Housing Finance in Equatorial Guinea

Introduction

Equatorial Guinea is one of the smallest countries on the African continent, with a population of approximately 1.2 million people and a land area of 28 015 km². The country has a unique geographical arrangement in that the capital city, Malabo, is located on the island of Bioko, situated off the coast of Cameroon. The Equatoguinean mainland (known as Rio Muni) lies on the African continent further south along the Atlantic.  The country also comprises of the smaller islands of Corisco and Annobon.[1] The country gained independence from Spanish rule in 1968 and is the only Spanish speaking country in Africa. President Obiang Nguema, who is Africa’s longest serving leader has been in power since 1979 (after deposing the former president) and was reelected again in 2016.  According to the Economist Intelligence Unit’s Democracy Index, Equatorial Guinea is ranked 163^rd out of 167 countries, putting it among the most authoritarian governments in the world.[2]

Economic growth has been primarily driven by the hydrocarbon sector since 1990[3] and Equatorial Guinea has been one of fastest growing economies on the African continent becoming Sub-Saharan Africa’s third largest oil exporter.  Oil accounts for 85 percent of the GDP and 94 percent of exports as of 2015.[4] This has enabled the country to make vast structural developments over the past 15 years. Non-oil economic activity is chiefly driven by substantial public investment in new infrastructure projects such as roads and high profile urban developments-specifically implementing a housing policy for new homes and better access to service infrastructure, with construction making up 7 percent of the GDP in 2015.[5] Forestry and farming make up marginal contributions to the GDP however the general neglect of the rural economy has marginalised the potential of the sector as a possible avenue for diversification.[6]

As a result of oil reserves, Equatorial Guinea is classified as a middle income country, with an estimated GDP of US$11.64 billion in 2016.^[7]  The country’s population density is relatively low with about 42 percent of the population living in urban areas (especially Malabo). The GDP per capita was estimated at US$38 600 in 2016^[8]. Despite the level of development which the country has experienced the economy is vulnerable to the fluctuations of the hydrocarbon industry evidenced in the fact that the GDP growth rate has dropped to -10.60 percent as of 2016.^[9] As a result of the reduction in revenues from the oil industry, high levels of infrastructure expenditures, and the absence of economic diversification, in conjunction with the proliferation of corruption, the economy has gone into decline in recent years with limited improvements in the general population’s living conditions.^[10]

Furthermore foreign aid programs by the World Bank and the IMF have been suspended since 1993 as a result of corruption and mismanagement, and as a middle income country Equatorial Guinea is now ineligible for most low-income donor funding.^[11] In 2014 two symposiums were hosted in the country in an attempt to tap into donor funding for the purpose of diversifying the country’s economic profile looking at various sectors including agriculture and animal ranching, fishing, mining and petrochemicals, tourism, and financial services.^[12]

Addressing economic disparity is essential for the development of the country as according to a 2011 joint household survey by government and ICF International, about half of the population lacks access to clean water. In 2016, 42 percent of children were not registered in primary schools, the seventh highest proportion in the world, according to UNICEF. Only half of children who begin primary school complete it. This social inequality is further expressed in the fact that 44 percent of the population live below the poverty line, and there are limited employment opportunities as the oil sector tends toward employing skilled foreign workers. ^[13]

Access to Finance

As Equatorial Guinea forms part of the Central African Economic and Monetary Community (CEMAC), it shares a common currency with other member states and as well as the central bank is known as the 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. In May 2017, BEAC kept its policy rate at 2.95 percent in order to boost regional credit growth and enhance economic activity in the non-hydrocarbon sector. The spread between lending and deposit rates remains relatively high as lending interest rates are expected to average  around 14 percent in the short term. Equatorial Guinea’s banking sector is highly concentrated and consists of five banks, three of which hold 84 percent of total assets. The rest of the financial sector consists of three microfinance institutions (MFIs) and three insurance companies.

The financial sector is shallow and characterised by limited inclusiveness.  Financial deepening, as measured by deposit- and loan-to-GDP ratios, is less than a third of the emerging market average. Equatorial Guinea’s financial development gap is the highest among African oil-exporters . The shallowness of the financial sector is mostly due to persistent structural bottlenecks, which include limitations on potential borrowers’ credit history and high collateral requirements. Furthermore, limited efforts to promote the microfinance sector constrains the size of microfinancial services, thereby impeding access to financial services by low-income populations. The use of mobile banking in Equatorial Guinea is also lagging as compared to the rest of Africa that has led the world in innovative financial services based on mobile telephony.  Only 18.9 percent of the population uses the internet and 66.4 percent are mobile phone subscribers.

