## IMPROVING GOVERNANCE FOR HIGHER AND MORE INCLUSIVE GROWTH IN GABON

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### Executive summary
- Gabon had a per capita GDP in excess of $7,500 in 2018.
- A third of citizens live below the poverty line; unemployment is over a quarter of young people.
- A DSGE (DIGNAR) model calibrated to Gabon indicates potential additional non-oil growth of 0.8 to 1.5 percent per year over the next 10 years from governance reforms.
- The same reforms could reduce debt by 1.0 to 2.0 percent of non-oil GDP per year over the next 10 years.
- Urgent priorities: improve governance and curb corruption to boost domestic revenue, enhance public financial management and spending quality, and improve the business environment to promote private investment.

### Background and policy context
- Reform agenda elements:
  - Criminalization of corruption offenses through the Penal Code.
  - Reinvigoration of the National Commission to Combat Illicit Enrichment (CNLCEI, created in 2004).
  - Adoption of a Law on Public Procurement in 2012.
  - Integration of regional Public Financial Management directives.
  - Establishment of a National Financial Investigations Agency (ANIF).
- PSGE strategic development plan phased over 2011–16, 2017–19, and 2020–25 with governance as a key pillar.

### Governance performance and corruption indicators
- Governance remains weak relative to peer EMEs; rule of law and regulatory quality deteriorated after 2009–12.
- Third-party indicators referenced: Mo Ibrahim, Transparency International, Natural Resource Governance Institute, World Bank (Worldwide Governance Indicators).
- Transparency International 2019: 80 percent of respondents felt that corruption had become worse over the previous 12-months.
- A 2017–18 survey: 35 percent of the Gabonese paid a bribe in contacts with public services compared with 48 percent for the rest of CEMAC.
- Corruption concentrated in contacts with police, courts, utility companies, and when asking for permits or other documents.
- Reporting undercounting: a 2015 survey found about 49 percent of respondents who had been requested to pay a bribe did not report the incident because of fear of retaliation (Afrobarometer, 2017a and 2017b).

### Anti-corruption framework and implementation gaps
- International commitments: party to UNCAC since 2007 and AUCPCC.
- Domestic laws: Law 002/2003 (prevent and punish illicit enrichment) and Law 003/2003 (establishing CNLCEI and mandatory asset and income declarations).
- Asset declaration regime: obligation to declare personal assets before taking duty, every three years while in office and on leaving office.
- Implementation weaknesses:
  - CNLCEI required to publish quarterly and annual reports, but these reports are not published.
  - During 2014–17 the CNLCEI identified over 300 cases of corruption; only 18 cases were investigated, 10 forwarded to competent courts, and only 1 case was brought to trial and led to sanctions.
  - Effectiveness undermined by weak institutions, weak enforcement, and lack of transparency.

### Model, calibration, and channels for measuring economic impact
- Model: DIGNAR (real dynamic neoclassical open economy DSGE with traded, non-traded, and natural resource sectors).
- Governance channels incorporated:
  - (i) Reduction in bribery/implicit firm-level distortion stimulating private investment.
  - (ii) Improved public investment processes raising public investment efficiency and public capital stock.
  - (iii) More efficient government bureaucracy reducing tax evasion, widening the tax base, and increasing tax revenues.
- Calibration specifics:
  - Main macro aggregates set to averages in 2005−18.
  - Private investment-to-GDP ratio target: 22.9 percent.
  - Efficiency of public investment: 50 percent.
  - Efficiency in collecting the consumption tax: 35 percent.
  - Efficiency in collecting personal income taxes: 4.7 percent.
- Simulation horizon: reforms simulated over 10 years (broadly coinciding with the PSGE horizon).

### Simulation design and scenarios
- Reforms simulated over 10 years across three governance dimensions:
  - Reduction in bribery/implicit taxes affecting firms’ investment and employment decisions.
  - Improvement in public investment efficiency raising public capital.
  - Increased tax collection efficiency raising revenues through reduced evasion and widened base.
- Two scenarios: Moderate and Optimistic.
- For each scenario: individual-channel reform effects and a comprehensive reform package tackling all three channels are assessed.
- Output variables reported: non-oil output, private investment, private consumption, and public debt paths over the 10-year simulation.

### Key quantitative findings (aggregate)
- Potential additional non-oil growth from governance reforms: 0.8 to 1.5 percent per year over the next 10 years.
- Potential debt reduction: 1.0 to 2.0 percent of non-oil GDP per year over the next 10 years.
- Calibration and baseline statistics used:
  - Private investment-to-GDP: 22.9 percent.
  - Public investment efficiency: 50 percent.
  - Consumption tax collection efficiency: 35 percent.
  - Personal income tax collection efficiency: 4.7 percent.

### Macroeconomic effects of governance reforms (scenarios and magnitudes)
- Reducing the distortionary wedge in firms’ decisions (bribery)
  - Additional annual non-oil growth: 1.12 percent (optimistic) or 0.57 percent (moderate).
  - Public debt decreases over ten years by 3.5 percent of GDP (optimistic) and 2 percent of GDP (moderate).
  - Private investment: 2.98 (optimistic) and 1.51 (moderate) percentage deviations from the initial year.
  - Private consumption: 0.40 (optimistic) and 0.21 (moderate) percentage deviations.
  - Non-oil output: 1.12 (optimistic) and 0.57 (moderate) percentage deviations.
  - Change in public debt: -0.35 (optimistic) and -0.20 (moderate) percent of GDP.

- Improving public investment efficiency
  - Additional annual non-oil growth: 0.17 percent (optimistic) or 0.09 percent (moderate).
  - Public debt reduction after ten years: 2.56 percent of GDP (optimistic) and 1.25 percent of GDP (moderate).
  - Private investment: 0.16 (optimistic) and 0.08 (moderate) percentage deviations.
  - Private consumption: 0.22 (optimistic) and 0.11 (moderate) percentage deviations.
  - Non-oil output: 0.17 (optimistic) and 0.09 (moderate) percentage deviations.
  - Change in public debt: -0.25 (optimistic) and -0.12 (moderate) percent of GDP.

- Expanding the tax base through improved tax administration
  - Annual per capita non-oil output: increase by 0.12 percent (optimistic) and 0.9 percent (moderate).
  - Public debt falls by 12.7 percent of GDP (optimistic) and 7.75 percent of GDP (moderate) after 10 years.
  - Private investment: 0.12 (optimistic) and 0.08 (moderate) percentage deviations.
  - Private consumption: 0.26 (optimistic) and 0.12 (moderate) percentage deviations.
  - Non-oil output: 0.12 (optimistic) and 0.09 (moderate) percentage deviations.
  - Change in public debt: -1.20 (optimistic) and -0.77 (moderate) percent of GDP.
  - Note: initial higher tax collection efficiency can reduce household income and consumption due to lump-sum transfers rebated to households prior to reform; larger initial consumption fall under optimistic scenario, with higher 10-year consumption increase thereafter as tax rate can fall more.

- Comprehensive governance reform package (all channels)
  - Private investment: 3.33 (optimistic) and 1.71 (moderate) percentage deviations.
  - Private consumption: 0.98 (optimistic) and 0.48 (moderate) percentage deviations.
  - Non-oil output: 1.44 (optimistic) and 0.75 (moderate) percentage deviations.
  - Change in public debt: -1.78 (optimistic) and -1.01 (moderate) percent of GDP.
  - Note on timing: time -1 denotes pre-reform; reforms begin displaying effects in period 0.

### Public expenditure and tax-collection efficiency targets and benchmarks
- Public expenditure efficiency:
  - Current: 50 percent.
  - Alternatives: rise to first quartile at 77 percent.
  - Alternative benchmark: rise to 63.5 percent (slightly above median country at 62 percent).
- Efficiency in collecting consumption taxes:
  - From 35 to alternatively 51.5 percent.
  - Alternative rise to 68 percent.
- Efficiency in collecting personal income taxes:
  - From 4.7 to 9 percent.
  - Alternative rise to 13.3 percent.
- Investment-to-GDP ratio:
  - Reform reduces implicit tax in firms’ decisions and would gradually raise private investment-to-GDP ratio to 27.4 percent.

