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8/10/2019 The Republic of Congo

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2/14African Economic Outlook AfDB, OECD, UNDP 2014

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p CONGO REPUBLIC

Lower oil production the economys main driver and weaker domestic demand

caused growth to weaken to 3.4% in 2013. Structural and social reforms have made progress but not fast enough for Congo to

reach its goals of economic transformation.

Although the country is rich in natural resources, which give it a substantialcomparative advantage in integration into global value chains (GVCs), Congos role ininternational production networks is mainly conned to the export of primary inputsbecause of substantial structural obstacles.

Overview

Congos performance and economic outlook remain generally satisfactory, but structural

change is still a major challenge. Real gross domestic product (GPD) growth fell to 3.4% in 2013,compared to 3.8% in 2012, as a result of falling oil production due to ageing oil wells. Even so, GDPgrowth ought to be 6.1% in 2014 and 6.5% in 2015. This macroeconomic outlook is supported bycontinuing state investment, the entry into production of mines, and the vigour of the non-oilsector. Inflation, thought to be 2.9% in 2013, should stay below the regional convergence level of3% until 2015, thanks to a careful monetary and fiscal policy. The budget and the current accountwere in surplus in 2013, at 12.1% and 4.9% respectively, and should consolidate in 2014-15. But thebiggest challenge is still that of transforming the economy with a view to enhancing significantlythe impact of growth on social indicators.

Not only has growth been inadequate over recent years and not inclusive enough to greatlyreduce poverty, there has been no deep structural change in the economy. Though poverty fellfrom 50.7% in 2005 to 46.5% in 2011, it is still high for a medium-income country. Unemployment

too is still high, especially among young people aged from 15 to 29, for whom it reaches 25%. Aspeeding up of the reform programme, particularly in key areas such as the private investmentenvironment, skills acquisition and infrastructure as well as managing public finances, is crucialfor meeting these challenges. Moreover, these reforms are vital if Congo is to play a bigger part inGVCs, a role that is currently limited despite the countrys major assets.

Apart from oil and sugar, Congo has not been very active in GVCs. The countrys main activityin GVCs has been mostly confined to exporting primary inputs. Finished goods, mainly refined oilproducts, account for no more than 5% of total exports. With respect to forestry, where there is anundoubted comparative advantage, the share of timber production with high added value standsat just 3%. Congos integration into GVCs runs up against failing infrastructure in terms of decenttransport and availability of energy; the lack of a qualified workforce; the lagging technologicaland productive capacity of small and medium-sized enterprises (SMEs) and an uncongenial

business climate. To remove these obstacles, the government, through its National DevelopmentPlan (NDP) 2012-16, is stressing: i) increasing infrastructure investment and skills acquisition;ii) improving the business climate; iii) improving access to credit for SMEs; iv) setting up specialeconomic zones (SEZs); and v) strengthening regional integration.



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Figure 1. Real GDP growth

%

-4

-2

0

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(e) 2014(p) 2015(p)

Real GDP growth (%) Africa (%)Central Africa (%)

Source: AfDB, Statistics Department AEO. Estimates (e); projections (p).

Table 1. Macroeconomic indicators

2012 2013(e) 2014(p) 2015(p)Croissance du PIB 3.8 3.4 6.1 6.5

Taux de croissance du PIB rel par habitant 1.1 0.7 3.4 3.8

Inflation 4.7 2.9 2.5 2.5

Solde budgtaire (% PIB) 15.3 12.1 10.5 12.1

Compte courant (% PIB) -1.3 4.9 4.2 2.0Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Recent developments and prospects

Congos economic growth fell back slightly in 2013 because of adverse internal conditions. RealGDP growth slowed from 3.8% in 2012 to 3.4% in 2013. This sl ight fall was due to underperformanceby the oil sector, resulting from the declining performance of ageing oil wells as well as weakerdomestic demand after an exceptional rise in public expenditure in 2012, by way of a governmentalbudgetary response to the explosion of an armed forces munitions depot on 4 March 2012.

This underperformance was compensated for, up to a point, by the good performance of thenon-oil sector, driven by activity in the building and public works sector, telecommunications,

agriculture and fisheries. The recent economic performance in Congo took place against abackground where inflation was under control. Thanks to a prudent monetary policy implementedby the Bank of Central African States (BEAC), inflation was brought down from 4.7% in 2012 to2.9% in 2013.

