VII. INVESTMENT CLIMATE STATEMENT DESPITE ITS SMALL POPULATION AND ITS FINANCIAL DIFFICULTIES, GABON CONTINUES TO BE ONE OF THE RICHEST COUNTRIES IN BLACK AFRICA WITH A PER CAPITA INCOME OF APPROXIMATELY USD 4,000 AND 1991 CRUDE OIL PRODUCTION OF APPROXIMATELY 14.5 MILLION TONS. GABON'S ECONOMY IS HEAVILY DEPENDENT ON OIL, WHICH ACCOUNTS FOR ALMOST 55 PERCENT OF GDP, ABOUT 65 PERCENT OF GOVERNMENT REVENUE, AND 90 PERCENT OF EXPORTS. THE ECONOMIC AND FINANCIAL DIFFICULTIES ENCOUNTERED SINCE 1986 HAVE ROCKED THE ECONOMY, AND FORCED THE GOVERNMENT TO RESCHEDULE ITS EXTERNAL DEBT REPEATEDLY. SINCE 1990, STABILIZATION EFFORTS HAVE BEEN IMPEDED BY POLITICAL DEVELOPMENTS AS GABON MOVED TOWARD MULTIPARTY DEMOCRACY. THE GABONESE ECONOMY IS HEAVILY DEPENDENT ON PETROLEUM EXPORTS AND WORLD PETROLEUM PRICES. OIL PRODUCTION INCREASED IN 1991 FROM 13 MILLION TONS TO 15.5 MILLION TONS, STIMULATING A MINOR ECONOMIC REBOUND AND OFFSETTING DECLINES IN OTHER SECTORS OF THE GABONESE ECONOMY. ALTHOUGH GABON IS ALSO A PRODUCER OF TIMBER, MANGANESE, AND URANIUM, THE PETROLEUM SECTOR WILL CONTINUE TO DOMINATE GABONESE EXPORTS AND FOREIGN, ESPECIALLY U.S., INTERESTS IN THE NEXT FIVE YEARS. DESPITE THIS GENERALLY PROMISING ECONOMIC BACKGROUND, A NUMBER OF FACTORS HAVE INHIBITED BROADER DEVELOPMENT IN GENERAL AND BROADER U.S. INVOLVEMENT IN PARTICULAR. GABON'S STRONG TIES WITH FRANCE ARE AN IMPORTANT ELEMENT OF THE COMMERCIAL SETTING. FRANCE FURNISHES HALF OF GABON'S IMPORTS, FRENCH FIRMS AND SUBSIDIARIES DOMINATE THE LOCAL FORMAL PRIVATE SECTOR, AND OVER 12,000 FRENCH CITIZENS LIVE IN THE COUNTRY. FRANCE'S ABILITY TO OFFER CONCESSIONAL FINANCING THROUGH THE CAISSE FRANCAISE DE DEVELOPPEMENT (C.F.D.), AND THE FONDS D'AIDE ET DE COOPERATION (F.A.C.), IS A SERIOUS HURDLE TO U.S. COMPETITORS. OTHER KEY FACTORS OF THE ECONOMY WHICH HAVE LIMITED BROAD-BASED DEVELOPMENT INCLUDE A LACK OF INFRASTRUCTURE AND COMMUNICATIONS OUTSIDE LIBREVILLE AND PORT GENTIL; GABON'S SMALL MARKET (AROUND ONE MILLION INHABITANTS); AND HIGH LABOR COSTS, WHICH MAKE THE MANUFACTURING SECTOR NOT VERY COMPETITIVE COMPARED TO OTHER AFRICAN STATES. OPENNESS TO FOREIGN INVESTMENT THE GABONESE INVESTMENT CODE FOLLOWS A GENERAL MODEL USED IN FRENCH SPEAKING AFRICA BUT PROVIDES MORE LIBERAL TERMS THAN IN OTHER FRENCH SPEAKING AFRICAN COUNTRIES. HOWEVER, GABON DOES NOT FORMALLY RECOGNIZE THE PRINCIPLE OF