The first (in ) examines the role and performance of state-owned enterprises (SOEs) in contributing to economic growth and job creation.
Report Highlights
In 2024, S?o Tom¨¦ and Pr¨ªncipe¡¯s (STP) economy showed signs of recovery from the severe energy crisis that limited growth in 2023. Real GDP growth is estimated at 1.1% for the year. However, the country has experienced a declining growth trend over the past two decades, with various global and domestic shocks further reducing growth to an average of 1.3% from 2019 to 2024.
Economic growth is expected to pick up over the coming years as energy sector reforms improve macroeconomic stability and promote structural change, but downward risks are elevated. Tourism services exports are projected to be a key source of growth, jobs, and foreign exchange. Real GDP growth is expected to reach 2.9% in 2025 and average 4.3% over 2026¨C2027.
Unreliable and expensive electricity has hindered economic growth in recent years.
EMAE, the electricity and water state-owned enterprises (SOE), operates inefficient and costly diesel-powered electricity plants. It is financially weak and has been accumulating arrears to Empresa Nacional de Combust¨ªveis e ?leos (ENCO), the domestic fuel supplier, which were estimated at 23% of GDP in 2024. In turn, ENCO, primarily owned by Sonangol (state-owned Angolan oil company) and partially by the Santomean government, accumulated arrears to Sonangol, which led to the loss of its preferential agreement to purchase fuel on credit, affecting fuel supply and pricing in the country. This resulted in a balance of payments and energy crisis, with fuel import value rising by $13 million, or 1.9% of GDP, in 2023. Meanwhile, the central bank (BCSTP) lost over a quarter of its gross international reserves during the year.
This slowdown also reflects a decline in official development assistance (ODA).
The economy relies heavily on external funding for public investment in infrastructure like roads, schools, and hospitals. Total investment has dropped from an average of 42.2% of GDP in 2004¨C08 to 24.3% in 2019¨C23, as net ODA decreased from 24% of GDP to 14% over the same period.
Weak job creation and economic growth hinder improvements in living conditions and pushes Santomeans, especially young people, to search for opportunities abroad.
Given the low economic growth over 2020¨C23, S?o Tom¨¦ and Pr¨ªncipe¡¯s income per capita declined compared to Sub-Saharan Africa and other small island developing states (SIDS). In 2023, GDP per capita had returned to its 2017 level, and 15.8% of the population was estimated to be living in poverty, broadly unchanged from a decade ago.
Gross international reserves started to recover, averaging $64 million in 2024, down from $84 million in 2021. Net international reserves nearly depleted, falling from $42 million in 2020 to $0.8 million in 2024, primarily due to reduced external grants and rising fuel import costs.
Government debt has decreased; estimated at 45.7% of GDP at the end of 2024. Contingent liabilities totaled 31.7% of GDP and remain a challenge. The government¡¯s oil purchases for EMAE have resulted in EMAE accumulating obligations towards the state, increasing from 1.7% to GDP in 2023 to 6.3% of GDP in 2024.
Chapter 2 of the STP Economic Update focuses on how reforms in the SOE sector are crucial to boost higher private sector-led growth and job creation.
SOEs have been vital to STP¡¯s development since its independence in 1975, providing essential services, and can help drive economic growth. Currently, there are ten SOEs where the state owns over 10%, with four fully owned by the government that manage electricity, water, ports, airports, and postal services. In 2023, SOEs' total assets were 94% of GDP, and they accounted for about 9% of formal employment and 14% of public sector jobs. In 2019, SOE revenues averaged 26% of GDP, higher than 20% in comparator countries (Figure 2.1).
In 2023, around two-thirds of SOEs reported losses, with EMAE being the main contributor. These financial issues consume resources needed for infrastructure and education, limiting the country¡¯s growth potential.
Fiscal stability is undermined by the substantial debt held by insolvent SOEs, quasi-fiscal operations, and undisclosed transactions between SOEs and the government. Fiscal fragility worsens due to poor cost recovery in SOEs, inflexible operating costs, and a heavy reliance on external support.
The government is working to enhance SOE governance, attract investment, and modernize infrastructure. Ongoing reforms aim to overcome operational and structural challenges to diversify the economy and improve the quality of life for Santomeans. Key priorities include strengthening the Treasury's capacity to monitor the SOE sector, improving transparency, and reassessing state ownership of certain economic activities.
Urgent reforms are needed within SOEs to enhance transparency, efficiency, and governance. Key focus areas include revising legal and institutional frameworks, restructuring certain SOEs like the power utility, and reforming financial reporting and governance mandates. These changes are critical for attracting foreign investment, reducing corruption, and improving operations and profitability.