Aware of the need to build on past achievements in terms of macroeconomic stabilisation,the government tightened its fiscal policy in 2013, after a steep rise in public expenditure overthe last two years. This realignment enabled the non-oil deficit to be brought down from 62.9% ofnon-oil GDP in 2012 to 43.5% in 2013. With regard to the countrys external position, the currentaccount balance of payments deficit of 1.3% of GDP in 2012 became a surplus of 4.9% in 2013through a fall in imports, which had risen considerably in 2012 to deal with damage caused by theexplosion of the munitions depot. While debt easing through the Heavily Indebted Poor Countries(HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI) reduced the countrys external



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p debt considerably, it has risen again relatively quickly over the last few years, from 19% of GDPin 2010, to 23% in 2011 and 25% in 2013, showing increased use of external borrowing. Risingexternal debt reflects disbursements under a bilateral agreement with China, signed in 2006.Moreover, the government signed a new co-operation agreement with China in 2013 to the value

of USD 1 billion. However, a debt sustainability analysis, undertaken in 2013 by the InternationalMonetary Fund (IMF) and the World Bank, shows the risk of debt distress to be low.

The international environment has certainly been an important factor in recent developmentsin Congos economy, but the implementation of substantial economic and structural reforms alsoplayed an important part. In particular, internal and external balances have been maintainedby a more rigorous conduct of economic policy and the pursuit of structural reforms within theeconomic and financial programme underpinned by the IMFs Extended Credit Facility (ECF).Also, Congos efforts to improve the management and transparency of extractive resources,especially a functioning certification system, and annual publication and reconciliation of allgovernment income from mining, meant that in February 2013 it fulfilled the requirements ofthe Extractive Industries Transparency Initiative (EITI). Prudent budget management and largeexternal reserves earned Congo a B+/B rating with a stable outlook and Ba3 awarded in October

2013 by Standard & Poors and Moodys respectively. However, the overall reform process, whichhas slowed down since the end of the IMF-supported programme, needs to be speeded up tobring about the far-reaching economic change needed to increase the impact of growth on thecountrys social indicators.

Over the last few years, growth has not been inclusive and did not come with noteworthystructural changes. Though it fell from 50.7% in 2005 to 46.5% in 2011, the rate of income povertyis still high for a country with a per capita income of USD 2 300, above similar oil-exportingcountries. Unemployment, too, remains high affecting 16% of the working population and 25%of young people aged 15 to 29, according to an inquiry into employment and the informal sectorundertaken in 2010. Congo also lags behind in reaching Millennium Development Goals (MDGs).Social indicators point up the challenges the country needs to meet to benefit from its potentialand its favourable economic outlook.

Table 2. GDP by sector (percentage)

2008 2013

Agriculture, hunting, forestry, fishing 4.3 4.5

of which fishing 0.4 0.4

Mining 67.6 64.6

of which oil 67.6 64.6

Manufacturing 4.1 4.4

Electricity, gas and water 0.7 0.7

Construction 3.1 3.8

Wholesale and retail trade, hotels and restaurants 6.0 6.9

of which hotels and restaurants

Transport, storage and communication 4.5 5.1

Finance, real estate and business services 5.4 5.4

Public administration, education, health and social work,community, social and personal services 4.3 4.6

Other services

Gross domestic product at basic prices / factor cost 100 100

Source: Data from domestic authorities.

Though the above are good, economic change is still Congos biggest challenge. GDP growthshould reach 6.1% in 2014 and 6.5% in 2015. This macroeconomic outlook rests on a continuedprogramme of public investment in order to improve the countrys economic infrastructure,through increased building, public works, telecommunications and a cautious start in miningproduction. Inflation should be brought below the regional convergence threshold of 3% by 2015



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as the effects of increased public expenditure in 2012 wear off. Thanks to the tightening of fiscalpolicy, the primary non-oil deficit ought to be kept at 37% of non-oil GDP over 2014/15. However,the economys exposure to oil prices, falling world demand, the slowdown in the reform processfollowing the IMF-supported programme and a worsening socio-political situation in the sub-

region are all risks. But the countrys biggest challenge is still the diversification of the economy,a prerequisite for Congo to become an emerging economy by 2025. The economy still dependsheavily on oil, which accounts for 65% of GDP and 85% of exports, with very few linkages with othersectors of the economy upstream or down. Structural change in Congo will require acceleratedreforms, especially in key areas such as the business environment, skills acquisition, improvedinfrastructure and much greater efficiency in public investment. These reforms are also essential

for Congo to take its place in global value chains.

