Investing in Sao Tome
Discover São Tomé and Príncipe: A Unique Investment Destination
São Tomé and Príncipe's geographical and physical characteristics offer a compelling case for sustainable development and investment. The nation's varied ecosystems, significant forest cover, fertile volcanic soils, and favorable climate provide fertile grounds for innovative projects, particularly in renewable energy, agriculture, and eco-tourism. Its well-structured administrative framework further facilitates regulatory compliance and governance. As part of the Small Island Developing States (SIDS), São Tomé and Príncipe presents unique opportunities for investors aiming to contribute to sustainable development while reaping significant returns. By investing in this distinctive locale, you have the chance to be part of a transformative journey toward a sustainable future, leveraging the archipelago's natural wealth and strategic position.
Geographical Location and Composition
Location and Composition: Situated in the Gulf of Guinea, São Tomé and Príncipe comprises two main islands, São Tomé and Príncipe, as well as several smaller islets. These islands are separated by approximately 140 km. The total land area amounts to 1,001 km², with São Tomé covering 859 km² and Príncipe, along with its islets, accounting for 142 km². Additionally, São Tomé and Príncipe boasts an Exclusive Economic Zone (EEZ) stretching over 170,000 km². Due to its unique characteristics, the country is classified as part of the Small Island Developing States (SIDS) group.
Geographical Coordinates and Position: This archipelago is prominently located about 300 km off the northwest coast of Gabon in Central Africa. Geographically, it sits between latitudes 1°45'N and 0°01'S and longitudes 6°26' and 7°30'E.
Topography and Soil
Topography and Relief: São Tomé and Príncipe's volcanic origin lends it a rugged terrain, predominantly featuring mountainous regions made of volcanic basalt. The island of São Tomé is particularly notable for its peak, which rises to 2,024 meters above sea level. Coastal areas are largely composed of plains, especially towards the north and east, where slopes are more gradual. Conversely, the southern region of São Tomé is characterized by expansive plains.
Soil and Vegetation: The islands' soils are mainly basaltic, offering medium to high fertility and excellent water retention capacity. This, coupled with the varied relief and climate, supports diverse ecosystems categorized into forest ecosystems, agricultural ecosystems, and inland water ecosystems. Remarkably, forest cover constitutes about 90% of the land area, including natural forests (Obô), secondary forests (Capoeira), and shade forests, each facing unique challenges and opportunities.
Climate and Hydrography
Climate: São Tomé and Príncipe enjoys a humid tropical climate characterized by two primary seasons: a rainy season lasting nine months from September to June, and a drier period known as "Gravana" from June to September. This dry season is particularly pronounced in the northeastern regions. The islands receive abundant rainfall, averaging over 2,000 mm annually and reaching up to 7,000 mm in elevated areas. The average temperature is around 25.6°C at sea level, peaking at approximately 30.0°C in mountainous regions. Wind speeds range from 2.5 m/s to 6.3 m/s, with stronger winds observed in the southern part of São Tomé. The average solar radiation is about 4.25 kWh/m²/day.
Hydrography: The archipelago's river systems feature a radial network originating from central mountainous areas, with over 200 watercourses feeding various basins and aquifers. Major rivers in São Tomé include Ió Grande, Do Ouro, Contador, and others, while Príncipe's main river is the Papagaio. These rivers play a vital role in the islands' ecosystem and potential hydro projects.
Administrative Structure
Administrative Divisions: São Tomé and Príncipe is divided into four main regions: North, Central Coast, South, and Príncipe. These regions are further subdivided into seven districts, namely Água Grande, Cantagalo, Caué, Lembá, Lobata, and Mé-Zóchi in São Tomé, and Pagué in Príncipe. Each district has its administrative body, ensuring localized governance and streamlined operations.
Macroeconomic Data of São Tomé and Príncipe
São Tomé and Príncipe, though small and geographically isolated, offers intriguing opportunities for investors. Understanding the macroeconomic backdrop is essential for making informed investment decisions. Here, we present a detailed overview of the country's macroeconomic indicators, recent reforms, and economic performance.
Currency and Monetary Reform
Currently, São Tomé and Príncipe's currency is the New São Tomé and Príncipe Dobra (nDB), with the international code STD. The currency is pegged to the Euro at a fixed rate of 24.50 STD per Euro. To enhance trust in the national currency, the Central Bank of São Tomé and Príncipe (BCSTP) launched a monetary reform project that introduced the new currency on January 1, 2018, eliminating three zeros from the previous currency.
Economic Challenges and Reforms
The economy has faced numerous challenges, including geographic isolation, limited internal market and resources, susceptibility to external shocks, and environmental threats like climate change. These factors have historically resulted in economic volatility and reduced the value of the Dobra significantly, with an annual depreciation of 11% against the US Dollar and 12% against the Euro between 2005 and 2010. The reform was also driven by the need to address issues like counterfeit currency, evidenced by the seizure of large quantities of fake banknotes in 2015.
Economic Performance and Growth
Between 2012 and 2016, São Tomé and Príncipe saw a relatively strong average annual economic growth rate of approximately 4.2%. This growth was supported by increased Foreign Direct Investment (FDI), new donor-funded projects, and improvements in tax revenues and tourism. Fixed parity with the Euro helped control inflation, which decreased progressively from 8.4% in 2013 to 4.6% in 2016. However, the economy's limited diversification and heavy reliance on cocoa exports make it vulnerable to global market fluctuations.
