Developing the sao tome island

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					        DEVELOPING THE
     SÃO TOMÉ AND PRINCIPE
            ISLANDS
           A liberal & environment friendly model




Pablo Fernández        June 11th 2008
 Topics:
            General Information
            Economic information
            Infrastructures options
            Resources (except oil)
            Access to the world market
            Oil revenues
            Macroeconomics and laws
            Sum up and influence
            Future scenario

Pablo Fernandez, "Developing the São Tomé island", June 2008.
Welcome to the São Tomé and Principe!
      Democratic Republic of São Tomé and Príncipe




                                        Pablo Fernandez,
                                        "Developing the São Tomé
                                        island", june 2008
Pablo Fernandez,
"Developing the São Tomé
island", june 2008
Economic key values

• Capital (and largest city): São Tomé

• Official language: Portuguese

• Government: Democratic semi-presidential Republic

• Former Portuguese colony (independence in 1975)

• Area: 1,001km2

• Population:206 000 (similar to Iceland)

• Density 205/km2


                                            Pablo Fernandez,
                                            "Developing the São Tomé
                                            island", june 2008
Economic key values
Currency: Dobra

GDP (2007 est.): $142 million.
GDP per capita (ppp) (2007 est.): $1200
Annual real GDP growth rate (2007 est.): 6.5%.
Consumer price inflation (2007 est.): 17%.

Natural resources: Agricultural products, hydropower, fish,
petroleum (not yet exploited).
Agriculture (14.8% of GDP, 2007)
Industry (14.2% of GDP, 2007)

Trade: Exports (2007 est.)--$4 million
       Imports (2007 est.)--$73 million

Total external debt: $318 million.

Exchange rate (2007): 13700 dobras=U.S. $1.     Pablo Fernandez,
                                                 "Developing the São Tomé
                                                island", june 2008
What we are going to do…



     Try to build a probable
      development model,
 based on the current situation.




                           Pablo Fernandez,
                           "Developing the São Tomé
                           island", june 2008
Major issues :

  •   Infrastructures
  •   Resources (except oil)
  •   Access to the world market
  •   Oil revenues
  •   Macroeconomics and laws




                                   Pablo Fernandez,
                                   "Developing the São Tomé
                                   island", june 2008
Infrastructures :

  •   Military base
  •   Port container hub
  •   Airport hub
  •   Hydro-electric infrastructure
  •   Satellite launch platform
  •   Use of bicycle
   Military base :
• Idea --> Offer to the US Government to create a military base in
the Principe Island
• The US will pay the rent of this military base and will build it
• This base will be useful to have a platform to project force and
protection into the oil rich Gulf of Guinea, a strategic zone
• The Sao Tome Government will profit from this source, will find
protection if oil is found (quite sure), access to emergency help,
and the economic activity of the military base. The economic base
will be in an uninhabited zone to avoid problems.
  Port container hub :
• To offer Maersk or another super container carrier the
opportunity to create a tax free port, and to use it as a hub to
the Gulf of Guinea. (Malta can be an example)
• Maersk has access to a stable country with no tax and low cost,
in the centre of the gulf of Guinea and in the middle of a cross of
low transport cost due to marine surface stream, with routes to
Brazil, Panama, South Africa and Canary Islands (Europe).
• The island will benefit from the economic activity and will have
a good logistic chain (advantage, lower transport cost)
  Airport Hub :
• To offer to the air companies a free tax airport, and try to
transform it into a regional hub, with the most important routes
to Brazil, South Africa and Europe (Lisbon, Canary Islands) with
at least three flights a day to this places, and airport fees lower
for the previous destinations than to others.
• The airlines companies find a tax free platform to the Atlantic
Africa, with the up winds of the equator (lower oil use) to flight
to Brazil (and America), and an easy way to redirect the air
traffic to all the south-Sahara Africa.
• The airport hub will increase the economic activity, will reduce
the cost to the tourist industry and it will create another
commercial advantage.
  Hydro-electric infrastructure :