Macroeconomic policy

Fiscal policy

Following the NDP, fiscal policy in 2013 sought continued implementation of the publicinvestment programme aimed at economic change. After a one-off hike of over 70% in the2012 supplementary budget, linked to the reconstruction of infrastructure destroyed in the4 March explosion, investment expenditure represented 17% of GDP in 2013. However, throughadministrative deficiencies, actual expenditure fell short of what had been budgeted for. Also, theinefficiency of public investment curtails its impact on growth and poverty reduction. Despitesteep rises in spending on infrastructure, Congos performance in this regard is weak, as thecountrys ranking in the World Bank and the IMFs Public Investment Management Index (PIMI)reveal. The country ranked 151st out of 155 countries for infrastructures in the 2012 logisticperformance index of the World Bank and 151stout of 152 countries according to the FMIs PIMI,which reflects the quality of public investment.

The gap between the quality of infrastructure and the resources deployed is due to poor

governance, corruption and lack of technical ability. For this reason, improving assessmentand execution of projects and fighting corruption are continuing challenges, which need to beaddressed urgently. Following the tightening of fiscal policy, the primary non-oil deficit wasbrought down from 63% of non-oil GDP in 2012 to 43.5% in 2013. Fiscal policy should stay prudentin 2014 and 2015. The introduction in 2013 of a basic fiscal rule providing for the allocation ofXAF 1 500 billion of oil receipts to public expenditure, the remainder being a reserve, alongsidethe countrys substantial reserves, should hold fiscal policy steady.

Table 3. Public nances (percentage of GDP)

2005 2010 2011 2012 2013(e) 2014(p) 2015(p)

Total revenue and grants 38.8 36.7 41.4 45.9 44.4 42.7 41.5

Tax revenue 6.7 7.3 7.9 8.7 8.6 8.5 8.6

Oil revenue 31.8 28.9 32.7 36.3 33.8 32.0 30.7Total expenditure and net lending (a) 23.2 21 25.4 30.5 32.3 32.1 29.3

Current expenditure 17.9 11.2 9.9 14.3 15.4 15.2 13.2

Excluding interest 13.0 10.2 9.7 14.1 15.1 15.0 13.1

Wages and salaries 4.0 3.0 3.0 3.5 3.6 3.6 3.4

Interest 4.9 1.0 0.2 0.2 0.3 0.2 0.2

Capital expenditure 5.3 9.8 15.5 16.3 17.0 16.9 16.1

Primary balance 20.5 16.7 16.2 15.5 12.4 10.7 12.3

Overall balance 15.6 15.7 16.0 15.3 12.1 10.5 12.1

Note: a. Only major items are reported.Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.



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p The government has pursued tax reform to increase income, especially from sources otherthan oil. The measures extend the tax base, reduce exemptions and strengthen collection. Aspecial tax on alcoholic drinks and tobacco was created in 2013. The list of taxpayers was updated,increasing the number of those registered by 10% as of the beginning of 2013 and the exchange of

data on taxpayers between the revenue office and Treasury and customs services was improved.These measures led to a slight increase in non-oil income as a proportion of GDP, from 9.5% in2012 to 10.3% in 2013.

Monetary policy

Congos monetary and exchange policy is determined by its membership of the EconomicCommunity of Central African States (ECCAS). This is headed at a regional level by the Bank ofCentral African States, which still aims for price stability through a fixed exchange rate of theCFA franc (XAF) and the euro, and through keeping the zones medium-term inflation rate to3%. Demand is generally adequate with the maintenance of internal and external equilibrium.Money supply rose by 21% in 2013 and the currencys value appreciated by 3.8% as the euro roseagainst the dollar and oil prices increased. Thanks to prudent fiscal policy, and as the effects of

the increase in public expenditure worked through the system and then fell in 2013, as well asto improved availability of foodstuffs at the end of the year, inflation fell from 4.7% in 2012 to2.9% en 2013, according to the African Development Bank (AfDB). There being no great risk ofreturning inflation, and so as to boost economic growth in the ECCAS zone, the Bank of CentralAfrican States (BCAS/BEAC) reduced its key lending rate (tender rate) first from 4% to 3.5% inJuly 2013, then to 3.25% in October 2013. These policies in respect of overall demand do not seemto have been to have had a crowding out effect on the private sector. Lending to the privatesector rose by 27% in 2013, driven by the accumulation of public deposits in the banking system.However, the share of lending going to the private sector remains low, at 10% of GDP, because ofthe limitations of legal proceedings in financial sector cases and dysfunctional management ofproperty rights. For this reason, most investment in the country is made by the state (71%). In themedium term, the maintenance of the central banks conservative fiscal policy, and of the states

moderate monetary policy, should hold inflation down to 2.5% in 2014 and 2015.

