The Republic of Sao Tome and Principe (STP) is a lower middle income, small island developing state with a fragile economy and high vulnerability to exogenous shocks. An archipelago comprising two mains islands and four islets, STP is located in the Gulf of Guinea 350 km off the west coast of Africa. With a surface area of 1,001 sq. km, this Portuguese speaking country has a population of 197,900 people and a gross national income (GNI) per capita of $1,570 in 2014.
STP has limited resources. Its export base is undiversified and consists essentially of cocoa and a nascent tourism industry. Prospects for oil production are uncertain, following Total’s withdrawal from exploration activities in the Joint Development Zone (JDZ) shared with Nigeria. STP has limited but fertile land in which agricultural products such as cocoa, coffee and various food crops are produced.
The Independent Democratic Action Party (ADI) won an absolute parliamentary majority following the 2014 elections. This presents the first opportunity in over a decade for political stability in the country since the government can have a full four-year term in office. The ruling party currently occupies 148 out of 180 seats in the National Assembly. The next presidential elections will take place in 2016.
In the 2012-13 Second Poverty Reduction Strategy (PRSP-II) implementation review report, the STP government acknowledges that the reduction of poverty rates since 2000 has been marginal. Poverty incidence is estimated at 62% of the population. Urban poverty is high compared to rural poverty due to limited employment opportunities, notably for youth. On a positive note, STP performs higher than the Sub-Saharan Africa average in the UNDP Human Development index, and has made good progress in improving other social indicators. It has a gross primary school enrollment of 110%, a life expectancy of 66 years, a mortality rate of children under five year old of 51 per 1,000 live births, access to an improved water source for 97% of the population, and access to electricity for 60% of the population.
STP is on track to meet the MDGs on universal primary education, promoting gender equality and empowering women, improving maternal health, and combating HIV/AIDS, TB, malaria and other diseases by 2015.
STP’s economy has strengthened in recent years, but high public debt and persistent poverty continue to present policy challenges. GDP growth picked up slightly to 4.5% in 2014, driven by an increase in foreign direct investment (FDI), the launching of new donor financed projects, and improved tourism receipts. Supported by the exchange rate pegged to the euro, inflation continued is decline to 6.4% in 2014 and is projected to decline further to around 5% in 2015.
Fiscal consolidation remains a challenge. With underperformance in revenues, including as a result of non-payment of import duties by the main oil importer ENCO, and overruns in spending in the run-up to the 2014 parliamentary elections, the primary deficit rose sharply from 0.8% of GDP in 2013 to 3.4% of GDP in 2014. Also, net government domestic arrears continued to increase, having reached 15.9% of GDP in March 2015. A bulk of these are claimed by ENCO from the government on account of keeping pump prices below import and distribution costs since 2011. High levels of non-performing loans (18% in 2014) and a shortage of bankable projects contributed to the decline in bank credit to the private sector in 2014.
Strong cocoa exports and tourism receipts contributed for the improved external position. The current account deficit (excluding transfers) improved to 37% of GDP, an improvement of 1.2 percentage points compared to 2013.
The authorities project a growth rate of 5% in 2015 and an acceleration 5.5% in 2017 and 2018, driven by the scaling up of investments in infrastructure, as well as growth in tourism and agriculture. Improvements achieved in STP’s debt sustainability, combined with the existence of clearly identified growth enhancing medium term investments, have led to a lower concessionality threshold for the country, from 50% to 35%.
For the foreseeable future, STP will continue to face significant challenges to overcome insularity, small market size, vulnerability to natural shocks and climate change, limited human capital, and scarce tradable resources to generate sustainable and inclusive growth and reduce poverty.
The authorities plan to implement an ambitious and comprehensive reform agenda, summarized in the planned 2016-2018 National Strategy Document that builds on the recently completed review of progress made in the implementation of PRSP-II. Priority will continue to be given to: (1) promoting good governance and public sector reform; (2) promoting sustainable and inclusive growth; (3) strengthening human capital and social service delivery; and (4) strengthening social cohesion and social protection.
STP ranks 76th out of 175 countries in the 2014 Transparency International corruption perceptions index (place is shared with Montenegro). STP ranks 153rd out of 189 economies in the 2015 Doing Business report, having improved its rating from 160 in 2014.
Last Updated: Oct 01, 2015