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Sao Tome and Principe is a tiny island nation consisting of two small islands (1001 sq km) ranking the country as the smallest African country as measured by geography and the second smallest African country as measured by population. Situated 150 miles off the west coast of continental Africa, close to the equator, Sao Tome and Principe is domiciled in the oil rich Gulf of Guinea west of Gabon. Sao Tome and Principe has struggled financially ranking as one of the world’s poorest nation’s according to the United Nation’s, approximately 54 percent live below the poverty line. This small economy has been highly depended upon foreign aid assistance to maintain its survival. Historically, the dobra has experienced wild volatility and steep depreciations reflecting its’ troubled economy due to difficulty at times in the global cocoa market, drought, mismanagement that resulted in balance of payments deficits.

Since year 2000, a major turn of events has taken place for Sao Tome and Principe with the discovery of oil in the Gulf of Guinea.
This is a significant turn of events that has even caught the eye of the United States government. With only 200,000 citizens, a higher standard of living may ultimately prevail for Sao Tome and Principe.

POLITICS: historical instability, independence obtained from Portugal in July 1975. For full political details, please contact for currency research.

ECONOMY: improved macro-economic performance with short term risks, future economy is moving towards oil & tourism. Historical past performance for the most part for Sao Tome will be irrelevant in calculating the country’s future prosperity especially considering that the majority of economic activity is funded by foreign aid assistance, upwards of 75 percent of the government budget. A lowering of the inflation rate is forecasted to 11.4 percent by 2008 after year 2006 experienced an extensive liquidity growth resulting in dobra depreciation. Historically, the Sao Tome & Principe economy has been vulnerable to economic shocks such as volatile pricing in the world cocoa market, energy prices, imports of consumer & capital goods that directly impacted the balances of payments account which have resulted in high inflation rates and a significant devaluation of the national currency, the ‘dobra’ particularly from 1987-97. At present, the authorities are slowly implementing market reforms by reducing subsidies and price controls. Sao Tome is also a beneficiary of foreign aid assistance and international debt relief, HIPC and IMF support. Fish, hydro, tourism and petroleum are to be the main industry groups for Sao Tome and Principe. Cocoa previous to the discovery of oil was the nation’s largest industry as cocoa garners 80 percent of the country’s exports.

Economic Statistics
Total GDP at $278 million USD (2006) as measured by purchasing power parity with corresponding GDP/Capita at $1,200 USD (2003). Market GDP is measured at $71.3 million USD (2005). GDP growth for 2007 and 2008 is projected at 7 percent. Inflation is estimated at 18.6 percent for year 2006, August 2006 at 26 percent. Other inflation quotes include year 1997 at 81 percent, year 1999 at 13 percent, 2001 at 5 percent. The current account is currently in deficit at $25 million USD with the trade component in shortfall of $39 million USD. The fiscal account including grants and oil signing bonuses was in surplus for 2005-06. However, the primary fiscal deficit is measured at 8.6 percent of GDP (2006) and is expected to narrow to 7 percent in 2007. National debt amounts to $300 million USD. Foreign exchange reserves stand at $25.5 million USD (2006). The central bank, Bank of Sao Tome and Principe raised its reference interest rate by 4 points to 28 percent in June 2006 to quell inflationary pressures.

POSITIVE: development of the tourist economy will help to compliment oil industry, electricity self sufficient - hydro. CONCERN: corruption scandals, health – sanitation, malnutrition although these concerns will cease to abate with rising wealth on the horizon, shortage of skilled labor.

