São Tomé and Príncipe

Politics:

• Analysis

  São Tomé and Príncipe politics: Quick View - New prime minister appointed

  Event

  Gabriel Costa has been sworn in as prime minister of a new coalition government after the government led by Patrice Trovoada was dismissed following a no-confidence vote in parliament.

  Analysis

  The appointment of Gabriel Costa, a lawyer and the president of the country's Bar Association, as prime minister has come as a surprise. Mr Costa is not a member of any of the parties that make up the new coalition government, the three former opposition parties, Movimento de Libertacao de Sao Tome e Principe-Partido Social Democrata (MLSTP-PSD), Partido da Convergencia Democratica (PCD) and Movimento Democratico Forcas da Mudanca-Partido Liberal (MDFM-PL). Despite being seen as somewhat of an outsider, Mr Costa has worked closely with each of the country's three presidents since independence in 1975, as a youth leader, justice minister, presidential adviser and a parliamentarian. He also served briefly as the nation's prime minister in 2002.

  He enjoys the backing of the president, Manuel Pinto da Costa, as well as all the three parties in the coalition-which together hold 29 out of the 55 seats in the legislature-and this should enable the government to rule until the next legislative elections in August 2014. However, the cohesion of the new government is uncertain and its fragmented parliamentary backing means it will be vulnerable to frictions between the three parties. Although Mr Costa has a reputation of political integrity, he has had a tense relationship with the MDFM-PL, which dismissed him as prime minister in 2002. Moreover, the new government is inexperienced and untested. Only two of the new ten-member cabinet have held ministerial posts before.

  The sudden change of government will undermine the efficiency of the state, which is already weighed down by an inefficient bureaucracy and a constrained fiscal position. This will be further compounded by the decision by Mr Trovoada and his party, Accao Democratica Independente (ADI), to boycott parliament and not to recognise the new executive. It has organised protests in the streets in favour of early elections, and its non-conciliatory stance towards the new government risk further weakening political stability.

  December 14, 2012

• Background

  São Tomé and Príncipe: Constitution and institutions

  A democratic constitution

  A multiparty constitution was adopted in August 1990 by referendum, replacing the autocratic Marxist constitution that had been in force since independence in 1975. It defines Sao Tome and Principe as a sovereign, unitary and democratic state, and grants many democratic rights and freedoms. Legislative power is vested in the parliament, the National Assembly, which has 55 members, who serve a four-year term. There are six district assemblies on Sao Tome and one regional assembly in the island of Principe, whose legitimacy was strengthened with the holding of the long-delayed municipal elections in August 2006. However, tensions between Principe's regional government and the national government in Sao Tome have periodically erupted over the autonomous region's budget allocation. Executive power is vested in the government, and the president is nominally in charge of foreign affairs and defence. The highest judicial power is the Supreme Court, which is accountable to, and appointed by, the National Assembly.

  Ill-defined presidential powers

  A major flaw in the semi-presidential constitution lies in the vague separation of powers between the president and the government, which has resulted in continuous political conflict. The previous president, Mr Trovoada, was accused of turning foreign and defence affairs into "reserved domains", and of arbitrarily dismissing the prime minister and dissolving parliament. The 1996-98 coalition government proposed a revision of the constitution to clarify—and curb—the president's powers, but no amendments were submitted to parliament. Mr Menezes has also attempted to use his executive authority fully and has proposed a referendum to make amendments to the constitution that would increase the powers of the presidency. However, the proposal was rejected by the National Assembly, where Mr Menezes' party is in a minority, as it fears that a presidential system of government could further weaken Sao Tome's democratic institutions.

