Equatorial Guinea: Country outlook

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Economist Intelligence Unit
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Economy, Outlook, Forecast, Overview
Political Geography
Equatorial Guinea

Equatorial Guinea: Country outlook


POLITICAL STABILITY: The country's veteran president, Teodoro Obiang Nguema Mbasogo, and his family will retain their tight grip on the legislature, judiciary and military, underpinned by the dominance of presidential loyalists across the political and economic landscape. However, risks to the regime's internal stability are rising, as the question of succession to Mr Obiang, who is 78 years old, becomes ever more pressing. Given the overwhelming power held by the current president, the country's next leader remains likely to be a member of the Obiang family. However, tensions remain within the ruling family over the president's controversial choice of heir: his eldest son, Teodoro "Teodorín" Nguema Obiang Mangue. For now, overt dissent within or outside the ruling family will be met with a strong response as long as Mr Obiang himself remains alive and of sound mind. The Economist Intelligence Unit also believes that the Obiang family will successfully negotiate any succession crisis caused by the president's death, and therefore that it will continue to rule Equatorial Guinea during the current 2021-25 forecast period. However, the brittle political stability that will endure following the eventual transfer of power from father to son will not solve Equatorial Guinea's most pressing needs, which include increased investment, economic diversification, political transparency and a stronger public health system (as the coronavirus has revealed the current system's many shortcomings).

ELECTION WATCH: Elections are flawed to the point of being meaningless. Mr Obiang won 93.7% of the vote in the 2016 presidential election, and in the legislative election in 2017 the ruling Partido Democrático de Guinea Ecuatorial secured all but one seat in parliament. Domestic and international critics will continue to call on the authorities to strengthen electoral laws and level the playing field. However, we expect democracy to remain a flimsy façade for authoritarian rule when the next legislative election is held in 2022.

INTERNATIONAL RELATIONS: Against a sustained backdrop of intense economic pressures and political discontent in 2021-25, the regime will seek to strengthen its international relations. It will remain co-operative with its neighbours in the Communauté économique et monétaire de l'Afrique centrale and with lusophone countries in the Comunidade dos Países de Língua Portuguesa. A growing piracy problem in the Gulf of Guinea will encourage maritime security co-ordination with other littoral Central and West African states. Rebuilding relations with Western countries (following their gradual breakdown over the regime's corruption and abuses) will be a slow process: most European governments will keep their distance and relations with the US will also remain cool owing to Equatorial Guinea's human rights record. In December 2020 Equatorial Guinea lost a long-running case that it had brought against France at the International Court of Justice (the UN's highest court) in The Hague, the Netherlands. The Equatoguinean government had argued that a EUR107m (US$130m) residence near the Arc de Triomphe in Paris was part of its diplomatic mission in France, after the French authorities tried to confiscate it following Teodorín's conviction there on a range of charges related to embezzling public funds. In turn, the French government asserted that Equatorial Guinea had claimed that the property was part of its mission only after the French authorities had begun to investigate Teodorín's financial affairs in France. Equatorial Guinea's relations with France will thus remain frosty in 2021-25. Outside the West, China will remain a fairly important ally, but economic ties between China and Equatorial Guinea will weaken over the forecast period, as low oil prices will reduce Chinese companies' interest in the country's hydrocarbons sector.

POLICY TRENDS: Since December 2019 Equatorial Guinea has benefited from a three-year, US$282.8m extended fund facility (EFF) arrangement with the IMF. Alongside another US$347m provided by the African Development Bank, this comprises a total of US$630m of multilateral lending. An initial disbursement of US$40.4m was released in December 2019, but a programme review that was scheduled to be presented to the IMF's Executive Board in June 2020 (and would have released further funding) was not held. This was due to the outbreak of the current pandemic, which also made a recalibration of the EFF programme necessary before funding could be released. Despite these delays, we continue to expect official compliance with the IMF programme's conditions early in the forecast period, reflecting Equatorial Guinea's continued need for emergency concessional loans to manage both its wide current-account deficit and its external public debt. Given the negative impact that the pandemic and falling oil prices had on Equatorial Guinea's revenue and economic performance in 2020, there is considerable uncertainty over the country's ability to maintain debt sustainability during forecast period. We expect Equatorial Guinea to require further assistance on top of its current financing package, and meeting lenders' preconditions will remain a top policy priority in 2021-22 as the government seeks ways to return the economy to growth, while still managing the large fiscal revenue shock caused by the pandemic.

