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Sao Tome and Principe Overview

    Context

    Economic Overview

    Although the São Tomé & Príncipe’s (STP) economy remains vulnerable to external and domestic shocks, its outlook remains positive. The country’s gross domestic product (GDP) is expected to grow from 4.1% in 2014 to 4.4 % in 2016. The annual average rate of inflation has trended downward consistently each year, from 26% in 2008 to 6% in 2015.

    The country has also registered significant improvements in human development front. It ranks 144th out of 186 countries in UNDP’s Human Development Index (HDI), higher than the average in Sub-Saharan Africa and with consistently improving indicators. Great strides have been made in education and health outcomes. Recent achievements include a sharp decline in maternal and child mortality rates due in large part to an increase in the proportion of births attended by skilled birth attendants. Important progress has been achieved in the fight against malaria, with a record low incidence as well as HIV/AIDS prevalence at less than 1.5%. STP has also registered excellent progress in education, especially in primary education and is close to achieving the primary education completion rate at 97%. Secondary education does not yet have universal coverage with supply limited to main urban areas.

    Despite those remarkable achievements, the country is rated a Fragile State as assessed using the Multilateral Development Bank measurement, which is based mainly on the country’s economic vulnerability and insularity, and its vulnerability to unpredictable shocks, such as food shortages, climate change. With limited progress in poverty reduction, unemployment continues to be high, especially among women and youth population, and pockets of chronic malnutrition and infant mortality remain a concern.

    Political Context

    STP has been largely free of conflict and political violence since holding its first multiparty elections in 1991. However, internal political wrangling has caused repeated changes in governments and two failed coups in 1995 and 2003.

    The Acção Democrática Independente (ADI), led by the former Prime Minister, Patrice Trovoada, won a decisive victory in the October 2014 legislative election, securing an absolute majority with 33 out of 55 seats in parliament. This was a surprising result in a country accustomed to fragile, multiparty coalition governments. The Movimento de Libertação de São Tomé e Príncipe Partido Social Demócrata (MLSTP PSD), which governed the country in 2012-14, won 16 seats, and will be the main opposition party.

    Political stability is likely to improve given Mr Trovoada's outright majority in parliament. No government has lasted its full term since 1990, but without the threat of censure votes, Mr Trovoada could remain in power for the next four years, assuming that he can keep his party united. There were some signs of internal squabbles in the lead up to the election, culminating in the departure in August of Nelson Carvalho, the head of the municipal council of Mé Zóchi (the second most populous district). However, Mr Trovoada's convincing victory will fortify his position within the party.

    The main source of political tension is likely to be an uncomfortable political cohabitation between Mr Trovoada's government and the presidency of Manuel Pinto da Costa, an independent but a former leader of the MLSTP PSD (which now finds itself in opposition). Trovoada blames Pinto da Costa for his role in the ejection of the ADI-led government via a parliamentary no confidence vote in 2012.

    In mid-2014, Trovoada filed a complaint with the International Criminal Court in The Hague, accusing Pinto da Costa and the former prime minister, Gabriel Costa, among others, of political persecution of their opponents. Although nothing is likely to come of this, it underscores the frictions between the two camps. The period of political cohabitation, which will last at least until the presidential election due in 2016, will not prevent state institutions from functioning, but it may slow down policymaking.

    There are also significant risks to social stability. 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. Ongoing power cuts, poor provision of basic social services and recurrent allegations of financial irregularities in the public sector also risk undermining support for the government.

    The next national election is the presidential ballot, due in 2016. The incumbent president, Pinto da Costa, who will turn 79 in 2016, is yet to indicate whether he will seek another term. Trovoada is likely to seek to capitalize on his convincing win in the 2014 legislative election, either by standing for the presidency himself or by supporting a close ally for the position. His or the ADI candidate's prospects will depend on how he and the party perform in government until then. Although they will benefit from having access to state resources, failure to improve living standards and make progress on job creation and infrastructure investments will weaken their chances. During the 2014 legislative poll, the ADI was able to exploit the worsening divisions within the MLSTP PSD, which lost three senior members ahead of the election. As a result, the MLSTP PSD's prospects in 2016 will partly depend on its ability to limit the damages caused by defections and restore voters' confidence in its ability to oversee the country's affairs. Source: Economic Intelligence Unit, April 2015.