Economic co-operation, regional integration and trade

Congos trade policy, as a member of ECCAS, is largely determined by its membership of theregional customs union. Congo applies the ECCAS customs code and ECCAS rules with respect tothe common external tariff and general preferential tariff introduced in 1993. The ECCAS tariffnomenclature has four bands, from 5% to a maximum of 30%, with intermediate levels of 10%and 20%. Congo observes article VIII of the IMF on current international transactions. The tariffstructure is fairly transparent and predictable, and there are no formal non-tariff barriers, evenif the export or import of certain products, such as mineral water, sugar, flour and rice, needs alicence.

Congos foreign trade is dominated by oil, which accounts for 85% of exports. Because of this

dependence on oil, the slowdown in production as wells grow old, together with that of timberexports, caused a fall in exports of 4.5% of GDP. However, the global economic upturn and thebringing into production of substantial deposits of iron ore in 2014, and potassium in 2015, shouldhelp increase exports. Mining ought also to attract greatly increased foreign direct investment(FDI). Around 4 billion dollars of investment are expected for the prospecting and the developmentof potassium and copper deposits. Imports rose slightly by 0.2% in 2013, reflecting the continuingprogramme of public expenditure. Nevertheless, given the grip kept on oil revenue, the bottomline of the balance of payments current account remained in surplus. In terms of geographicaldistribution, Congos foreign trade is still dominated by Europe and Asia, while trade in the sub-region is still weak. Less than 7% of Congos non-oil exports go to other ECCAS countries. Poorprogress in trade integration is due to delays in policy harmonisation among the states and poorservices in infrastructure and trade facilitation.



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Table 4. Current account (percentage of GDP)

2005 2010 2011 2012 2013(e) 2014(p) 2015(p)

Trade balance 56.6 49.6 47.8 43.3 38.7 36.0 33.7

Exports of goods (f.o.b.) 78.0 77.5 78.3 75.1 70.6 67.5 65.8Imports of goods (f.o.b.) 21.4 27.9 30.4 31.7 31.9 31.4 32.1

Services -19.7 -24.7 -21.5 -18.7 -17.5 -15.8 -15.8

Factor income -25.9 -18.6 -18.7 -23.2 -14.2 -13.9 -13.8

Current transfers 0.5 -2.5 -2.0 -2.7 -2.0 -2.2 -2.2

Current account balance 11.5 3.8 5.7 -1.3 4.9 4.2 2.0

Source: Data from the Central Bank and domestic authorities; estimates (e) and projections (p) based on authors'calculations.

Debt policy

Debt easing through Heavily Indebted Poor Countries and Multilateral Debt Relief Initiativesreduced the public foreign debt considerably even if the recent increase in borrowing is a bigrisk. Foreign debt fell from 59.3% of GDP in 2008 to 19% in 2010 when the initiatives reachedcompletion. But it has risen quickly since, reaching 25% in 2013. A debt sustainability analysis,undertaken in 2013 by the IMF and the World Bank, shows the risk of debt distress to be low.It shows, too, that the determinants of the debt are robust enough to withstand most shocksthanks to the substantial cash reserves of the BEAC. Its conclusions are confirmed by theranking B+/B with a stable outlook and Ba3 awarded in October 2013 by Standard & Poors andMoodys respectively for Congos long-term and short-term foreign-currency debt. Both agenciesnote the high level of foreign-exchange reserves as well as the countrys solid growth outlook,underpinned in the medium term by mining, but they highlight doubts over the 2016 electionsand a long-term fall in the production of basic goods. Thanks to substantial repayments onthe part of the government to suppliers, internal public debt, made up of commercial private-sector debt and back payments of salaries and pensions in restructured state enterprises, fellslightly from 6.6% of GDP in 2012 to 6.4% in 2013. The legal framework for public debt and its

