Central African Republic
Growth in 2012 (3.1%) was lower than forecast, and the outlook for 2013 and 2014 has deteriorated and become highly uncertain since the rebel attacks in December 2012, which led to the fall of François Bozizé’s regime.
Efforts made in the area of public finance enabled the government to conclude an agreement with the IMF in June 2012 and to re-establish relations with the African Development Bank (AfDB) and the World Bank, which had suspended their budget support in late 2010.
Despite having substantial natural resources, the Central African Republic has not yet achieved the structural transformation needed to create strong, sustainable growth and reduce poverty.
The increasingly fragile political and security situation has not only worsened the economic outlook for 2013, it has also made it highly uncertain. Despite the peace deal signed in Libreville on 11 January 2013, resulting in a national unity government, the Seleka rebels launched an offensive on the capital, Bangui, on 22 March 2013, setting up a new regime. Chief rebel Michel Djotodia proclaimed himself president, while former president François Bozizé was forced into exile. The events also sparked extensive looting and the destruction of public and private property in Bangui.
Real gross domestic product (GDP) growth in 2012 was 3.1%, below initial forecasts of 4.2%. The performance was lower than expected because of bad weather causing a slowdown in agriculture and because of the worsening security situation. A decline in agricultural production and higher prices for petroleum products pushed inflation above the levels that were forecast.
Concerning public finances, efforts to maintain budgetary discipline continued in 2012. These efforts enabled the country to re-establish relations with its main development partners. In June 2012, the government signed an economic and financial programme with the International Monetary Fund (IMF) through an Extended Credit Facility (ECF). The African Development Bank (AfDB) and the World Bank provided budget support for the reforms, which had been suspended since 2010. However, it is difficult to predict to what extent the economic and financial reforms supported by the country's technical and financial partners will be enforced over the next two years given the current political turmoil.
Social developments such as eradicating extreme poverty, reducing infant mortality and providing access to basic sanitation remain slow. Some factors did show a marked improvement: the primary-school enrolment rate, promotion of gender equality, the ratio of girls to boys in primary schools and the supply of drinking water.
The Central African Republic has substantial natural resources, but their exploitation has not yet led to the structural transformation needed for stronger, sustainable growth. Recent encouraging progress in the management of natural resources has enabled the Central African Republic to comply with the Extractive Industries Transparency Initiative (EITI). The country’s political fragility, deficient basic infrastructure and prevailing business climate make a structural transformation of the economy very difficult.
Figure 1: Real GDP growth 2013 (Central)
Table 1: Macroeconomic indicators
|Real GDP growth||3.1||3.1||3.2||4.6|
|Real GDP per capita growth||1.2||1.1||1.3||2.6|
|Budget balance % GDP||-2.9||-3.5||-3.4||-3.4|
|Current account % GDP||-7.2||-7||-5.4||-5.3|
Recent Developments & Prospects
Table 2: GDP by Sector (percentage of GDP)
|Agriculture, forestry & fishing||-||-|
|Agriculture, hunting, forestry, fishing||54.3||54.1|
|Electricity, gas and water||0.9||0.7|
|Electricity, water and sanitation||-||-|
|Finance, insurance and social solidarity||-||-|
|Finance, real estate and business services||6.5||6.9|
|General government services||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Public Administration & Personal Services||-||-|
|Public Administration, Education, Health & Social Work, Community, Social & Personal Services||4.7||4.7|
|Public administration, education, health & social work, community, social & personal services||-||-|
|Transport, storage and communication||12.9||13.3|
|Transportation, communication & information||-||-|
|Wholesale and retail trade, hotels and restaurants||5.5||5.8|
|Wholesale, retail trade and real estate ownership||-||-|
Real GDP growth stabilised at 3.1% in 2012, below the initial forecast of 4.2% but equivalent to the rate in 2011. Growth did not reach the predicted level because there was a slowdown in the primary and secondary sectors. Primary-sector growth slowed from 6.7% in 2011 to 2.9%, while secondary-sector growth slowed from 5.2% in 2011 to 4.1%. Tertiary-sector growth, meanwhile, accelerated from 3.1% in 2011 to 4.8%.
