CONFIDENTIALJULY 2008 Gabonese Republic. GABONESE REPUBLIC 1 1 Executive Summary Strong economic...

CONFIDENTIAL JULY 2008

Gabonese Republic

2 2

GABONESE REPUBLIC

Executive Summary

Strong economic performance in 2007 and in Q1 2008

Robust 5.6% real GDP growth in 2007 (6.2% for real non-oil GDP, 3.4% for real oil GDP)

Overall balance of payments surplus

Improvement in public finances

Primary budget surplus and reduction of the non-oil deficit

Ongoing reforms aiming at increasing permanent income (including non-oil permanent income)

Continued efforts to strengthen control on public expenditures

Active and prudent debt management

Buyback of 86% of Paris Club debt leading to a decrease in external debt to 13.8% of GDP

Creation at the World Bank of an amortization fund (‘Investment Management Account’) in respect of the US$1 bn international bond issue of December 12th 2007. First payment in the Investment Management Account will occur before 2008 year end.

Continuation of privatizations

Continued efforts to improve transparency and governance

Publication of the 3rd EITI report

Increase to 60% of the share of public contracts awarded on tender

Establishment of a Medium Term Expenditure Framework (MTEF)

Establishment of a Treasury committee in charge of supervising budget execution

Improved investors’ assessment of Gabon’s efficiency, reflected in the continued increase in the price of Gabonese external bonds in the secondary market

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GABONESE REPUBLIC

Table of Contents

I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCE EFFORTS

II ECONOMIC EXPECTATIONS FOR 2008

III GABON’ S NEW EXTERNAL DEBT PROFILE

IV

V

POLITICAL ENVIRONMENT

SOCIAL ENVIRONMENT

GABONESE REPUBLIC

I Economic Performance in 2007 and Transparence Efforts

5 5

GABONESE REPUBLIC I ECONOMIC PERFORMANCE IN 2007 AND TRANSPARENCY EFFORTS

Macroeconomic Developments

Robust growth in 2007

5.6% increase in real GDP

6.2% increase in real non-oil GDP

Recovered growth in the oil sector: real oil GDP growth at 3.4%

Consumer prices

5.9% yoy increase in consumer prices mainly caused by the combined effect of a 26% adjustment in fuel prices in March 2007, inflation in imported foodstuff and internal demand pressures

Strong external position: 20,1 % in December 2007 as the International bond issue proceeds were taken into account (13% in March 2007 and 10.3% in March 2008)

Gabon’s contribution to the international reserves of the BEAC has been below expectations

Budget surplus has been below expectations

Non-oil deficit has decreased from 18.0% in 2006 to 13.3% in 2007, while expectations were at 11.6% (IMF program objective)

Fuel subsidies have reached FCFA 54.4 bn in 2007 (0.9% of non-oil GDP)

Gabon’s own resources have served to buyback part of Paris Club debt

The State has assumed insolvent public companies’ and public bodies’ debts, as well as local authorities’ deficits

6 6


(FCFA bn) 2006 2007

Current account balance 925,5 867,8

Trade balance 2350,7 2531,5

Capital account balance -536,8 -773,9

Overall balance 193 8,7

Macroeconomic Developments (cont’d)

Monetary situation

6.9% money supply growth due to an increase in net foreign assets and growth of credit to the economy

Decrease in State claims due to temporary accounting of the US$1 bn international bond proceeds on Citigroup Libreville’s balance sheet. This amount was subsequently transferred to Paris Club creditors in consideration of the Paris Club debt buyback in January 2008

Balance of payments

The trade surplus more than compensates the deficit in services, income and current transfers

Increased capital account deficit in 2007 (FCFA -773.9 bn) due to foreign investments in the oil sector and a still-high public debt amortization level (FCFA -246.5 bn)

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Developments in the key sectors of the Gabonese economy Oil

Domestic production of crude oil recorded by all companies operating in Gabon in 2007 has reached 12,128 million tons, 1.7% higher than in 2008 (11,927 million tons), notably because of efforts made by the various operators in mature fields starting exploitation of marginal oilfields

