Achieving Inclusive Growth in São Tomé and Príncipe

Achieving Inclusive Growth in São Tomé and Príncipe

Men work on fibreglass fishing boats in Sao Tome city.

Achieving Inclusive Growth in São Tomé and Príncipe

Commentary

9 min read

In 2017 the Tony Blair Institute for Global Change published The Jobs Gap: Making Inclusive Growth Work in Africa. The report called for the generic business-enabling approach that has dominated economic development efforts in Africa since the 1980s to be complemented much more by a focus on specific sectors, to create jobs, add value and allow countries to compete in ever more globalised markets. If Africa is to create sufficient jobs and livelihoods to eliminate poverty at scale, countries need to focus on developing inclusive sectors in which they can compete internationally, such as agriculture, manufacturing, tourism and other high-value services. The encouraging news is that more and more governments—from Côte d’Ivoire to Kenya, Senegal to Ghana, Botswana to Ethiopia—are focusing on this.

The Jobs Gap then sets out the basis for how governments and their development partners can accelerate such a process. The central premise is that to be successful, this effort has to be driven by the head of state. It is therefore essential for proponents of inclusive growth—be they the government, the private sector, civil society or international development partners—to fully back the vision and strategy of the president and the centre of government, so they can help translate that vision into reality. To do this, leaders need support to:

  • implement their strategy for their developmental vision;
  • manage and navigate their politics while understanding the government’s role in developing sustainable market systems;
  • manage a functioning coordination mechanism, both inside government to ensure government coherence and consistency and with external partners to align resources with the strategy; and
  • establish a delivery mechanism that is fit for purpose and based on the needs of the strategy.

The Case of São Tomé and Príncipe

São Tomé and Príncipe

How can this work in practice? São Tomé and Príncipe, Africa’s second-smallest country by population, composed of two islands to the west of Gabon and to the south of Nigeria, is a perfect case study to help answer this question.

Since 2014, the country’s prime minister and his ministerial team have had a clear vision of how to transform their country. With support from development partners that have backed public-sector expenditure, the country has made significant improvements in recent years on social indicators such as health, education and the well-being of the population. This contributed to the UN recommending the country for graduation from Least Developed Country (LDC) status in March 2018.

As positive as this step may be, it will result in a reduction in development aid and international support. The government of São Tomé and Príncipe knows it cannot maintain the current level of public spending without international backing. So the only way forward is for the government to bolster its finances by raising revenues from the economy. For the economy and tax base to grow, a number of structural gaps need to be addressed. Because the prime minister and his team know their country well and can see the big picture, they know that for the economy to take off—and potentially transform São Tomé and Príncipe, whose GDP per capita was $1,300 in 2017, into a Seychelles, whose GDP per capita was $14,000—an inclusive growth vision is needed. The vision is to develop the tourism economy and the blue economy. Both sectors come under the remit of the Ministry of Finance, which shows the government’s commitment to develop them.

The former is referred to as the tourism economy, not just tourism, because tourism—which includes hotels, catering, tour services and marine activities—is merely the driver. Many other sectors can be pulled by it: cosmetics, cocoa, chocolate, coffee, fruit and vegetables, livestock, arts and culture, logistics and transport, retail, ICT, healthcare services, and construction and urban regeneration. Each of these is labour intensive and involves many small and medium-sized enterprises (SMEs). This breadth of scope is what makes the tourism economy an inclusive sector, and a good one for São Tomé and Príncipe to anchor its economy on. The same is true for the blue economy, which the World Bank defines as “the sustainable use of ocean resources for economic growth”.

Four Priority Areas

Priorities

São Tomé and Príncipe’s government is making a lot of progress to turn the leadership’s vision into reality. But improvements are needed, in particular in four areas:

  1. development-partner support for outstanding critical infrastructure;
  2. development-partner support specifically for the tourism economy and blue economy;
  3. investment- and flight-targeting support; and
  4. management support to help the government with coordination and delivery.

Firstly, infrastructure is crucial, and significant progress has been made in this regard. The government has electrified over 98 per cent of the country, provided 70 per cent of the country with a piped clean-water supply1Figures provided by the Government of São Tomé in September 2018. and secured the first part of the financing needed to extend the airport runway. In addition, the number of annual tourist arrivals has more than doubled over the past decade, with an increase from 12,300 to 29,000 visitors between 2006 and 2016. Since 2014 TAP Air Portugal, the flag-carrier airline of Portugal, has connected São Tomé to Accra, contributing to this growth.

However, further connectivity infrastructure and services are required to turn the vision into reality. To meet its potential, the tourism economy needs an upgraded airport terminal with international safety equipment; flight connections to large nearby cities like Lagos, Abidjan, Kinshasa and Yaoundé; investors in resort facilities and tourism services; and the cleaning up and regeneration of the capital city. Beyond these crucial enablers, São Tomé and Príncipe’s new tourism strategy calls for a range of other issues to be addressed, such as English learning in schools and better hospitals.

