ELECTION WATCH: Split Sao Tomean parliament increases stability and political risks

On 22 November, 55 new Sao Tomean lawmakers will take office, but marginal swings in the 7 October general elections promise little change and a likely political deadlock over the next five years. Days of rioting and violent protests, including in the capital Sao Tome, followed the constitutional court on 19 October confirming the ruling Ac''o Democratica Independente (ADI) had lost eight seats in the unicameral parliament, but remained the strongest party with 25 seats.

  The party's losses were mostly to the opposition Movimento de Liberta''o de Sao Tome e Principe/Partido Social Democrata (MLSTP-PSD), which gained seven seats in the plenary, with 23 in total. With no party having overall control of parliament, the next ruling majority will depend on a coalition or cross-party political agreement to form a government. This signals weeks of political wrangling. Although the ADI has made overtures towards

Movimento de Cidadaos Independentes de Sao Tome e Principe

(Movement of Independent Citizens of Sao Tome and Principe; MCISTP), their combined parliamentary seats still fall short of the absolute majority needed to form a stable government. Nevertheless, further potentially violent and disruptive protests are likely in the one-month outlook as the MLSTP-PSD continues to contest the transparency of vote-counting in some constituencies, while the ADI is itself formally demanding a vote recount in some districts due to alleged anomalies. A flashpoint for the unrest will probably be the swearing-in ceremony, which typically fall within four months of the polls. In the longer run, the increasingly polarised legislature, with the ADI on one side and the MLSTP-PSD on the other, could signal growing political risks, stemming from the connections between local communities and stakeholders. This intensifying political competition is likely to cause friction between local and central government, not least in constituencies where the MLSTP-PSD made inroads against the ADI. This includes the Lemb' and 'gua Grande districts on Sao Tome island which respectively host the country's industrial centre and largest city. New investments in infrastructure development, including port expansion and repairs to the poorly maintained national power grid, were a central campaign topic. However, a hung parliament is unlikely to bring about the change promised by either party, and A2 Global assesses that the schism between them will continue to grow over the next five years. Intensifying competition over investment opportunities between political elites could lead to contract cancellations or renegotiation of current deals. This highlights the need for foreign investors to conduct enhanced due diligence on local partners or suppliers and include stakeholder mapping into their security threat assessments. Meanwhile, the economy faces medium-term risks due to elevated fiscal pressures imposed by a USD6.2 million extended credit facility programme with the International Monetary Fund (IMF). This has forced the government to slow spending, while prioritising debt-clearance to third-party service providers and contractors. However, a debt-to-GDP ratio of more than 92 per cent, and a rapidly expanding rate of non-performing loans in the financial sector, are compounding the risks. This sensitive outlook has forced the government to impose new taxes on foreign investors and redenominate the dobra the national currency from 1,000 old dobras to 1 new dobra. Such macro-economic vulnerabilities...