NATIONAL TREATMENT BECAUSE IT RESERVES THE RIGHT TO FAVOR GABONESE FIRMS - THERE ARE, FOR EXAMPLE, PREFERENCES IN PLACE IN FAVOR OF GABONESE-OWNED SMALL AND MEDIUM-SIZED BUSINESSES. IN PRACTICE, GABONESE LAW ALLOWS FOREIGN FIRMS (AND LOCAL FIRMS) TO OPERATE AS BRANCHES, SOCIETES A RESPONSABILITE LIMITEE (SARL) OR SOCIETES ANONYMES (SA). EACH MAY BE WHOLLY OWNED BY FOREIGN INVESTORS; THE DISTINCTIONS ARISE PRIMARILY FROM THE MINIMUM CAPITAL REQUIREMENTS AND THE CONDITIONS UNDER WHICH SHARES MAY BE RESOLD. THERE IS NO REQUIREMENT FOR GOVERNMENT OR OTHER LOCAL PARTICIPATION IN THE CAPITAL OF LOCAL CORPORATE ENTITIES. TRANSFER POLICIES THERE ARE NO RESTRICTIONS ON INTRODUCING FOREIGN CAPITAL INTO GABON, AND FUNDS MAY BE FREELY TRANSFERRED WITHIN THE FRANC ZONE. ONCE PROOF IS FURNISHED TO THE MINISTRY OF FINANCE THAT THE FUNDS TO BE REPATRIATED COME FROM EITHER WAGES, SALARIES OR PROFITS AND THAT ALL LOCAL TAXES HAVE BEEN PAID, FUNDS MAY BE TRANSFERRED OUTSIDE THE FRANC ZONE. EXPROPRIATION AND COMPENSATION LARGE FOREIGN FIRMS ESTABLISHED IN GABON OPERATE ON AN EQUAL BASIS WITH NATIONAL FIRMS. THERE HAVE BEEN NO KNOWN CASES OF DISCRIMINATION OR EXPROPRIATION AGAINST FOREIGN FIRMS. DISPUTE SETTLEMENT IN THE ABSENCE OF ACTUAL CASES OF EXPROPRIATION OR NATIONALIZATION, THE GOVERNMENT OF GABON HAS NOT ESTABLISHED A TRACK RECORD FOR ITS HANDLING OF INVESTMENT DISPUTES. A RECENT CASE IN WHICH A DISGRUNTLED LOCAL EMPLOYEE SUED A U.S. COMPANY OVER THE TERMS OF HER SEPARATION WENT TO THE GABONESE SUPREME COURT AND WAS DECIDED AGAINST THE U.S. COMPANY, WITH A HEAVY SETTLEMENT LEVIED AGAINST THE U.S. FIRM. NONETHELESS, THE MATTER WAS ULTIMATELY RESOLVED THROUGH NEGOTIATION WHEN THE U.S. COMPANY REFUSED TO PAY AND APPEALED TO THE PRESIDENT. GABON IS A MEMBER NEITHER OF THE INTERNATIONAL CENTER FOR THE SETTLEMENT OF INVESTMENT DISPUTES NOR OF THE NEW YORK CONVENTION OF 1958. GABON BECAME A MEMBER OF THE MULTILATERAL INVESTMENT GUARANTEE AGENCY (MIGA) IN 1994. PERFORMANCE REQUIREMENTS THE KEY PERFORMANCE REQUIREMENT IN EFFECT AT THIS WRITING IS A HEIGHTENED SENSITIVITY TO EMPLOYMENT OF GABONESE NATIONALS. A "NATIONAL EMPLOYMENT COMMISSION" HAS BEEN ESTABLISHED, WHICH HAS UNDERTAKEN TO REPLACE EXPATRIATES WITH GABONESE WHEREVER POSSIBLE. BEGINNING ITS WORK IN PORT GENTIL, THE CENTER OF THE OIL INDUSTRY, THE COMMISSION FOCUSED ITS EFFORTS ON REPLACING THE MANY