freedom

Quick Facts

Population:

• 1.3 million

GDP (PPP):

• $18.6 billion
• 1.2% growth
• 1.5% 5-year compound annual growth
• $14209 per capita

Unemployment:

• 21.0%

Inflation (CPI):

• 5.0%

FDI Inflow:

• $267.8 million

Gabon's economic freedom score is 55, making its economy the 118th freest in the 2009 Index. Its overall score is 0.9 point higher than last year, partly reflecting a higher business freedom score. Gabon is ranked 20th out of 46 countries in the Sub-Saharan Africa region, and its overall score is lower than the world average.

Gabon scores well above the world average only in government size. However, public expenditures support much non-oil economic activity, and the government employs much of the population. Labor freedom and monetary freedom scores are around world averages. Inflation is low, but the government controls the prices of some goods.

Gabon scores lowest in fiscal freedom, trade freedom, investment freedom, financial freedom, and freedom from corruption. The tax burden as a percent of GDP is low despite high tax rates, indicating either poor tax administration or tax evasion. In 2008, the value-added tax was temporarily suspended for basic foodstuffs in response to the food crisis. Trade is weakened by a high average tariff rate and poor administrative capacity. Foreign investment is technically allowed, but regulation is complex. Civil service corruption is not as extensive as in other developing countries in the region.

Background Back to the top

Gabon's economy is driven by oil, forestry, and minerals. In 2006, oil accounted for over 50 percent of GDP, over 60 percent of government revenues, and over 80 percent of exports. Despite a relatively high average income from oil revenue, most people live in poverty. With oil production declining as fields become exhausted, Gabon needs to diversify its economy. In 1968, shortly after assuming office upon the death of his predecessor, President Omar Bongo declared Gabon a one-party state. Domestic unrest led to political reforms under the 1991 constitution, including a transformation to multi-party democracy with freedom of assembly and the press, but the democratic process remains deeply flawed.

Business Freedom 59.9 Back to the top

The overall freedom to conduct a business is restricted by Gabon's regulatory environment. Starting a business takes an average of 58 days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days. Closing a business can be lengthy and costly.

Trade Freedom 57.0 Back to the top

Gabon's weighted average tariff rate was 16.5 percent in 2005. Tariff escalation, some import bans, import and export taxes, inadequate administrative and trade capacity, and export subsidies add to the cost of trade. Ten points were deducted from Gabon's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 61.7 Back to the top

Gabon has high tax rates. The top income tax rate is 50 percent, and the top corporate tax rate is 35 percent. The value-added tax (VAT) has been temporarily waived on basic goods to alleviate pressure during the food crisis. In the most recent year, overall tax revenue as a percentage of GDP was 10.3 percent.

Government Size 84.8 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 22.5 percent of GDP. Privatization has progressed somewhat, and nearly 30 state-owned enterprises have been divested.

Monetary Freedom73.8 Back to the top

Inflation is low, averaging 3.1 percent between 2005 and 2007. The government influences prices through subsidies to state-owned enterprises and controls the prices of various products, including fuel, pharmaceuticals, and medical equipment. Fifteen points were deducted from Gabon's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

Foreign investment and domestic capital are legally equal under a 1998 regional investment code. There is no requirement that nationals own shares in foreign investments in Gabon, though many investors find it useful to have a local partner who can help them navigate the business environment. An unpredictable legal system, political influence and corruption, and high production costs impede investment. Certain economic sectors have their own business code separate from the 1998 agreement. Residents may hold foreign exchange accounts subject to some restrictions. Non-residents may hold foreign exchange accounts but must report them to the government. Transfers and payments to most countries must be officially approved. Capital transactions are subject to reporting requirements, controls, and official authorization. All real estate transactions must be reported.

Financial Freedom40.0 Back to the top

Gabon's small financial system remains under the government's influence. High credit costs and scarce access to financing impede dynamic entrepreneurial activity. The government owns about 25 percent of all financial-sector assets. Gabon shares certain financial institutions, such as a common central bank and a common currency, with other West African countries. The banking sector is composed of five commercial banks and is open to foreign competition. Three banks are affiliated with French banks, and another is entirely foreign-owned. Most banks are at least partly state-owned, and competition in the banking sector is limited. The two largest banks control 70 percent of deposits and accounts. Domestic credit is limited and expensive, though available without discrimination to foreign investors with prior authorization. There are four major insurance companies, the largest two of which dominate the market. Gabon's poorly developed capital markets lack the capacity to provide alternative financing instruments. A small regional stock exchange was headquartered in Gabon in 2003, and trading on the exchange started in late 2007.

Property Rights40.0 Back to the top

Private property is moderately well protected. Expropriation is unlikely. The president influences the judiciary and both chambers of parliament. As a member of the Central African Economic and Monetary Community and the Economic Community of Central African States, Gabon adheres to the standards of the African Intellectual Property Office.

Freedom From Corruption33.0 Back to the top

Corruption is perceived as widespread. Gabon ranks 84th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Foreign firms reportedly are asked by government officials for campaign contributions to support ruling party candidates. Weak financial management and corruption have contributed to significant arrears in domestic and external debt payments.

Labor Freedom60.0 Back to the top

Labor regulations hinder employment opportunities and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is relatively costly. Regulations related to the number of work hours remain rigid.