Housing Finance in Equatorial Guinea

Introduction

Equatorial Guinea is one of the smallest countries on the African continent, with a population of 845 000. It is located in the central region of Africa, bordering the Bight of Biafra, between Cameroon and Gabon, occupying 28 015 km² of land. The country is made up of a mainland territory called Rio Muni, and five islands. The capital city of Equatorial Guinea is Malabo, which is located in Bioko, and which houses most of the population.  The city reflects the Spanish colonial influence in its architecture. There are shantytowns as well as upper-class neighbourhoods, often in close proximity to each other[1]. Luba, with a population of one thousand, is the second-largest town in Bioko.

The country gained independence from Spanish rule in 1968. The president of the country, who has ruled since 1979, has been reelected again in 2016. Following the discovery of a large oil reserve, Equatorial Guinea was amongst the fastest economic growing countries on the African continent. Exploitation of oil and gas production has been the driving force behind the economic growth of the country and as a result it became Sub-Saharan Africa’s third largest oil exporter.  This allowed the country to make vast structural developments over the past 15 years – specifically implementing a housing policy for new homes and better access to service infrastructure.  Growth in the non-resource sector was driven by the large infrastructure spending programme. The government aims to target development and structural transformation under its National Development Plan, Horizonte 2020. Under the first phase of this plan infrastructure was upgraded throughout the country with high quality roads, international ports, and airports and service infrastructure such as electricity and water.

Equatorial Guinea’s strong dependence on the oil and gas industry (making up 90 percent of GDP, 89 percent of exports and 87 percent of fiscal revenues), has meant that it has been particularly vulnerable to the drop in international oil prices and declining oil and gas production. The economy dropped by 10.2 percent in 2015 and is projected to drop a further eight percent in 2016 (AEO, 2016).  High infrastructural expenditure and a lack of economic diversification has contributed to the country’s economic problems, which in turn has affected public investment, and explicitly, government spending on housing and infrastructure.

Equatorial Guinea falls in the middle income country category, with a GDP of about US$9.3 billion in 2015, according to the World Bank’s, World Development Indicators.  The GDP per capita was US$11 121 in 2015 (WDI, 2015). Despite this high figure, according to the UN Human Development Index, Equatorial Guinea’s HDI value for 2014 was 0.587, which put the country in the medium human development category, positioning it at 138 out of 188 countries. It is however, above the average for countries in Sub-Saharan Africa. The HDI value had increased by 11.5 percent between 2000 and 2014.

Access to Finance

The financial system of Equatorial Guinea is generally sound, but small and underdeveloped. As a result, access to finance is limited, consumer credit is low and entrepreneurial activities are hindered by high costs of financing, according to Making Finance Work for Africa.  There are currently four banks in the country^[2]. In 2011, 259 out of every 1 000 adults were depositors in a commercial bank and 39 out of every 1 000 were borrowers^[3].

According to MFW4A, the spread between lending and deposit rates remains relatively high, although bank real lending rates have come down in recent years reflecting a more competitive environment. The lending interest rate as reported by the World Bank in 2015, was 15 percent in 2007 and the deposit interest rate was 4.3 percent – of course this may have changed but no more recent data is available. MFW4A reports that credit in Equatorial Guinea tends to be concentrated in short-term lending to government contractors and public infrastructure projects, creating a potential source of vulnerability. The World Bank’s 2016 Doing Business indicators scores Equatorial Guinea at 109 out of 189 countries globally in terms of ease of getting credit.

The insurance sector is small, consisting of three insurance companies and one reinsurance company, and is regulated and supervised by a regional body, the Inter-African Conference on Insurance Markets (CIMA). As Equatorial Guinea forms part of the Central African Economic and Monetary Community (CEMAC), it shares a common currency with other member states and the central bank is Bank of Central African States (French: Banque des E’tats deI’Afrique Cemeate (BEAC). The banking activities in Equatorial Guinea are supervised by COBAC – the CEMAC region Banking Commission.

Since 2011, Equatorial Guinea has not received long-term debt ratings by any of three major credit rating agencies^[4]. In 2007, non-performing loans stood at 10.8 percent down from 14.3 in 2006[5]. The current account deficit has progressively increased to around 10 percent of GDP by 2014 as a result of lower exports from maturing hydrocarbon fields, combined with high import levels associated with the public infrastructure program. The consumer price inflation (CPI) has averaged about four percent in recent years, above the three percent regional convergence ceiling set by CEMAC.

Housing Affordability

The majority of people in Equatorial Guinea are involved in the informal sector.  The GNI per capita is US$7 790.   The employment to population ratio is 79.8 percent and the labour force participation rate is 86.7 percent according to the UN HDI report, 2015. Only 18.9 percent of the population uses the internet and 66.4 percent are mobile phone subscribers. 19.3 percent of the working population earn less than ppp US$2 per day. The unemployment rate is 7.9 percent and 61 percent of households earn less than US$5 000 per annum (according to C-GIDD, 2015).

According to Numbeo (2015), the rent per month for apartments in city centres range from CFA 400 000 (US$680) to CFA 1 400 000 (US$2 383) and outside the city centre range from CFA 100 000 (US$170) to CFA 250 000 (US$425). Taking to account that 61 percent of the population earn below US$5 000, most households will only be able to afford the cheapest apartment outside of the city centre.