NON-GABONESE AFRICANS IN BLUE-COLLAR AND MIDDLE MANAGEMENT POSITIONS WITH GABONESE. HOWEVER, MANY OF THE GABONESE HIRED BY THE COMPANIES UTLIMATELY PROVED UNQUALIFIED AND WERE SUBSEQUENTLY TERMINATED. AS A RESULT, THE COMMISSION HAS MODERATED ITS APPROACH AND HAS TRIED TO BE MORE CAREFUL TO IDENTIFY QUALIFIED GABONESE. NONETHELESS, PRESSURE REMAINS ON FOREIGN INVESTORS TO HIRE AND TRAIN GABONESE. WHILE NON-AFRICAN EXPATRIATES STILL HAVE LITTLE DIFFICULTY OBTAINING WORKING PAPERS, ISSUANCE OF NEW PAPERS (I.E., TO SOMEONE NOT ALREADY EMPLOYED) TO NON-GABONESE AFRICANS HAS BECOME EXTREMELY DIFFICULT. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT FOREIGN INVESTORS ARE LARGELY UNFETTERED IN THEIR ABILITY TO ESTABLISH AND OWN DOMESTIC PRIVATE ENTITIES. INDEED, THE GOVERNMENT HAS BECOME INCREASINGLY AWARE OF THE NEED FOR FOREIGN INVESTMENT TO DEVELOP THE LOCAL ECONOMY IN THE ABSENCE OF LARGE NET FLOWS OF FOREIGN DEVELOPMENT ASSISTANCE, TO WHICH GABON HAS RESTRICED ACCESS BECAUSE OF ITS HIGH PER CAPITA GDP. AT PRESENT, EVEN GABON'S MOST SENSITIVE SECTORS - PETROLEUM, MANGANESE, URANIUM, AND FORESTRY - ARE CONTROLLED BY FOREIGN INTERESTS. PROTECTION OF PROPERTY RIGHTS GABON IS A MEMBER OF THE CENTRAL AFRICAN CUSTOMS AND ECONOMIC UNION (UDEAC). AS SUCH, IT ADHERES TO AND PARTICIPATES IN THE AFRICAN INTELLECTUAL PROPERTY OFFICE, WHICH IS BASED IN YAOUNDE. OAPI, WHICH HAS BEEN IN OPERATION SINCE 1982, IS CHARGED WITH ISSUING A SINGLE COPYRIGHT ACTION WHICH IS ENFORCEABLE IN ALL THE MEMBER STATES OF UDEAC, INCLUDING GABON. REGULATORY SYSTEM: LAWS AND PROCEDURES THE LOCAL REGULATORY SYSTEM IS FAR FROM PERFECT, BUT IT DOES NOT TEND TO DISCRIMINATE AGAINST FOREIGN OR AMERICAN COMMERCIAL INTERESTS. TO THE CONTRARY, THE GABONESE ECONOMY IS DOMINATED BY FOREIGN INTERESTS IN GENERAL (SEE DISCUSSION OF FOREIGN DIRECT INVESTMENT IN SECTION (H) BELOW). EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT TO THE EXTENT THAT LOCAL CREDIT IS AVAILABLE, IT IS AVAILABLE TO BOTH FOREIGN AND LOCAL INVESTORS ON EQUAL TERMS. THE FRENCH OIL COMPANY ELF AQUITAINE, FOR EXAMPLE, HAS RECENTLY FINANCED MOST OF A MAJOR OILFIELD DEVELOPMENT PROGRAM ON THE LOCAL MARKET. THE LOCAL BANKING SYSTEM, DOMINATED BY FRENCH AND OTHER FOREIGN BANKS, IS RELATIVELY SOPHISTICATED AND OFFERS MOST CORPORATE BANKING SERVICES, OR CAN PROCURE THEM IN EUROPE. LOCAL OFFICES OF FOREIGN OIL