The economic base of São Tomé and Principe is agricultural, and dominated by cocoa production.

Following independence much of the economy was put under the government’s control, in the attempt to find a socialist path to development.

Government attempts to diversify the economy, based on large investment schemes, were disappointing and along with price subsidies and social programmes weighed heavily on public finances.

The fall in the world price for cocoa, especially throughout the 1980s, saw a collapse in production and a spiralling level of debt.

By 1985 the GDP per capita had dropped 30% in real terms from its value at the beginning of the decade.

GDP growth in real terms 1993-1997

The first structural adjustment programme was adopted in 1987 with the World Bank, the African Development Bank and other donors.

The government privatised assets and began a course of administrative reform that continues today.

Agrarian reform,between 1993 and 1998 distributed 20,000 ha to small farmers and medium sized local firms. Some of the state agricultural enterprises were transferred to private ownership.

Political instability has left economic reforms inconsistent, and the country has failed to qualify for debt relief. The debt burden per capita that the country carries is the second highest in the world (after Nicaragua).

São Tomé and Principe receives substantial external assistance. In 1997 69% of government expenditure was financed by external assistance.

1998 has been an important year for the country’s finances. The government managed to stabilise the currency at approximately 7,000 thousand dobras to 1 USD, and inflation was bought down from 81% in 1997 to 20.2%.

Two Economic Free Zones, are to be set up in the country, one in Praia das Conchas and one in Principe, to encourage economic activity and outside investment.

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