One Of The Biggest Misconceptions About Equatorial Guinea: No Infrastructure

By Kurt Davis Jr. AFKI Original Published: February 26, 2017, 10:34 pm
misconceptions about Equatorial GuineaRoad construction in Equatorial Guinea. Photo: ARG Construction/eng.grupoarg.com

Equatorial Guinea is not the easiest place to get to, or the easiest place to understand.

It’s Africa’s only Spanish-speaking country. Arriving flights generally include half foreigners and half locals. Natural resources, particularly oil, and related foreign investment helps explain that.

But the country is not simply oil. It is home to Africa’s longest-serving president, whose his son is vice president and also under indictment by French authorities. Yet corruption is not the story line either.

The country is rather mysterious with a tough political and economic history, and a future murkier still in the current economic state of the oil market.

Comparing Equatorial Guinea to North Korea or Rwanda

Nearly 50 years ago, Francisco Macías Nguema, the deputy prime minister of the independent transition government, was sworn in as president after defeating Prime Minister Bonifacio Ondó in Equatorial Guinea’s first free election.

Nguema ruled ruthlessly for 11 years. He is considered one of Africa’s most brutal presidents. He employed monstrous tactics to subdue opponents and critics, imagined and confirmed, leaving about 20 percent of the population dead at the hands of his internal security. His country earned the nickname “the Auschwitz of Africa.” Unconfirmed reports suggest that as much as 50 percent of the population fled the country during his government. He also ordered the death of more than two thirds of the national legislature and all 10 of his original ministers.

He is rumored to have ordered he killing of people who wore glasses. His internal security generally targeted the Bubi ethnic minority in an effort to eliminate the relatively wealthy and intellectual. Ngeuma outlawed private school education in 1975. The economy collapsed, the educated escaped, and foreigners left. He ordered the killing of several family members, including the brother of current President Teodore Obiang Nguema Mbasago. Obiang overthrew his uncle on Aug. 3, 1979, had him tried, and oversaw his death sentence.

When Obiang assumed power, he restored civilian rule with a new constitution, removing the authoritarian decree giving the president absolute power. He eliminated other laws that imposed up to 30 years imprisonment for insulting or offending the president or his cabinet.

One-party state

Obiang won seven-year terms in 1982 and 1989 as the only candidate on the ballot as well as in 1996, 2002, 2009 and 2016 with marginal opposition party participation. Skeptics argue that opposition parties do not have a chance to challenge the current leadership. There are no newspapers and the broadcast media are generally owned by the government. Voter fraud occurs in some districts.
All that said, Obiang has supporters who will point to his economic success in Equatorial Guinea. The story of this important oil producer is well documented. Oil was discovered in the mid-90s and the country, according to the International Monetary Fund (IMF), grew an average of nearly 40 percent per year between 1996 and 2006. Critics say that growth has been unstable ever since then. Yet Equatorial Guinea has trucked along with evident gains on the ground.

The Obiang growth strategy

The country is small with less than 1 million people, yet it has thrived under President Obiang’s economic development plan heavily focused on oil. It’s sub-Saharan Africa’s third largest oil producer and revenues are targeted toward infrastructure spending.

One of the biggest misconceptions about the country is that there is no infrastructure. Money is aggressively being spent on construction of roads, schools, hospitals and housing. First-time visitors will encounter well-paved roads, easily navigated highways, and inexpensive tolls to cover the cost.

The government is constructing Oyala, a planned city deep in the rain forest, to possibly replace Malabo as the capital, similar to what Nigeria did in Abuja and Brazil in Brasília. Equatorial Guinea’s planned city will feature new government administration buildings, a university, a couple of five-star hotels and conference centers. Kempinski Hotels, one of Europe’s most reputable and oldest luxury hotel groups, plans to operate the first Oyala hotel as well as the planned golf resort. Detractors say that Oyala is being constructed at exorbitant cost to avoid seaborne coups attempts, such as the one attempted in 2009. Regardless, Obiang’s efforts are manifesting tangible results.