ECONOMIC GROWTH: Economic growth will be largely determined by developments in the oil and gas sector. The industry still accounted for 60% of GDP in 2019 (and still remains the biggest contributor, despite the severe economic contraction Equatorial Guinea has undergone since 2014). We forecast that real GDP will shrink by 2.9% in 2021, following an estimated contraction of 12.7% in 2020 due to the demand shock inflicted by the coronavirus domestically and to the fall in global oil and natural gas prices. We expect that a weak global recovery will lift oil prices slightly in 2021 and that the country's hydrocarbons sector will stage a modest recovery, resulting in Equatorial Guinea's industrial sector growing (modestly) for the first time in seven years. In 2022 industry will resume its decline, which will last until 2024, as production at maturing oilfields continues to fall as part of a secular decline since 2014. This will have a knock-on effect on construction and services (as growth in both sectors is often related to activity in the hydrocarbons sector). Nevertheless, services will gradually recover from 2022 onwards as global oil prices rise and foreign direct investment returns to the oil and gas sector. (For example, we believe that the Ministry of Mines and Hydrocarbons will decide to push ahead with a modular crude oil refinery in Punta Europa, on the country's north-western Bioko Island, in the first quarter of 2021, which will benefit the services sector in 2022.) Supported by growth in services and agriculture and with the contraction of the industrial sector slowing, Equatorial Guinea will emerge from recession in 2023, when the country will record growth of 0.2%. However, the economy will experience stronger growth from 2024 onwards, reflecting steady global growth (and thus demand for hydrocarbons) and an expansion in oil-related services as capital projects for new wells ramp up ahead of their completion in 2025. (A managed decline of output from maturing fields will continue from 2020 until 2024.) With oil production finally increasing and natural gas prices rising, GDP will grow by 2% in 2025, but a steep fall in global oil prices that year will limit growth in export earnings.

INFLATION: Economic contraction will dampen demand-side inflationary pressures in 2021-22. We estimate that inflation will average 1.9% in 2021 as global supply-chain disruption to goods imports (something which had driven inflation in 2020 up to an estimated 5.6%) ends as priority groups like key workers in important sectors like transportation start to be vaccinated and a good food harvest eases pressure on food prices. Inflation will rise modestly in 2022, to an average of 2.2%, as oil prices increase. It will then see a sustained rise in 2023-25 as aggregate demand recovers along with Equatorial Guinea's return to economic growth during that period, reaching an average of 3.2% in 2025.

EXCHANGE RATES: The CFA franc is pegged to the euro at CFAfr655.96:EUR1 and therefore fluctuates in line with euro-US dollar movements. We forecast that the euro will strengthen against the dollar in 2021 as the euro zone starts to recover, before depreciating slightly in 2022 because of a later round of tightening of monetary policy than in the US, given the slower recovery of euro zone economies. In 2023-25 we expect the euro to bounce back gradually against the dollar, supported by the euro zone's structural current-account surplus. In line with these developments, we expect the average rate of CFA franc to appreciate from CFAfr575.6:US$1 in 2020 to CFAfr558.3:US$1 in 2021, before depreciating to CFAfr572.9:US$1 in 2022. From 2023 it will gradually appreciate again, reaching CFAfr542.1:US$1 in 2025.

EXTERNAL SECTOR: As oil and gas make up the vast bulk of merchandise exports, the trade balance will be influenced strongly by hydrocarbons prices and production. Export earnings will rise in 2021-23 as oil prices increase (after crashing in 2020). Despite a dip in oil prices in 2024, export earnings will be supported by rising gas prices and will continue to increase in 2025 as new hydrocarbon discoveries come on stream, increasing oil production. We forecast that the import bill will increase in 2021-24, in line with rising oil-related capital goods imports. In 2025 the import bill will dip as demand for imported capital goods weakens following the gradual completion of most infrastructure projects (and global oil prices drop). Equatorial Guinea's goods exports will continue to far outweigh its goods imports, resulting in a broadly stable trade surplus in 2021-25.

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