Domestic food-crop production is inadequate to meet local consumption, so the country imports some of its food. Efforts have been made by the government in recent years to expand food production, and several projects have been undertaken, largely financed by foreign donors.

Other than agriculture, the main economic activities are fishing and a small industrial sector engaged in processing local agricultural products and producing a few basic consumer goods. The scenic islands have potential for tourism, and the government is attempting to improve its rudimentary tourist industry infrastructure. The government sector accounts for about 11% of employment.

Following independence, the country had a centrally directed economy with most means of production owned and controlled by the state. The original constitution guaranteed a ìmixed economy,î with privately owned cooperatives combined with publicly owned property and means of production. In the 1980s and 1990s, the economy of Sao Tome encountered major difficulties. Economic growth stagnated, and cocoa exports dropped in both value and volume, creating large balance-of-payments deficits. Efforts to redistribute plantation land resulted in decreased cocoa production. At the same time, the international price of cocoa slumped.

In response to its economic downturn, the government undertook a series of far-reaching economic reforms. In 1987, the government implemented an International Monetary Fund (IMF) structural adjustment program, and invited greater private participation in management of the parastatals, as well as in the agricultural, commercial, banking, and tourism sectors. The focus of economic reform since the early 1990s has been widespread privatization, especially of the state-run agricultural and industrial sectors.

The Sao Tomean Government has traditionally been reliant on foreign assistance from various donors, including the UN Development Program, the World Bank, the European Union (EU), Portugal, Taiwan, and the African Development Bank. Sao Tome qualified for debt relief when it reached decision point under the IMF's Heavily Indebted Poor Countries Initiative (HIPC) in December 2000, but went off track on its poverty reduction program in early 2001. After four years and satisfactory performance on an interim staff-monitored program, the IMF approved a new three-year $4.3 million Poverty Reduction and Growth Facility (PRGF) program for Sao Tome in September 2005. The ambitious new program aims to reduce inflation to a single-digit number, address the country's macroeconomic imbalances, and substantially reduce poverty.

In 2001, Sao Tome and Nigeria reached agreement on joint exploration for petroleum in waters claimed by the two countries. After a lengthy series of negotiations, in April 2003 the joint development zone (JDZ) was opened for bids by international oil firms. The JDZ was divided into 9 blocks; the winning bids for block one, ChevronTexaco, ExxonMobil, and the Norwegian firm Equity Energy, were announced in April 2004, with Sao Tome to take in 40% of the $123 million bid, and Nigeria the other 60%. Blocks 2 through 6 were allocated in June 2005. Nigeria and Sao Tome are due to sign production sharing contracts with the winning bidders in November 2005.

Portugal remains one of Sao Tome's major trading partners, particularly as a source of imports. Food, manufactured articles, machinery, and transportation equipment are imported primarily from the EU.