• To offer a melting electric company (Aluminium, steel) the
opportunity to build a hydroelectric infrastructure and own it for a
period of time (50 years reducing % every year). And to use this
electric power to their melting activities. It must be near a non
polluting technology and must also pay a low tax, 5-10%.
• The Island is rich in Hydro power potential, with rains of 5000
mm/year in the south part of the island and highest point 2024m.
• The melting companies find the way to reduce their power bill in
an energy expensive world.
• The island benefits from the creation of electric infrastructure
(renewable), from the economic activity augmentation and from
taxes.
  Satellite launch platform :
• To offer the US to use the island as a satellite launch platform for
commercial reasons.
• Launch satellites in the equator has lower energy cost, because
the inertial movement of the earth help in the process. Europe
launch from French Polynesia for this reasons. It is a safe place in
case of accident (the sea).
• The island will benefit from the economic activity and from taxes.
• The island can sell his owned geostationary orbit to the satellite
industry.
  Use of bicycle :
• To enhance the use of bicycle between the people.
• It is possible to raffle groups of bicycle on party days.
• This will increase the mobility possibilities of the people, and
even the possibility to transport heavier cargos and do it faster.
This mobility and transport issue are important in the economic
development. The small size of the island makes this option more
useful.
Resources :

  •   Agriculture
  •   Fishery
  •   Timber
  •   Solar energy
    Agriculture:
• The island has a rich volcanic soil, with huge rain and a tropical
weather. But there are low exports and a food problem.
• To improve the food production, plant rice. To invite a par of families
from Java, or Philippines, or Vietnam,… to the island (same weather).
And they must come with the material animals and seeds needed.
Enhance a terrace rice grow and the transmission of knowledge. This
will complement the maize and horticulture.
• To call for help to the horticulture institutions in Spain and Cuba, as
they has a useful knowledge to the island. And to the permaculture
ONG (cheap advisory, and no external inputs).
• To enhance the sugar grow as it is in high price, Cuba and Brazil will
be good advisory in this topic. It is possible too to start a Biofuel
industry with technology imported from Brazil.
• To create an export commodity trust (cocoa, cinnamon,…), to give
information, advisory, commercial and technical support. The
promotion of cooperatives creation is done.
   Fish:
• The island has an evaluation program for the potential and
correct use of the fishery options. There is a possibility to find
more advisory options in the EU and Portugal.
• The potential goes from small fishermen to the big foreign
industry (money and tax revenue), and also for the creation of a
fishing industry (like Iceland). There is tuna fish, sardines,…

   Timber:
• The 56% of the island’s terrain is forest, this forest is useful to
the tourist industry, to sustainable development, water regulation,
and forest products.
• The forest is useful too for the furniture industry, and wood can
be used for the production of traditional ships.
• The wood can be used as biofuel, to energy and heat, and in
third place to support the electric system, with the hydraulic and
the actual infrastructure. More useful Know how may be found in
Sweden and Austria.
   Solar energy:
• The Island is in the equator with a high solar potential, and a
weather in which heating is never needed. The photovoltaic energy
is a lost of money and there is no interest to invest in it, but the
thermal option is really interesting. India and Spain are good place
to find advisory.
• Solar sanitary water with a backing system to produce hot water.
• Solar dry. If needed in the industries process to dry a product.
• Solar cooker. It is possible to use this method to cook.
• Solar industrial cooker. The industrial use of steam.
• Solar Disinfection. Rainwater resolve the problem, but it is useful.
• Solar cold. The possibility to use solar chimney or solar air
conditioning as a source of heat to create cold with a heat pump
(this technology is coming commercial).
Access to world market :

  •   Constrains
  •   Tourism
  •   Free export industrial park
  •   Low wages industries
  •   Resources related industries
  •   Finance, assurance and investor centre.
  •   Software, IT, Internet based activities, consulting.
   Constrains:
• The country is a group of islands, and they are far from the
biggest markets, so they have bad logistic chains, big transport
cost and big time delays in the transport system.
• The country is small, so they have little space and a tiny amount
of natural resources.
• The island has no a big amount of workers who can be useful to
the economies of scale, and it is a poor country, so they have a
very small market in which the companies can not rely to have an
economy of scale base.
• The country has shortage of skilled workers.
• The country is a developing country with little industrial base.
  Tourism
• The Tourism industry is now treated as a major opportunity to the future
development, but it still need to have more presence in internet, specially
the 16 hotels of the country and to show photos from them.
• The two islet of Tinhosa can be a good opportunity if they are no used as
hotel now. The islet can be a good opportunity to a luxury hotel.
• There are tourist agencies only in Portugal and France, but they have
English and French as target. There is the opportunity to increase this to
England, USA, Canada, Ireland, Holland Belgium, Denmark, Norway and
Sweden too, as there will be no big language problem and they are a good
market. Spain has a similar language to Portuguese, and it is near to Lisbon
airport, so it can be useful to look for a travel agency there too.
• To create a centre of Portuguese to foreign people. And to offer this
language course to the people of the last point countries, this can be a way
to increase the tourist.
• To create a photo contest-competition to find every year beautiful photos
that will be helpful in the Internet advertising.
• The only direct flight to Europe is through Portugal, so the State must
search those flights which arrive or take off from Lisbon and fit as links to
flight to the island (go and back), so it is possible to offer the island as a
tourist destination to another target cities.
    Free export industrial park:
• The idea is to decrease the tax to this companies to a low point (example
5-10%) and to put them in the industrial export park.
• To create a national web page to the export industries
• To open a export line in ebay in Europe, USA, Brazil,…
• To create a web page with the logistic chain.
• This industrial park will operate under a low tax regime, and it will be useful
to improve the use of the space, the services to the area, the communication
between them and the small transport that will be needed (this industrial
park will be adjacent to the new port, or with good communications with the
old one).
   Low wage industries:
• It is the first step to increase the country production, as they are
a developing country and the wages are low enough to compete in
the international economy, even with the high transport cost and
with the competence from another world countries.
• The textile and shoe industry can be helpful.
• The industries of call centre can be enhanced, but this is a
difficult point as the Portuguese Area has no a lot of opportunities,
and Brazil compete for that. If the country increase the English
and French knowledge this option will be open, but in this case,
maybe the wage will be too high to implement this.
• Emigration through work visa to different countries.
    Resources related industries:
• The furniture industry can be useful to export to South Africa,
Europe and USA, and using ebay will have more opportunities.
• The fish industry can be created in place like in Iceland.
• The transform of agriculture products can be done in place with
the advantage of the near resources source.
Finance, assurance and investment centre :