0.5% increase in exports by end-December 2007, standing at 11,307 million tons The main destination, the USA, absorbs three quarters of Gabonese crude oil supply Decline in oil revenues vis-à-vis 2006 notably because of

the recovery of investment by oil companies (amortization has accelerated) in 2007 the decline in production of principal operating companies (Total, Shell) and increased

production companies whose marginal tax is lower Manganese

Strong demand for manganese in a context of pressures on global ore supply, leading to an increase in production of manganese by 11.9% compared to 2006, reaching 3,333 million

tons an increase in exports and sales of 13.7% and 13.8% respectively an increase in value of sales of 43.2% for a total of FCFA 272,483 bn in 2007 compared to

FCFA 190 bn in 2006, bolstered by increasing prices of manganese ores Timber

In 2007, 9.6% increase of exports of timber (all species combined), reflecting strong demand from China (largest consumer of Gabonese timber with 1,103 million cubic meters)

Refining 14.9% increase of the volume of processed crude oil processed, reaching 821,011 metric tons

(MT) against 716,776 MT in 2006 Imports of refined products, including diesel, by the Sogara to meet local demand

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Evolution of key figures

* Exceptionally high public debt figures between international bond issue (December 2007) and Paris Club debt buyback (January 2008)

% of annual change, unless otherwise stated Expected Effective% of annual change, unless otherwise stated 2007 2007

Real sector May 2007 End 2007 Money and credit May 2007 End 2007GDP, constant prices 5.6 5.6 Credit to the economy 20.5 17.5

Oil GDP 5.3 3.4 Broad money (M2) 14.4 7.2Non-oil GDP 5.7 6.2 Velocity of broad money (non-oil GDP) 2.5 2.6

GDP, current prices 2.3 11.1 % GDP, unless otherwise stated

GDP deflator -3.1 5.2 Gross national savings - 40.9Oil GDP -11.6 4.1 Public sector - 144Non-oil GDP 6.1 8 Private sector - 26.5

Consumer prices Gross fixed investment - 26.2Yearly average 5.5 4 Public sector - 4.5End of period 4.5 5.9 Private sector - 21.7

% of annual change, unless otherwise stated % GDP, unless otherwise stated

External sector Central government

Exports, f.o.b. (FCFA) -2.1 9.7 Non-oil primary balance (% of non-oil GDP) -11.6 -13.3Of which: oil -4.7 7.2 Primary surplus (base case) 9.7 7.6

Imports, f.o.b. (FCFA) 15.1 17.7 Domestic bank financing -3.3 -8.1Export volume 5.5 3.4 Nex external financing -3.9 4.4Import volume 16.4 15.7External current account balance (including official transfers) 16.9 14.8

Terms of trade (-: deterioration) -6.1 4.4External public debt (including to the IMF) 27.6 34.9Nominal effective exchange rate (-: depreciation) 2.1 Total gross public debt 36.7 44.5Real effective exchange rate (-: depreciation) 5.1

Central Government finance Memorandum items

Total revenue 0.4 3.4 Nominal GDP (FCFA billion) 5,106 5,544Oil revenue -7.4 5.4 Nominal non-oil GDP (FCFA billion) 2,713 2,777

Non-oil revenue 14.4 19Price of Gabonese crude oil (thousands FCFA per barrel) 28.6 33.3Total expenditure -4 3.9

Current -6.2 1.2

Capital -0.5 3.3

*

*

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Efforts towards diversification of the economy

20% increase in non-oil receipts, thanks to

The computerization of tax services

The establishment of a single tax interlocutor

Strengthened control of public expenditure and higher capital expenditures in 2007

3.4% increase in capital expenditure

Current expenditures over non-oil GDP have decreased to 30.2% in 2007 from 34.6% in 2006

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Efforts towards increased transparency

Transparency

Management of oil revenues

3rd EITI report submitted in March 2008 Survey and comparison of payments to the State reported by the oil companies

Reconciliation of oil revenue data from both Gabon’s budget and and the EITI report

Fiscal policy transparency and strengthening of implementation follow-up

Presentation of the 2008 budget in very tight timing

New functional Central Government expenditures classification used for budget preparation

Increase to 60% of the share of public contracts awarded on tender

Establishment of a Medium Term Expenditure Framework (MTEF) taken into account in the preparation of the budget current and capital expenditures