management is well defined. It designates the Ministry of the Economy, of Finance, of the Plan,of the Public Purse and Integration as the only entity authorised to contract new loans on behalfof the state. The Ministrys Caisse congolaise damortissement(sinking fund) manages public debt.Much progress has been made insuring statistics on debt and its management are complete.The sinking fund has a computer debt-management programme (Debt Management FinancialAccounting System, DEMFAS). It provides complete data on outstanding foreign debt, includinglate payments and their make-up. It also gives detailed forecasts on servicing the debt as well asstatistics on internal public debt. Details of the amount of foreign debt and forecasts on servicingit are published every quarter on the Ministry of Finance website. However, there is no completecentralised database of the expenditure of publicly owned companies to check the reconciliationof accounts. The sinking funds capacity for analysis needs strengthening.



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pFigure 2. Stock of total external debt (percentage of GDP)

and debt service (percentage of exports of goods and services)

%

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Outstanding debt (public and private) /GDP Debt ser vice/E xpor ts

Source: IMF (WEO & Article IV).

Economic and political governance

Private sector

Progress has been made in improving the business climate, but the private-investmentenvironment is still complicated and unattractive. After the restructuring in 2012 of the Centre de

formalits des entreprises(CFE business start-up centre), a one-stop office for business registration,and the reduction of start-up costs, the following measures were taken in 2013: i) corporationtax came down from 34% in 2012 to 30% from 2014; ii) the setting up of a one-stop customs-clearance office; and iii) the setting up of a national land-registry fund. Despite all this, the Congoprivate investment study commissioned by the AfDB in 2012 highlighted extensive constraintsin the promotion of a dynamic private sector. The areas in urgent need of reform include thesimplification of setting up businesses, offering tax incentives and simplifying tax payment,enhancing legal provisions and easier access to credit. These weaknesses explain Congos poorshowing in the World Banks Doing Business 2014report (185thout of 189 countries). The numberof days needed to get a business going is 101 compared to 29.7 in sub-Saharan Africa. AlthoughCongo is up three places in theDoing Business 2014rankings for tax payment, administrative costsare still high for enterprises, which must on average devote over 600 hours a year to the payment

of 49 taxes. Because of inefficiencies in the legal system, legal uncertainty is a major hindrance,as Congo comes 157th under the investment protection heading in the Doing Business 2014report.Even if labour costs are not among the worst constraints for the private sector, skills shortages,resulting from the mismatch between the education system and the needs of the economy, area serious handicap to the areas identified by the government in order to diversify. Congo has puta lot of money into infrastructure over the last six years, but the shortcomings in this area arestill great. According to the AfDBs index of infrastructure development in Africa, Congo ranks36th. The infrastructure deficit is most marked in energy and transport. This is a major obstacleto increasing its advantage in GVCs.



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Competition has improved for some productive sectors, in particular telecommunicationswhere there are four private operators, and banking where the number of banks went up fromfour in 2007 to ten in 2013. On the other hand, electricity and water provision, and rail transportare still state monopolies.

Financial sector

The financial system is relatively healthy and little exposed to medium-term shocks. The mostimportant thresholds of solidity indicators for the financial sector are all reached by Congolesebanks, except the one concerning the concentration of risks, with the total of loans to a singleborrower reaching about 20% of the banks total loan portfolio. The proportion of non-performingloans to all loans is 2.8% compared to 9% for ECCAS. The resilience of the financial sector is inpart due to improved prudential oversight of the Banking Commission of Central Africa (COBAC).However, strengthened oversight by the financial system is hampered by COBACs lack of humanand monetary resources, considering the number of the countrys financial institutions. Theapplication of the restructuring plan for the state-owned Assurances et Rassurances du Congo(ARC) put its finances back on a firm footing and returned it to profit in 2011. Information on

loans granted, costs and defaults improved, with the strengthened role of the Balance SheetCentre (Centrale des Bilans) and the Central Credit Bureau (Bureau Central du Crdit). However, theapplication of the institutional and regulatory framework for financial services, governed in largepart by regionally based financial institutions, and the supervision of microfinance institutionsboth need tightening.