The primary sector’s poor performance was due to a decline in food-crop production following the late arrival of the rainy season and the worsening security situation during part of the harvest period. Cash-crop exports had mixed results. Cotton production grew by 10.3%, helped by a project involving Chinese co‑operation, but coffee production fell. Timber – the main export product – performed well in 2012 thanks to lumber production, but not as well as in 2011.
Secondary-sector growth was boosted by the recovery of mining, which grew by 10.7% in 2012. This strong growth probably occurred thanks to new mining policies, the revitalisation of support structures and cooperatives and efforts to build the capacities of artisanal miners. The other secondary-sector industries (construction, industry and electricity) grew at least as strongly as in 2011. The tertiary sector benefited from strong growth of 26.3% in non-market services as government activity increased and international co‑operation resumed.
The country’s GDP sector composition, dominated by the primary sector, has not changed over the past few years. The primary sector contributed more than 50% of GDP in 2012 (food crops alone contributed 28%), the tertiary sector about 30% and the secondary sector nearly 20%.
In terms of aggregate demand, growth in 2012 was provided by both public and private consumption and by public investment. This situation was mainly thanks to the recovery of external financing through development programmes and to growing interest from non-traditional investors in the construction and agriculture sectors. External demand improved its contribution to economic growth, but remains marginal.
The government achieved its 2012 budget objective of reducing current primary expenditure to 10.9% of GDP. Total expenditure including net lending was 19.2% of GDP. Domestic resource mobilisation, however, was still very low. Tax revenue falls far short of being able to cover recurrent spending (9.5% of GDP in 2012). It remains well below the ratio of most sub-Saharan African countries. Despite measures to improve revenue administration and efforts to control public expenditure, the budget balance deteriorated. In 2011 there was a deficit of 2.9% of GDP, but in 2012 this expanded to 3.5%.
Inflation remained moderate, at 3.5%, albeit higher than the 2011 rate of 0.7%. Inflation was driven up by agriculture’s poor performance and the rise in the prices of imported food. The Central African Republic’s continued improvement of its macroeconomic management enabled the government to reach an agreement in June 2012 with the IMF on a three-year economic programme through the ECF. Current transfers increased to help improve the current-account balance, reducing the deficit from 7.2% of GDP in 2011 to 7.0% in 2012.
The current political climate is likely to hinder the agricultural calendar in 2013, resulting in lower yields. Part of the foreign direct investment (FDI) programmed for the mining sector and certain externally funded agricultural and infrastructure projects could also be affected by political uncertainties. Growth is forecast at less than 3.2% in 2013, and will depend largely on how the political landscape and international climate shape up. Inflation, meanwhile, should dip below the 3.0% regional convergence criterion to 2.5% in 2014. It should be noted that forecasts for 2013 and 2014 were made before the recent political turmoil and the fall of President François Bozizé.
Measures initiated in 2011 to redress public finances continued in 2012. These measures restored normal procedures for public spending, introduced reforms to simplify the tax system and reorganised financial authorities to improve tax revenue mobilisation.
Following fiscal slippages in 2011, the government made budget enforcement the cornerstone of its fiscal policy in 2012. It created a budget-management monitoring committee (Comité de suivi de la gestion budgétaire, CSGB) and strengthened the two liquidity monitoring units: the finance ministry’s Commission de suivi de la liquidité (CSL) and the treasury’s Cellule technique de suivi de la liquidité (CTSL). The CSL met regularly to establish the monthly and annual treasury plans put forward by the CTSL. The CSBG, meanwhile, would meet every two weeks to monitor revenue collection, disbursements and the use of foreign financial assistance.
The government also continued reforms to improve its domestic revenue mobilisation by simplifying tax legislation for small- and medium-sized enterprises (SMEs), abolishing the reduced VAT rate and completing the creation of tax bands. It cut registration fees by half. Finally, in 2012 it completed plans to simplify personal income tax and adopted them in the 2013 budget. Total government revenue (including grants) represented 16.2% of GDP in 2012, up from 14.7% in 2011. This increase was helped by the return of external budget support, which in 2010 and 2011 was suspended. The tax-to-GDP ratio remains below the 12.0% target. In 2012 it was 9.9%, up slightly from 9.5% in 2011.
