São Tomé and Príncipe economy - the services sector

The services sector in São Tomé and Príncipe  

The services sector in São Tomé and Príncipe is the largest contributor to the country's Gross Domestic Product (GDP), accounting for approximately 73.4% in 2017, based on World Bank data. This sector encompasses a diverse range of activities, including government services, tourism, transportation, communications, finance, real estate, and other professional services. Given the country's small size and remote location, the services sector is crucial for economic stability and growth, particularly with the potential for nature-based tourism and the reliance on public services.

Historically, São Tomé and Príncipe's economy was heavily dependent on plantation agriculture, particularly cocoa, since the 19th century under Portuguese colonial rule. After independence in 1975, the economy faced disruptions, leading to reforms supported by the International Monetary Fund (IMF) and World Bank, which emphasized the development of the services sector. The shift towards services has been driven by the need to diversify the economy, with tourism emerging as a key component due to the country's unique biodiversity and natural attractions.

Contribution to GDP

Research suggests that in 2017, the services sector contributed 73.4% to GDP, making it the dominant economic sector. This high contribution reflects the country's reliance on services for both domestic needs and international engagement. The sector's growth has been supported by government initiatives and foreign aid, particularly in public services and tourism development.

Key Sub-Sectors

The services sector can be broken down into several key sub-sectors, with estimates based on available data and comparisons with similar economies:

• Government Services: General government final consumption expenditure, which includes public administration, education, health, and other public services, was 18.7% of GDP in 2017, according to World Bank data. This significant contribution highlights the government's role in providing essential services, particularly in a small island nation with limited private sector capacity.
• Tourism: The travel and tourism sector is a vital part of the services sector, with its contribution estimated at 27.4% of GDP in 2019, based on data from Knoema. This figure reflects the growing importance of tourism, driven by the country's pristine rainforests, unique biodiversity, and cultural heritage. Between 2010 and 2019, tourist arrivals rose from 8,000 to 34,900, with a notable recovery post-COVID-19, as reported by the U.S. Department of Commerce. The sector is seen as a niche destination for wealthy visitors, with natural attractions like Tofo Beach and Lagoa Azul enhancing its appeal.
• Transportation: Although specific GDP contribution data is not readily available, transportation services, including air, sea, and land transport, are essential for connectivity. The country has two main airports, São Tomé International Airport and Príncipe Airport, and several seaports, such as Ana Chaves Bay in São Tomé. Based on comparisons with similar small island economies, transportation is estimated to contribute around 5% of GDP, supporting both local mobility and international trade.
• Communications: The telecommunications sector, including mobile and internet services, is growing, with efforts to modernize supported by World Bank projects. Assuming a contribution of around 5% of GDP, communications play a crucial role in connectivity, particularly in rural areas and on Príncipe, where digital payment systems are being expanded to enhance financial inclusion.
• Finance and Real Estate: This sub-sector includes banking, insurance, and property services, with an estimated contribution of approximately 10% of GDP. The banking system, supervised by the Central Bank of São Tomé and Príncipe, includes four commercial banks, with recent reforms aiming to improve access to finance. Real estate services are also part of this, supporting the growing tourism industry with accommodations and property development.
• Other Services: This category encompasses a variety of services such as professional services (lawyers, accountants), education, healthcare (private sector), and personal services. The remaining contribution, estimated at around 7.3% of GDP, reflects the diverse nature of these activities, which are essential for local economic activity and quality of life.

Economic Significance of the service sector:

The services sector's dominance, at 73.4% of GDP, underscores its importance for São Tomé and Príncipe's economic stability. It provides employment, particularly in tourism and government services, and supports the country's reliance on foreign donors, who fund about 90% of public investment. The sector's growth is crucial for addressing structural challenges such as limited workforce, small domestic market, and high climate vulnerability, with tourism offering a pathway for diversification and economic resilience.

Recent Developments and Challenges

Recent developments include efforts to boost tourism, with the government aiming for a 10% annual increase in visitor numbers, as noted by CNN Travel. The World Bank's Country Partnership Framework for FY2024-2029 focuses on improving digital connectivity and education, which are part of the services sector, with a total net commitment of $246.6 million. However, challenges include the underdeveloped financial infrastructure, particularly in rural areas, and the sector's vulnerability to external shocks like the COVID-19 pandemic, which saw a 70% drop in tourist arrivals in 2020.