COMPANIES HAVE USED INTEREST RATE SWAPS AND EUROCURRENCY BONDS TO FINANCE OILFIELD DEVELOPMENT INVESTMENTS IN THE PAST YEAR, FOR EXAMPLE. BILATERAL INVESTMENT AGREEMENTS WE HAVE BEEN UNABLE TO IDENTIFY COUNTRIES WITH WHICH GABON HAS BILATERAL INVESTMENT PROTECTION AGREEMENTS. AN AGREEMENT WITH THE UNITED STATES WAS NEAR SIGNATURE IN 1987, WITH SOME QUESTION REMAINING AS TO RESERVED SECTORS ON THE GABONESE SIDE. HOWEVER, AS THE GABONESE SIDE PONDERED ITS FINAL POSITION, THE U.S. CONGRESS MANDATED CHANGES IN THE U.S. APPROACH TO SUCH AGREEMENTS. AS A RESULT, NEGOTIATIONS MUST BE RESTARTED; THERE IS SOME INTEREST ON THE GABONESE SIDE FOR THIS, BUT AS YET NO FORMAL REQUEST HAS BEEN MADE. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS AS GABON HAS NO RECORD OF HAVING RESORTED TO EXPROPRIATION, AND SINCE THE LOCAL CURRENCY, THE CFA FRANC, IS PEGGED TO THE FRENCH FRANC AND BACKED BY THE FRENCH TREASURY, THE SCOPE FOR OPIC PROGRAMS HAS BEEN LIMITED. NONETHELESS, AS PRESSURE FOR A DEVALUATION OF THE CFA MOUNTS A ROLE FOR OPIC INSURANCE MAY DEVELOP. GABON BECAME A MEMBER OF THE MULTILATERAL INVESTMENT GUARANTEE AGENCY IN 1994. LABOR GABON'S LABOR MARKET IS CHARACTERIZED BY THE CONTRASTING PRESENCE OF, ON THE ONE HAND, A POOL OF SKILLED WHITE COLLAR WORKERS AND, ON THE OTHER HAND, A PERSISTENTLY HIGH UNEMPLOYMENT RATE. GABONESE NATIONALS EXHIBIT A PREFERENCE FOR MANAGERIAL AND OFFICE WORK, AND THE RELATIVE WEALTH OF THEIR COUNTRY HAS ENABLED THEM TO STUDY MANAGEMENT, LAW, ENGINEERING, AND THE LIBERAL PROFESSIONS AT PRESTIGIOUS FOREIGN INSTITUTIONS. THE DEMAND FOR BLUE COLLAR POSITIONS IS LESS AMONG GABONESE, ALTHOUGH SUCH POSITIONS ARE ESSENTIAL TO THE OIL, TIMBER AND MINING INDUSTRIES WHICH MAKE UP THE BACKBONE OF THE GABONESE ECONOMY. THE RESULTING DISCONTINUITY BETWEEN THE SUPPLY OF AND THE DEMAND FOR LABOR HAS TRADITIONALLY BEEN BRIDGED BY NON-GABONESE AFRICANS, THOUGH POLITICAL PRESSURE HAS MORE RECENTLY MOUNTED ON THE GABONESE AUTHORITIES TO REDUCE THE PRESENCE OF FOREIGNERS IN THE WORKFORCE. THE END RESULT WILL BE A DE FACTO SHORTAGE OF SKILLED BLUE COLLAR WORKERS OVER THE MEDIUM TERM. FOREIGN TRADE ZONES/FREE PORTS THERE ARE NO FOREIGN TRADE ZONES OR FREE PORTS IN GABON. CAPITAL OUTFLOW POLICY AS NOTED ABOVE, FUNDS CAN BE TRANSFERRED WITHIN THE FRANC ZONE (INCLUDING TO FRANCE) WITH MINIMAL FORMALITIES - IN MOST CASES, AN EX POST REPORT TO