Public expenditure increased in 2012 to 16.2% of GDP, from 15.7% in 2011. This increase was linked to the rise in investment expenditure financed by external resources, which in turn was thanks to the resumption of budget support from technical and financial partners. Thanks to additional tax revenue and control of current expenditure, the overall fiscal balance stabilised at 4.8% of GDP in 2012.
Table 3: Public Finances (percentage of GDP)
|Total revenue and grants||16.1||17.9||14.5||15.7||16.4||16.4|
|Total expenditure and net lending (a)||16.2||19.3||17.4||19.2||19.8||19.8|
|Wages and salaries||4.5||4.4||4.5||4.6||4.5||4.5|
Monetary policy is determined by the Bank of Central African States (BEAC). The bank’s mission is to issue the currency and ensure its stability, set and implement monetary policy for member states, conduct foreign-exchange transactions, hold and manage member states’ foreign-exchange reserves and help the union’s payments system to run smoothly. The BEAC’s monetary policy gives priority to controlling inflation and maintaining fixed parity between the CFA franc and the euro. It does so by using indirect instruments such as refinancing and obligatory reserve requirements to control the money supply.
The BEAC’s prudent monetary policy has helped contain inflationary pressures since late 2011. In 2012, the rate of inflation of the consumer price index was slightly above the 3% convergence criterion for member states of the Economic and Monetary Community of Central Africa (CEMAC). The inflationary pressures seen in the Central African Republic were caused by a slight rebound in prices during the final six months of 2011 as imported food became more expensive. Another factor could be a delayed effect of the BEAC’s interest-rate cut to 4% in 2010. The cut caused the volume of credit to the economy to increase, especially short-term loans.
The Central African Republic’s foreign assets continued the downward trend that began in early 2011, thus limiting the expansion of the money supply.
Economic Cooperation, Regional Integration & Trade
The country’s trade deficit widened in 2012 from 4.1% to 5.1% as cotton prices collapsed and oil and food prices continued to rise. By contrast, the current-account deficit narrowed slightly from 7.2% to 7.0% thanks to a rise in the volume of current transfers.
The government continued with its regional integration policy in 2012, implementing the CEMAC Customs Code (Code douanier). CEMAC’s common external tariff is the simple average of the Most Favoured Nation’s (MFN) tariff of the past few years (18.2%), with much higher tariff protection for agricultural goods (22.7%). However, due to the government’s financial difficulties the country obtained an exemption from CEMAC’s General Preferential Tariff (GPT). The Central African Republic therefore grants no preferential tariffs to any country.
By adopting programmes in late 2012 that are better adapted to the regional integration strategy, the Central African Republic committed to promote regional trade facilitation. The consultation process with Cameroon and Chad was revived in 2012 for the institutions affected by traffic in the Bangui-Douala and Ndjamena-Douala corridors. The asphalting of the Bouar-Ngaroua-Mboulaï road, partly funded by the AfDB, was completed in 2012, improving traffic in the Bangui-Douala corridor.
Despite its political commitment and its geographically strategic location in Central Africa, the country does not capitalise enough on regional integration. Exports to the region grew by only 5.2% between 2003 and 2010; on average, exports by other CEMAC countries grew by 13.5% during the same period. This poor performance is largely caused by problems with the transport infrastructure and a poor business climate. Nevertheless, the country’s membership in CEMAC has contributed to macroeconomic stability by limiting the negative effects of external shocks.
