Gabon focuses on diversifying industry and supporting local processing

Launched in 2010, the Emerging Gabon Strategic Plan (Plan Stratégique Gabon Emergent, PSGE) aims to reduce Gabon’s reliance on oil production by 2025 through the development of three sectoral-focused pillars: Green Gabon, which targets timber, agriculture and ecotourism; Industrial Gabon, which emphasises value addition through local processing of raw materials; and Gabon Services, which seeks to develop human capital. The industrial plans of the PSGE showed early promise given the country’s wealth of natural resources, but the sustained drop in oil prices since mid-2014 has highlighted a need for urgency. Over the five years prior to the slide in oil prices, the petroleum sector accounted for 30.1% of GDP, as per Bank of Central African States’ figures.

However, despite these challenges – which contributed to economic growth slowing one percentage point to around 4% in 2015, according to IMF figures – Gabon’s industrial plans and investment potential are promising. The country can export processed goods tariff free to the 44m-person market within CEMAC, and investors are increasingly able to access incentives for projects in certain sectors, with the country ranked first in the region for ease of doing business.

Growth in the secondary sector has largely been driven by wood processing and agro-industrial crops such as palm oil and rubber, though heavier industries such as fertiliser manufacturing and metallurgy are moving in. In addition, three special economic zones (SEZs) are in various stages of development to help spur further industrial activity.

Economic Zones

As with many emerging markets around the world, Gabon has set up a framework for SEZs to spur development in targeted areas and select sectors, and these are governed by Law 010/2011. The SEZs benefit from a number of incentives, including turnkey infrastructure, a single-window for administrative procedures, dedicated transport and storage facilities, and fiscal benefits (see analysis). The country’s first SEZ in Nkok, around 30 km east of Libreville, was initially established in 2010 and is already home to a number of producing tenants. The groundwork for a second SEZ has been started on Mandji Island.

Although firms from a number of sectors are eligible for the SEZs, each zone has an anchor sector, with Nkok focused on timber processing and Mandji Island on petrochemicals. Nkok, which is 40.5% owned by Singaporean conglomerate Olam International, 21% by Africa Finance Corporation and 38.5% by the government, has become far more diversified in recent months, with a range of tenants outside of the timber industry. However, Mandji Island will likely remain focused on petrochemicals, because of the anchor investments in an oil refinery and fertiliser production facilities, which together take up more than 30% of the land for sale. As with Nkok SEZ, Mandji Island is also 40.5% owned by Olam, 38.5% by the government and 21% by Africa Finance Corporation.

Palm Oil Activity

Partly due to the huge market for palm oil in West and Central Africa, Gabon’s sector has attracted a variety of foreign investors, with companies such as Olam and India-based 3F Oil Palm Agrotech planning substantial investments in Gabon. Olam started planting in its private plantations in 2014, which include 43,000 ha in Mouila and 7000 ha in Awala, with planting set to finish by 2017.

Awala, which only recently became the first and largest plantation to receive Roundtable on Sustainable Palm Oil certification, currently hosts a processing mill with a 30-tonne capacity, two new mills are under construction in Mouila, one of which will be finalised by January 2017 with a capacity of 90 tonnes, while another will be finished by 2018. Towards the end of 2016, Olam also acquired SIAT’s palm oil plantations and processing capacity, including a refinery with a processing capacity of 750 tonnes per day. In total, Olam now possesses 58,000 ha of palm oil plantations and has invested a total of $750m. Olam first started harvesting in August 2015 and the company’s production is expected to reach 1.4m tonnes per annum (tpa) of fresh fruit bunches, which will be processed into 312,000 tpa of palm oil.

Under a joint-venture with the government, Olam has spearheaded the Gabonese Initiative for Achieving Agricultural Outcomes with Engaged Citizenry, which entails planting an additional 70,000 ha of palm oil plantations to be managed by 10,000 small farm-holders organised as 330 cooperatives. This project is expected to produce an additional 350,000 tonnes of palm oil. An additional 8,000 ha has also been allocated for domestic crops (see Agriculture chapter).

Until Olam entered the oil palm sector, Belgium’s SIAT Gabon was the only large-scale producer from its 7500-ha plantation in Makouké. SIAT Gabon produces 20,000 tpa of crude palm oil and 2000 tpa of palm kernel oil at its Lambaréné refinery. However, the firm is looking to scale back its oil palm investments to focus on its rubber business. The two producers will soon be joined by another entrant, as in March 2016 The Wall Street Journal reported that 3F Oil Palm would invest $200m in the Gabonese sector. As of October 2016, the company was still finalising the details of its desired 40,000 ha and no further news was available.