### Public Financial Management (PFM) reforms and recommendations
- Bolster revenues through rule-based practices and better controls:
  - Tax exemptions in 2016 estimated to vary from 3.6 to 7.2 percent of nonoil GDP depending on scope and year considered.
  - Tax arrears: CFAF 180.5 billion in 2017.
  - Recommendations:
    - Reform, better control and monitor tax and customs exemptions.
    - Stop any cash payment for customs and tax revenue; enforce bank transfer or payment using improved dedicated IT systems (e.g., ASYCUDA World and E-TAX) and extend coverage to all taxpayers (extension of E-TAX to large and middle-sized companies).
    - Strengthen tax and customs agencies’ management, control and collection capacities; encourage systematic data exchange, cross-cutting surveillance and joint controls.
- Ensure budget credibility:
  - Administrative modification of initial appropriation through budget internal transfers reached 12 percent of the initial budget in 2017, over the authorized ceiling.
  - Example effect: health ministry’s appropriations cut by 32 percent in 2018.
  - Recommendations:
    - Ensure budget law is realistic and comprehensive.
    - Implement automated controls through the budget IT system to ensure rules and ceilings are respected.
- Improve Public Investment Management (PIM):
  - Public investment doubled between 2008 and 2013 to reach 13.7 percent of GDP while public capital stock-to-GDP ratio declined.
  - Estimated efficiency score of Gabon (infrastructure quality): 0.5 versus 0.69 (CEMAC) and 0.80 (SSA).
  - PIM weaknesses: lack of coordination, absence of consolidated project lists, lack of prior technical/economic/financial analysis, single tenders accounted for 89 percent of total value of contracts in 2017, absence of implementation controls and PPP transparency.
  - Recommendations:
    - Renew legal framework for PIM and assign responsibilities.
    - Prepare a Public Investment Program by a central body with published selection criteria.
    - Enforce legal threshold on single tenders’ procedures and expand scope of ARMP to PPPs.
    - Publish quarterly statistics on awarded contracts and procedures.
    - Disclose reporting on project implementation and associated fiscal risks.
    - Revise PPP legal framework to impose budget department consultation, limit exemptions to competitive procedures, and define rules on unsolicited bids.
- Oversight and control of autonomous agencies and extrabudgetary funds (EBFs):
  - Less than 24 percent connection with central IFMIS in many cases.
  - Recommendations:
    - Consolidated and strengthened oversight and controls of EBFs and agencies.
    - Implement information systems in all autonomous agencies and extrabudgetary units and operationalize the Budget oversight unit.

### Cash management, internal control, audit, and fiscal reporting
- Cash management reforms:
  - Authorities decided to close public accounts outside the Central Bank.
  - Further steps: complete implementation of the Treasury Single Account (TSA); progressively forbid cash transactions outside the TSA; implement Treasury committee and regulation mechanisms to prevent arrears.
- Internal control and audit weaknesses:
  - Reconciliation and clearance of suspense accounts occur only once a year.
  - Internal audit coverage limited to 7 percent of total budgeted expenditures.
  - Internal audits lack standardized professional procedures.
  - IT systems for revenues, expenditures, wage bill, cash and debt are not interconnected.
- External oversight constraints:
  - Limited fiscal transparency hinders external controls by the Court of accounts, Parliament and civil society.
  - Limited independence of the Court of accounts and poor legislative scrutiny.
  - Despite Law 21/2014, many budget documents are not accessible or are delayed.
- Recommendations:
  - Develop internal control and audit frameworks with standardized methodologies and IT interconnection.
  - Conduct internal audits on wages to enhance payroll integrity and identify ghost workers.
  - Publish basic fiscal data and reports in a timely and accessible standardized format.
  - Undertake the open budget evaluation to improve fiscal transparency and monitoring.

### Improving the business environment
- Institutional developments:
  - High Investment Council (HCI) created in 2014.
  - Gabon National Agency for the Promotion of Investment (ANPI-Gabon) launched September 2014; active since 2018.
  - Paid-in minimum capital requirement abolished since 2013.
- Doing Business comparative performance:
  - Better than the rest of CEMAC except for enforcing contracts and registering property, but below SSA average, EMEs and UMICs in most aspects except starting a business.
- Selected frictions and indicators:
  - Registering a new firm: 50 days average (SSA average 26.8 days; OECD average 8.3 days).
  - Permits and register property: up to 329 days average.
  - Insolvency proceedings: average five years.
  - Recovery rate: 14.8 cents on the US Dollar.
  - Contractual dispute resolution: around 1,070 days.
  - Cost of contract enforcement: 34 percent of claim value (CEMAC 49 percent; SSA 42 percent).
  - Cost of registering property: 12 percent of property value (CEMAC 13 percent; SSA 8 percent; EMEs 6 percent; UMICs 6 percent).
- Trade facilitation and corruption risks:
  - Below best practice in OECD Trade Facilitation Indicators, particularly in information availability, appeal procedures, advance rulings, governance and impartiality.
  - Limited access to online systems and multiple layers of red tape increase rent-seeking risks.
  - Firms face high costs to trade across borders due to bureaucratic bottlenecks and congestion at ports.
- Judicial and contract enforcement issues:
  - No specialized commercial courts; insufficient training in technical aspects of law; low trust in judiciary.

### SEZs/PPPs (direct budgetary impact, spillovers, and risks)
- Direct revenues from PPPs: wage taxes totaling CFAF 8.54 billion from 2012 to 2017, around 0.1 percent of GDP.
- Estimates of total tax expenditures in Gabon placed between 4 to 5 percent of GDP (treated with caution due to data weaknesses).
  - James (2013): 5 percent of GDP.
  - Unpublished World Bank study: 4 percent of GDP for certain exemptions (World Bank, 2017).
  - IMF Fiscal Affairs Department: 4 per cent of GDP (IMF, 2018a).
  - Includes Programme contre la vie chère cost of 0.6 percent of GDP in 2018; authorities have since eliminated about 85 percent of products covered.
- Evidence of indirect spillovers is limited (Mouissi 2018); investor priorities rank incentives fourth behind raw inputs, socio-political stability, and ability to import labor and repatriate profits.
- Risks: “footloose industries”, transfer pricing to shift income to tax-exempt entities.
- Recommendations toward revenue-friendly diversification:
  - Strengthen revenue administration and improve tax policy.
  - Streamline tax exemptions and transparently disclose fiscal costs.
  - Avoid VAT exemptions as fiscal incentives; eliminate VAT distortions through efficiency improvements.
  - Use SEZ as incubator for business climate reforms and pilot electronic administrative processes.
  - Target agriculture and selected value chains; scale down large unfunded plans (example: GRAINE costed at US$2 billion over seven years).
  - Establish framework for upgrading domestic firms (timber/wood cluster focus).
  - Invest in human capital and social spending monitoring; improve statistical collection and resourcing of statistical agency.

### Social sectors: health, education, and social protection
- Health
  - Public health spending more than doubled between 2008 and 2018 with national health insurance rollout.
  - Average life expectancy at birth in 2016: 58 years.
  - Under-five mortality rate: 65 deaths per 1,000 births.
  - Spending composition: ~80 percent to curative care (contributes less than 10 percent to targeted indicator improvements); ~20 percent to preventive care (contributes more than 60 percent to targeted indicator improvements).
  - Recommendations: reorient toward preventive care, implement performance-based financing, strengthen primary care, increase funding for facility maintenance and outreach, operationalize health districts, improve referral systems, strengthen pharmaceutical management.
- Education
  - Public education outcomes below what per capita GDP and public spending predict.
  - Spending allocation regressive at secondary and tertiary levels; girls from very poor households underrepresented in tertiary education.
  - Recommendations: increase allocation to primary, secondary and TVET; invest in teacher training; extend school year; reform governance of TVET and higher education; expand private-sector role and dual-training programs; develop education management information system.
- Social Protection
  - System fragmented, inefficient, underfinanced, covers small fraction of poor.
  - Subsidies account for 89 percent of expenditures to “economically weak Gabonese” (GEF) households; cash transfers represent 10 percent of GEF-targeted expenditures.
  - Only four out of fourteen programs reach outside Libreville; SIHG contains 19 programs for seven vulnerable groups.
  - Recommendations: improve targeting using 2017 household budget survey, consolidate and modernize social transfers, monetize/merge in-kind programs, leverage modern payment technologies, define eligibility/exit criteria, provide entrepreneurship support, implement robust monitoring.