Table 4: Current Account (percentage of GDP)
|Exports of goods (f.o.b.)||10.5||6.5||7.3||9.2||8.6||8.6||8.6|
|Imports of goods (f.o.b.)||11.9||13.7||15.4||13.2||13.7||13.2||13.3|
|Current account balance||-1.8||-8.1||-9.9||-7.2||-7||-5.4||-5.3|
The Central African Republic completed the Heavily Indebted Poor Countries (HIPC) Initiative in 2009. As a result, its public debt was drastically reduced from 80.3% to 35.0% between 2008 in 2009. Fiscal slippages in 2010 and 2011 forced the government to borrow again to finance infrastructure projects. Public debt thus rose to 42% of GDP in 2011, well above the projected target of 27% for 2010 set in the IMF and World Bank’s Debt Sustainability Analysis (DSA). Despite its growing debt, the Central African Republic is classed as having “lower debt vulnerability and a lower capacity” with regard to the IMF’s debt limits.
Figure 2: Stock of total external debt and debt service 2013
Economic & Political Governance
The conditions for the development of the private sector are still difficult. The unattractive business climate, as evidenced by its position of 185th in the World Bank report Doing Business 2013, hinders private-sector development. Complex procedures are necessary to start up or shut down a business. Starting a business requires an average of eight procedures and takes 22 days. The relative costs, however, have fallen. In 2010 it cost an average of 244.9% of income per capita, but in 2011 it cost an average of 228.4%; this compared with a sub-Saharan African average of 95.4%.
The government is seeking to overcome these constraints, but is struggling to produce the desired effects with the measures it has taken. A one-stop shop was created in 2008 to reduce business start-up costs and simplify procedures. A joint committee responsible for improving the business environment was also formed. FDI remains low, however. Economic operators have various hurdles to overcome. The country is isolated, infrastructure is lacking and of poor quality, the judiciary is unstable and there is insufficient dialogue between government and the private sector.
Financial intermediation and private-sector development remains superficial. There are few financial institutions, and they are heavily concentrated in the capital, Bangui. Financial-sector assets as a proportion of GDP remain below the regional average. More than 90% of the financial system’s consolidated assets are concentrated in four commercial banks. There are two insurance companies (4% of assets) and eleven microfinance institutions (3% of assets).
Measures taken in 2012 to increase the use of banks for paying salaries and business taxes have improved people’s access to banking and financial services, despite expensive fees. Cash machines are rare and the vast majority are in Bangui.
Despite a rise in the overall volume of credit to the economy in 2012, thanks to private-sector tenders, SMEs still have little access to finance.
The banking sector’s financial soundness indicators had mixed results in 2012. Two banks had enough net capital resources to comply with all prudential standards.
Microfinance improved thanks to the Programme d’appui à l’émergence d’un secteur financier inclusif (a support programme for the emergence of an inclusive financial sector, PAE/SFI), organised by the United Nations Development Programme (UNDP) for the period 2008‑12. Five of the eight microfinance institutions benefited from the programme, which helped raise the number of branches to 23 in 2012, including 9 in rural areas. According to UNDP statistics for 2012, the programme benefited 62 000 people, including 23 000 women. The total savings of microfinance institutions in 2012 was USD 13 million, while total lending was USD 4.5 million. The portfolio at risk of the microcredit institutions was estimated at 18‑20% in 2012.
Public Sector Management, Institutions & Reform
A weak institutional capacity and structural deficiencies hinder the country’s economic and social development. Public-sector management improved in 2012, enabling the country to reconnect with its technical and financial partners to receive budget support and to create an economic programme with the IMF in June 2012. However, despite this progress the Central African Republic is still faced with major challenges, as underlined by the results of the first review of the IMF programme in November 2012.
The IMF mission found that the government had made significant efforts to strengthen public finance management, particularly the monitoring of treasury transactions. It also noted that several government revenue mobilisation goals had been achieved. However, there were still problems with controlling the expenditure chain caused by the use of exceptional payment procedures. Budget priorities are ignored, including spending on poverty reduction and the ceiling for the reduction of domestic payment arrears.
Natural Resource Management & Environment
In March 2011, the country became compliant with the EITI just two years after being admitted as a candidate country. About 70% of the population use wells or waterholes. This figure is higher than average for similar fragile states. The wells and waterholes are in such a poor state that they rarely provide drinking water. About a quarter of the waterholes are not working, and the rest serve an average of 1 500 to 2 000 people each. This figure is far higher than the government’s target of 300 people per waterhole.
