Many of the other industrial activities are limited to small scale manufacturing, particularly agro-processing and import substitution. Agriculture (including artisanal and forestry), once the backbone of the economy, now accounts for only around 3% of the GDP. The public sector, comprising the government and state-owned enterprises, dominates the economy in terms of employment and grossrevenue, employing two-thirds of the labor force. Public consumption absorbs over one-third of the GDP.
The country’s economy is extremely vulnerable to external shocks. Not only does it depend on tourism, but it imports over 90% of its total primary and secondary production inputs. Any decline in tourism quickly translates into a fall in GDP, a decline in foreign exchange receipts, and budgetary difficulties. Furthermore, recent changes in the climate have greatly affected the tuna industry.
Growth slowed in 1998–2001, due to sluggish tourist and tuna sectors. Also, tight controls on exchange rates and the scarcity of foreign exchange have impaired short-term economic prospects. The black market value of the Seychellois rupee is anywhere from two thirds to one half the official exchange rate. The next few years were also a bit slow due to the worldwide economic downturn and the fear of flying brought on by September 11, 2001. More recently though, tourism has roared back at a record pace setting successive records in 2006 and again in 2007 for number of visitors. The increased availability of flights to and from the archipelago due in part to new entrants Emirates and Qatarairlines is also beginning to show. New five star properties and the devaluation of the currency by nearly 33% by the Seychelles Government is having a positive influence on the tourism sector as well. Both at official exchange rates and at purchasing power parity (PPP), Seychelles remains the richest territory in Africa in terms of GDP per capita (US$9,440.095 at real exchange rates and US$17,560.062 at PPP 2008 estimate),
Because of economic contraction (the economy declined by about 2% in 2004 and 2005 and lost another 1.4% in 2006 according to the International Monetary Fund) the country was moving downwards in terms of per capita income. However, the economy bounced back in 2007, growing by 5.3% due in part to record tourism numbers and the booming building and offshore industries. The IMF forecast further growth in 2008 with continuing increase in the GDP per capita.
In October 2008, as tourism and fishing revenue began slowing, the Seychelles defaulted on a $230 million debt. The International Monetary Fund stepped with a two-year, $26 million rescue package. The rescue package came with a few stipulations; The country laid off 1,800 government workers, floated its currency, lifted foreign exchange controls and sold off state assets. At the time, the country's $800 million external foreign debt was equivalent to almost 175 percent of its gross domestic product.
The decision to let the currency trade freely as part of the IMF rescue package means that Seychelles is the smallest country in the world that has a completely independent currency - one that is neither pegged, nor an adopted foreign currency, nor a common currency used within a larger monetary union. When the Seychellois rupee became freely floated on November 3, 2008, its value quickly fell drastically, decreasing from eight per U.S. dollar to 16, effectively doubled the prices of imports.
The rupee traded at an average 19.97 per euro by noon in the capital Victoria, compared with 11.3421 last week, according to Caroline Abel, head of monetary analysis and statistics at the Central Bank of Seychelles. It traded at 15.58 per dollar, from 8.9090, she said. Against the pound, it dropped to 25.02, from 14.3227.
The global recession and piracy in the Indian Ocean hit Seychelles hard in 2009, with the GDP projected to contract by 7.5 percent. However the government exceeded its fiscal targets, with a primary surplus of 13.4% of GDP in the first nine months of 2009 according to the IMF. They report expenditure has been tightly controlled and revenue has held up well despite the difficult economic environment.
In May 2010 an International Monetary Fund mission visited Seychelles and concluded the country is making progress. The head of the mission, Mr. Jean Le Dem, said at the conclusion of the visit:
The economy is recovering from a recession that put real gross domestic product (GDP) to almost a stand in 2009. Real GDP is projected to grow at 4 percent in 2010, reflecting primarily a rebound in tourism earnings. Twelve-month inflation, which was negative during the past few months, is expected to return to about 1 percent by year-end
In addition to the now booming tourism and building/real estate markets, Seychelles has renewed its commitment to developing its financial services sector. Government officials and industry participants believe this could overtake the tourism industry as the chief pillar of the economy by 2017. The recent passage of a revised Mutual Fund Act 2007, Securities Act 2007 and Insurance Act 2007 are meant to be the catalysts to move Seychelles from just another offshore jurisdiction to a full fledged Offshore Financial Center (OFC).
The Ministry of Finance is responsible for economic decisions and budgetary policy. A separate Monetary Authority supervises the banking system and manages the money supply. Although foreign banks operate branches in Seychelles, the government owns the two local banks—the Development Bank of Seychelles, which mobilizes resources to fund development programs, and the Seychelles Saving Bank, a bank for savings and current accounts.
The Seychelles International Business Authority (SIBA) is charged with overseeing the quickly growing offshore industry.
Offshore oil and gas
New detailed studies and exploration shows that the Seychelles potentially have large off-shore petroleum reservoirs which are yet to be discovered. Drills have proven the presence of:
- Oil-prone source rocks containing Type II kerogen in coaly deltaic shales of the Middle Jurassic and in marine shales of the Upper Jurassic;
- Mixed source rocks bearing Type II/III kerogen in deltaic marine shales of the Lower Cretaceous that are II correlative of oil-generating shales in Somalia;
- Gas-prone sources containing Type I kerogen in Upper Triassic fluvial shales and Paleocene marine shales, the latter being correlative of oil and gas generating source rocks of the Deep Continental Shelf trend of the Bombay High Oil Province offshore west India;
- Evidence of hydrocarbon generation and migration with well shows, such as 0.7 ml benzene in DST-1 of Reith Bank-1, 10,010 ppm of 99.8% n-C4 headspace gas coincident with as small fault in the same well and 20% petrol vapours at an immature level of volcanics in Owen Bank A-1;
- Clastic reservoirs with measured porosities up to 22% in the Early-Middle Jurassic;
- Sealing lithologies occur both locally in syn-rift, and regionally in post-rift sequences;
- An extensive seismic dataset, plus a variety of remote sensing data have been collected which bolster the well data by confirming the presence of:
- A variety of trapping styles, dominated by tilted fault blocks, stratigraphic pinchouts and reefs;
- Multiple heating events, with the principal event post-dating trap formation; and
- Hydrocarbon generation and migration with the presence of: a) numerous DHIs on seismic, including gas chimneys, flat spots, bright spots, phase changes and chemosynthetic reefs; b) gas sniffer anomalies, involving ethane/iso-butane in the southeast and propane/normal butane/total hydrocarbon in the north and northeast; c) UV fluorescence anomalies, especially over the wells and in the southeast; and d) 4 types of beach-stranded tar that correlate to the local source rock stratigraphy.
However, to date all exploratory and stratigraphic test wells (a total of 9 since the 1970s) in the Seychelles have failed to find commercial hydrocarbons. The most recent wildcat by Enterprise Oil in 1995 detected gas but failed to find hydrocarbons.
Several oil and gas exploration companies are active in the Seychelles offshore. These include East African Exploration (EAX) (a subsidiary of Afren), Avana Petroleum (a subsidiary of Vanoil Energy) and WHL Energy.
Beginning at the turn of the millennium the Seychelles Petroleum Company (SEPEC) started to develop the first fleet of modern petroleum double-hull tankers (five vessels), which was completed by late 2007/early 2008 with the possibility to build more in the near future. The Seychelles President claims that this has opened the door to a new industry for his country and encouraged economic growth by further removing over-reliance on traditional trades like fisheries and tourism, which is now falling rapidly as the country's main income but nevertheless, has experienced significant growth in recent years.