• The financial sector can be offshore and work without problems,
as it can work via Internet. This industry is very sensitive to tax
and rule levels, and no so much to the place, which is a problem
of a remote Island.
• The biggest problem to this industry is the shortage of skilled
workers, but they can be imported in the first stage.
• The oil revenue can be useful if the State deal only with
companies with a presence in the island. And a health tourist and
air-transport industries would be useful too.
• These sectors can be a base of a future sustainability
development, as they are neither affected by the transport cost,
nor by the distance to the market.
• The island as an investor centre to the countries of the Guinea
Gulf is possible with a good service net and stable law, as it can be
easier to do business in this environment as in the continental
Africa. One example of this in the East part of Africa is the
Mauritius Island.
Software, IT, Internet based activities, consulting:

• The goal of this industries is to add a big value and no transport
cost. This group of activities must be those that can be sold by
internet without transport cost involved, so they can be
competitive in a remote island. And this is a group of intensive
knowledge activities, so these sector can be a base of a future
sustainability development.
• The biggest problem to this industry is the shortage of skilled
workers, thus this is a way of future development. The inversion in
education will be the bones of these strategy, and the oil’s money
can open this door. This is the moment to start the way.
• The software sector can be offshore and work without problems,
as it can work via Internet. This industry is sensitive to tax, and
no so much to the location, but a certain size industry is
important, and the contact to the market is significant.
•The oil revenue can be useful if the Government use the money
to education, start-ups and crisis times. As well as for a health
tourist and air-transport industries.
•The knowledge of the Africa problems and his needs can be
                            Future
valuable for this industries.
Possible oil revenues :

  •   Education
  •   Health-care
  •   Opportunities and social investment
  •   Debt and Funds
  •   Infrastructure
  •   State leading investment
  •   Corruption and mismanagement




                        Future
   Education:
• To Improve the education system from the bottom. Day-care preschool
(Guarderías 0-3 years), preschool (3-6 years), school (6-12/14 years), High
school (12/14-18 years), and vocational education (career and Technical
education).
• Educational centre to the common people in different areas (photography,
web page creation, agriculture,…)
• To create a University at first, with the most important areas to the island.
The possibility to create a second one with the same departments will be
good to enhance competitiveness, but will find lack of people (this can be
solve with studies grants to foreign countries as an external political move).
• To create high performance school system (pre school and high school), to
create a high qualified workers to the financial and technological industries,
as to other sectors. This system will have half the seats as pay seats, as a
private system, and must be two of this in every level, to enhance
competitiveness.
• To improve the Library system. Create a science museum to easy learning.
• To focus in the knowledge that can be useful to the island.
• To create grants to the best students (money), and food to all the students.
Create competitions and a grant system. Grant to study abroad.
    Health care:
• To intensify the fight against malaria (there is a program in place).
• To purify the water with the solar system. If there is enough money use
other systems too.
• Call for help to the world medic ONG and to Cuba, there is a possibility for
them to send doctors (it may be possible to offer them to learn Portuguese).
• With the money of the extracting oil, create a hospital, equip it and contract
doctors. Specialist can be found in Lisbon, and it is important to do a deal
with Portugal in this topic.