Access to drinking water is far higher in urban areas than in rural areas. Drinking fountains are accessible to 52% of people living in urban areas, but only around 5% of people living in rural areas, where waterholes and hand pumps provide 95% of water. Since only 10% of water from wells and waterholes is safe, only 14% of the rural population have access to safe drinking water, compared with 61% of the urban population. In addition, 43% of rural households must walk between 30 minutes to an hour to fetch water, compared with 25% of urban households.
Rebel attacks launched by Seleka (the Sango word for “coalition”, since it is a coalition of armed groups) in December 2012 have made the political and security situation very fragile. The attacks led to the fall of François Bozizé’s regime on 22 March 2013. The former president fled to Cameroon. These events occurred despite the peace deal signed between Bozizé and Seleka on 11 January 2013 in Libreville (Gabon) and the national unity government that was set up. As the rebels began to gain ground, the Economic Community of Central African States organised a conference in Libreville from 9 to 11 January, inviting all parties involved. The peace deal was supposed to put an end to hostilities and create a national unity government led by a prime minister from the opposition.
The leader of the Seleka coalition, Michel Djotodia, proclaimed himself President of the Republic on 22 March and announced the suspension of the 27 November 2004 constitution and the dissolution of the National Assembly and the national unity government. He also announced his intent to hold “free and fair elections with everybody’s help” by 2016. Michel Djotodia has left Prime Minister Nicolas Tiangaye (from the rival party of the former president) in office. Security has worsened since the rebel offensive. There has been extensive looting, and public and private property has been destroyed, especially in the capital. The cost of the damage is still difficult to calculate.
After a decade of armed conflicts, the political changes in 2003 following the military coup that brought General François Bozizé to power led to the signing of various agreements to promote peace, security and the emergence of the rule of law. The new constitution was approved by referendum in 2004 and presidential and parliamentary elections took place in 2005. Several peace agreements were signed between the new government and the former armed groups. These agreements planned for disarming, demobilising and reintegrating former combatants. Political stability gradually returned, and the government restored its relations with its main development partners.
The political climate became tense after the presidential and parliamentary elections of 2011, the results of which were contested. The opposition refused to be part of the national unity government that was expected after the elections. Dialogue and the peace- and security-building process that had been under way for several years deteriorated.
Thematic analysis: Structural transformation and natural resources
The country has vast natural resources that have not yet been exploited. Only 700 000 of the 15 million hectares of useful farmland are cultivated. Dense tropical forest covers 34 million hectares, offering great potential for forestry. Mineral resources including diamonds, gold, uranium, iron, calcium and copper are just as significant. These natural resources, however, have not enabled the country to experience economic development involving structural transformation. Instead, agricultural has continued to focus essentially on subsistence food crops and unprocessed cash crops for export. The only mineral resources exploited are diamonds and gold, and they have always been mined by artisanal miners. Only the timber industry has begun to process goods, albeit on a small scale.
Political and strategic errors and poor governance have been compounded by the country’s isolation and vast size. Similarly, mediocre infrastructure, the small domestic market and the weak private business sector all contribute to the poorly diversified economy. Manufacturing value added per capita (VAM) fell from USD 21 to 16 between 1990 and 2010, affected by political unrest. This contributed to the Central African Republic’s classification as a country in the first phase of industrialisation.
Progress has been made in improving the institutional framework. The mining and forestry codes have been revised to adapt them to international standards and foster the processing of natural resources. Measures taken over the past few years enabled the country to become EITI compliant in March 2011 just two years after being admitted as a candidate country. The government signed a Voluntary Partnership Agreement on Forest Law Enforcement, Governance and Trade (FLEGT) with the European Union in 2010. It also joined the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD) for the management of the Congo Basin Forest in 2010. In May 2012, the country’s parliament passed a law to create an agency to manage forestry resources, the Agence autonome de gestion des ressources forestières.