Generally in the CEMAC region, construction costs are relatively high both in urban and semi-urban areas high makes houses expensive is the materials that are used to build these houses. The plan to build a new cement plant in the country will contribute to lowering construction costs.

 

Housing Supply

Sixty percent of Equatorial Guineans live in rural areas.[6]  The country as a whole has a variety of housing types.  In the north, houses are made from wooden planks or palm thatch. Many houses have shutters.  On the mainland, there are different kinds of houses, which are self-built using natural materials, small houses are made of cane and mud walls with tin or thatch roofs. People of Budi society are divided by function: farmers, hunters, fishers, and palm-wine collectors.  On the other hand, there are high rise apartment buildings in cities.

Equatorial Guinea is allocating resources to its development and infrastructure projects at a fast pace. Social housing is a clear example of the efforts the President of Equatorial Guinea, Obiang Nguema Mbasogo, is undertaking.

The government of Equatorial Guinea has funded a series of public housing blocks, in Bioko Norte, for low-income people. The houses will be offered at affordable prices to Equatoguineans. Over 1 000 houses were built on Sampaka, a small town north of Malabo. This is another effort from the government to improve the living standard in the country.

The public investment programme as outlined by the IMF (2015), planned to spend CFAF 1 492 billion on social housing. By mid-2014, CFAF 394 billion (US$670 million or 26 percent) had been spent and by 2015 CFAF 113 billion (US$192 million). An additional CFAF 5 995 billion (US$10 million) was planned for urban development.  Some declared that social spending such as social housing (constructing apartments), is not well-targeted as most of it is inaccessible to the poorest segments of the population.

As reported by Cemnet, 2016, the Cameroon-based Common Savings and Investment Fund (CCEI) granted the Equatorial government US$69 million to build a cement plant.   This will hopefully lower costs of construction and contribute to governments plan to prioritise the non-hydrocarbon sector.

Property Markets

The country ranked 156 out of 189 countries in terms of registering property – it saw a drop in three positions since 2015. The country however improved by three places since last year in terms of dealing with construction permits.  According to the World Bank’s Doing Business Indicators for 2016, there are six procedures to register property which is on par with the Sub-Saharan African region. Registering property takes on average 23 days – this is 34.5 days less than the Sub-Saharan African average. The cost to register property is 12.5 percent of the property value.

According to the Doing Business Indicator for 2016, dealing with construction permits to build a warehouse in Equatorial Guinea requires 13 procedures, takes 144 days and costs 4.1 percent of the value of the warehouse. While not directly to residential property, this provides a rough indication of the formalities undertaken to construct in Equatorial Guinea, indicative costs, timeframes and steps to follow, including legal implications.

Housing Policy and Regulations

According to the IMF (2015), the government’s development agenda is guided by a medium-term strategy, the National Economic Development Plan: Horizon 2020, which targets economic diversification and poverty reduction. The first phase of Horizon 2020, focusing on infrastructure development, was concluded in 2012. The second phase will focus on economic diversification, targeting strategic new sectors such as fisheries, agriculture, tourism, and finance. This need to focus on developing new economic sectors was driven by the drop in oil prices and hence decline of the historically dominant sector.

The new city of Djibloho, in the centre of mainland Equatorial Guinea, will be created under the framework of the policy of regrouping the populations of the main cities – Malabo, Bata, Mongomo, Ebebiyin, Evinayong and Luba. A complementary approach was taken in drafting the master plans for roads, housing and social infrastructure in order to improve the quality of urban life through economies of scale as reported by the African Economic Outlook, 2016.

After consultation with Equatorial Guinea in 2015, the IMF advised a structural reform agenda to boost competitiveness and attract potential investors, including:

• Accelerating reforms to improve the business climate, in partnership with the World Bank;
• Supporting human capital development by promoting education, especially fully equipping and staffing newly built schools;
• Advocating for lower trade barriers among regional partners in the Economic Community of Central African States (CEMAC) and between CEMAC and other countries; and
• Seeking to partner with international financial institutions on investment opportunities.

With support from the World Bank, Equatorial Guinea has established a statistics office which aims to better inform policy makers indicating that the country is cognisant to the fact that quality of data influences informed policy.

Housing Sector Opportunities

As reported in 2015 by the IMF, authorities, in cooperation with the banking sector, have made significant efforts to strengthen financial sector development and improve access to financing in the past few years. The IMF indicates that enacted measures include the introduction of a real-time interbank clearance mechanism and the placement of ATMs at the bank branch level, as well as significant investments towards laying a fiber-optics cable to the mainland. Plans are also underway to develop nation-wide ATM and credit card networks, while authorities are considering proposals for the creation of a credit fund and the development of a government debt market.

Going forward, the country´s commitment to the Agenda 2030 and the Sustainable Development Goals (SDGs), is underpinned in the national development plan, with 15 major programs that centre on socio-economic development. The plan addresses food security, health, education, housing for all, water, electricity, people cantered administration, development statistics, employment for all, transforming the country into an energy power house; a regional financial hub, and environmental sustainability[7] (UNDP, 2016).

In addition to this, the new cement plant will decrease the cost of construction and increase accessibility to local build materials. Firm commitment by government to create an enabling business and investor environment further indicates a solid foundation for growth in other economic sectors. An enabling business environment is created through the provision of infrastructure as part of government policy as well as the renewed focus on the sectors other than hydrocarbon which indicates increased government spend in social and economic facilities.