São Tomé’s fight against illicit financial services
It’s not easy being a small country in the middle of a commodities downturn, and São Tomé e Principe is smaller than most.
The country’s economic output will barely scrape past $350m this year. And yet a reformist drive under different governments has pushed the island nation forwards despite, or perhaps because of, a lack of oil cash.
São Tomé was ranked 11th in the Mo Ibrahim Foundation’s latest governance index. Prime minister Patrice Trovoada argues that São Tomé can make its way despite the oil slump that has hit the Gulf of Guinea. “There’s always opportunity when there is crisis,” he says, pointing to the oil servicing companies who are now seeking refuge. “Years before, if you finished a job in a country, you moved to another one.
But they are all in crisis, so […] there is opportunity for a country like us to say: ‘Okay, come store your equipment. Refurbish your equipment. Keep it here. [There will be] no tax or low tax, then when the price comes back in the next two years you can take your equipment back and restart the job.'”
This will not help the country’s immediate cashflow problems. Various African countries help São Tomé to pay its bills, but this “direct help to the budget is almost dry,” says Trovoada.
This has forced his government into a greater reliance on the European Union and multilateral lenders like the World Bank. The government is trying to improve tax collection. “You see, one of the reforms we are doing now is that we are bringing scanners for containers at the port and the airport,” says Troavada. “We will make life easier for the good importers, and we will make life tougher for smugglers.”
The governments of Nigeria and São Tomé manage a Joint Development Zone for oil projects, but there have not been any major discoveries and Trovoada says it appears to “have benefited certain Nigerian individuals more than São Tomé.”
He is wary of the potential negative impacts that oil money could have on the country, despite its potential transformative effects. “It is not which sector finances the economy but which sector finances the politics, and this is where you have to be very strict on it,” he explains.
Tourism is one area where the country is trying to diversify. With three planes a week coming through Ghana, São Tomé is building a destination for tourists from the subregion. “People are stressed, and they want just to come and spend the weekend in São Tomé. And this is working well. We will probably have 3,000 people coming from Ghana in 2016,” adds Troavada.
Finance is another potential source of diversification, but Troavada says the country’s future cannot be as an opaque offshore hub. “We cannot be the Panama of the Gulf of Guinea. If you are an African country, all the crooks of the world could come and say: ‘Okay, let’s dump whatever here.'”
Part of the difficulty in navigating these choices is the quality of advice that a small country receives. First, you have to deal with World Bank and International Monetary Fund advisers. “You look at the CV. They come from the public sector, then to the World Bank. And this guy has to show me how I build a private business, a liberal economy? Wrong!”, laughs Trovoada.
“Then you say let me go to people who are more familiar with business. Probably you take a good lawyer and have to fly to New York. And this guy will help you to be a crook, and that’s his role. It is no good. Then what is left? McKinsey’s [consultants], but how can I pay McKinsey? McKinsey will charge me $16m, $18m or $20m, and I cannot afford that,” he laments.
“At the end of the day, you need to find the rare pearl.”
From the November 2016 print edition