Despite the increase in the number of banks from four in 2007 to ten in 2013 and the substantialpotential to fund the economy, the financial sector is under-developed. The total assets of Congosbanks represent 21% of GDP and the financial markets of the sub-region are also modest in size.With a financial depth ratio of 10% in 2012, Congo is among those lagging furthest behind in themain financial development indicators despite banks excess liquidity. Microfinance has not yettaken off. There are 30 approved microfinance establishments, chief among them the Mutuellescongolaises dpargne et de crdit (MUCODEC), with deposits and loans of XAF 160 and XAF 46 billion

respectively, about 84% and 87% of microfinance totals. Loans and deposits in the sector accountfor 9.1% and 14.4% of the financial system, respectively. The weakness of the financial sector isreflected in the limited access to financial services, which is an especially severe obstacle forSMEs, only 13% of which have a loan or a credit line. This poor performance explains how Congolost four places in the Doing Businessrankings access-to-credit indicator, falling from 105thplaceto 109th between 2012 and 2013.

Public sector management, institutions and reform

The government has begun far-reaching reforms to improve governance in the public sectorbut progress is slow. In infrastructure, major institutional and regulatory reforms have beenset in train over the last few years, especially the creation of the Electricity Sector RegulatoryAgency and the adoption of a legal and regulatory framework for telecommunications. However,

the satisfactory implementation of these reforms is hindered by an insufficiency of humanand financial resources in the newly created structures. As far as management of state-ownedresources is concerned, management of oil resources was strengthened, allowing Congo to berecognised as fulfilling the requirements of the Extractive Industries Transparency Initiative (EITI)in February 2013, the only country in central Africa to be so recognised. Lastly, the authoritieshave also started work on a fiscal responsibility bill, which ought to come before parliament inthe course of 2014, as well as efforts to implement fully ECCAS directives on the management ofpublic finances.



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p Still, the efficiency of the provision of public services is limited by poor governance, corruptionand weaknesses in human and institutional capacities. In particular, technical ability in themanagement of public expenditure is lacking and this goes some way to explain the inefficiencyof investments made. Thus, the high level of corruption, as shown by the perception of corruption

index ranking of 2.2 out of 10 for Congo, which comes 154th out of 177 countries, according to the2013 Transparency International report, leads to large losses of public money, which produces agap between current infrastructure provision and the level of resources committed. Accordinglythe effectiveness of public expenditure is still limited by poor delivery, which is also a sign ofgovernance and capacity difficulties. Lastly, the management of semi-state enterprises and theirregulatory framework are ineffective. The deficiencies explain in part why Congo is ranked inthe bottom 11% for government efficiency in the World Banks governance indicators for 2012.

Natural resource management and environment

National legislation on the forest environment sector is fairly exhaustive. It consists of textson the protection of the environment, the forestry code, land ownership, fauna and protectedareas. The law on protection of the environment is being revised to build in guarantees of the

economic, ecological and social sustainability of natural resources and take into account newenvironmental problems. The government has drafted new environmental impact regulations.It is also giving effect to the Voluntary Partnership Agreement (VPA) with the European Unionin the implementation of the Forest Law for Enforcement, Governance and Trade, FLEGT, whichguarantees the legality of all timber exports. Since January 2012 Congo has been a member ofthe global gas-flaring reduction partnership, showing efforts at improving energy efficiencyand reducing emissions linked to oil extraction. Congo enjoys support from the UN ReducingEmissions from Deforestation and Forest Degradation (REDD) programme to get best valuefrom its REDD + potential and the opportunities for financing this environmental service. Theministries involved in the management of land and natural resources (forests, environment,agriculture, land-ownership reform, energy, mines, land use, plan, tourism, etc.) each have apolicy contributing to the sustainable management of forest ecosystems but the main difficulty

is the failure to apply these because of the lack of human and material resources. Further effortsare needed to ensure regulations and laws are enforced. In particular, regulation is limited bydeficient institutional capacity, especially in the Ministry of the Environment and the forestryadministration.

Political context

Presidential and legislative elections were held in 2009 and 2012 respectively. Local electionsscheduled for 2013 were postponed. The way they are to be organised is dividing opinion amongthe political class. In March 2013, the government and the moderate opposition attempted dialoguethrough the Dolisie meeting, which reached a consensus on the following recommendations:i) the organisation of a special administrative census, which got under way in August 2013; ii) thecreation of a permanent, independent and autonomous entity tasked with the organisation of

elections; iii) a law on campaign finance; iv) the enforcement of the law governing political parties;and v) the introduction of biometric voters cards with a photograph.