Oil prices at the center

The problem for Obiang, however, is his country’s growth can thrive and sink with the oil markets. Declining oil production coupled with lower prices decimated the Equatorial Guinea economy in recent years. GDP plunged more than 10 percent in 2015 and by nearly 8 percent in 2016 with estimates ranging from negative to 3 percent in 2017.

Gabriel Mbaga Obiang, the minister of mines and hydrocarbons, plans for Equatorial Guinea to become a member of the Organization of Petroleum Exporting Countries (OPEC), the world’s largest organization of oil producers. Equatorial Guinea joined 10 non-cartel members in December to cut 558,000 barrels per day of oil production in 2017 (Equatorial Guinea’s share of the cut is 12,000 barrels per day). The minister traveled to Vienna last month to meet with OPEC officials.

All these efforts are likely to undercut production and revenue in 2017 and further lower the government’s ability to boost growth. But the focus by Obiang’s administration, along with OPEC, is to push up prices. Speaking recently with the local reporters, the minister said an oversupply of oil has been dragging down the price of the barrel. For a country that has nearly $11 billion of yearly oil and gas exports, which amounts to 95 percent of the country’s total exports, a price jump in the market is the primary ingredient required to infuse growth in the country.

And, as is the norm with many oil producers, the spending has not slowed while waiting for higher prices. The country has ongoing cash-intensive projects such as the Bioko Oil Terminal, the Fortuna Floating Liquefied Natural Gas project, and the Riaba Fertilizers plant. It is also hosting its latest oil and gas licensing round, EG Ronda, offering all open acreage not currently operated or under direct negotiation.

Like diamonds in Botswana, oil is not forever

The reality for Equatorial Guinea is oil production may only have a couple more decades. The development of a dynamic and diversified non-oil economy is necessary to sustain the country. The leadership is pushing the narrative towards private-sector development. But the current measures to liberalize and privatize have not necessarily pushed the needle, with foreign business owners and investors citing institutional weakness and uncertainty as challenges.
“Putting money in oil is straightforward because of the country’s focus on it,” says one oil advisor, “but going beyond that will require the country’s leadership to confront investor’s worries and reaffirm a commitment to economic diversity.”

Initial steps to improving the investment climate include strengthening property laws and labor laws. The government is wrongly portrayed as a bureaucratic hurdle. But the correct story may simply be that the leadership has not built non-oil related apparatus or does not possess officials with non-oil-related experience to reorganize the infrastructure of the public sector. Human capital development and training is part of running oil projects in the country and accordingly should extend to other private and public projects and administration. These efforts must also include introduction of performance-based pay, merit-based promotion and courses in management, accounting and entrepreneurship for locals.

A reset point

Critics rightfully will point to Vice President Teodoro Nguema Obiang Mangue — the president’s son — as part of the problem. He is currently under investigation in France for embezzlement and money laundering. France has indicted him. The trial has been delayed until June. French authorities have already seized the vice president’s luxury cars, including an Aston Martin, two Bugattis, two Ferraris, a Maybach, a Maserati, and a Rolls-Royce. The case will play out like a soap opera. Regardless who wins, when the dust settles on what will be a long fight, the country is at a crossroads or reset point.

Detractors do not think things will change, but the sentiment on the ground is more optimistic. Locals see the country moving forward. Mid-level government officials and business owners recognize that oil has its limits and that the country will have to evolve economically to preserve international relevance. Growing oil revenue is imperative for investment in other sectors. Revenues are still significantly allocated towards oil and gas. Yet, agricultural investment, for example, could change the lives of most Equatorial Guineans but the government is hesitant to expand spending in a variety of sectors.

The Obiang family is in the first year of another seven-year term. Without new discoveries, there are only two more presidential terms after this one where oil can be the primary revenue for the country.

Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.

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