  January 28, 2008

• Structure

  São Tomé and Príncipe: Political structure

  Official name

  República Democrática de São Tomé e Príncipe

  Form of state

  Unitary republic

  Legal system

  Based on the September 1990 constitution and the Portuguese legal system

  National legislature

  National Assembly, with 55 members, elected for a four-year term

  National elections

  August 2010 (legislative) and July-August 2011 (presidential); next legislative election due in August 2014 and next presidential election in 2016

  Head of state

  President of the republic, elected by universal suffrage for a five-year term

  National government

  The president appoints the prime minister, who presides over the Council of Ministers; the government was dismissed by the president on December 4th 2012 after it lost a confidence vote in parliament; a new government, led by prime minister Gabriel Costa, was appointed on December 12th; since 1995 the island of Príncipe has been an autonomous region with its own regional government

  Main political parties

  Acção Democrática Independente (ADI) has 26 seats and is led by Patrice Trovoada; the Movimento de Libertação de São Tomé e Príncipe-Partido Social Demócrata (MLSTP-PSD) has 21 seats; the Partido da Convergência Democrática (PCD) has seven seats; and the formerly dominant opposition party, Movimento Democrático Forças da Mudança-Partido Liberal (MDFM-PL), has just one seat

  Key ministers

  President: Manuel Pinto da Costa

  Prime minister: Gabriel Costa

  Agriculture, fisheries & rural development: António Álvaro da Graça Dias

  Defence & public security: Óscar Sousa

  Education, culture & training: Jorge Lopes

  Finance & planning: Hélio Silva Vaz de Almeida

  Foreign affairs & international co-operation: Natalie Pedro da Costa Umbelina Neto

  Health & social affairs: Leonel Pinto Pontes

  Justice, public administration & parliamentary affairs: Edite Ramos da Sosta Tenjua

  Trade, industry & tourism: Demóstenes Pires dos Santos

  Public works, infrastructure, environment & natural resources: Osvaldo Cravide Viegas de Abreu

  Youth & sport: Albertino Francisco Boa Morte

  Central Bank governor

  Maria do Carmo Trovoada Silveira

  January 01, 2013

Economy:

• Background

  São Tomé and Príncipe: Economic background

  Main economic indicators, 2006
  Real GDP growth (%)	7.0
  GDP at market prices (Db bn)	1,526
  Consumer price inflation (av; %)	23.1
  Current-account balance (US$ m)	-56.6(a)
  Exchange rate (av; Db:US$)	12,445.4
  (a) Estimate.
  Source: IMF.

  Download text file (csv format)

  January 28, 2008

• Structure

  São Tomé and Príncipe: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011b	2012b
  GDP at market prices (Db bn)	2,696.0	3,185.0	3,719.0	4,376.0	5,063.0
  GDP (US$ m)	183.5	196.5	201.0	248.3	265.3
  Real GDP growth (%)	9.1	4.0	4.5	4.9	4.1
  Consumer price inflation (av; %)	32.0	17.0	13.3	14.3	10.6
  Population ('000)	160	163	165	169	172
  Exports of goods fob (US$ m)	7.8	9.2	12.1	12.1a	11.8
  Imports of goods fob (US$ m)	92.2	83.8	99.4	119.6a	121.7
  Current-account balance (US$ m)	-93.5	-78.8	-107.4	-70.7a	-71.0
  Foreign-exchange reserves excl gold (US$ m)	61.3	66.7	49.4	51.3a	46.8
  Exchange rate (av) Db:US$	14,695.2	16,208.5	18,498.6	17,622.9a	19,084.6
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2011	% of total	Components of gross domestic product 2011	% of total
  Agriculture	14.2	Private consumption	122.9
  Industry	23.2	Government consumption	13.7
  Services	62.6	Gross domestic investment	47.4
  		Exports of goods & services	16.7
  		Imports of goods & services	61.0
  Principal exports 2011	US$ m	Principal imports 2011	US$ m
  Re-exports	6.3	Investment goods	40.2
  Cocoa	5.3	Foodstuffs	33.6
  Others	0.5	Petroleum products	25.2
  		Others	15.3
  Main destinations of exports 2011a	% of total	Main origins of imports 2011a	% of total
  Netherlands	24.0	Portugal	55.3
  Belgium	22.5	Malaysia	14.3
  Egypt	19.1	US	5.2
  US	7.1	Gabon	4.0
  a Derived from partners' trade returns.