### Annex II — CNLCEI summary findings (factors favoring offenses and illegal practices)
- Factors favoring offenses:
  - Inadequate anti-corruption legal and institutional framework; laws not aligned with international provisions.
  - Absence of physical control systems and effective project monitoring.
  - Insufficient resources for anti-corruption bodies; no ex-post verification of work conformity.
  - Lack of specialized human resources training.
- Illegal practices documented:
  - Fictitious invoices and payments without verification.
  - Creation of unprovided-for remunerated positions.
  - Economic operators producing false documents in public expenditure chain.
  - Public accountants drawing up checks without justification.
  - Over-billing (documented example: forecast of 833.3 billion FCFA per month for contract worth 5.0 billion FCFA).
  - Drafting contracts by economic operators; financing of control missions by economic operators; systematization of direct agreement contracts in breach of procurement code.

### Strengthening anti-corruption institutions (selected recommendations)
- Enhance independence and effectiveness of CNLCEI and related institutions:
  - Ensure legal and institutional framework aligns with UNCAC, with full criminalization of corruption offenses.
  - Enhance human and financial capacities and transparency.
  - Criminalize all corruption offenses in line with UNCAC, including bribery, embezzlement and misappropriation, abuse of functions; improve enforcement for dissuasive sanctions and confiscation of ill-gotten proceeds.
  - Enforce and expand asset disclosure coverage to family members, beneficial owners and political parties; implement electronic filing and verification; enhance sanctions; enable public access to declarations.

### Conclusion and policy priorities
- Macroeconomic gains from governance reforms: potential additional growth of 0.8 to 1.5 percent per year over the next 10 years; debt decline of 1.0 to 2.0 percent of non-oil GDP per year over the same period.
- Sustaining reform momentum requires strong political ownership and civil society involvement.
- Progress in holding public officials responsible would benefit from additional reforms in fiscal, law enforcement and market regulation.
- Enhance participation of civil society by increasing fiscal transparency and public disclosure of information.

*Source: IMF staff chapter "Improving Governance for Higher and More Inclusive Growth in Gabon" (excerpts, December 4, 2019).*

### References ____________________________________________________________________________ 25

### IMPROVING GOVERNANCE FOR HIGHER AND MORE INCLUSIVE GROWTH IN GABON

### Executive summary
- Gabon had a per capita GDP in excess of $7,500 in 2018.
- A third of citizens live below the poverty line; unemployment is over a quarter of young people.
- A DSGE (DIGNAR) model calibrated to Gabon indicates potential additional non-oil growth of 0.8 to 1.5 percent per year over the next 10 years from governance reforms.
- The same reforms could reduce debt by 1.0 to 2.0 percent of non-oil GDP per year over the next 10 years.
- Urgent priorities: improve governance and curb corruption to boost domestic revenue, enhance public financial management and spending quality, and improve the business environment to promote private investment.

### Background and policy context
- Gabon’s reform agenda features: criminalization of corruption offenses through the Penal Code; reinvigoration of the National Commission to Combat Illicit Enrichment (CNLCEI, created in 2004); adoption of a Law on Public Procurement in 2012; integration of regional Public Financial Management directives; and establishment of a National Financial Investigations Agency (ANIF).
- The PSGE (2010 strategic development plan) places improving governance as a key pillar; the PSGE is planned in three phases covering periods 2011–16, 2017–19, and 2020–25.

### Governance performance and corruption indicators
- Governance remains weak relative to peer EMEs; rule of law and regulatory quality deteriorated after 2009–12.
- Third-party indicators referenced include Mo Ibrahim, Transparency International, Natural Resource Governance Institute, and World Bank (Worldwide Governance Indicators).
- Transparency International 2019: 80 percent of respondents felt that corruption had become worse over the previous 12-months.
- A 2017–18 survey: 35 percent of the Gabonese paid a bribe in contacts with public services compared with 48 percent for the rest of CEMAC.
- Corruption occurrences concentrated in contacts with police, courts, utility companies, and when asking for permits or other documents.
- Reporting undercounting: a 2015 survey found about 49 percent of respondents who had been requested to pay a bribe did not report the incident because of fear of retaliation (Afrobarometer, 2017a and 2017b).

### Anti-corruption framework and implementation gaps (Box 1 highlights)
- International commitments: party to the United Nations Convention Against Corruption (UNCAC) since 2007 and the African Union Convention on Preventing and Combatting Corruption (AUCPCC).
- Domestic laws: Law 002/2003 (prevent and punish illicit enrichment) and Law 003/2003 (establishing CNLCEI and mandatory asset and income declarations).
- Asset declaration regime: obligates every official vested with State authority to declare personal assets before taking up duty, every three years while in office and again at the time of leaving office.
- Implementation weaknesses:
  - CNLCEI required to publish quarterly and annual reports, but these reports are not published.
  - During 2014–17 the CNLCEI identified over 300 cases of corruption; only 18 cases were investigated, 10 forwarded to competent courts, and only 1 case was brought to trial and led to sanctions.
  - Overall effectiveness undermined by weak institutions, weak enforcement, and lack of transparency.

### Measuring economic impact: model, calibration, and channels
- Model used: DIGNAR (real dynamic neoclassical open economy DSGE with traded, non-traded, and natural resource sectors).
- Model features incorporated for governance analysis:
  - (i) Reduction in bribery/implicit firm-level distortion stimulating private investment.
  - (ii) Improved public investment processes raising public investment efficiency and public capital stock.
  - (iii) More efficient government bureaucracy reducing tax evasion, widening the tax base, and increasing tax revenues.
- Calibration specifics:
  - Main macro aggregates set to averages in 2005−18.
  - Private investment-to-GDP ratio target used in calibration: 22.9 percent.
  - Efficiency of public investment set at 50 percent (broad CEMAC estimate).
  - Efficiency in collecting the consumption tax set at the 1st quartile of EMEs distribution: 35 percent.
  - Efficiency in collecting personal income taxes set at 4.7 percent.
- Simulation horizon: reforms simulated over 10 years (broadly coinciding with the PSGE horizon).

### Simulation design and scenarios
- Simulated reforms cover three governance dimensions over 10 years:
  - Reduction in bribery and firms’ implicit tax/distortions to stimulate private investment.
  - Improvement in public investment efficiency to raise public capital and growth.
  - Increased tax collection efficiency to raise revenues through reduced evasion and a wider base.
- Two scenarios examined: a Moderate scenario and an Optimistic scenario.
- For each scenario: effects of reforming each dimension separately are illustrated, followed by assessment of a comprehensive reform package tackling all three channels simultaneously.
- Output variables reported include non-oil output, private investment, private consumption, and public debt paths over the 10-year simulation.

### Key quantitative findings (model results, as reported)
- Potential additional non-oil growth from governance reforms: 0.8 to 1.5 percent per year over the next 10 years.
- Potential debt reduction: 1.0 to 2.0 percent of non-oil GDP per year over the next 10 years.
- Calibration and baseline statistics used in simulations:
  - Private investment-to-GDP: 22.9 percent.
  - Public investment efficiency: 50 percent.
  - Consumption tax collection efficiency: 35 percent.
  - Personal income tax collection efficiency: 4.7 percent.