Rubber Production

SIAT Gabon is currently the country’s only large-scale rubber producer. It has planted 12,869 ha, but has plans to increase this to 30,000 ha over 10 years. New planting was delayed because of difficulties in obtaining environmental permits. Though no new planting was done in 2015, planting resumed in mid-2016.

SIAT Gabon produces approximately 40,000 tpa of cuplumps (coagulated latex) in Bitam, Kango, Zilé and Mitzic, which is then transformed into 20,000 tonnes of crumb rubber in their Mitzic factory, all of which is exported. Based on the speed of planting expansion, a second factory will be built between Kango and Lambaréné, with production scheduled to start in 2020. The firm has invested CFA120bn (€180m) to date across three activities – rubber, palm oil and livestock – and is planning to invest a further CFA200bn (€300m) over the next decade, mainly in rubber with a portion in livestock as well. According to the company’s strategy for 2012-32, 6000 jobs will be added to its current workforce of 4000. With certifications from Michelin and Bridgestone, SIAT Gabon is also hoping to develop its export business for tyres.

For its part, Olam has invested $285m for a 12, 000-ha rubber plantation and a rubber production unit. By the end of 2016, 10,000 ha were already planted, with 2000 ha more expected by the first quarter of 2017. Yield is expected to be 2000-2200 kg per ha, which will produce 22,000 tpa of dry rubber. Latex production is expected to begin in 2017 at a processing plant with a capacity of 10 tonnes per hour.

Despite the recent activity, the outlook for further large-scale rubber investments is unclear due to the international economic environment. Rubber has recently seen a global oversupply, owing to new production in China and India, which are also the largest rubber consumers. Indeed, the International Rubber Study Group forecasts that by 2020 there will be a global surplus of 1m tonnes of natural rubber in addition to a 3m-tonne surplus of synthetic rubber.

Fertilisers

In anticipation of a growing agricultural sector in Gabon, along with currently low levels of usage in regional markets, the government is looking to develop a local fertiliser industry, with two planned projects through government joint ventures with Olam and Morocco’s formerly state-owned phosphate company, OCP. Africa’s fertiliser use has great growth potential, standing at 4.7 kg per person, according to a January 2016 report from The Africa Report magazine, compared to 200 kg in India or China. Indeed, in recent years a number of major food producing nations – such as 184m-person Nigeria – have taken steps to expand and improve their fertiliser subsidy programmes.

The Mandji Island SEZ, near Gabon’s second-largest city and commercial capital Port-Gentil, will be the site of the country’s first integrated ammonia-urea fertiliser factory. The plant is being constructed by the Gabon Fertiliser Company (GFC) – a joint venture between Olam (80%) and the government (20%) – and have an output of 1.3m tpa of urea. Natural gas supplies are expected to be available from offshore reserves as soon as the plant is up and running. Wells and a compressor have already been installed at the site, and a pipeline from the natural gas processing unit to Mandji Island is set to be completed along with the factory. The $1.6bn project represents Olam’s largest investment in Gabon to date, and factory construction is expected to begin in June 2017.

Despite the solid prospects of the project, Olam is looking to reduce its stake in the joint venture to that of an equal or minority partner. The Singapore firm is in discussions with three potential strategic buyers, and a new partner is expected to be announced by the end of 2016. A second fertiliser project was established through a 2014 memorandum of understanding between the state-owned Société Equatoriale des Mine and OCP, the world’s largest phosphate producer. The project will see the construction of an ammonia manufacturing unit in Gabon and a fertiliser plant in Morocco. However, as of October 2016, sites had not yet been selected for the development of the projects.

Wood Processing

Some 85% of Gabon’s land, equivalent to 24.3m ha, is covered by forest, according to the World Bank, and roughly 12.5m ha of this is suitable for timber production. However, sector growth slowed from 28.5% in 2014 to 5.5% in 2015 on the back of a softer export market.

Gabonese forests are home to over 400 species of wood, many of which can be processed for different uses. For example, the Okoume and Ozigo species are turned into high-quality plywood, and Moabi and Padouk are used for carpentry.

“Okoume wood production suffered as demand from China slowed,” Fabian Leu, sawmills director at Precious Woods, told OBG. He added that suppressed exports to Asia were exacerbated by a significant price decrease. Precious Woods processed 2100 cu metres of Okoume wood per month in 2015, along with 1300 cu metres per month of other varieties.

The 2010 export ban on unprocessed timber encouraged rapid development of value addition in the sector, albeit after a couple of years of depressed revenues as capacity was built up. Timber processing industries have seen double-digit growth more recently, employing 28% of the formal workforce. Most wood processing in Gabon involves basic drying operations, but the aim is to move to finished products like furniture.