  Download the numbers in Excel

  Download text file (csv format)

  January 01, 2013

• Outlook

  São Tomé and Príncipe: Country outlook

  Sao Tome and Principe: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: The relationship between the incoming administration and supporters of the dismissed Saotoméan prime minister, Patrice Trovoada, is set to remain tense, causing political stability to be fragile. The sudden change and the government's fragmented parliamentary backing will undermine effective policymaking. An early general election cannot be ruled out, especially if tensions intensify within the ruling coalition. The main economic challenge for the new government will be to narrow the fiscal deficit, while seeking to diversify the economy and speed up poverty-reduction measures. As the effect of the one-off oil signature bonuses disappears, the budget deficit is expected to widen as a proportion of GDP from 9.9% in 2012 to 12.7% in 2013 and further to 13.1% of GDP in 2014 as the election boosts spending. Real GDP growth is expected to remain subdued at 4.3% in 2013, on the back of delays in foreign-financed investment projects, before picking up to 5.1% in 2014 amid a modest recovery in growth in the euro zone. In line with lower global commodity prices, average annual inflation should slow to 7.9% in 2013 and 7.1% in 2014. The weak export base means that the current-account deficit will stay wide at an average of 27% of GDP in the 2013-14 forecast period.

  DOMESTIC POLITICS: The turmoil following the dismissal of the minority government led by Mr Trovoada, the leader of Acção Democrática Independente (ADI), after it lost a no-confidence vote in parliament, has undermined political stability in the country. Mr Trovoada has protested against his dismissal by announcing his party's boycott of parliament and organising street protests in support of early elections. Meanwhile, the president, Manuel Pinto da Costa, backed by the three former opposition parties in the legislature-the former ruling Movimento de Libertação de São Tomé e Príncipe-Partido Social Demócrata (MLSTP-PSD), Partido da Convergência Democrática and Movimento Democrático Forças da Mudança-Partido Liberal-has appointed a new prime minister, Gabriel Costa. Together, the three coalition partners hold a narrow majority, with 29 out of 55 seats in parliament, but their cohesion is untested and the new cabinet is inexperienced. Moreover, Mr Trovoada will seek to capitalise upon any divisions within the ruling coalition, and relations between the outgoing administration and the new government are set to remain tense. The fragmented political scene and the disruptions caused by the sudden change of government mean that implementing policies and enacting new legislation are likely to be difficult. If this leads to delays or shortfalls in the provision of public services, instability could follow. The country's heavy dependence on imports of essential goods will leave it vulnerable to bouts of rapid consumer price inflation in the event of supply shocks. Although the Economist Intelligence Unit's core forecast is for a slowdown in inflation, steep rises in the cost of basic goods have significant potential to foment popular anger, given high levels of poverty. Moreover, despite the authorities' efforts to fix the prices of basic goods, it will struggle to mitigate the impact of inflationary shocks, owing to low state capacity and the straitened fiscal position. Ongoing power cuts and poor provision of basic social services also risk undermining support for the government. Compounding these threats to social order is the risk of growing popular impatience for the start of offshore oil production, revenue from which is widely expected to transform living standards for the better. Although this is a distinct possibility in the medium term, impatience could boil over into anger for a number of reasons: oil might not be present in commercially viable quantities; investor interest could be weaker than hoped; officials could drag their feet over allocating exploration licences or exploit their positions for personal gain; intra-regional tensions could develop over the future distribution of oil revenue; and public-sector inefficiencies could prevent oil-related revenue from being invested in ways that will raise living standards. The next national elections are due in August 2014. However, the new government's parliamentary backing is fragmented and an early election would be likely should the current allies in the governing coalition fall out with each other. The legislative elections, whether held in 2014 or earlier, are expected to be a tight race between the ADI and the MLSTP-PSD.

