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São Tomé and Príncipe

São Tomé and Príncipe

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Key Facts

  • Capital: São Tomé
  • Region: Southern Africa
  • Official languages: Portuguese
  • Independence Day: July 12, 1975
  • Area: 1,001 sq km
  • Population (2018): 0.2 million
  • REC membership: CEN-SAD, ECCAS
  • WTO membership: Observer
  • GDP (2018): US$ 422.3 million
  • GNI per capita (2018): US$ 1 890
  • Currency: Dobra

Economic overview

Real GDP grew by an estimated 4.0% in 2019 on the back of improvements in agriculture, construction, and services. The service sector explained about 70% of the growth in 2016-18, with strong performance in wholesale and retail trade and in restaurants and hotels, which benefited from growing tourism following reforms such as the e-Visa in 2018.

Growth was also boosted by higher public investment as new externally financed projects began. Public investment averaged €43.7 million (about 12% of GDP) in 2017-18. Until recently, São Tomé and Príncipe relied heavily on external support, mainly concessional funding exceeding 10% of GDP. But external grants have been declining, a trend projected to continue in the medium term.

The fiscal deficit narrowed slightly from 2.1% of GDP in 2018 to an estimated 1.9% in 2019. The government could reconsider its expansionary fiscal policy by, for instance, widening its tax revenue base and finding cheaper financing. Public debt increased from 64.2% of GDP in 2017 to 67.9% in 2018, adding pressure on public finances and increasing the country’s debt vulnerability.

Annual inflation increased from 5.7% in 2017 to 7.9% in 2018 and 2019, mainly due to higher fossil fuel prices. Even so, the peg of the national currency, the dobra, to the euro helped keep inflation fairly low. Since inflation that is too low could discourage domestic production in favor of imports, continuing structural reforms are key to maintaining competitiveness and boosting domestic production. The current account deficit has been narrowing since 2017 (a deficit of 9.3% of GDP in 2019), a trend projected to continue.

Real GDP growth is projected to accelerate to 4.5% in 2020 and 5.1% in 2021. To unlock the full potential of tourism, agriculture, and services, the country needs to improve the business environment. Its comparative advantages – lush forests, spectacular waterfalls, aesthetic coastline, and long sandy beaches – are attracting more visitors through niche tourism products. Tourism, which contributes 32.9% to GDP, is currently one of the main sources of foreign exchange receipts. (Cocoa exports are another, representing 66.6% of exports in 2018.) Tourism is expected to benefit from the Tourism Development Strategy launched in January 2018 and the new e-Visa system. Tourist arrivals should increase, particularly from countries in the region, such as Angola, Equatorial Guinea, Gabon, Ghana, and Nigeria.

Agricultural output is expected to increase following current measures, which include building greenhouses and improving farming and husbandry. A National Education Program should improve human resources.

The financial sector is less developed for tourism and needs to provide easy access to automatic teller machines and electronic points of sale. The government is developing a new payment system.

The energy sector also needs restructuring. Currently, it largely depends on thermal generation, which reduces energy security and increases production cost. Electricity reaches only 70% of the population. The state utility has accumulated arrears of $77 million (about 18% of GDP). Recent heavy investments increased generation capacity and expanded the grid on both islands, but increased demand for fossil fuels for generation pushed oil imports to 65.5% of imports in 2018. In the long term, the country needs to increase renewable energy, such as mini-hydro plants, solar solutions, and wind power.

São Tomé and Príncipe’s geographical remoteness and small domestic market are major obstacles to attracting foreign direct investment. Continuing legal and regulatory reforms are needed to remove market barriers. And the dobra’s peg to the euro could lead to an overvalued local currency, dampening exports and making imports more attractive, harming local competition.

Last updated: April 2020