From Academic Kids

The economy of São Tomé and Príncipe while traditionally dependent on cocoa is experiencing considerable changes due to investment in the development of its oil industry its territorial waters in the oil-rich waters of the Gulf of Guinea. In 2003, the government agreed a Joint Development Zone over the area which gives Sao Tome 40% of revenues.


Massive oil reserves

Geologists estimate unproven the Gulf of Guinea zone is estimated holds more than 10 billion barrels (1.6 km³) of oil, although no reserves have yet been proved. A joint oil project with Nigeria in 2005 is likely to contribute $50 million of revenues to the government from the exploration licence signing fees. This represents four times government revenues in 2004. São Tomé is optimistic that significant petroleum discoveries under the exploration licence are forthcoming.

Government corruption has been identified as a potential threat to the development of the economy and the prospect that the oil wealth will be distributed among a very poor community. In order to combat corruption, a revenue management law was enacted in 2004. It was drafted by a team of academics from the United States' Columbia University and establishes an oversight committee of oil revenues and mandates the priority of poverty reduction, health, education and infrastructure spending.

The Joint Development Authority administering the offshore oil zone itself was rocked by a corruption scandal in 2004. The government removed two of its appointees to the authority and insisted on replacing the Nigerian chair. Later the authority issued a statement saying that it would not tolerate bribery or attempted bribery of its officials. Nigeria's history of official corruption represents a significant challenge to the authority.

American involvement has attracted its critics, accusing US oil giants and government of corruption that exceeds the worst of local officials. Because countries like Gabon and Nigeria account for as much as 15% of US crude oil imports, US companies are believed to regard the area as highly prospective. Officials of the US Government and its largest oil transnational corporations and have funded feasibility studies for a deep-water harbor necessary for oil tankers.

After lengthy negotiations, on February 1 2005, the Nigerian and Sao Tome governments entered into an exploration and production sharing agreement over the first of six different exploration blocs with a US dominated consortium led by ChevronTexaco with 51 % of the equity, ExxonMobil with 40 % and Dangote Energy Equity Resources, a small Nigerian and Norwegian company with the remaining 9 %. The contract allows a period of eight years for exploration and up to 20 years of production. The bloc is 190 miles (306 km) north of Sao Tome in 5,700 ft (1.7 km) of water in the Gulf of Guinea.

Struggling agricultural economy

These revenues arrive at a critical time for the Sao Tome economy. Cocoa production has substantially declined because of drought and mismanagement. The resulting shortage of cocoa for export has created a persistent balance-of-payments problem. São Tomé has to import all fuels, most manufactured goods, consumer goods, and a significant amount of food. Over the years, it has been unable to service its external debt and has had to depend on concessional aid and debt rescheduling. Considerable potential exists for development of a tourist industry, and the government has taken steps to expand facilities in recent years. The government also has attempted to reduce price controls and subsidies, but economic growth has remained sluggish.

Since the 1800s, the economy of São Tomé and Príncipe has been based on plantation agriculture. At the time of independence, Portuguese-owned plantations occupied 90% of the cultivated area. After independence, control of these plantations passed to various state-owned agricultural enterprises. The dominant crop on São Tomé is cocoa, representing about 95% of exports. Other export crops include copra, palm kernels, and coffee.

Domestic food-crop production is inadequate to meet local consumption, so the country imports some of its food. Efforts have been made by the government in recent years to expand food production, and several projects have been undertaken, largely financed by foreign donors.

Other than agriculture, the main economic activities are fishing and a small industrial sector engaged in processing local agricultural products and producing a few basic consumer goods. The scenic islands have potential for tourism, and the government is attempting to improve its rudimentary tourist industry infrastructure. The government sector accounts for about 11% of employment.

Following independence, the country had a centrally directed economy with most means of production owned and controlled by the state. The original constitution guaranteed a "mixed economy," with privately owned cooperatives combined with publicly owned property and means of production. In the 1980s and 1990s, the economy of São Tomé encountered major difficulties. Economic growth stagnated, and cocoa exports dropped in both value and volume, creating large balance-of-payments deficits. Efforts to redistribute plantation land resulted in decreased cocoa production. At the same time, the international price of cocoa slumped.

Economic reforms in response to IMF loan conditions

In response to its economic downturn, the government undertook a series of far-reaching economic reforms. In 1987, the government implemented an International Monetary Fund structural adjustment program, and invited greater private participation in management of the parastatals, as well as in the agricultural, commercial, banking, and tourism sectors. The focus of economic reform since the early 1990s has been widespread privatization, especially of the state-run agricultural and industrial sectors.

In April 2000, the IMF approved a poverty reduction and growth facility for São Tomé aimed at reducing inflation to 3% for 2001, raising deal growth to 4%, and reducing the fiscal deficit. In December 2000, São Tomé received significant debt reduction under the IMF-World Bank's Heavily Indebted Poor Countries (HIPC) initiative. The reduction should free additional resources for poverty reduction and public investment although many argue that all Sao Tomean government debt should be waived to alleviate poverty.

São Tomé's success in implementing structural reforms has been rewarded by international donors, who have pledged increased assistance in 2001. The São Toméan Government has traditionally obtained foreign assistance from various donors, including the UN Development Programme, the World Bank, the European Union, Portugal, Taiwan and the African Development Bank.

Portugal remains one of São Tomé's major trading partners, particularly as a source of imports. Food, manufactured articles, machinery, and transportation equipment are imported primarily from the EU.


Gross domestic product: purchasing power parity - $214 million (2003 est.), $169 million (1999 est.)

GDP - real growth rate: 5% (2004 est.), 1.5% (1999 est.)

GDP - per capita: purchasing power parity - $1,200 (2003 est.), $1,100 (1999 est.)

GDP - composition by sector: (1997 est.)

  • agriculture: 23%
  • industry: 19%
  • services: 58%

Population below poverty line: NA%

Household income or consumption by percentage share:

  • lowest 10%: NA%
  • highest 10%: NA%

Inflation rate (consumer prices): 10.5% (yearend 1999 est.)

Labor force: NA

Labor force - by occupation: population mainly engaged in subsistence agriculture and fishing
note: shortages of skilled workers

Unemployment rate: 50% in the formal business sector (1998 est.)


  • revenues: $58 million
  • expenditures: $114 million, including capital expenditures of $54 million (1993 est.)

Industries: light construction, textiles, soap, beer; fish processing; timber

Industrial production growth rate: NA%

Electricity - production: 15 million kWh (1998)

Electricity - production by source:

  • fossil fuel: 46.67%
  • hydro: 53.33%
  • nuclear: 0%
  • other: 0% (1998)

Electricity - consumption: 14 GWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: cocoa, coconuts, palm kernels, copra, cinnamon, pepper, coffee, bananas, papayas, beans; poultry; fish

Exports: $4.9 million (f.o.b., 1999 est.)

Exports - commodities: cocoa 90%, copra, coffee, palm oil (1997)

Exports - partners: Netherlands 51%, Germany 6%, Portugal 6% (1997)

Imports: $19.5 million (f.o.b., 1999 est.)

Imports - commodities: machinery and electrical equipment, food products, petroleum products

Imports - partners: Portugal 26%, France 18%, Angola, Belgium, Japan (1997)

Debt - external: $274 million (1998)

Economic aid - recipient: $57.3 million (1995)

Currency: 1 dobra (Db) = 100 centimos

Exchange rates: dobras (Db) per US$1 - 7,200.0 (October 1999), 7,104.05 (1998), 4,552.5 (1997), 2,203.2 (1996), 1,420.3 (1995)

Fiscal year: calendar year

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