    Development Challenges

    While STP faces complex set of challenges, it also has a number of opportunities it can capitalize on.  Its challenges mainly stem from its isolated setting, its limited internal market, an undiversified economy, environmental degradation and climate change, frequent turn-over in government, as well as management of revenues from incipient – though uncertain – oil sector.  Nonetheless, STP has significant opportunities to diversify its economy through tourism, fisheries, hydropower as well as oil production. Access to education and health have markedly improved (though quality remains an issue), positioning STP well to make strides in economic growth and poverty reduction.

    The Government of Sao Tome and Principe (GoSTP) has prepared its second poverty reduction strategy paper (PRSPII), which identifies and sets forth the country’s priority areas of intervention for a five-year period (2012-2016). The PRSP II focuses on four pillars:

    • Promoting good governance and public-sector reform;
    • Supporting sustainable and inclusive economic growth;
    • Enhancing human capital and extending basic social services; and
    • Reinforcing social cohesion and social protection, particularly for vulnerable population groups.

    In order to achieve the above vision, the following general strategic objectives have been defined: i) maintaining an annual GDP growth rate of at least 6% in order to facilitate consistent diversification of the economy, reducing the percentage of the population living in poverty by 10 percentage points through promotion of income generating initiatives so as to improve the economy’s productive capacity, and improving access to basic social services to the entire population.

    Last Updated: Apr 16, 2015

    LENDING
    Sao Tome and Principe: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Strategy

    World Bank Group (WBG) Assistance

    The WBG adopted a new Country Partnership Strategy (CPS) in July 2014 to help the Democratic Republic of São Tomé and Príncipe (STP) implement its Second Poverty Reduction Strategy Paper, agreeing to provide up to $20 million in International Development Association (IDA) resources over four years to help cut poverty (currently above 60%), increase growth, create jobs, and reduce the country’s vulnerability to shocks. Under the new CPS, the WBG will focus on two broad themes as follows:

    • Supporting macroeconomic stability and national competitiveness, and
    • Reducing vulnerability and strengthening human capacity.

    Embedded in the above development objectives are cross cutting themes such as addressing gender inequities, supporting partnership, and fostering capacity-building.

    The strategy acknowledges STP great potential for growth in the private sector, as well as job creation in tourism, fisheries, and agribusiness. The WBG’s three out of five institutions, namely the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA)—are set to work together to help improve public finance and natural resource management, private sector capacity (including in tourism and small and medium enterprises), business climate and trade regulations, jobs, primary education and skills development, and addressing climate change concerns. The strategy states that IDA resources will be complemented by Trust Funds, as well as IFC and MIGA support. The strategy also seeks to ramp up the WBG’s knowledge support to the country, including through targeted analytical and advisory activities, and technical assistance.

    Portfolio

    The current portfolio consists of two ongoing International Development Association (IDA) funded projects: STP Quality Education for All – Additional Financing ($3.5 million); and Adaptation to Climate Change ($4.15 million).                 

    Last Updated: Apr 16, 2015

    LENDING
    Sao Tome and Principe: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Results

    São Tomé and Principe is benefiting from a regional Central African Backbone project to provide broadband connectivity. Along with other two Fragile States, Liberia and Sierra Leone, STP was one of the countries with the highest costs of communications in the world, which is believed to significantly hamper opportunities for growth and development in West and Central Africa. These countries were the first beneficiaries of the IDA support to the Africa Coast to Europe cable thru the IDA West Africa Regional Communications Infrastructure Program Project; the development objective of which is to increase the geographical reach of broadband networks and dramatically reduce costs of communications services in West Africa. The Gambia, Guinea, Benin, and Gabon followed. WBG support to seven countries under the Africa Coast to Europe (ACE) cable, a private sector led consortium, has resulted in the construction of approximately 17,000 km submarine cable system that connects South Africa to Europe, potentially connecting up to 23 countries along the route. The ACE is an over $700 million investment, with each country contributing approximately $25 million to secure a landing station in its territory.

    Following the requests from the governments, IDA was able to mobilize resources to enable these countries to make initial payments to join the ACE project on time. Overall, IDA’s approved $52.6 million for the countries to participate in ACE, and also additional financing for complementary activities. IDA’s funds helped leverage additional private sector resources to benefit from this unique opportunity to provide citizens of these countries with affordable broadband. Within the few months of its operation, the submarine has contributed to lower prices for enterprises and the private sector in general, providing them digital communications tools to become effective players in the Africa region as well as in the global economy. Along with infrastructure, IDA is helping the countries modernize policy and regulatory frameworks and develop public-private participation frameworks to continue leveraging private investment into the telecommunications sector. In STP, the project has provided technical assistance to government for introduction of competition and a second telecommunications license has just been awarded.