Despite these challenges, the current account deficit as a percentage of GDP improved from 39.4% in 2012 to 20.2% in 2016. Meanwhile, capital expenditures averaged around 12.2% of GDP, constrained by structural weaknesses in resource mobilization and absorption capacities. FDI saw a modest recovery from USD 11.3 million in 2013 to USD 21.2 million in 2016, following a decline from record highs in 2008 and 2010.
Fiscal Policy and Debt Management
Efforts to improve tax revenues and control public expenditure have been effective, reducing the overall fiscal deficit from 11% of GDP in 2012 to less than 3% in 2016. However, the country's nominal external debt stock increased from 30.7% of GDP in 2012 to 36.2% of GDP in 2016. Public investments were predominantly financed through Official Development Assistance (ODA), which averaged 93.6% of public investment funding between 2012 and 2016.
Sector Contributions to GDP
In 2017, the trade sector had the highest contribution to GDP, representing 25.4%. Other significant sectors included transportation, storage, and communications (11.2%), public administration and mandatory social security (9.6%), manufacturing industries (6.9%), construction (4.9%), and agriculture, animal production, hunting, and forestry (4.2%).
Trade Balance and Export Performance
Provisional data from the National Statistics Institute (INE) indicate that in 2017, goods imports amounted to 3,267.7 billion Dobras, a 5.5% increase over 2016. Key import groups included mineral fuels, machinery and appliances, and foodstuffs, accounting for 68% of the total imports.
In contrast, goods exports in the same year reached 234.8 billion Dobras, a 0.9% increase from 2016. Foodstuffs dominated exports, making up 81% of the total value. Efforts to diversify and increase exports, along with tourism and improved cocoa production, are pivotal for reducing the current account deficit.
International and Regional Standing
In the 2019 Doing Business report, São Tomé and Príncipe ranked 162nd out of 190 countries for overall ease of doing business and 148th for starting a business. Transparency International's 2018 Corruption Perception Index placed the country 64th out of 180, with a score of 46, indicating moderate levels of corruption.
Regional Integration and Economic Policies
Since 1983, São Tomé and Príncipe has been a member of the Economic Community of Central African States (ECCAS) and holds observer status with the Economic and Monetary Community of Central Africa (CEMAC). It is also a member of the Community of Portuguese Language Countries (CPLP).
Following its inclusion in the Highly Indebted Poor Countries (HIPC) Initiative in December 2007, the country has implemented policies aimed at macroeconomic stabilization, growth promotion, and poverty reduction, lifting it to the lower middle-income category with an estimated per capita income of USD 1,670 in 2015.
São Tomé and Príncipe Economic Outlook
Recent Macroeconomic and Financial Developments
GDP Growth: In 2023, São Tomé and Príncipe saw a modest rise in real GDP growth from 0.1% in 2022 to an estimated 0.5%. This slow growth can be attributed primarily to ongoing power disruptions that have adversely impacted economic activities. Compounding these challenges were the global repercussions of Russia's invasion of Ukraine, which drove up food and oil prices.
Inflation: Inflation has been a significant concern, skyrocketing from 8.1% in 2021 to 17.9% by the end of 2022, eventually reaching 21.3% in 2023. These inflationary pressures were the result of supply shocks and increased global demand in the aftermath of the COVID-19 pandemic.
Fiscal Deficit: São Tomé and Príncipe continues to grapple with a structural fiscal deficit, although there has been an improvement. The deficit is estimated at 4.2% of GDP in 2023, down from 6.2% in 2022. This shortfall is largely financed through grants and loans from bilateral and multilateral partners.
Current Account Deficit: The nation's current account deficit has shown some improvement, narrowing from 14.5% of GDP in 2022 to 13.8% in 2023. The economic relationship with Portugal remains vital, as the country's currency is pegged to the Euro under an agreement with Portugal.
Energy and Food Security: One of the major challenges São Tomé and Príncipe faces is ensuring energy and food security. Net international reserves fell sharply, from $29.9 million in 2021 to just $0.51 million in December 2023, barely covering a month of imports, including fuel.
Banking Sector: The banking sector has been affected by the unfavorable economic environment, with nonperforming loans rising from 8.1% of gross loans in 2022 to 11.9% in 2023. This increase reflects the private sector's difficulty in meeting its financial obligations.
Poverty and Unemployment: On a positive note, the multidimensional poverty rate fell remarkably from 40.7% in 2008 to 11.7% in 2019. However, the national unemployment rate increased to 15.7% in 2022 from 8.9% in 2017, with women (14.6%) and youth aged 15–24 (21.3%) being the most affected.
Outlook and Risks
Economic Growth: The medium-term economic outlook for São Tomé and Príncipe remains uncertain due to external shocks and structural weaknesses. Economic growth is projected to be slow, at 1.2% in 2024 and 2.1% in 2025.
Inflation: Inflation is expected to continue its downward trend, averaging 16.1% in 2024, as the effects of global supply shocks diminish.
Fiscal Deficit: The fiscal deficit is projected to decline further, reaching 3.3% of GDP in 2024 and 2.9% in 2025, indicating some stability in public finances.
Current Account Deficit: The current account deficit is expected to continue its downward trajectory, narrowing to 11.4% of GDP in 2024 and 9% in 2025.
Recovery Program: The government is in discussions with the International Monetary Fund (IMF) to formulate a program that will support economic recovery and stability.
Risks to Growth: Major medium-term risks to growth include a poor business environment, sometimes unstable energy supply, and a lack of investment in key trade infrastructure. These factors could hamper the country's ability to sustain economic growth.