     Opportunities and social investment:
• To create competitions and a grant system, to the school, to the creation of
companies (best ideas), to the development of new products, to the
research activities (looking the university), to the more useful person to the
community, and to help the others.
•To create a low paid job agency to give them workless a low remunerated
work (not competitive with the salaries of the producing industries) with the
finality in social care or infrastructures development. They must learn a job.
• Jobs half paid in the export industries to the workless, where they must
learn a job, 1 year maximum in two periods of 6 months, different industries.
• To support with food and means the elderly, the ills and the children.
   Debt and Funds:
• To reduce the debt to the minimum to have open the market, or erase it.
This will only be to emergencies if there are oil in the country.
• To create a fund with the banks of the island to use a small part of the oil
income. This fund is only one to look for scale efficiencies, but it must have
different books, to the emergency Fund, to the Social and pension Fund,
and to the offshore investment Fund (to cover and while doing investment in
the island, promote the industrial policy of the island and give grants to
business opportunities to the common people), the cash pocket fund (to
avoid the recurrent use of debt of the government, it gives liquidity).
     Infrastructure:
 • To improve roads of the island.
 • To build or buy and improve the electric (renewable), transport and
 communication infrastructures of the island. To bid on these infrastructures.
 • To create or improve a public transport to the island.
 • To create a emergency store of food and essential products to run the
 island in case of need. This can be build under the mountain, and have
 twice the resources needed in the reaction and recovery time (ship accident,
 storm,..)
 •To create a urban planning and follow it.
 •To create a centre of business to the island, with a place to start ups, a
 place to export office and internet-software office.
   State leading investment:
• To create a centre to the agricultural production, to have the needed
seeds, to offer advise, information and knowledge to the production and
handling. This centre will try to introduce new plants useful as food,
pharmaceutical or economical purposes (animals too).
• The state will give grants to create companies to the best ideas.
• The State can help the investment effort into the new markets,
technologies or products, with easy credits, but most important, with
technological help and support to no monetary needs (to avoid corruption
and the focus change of the investors).
• The country will buy the first products of the new kind of production in the
island, to give the opportunity to the enterprise lo learn the how to do and
find the first market, and to start with better scale production. What to do
with this production: to use it for the government or for government workers,
to raffle it to people, to present to foreign countries politician,…
• The State can create marketing campaign abroad about the products of
the Island, or about the “new” products of the island.
• To create a risk assurance in good terms to the new industrial activities or
products, and to the farm activities.
    Corruption and mismanagement:
• The oil’s money is allocated in debt reduction, Funds, and the program
activities related to this topic, do not use this money to fund the government
directly or it will create a big budget imbalance in the long term and
mismanagement.
• To create an account book for the oil revenues and expenses, USA will
keep checking it, and the account book must be in Internet in a public
disposal webpage. The financial, corruption crimes will be hard punish.
• To create an elected supervision entity inside the government, with workers
helping to all the government departments under his service, and a two-
person work team per ministry, to supervise the cost efficiency process, the
anticorruption, the bureaucracy efficiency, and, in the election time, to show
the government balance, analyze the election proposal and candidates, and
the fair, clean and no manipulative election process and propaganda (mass
media will be included).
• To create an Institute to look for the best new policies, to track the last
ones, and to search the best practices and laws of the other governments of
the world, or at least of the similar and leading countries.
• To avoid overconfident and over-comfortable people. The State must
provide opportunities, means, a social security net and leading.
Macroeconomics and laws:

 •   Value added tax
 •   Law to create business
 •   Currency policy
 •   Spending policy
 •   Stabilization program
 •   Structural reforms
    Value Added Tax:
• The IMF recommend to increase the VAT from 5 to 7%, as a way to fund
the government budget hole. The other recommendation is to simplify the
number of exception to the VAT, so it will easy to use and control.
• I recommend to increase the VAT to 10% (like Australia) to fund the State
and decrease the imports, with a 1% increase every year, so the inflation
influence is no so important compared to the annual inflation of 17%, it is
only a 6% increase in the inflation rate.
• I recommend to use the 4 exception (0% VAT) categories of products: A-
(fresh foods; that will be primarily local), B-(Office products, education and
learning products, and hardware; thought to easy the learning and work
process), C-(Bio-fuels, bikes and renewable energy production device; to
increase the energy efficiency of the island and the transport needs), D-
(medical services and medical products, to easy the health care). There is
also another possible category (5% VAT), the E-(products that eliminate or
reduce the use of energy; with the same goal as C category, but broader).
• Like the IMF, I encourage the Special Tax to the tobacco and imported
alcohol drinks (categories I and J, 20% VAT), to discourage the import and
specially to discourage the import of this unhealthy products, and to fund the
State in the way.
• Tax on oil, the IMF encourage the tax on it, as it is a expensive product, I
don’t encourage to charge more than the normal VAT, 10%.
    Law to create business:
• The IMF did a great job reducing the bureaucratic process to create a
business from 130 days to 3 or less days. The fast implementation of this
reform is quite important.
• The only point that need special attention is the environmental safe of the
different business, and this point need the correct care and attention.
• In the future it can be possible to include the email to relationships with the
Government, and all the companies must have one registered at first. The
web page can be useful too, and more if there is pattern by free.
     Currency policy:
• The IMF recommend to tie the currency to a strong currency, or to unite to
common currencies like the CFA Franc, West and Centre.
• The IMF currency policy his good adapted to the island needs.
• Related to the tied currency, this can be a stress to the island economy, as
it can no more adapt correctly the interest rate, or it can be over-valued and
it will create competitiveness problems that will need adjustment. The
possibility to use a semi-fixed currency with a movement every three months
(under valuated is always better), and it has to be tied to a basket of
important currencies to the country. In this case the use of this method,
follow the IMF indications.
     Spending policy:
• The spending policy, with a increase in social spending, balancing the budget,
reducing debt increase and after reducing debt, and to stop the increase of the
wages of government workers are good policies, as the IMF said.
     Stabilization program:
• The stabilization program recommended by the IMF is totally correct, with the
use of policies, fiscal and currency policies coordinated.
• The fix or semi-fix to a hard currency can be useful.
• The interest rates always above the inflation rate is a really important part of
this policy.
     Structural reforms:
• The structural reforms proposed by the IMF are important, and it must be
followed. Specially government service reform and the incentive system.
• To reduce the cost and time of creating business, easy the management and
the allowance of no-cost sending money abroad are important to allow the
investment process.
• Simplify the tax, property tax (urban and rural) and personal income.
• The land must be owned by local citizens, but it will can have long time
contracts to rent to allow the investment (like China at first), (the tax will be in
the renter, no in the owner).
          Expectancies (Future):

                            Money          Infrastructures



                                              Friendly
                           Education          business
    Advantages:                             environment
    • More environment
    friendly
    • Fewer starting
    investments
                                ECONOMY OF SERVICES
                                       AND
                               A PRODUCTIVE ECONOMY
Pablo Fernandez,
"Developing the São Tomé
island", june 2008
    Vision to 5 years:                                             VISION
• The country will start the strong growth areas, with the competitive
infrastructures done, and the oil’s wealth starting to come up after the oil
infrastructures building at sea. All the urgent reforms were implemented and
the friendly business environment easy the growth of wealth of the country. This
will be a turning point in how the country looks like. The education program is
fully implemented at first stages, the other are partly in place.
    Vision to 10 years:
• The oil revenue seals the country against possible backslash of it’s services
and industries; and thanks to that it continues in a growth path with a strong
inertia. The infrastructures are almost all in place and can compete with the
best worldwide. The island is an important financial and investor centre.
    Vision to 20 years:
• The oil revenue is strong but it does not lead a growth race, the economy is
more diversify than before and the new wave of growth comes from IT,
software and other high value and high qualified sectors. The environment
friendly and renewable development work well in long term, the services are
high quality and the country is a productive place where the life find his
meaning.
   Summary




Robustness of the model ?

Reliability of the model ?




                             Pablo Fernandez,
                             "Developing the São Tomé
                             island", june 2008
      Summary

• The infrastructures options rely on the right location needs of abroad companies
to do business, and this is a feeble point as it is needed from abroad companies
to see the need and to be confident for the island. But in each case, the
possibility and potential of each infrastructure option has it’s own meaning. They
are ambitious options with the potential to change the island’s future.
• The resources and much of the options to have access to the world market are
realistic, easy and economical options to improve the islands output, and it can
be a step forward in production and service industries.
• The high tech and financial sectors are a high potential opportunities to the
island future development, and the opportunity to enter in the high value
products that are a goal in the long term economy of the island.
• The oil revenues will be a coming angel, it will increase the island’s life
standards, but avoiding debt and mismanagement this will boost the island’s
ability to improve infrastructures and jump to a higher opportunities level.
• The structural reforms and stabilization programs proposed, mainly by the IMF,
are the bone of the friendly business environment, which is essential to the
future, they are the open door to the “let it do” needed to create a economic base.
Thank you for your attention!


    São Tomé and Principe
     a Productive Country


                     Pablo Fernandez,
                     "Developing the São Tomé
                     island", june 2008

				
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Description: Developing the sao tome island