Another major event was the holding in August 2013 of the trial of those suspected of causingthe explosion of the munitions depot in 2012. The court did not uphold the charges against themand for the most part they received suspended sentences. However, the heavy-handed arrest inDecember 2013 of a colonel implicated in the events led to shooting between a hundred or so ofhis supporters and the forces of law and order, leaving several dead or wounded.

The socio-political context was also marked by salary claims by teachers, leading thegovernment to open negotiations with the social partners in April 2013 and to commit itself to anoverall revision of the status of the civil service, and to adoption of a new salary index from 2014.


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Finally, ten newspapers were stopped from appearing for several months in 2013, three papershaving been treated the same way in 2012. These suspensions illustrate that further progress isneeded to strengthen press freedom.

Social context and human development

Building human resources

Much effort has gone into improving services but its impact is insufficient. The educationbudget has risen by 17% over the last three years, so enrolment went up from 86.5% in 2005 to89.5% in 2011 and an increase in the primary completion rate from 67.6% to 85% in the sameperiod (third MDG follow-up report, 2013). Despite the states funding efforts, the Congoleseschool system is deemed to be underperforming. A study by the Ministry of Primary Educationand Literacy shows the pupil-retention rate fell from 86.7% in 2005 to 72.5% in 2011 because ofincreased numbers of pupils repeating a year or giving up. Performance in the sector is furtherlimited by non-availability of school places, and the inadequacy and unfair distribution of

teaching staff. For these reasons, Congo is not able to achieve the MDG of primary education forall. Progress is also slow in professional training, which seriously hampers the private sector.Though just 25% of enterprises polled attribute recruitment difficulties to regulation, 51% of themthink skills shortages are a major obstacle.

In healthcare, unlike education, spending has stagnated over the last three years, but is stillhigh, at XAF 179 billion in the 2014 budget. Current programmes provide essential care but theoverall results of the system are not satisfactory, reflecting a poor level of human resources,inadequate infrastructure, poor-quality care and the cost of healthcare provision. Still, measlesvaccination cover went up from 67% to 78% between 2008 and 2011, while the incidence of HIV/AIDS fell from 2.2% in 2003 to 1.7% in 2009. Thanks to the introduction of free malaria treatment,the number of cases notified fell by 57% from 2011 to 2012. However, with maternal mortality at426 deaths per 100 000 live births and infant mortality at 68 deaths per 1 000 live births, Congo has

some of the weakest health indicators in comparable countries. Nearly a quarter of children areaffected by chronic malnutrition. As a result, achieving MDGs except those relating to HIV/AIDSand malaria, will be very difficult because of a lack of financial, material and human resources,the high level of poverty and lack of co-ordination in the national response.

Poverty reduction, social protection and labour

In line with its poverty-reduction strategy, the government has continued to devote aconsiderable proportion of its budget to pro-poor spending, especially in water, energy andeducation. Pro-poor spending has risen steadily from 6.4% of GDP in 2008 to 8.5% in 2013. Butspending has increased less in health and agriculture. The authorities are also intervening infavour of the poor and vulnerable. This action consists in providing free caesarean sections,vaccines, anti-retrovirals, the abolition of school fees, provision of free school books and school

canteens. However, the efficiency of public expenditure is limited by a low delivery rate and poor-quality public services, which, nationally lead to widespread poverty and big disparities betweenurban and rural areas. The percentage of poor is 74.8% in rural areas as compared to 32.3% intowns. Congo could well find it hard to meet MDG 1 in 2015.

The national social protection system is limited to the provisions of the civil-service retirementfund (Caisse de retraite des fonctionnaires CRF) and the national social security fund (Caisse nationale descurit sociale CNSS) and only covers 15% of the population, largely those paid in the formal sectorwhile those living in rural areas and those working in the informal sector are excluded. Moreover,it should be stressed that the level and quality of provision is poor. Given the growing numbernot covered by social security, the state has for some years provided safety nets for vulnerablegroups. Labour-intensive works and self-employment programmes as well as an initiative to



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p promote rural employment are being rolled out. To date, close to 8 600 people have benefitedfrom these programmes. Cash transfer schemes for poor and vulnerable households are beingdelivered and should be extended. These safety nets also include the reduction of, or exemptionfrom, school fees and hospital charges in public hospitals and a social reinsertion fund to help

the poor set up their own economic activities, and give easier access to microcredit. However,the extent and level of these resources remain insufficient to provide adequate protection tothe most vulnerable groups. For example, the budget allotted to the Ministry of Social AffairsHumanitarian Action and Solidarity is not more than 1.0% of total public spending. To this mustbe added delays obtaining funds budgeted for, which are a major obstacle to the smooth deliveryof programmes. The targeting and evaluation of the efficiency and impact of programmes areweak.