### Policy implications and priorities
- Macro-critical governance reforms should focus on:
  - Strengthening enforcement capacity of existing anti-corruption laws and institutions (including CNLCEI and ANIF).
  - Improving transparency and publication of CNLCEI reports and other accountability instruments.
  - Increasing public investment efficiency to raise the productive public capital stock.
  - Reducing implicit taxes and corruption-related distortions that deter private investment.
  - Enhancing revenue mobilization via improved tax administration, reduced evasion, and wider tax base.
- Comprehensive reforms across fiscal governance, transparency in the oil sector, and business environment improvements are necessary to realize modeled macro-fiscal gains.

*Source: IMF staff chapter "Improving Governance for Higher and More Inclusive Growth in Gabon" (excerpts, December 4, 2019).*

### 25.2 percent

### 1gabea2019003 - 25.2 percent

### Macroeconomic effects of governance reforms (summary of scenarios and magnitudes)
- Reducing the distortionary wedge in firms’ investment and employment decisions (e.g., bribery):
  - Additional annual non-oil growth: 1.12 percent (optimistic scenario) or 0.57 percent (moderate scenario).
  - Public debt decreases over ten years by 3.5 percent of GDP (optimistic scenario) and 2 percent of GDP (moderate scenario).
  - Private consumption increases.
  - Private investment: 2.98 (optimistic) and 1.51 (moderate) percentage deviations from the initial year (Table 1).
  - Private consumption: 0.40 (optimistic) and 0.21 (moderate) percentage deviations (Table 1).
  - Non-oil output: 1.12 (optimistic) and 0.57 (moderate) percentage deviations (Table 1).
  - Change in public debt: -0.35 (optimistic) and -0.20 (moderate) percent of GDP (Table 1).

- Improving public investment (efficiency in public capital expenditures):
  - Raises public capital stock and yields additional annual non-oil growth of 0.17 percent (optimistic) or 0.09 percent (moderate).
  - Crowds-in private demand (consumption and investment).
  - Public debt reduction after ten years: 2.56 percent of GDP (optimistic) and 1.25 percent of GDP (moderate).
  - Private investment: 0.16 (optimistic) and 0.08 (moderate) percentage deviations (Table 1).
  - Private consumption: 0.22 (optimistic) and 0.11 (moderate) percentage deviations (Table 1).
  - Non-oil output: 0.17 (optimistic) and 0.09 (moderate) percentage deviations (Table 1).
  - Change in public debt: -0.25 (optimistic) and -0.12 (moderate) percent of GDP (Table 1).

- Expanding the tax base through improved tax administration efficiency (revenue mobilization):
  - Annual per capita non-oil output: increase by 0.12 percent (optimistic scenario) and 0.9 percent (moderate scenario).
  - Public debt falls by 12.7 percent of GDP (optimistic) and 7.75 percent of GDP (moderate) after 10 years.
  - Note: prior to reform, model assumes inefficiency in tax collection is rebated to households via lump-sum transfer, so lower inefficiency initially reduces household income and consumption (negative income effect), with stronger initial consumption fall under the optimistic scenario due to larger efficiency improvements; but 10-year consumption increase is higher under optimistic scenario as tax rate can fall more.
  - Private investment: 0.12 (optimistic) and 0.08 (moderate) percentage deviations (Table 1).
  - Private consumption: 0.26 (optimistic) and 0.12 (moderate) percentage deviations (Table 1).
  - Non-oil output: 0.12 (optimistic) and 0.09 (moderate) percentage deviations (Table 1).
  - Change in public debt: -1.20 (optimistic) and -0.77 (moderate) percent of GDP (Table 1).

- Comprehensive governance reform package (all areas of governance):
  - Larger increases in private investment, private consumption, and non-oil output than individual reforms.
  - Public debt falls, enabling the tax rate to fall further and stimulate private demand.
  - Private investment: 3.33 (optimistic) and 1.71 (moderate) percentage deviations (Table 1).
  - Private consumption: 0.98 (optimistic) and 0.48 (moderate) percentage deviations (Table 1).
  - Non-oil output: 1.44 (optimistic) and 0.75 (moderate) percentage deviations (Table 1).
  - Change in public debt: -1.78 (optimistic) and -1.01 (moderate) percent of GDP (Table 1).
- Note on timing: time -1 denotes pre-reform; reforms begin displaying effects in period 0.

### Public expenditure and tax-collection efficiency targets and benchmarks
- Public expenditure efficiency:
  - Current: 50 percent.
  - Alternatives: rise to first quartile at 77 percent.
  - Alternative benchmark: rise to 63.5 percent (slightly above median country at 62 percent).
- Efficiency in collecting consumption taxes:
  - From 35 to alternatively 51.5 percent.
  - Alternative rise to 68 percent.
- Efficiency in collecting personal income taxes:
  - From 4.7 to 9 percent.
  - Alternative rise to 13.3 percent.
- Investment-to-GDP ratio:
  - Reform reduces implicit tax in firms’ decisions and would gradually raise private investment-to-GDP ratio to 27.4 percent.
- Headline figure: "25.2 percent" (presented as content unit identifier).

### Public Financial Management (PFM) reforms and recommendations
- Bolstering revenues through rule-based practices and better controls:
  - Issue: large number of unmonitored tax and custom exemptions and expenditure increase risk of arbitrary attribution and fraud.
  - Estimated impact of tax exemptions in 2016: varies from 3.6 to 7.2 percent of nonoil GDP, depending on scope and year considered.
  - Problems with exemptions:
    - Lack of justification on social and economic advantages (fraud and dead-weight risk).
    - Difficulties to control and monitor due to organization and capacity issues.
    - Lack of transparency due to absence of comprehensive and up-dated list of all tax exemptions.
    - Flexibility in attribution process not supported by clear rules or a central authority.
  - Tax arrears: CFAF 180.5 billion in 2017.
  - Cash payments persist for tax and customs revenue; recommendation to stop cash payments and enforce bank transfers to support unified cash management (Treasury Single Account).
  - Recommendations to reduce vulnerabilities in revenue collection:
    - Reform, better control and monitor tax and customs exemptions.
    - Stop any cash payment for customs and tax revenue; enforce bank transfer or payment using improved dedicated IT systems (e.g., ASYCUDA World and E-TAX) and extend coverage to all taxpayers (extension of E-TAX to large and middle-sized companies).
    - Strengthen tax and customs agencies’ management, control and collection capacities; encourage systematic data exchange, cross-cutting surveillance and joint controls.
- Ensuring budget credibility:
  - Problem: weak budget credibility and non-compliance with budget rules; budget laws largely modified during execution.
  - Example: in 2017, administrative modification of initial appropriation through budget internal transfers reached 12 percent of the initial budget, over the authorized ceiling.
  - Effects: undermines Parliament’s authority and oversight; reduces transparency; social sector ministries affected (e.g., health ministry’s appropriations cut by 32 percent in 2018).
  - Recommendations:
    - Ensure budget law is realistic in volume and distribution and comprehensive for revenue and expenditure.
    - Implement automated controls through the budget IT system to ensure rules and ceilings are respected.
- Improving Public Investment Management (PIM):
  - Issue: weak investment planning undermines public investment performance.
  - Public investment doubled between 2008 and 2013 to reach 13.7 percent of GDP, while public capital stock-to-GDP ratio declined.
  - Estimated efficiency score of Gabon (infrastructure quality): 0.5 versus 0.69 (CEMAC) and 0.80 (SSA).
  - PIM weaknesses:
    - Lack of coordination among multiple stakeholders; absence of consolidated/shared list of projects; budget allocations do not cover all projects and some not reported in fiscal statements.
    - Absence of systematic prior technical, economic, and financial analysis; many project costs assessed after selecting contractors.
    - Bypass of public procurement rules: single tenders’ procedures accounted for 89 percent of total value of contracts in 2017.
    - Absence of controls during implementation, leading to possible payments without physical execution; example of road project with more than 15 percent cost overruns due to lack of appraisal, selection criteria and competition.
    - Lack of transparency in PPPs: criteria to justify recourse to PPP unknown; no assessment of fiscal impact; ARMP cannot oversee PPP tenders under current legislation.
  - Recommendations:
    - Renew legal framework for PIM and assign responsibilities.
    - Prepare a Public Investment Program by a central body based on objective and published criteria for project selection.
    - Enforce legal threshold on single tenders’ procedures and expand scope of ARMP to PPPs.
    - Publish quarterly statistics on awarded contracts and procedures.
    - Disclose reporting on project implementation and associated fiscal risks.
    - Revise and complete PPP legal framework (adopted in 2017) to impose systematic consultation of Budget department to assess fiscal sustainability, strictly limit exemptions to competitive procedures, and define clear rules on unsolicited bids.
- Oversight and control of autonomous agencies and extrabudgetary funds (EBFs):
  - Recent measures: detail all earmarked revenues in the budget law; elimination and merging of several autonomous agencies; creation of supervision unit in Budget Department; systematic use of proper accounting documents.
  - Remaining weaknesses:
    - Lack of strategic guidelines to monitor and mitigate fiscal risks.
    - Absence of connection with central IFMIS in many cases (less than 24 percent).
    - Weak external audit (Court of Accounts rarely audits EBFs; exception: CNAMGS audit dated January, 2017 revealed irregular remunerations and questioned high acquisition costs).
  - Recommendations:
    - Consolidated and strengthened oversight and controls of EBFs and agencies.
    - Implement information systems in all autonomous agencies and extrabudgetary units and operationalize the Budget oversight unit to better control expenditure execution and fiscal performance, particularly from special accounts.