The Nkok SEZ was initially set up for timber processing, and while it has subsequently diversified, the zone is planning to process 1m tonnes of timber annually by companies such as Gabon Wood Industries. The Malaysian-owned firm invested $26m over 12 ha, set up three timber factories and created 300 jobs, and it now produces 1500 cu metres of sawn products monthly. Another tenant, Indian firm Shinago, put in $2m, acquired 4 ha for its 240,000-cu-metre capacity saw mill and employs 120 workers. India’s largest plywood manufacturer, Green Ply, will also invest $30m in the zone, with 7 additional ply wood firms in the construction phase. Meanwhile, 19 veneer plants are currently under construction, with four already operating. A 50,000-sq-metre area has also been allocated to a furniture cluster, where three manufacturers – Wood Tech, Gorilla, and Wood Ville – have set up operations. “We expect furniture production to reach $100m in 2017,” Gagan Gupta, country head for Olam, told OBG.

Société Nationale des Bois du Gabon, which was established in Gabon in 1971, launched its third processing unit in 2015, complementing the first two that launched the year prior and bringing total production capacity to 250,000 cu metres per year. The addition will see turnover increase to CFA4.5bn (€6.8m) and the firm’s employees rise to 450. Furthermore, to support timber processing, a CFA20bn (€30m) national timber fund was set up in March 2016. International partners are also lending a hand, and the French Development Agency has a €10m project to finance competitiveness in wood processing by building human capacity.

Sugar

Gabon’s total 2015 sugar production of 23,500 tonnes consisted of 22,500 tonnes of refined product and 1000 tonnes of brown sugar, according to figures from Sucrerie Africaine du Gabon (SUCAF Gabon), a wholly-owned subsidiary of Société d’ Organisation de Management et de Développement des Industries Alimentaires et Agricoles (SOMDIAA) and the country’s sole producer of sugar. SOMDIAA is in turn majority-owned by brewery Société des Brasseries du Gabon (Sobraga), a subsidiary of France’s Castel Group. Sugar production takes place on a 5100-ha plantation near Franceville, with on-site refining, and is sold exclusively to the domestic market.

After increases for several years in line with population growth, 2015 saw sales volumes drop by 800 tonnes, with the year finishing 2000 tonnes below target, according to SUCAF Gabon figures.

“Sugar production was negatively affected by an unseasonably long dry spell of four months without rain,” Christian Renardet, the company’s director-general, explained to OBG. That said, sales are expected to increase in 2016, as a new higher-yield seed variety has been planted for the year. Sugar cane output of 315,000 tonnes is projected for 2016, compared to 293,000 tonnes in 2015, and this is expected to produce some 26,000 tonnes of sugar.

While SUCAF Gabon’s monopoly has been protected to date with a sugar import ban, prices have also been fixed since 1998, and SUCAF has recorded losses for the last four years. The company is trying to get back in the black by reinventing itself, and it launched a five-year competitiveness plan in 2015 that will invest CFA30bn (€45m) through 2020, when it expects to be producing 32,000 tpa of sugar.

The investment by the firm will modernise its refining plant, increase automation, centralise raw material collection, acquire new seed varieties and introduce new technologies. Regarding quality control, SUCAF was awarded ISO 22000 certification in 2015, reflecting the high standard of its food safety management systems.

Flour

Société Meunière et Avicole du Gabon (SMAG), which is majority-owned by SOMDIAA, is the oldest domestic flour company. It imports 90,000 tpa of wheat to produce upwards of 72,000 tonnes of flour at its Libreville factory. Wheat is imported mainly from France, with some from Canada.

Wheat has traditionally been subsidised, and while the state has considered abolishing it, at the time of writing a decision had not been made. Even though the current low commodity prices would reduce the impact of subsidy removal, the price of flour is still subject to the authorities’ approval, and companies pay a 5% duty on wheat imports. Wheat flour makes up 65% of SMAG’s revenues and is sold domestically, while two-thirds of its 18,000-tpa bran production is exported. Meanwhile, the milling by-products are used to produce around 30,000 tpa of animal feed.

While SMAG commands 97% of the wheat flour market, Foberd Gabon, a subsidiary of Cameroon’s Fokou Groupe, opened a rival mill in 2015. Foberd plans to scale up to a capacity equal to SMAG over the next three years, which may force a reduction in SMAG’s production, as national demand is around 74,000 tpa. For its part, SMAG remains committed to the market. “Our commercial and quality departments, with the support of our 40 years of expertise in flour milling, are working hard to defend our market share, and I do not expect to lose much more than 10% in 2016,” Bruno Lardit, CEO of SMAG, told OBG.

