São Tomé and Príncipe High Dependence on Foreign Aid

High Dependence on Foreign Aid in São Tomé and Príncipe

Historical Context and Economic Foundations

Following independence, São Tomé and Príncipe faced substantial economic challenges, primarily due to the decline of the cocoa industry, which had been the foundation of the economy during the colonial era. After the nationalization of the roças (plantations) by the Movement for the Liberation of São Tomé and Príncipe (MLSTP) and the mass exodus of Portuguese colonists fleeing perceived communist rule, cocoa production fell dramatically from approximately 10,000 tons in 1975 to less than 1,000 tons by the mid-1980s. This decline resulted from several factors, including a lack of technical expertise, insufficient investment, and a global downturn in cocoa prices.

The dependency on cocoa exports led to economic stagnation, rising unemployment, and urban migration, leaving many farmers without sustainable livelihoods. Fiscal constraints became evident, as foreign aid began to constitute a significant portion of government revenue, covering as much as 40% of the national budget in some years. Structural adjustment programs implemented in the 1980s, largely sponsored by the IMF and World Bank, aimed to stabilize the economy and reduce reliance on cocoa.

Economic Vulnerability and Structural Adjustment

Structural adjustment programs initiated in the 1990s sought to diversify the economy beyond cocoa and improve local food production. However, these measures often produced mixed results, leading to further declines in agricultural output due to market size limitations and profitability challenges. The small economy, with agriculture contributing about 20% to GDP and employing over 60% of the population, faced increased vulnerability to global economic shifts.

Infrastructure inadequacies, particularly in transportation and energy, compounded these economic challenges. By the 1980s, roads and ports were in disrepair, resulting in high transportation costs and unreliable services. This situation contributed to the nation's dependence on foreign aid for crucial development projects, including roads, schools, and healthcare facilities, with significant funding coming from international donors such as the European Union and China.

Social and Cultural Factors

Social inequalities persisted among various ethnic groups, such as forros (descendants of freed slaves), serviçais (contract workers), and angolares (descendants of shipwreck survivors from Angola). The forros held dominant positions in politics and the economy, while serviçais and angolares faced heightened poverty rates, particularly in rural areas, where approximately half the population lived below the poverty line by the 1990s. Cultural values resistant to development, including clientelism and corruption, continued to hinder self-sufficiency and effective governance.

Access to essential services such as education and healthcare remained a significant challenge, especially in rural regions. Foreign aid was critical for funding these services, highlighting the difficulties in integrating marginalized groups and addressing social disparities. Although land reform in the 1990s aimed to redistribute land to ex-serviçais, it failed to fully resolve the existing inequalities.

Political and Institutional Instability

The political landscape immediately following independence was dominated by the MLSTP under a one-party state from 1975 to 1990. The introduction of a multiparty system in 1990 did not stabilize the situation, as the period was marked by significant political instability, including an attempted coup in August 1995. The political elite engaged in neopatrimonialism and corruption, leading to the mismanagement of state resources and frequent changes in government.

The absence of a robust intellectual or middle class, unlike in Cape Verde, limited the country's ability to design effective development strategies. Frequent changes in policies and governance weakened institutions and increased reliance on foreign aid, which was often contingent on governance reforms.

Geographical and External Constraints

Being a small island nation, São Tomé and Príncipe faced inherent challenges such as high transportation costs and limited market access, making it vulnerable to global economic fluctuations. Its dependence on limited natural resources and a narrow range of exports exacerbated its susceptibility to external economic shocks. The geographical isolation further complicated development efforts, highlighting the need for foreign aid to support critical infrastructure projects, such as roads and ports.

Efforts to Reduce Aid Dependence and Current Status

The efforts to diversify the economy and improve governance continue, with initiatives aimed at sustainable agricultural practices and fair trade in the cocoa sector. The government has also targeted niche markets for high-value exports, including organic cocoa, and tourism, particularly eco-tourism related to historical roças, has been promoted to bolster the economy. Despite these efforts, progress in reducing aid dependence is slow. High poverty rates, especially in rural areas, and ongoing institutional challenges indicate that reliance on foreign aid persists. The complexities surrounding land reform and its impact on inequality underscore the difficulties of achieving economic self-sufficiency.