### Additional implementation and operational points
- Automation and IT systems:
  - Implement automated tools and procedures for revenue collection to allow real-time transfer to the TSA, avoiding delays and potential frauds, strengthening recording and facilitating in-year cash management.
- Cross-country lessons:
  - Example: in Senegal cash payments are banned for amounts above 100.000 CFA since July 1, 2015.
- Model caveats noted in text:
  - Reducing wastes in public capital expenditures does not directly affect private sector; GDP effects occur via second-round effects and may be small in moderate scenarios.
  - Expanding the tax base through better tax administration does not directly affect private sector; main effect is mobilizing more revenues and reducing public debt.
  - Income effect from higher tax collection efficiency initially reduces household consumption; effect magnitude differs between optimistic and moderate scenarios.

*Source: GABON, INTERNATIONAL MONETARY FUND (content unit: 1gabea2019003 - 25.2 percent).*

### 24.       Cash management reforms should continue. The Gabonese authorities took a

### 24.       Cash management reforms should continue.

### Cash management reforms
- The authorities decided to close public accounts outside of the Central Bank.
- Further improving cash management will require:
  - completing the implementation of the Treasury Single Account (TSA);
  - progressively forbidding any cash transaction outside the TSA;
  - implementing due cash management tools and mechanisms including the Treasury committee and regulation mechanisms to prevent the creation of arrears.

### Enhancing Internal Control and Audit, Fiscal Reporting and External Oversight
- Key weaknesses and current practices:
  - reconciliation and clearance of suspense accounts take place only once a year;
  - a large amount of previously accumulated stocks remain non-cleared;
  - the coverage of internal audits is limited to 7 percent of total budgeted expenditures;
  - internal audit activities do not apply standardized professional procedures;
  - timeliness, comprehensiveness and accessibility of fiscal reports remain limited;
  - operations of autonomous agencies, EBFs and unorthodox spending are not systematically included in ex-post financial reports;
  - IT systems used to manage revenues, expenditures, wage bill, cash and debt are not interconnected.
- External oversight constraints:
  - limited fiscal transparency hinders external controls by the Court of accounts, the Parliament and civil society;
  - the limited independence of the Court of accounts undermines the quality of external audit;
  - legislative scrutiny of the Court’s reports is poor;
  - despite Law 21/2014 on transparency and good governance for public finance, many budget documents and fiscal information are not accessible to the public or are made available with significant delays or in user-unfriendly form.
- Recent measures and remaining priorities:
  - decisive measures implemented (examples): internal controls on non-salary spending; limitation of the use of exceptional procedures; systematic issuance of purchase orders at the commitment stage through the IFMIS; periodic issuance of in-year fiscal reports.
  - Needed actions:
    - develop internal control and audit frameworks through standardized methodologies and interconnection of IT systems;
    - conduct internal audits on wages to enhance payroll integrity and identify ghost workers;
    - publish basic fiscal data and reports in a timely and accessible standardized format to strengthen external oversight and comparisons over time;
    - undertake the open budget evaluation to help improve fiscal transparency and monitor progress.

### Improving the Business Environment
- Reforms since 2009 and institutional developments:
  - High Investment Council (HCI) created in 2014 to increase public-private cooperation and stimulate private sector growth and job creation;
  - Gabon National Agency for the Promotion of Investment (ANPI-Gabon) launched in September 2014 as a one-stop administrative shop; active since 2018 in reducing time to start a new company;
  - requirement for paid-in minimum capital to establish a business abolished since 2013.
- Comparative performance and constraints:
  - The 2019 Doing Business report indicates Gabon’s regulatory performance is better than the rest of CEMAC except for enforcing contracts and registering property, but Gabon scores below SSA average, EMEs and UMICs in all aspects of doing business except starting a business.
- Selected indicators and frictions:
  - initial process of registering a new firm takes 50 days on average, compared with SSA average of 26.8 days and OECD average of 8.3 days;
  - investors constructing premises face up to 329 days on average to complete permits and register property;
  - insolvency proceedings take an average of five years to complete;
  - low recovery rate of just 14.8 cents on the US Dollar;
  - resolving a contractual dispute through the Gabonese legal system can take around 1,070 days;
  - cost of contract enforcement in Gabon is 34 percent of the claim value (CEMAC 49 percent; SSA 42 percent);
  - cost of registering property in Gabon is 12 percent of the property value (CEMAC 13 percent; SSA 8 percent; EMEs 6 percent; UMICs 6 percent).
- Trade facilitation and corruption risks:
  - Gabon is far below best practice in OECD Trade Facilitation Indicators, particularly in information availability, appeal procedures, advance rulings, and governance and impartiality;
  - limited access to online systems and multiple layers of red tape increase potential for rent-seeking behavior;
  - firms face high costs to trade across borders due to bureaucratic bottlenecks and congestion, particularly at ports.
- Judicial and contract enforcement issues:
  - enforcement of contracts hindered by lengthy delays and limited transparency;
  - no specialized commercial courts and insufficient training in specific and technical aspects of law;
  - trust in judiciary courts is low according to surveys.

### Conclusion and Policy Recommendations
- Macroeconomic gains from governance reforms:
  - potential additional growth can range from 0.8 to 1.5 percent per year over the next 10 years depending on the magnitude of reforms implemented;
  - debt can decline by 1.0 to 2.0 percent of non-oil GDP per year over the same period.
- Sustaining reform momentum:
  - strong political ownership and sustained involvement from civil society are vital;
  - renewed emphasis by the President and new government (including a ministry of the promotion of good governance and the fight against corruption) on tackling governance;
  - progress underway in holding public officials responsible for corruption crimes would benefit from additional reforms in fiscal, law enforcement and market regulation;
  - enhance participation of civil society by increasing fiscal transparency and public disclosure of information.

### Strengthening anti-corruption institutions (selected recommendations)
- Enhance independence and effectiveness of key governance institutions such as the CNLCEI by:
  - ensuring adequacy of the legal and institutional framework for the fight against corruption, including full criminalization of corruption offences under the UNCAC in domestic law;
  - enhancing human and financial capacities;
  - increasing transparency.
- Criminalize all corruption offenses in line with UNCAC requirements, including bribery, embezzlement and misappropriation of property by a public official for the benefit of third parties, and the abuse of functions; improve enforcement to ensure dissuasive sanctions and confiscation of ill-gotten proceeds.
- Enforce asset disclosures and enhance their effectiveness by:
  - expanding coverage to family members of public officials and their beneficial owners and to political parties;
  - implementing electronic filing of asset disclosure;
  - ensuring verification of asset declarations;
  - enhancing sanctions for failure and false declarations;
  - enabling public access to financial declarations of public officials.