Beverages & Dairy

The Castel Group controls the lion’s share of Gabon’s beverage market through three subsidiaries. The most prominent is Sobraga, which was established in 1966 and is now Gabon’s eighth-largest company across all sectors. Sobraga has spent CFA16bn (€24m) over the last two years to strengthen and modernise its production facilities. The company sells 38 brands, which are produced in 14 bottling lines in its six factories. In total, they make approximately 2m bottles daily and had a production capacity of 400m litres in 2015. In 2017 Sobraga plans to upgrade two of its bottling lines to a single one with a daily capacity of 50,000 bottles.

The company has a 95% market share for soft drinks and 90% for beer. They sell Coca-Cola, Sprite, Fanta, Schweppes products, Malta Guinness, Orangina and D’jino sodas. Sobraga also released new soda labels Vimto and Sumol in 2015, and is planning other new varieties for 2016. The firm’s energy drink XXL sells for CFA500 (€0.75), which is just half of what Red Bull costs in the country. In their beer portfolio, Sobraga offers Regab, the most popular brand in Gabon, along with Castel, Guinness, ’33 Export, Beaufort and Pelforth Ambree. The company also sells an alcopop known as Booster. The new can design for Regab is believed to have boosted sales of the beer in 2015, and a new lighter brand, Regab Blue, will be released in 2016. While five of Sobraga’s facilities make soft drinks and beer, the Castel Group’s Société des Boissons de Léconi plant is dedicated to bottled water. The facility produces the Andza brand, while Sobraga also sells water under the Aning’Eau and Vitale brands.

More than 90% of the company’s products are sold to wholesale distributors. The three largest cities of Libreville, Port-Gentil and Franceville take up 65%, 13% and 9% of the company’s volume, respectively, with Mouila and Oyem absorbing the rest. The company’s large distribution network is based on the use of domestic providers. Fabrice Bonatti, director general of Sobraga, told OBG, “Using local distributors and transporters allows firms to easily adapt to the logistical challenges involved with catering to rural demand, as well as providing a valuable source of income and labour to individuals living inside the country – ultimately allowing the integration of rural communities within the industrial value chain.”

Hungry For More

Gabon’s other significant foodstuffs producer is Société Industrielle Gabonaise de Laiterie et de Librevilloise (SIGALLI). The company produces 80% of its goods in-country, which includes Yoplait yoghurt, juices and other dairy products. The rest is imported for distribution. Juice accounts for one of their largest production lines, with the company producing 1m litres of fruit juice monthly. Juice sales were moderate in early 2016, due to a transition period following an equipment upgrade that will target replacing higher-cost European imports. “These machines started producing high-end juice in February 2016, aimed at competing with European imports,” Bertrand Courties, deputy chairman of SIGALLI, told OBG.

In terms of dairy products, SIGALLI sells 500 tonnes of yoghurt per month. The first quarter of 2016 saw a 20% increase in revenues compared to the same period the previous year, in part due to a rebound from a slower 2015, as well as new licensed product sales. With a demand lull around the mid-2016 election, Courties expects that overall sales growth for 2016 will be around 10%. Sales of SIGALLI’s Candia milk and Fromageries Bel franchised products are each growing at around 5%. In the cities of Libreville and Port-Gentil, SIGALLI sells to 2400 and 800 shops, respectively, and the firm makes use of a network of independent vendors to supply the interior of the country.

Meat & Poultry

As well as its rubber and palm oil business, SIAT Gabon possesses a 109,000-ha ranch in Nyanga Province, where they rear some 5000 cattle and 500 sheep. The company sold 200 tonnes of meat in 2015, compared to annual demand of some 80,000 tonnes. The company aims to meet up to 25% of local demand following expansion plans, with a focus on increasing cattle heads to 25,000 by importing 2000 heads annually, mainly from Brazil. SIAT Gabon has also started an insemination programme to further increase livestock heads. Other expansion plans include acquiring 25,000 hens, building an abattoir at Owendo and a butchery in Libreville, and investment of €60m in livestock over the next five years.

As well as flour milling, SMAG also produces poultry and eggs for the Gabon market. The company produces 43m eggs and 380,000 chicks per year at its N’Koltang Farm, which is south of Libreville. The firm has a market share of 35-40% in the eggs segment and commands an estimated 80% of the market for day-old chicks.

Outlook

Gabon’s broader economy is experiencing a slowdown that has been engendered by lower oil prices, and the nation faces challenges associated with limited infrastructure. Furthermore, restricted spending potential will constrain the government’s ability to underwrite industrial and ancillary activity.

Nevertheless, a number of sizeable investments have already been planned for the secondary sector and the drive to develop SEZs should help encourage further foreign and domestic investment in Gabonese industry, as well as the development of downstream activity. The latter is of particular importance as the government is looking to push for a ban of all raw exports by 2020. Such a move could help open up space for entrepreneurs in a number of key segments, from timber and rubber to minerals, beverages and dairy.

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The Report: Gabon 2016

Industry & Mining chapter from The Report: Gabon 2016