- Sao Tome and Principe’s economy was estimated to have grown by 5% in 2016, led by agricultural investment and tourism, and growth is set to continue in 2017 and 2018 by 5.5% on average.
- The country has improved on the Mo-Ibrahim Index of African Governance moving to 11th place in 2016 from 13th in 2015 reflecting efforts to improve good governance.
- The economy depends on inputs and technology from abroad and has a very limited industrial ecosystem, yet the government has no industrialization strategy.
Real gross domestic product (GDP) growth increased to 5% in 2016, up from 4% in 2015, led by agricultural investment and tourism. Growth is set to reach 5.6% in 2017 and then 5.4% in 2018, driven mainly by foreign direct investment in construction and tourism. The slight projected decline of 0.2 percentage points in 2018 is due to expectations of a slight decrease in funding from donors. The consumer price index (CPI) has continued its downward trend, despite a marginal increase of 0.3% at the end of 2016.
Raising sufficient resources domestically to finance government spending presents a key challenge, underscored by a high stock of public debt, estimated at 75% of GDP in 2015. The government envisages several reforms in 2017 to collect more revenue. The first of these is to establish a 25% tax on locally produced alcoholic beverages. Secondly, the government plans to regulate the billing system. Thirdly, it plans to create a regional taxation tribunal. Finally, the government also plans to update the tax code to include, among other things, a tax on service delivery for non-residents.
The financial sector, meanwhile, faces demand-side constraints. These include capital shortages at the corporate level, a lack of bankable projects, and increasingly restricted foreign currency reserves. Moreover, the government’s fiscal policies are proving challenging for the country’s still rather embryonic private sector. Furthermore, the expensiveness of energy, maintenance, and human capital make business costs high. New businesses often find it hard to take off and flourish because of high interest rates, a lack of access to long-term financing, and a weak judicial system.
According to data from the latest census in 2012, unemployment stood at 13.6%, and continued to affect young people and women disproportionately. The problem of unemployment makes new initiatives to foster entrepreneurship all the more desirable.
To foster entrepreneurship, industry, and foreign investment, the government should adopt a range of reforms, including lower taxes, and measures making it easier to get loans.