The story is similar for the blue economy, where the main missing enablers are a fishing harbour for industrial and semi-industrial boats and a deep-water harbour. Currently, no large ship can land on São Tomé, so all cargo is offloaded onto small tug boats out at sea and then offloaded again in São Tomé’s small, congested port.

And despite improved electricity access, the country still needs an affordable and sustainable solution for electricity.

At present, funding remains lacking for the airport terminal upgrade, airport equipment that meets international standards, the fishing harbour and the regeneration of the capital city, which the prime minister wants to be complemented by a government ministerial campus, or Admin City. So far, China has provided a large grant, part of which is being used to finance some of the runway extension. The rest is being used for a number of socially important programmes, such as road improvements, food security, healthcare and electricity maintenance.

Secondly, when it comes to developing the private sector in these key sectors, most development-partner support so far remains focused solely on the generic enabling-environment approach, epitomised by the Doing Business reforms, and not on developing the specific sectors and value chains that have the potential to eliminate large-scale poverty in São Tomé and Príncipe. Partners support important programmes in areas such as improved public financial management, e governance, food security, international payment systems and renewable energy; but there is no development partner as yet that is helping implement or properly fund the tourism economy strategy or the blue economy strategy. The World Bank helped finance the tourism strategy document, but this was completed in 2018. The Food and Agriculture Organisation is helping set up a blue economy unit in the Ministry of Finance, but there is not yet a written strategy.

And there is only minimal, ad hoc support—through public financial-management projects—for two or three actions out of a long list of bottlenecks in the tourism and blue economies that need to be addressed. Some of these are critical, such as a suitable business-support mechanism for São Tomé and Príncipe’s micro, small and medium-sized enterprises (MSMEs), along with business mentoring and suitable development financing to target tourism, agro-processing, logistics and other key sectors. A big, holistic push based on developing sustainable tourism and blue economy market systems is needed.

Thirdly, there is limited investment-targeting support. The government has set up a new São Tomé and Príncipe Investment Promotion Agency to conduct full-scale investment targeting. The aim is to build the agency up into a proper institution with the capacity to prepare bankable investment projects, conduct outreach, target international investors, conduct investment facilitation and support existing investors in tourism, agro-processing and other inclusive sectors. So far the agency has developed an investment-promotion strategy, but it has limited resources to implement it. It does not receive much support beyond the funding the government can afford to give it—but this service is key for the prime minister’s vision. The agency is being proactive but cannot do most of what it wants to do.

Similarly, on the airline front, there is limited capacity to build a working relationship with airlines that could connect Lagos, Abidjan, Kinshasa and Yaoundé, or destinations in Europe beyond Lisbon, which is currently served.

Finally, management support for coordination systems and delivery needs significant strengthening. When our Institute met the prime minister, he stressed that the key thing the government needs is delivery. This skill set is essential to allow the delivery of the first three factors described above: infrastructure, value-chain development and investment targeting. It is crucial to ensure the government can collaborate effectively with the private sector and development partners, to align the bureaucracy, mobilise sufficient and suitable resources, gather political momentum, address bottlenecks, and ensure focused and synchronised implementation.

Currently, the leadership has access to merely a handful of people with sufficient management skills, but a lot of this resource is spent dealing with crisis after crisis and managing the politics, with little time left to drive the development strategy. This is the single largest factor that slows down implementation in most countries, and in São Tomé and Príncipe this has led to slower progress than required four years after the vision was set out.

Towards a Common Goal of Inclusive Growth

Common Goal

The solution is to provide sufficient, flexible management and delivery capacity at the centre of government and across the key three or four implementing ministries and agencies. This could be based on a mix of local and international skills. If visionary government leadership can be provided with such support, São Tomé and Príncipe can focus on bringing in the right human and financial resources it needs to implement its strategy for inclusive growth.

With sufficient management and delivery capacity, São Tomé and Príncipe could understand how its various development partners work and what they require to align their funding and technical support with the government’s strategy. It could prepare bankable projects for investors. It could reach out to investors, addressing their information gaps, understanding their requirements and working with the relevant domestic agencies to fix bottlenecks. It could build relationships with development-finance institutions and business developers to provide suitable financing services to local MSMEs. It could secure the data and technology it needs to guide its strategy. And it could ensure proper communication and feedback between ministries and agencies so they can work as a team towards a common goal of inclusive growth.

This management and delivery support is the focus of the Institute’s work in Africa. If we can provide long-term embedded management and delivery support to half a dozen key agencies—for example, the Prime Minister’s Office, the Ministry of Finance, the Department of Tourism, the Department of Fisheries, the Investment Promotion Agency and the Ministry of Infrastructure—to plug the management gaps the ministers and agency directors have, in a way that helps build capacity, then São Tomé and Príncipe can significantly speed up the development of driving sectors such as tourism. And if we can bring in investment experts and development financiers who can help the government conduct proper investment targeting and facilitation as well as SME development, tied to the prime minister’s priority sectors, then São Tomé and Príncipe can accelerate its transformation process even further.

It is through this type of support that the development community can help São Tomé and Príncipe and other African countries to attain inclusive growth and eliminate mass poverty.

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