Restructuring and development of the health insurance system financing Employer contributions for employees and civil servants Creation of a 10% tax on mobile phone operators’ income (fully included in the budget) for

economically weak Gabonese people in the framework of the Caisse d’assurance maladie

GABONESE REPUBLIC

II Economic Expectations for 2008

12 12

GABONESE REPUBLIC II ECONOMIC EXPECTATIONS FOR 2008

Forecasts for 2008 have been revised compared to forecasts made in Dec 07 Key features

Very good performance of manganese and timber (contributing to non-oil GDP) Lowered expectations for oil production Higher expected oil price – benchmark price: US$111 per barrel

Upward revision of 2008 real oil GDP from 2.4% to 4.4% This forecast takes into account SOGARA’ s increased refining capacity

Real non-oil GDP growth forecasts remain unchanged at 4.7% Price indexes expectations have been revised upwards, notably because of expected continuous

increase in commodities’ prices The rate of growth of GDP deflator has been revised upwards, from 4.9% to 12.2% Consumer prices are expected to increase by 3.8% (3.0% before revision)

Fiscal policy Fiscal surplus revised upwards: FCFA 896.5 bn (12.6% GDP), vs FCFA 661.6 bn (11.3%) before Establishment of strict measures

FCFA 190.1 bn ceiling on goods and services expenses Non-SOGARA subsidies and transfers capped at FCFA 152.3 bn Capital expenditures limited to FCFA 279.9 bn, of which FCFA 73. 6 bn to be externally drawn

Difficult short-term fuel prices adjustment and need to curb rising food prices because of the social context Non-oil primary deficit should be at 11.2% instead of 10.0% as initially forecasted Fiscal revenue loss of approximately FCFA 7 bn due to a suspension of rights and customs

duties, value added taxes and all Para fiscal taxes to mitigate rising food prices Almost FCFA 5.7 bn expenditure in 2008 to support the price of flour Fuel subsidies revised upwards to FCFA 102.3 bn Wage bill forecast has been revised upwards from an initial FCFA 311.8 bn figure to FCFA 317.5

bn, vs FCFA 301.2 bn in 2007, to record already-taken measures (creation of new institutions and reintegration of temporarily seconded civil servants)

13 13


Reforms to increase Gabon’s permanent income

Reforms of public finance management

Publication in the national press by end-June 2008 of the list of projects selected for the 2008 “fêtes tournantes” and their costs

Implementation of these projects in accordance with the budgetary procedures

Establishment of a Medium Term Expenditure Framework (MTEF) used for the 2009 budget preparation and better estimate 2008 expenditures

Audit of cross-debts between the State, businesses and public bodies and of accumulation of arrears vis-à-vis third parties planned for late 2008

Consolidation after verification of the financial statements of public companies and local budgets, so that the preparation of a TOFE for the entire public sector is made possible by 2010

Establishment of a treasury committee charged with examining budget execution and identify priorities, as well as with designing a quarterly cash plan in line with the program

Modeling of oil resources and revenues by KPMG, that will

Provide more reliable forecasts

Permit a better evaluation of the contracts with oil companies

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Reforms to increase Gabon’s permanent income (cont’d)

Financial sector liberalization

Ongoing efforts to foster an environment conducive to financial sector development

Government support to regional authorities in their efforts to monitor that banks comply with prudential ratios

Preparation of an action plan to reduce the State’s involvement in banks by end-December 2008 and eliminate the requirement for banks to subscribe to equipment goods issues up to 10% of their deposits

Removal of BEAC’ s statutory advances scheduled for January 1st 2009: Currently, BEAC may grant statutory advances to a member State up to a ceiling equivalent to

20% of budget revenues reckoned during the previous year The removal of these statutory advances began in 2002 and should be completed by January

2009

External liberalization

Contribution to the regional debate regarding external trade liberalization

Reduction in CEMAC’s Common External Tariff (CET)

Removal of the distortions in the rates applied by the different countries of the CEMAC impeding private sector’s growth

Privatizations

Continued privatization programme

Final disposal to Morocco Telecom of the majority stake of the State in Gabon Telecom The audit of 2006 financial statement was published on the website of the Ministry of Finance The State has assumed the new social plan to consolidate the financial position of the new

company

GABONESE REPUBLIC

III Gabon’s New External Debt Profile

16 16

GABONESE REPUBLIC III GABON'S NEW EXTERNAL DEBT PROFILE

Buyback of 86% of Paris Club debt

Financing the buyback

Buyback of US$1.6 bn Paris Club debt owed to bilateral creditors who have accepted the Government’s tender, with resources coming from

