Troubled Waters Under the Bridge: Time for Inclusive Growth in Equatorial Guinea

Guest blog by Cesar Augusto Mba Abogo

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 65 Participants successfully completed this 10-week online course in May 2021. These are their learning journey stories.

Equatorial Guinea (EG) is a little known country. In fact, Wikipedia in its entry on the country warns not to confuse it with Guinea Conakry and Guinea Bissau. In the period between the month of April 2019 and the month of October 2020, I had the honor of serving as Minister of Finance, Economy and Planning in probably the darkest economic downturn the country has known since the mid-nineties of the twentieth century when it became a producer and exporter of hydrocarbons. At the end of 2019, the country was beginning to emerge from the recession into which it had fallen in mid-2014, we had closed a comprehensive agreement with the IMF that included the traditional macrofiscal stabilization component but also a commitment to strengthen fiscal governance, fight corruption, allocate greater resources to social sectors, stabilize the banking sector and boost diversification of sources of economic growth… and then the health and financial pandemic of COVID19 crashed down on Equatorial Guinea.

But before I go into detail about the most relevant learnings, in my humble opinion, of HKS´s Leading Economic Growth course and how it has changed my understanding of the challenge of inclusive growth facing my country, let’s talk a little about this my unknown country.

EG gained independence from Spain in 1968 through a peaceful and atypical transfer of power: Spain, which was at the height of General Franco’s dictatorship, organized a referendum with all democratic guarantees to hand over power to the authorities who would be in charge of leading the country on an unknown path, and for which they had hardly any references nor were they equipped. As in many African countries, the first years ended with the destruction of a large part of the productive and political network inherited from the colony. The early management of independence did not succeed in getting many people connected to the productivity networks. On the contrary, there was an enormous loss of tacit knowhow as a result of the departure of Spanish settlers who had to abandon the newly independent country and the expulsion of Nigerian and Ghanaian citizens who maintained the cocoa plantations, the flagship product of Equatorial Guinea’s export basket at the time. From the political point of view, the democracy inherited from Franco’s Spain gave rise to a single-party regime, lacking minimum civil liberties, and in which, in the name of the supreme interest of the State, the new elites articulated a unitary identity in theory but which in practice served to proliferate harmful logics of tribal and ethnic domination. In 1979, a military junta, led by the country’s current President, staged a coup d’état with the promise of boosting economic productivity and restoring the political freedoms that had been suppressed. In the early nineties, after the collapse of the Soviet bloc, the wind of democratization that swept the African continent reached the country and the opening towards democracy was undertaken through a doctrine called “the democratic rehearsal”. It was also around the time when the exploitation of the country’s hydrocarbons began.

Despite strong endowment of natural resources, Equatorial Guinea’s per capita income remained low since independence in 1968, becoming one of the lowest in the world in the 1980s.  Since the exploitation of oil in the mid-1990s, the productivity of the economy grew rapidly, but only in the oil sector. Between 1996 and 2006, nominal GDP increased 35-fold, with an average growth rate of 31%. GDP per capita in 2006 was estimated at US$16,747. This growth was fragile and volatile. Oil GDP rose from 86% in 2001 to 96% in 2006, and in relative and absolute terms, timber and cocoa almost disappeared from the country’s export basket. This growth did not translate into a noticeable reduction in poverty. In 2007, the Government hosted a national economic conference that resulted in a development strategy called the Horizon 2020 Plan. The objectives of this Development Plan were to provide the country with good infrastructure, improve governance, strengthen human capital and industrialization. In the years following, public spending was concentrated on infrastructure, with capital expenditure averaging 77% of public budget in the period 2008-2017. The fall in oil prices in 2014 caused a severe recession. The country’s GDP declined by 8.6 per cent year-on-year in 2016 and by an estimated 3.2 per cent in 2017. The adjustment was made via public spending as inadequate capital expenditure planning led to an increase of domestic arrears. Public debt rose sharply from 8.7 per cent of GDP in 2014, before the crisis, to 40.8 per cent in 2019. The country had built up infrastructure, but inequality levels soared, corruption reached alarming levels, human capital was not strengthened, the business climate was appalling and as the economy remained dependent on the oil sector, job opportunities were very low. After more than two decades of oil bonanza, a period in which public spending concentrated mainly on infrastructure provision, Equatorial Guinea, with a population of 1.3 million, has a GDP per capita that hides significant disparities in income and living conditions of the population.

At the end of 2019, the country  was bailed out by an IMF program, which included strengthening macro-fiscal management, fighting corruption, diversifying the economy and improving the living conditions of the population. The programme was a set of “right policies” to promote inclusive growth, which the country had failed to achieve during the oil boom. In 2019, GDP per capita was 8,134 USD, while the HDI was 0.59, below Cabo Verde, which has an HDI of 0.67 with a GDP per capita of USD 3,600. Formal sector employment opportunities are limited and concentrated in urban areas and in oil-dependent sectors such as construction and services. In rural areas, most people are employed in the informal economy.

The 2014 shock and COVID19 not only imply a sharp drop in oil productivity but also risk worsening the living conditions of the most vulnerable strata. Dependence on the oil sector has prevented the country from coherently addressing the challenge of increasing collective knowhow and promoting sustainable and inclusive growth. Currently, the country is dealing with a double shock. The first derives from the fall in the price of a barrel of oil in 2014. The second is COVID19. The waters have already reached under Equatorial Guinea’s bridge, and they are tumultuous waters. In 2021, the economy will grow below the average for the African continent, which has the most challenging post-covid19 recovery outlook. The country’s declining level of per capita income is well above the complexity of the economy, the outlook for the coming years is for rather weak growth and little in the way of good jobs. The reforms that the Government of Equatorial Guinea now considers necessary to boost inclusive growth are an extensive laundry list for an administration that is undoubtedly a low bandwidth organization. The tensions arising between the functionality and legitimacy of such reforms are likely to become more acute over time.

        Three conclusions summarize my take-away from LEG:

  1. My Country, EG, despite its pretensions, will not be able to emulate the case of Singapore, South Korea or Dubai, for very simple reasons: (i) EG is not Singapore, Dubai or Singapore; and (2) what is generally known about the transformation processes of these economies in EG and other African countries are distorted and mythologized versions, which contribute to the idea that growth challenges are complicated problems that can be solved by the perseverance of “strongmen”. The transition from a low productive economy to a highly productive economy, from inefficient and ineffective government to efficient and effective government, is a complex problem and requires not only a “strongmen” but multi-agent leadership arrangements.
  2. EG can lay the foundation today for improving productivity in the non oil economy to foster inclusive growth. But this process must be assumed to be a journey into the unknown and will require a strategy that generates knowledge and facilitates evidence-based, sequential and iterative decision making. This journey into the unknown that is the quest for inclusive growth also entails a no less important journey: the construction of a genuine sense of “us”. 
  3. The last lesson I would highlight would be one that has come to me thanks to the many recommendations of mandatory and optional readings (some formulated during the virtual classes) of both professor Haussmann and Professor Andrews. In this case, it is a quote from Akerlof and Schiller, contained in the book “Animal Spirits”. “Much of human motivation comes from living through a story of our lives, a story that we tell ourselves and that creates a framework of our motivation. Life could be just “one damn thing after another” if it weren’t for such stories. The same is true in confidence in a nation, a company or an institution.” I believe that with this quote I answer Professor Hausman’s questions in the last video.  Are you trying to influence the way society conceives of itself, reimagines itself?

To learn more about Leading Economic Growth (LEG) watch the faculty video, and visit the course website.

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