Oil Industry
Sao Tome holds oil rights in territorial waters in the Gulf of Guinea, the oil rich region is to be further explored for extractable hydrocarbons. Sao Tome and Principe has arranged a partnership with Nigeria for exploration and future development of the petroleum industry in a ratio of 40 percent to Sao Tome and Principe and 60 percent to Nigeria. The two country agreement is known as the Joint Development Authority (JDA). The offshore exploration region is to be auctioned off in ‘Blocks’. The Blocks were opened up for international bids beginning in April 2003. Block 1 has now been finalized with a consortium winning the bid as follows: Esso Exploration at 40 percent, ChevronTexaco at 51 percent and Norway’s Equity Energy at 9 percent. Sao Tome and Principe initially participates as it received its 40 percent portion of the successful exploration bid of $123 million USD in July 2005. Several of the remaining Blocks are yet to be sold with further signature signing bonuses yet to be realized by the JDA. If exploration reserves are indeed proven as highly expected, then further royalty income will be submitted to Sao Tome and Principe. Moreover, huge monies will be invested with foreign direct investment into capital development of the oil industry as Sao Tome and Principe will benefit from this massive investment.

Oil reserves estimated at 5 billion barrels (2005), oil wealth at current market prices in the vicinity of $75 USD / barrel represents an enormous gross value of $300 billion USD for this tiny country. Other analyst estimates have quoted upwards of 10 billion barrels. As of 2007, no oil production as of yet as first production licenses were only sold in 2004. Industry capital investments are underway, oil revenue for export is projected to be online by year 2012 with petroleum likely to be Sao Tome and Principe’s largest industry by far.

ISO Symbol ‘STD’, dobra. At time of currency review on September 23, 2007, the Sao Tome dobra had an exchange valuation of 13739 STD to the USD and/or 19,359 STD to the Euroland euro (EUR). The currency regime follows that of a managed float. There are reports of official and market currency rates for different currency transactions, types of business.

CURRENCY HISTORY: the dobra came into circulation in 1977 replacing the former currency, the ‘escudo’ at par. Historical valuations for the dobra include year 1997 at 4552 STD to the USD, year 1998 at 6883, 1999 at 7119, 2000 at 7978, year 2001 at 8842, 2002 at 9088, 2003 at 9347, 2004 at 9902, 2005 at 9900 and year 2006 at 12050. In 1990, it took only 430 STD to buy one USD, this history shows the volatile nature of the STD for this small fragile economy.

CURRENCY FORECAST: cautiously optimistic. Strong military allied support from the United States will help to maintain stability for development of offshore oil industry. The exploration and potential development of the petroleum sector in the Gulf of Guinea by western corporations such as ExxonMobil (February 1, 2005) and ChevronTexaco will bring large volumes of hard currency to Sao Tome and Principe in the forms of tourist arrivals, construction and development of offshore oil reserves. It is highly likely that with U.S. involvement that the US-dollar may in time become a parallel currency to the dobra or outright US-dollarization in the future may take place in the years going forward.

The discovery of massive oil reserves will change Sao Tome and Principe’s future a full 180 degrees although vulnerable to external shocks in the short term until actual development and oil production takes place estimated by year 2012. Sao Tome and Principe’s current heavy debt burden and reliance on foreign financial assistance will cease to exist in the years to come. When oil royalty revenues do begin in approximately 5 years time, falling cocoa production will be a secondary matter as tourism visits are expected to increase which will help offset declines in fish and agricultural production. medium term currency projection remains positive for the dobra as year 2012 draws closer although offset by short term difficulties attributed to inflation risks due to higher labor costs for oil development. Sao Tome and Principe will in benefit in the short term from further oil signature bonuses and increased capital investment, tourist arrivals, etc. Although oil production will provide for a significant financial windfall as oil exports will provide for steady overall balance of payments surpluses. best guess forecast is for a currency appreciation back to the 3000 STD to 5000 STD to the USD valuation range by year 2012 – 2017, an interesting currency speculation potential. However, Sao Tome and Principe has to avoid the problems of political and oil corruption that has taken place in Gabon, Nigeria and Equatorial Guinea. It will be necessary to establish strong domestic institutions to oversee the transparency of new found oil wealth creation. Our best guess is that with U.S. personnel, Sao Tome’s small geographic and population size, the country will avoid many of these destabilization problems. Further, even with potential for further oil deals to be signed, even if flawed or poorly crafted, Sao Tome and Principe should still benefit from a windfall of hard currency monies relative to its tiny size. The dobra remains speculative, highly risky, but a great African story.

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UPDATED: September 23, 2007

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