The Republic of Sao Tome and Principe (STP) is a lower middle income, developing small island state with a fragile economy. It is highly vulnerable to exogenous shocks. An archipelago divided into six districts and the Autonomous Region of Príncipe (Região Autónoma do Príncipe) and it 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 nearly 200,000 people, and a Gross National Income (GNI) per capita of $1,730 as of 2016.
Political Context
STP has operated under a multiparty democratic system since its independence in 1975. The National Assembly is comprised of 180 seats, of which 148 are currently held by the Independent Democratic Action Party (ADI).
Social Context
Despite methodological issues, there is a consensus that poverty incidence has not changed significantly between the last two household surveys (2000 and 2010). Recent World Bank estimates show that about one-third of the population lives on less than US$1.9per day, and more than two-thirds of the population is poor, using a poverty line of US$3.2 per day. Urban areas and southern districts such as Caué and Lembá have higher levels of poverty incidence.
STP performs higher than the Sub-Saharan Africa average on the UNDP Human Development index, and has made progress 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 years 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.
Economy
STP faces challenges that are typical of small states and affect its ability to deal with shocks and achieve a balanced budget. The limited number of people and workers in the country often prevent the efficient production of goods and services at the scale needed to meet the demand of both local and export markets. Its remoteness and insularity increases export costs, and the limited availability of land and small workforce prevent the country from diversifying its economy, making it more vulnerable to terms-of-trade shocks. The indivisibility in the production of public goods, and the difficulty of providing services to a scattered population imply a high cost of public goods and a high level of public expenditures.
Gross domestic product (GDP) growth has been relatively steady since 2009, but growth is heavily reliant on government spending and has not significantly contributed to poverty alleviation. GDP grew at an average rate of 4.5% between 2009 to 2016, with a mild deceleration since 2014. Agriculture production has declined since independence in 1975, and is no longer the main driver of economic growth. However, agricultural goods, especially cocoa, constitute the bulk of the country’s exports. Also, tourism is a natural comparative advantage for STP and already constitutes an important economic activity, although the country is far from becoming a tourism-dependent economy.
Commercial oil activity is not expected before 2020, and very few goods are produced locally, thus STP is heavily dependent on imports, including oil for power generation.
The country runs large structural external deficits because of its small production base. Its current-account deficit (excluding official transfers) declined from 25.2% of GDP in 2015 to 20.8% in 2016. The main contributing factor to the improvement in the external accounts was a decline in oil imports from 9.8% of GDP in 2015 to 6.2% in 2016 due to lower oil prices. During the same period, exports of goods increased from 3.6% of GDP to 3.9%, while tourism exports grew by only 0.1% points of GDP.
STP’s exports are highly concentrated in cocoa. Income from migrant remittances decreased from 5.7% of GDP in 2015 to 4.6% in 2015, as economic growth slowed in Portugal and stagnated in Angola.
Development Challenges
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 long-term challenge for STP is to move from ambitious plans to feasible actions that will help make the economy more dynamic.
Lack of up-to-date poverty data undermines efforts aimed at reducing poverty in the country. The latest available household survey data was collected in 2010. A new household budget survey data, analysis and dissemination is expected to take place this year.
Last Updated: Aug 27, 2018