THE CENTRAL BANK IS ALL THAT IS REQUIRED. FOREIGN DIRECT INVESTMENT STATISTICS NET FOREIGN INVESTMENT FLOWS BY COUNTRY OF ORIGIN (MILLIONS U.S. DOLLARS) 1989 1988 1987 1986 TOTAL (30.6) 132.5 89.9 110.3 OECD 12.0 151.6 85.1 111.3 EUROPEAN COMMUNITY -TOTAL 0.8 50.0 81.5 86.0 -FRANCE (8.0) 66.6 71.9 72.5 -GERMANY 0.7 0.8 0.0 1.7 -SPAIN 0.0 0.0 0.0 0.2 -ITALY 1.4 0.5 0.0 1.5 -U.K. 20.9 (57.7) 0.6 4.4 -BENELUX (14.2) 39.9 9.0 6.1 NON-EC OECD -TOTAL 11.2 101.6 3.6 25.3 -U.S. 7.7 94.1 3.6 26.5 -SWITZERLAND 2.7 7.3 0.0 (1.4) -JAPAN 0.2 0.2 0.0 0.2 -CANADA 0.5 0.0 0.0 0.0 NON-OECD (42.6) (19.1) 4.8 (1.1) NET FOREIGN INVESTMENT FLOWS BY SECTOR OF ACTIVITY (MILLIONS U.S. DOLLARS) PETROLEUM (43.8) 132.5 89.9 110.3 NON-PETROLEUM 13.2 37.0 59.9 2.7 BOTH OF THE ABOVE TABLES WERE TAKEN FROM CENTRAL BANK DATA. MAJOR FOREIGN INVESTORS --U.S COMPANIES: AMERADA HESS OF NEW YORK OWNS A TEN PERCENT SHARE OF THE RABI KOUNGA OILFIELD, OPERATED BY SHELL GABON AND ALSO OWNED BY ELF GABON. HESS' SHARE COST USD 300 MILLION. IN ADDITION, HESS HAS PURCHASED AN OFFICE BUILDING AND SIGNED AGREEMENTS FOR EXPLORATION CAMPAIGNS ON OFFSHORE OIL LEASES WHICH REPRESENT POTENTIAL EXPENDITURES OF AROUND USD 100 MILLION OVER THE COMING FIVE YEARS. CITICORP OF NEW YORK OPERATES BRANCHES IN LIBREVILLE AND IN PORT GENTIL, ALTHOUGH THE INVESTMENT REPRESENTED BY THESE ACTIVITIES IS MODEST: THE LOCAL OPERATIONS, THOUGH ULTIMATELY BACKED BY CITICORP, ARE EXPECTED TO FUND THEMSELVES AND HAVE GENERALLY DONE SO THROUGH LOCAL DEPOSITS AND FRANC ZONE INTERBANK BORROWING. A RANGE OF U.S. OIL COMPANIES HAVE IN THE PAST SPENT LARGE SUMS EXPLORING FOR OIL. MOST OF THESE "INVESTMENTS" - WHICH EXCEEDED USD 600 MILLION - ARE NOW CONSIDERED SUNK COSTS. --NON-U.S. COMPANIES FRENCH INTERESTS ARE THE DOMINANT FOREIGN PRESENCE. STATISTICS ON THE STOCK OF FRENCH INVESTMENT ARE NOT GENERALLY AVAILABLE. HOWEVER, EMBASSY ESTIMATES THAT FRENCH PRIVATE INVESTMENT IN GABONESE EQUITIES EXCEEDS USD 250 MILLION. FRENCH INTERESTS DOMINATE SECTORS LIKE CONSTRUCTION (ABOUT 63 PERCENT OF CAPITAL INVESTED IN THIS SECTOR IS FRENCH OWNED) AND PETROLEUM (41 PERCENT FRENCH). FRENCH INTERESTS ARE ALSO FOCUSED IN TIMBER (21 PERCENT), CHEMICALS (20 PERCENT) AND TRANSPORTATION (29 PERCENT). THE MOST SIGNIFICANT NON-FRENCH AND NON-AMERICAN FOREIGN PRESENCE IS SHELL GABON, WHICH IS 75 PERCENT OWNED BY THE ROYAL DUTCH SHELL GROUP.