*Source: 1gabea2019003 – IMF country report excerpt.*

### Annex II. Summary Findings of the Gabonese National

### Annex II. Summary Findings of the Gabonese National Commission to Combat Illicit Enrichment

### Factors Favoring the Perpetration of Economic and Financial Offenses
- Inadequate anti-corruption legal and institutional framework.
  - "The laws governing the fight against corruption and illicit enrichment are not in line with the relevant international provisions."
  - "Sanctions do not cover all aspects, or all offenses are not considered in the domestic law."
- Absence of a physical control system and effective monitoring of the execution of projects.
  - "In almost all public procurements, the controls, versification and the physical supervision of the execution are lacking."
  - Consequences: "The completed works do not meet the requirements of sustainability, sometimes unfinished while the funds collected by the executing company."
- Insufficient resources available to anti-corruption and illicit enrichment bodies.
  - "Investigative operations are expensive. However, the financial resources allocated to the investigative bodies do not allow them to deploy and cover all sectors of activity throughout the country."
  - "No control mission and no ex-post verification of the conformity of the work done with the technical requirements specified in the contracts."
- Lack of specialized human resources training for the anti-corruption bodies.
  - "The fight against corruption requires advanced training in order to better detect, identify and observe the practices used."
  - Consequence: "Increase in corruption cases, economic and financial crimes."

- Source note: "Analysis of the reports of the minutes of hearings, CNLCEI 2016."

### Summary of Illicit Practices that Led to Committing Offenses (Principles, Rules and Procedures Violated — Illegal Practices Found)
- Payment and verification rules
  - Principle: "The State pays once the provision of the service/performance of the work is confirmed by the Procurement Officer or his representative responsible for monitoring and verifying the veracity of the work performed."
  - Illegal practice: "Credit Authorizing Officers certify and incur fictitious invoices without taking stock of the work that economic operators have done to facilitate the disbursement of public funds that will be used for other expenses not provided for by the budget law."
- Employment and remuneration rules
  - Principle: "No public servant can claim payment of remuneration for a function not provided for in the organic law under the principle of the availability of employment."
  - Illegal practice: "The creation and exercise of functions by some administrative officials, including credit managers who are not provided in the organic texts of the institutions they are responsible for management."
- Prohibition on facilitation of offenses
  - Principle: "It is forbidden for any person to help, to participate in or to facilitate the accomplishment of any offense whatsoever."
  - Illegal practice: "The involvement of economic operators in the offenses relating to economic and financial crime in the form of a production of false documents in the public expenditure chain."
- Public accounting rules
  - Principle: "It is strictly forbidden for any public accountant to draw up a check for him/herself without justification."
  - Illegal practice: "The drawing up of checks by public accountants without proof of public expenditure and without any administrative documents."
- Procurement competition principle
  - Principle: "The competition is justified by the search of the lowest bid while providing good quality services and not the other way around."
  - Illegal practice and documented example: "The over-billing of development projects or programs of development offenders such as the disbursement forecast of the order of 833.3 billion FCFA per month for a public contract for the rehabilitation of a road worth 5.0 billion FCFA that has never been done."
- Contract drafting and role reversal
  - Principle: "The documents of the contract must be written by the person in charge of the order who knows the expressed needs in order to satisfy them and not the opposite."
  - Illegal practice: "Drafting of contracts and endorsements by the economic operators who have them signed by the public procurement’s agents. This act is a reversal of the roles of the actors of the public order."
- Financing of control missions
  - Principle: "To ensure the effectiveness of a control operation, mission expenses, travel expenses, catering and accommodation must be borne by the administration responsible for the order."
  - Illegal practice: "The financing of the expenses of control missions by the economic operators subjected, on the pretext that the amount is included in the amount of the market."
- Direct agreement contracts and public procurement rules
  - Principle: "Any contract entered into by direct agreement must have the prior opinion of the Public Procurement Regulatory Agency and comply with the conditions required by the public procurement contract."
  - Illegal practice: "The systematization of the procurement procedure by direct agreement or over-the-counter in breach of the conditions provided for by the Public Procurement Code."

- Source note: "Archives CNLCEI."

*Source: Annex II. Summary Findings of the Gabonese National Commission to Combat Illicit Enrichment (CNLCEI) as reported in the document.*

### 4.      The direct budgetary impact of Gabon’s tax-exempt SEZs/PPPs has, however, so far

### 4.      The direct budgetary impact of Gabon’s tax-exempt SEZs/PPPs has, however, so far

### Direct budgetary impact and tax expenditures
- Incremental costs of regulating the PPPs and the zone are small; indications are that there are no government subsidies provided for inputs such as electricity or other services, although the zone management entity does guarantee the provision of utilities at prices below domestic market rates.
- Direct revenues from the PPPs comprise solely of wage taxes on company employees totaling CFAF 8.54 billion from 2012 to 2017, or around 0.1 percent of GDP.
- The relatively low tax revenue take is largely due to the provision of fiscal exemptions to SEZ operators.
- Estimates of total tax expenditures in Gabon (to be treated with caution due to data weaknesses and poor controls) have been placed between 4 to 5 percent of GDP. These estimates:
  - cover a wide variety of tax instruments, including tax and customs instruments legislated under the investment incentive scheme;
  - include exemptions granted to specific economic sectors (e.g. mining, cement, small- and medium-sized enterprises), through public contracts (e.g. PPPs), and some taken on an ad hoc basis with no legal underpinning.
- Specific estimates cited:
  - James (2013) estimated total tax expenditure in Gabon at 5 percent of GDP.
  - An unpublished World Bank study calculated exemptions on customs tariffs, corporate income tax, and VAT exemptions at 4 percent of GDP (World Bank, 2017).
  - The IMF’s Fiscal Affairs Department estimates tax expenditures accorded to exemptions on CIT, VAT, and customs at 4 per cent of GDP (IMF, 2018a).
  - These estimates include a program since 2008 to reduce the cost of domestic food stuffs (Programme contre la vie chère) with a cost of 0.6 percent of GDP in 2018 in terms of foregone revenue; the Gabonese authorities have since eliminated about 85 percent of the products covered by this program.

### Indirect economic impacts and spillovers
- Proponents of SEZs promote potential indirect benefits: knowledge and skills transfers and backward linkages (demand for domestic inputs).
- There has been limited evidence to date on such indirect benefits in Gabon:
  - Survey data seeking evidence of spillovers from the SEZ/PPPs found little to no impact on the domestic economy in terms of domestic prices, agricultural production, or non-agricultural enterprise activity (Mouissi 2018), possibly reflecting the relative newness of the projects.
- Literature expresses considerable doubt on the strength of positive spillovers in the region.
- Investor priorities in Gabon’s SEZ (2018 survey) ranked incentives fourth among key issues for investors behind availability of raw inputs, country socio-political stability, and the ability to import labor and repatriate profits (Mouissi, 2018).
- Risks from exemptions noted in the literature:
  - Investors attracted to exemptions may structure businesses around relatively short time horizons (“footloose industries”).
  - Use of inter-company transfer pricing techniques to shift income from non-tax-exempt enterprises to tax-exempt companies to avoid tax liabilities.

