2017 Index of Economic Freedom

São Tomé and Príncipe

overall score55.4
world rank124
Rule of Law

Property Rights37.7

Government Integrity39.7

Judicial Effectiveness15.9

Government Size

Government Spending67.9

Tax Burden87.8

Fiscal Health67.1

Regulatory Efficiency

Business Freedom65.0

Labor Freedom47.2

Monetary Freedom69.6

Open Markets

Trade Freedom71.8

Investment Freedom65.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.2 million
  • GDP (PPP):
    • $0.7 billion
    • 4.0% growth
    • 4.4% 5-year compound annual growth
    • $3,244 per capita
  • Unemployment:
    • 14.0%
  • Inflation (CPI):
    • 5.3%
  • FDI Inflow:
    • $28.5 million
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São Tomé and Príncipe has undertaken structural reforms to boost government efficiency and enhance the business environment. A streamlined business formation process has enhanced regulatory efficiency, and the corporate tax rate has been significantly reduced to a flat 25 percent.

Nevertheless, institutional weaknesses continue to constrain overall economic freedom. The judicial system lacks the capacity to defend property rights effectively. Widespread corruption undermines prospects for long-term economic development. High public spending perpetuates fiscal burdens. A lack of commitment to open-market policies impedes growth in trade and investment and thwarts the emergence of a more dynamic private sector.

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Background

Evaristo Carvalho won the presidency in a runoff election in August 2016 that was marred by accusations of irregularities and a boycott by incumbent President Manuel Pinto da Costa, who had served two separate terms following independence from Portugal in 1975. Previously, the supreme court had overturned results showing that Carvalho had won a narrow victory in the first round of voting. Patrice Trovoada, a Carvalho ally, is prime minister. Cocoa production, an economic mainstay, has declined in recent years, but there is tourism potential. São Tomé is dependent on foreign assistance. It is developing oil fields in the Gulf of Guinea jointly with Nigeria, but production will not begin for several years.

Rule of LawView Methodology

Property Rights 37.7 Create a Graph using this measurement

Government Integrity 39.7 Create a Graph using this measurement

Judicial Effectiveness 15.9 Create a Graph using this measurement

Property rights are not protected effectively. The judiciary is independent but weak and susceptible to political influence. Although there are criminal penalties for official corruption, the government reportedly does not enforce applicable laws effectively. The World Bank’s 2015 Worldwide Governance Indicators confirmed that corruption is a problem. Many citizens view police as ineffective and corrupt.

Government SizeView Methodology

The top personal income tax rate is 20 percent, and the corporate tax rate is a flat 25 percent. Other taxes include a sales tax and a dividend tax. The overall tax burden equals 14.1 percent of total domestic income. Government spending has amounted to 32.7 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.5 percent of GDP. Public debt is equivalent to 82.5 percent of GDP.

Regulatory EfficiencyView Methodology

Launching a business is time-consuming, and regulatory requirements increase the overall cost of entrepreneurial activity. Existing labor regulations are not enforced effectively. The government made an IMF commitment to introduce an automatic pricing mechanism for fuel beginning in June 2016 and to pursue power subsidy reform, but implementation has been hindered by powerful vested interests that profit from the status quo.

Open MarketsView Methodology

Trade is important to São Tomé and Príncipe’s economy; the value of exports and imports taken together equals 55 percent of GDP. The average applied tariff rate is 9.1 percent. In general, foreign and domestic investors are treated equally under the law, and most sectors of the economy are open to foreign investment. Much of the population still lacks access to formal banking services, and financing for business expansion is very limited.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Mauritius74.70.0
2Botswana70.1-1.0
3Rwanda67.64.5
4Côte d'Ivoire 633.0
5Namibia62.50.6
6South Africa62.30.4
7Seychelles61.8-0.4
8Swaziland61.11.4
9Uganda60.91.6
10Burkina Faso59.60.5
11Benin59.2-0.1
12Mali58.62.1
13Gabon58.6-0.4
14Tanzania58.60.1
15Madagascar57.4-3.7
16Nigeria57.1-0.4
17Cabo Verde56.9-9.6
18Democratic Republic of Congo56.410.0
19Ghana56.2-6.8
20Guinea-Bissau56.14.3
21Senegal55.9-2.2
22Comoros55.83.4
23Zambia55.8-3.0
24São Tomé and Príncipe 55.4-1.3
25Mauritania54.4-0.4
26Lesotho53.93.3
27Kenya53.5-4.0
28The Gambia53.4-3.7
29Togo53.2-0.4
30Burundi53.2-0.7
31Ethiopia52.71.2
32Sierra Leone52.60.3
33Malawi52.20.4
34Cameroon51.8-2.4
35Central African Republic51.86.6
36Niger50.8-3.5
37Mozambique 49.9-3.3
38Liberia49.1-3.1
39Chad492.7
40Sudan48.8N/A
41Angola48.5-0.4
42Guinea47.6-5.7
43Djibouti46.7-9.3
44Equatorial Guinea451.3
45Zimbabwe445.8
46Eritrea42.2-0.5
47Republic of Congo 40-2.8
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