São Tomé and Príncipe economy - Industry Sector

The Industry Sector in São Tomé and Príncipe

This detailed analysis provides an in-depth examination of the industry sector in São Tomé and Príncipe, addressing its composition, contributions to the Gross Domestic Product (GDP), key sub-sectors, economic significance, challenges, and opportunities, as of March 6, 2025. The report aims to offer a thorough understanding for researchers, policymakers, and investors, ensuring a complete overview of the sector's role in the nation's economy.

Introduction

The industry sector in São Tomé and Príncipe is a critical component of the economy, contributing approximately 14.8% to GDP based on World Bank data from 2017. This sector encompasses a range of activities, including manufacturing, construction, energy production, and mining, though its scale is constrained by the country's small size, limited domestic market, and reliance on imported energy resources. Given its strategic importance for economic diversification and development, understanding the sector's dynamics is essential for assessing future growth potential.

Sector Composition

The industry sector, as defined by standard economic classifications, includes mining and quarrying, manufacturing, electricity, gas, and water supply, and construction. In São Tomé and Príncipe, the sector is composed of:

• Manufacturing: Encompassing the processing of goods such as fish, beer, textiles, soap, and timber.
• Construction: Primarily light construction activities, including infrastructure projects like roads, schools, and housing.
• Energy Production: Involving electricity generation, gas, and water supply, crucial for industrial and domestic use.
• Mining: Though minimal, it includes potential oil and gas exploration, with no current production.

Sub-Sector Contributions

Based on available data, the contributions of each sub-sector to the total industry GDP can be estimated as follows:

• Manufacturing: Contributes approximately 5.6% to GDP, based on World Bank data for manufacturing value added in 2017. This includes fish processing, beer production, textiles, soap, and timber, with activities primarily serving the domestic market.
• Construction: Accounts for about 4.5% of GDP, also from World Bank data for 2017, focusing on light construction projects such as road building, school construction, and residential developments, often funded by government and international donors.
• Utilities (Electricity, Gas, Water): Estimated at around 4.7% of GDP, calculated as the remainder (14.8% - 5.6% - 4.5%), reflecting the importance of electricity generation and distribution, given the country's reliance on imported fossil fuels.
• Mining: Has a negligible contribution to GDP, with no significant mining activities reported, though there is potential in oil and gas exploration in the Joint Development Zone (JDZ) with Nigeria.

Main Industries

The main industries within the sector are detailed as follows:

1. Fish Processing: Part of the manufacturing sector, fish processing involves activities such as freezing and canning for both local consumption and export. Export data from the Observatory of Economic Complexity (OEC) for 2022 shows frozen fish exports at $0.28 million, indicating a small but significant contribution to manufacturing.
2. Beer Production: Local breweries, such as Cerveja São Tomé, produce beer primarily for the domestic market, with limited export potential due to the small scale of production.
3. Textiles and Soap: These industries are small-scale, producing basic goods for local use, with no significant export presence noted in trade data.
4. Timber: The timber industry involves logging and processing of timber products, likely for domestic construction and furniture, with limited export, given the country's forest resources.
5. Construction Activities: Light construction includes infrastructure projects like roads and schools, as well as residential and commercial buildings, often supported by government initiatives and foreign aid.
6. Energy Production: The country relies on diesel generators for electricity, with some renewable energy projects, such as solar and hydro, in development, but overall, energy production is constrained by high costs and limited resources.

Economic Significance

The industry sector's contribution of 14.8% to GDP underscores its importance for economic diversification, particularly in a country heavily reliant on agriculture (11.8%) and services (73.4%). It provides employment opportunities, supports infrastructure development, and facilitates the processing of agricultural and fishing products. However, its growth is limited by the small domestic market, which restricts demand for manufactured goods, and the limited energy resources, which increase production costs and hinder industrial expansion.

Challenges

The industry sector faces several structural challenges:

• Small Domestic Market: With a population of about 225,000 and a land area of just over 1,000 square kilometers, the domestic market is small, limiting the scale of industrial activities and the demand for manufactured goods.
• Limited Energy Resources: The country relies heavily on imported fossil fuels for electricity generation, leading to high energy costs and unreliable supply, which hampers manufacturing and construction activities. Efforts to develop renewable energy, such as solar and hydro, are ongoing but face funding and technical challenges.
• Lack of Industrial Base: The absence of a robust industrial base means that most manufacturing is small-scale and focused on basic goods, with little capacity for export-oriented production.
• High Import Dependency: The need to import raw materials and machinery increases costs, further constraining industrial growth.

Opportunities

Despite these challenges, there are significant opportunities for growth:

• Oil and Gas Exploration: The Joint Development Zone with Nigeria and the Exclusive Economic Zone (EEZ) offer potential for future oil and gas production, which could boost the mining sub-sector if commercial reserves are discovered. Companies like Total and BP have shown interest, though no production has started as of 2021.
• Tourism-Related Construction: The growing tourism sector, contributing around 27.4% to GDP, may spur demand for construction, including hotels, resorts, and infrastructure, providing opportunities for the construction sub-sector.
• Renewable Energy Development: Investments in solar, wind, and hydro power could improve energy security, reducing costs for industrial activities and supporting sector growth.
• Export Potential: Enhancing fish processing and timber production for export could tap into regional and international markets, particularly in Africa and Europe.

Recent Developments

Recent developments include government efforts to improve the business environment, with reforms to attract foreign investment and special tax incentives under the Fiscal Benefit Code for companies providing training. The World Bank's Country Partnership Framework for FY2024-2029, endorsed in January 2024, focuses on improving infrastructure, including energy and roads, which could benefit the industry sector, with a total net commitment of $246.6 million. Additionally, there are ongoing projects to modernize the financial system, supported by World Bank initiatives, which could indirectly support industrial growth.