### Risks to fiscal sustainability and revenue performance
- Non-oil domestic revenue is still low and below other upper middle-income countries despite a recent uptrend.
- Gabon’s non-oil revenue ratio declined by 13 percentage points of non-oil GDP from 2014 to 2016.
- Recent efforts to streamline tax expenditure and improve revenue administrations have helped increase revenue, but more needs to be done to generate fiscal space.
- Factors contributing to weak non-oil revenue performance:
  - The protracted oil shocks:
    - Cost-cutting by Gabon’s oil operators led to a virtual halt in the development of new fields, resulting in volume declines of around 6 percent per annum from 2015 (versus an average of -1 percent over the previous two decades).
    - Oil sector employment and investment shedding had knock-on impacts for non-oil activities.
    - At end 2018, although oil prices were only 30 percent below 2014 prices, oil revenues to Gabon’s budget remained some 60 percent below 2014 levels—less than half of the pre-shock level.
  - Weak tax administration:
    - IMF Fiscal Affairs Department technical assistance identified risks: weak political and financial support, incoherent strategic planning, low operational capacity, weaknesses in compliance and enforcement at both customs and tax administrations, and limited taxpayer segmentation (IMF, 2017).
  - Poor tax policy prioritization:
    - Gabon’s tax collective effort remains relatively reliant on the taxation of international trade.
    - Direct tax take is highly volatile, particularly the non-oil corporate income tax component (CIT); indirect taxation (including excises and VAT) has generally trended lower over the last two decades.
    - A one-off increase in indirect tax mobilization in 2013–14 is likely an accounting artifact linked to recording gross VAT collections without an offset for VAT reimbursements due.
  - Weak tax performance:
    - Corporate income tax productivity is below Gabon’s emerging market peers.
    - VAT C-Efficiency appears very low versus all comparators.
    - An IMF tax frontier study placed Gabon on the high end of tax SSA gaps at 5.8 percentage points of GDP (compared to gaps in the 3–5 percent range for the region), suggesting substantial scope to mobilize additional non-oil revenues through efficiency gains and institutional reforms (IMF, 2018b).

### Revenue forecasting uncertainty and fiscal risk scenarios
- Establishing revenue elasticity for Gabon is challenging because of limited and volatile time series and data weaknesses.
- A robust regression of changes in nominal fiscal revenue and the change of non-oil growth appears unrealistically weak elasticity at 0.2.
- A simpler computation indicates an average revenue elasticity of 0.6 during the decade leading up to the oil shock, with strong deterioration thereafter.
- Applying the elasticity estimate of 0.6 as a baseline and plausible non-oil output and elasticity shocks suggests:
  - Gross financing requirement could increase by 6 percentage points of GDP under a median shock (Figure 3 baseline incorporating planned revenue mobilization reforms).
  - If tax buoyancy from reforms delivers only half the expected yields due to delays and weaknesses in implementation, gross financing needs double to 12 percent of GDP, indicating substantial risks to fiscal and debt sustainability.

### Recommendations Toward Revenue-Friendly Diversification
Strengthen tax administration and tax policies
- Further strengthen revenue administration and improve tax policy as an urgent priority to tackle underlying weaknesses.
- Streamline the use of tax exemptions, and transparently disclose the fiscal costs:
  - Some tax relief during startup phases may be justified, but the recent proliferation of tax incentives to the SEZ and outside far exceeds those provided under Gabon’s 1998 investment charter.
  - Multiplication of tax instruments and exceptional preferences risks economic inefficiencies, administrative complexity, and abuse.
  - Aim to return to a simple, streamlined, and standardized system aligned with international best practices.
  - Full disclosure of tax expenditures is needed; most developed countries and many developing countries publish tax expenditures as part of the budget.
- Avoid the use of VAT exemptions as fiscal incentives:
  - VAT exemptions erode the base, create distortions that penalize domestic activity, and risk undermining economic diversification.
  - Gabon should eliminate VAT distortions through efficiency improvements and create a broad and fair system easier to administer.
  - Greater transparency (e.g., regular publications of VAT compliance gap analysis) could signal commitment to a sound VAT system.

Encourage spillovers to promote growth
- Harnessing FDI catalytic potential requires tapping productivity gains from knowledge and technological spillovers; experience in sub-Saharan Africa has fallen short.
- Improve the business climate and governance:
  - Make the environment attractive for domestic firms; use the SEZ as an incubator for business climate reforms.
  - Replicate the one-stop-shop to speed approvals across Gabon.
  - Use the zone to pilot electronic administrative processes and tax filing.
- Target low-cost interventions with the greatest potential spillovers:
  - Agriculture accounts for a large share of employment; reforms could have significant positive impacts on livelihoods and food security.
  - Only 3.5 percent of usable land is currently under exploitation, and cultivation is relatively unproductive.
  - Gabon’s 2016 agricultural development strategy intended to attract foreign investment through tax-free agricultural zones and an ‘out-grower’ program called GRAINE; the plan has been slowed for lack of funds and was costed at US$2 billion over seven years, making full implementation out of reach.
  - Achieve meaningful results through a scaled-down investment plan developed with stakeholders and provide transparent accounting of any fiscal incentives.
  - Focus on a few targeted value chains (e.g. cassava and plantains) and promote agricultural research and training, accelerate registration and land titling for agricultural cooperatives, and improve tracking and evaluation of agricultural spending.
- Establish a framework for upgrading domestic firms:
  - South Korea’s experience transforming EPZs into major markets for locally manufactured capital and intermediate goods offers lessons.
  - Given gaps in Gabon’s domestic industry vis-à-vis global market standards, target interventions at the domestic value chain for the developing wood cluster.
  - Accelerate formalization of the domestic woods sector, including deployment and adoption of a timber traceability system in line with international best practices.
  - Extend zone-focused initiatives (training, knowledge sharing, potential access to a €50 million working capital fund) outside the zone to encourage domestic spillovers and coordinate standards and capacity-building plans for domestic wood SMEs.
- Invest in human capital and social spending monitoring:
  - Investments in health, knowledge, and skills are critical to attract FDI and international know-how; Cleeve and others (2015) show a positive effect of human capital on FDI inflows.
  - The government targets substantial investment in human capital with support from the African Development Bank and the World Bank.
  - Improve capacity to monitor and report existing social spending to support effective implementation.
- Improve statistical collection:
  - Gabon’s statistical collection, dissemination, and analysis capacity is below peers, hurting monitoring of SEZ impacts.
  - The World Bank is aiding a new enterprise survey to include SEZ firms; the Gabonese authorities should ensure the statistical agency is properly resourced to produce and publish high frequency indicators.

*International Monetary Fund — excerpt from the chapter on Gabon*

### Box 1.  Olam Gabon Highlights

### Box 1.  Olam Gabon Highlights

### Overview
- Olam International is a Singapore-based agri-business firm with 2017 sales revenues of US$19.2 billion.
- Olam’s Gabon activities are part of a larger company initiative to build integrated valued chains in Africa, focusing on African markets as net importers of edible oils and other food stuffs.

### Footprint and Investments
- Since 2010, Olam International and the Republic of Gabon have entered into four PPPs covering palm oil, rubber, fertilizer and logistics as part of a Gabon Special Economic Zone (GSEZ).
- To date, total FDI across these projects has totaled approximately US$3.5 billion.
- Most projects are now shifting into the production phase, although the ammonia-urea fertilizer plant (US$1.5 billion) has been substantially delayed.
- Olam Gabon is the country’s largest private sector employer, with 17,480 direct employees at end-2017 across all units, generating half of all new private sector jobs in Gabon since 2010 (Mouissi, 2018).

### Fiscal incentives for Olam and GSEZ investors
- Single window clearance for approvals and certifications.
- Corporate income tax exemption for 10 years, and 10 percent during the following 5 years.
- 0 percent on customs duties of industrial equipment.
- 0 percent tax on dividends and property.
- VAT exemption of 25 years.
- Unconditional repatriation of profits and capital.

### Olam’s palm and rubber projects
- Planting completed in 2018.
- About 64,000 Ha is under palm oil cultivation and 11,000 Ha for rubber.
- Company target: palm business to be 100 percent RSPO certified by 2021.
- Volumes will ramp up to full capacity by 2023–24 at around 350,000 tons of palm oil per annum, placing Gabon amongst Africa’s top 5 producers.

