IRIN Focus on reducing economic vulnerability

Cocoa accounts for the bulk of Sao Tome e Principe’s export earnings, and the country is thus vulnerable to declining prices for the commodity. Now, however, its government is trying to reduce its dependence on a single product. A range of options, from oil to tax-free zones, are being considered but various farm products, fisheries and tourism are the main priorities of the government’s economic diversification effort, Minister of Economic Affairs Maria das Neves Baptista de Sousa told IRIN. To say cocoa is the country’s main export is an understatement. When, in 1996, receipts from sales abroad totalled US $4.9 million, US $4.8 million came from cocoa, according to figures IRIN received from the Finance Ministry. The commodity netted US $4.6 million out of a total export figure of US $5.3 million in 1997 and US $4.6 million out of US $4.7 million in 1998. Not least among the factors that have spurred the drive to reduce dependence on cocoa are decreasing international prices and a reduction in output. Since the archipelago produced 30,000 mt of cocoa in 1920, it has never repeated that feat, said Baptista da Sousa. Production fell from 10,000 mt in 1974 to 4,000 mt in 1990, she adds, due in part to the low productivity of ageing plants. In 1998, it was 3,800 mt. The drop in prices has acted as a disincentive to farmers, especially the smallholders who produce about half the annual output. They received 2,000 dobra (US $1 = 7500 dobra) per kilogramme in early 1999 when the international price was US $1,400 per tonne, according to Baptista da Sousa. Early this year the price slumped to US $700 and producers’ earnings were also halved. “Some local producers are in deficit,” she said. “Some are thinking of pulling out. Others are thinking of diversifying.” In December, the government abolished an 8-percent export tax on cocoa to ease the pressure on the sector but, said Antonio Barros Aguiar, president of Sao Tome e Principe’s Chamber of Commerce, Industry, Agriculture and Services (CCIAS), that has not resolved producers’ problems. “Prices have fallen so low, people are beginning to wonder if it makes sense to continue growing cocoa,” Barros Aguiar told IRIN. “Some have invested heavily and even paying their dues to the CCIAS has become a problem, which was never the case before.” Cocoa is likely to remain the mainstay of the economy for some time, but the government is also turning its attention to products such as sweet peppers and flowers, which have a high value on the international market, Baptista da Sousa said. She said about US $800,000 from a US $1.2-million credit line received last year from Taiwan would be used to help some of the archipelago’s small farmers switch to other cash crops, while the rest would go to the fishing sector. The assistance to be given to small farmers could help halt a phenomenon which has local ecologists worried: deforestation. Under a land reform programme, state land was leased in the early 1990s to smallholders, but some did not have the money needed to develop their plots. The result, said Vitor Santos of the ecological NGO Jovens Luz Verde, is that “farmers have been chopping down their trees willy-nilly”. He told IRIN: “They were given plots of land but no financing so, to buy inputs, they cut trees to sell.” Medium-sized farms, of which there are about 50, according to Baptista da Sousa, will benefit from a credit line of US $900,000 from the Organisation of Petroleum-Exporting Countries (OPEC). For de Barros Aguiar, there is no disputing the fact that archipelago’s agricultural potential has not been fully realised, but the small size of the local market - Sao Tome e Principe has a population of about 140,000 - and what he calls the “price of being an island” are big drawbacks. Sao Tome e Principe imports just about everything, he said, including agricultural inputs. However, the market is small, so the country does not import large amounts of each product at a time. As a result, it usually does not import directly but via middlemen who buy the goods from various exporters in Portugal, for example, and then ship them together to Sao Tome. This makes the imports more expensive. Then again, the country does not have a deep water harbour so goods have to be transshipped via small boats, which adds to the cost. The size of the market affects local producers in other ways, too. De Barros Aguiar, who heads a marketing consultancy, also has a farm that produces tomatoes, onions and other vegetables. Last year, he said, he had to throw away about half of the 200 kg of tomatoes he marketed each day during the tomato season even though he sold them below cost price. He has started experimenting with sales to Gabon. He sees regional integration as part of the answer. “Even we, small enterprises, have problems with the small size of the market,” he said, “so we, business people, feel that integration is urgent.” “The free zone could be a trump card,” he adds. The establishment of a tax-free zone is one of the possibilities the government has been looking at. The idea would be to promote exports and jobs, and to attract exporters from nearby countries, said Baptista da Souza. However, she said, before that can happen “we have to have a deep water harbour.” But the archipelago’s energy problems are a potential disincentive. Blackouts are frequent, local economic operators complain, adding that generators are not a cheap option. The government is concentrating on improving capacity to tap energy from Sao Tome’s waterways - this year one of the main hydropower plants, the Central do Rio Contador, which is over 30 years old, is to be rehabilitated with the help of the European Union, Finance Minister Adelino Castelho David told IRIN. Expanding the capacity of existing thermal energy plants is also being considered, he said. Petroleum mining is also under consideration. A seismic study has already been done to sound out the prospects for off-shore mining, the country’s maritime border is being delimited and talks have been going on with an oil multinational, according to Baptista da Sousa. Tourism is another potential development area but first, the hurdles that have prevented the archipelago from being a major tourist destination need to be overcome. The archipelago is not short of attractions, from the Lagoa Azul with its sky blue water to the Obo Natural Park just waiting to become a must-see haunt for ecotourists. But visitors have been few. Why haven’t tourists been flocking to the islands? “People do not know Sao Tome e Principe, transport costs are high - a ticket from Lisbon to Sao Tome costs US $1,000 - and malaria has been overdramatised,” said Baptista da Sousa. Looking for ways to attract more visitors is the task of a multisectoral committee for the development of tourism set up in May 1999. It includes the ministries of health, finance, education and culture, the airport and port authorities, travel agencies, hotels and restaurants. Sao Tome e Principe’s authorities admit that there are drawbacks but, they say, their country has comparative advantages, too. “The first is that the population is very open, very hospitable,” said Baptista da Sousa, “and we have true democracy - it’s the only country in the region where the president belongs to one party and the government is from another. “We have political stability, peace, it’s a big advantage,” she adds. So, too, she adds, is the extremely low level of crime in the archipelago.