The banking system in Equatorial Guinea is characterised by high overhead costs and interest rate spreads, owing to high lending risk, and low competition due to the limited number of commercial banks. The World Bank’s 2017 Doing Business indicators scored Equatorial Guinea at 118 out of 190 countries globally in terms of ease of getting credit.  Bank credit to the private sector increased to 20 percent of GDP in 2015 from five percent of GDP in 2010, but remains heavily concentrated among large enterprises, especially those operating in the construction sector. In 2013, nonperforming loans increased to 20 percent of total loans.

Housing Affordability

The majority of people in Equatorial GuineaThe GNI per capita is US$7 790.   Approximately 82 percent of the population are employed and the country only has 7.2 percent unemployment rate[1]. Poverty is still high as mentioned above and concentrated primarily within rural areas, in which subsistence living is dominant due to the limited rural economic opportunities.

According to Numbeo (2015), the rent per month for apartments in city centres range from CFA francs 200 000 (US$358) to CFA francs 600 000 (US$1 073).  A four bedroom executive house in a prime location can cost US$6 500 per month to rent. Rental outside the city centre ranges from CFA francs 150 000 (US$268) to CFA francs 400 000 (US$ 716). With an average monthly net salary of CFA francs 250 000 (US$ 448) 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 as a result of the high cost of materials which are largely imported. In 2013, Grupo Abayak AKOGACemento S.A. awarded the contract for the construction of a cement plant to FLSmidth & Company A/S of Denmark. The 3 000-metric-ton-per-day-capacity facility, which was to be built at Akoga, was expected to begin production in 2016. However, it is unclear what the current status of this project is. Furthermore, as reported by Cemnet in 2016, the Cameroon-based Common Savings and Investment Fund granted the Equatorial government US$69 million to build a cement plant.  Although, it is unclear as to what progress has been made in building this plant to date. Both these cement plants and invest in new infrastructure projects such as roads and high profile urban developments.

Housing Supply

Approximately sixty percent of Equatoguineans live in rural areas.   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.  On the other hand, there are high rise apartment buildings in cities. Wealthy individuals have channelled a significant amount of capital into residential real estate development and there are some good quality apartment blocks to the west and centre of Malabo. Despite the declining oil and gas prices and waning expatriate demand, there does still appear to be a reasonable market for serviced apartments and compounds catering for oil workers.

The public investment programme as outlined by the IMF (2015), planned to spend CFA francs 1 492 billion (US$ 2.6 billion) on social housing. By mid-2014, CFA francs 394 billion (US$670 million or 26 percent) had been spent and by 2015 CFA francs 113 billion (US$192 million). An additional CFA francs 5 995 billion (US$10 million) was planned for urban development.  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. However, it remains debatable as to whether mass housing developments such as Buena Esperanza on the outskirts of Malabo remains affordable to most locals.

Property Markets

According to the civil code Law of State Patrimony and Law of the Soil, all land belongs to the State. This gives the State a wide mandate to take possession of land whenever it is in the sovereign interest to do so. Equatoguinean law provides for compensation in the event that property is taken by the government. However, when people are evicted from their homes, it is seldom the case that they receive adequate compensation.[1]

 2017, the country ranked 160 out of 190 countries in terms of registering property – it saw a drop in two positions since 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 and the cost to register property is 12.5 percent of the property value.  Furthermore, the majority of title or deed records in the country are in paper format and there is no electronic database for checking for encumbrances (liens, mortgages, restrictions and the like). There are no publicly available official statistics tracking the number of transactions at the immovable property registration agency. Discrepancies around ownership rights exist between unmarried men and unmarried women who have equal ownership rights and, married men and women do not.

Housing Policy and Regulations

According to the IMF, 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. The 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 for 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. [1].

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 of the fact that quality data influences informed policy.

Housing Sector Opportunities

Equatorial Guinea has significant assets conducive to promoting entrepreneurship and industrialisation. The country’s infrastructure is world-class, including roads, ports and energy. The cultural diversity of the country’sin the country is an added benefit to the country’s growth prospects.[1] Furthermore, the high cost of formal construction provides developers with an opportunity to gain substantial market share by manufacturing building materials locally and/ or innovating in the affordable segment of the market.

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 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.