### Special Economic Zone (GSEZ)
- GSEZ established in 2011 and started operation in 2014 as a PPP between Olam and the Gabonese Republic.
- Multi-sectorial industrial park covering 1,126 ha, managed and marketed by Olam; investors began set up in 2015.
- Site includes single-window business services and below-market-rate utilities (water and electricity) financed by GSEZ.
- By end 2018 the zone included 141 investors covering 95 different companies employing a total 2,200 workers.
- Cumulative investment by clients into the zone reached US$380 million by end 2017; commitments could see an additional US$600 million invested there through 2020.
- The zone is emerging as a wood cluster, with about three-quarters of its clients involved in harvesting and processing, boosting exports of value-added wood products, particularly veneer and plywood.
- Olam anticipates that total GSEZ exports could rise to US$1 billion by 2020, with a focus on Indian and Chinese markets.
- Note: In 2016, the Africa Finance Corporation became a partner in GSEZ with a commitment to invest up to US$140 million in the project.

### Infrastructure investments
- Olam has invested in infrastructure complementary to GSEZ, including a mineral port in Libreville, a multipurpose port, dedicated rail and stock, and transmission lines to support rural electrification.
- The ports are being operated as standalone profit-generating units and are accessible to the wider economy.
- Direct shipping has been established with ports with Asia.
- A subsidiary of the GSEZ has been awarded a 50-year concession for an international airport for Libreville; preliminary work on the US$500 million project got underway in 2018.

### GRAINE smallholder cooperative
- Olam and the Republic of Gabon have sought to develop a smallholder-based farmer cooperative called GRAINE (Gabonaise des Réalisations Agricoles et des Initiatives des Nationaux Engagés), leveraging company infrastructure for small scale cash and industry crops (mainly palm oil).
- Progress is slow: program registered some 17,000 members since its launch in 2014, but only 7,000 Ha was planted as of 2017 (versus the ultimate program target of 120,000 Ha).
- Under severe cash constraints, the government has been unable to finance needed rural feeder roads and training facilities.
- Olam scaled back its proposed investment under GRAINE by about four-fifths to US$180 million, leading to much lower projections for other agricultural products.

*Source: Box 1. Olam Gabon Highlights (concluded), IMF country report content.*

### 9.      Beyond the analysis of the level and decline in spending, identification of possible

### 1gabea2019003 - 9.      Beyond the analysis of the level and decline in spending, identification of possible

### Overview
- Assessment objective: gauge potential efficiency gains and possible savings by benchmarking social and economic outcomes in each spending area (health, education, social protection) against performance in upper-middle-income countries.
- Method: use broad indicators of public expenditure efficiency and the IMF Expenditure Assessment Tool (EAT) where data are available to estimate distance to an efficiency frontier and potential savings.

### Health — findings and recommendations
Findings
- Public health spending more than doubled between 2008 and 2018, driven by the rollout of the national health insurance system.
- Public health spending in Gabon remains relatively low compared with peers.
- Health outcomes have not improved commensurately with rising expenditure:
  - Average life expectancy at birth in 2016 was 58 years.
  - Under-five (infant) mortality rate is 65 deaths per 1,000 births.
  - Maternal mortality rate is well above the level of Gabon’s peers (figure referenced).
- Efficiency assessment (IMF EAT) indicates low efficiency relative to income peers:
  - Gabon is far from the health efficiency frontier; its distance to the frontier implies substantial loss in Healthy Life Expectancy (HALE) due to health system inefficiencies.
  - Gabon is not only spending less than comparators, its efficiency frontier is far below that of emerging economies (EMs).
- Current composition of spending is mismatched with impact:
  - About 80 percent of health resources are devoted to curative care, which contributes less than 10 percent to improvements in targeted health indicators.
  - Preventive care and public outreach account for about 20 percent of health spending, yet they contribute more than 60 percent to improvements in indicators targeted under the 2017–21 National Health Development Plan (PNDS).

Policy recommendations and efficiency measures
- Reorient expenditures toward preventive care.
- Implement performance-based financing (PBF):
  - Convert standard budget lines to performance-based payments.
  - Introduce direct transfers to service providers based on results achieved.
- Strengthen primary care to reduce hospital bypassing and overall costs.
- Increase funding for health-facility maintenance and public outreach.
- Improve sector efficiency and equity by:
  - Operationalizing health districts.
  - Improving referral systems.
  - Strengthening pharmaceutical management.
  - Developing transparent criteria for allocating resources.
  - Establishing oversight mechanisms for investment-plan implementation.
  - Creating more efficient budget-management and incentive systems.

### Education — findings and recommendations
Findings
- Public education outcomes are below what Gabon’s per capita GDP and public spending would predict.
- Gabon spends less on education than many comparable upper-middle-income countries.
- The allocation of public education spending is regressive overall:
  - Public spending at the primary level appears pro-poor, but spending is regressive at secondary and tertiary levels.
  - Girls outperform boys overall, but girls from very poor households are underrepresented in tertiary education.
- Key constraints: inadequate supply of human and physical capital, excessive emphasis on higher education, low completion rates, high repetition rates.

Policy recommendations and efficiency measures
- Increase allocation to primary and secondary education and TVET.
- Improve technical efficiency by investing in teacher training to reduce repetition and dropout rates.
- Extend the school year and strengthen school governance.
- Reform secondary, higher education, and TVET governance:
  - Improve governance of public TVET and higher-education institutions.
  - Expand private-sector role to align curricula with employer needs, establish internships, and develop dual-training programs.
  - Encourage private education providers in upper-secondary and tertiary education within an appropriate regulatory framework.
- Explore innovative strategies (e.g., distance-learning initiatives) leveraging improving internet connectivity.
- Enhance public administration and personnel management:
  - Assign staff to specific programs.
  - Develop a comprehensive education management information system backed by robust statistical data.
- Reallocate public support away from higher education (where many institutions could be viable without public support) toward primary, lower-secondary, and TVET.

### Social Protection — findings and recommendations
Findings
- The social protection system contains the necessary components but is fragmented, inefficient, underfinanced, and covers only a small fraction of the poor.
- Spending composition and coverage issues:
  - Subsidies account for 89 percent of expenditures devoted to supporting “economically weak Gabonese” (GEF) households.
  - Cash transfers represent only 10 percent of GEF-targeted expenditures.
  - No cash transfers were made to GEF households in recent years except for two small, short-term programs.
  - Most safety-net programs were available only in Libreville and Estuaire Province; only four out of fourteen programs reached the rest of the country.
- The SIHG contains 19 different social protection programs designed for seven specific vulnerable groups.
- Rising spending on pensions benefits disproportionately non-poor groups.
- Fragmentation and poor targeting reduce poverty-reduction impact and technical efficiency.

Policy recommendations and efficiency measures
- Improve targeting of non-contributory programs:
  - Update the poverty line using data from the 2017 household budget survey.
  - Create a methodology to identify vulnerable households based on consumption levels and living standards.
  - Define beneficiary classification instruments and verification procedures.
  - Produce an implementation manual specifying responsibilities and grievance/redress mechanisms.
  - Restructure the GEF database to include socioeconomic vulnerability indicators and ensure completeness and uniqueness of household information.
- Consolidate and modernize social transfer programs:
  - Merge programs of the same type (for example, consolidate eight cash-transfer programs into one).
  - Monetize and merge in-kind programs (for example, the “newborn kit”) with cash-transfer programs.
  - Leverage modern payment technologies (cell phones, ATM cards) to increase technical efficiency.
- Promote self-reliance and facilitate transitions out of poverty:
  - Define eligibility and exit criteria for special assistance.
  - Ensure entrepreneurship program participants receive regular cash transfers during enterprise start-up.
  - Provide frequent and regular technical and psychological assistance to beneficiaries.
  - Develop a robust monitoring system based on objective indicators.

### Conclusion
- While Gabon’s social indicators have improved relative to income peers, significant gaps remain to reduce poverty.
- Fiscal policy can create space for social spending through improved allocative and technical efficiency.
- Greater use of performance targets in resource-allocation decision-making is needed to increase both the level and efficiency of social spending and to achieve higher and more inclusive growth.

*Source: Excerpt from the provided IMF document.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1gabea2019003.pdf_