    Improving Transparency: Significant progress in improving transparency, fostering competition and improving the business environment has been made by the Government of STP with the support of the WBG, namely IFC’s advisory and technical assistance. In 2012 STP was the third-strongest reformer in the world in the Open Budget Index (OBI) thanks to substantial reforms in the area of budget transparency and accountability: STP improved its OBI score from 0 to 29, out of 100, jumping 25 places to rank 62nd in the world. Furthermore, improvements in the investment climate earned STP a spot among the top-ten worldwide reformers in the 2012 Doing Business report, and a spot in the top 50 worldwide reformers from 2005-2013 in the 2013 DB report; STP became the world’s top reformer in terms of business freedom in the 2012 Heritage Foundation's Index of Economic Freedom and jumped 28 positions, from 100th place to 72nd in the world on Transparency International’s Corruption Perception Index, well above the average for the Sub-Saharan Africa region.

    Support to Education: The Social Sector Support Project and its Additional Financing Operation, financed in part by the Education for All-Fast Track Initiative (EFA/FTI) Catalytic Fund Grant (now Global Partnership for Education Fund), have exceeded the targets these project had set out to achieve for STP. Examples of those gains include the current Gross Enrollment Rate (GER), estimated at 121%, and the completion rate in primary education at 64%. The ‘survival’ rate from first to sixth grade rose to 66.7% in 2009, from 47% in 2003, and the transition rate from fourth to fifth grade increased to 84.2% from 60% in the same period. The percentage of schools working on a triple shift regimen has dropped to eight from 27 in 2003, and the ratio of one textbook per student has been achieved.

    Support to the Health Sector: The health sector is also demonstrating encouraging results, particularly in the areas of maternal health and child health care. Most of the original project indicators have also been reached or surpassed. The proportion of births attended by skilled professionals increased to 86% in 2009 from 70% in 2003 (surpassing the project target of 85%) as a result of improvements in service delivery, particularly in rural areas. At the same time, the proportion of pregnant women receiving antenatal care increased from 65% to 82.3% during the same period. Progress was also registered in child health care. The immunization rate for measles in 2009 is at 93.1%, and São Tomé and Príncipe has been a success story on the malaria front: the incidence of the disease in children under five years old has decreased to 34 per 1,000 in 2009 from 1,273 per 1,000 in 2004, primarily as a result of the use of bed nets, and the treatment of malaria cases with a combination of amodiaquine and artesunate. Mortality from malaria has dropped to close to zero in 2009. The HIV prevalence among pregnant women has dropped from 5.4% at the beginning of the project to an estimated 1.5% in 2009, although some concerns still remain. Civil society organizations have also played an important role in project implementation.

    Support to Climate Change Mitigation: The Climate Change Mitigation Operation has been providing coastal early warning systems and safety at sea so artisanal fishermen can adapt to the adverse impacts of climate variability.  This is done through disseminating timely forecasts prior to extreme events, distributing safety equipment and training on safety at sea, and reinforcing coastal community emergency preparedness. The operation also addresses coastal erosion and inundation by piloting participatory coastal adaptation measures in vulnerable fishing communities, and develops public awareness and improved coastal resilient policies.

    Transparency in Public and Natural Resources Sectors: São Tomé and Príncipe is focusing on building institutional and legal capacity to improve economic management and to strengthen accountability of public and natural resources.  Support from Bank projects has helped STP to strengthen the governance in the fisheries sector, improve the dissemination and quality of budget documents, promote fiscal stability, and strengthen public sector management. As a result of these efforts, the recent Open Budget Index of 2012, for example, highlights STP as the third top reformer in the world during the 2010-2012 periods.  Additionally, for the first time after almost two decades, STP prepared and submitted the 2010 Public Accounts of the State. A new operation is under preparation to continue Bank assistance in these areas and further strengthen economic governance in natural and public resources.

    Last Updated: Apr 16, 2015

    LENDING
    Sao Tome and Principe: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Partners
Country Office Contacts
Main Office Contact
+258-21-482-300

Rafael Saute
Sr. Communications Officer
+258-21-482-944

Av. Kenneth Kaunda, 1224
Maputo, Mozambique

rsaute@worldbank.org
In Washington:
Thomas Buckley
Country Program Coordinator
+1-202-473-0075

1818 H Street, NW
Washington, DC 20433

tbuckley@worldbank.org