  INTERNATIONAL RELATIONS: In recent years, the country has sought to increase co-operation with regional powers, especially in developing the country's nascent oil sector, and the new government has vowed to work closely with regional hydrocarbons producers such as Gabon, Equatorial Guinea, Angola and Nigeria. The government will also collaborate with its Nigerian counterpart to give fresh impetus to oil exploration in the two countries' offshore joint development zone (JDZ). However, co-operation in this area has been beset by institutional inertia and poor transparency, and is fraught with tensions, so progress may be slow. Beyond the region, relations with the former colonial power, Portugal, will remain close because of cultural links and the country's status as the main source of foreign direct investment (FDI) in the non-oil sector, although Portugal's cloudy economic outlook could lessen its importance as a trade partner and investment source. The Portuguese Treasury will continue to facilitate and underwrite the exchange-rate peg between the dobra and the euro. Meanwhile, the US is showing increasing interest in São Tomé, motivated by its strategic interest in the oil resources in the Gulf of Guinea. Relations with Taiwan, which has in the past provided substantial aid in exchange for diplomatic recognition, could prove increasingly problematic as China seeks to increase its influence in the region. A Chinese firm, Sinopec, operates some of the exploration blocks in the JDZ, and further Chinese investment could require the end of São Tomé's diplomatic recognition of Taiwan.

  POLICY TRENDS: A major change in the new government's official economic policies is unlikely, as the country is heavily dependent upon the support of the IMF and other donors. The country's main challenge will be to manage the increase in FDI into the oil sector and the large inflows of donor aid, while keeping a lid on inflation and monetary growth. The dobra's peg to the euro will put pressure on the government to keep foreign-exchange reserves high enough to defend the exchange-rate regime. Despite policy slippages under its previous Fund agreement, a new three-year, SDR2.59m (US$3.9m) programme under the Fund's Extended Credit Facility was approved in mid-2012, following São Tomé's enactment of a new National Poverty Reduction Strategy (NPRS). The new NPRS focuses on making the economy more competitive by increasing investment in infrastructure and promoting agriculture, fisheries and tourism as key sectors for growth and employment. It will also emphasise structural reforms to boost government efficiency, while increasing spending on social sectors (with donor support), notably health and education. However, the government will struggle to convince donors that aid will be managed well. The turbulent political outlook, which includes a new ruling coalition, a fragmented political scene and a risk of early elections, means that the pace of reform may falter and lead donors to reduce or suspend funding. Ongoing reforms, supported by donors and the Fund, will focus on strengthening public financial management, debt sustainability, enhancing supervision of the banking sector and improving labour regulation. The Fund will continue to urge the authorities to improve the weak business environment, which continues to act as a drag on economic activities. It remains to be seen whether the new government will maintain the previous administration's efforts to overhaul its fuel and power subsidy regime and address long-standing problems in the state-owned water and electricity firm, Empresa de Água e Electricidade (EMAE), and the national oil distribution company, Empresa Nacional de Combustíveis e Óleos (ENCO). Corruption scandals will erupt periodically, but reforms to improve transparency will show some progress; São Tomé's record on corruption is already better than that of many of its regional peers, and has improved in recent years. The implementation of the authorities' efforts to import and sell basic goods at fixed prices is likely to be constrained by weak state capacity, limited fiscal resources and opposition from private traders. Given the country's strained fiscal position, the new government is expected to continue efforts to consolidate fiscal accounts by enforcing compliance with tax laws and simplifying tax procedures; strengthening the tax and customs administration will increase domestic revenue mobilisation. However, renewed tax arrears from EMAE and ENCO will continue to hold back revenue growth, and external project grants will fall after peaking in 2012. The government will seek to limit low-priority spending. Most current expenditure will go on public-sector wages and welfare transfers. However, election-related spending in the run-up to the 2014 legislative polls will boost expenditure. A significant chunk of the budget (and nearly all capital spending) will continue to be funded by donors. Hopes are high over revenue from hydrocarbon extraction, but it is unclear how much oil and gas in the Exclusive Economic Zone (EEZ), located in Saotoméan waters, could be commercially exploited. Even in the best-case scenario, extraction royalties would not start to support the fiscal position for many years, given the typical time lag between the discovery of viable fields and their exploitation, and given that most standard production-sharing agreements allocate most of the revenue to oil companies during the first few years, so that they can recoup their investments. Production in the JDZ, which will generate revenue from the onset of output, is not expected until at least 2015. We expect the budget deficit to widen from an estimated 9.9% of GDP in 2012 to 12.7% of GDP in 2013, as external grants fall and the effects of oil signature bonuses disappear, and to 13.1% of GDP in 2014, as fiscal consolidation efforts are offset by higher election-related spending. São Tomé remains at high risk of debt distress, and the government will have to rely on concessional borrowing and grants while improving public financial management to prevent the debt situation from becoming unsustainable.