An international sovereign bond issue (US$1 bn)

A regional bond issue (FCFA81.5 bn) in CEMAC

Statutory advances granted by BEAC (FCFA130 bn)

Gabon’s own resources for the balance

Remaining Paris Club debt outstanding stands at US$260 mn (Germany, Canada, USA, Japan)

Agreement with the World Bank concerning the creation of an account (IMA: Investment Management Account) dedicated to repayment of the principal of the international bond debt

Gabon will pay up to US$50 mn per year in this fund

These funds will be used to either buy back and cancel Gabon’s debt on the secondary market or invest in high quality zero coupon bonds maturing not later than Gabon’s international bond issue . Residual bonds not covered by the IMA is expected to reach approximately 40% of original bond issue at maturity, December 12th 2017

The agreement has already signed between Gabon , BEAC and the World Bank

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Gabon’s external debt profile (excluding IMA)

-

0.20

0.40

0.60

0.80

1.00

1.20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Int Fin Reg fin Residual Paris Club debt service

US$ billion

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Gabon’s external debt profile (including IMA)

US$ billion

-

0,2

0,4

0,6

0,8

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Fin int IMA Fin reg Service Club de Paris Residuel

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Continuous improvement in the appreciation of Gabon in the secondary market

5

5,5

6

6,5

7

7,5

8

8,5

9

12/1

2/20

07

26/1

2/20

07

09/0

1/20

08

23/0

1/20

08

06/0

2/20

08

20/0

2/20

08

05/0

3/20

08

19/0

3/20

08

02/0

4/20

08

16/0

4/20

08

30/0

4/20

08

14/0

5/20

08

28/0

5/20

08

11/0

6/20

08

25/0

6/20

08

09/0

7/20

08

23/0

7/20

08

06/0

8/20

08

20/0

8/20

08

Philippines (BB-/ BB-)

Jamaica (B+/ B+)

Ukraine (B+/ BB-)

Indonesia (BB-/ BB-)

Gabon (BB-/ BB-)

Ghana (B+/ B+)

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Terms of the bond issues

GABON’S INTERNATIONAL BOND ISSUE

Issuer Gabonese Republic

Rating BB- (S&P, Fitch)

Format: RegS/144A

Amount US$1,000 million

Coupon 8.20%

Issue price 100%

Price Mid-swaps + 356 bps

Maturity December 12, 2017

Profile Bullet

Spread over UST 426 bps

Cotation London Stock Exchange

Co-lead managers CITI, JPMORGAN

GABON’S REGIONAL BOND ISSUE

Issuer Gabonese Republic

Rating BB- (S&P)

Format: COSUMAF Bond Issue

Amount FCFA81.5 billion

Coupon 5.5%

Issue price 100%

Maturity December 5, 2013

Profile Sinkable

Cotation BVMAC

GABONESE REPUBLIC

IV Political Environment

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GABONESE REPUBLIC IV POLITICAL ENVIRONMENT

The political environment in 2008

Political stability has been maintained

Formation of a new Government in January 2008 with a 20% reduction in the number of ministries

Organization of transparent local elections in April 2008

International recognition of Gabon with the election of Mr. PING to the Presidency of the AU commission in March 2008

Active participation in resolving conflicts in the subregion (CAR, Chad…)

GABONESE REPUBLIC

V Social Environment

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GABONESE REPUBLIC IV SOCIAL ENVIRONMENT

The social environment in 2008

The main claim of the ‘Expensive Life’ action group relates to rising transport costs

One of the main factors to take into account when adjusting fuel prices is the impact on transport costs

A possible solution could be an improved management of transport facilities

The Caisse d'Assurance Maladie

Starts effectively in 2009

census of economically weak Gabonese people

An additional tax on Western Union transfers is envisaged to complement the tax on mobile telephony (FCFA10 bn)

CONFIDENTIALJULY 2008 Gabonese Republic. GABONESE REPUBLIC 1 1 Executive Summary Strong economic...

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