  ECONOMIC GROWTH: The troubled external economic environment, particularly in the euro zone (São Tomé's main source of trade and investment), has delayed some foreign-financed investment projects. As a result, we expect economic growth to remain subdued in 2013 before picking up in 2014, in line with a modest recovery in the euro zone. Drivers of growth will include drilling activity in the JDZ shared with Nigeria (and, potentially, also in the EEZ), particularly in block 1, where a French oil company, Total, has announced plans to invest US$200m and drill a test well from its existing oil rig in Nigerian waters. This has raised hopes that oil production in the JDZ could start in 2015. Oil prices should remain high, averaging US$104.2/barrel in 2013-14-sufficient to attract investment into the sector, which is expected to grow. Investor interest could rise following recent discoveries of hydrocarbons deposits in Saotoméan waters, although it is not clear if the quantities are commercially viable. However, the poor response to the latest exploration licence auction for the EEZ, which drew bids only from small oil companies, casts doubt on the size of investments and implies that significant production in the EEZ, if it ever starts, is some years off. The building of a new oil terminal and investment in existing port, road and airport infrastructure will boost the construction sector. Construction of the US$570m deepwater port at Fernão Dias is expected to begin in 2014 (after several delays) and will support growth towards the end of the outlook period, although the current political uncertainty carries the risk of deterring investors and causing further delays. Donors will continue to back the social investment programme and the archipelago should reap rewards from investment in its tourism infrastructure as global tourism demand recovers later in the outlook period. We forecast real GDP growth of 4.3% in 2013 and 5.1% in 2014, although the unstable domestic political outlook and the prospects of prolonged economic troubles in Europe pose significant downside risks. Amid the political turmoil, the government presented its draft 2013 budget. Reflecting declining donor inflows, which comprise the vast majority of revenue, total expenditure is expected to drop in 2013.

  EXTERNAL ACCOUNT: The trade deficit will widen, as imports are expected to grow more rapidly than exports. Imports will be driven by large public infrastructure works and an increase in oil exploration activities, following the signing of oil contracts, although easing global commodity prices will moderate import growth. The services and income deficits are expected to remain wide as a result of a rise in the use of external transport services and services for the oil industry. Furthermore, remittances from expatriate São Toméans, which will remain low in 2013, owing to the expected recession in Portugal (where many of them work), should rise modestly in 2014 amid a slight pick-up in economic growth in developed economies. Transfers from donors are expected to fall following a peak in project-related grants in 2012, but will remain substantial, given the existence of reasonably democratic institutions and the approval in mid-2012 of a new three-year economic programme with the Fund. Overall, the current-account deficit is expected to widen slightly as a proportion of GDP from an estimated 26.8% in 2012 to 28.1% in 2013, before narrowing to 26.0% in 2014. This wide deficit will be covered by FDI and by drawing on the country's international reserves.

  December 20, 2012

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Country Briefing

Land area

1,001 sq km

Population

183,176 (CIA World Factbook estimate, 2012)

Main town

São Tomé (capital) population 67,868 (World Gazetteer estimate, 2012)

Climate

Tropical

Weather in São Tomé (altitude 5 metres)

Hottest month, March, 23-31°C; coldest months, July, August, 21-28°C; driest month, July, 1 mm average rainfall; wettest month, March, 150 mm average rainfall

Languages

Portuguese (official), Lunga santomé, Ling'lé, Lunga ngolá, Crioulo

Measures

Metric system

Currency

Dobra (Db) = 100 centimos

Time

GMT

Public holidays

January 1st; February 3rd (Day of the Heroes of Liberty); February 28th; April 13th; Ash Wednesday; Good Friday; Easter; May 1st; May 24th; June 3rd; July 12th (Independence Day); September 6th (Armed Forces Day); September 30th (Day of Agrarian Reform); November 1st; December 21st (Feast Day of St Thomas); December 25th

January 01, 2013