Although the regulation of the labour market is not seen by the private sector as a majorconstraint, it strikes a relatively unsatisfactory balance between social protection and jobcreation, and is poorly enforced. Private operators feel the labour code offers good protection andcover to workers but leaves little leeway to employers in hiring, organising work and dismissing.However, it should be pointed out that the extent of this regulation is limited insofar as it only

affects the quarter of the active working population engaged in the formal sector. There continueto be training programmes for workers, but they are not widespread.

Gender equality

Despite the ratification nationally of most of the international and regional instruments ongender equality and equity, there are still big differences between the lives of men and women.With a gender inequality index of 0.610, Congo is ranked 132ndout of 186 countries according to the2013 Human Development Report of the United Nations Development Programme (UNDP). Thanksto the governments policy on free primary education, the girl/boy parity index at primary levelrose from 0.89 in 2008 to 0.97 in 2011, going from 0.69 to 0.78 over the same period at secondarylevel. The gap widens greatly at university level, where the equality index is no more than 0.4.Great differences can be seen in participation in the labour market and access to commercial

property. Only about 17% of businesses are controlled by women. A greater proportion of themwork in jobs that are poorly paid or unpaid, such as agriculture, commerce and they are poorlyrepresented in administration (8.91%).

In politics and decision making, the quotas of a third and a fifth respectively suggested bythe African Union and the United Nations are not respected. In parliament, the proportion ofwomen stood at just 8.7% in 2013 compared to 7.3% during the 2007 legislature. There are onlyfour women among 38 ministers in the present government. The government adopted a nationalgender policy in 2008 and its action plan in 2009, and has set up an observatory to record andcombat violence against women and children the great challenge still being the implementationof these texts.

Thematic analysis: Global value chains and industrialisation in AfricaAlthough its wealth of natural resources gives it significant natural advantages in participating

in GVCs, Congos share in international production networks is still modest. The biggest sectorsare oil, timber and logs in GVCs and sugar in regional value chains. The countrys share in GVCs inagriculture and services has been very slight. Aside from oil and sugar, the main contributions toGVCs nationally have not changed much over the last decade and have been mostly limited to theexport of primary inputs. Finished products, mainly refined oil products, make up no more than5% of overall exports. In the oil sector, apart from the extraction and export of crude, mainly to


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Europe and Asia, the other form of participation in GVCs is, at a marginal level, the sale of refinedpetrol. The sugar industry is also relatively well integrated into regional value chains. Thanks tothe advantage afforded by its production of sugar cane, Congo has been able to take its place ina regional value chain. Around 60% of production goes for export to ECCAS member countries

and to the United States in the framework of the African Growth and Opportunity Act (AGOA).In respect of forestry, despite laws imposing a minimum local processing of 85%, production oftimber with high value added accounts for just 3%.

The impact of Congo in GVCs is not great. Oil exports have certainly been very conduciveto the countrys good economic performance over the last decade and oil income has providednearly 80% of overall state receipts, and served to finance a large part of public investment andsocial expenditure. But the overall impact of oil on socio-economic indictors has been limited.The economys dependence on the very capital-intensive oil sector has not favoured employment.Moreover, because of the weak linkages between national enterprises and the foreign firmsexploiting resources, the countrys participation in GVCs has had no significant impact onbolstering the capacities of local SMEs. The weak impact of GVCs in Congo contrasts with theopportunities it possesses.

Congo has great potential for increasing its positioning in GVCs. Apart from oil and timber,the country has substantial mineral and forestry resources, and good agricultural potential.Improving the transformation of oil and timber provides, in the medium term, the potential forincreasing added value and creating jobs. There could also be sub-contracting to local SMEs in oiland mining companies (building and public works, training, boiler-making, maintenance). Thecountrys considerable mining potential should begin production in 2014, and also gives Congothe possibility of a bigger role in GVCs, as well as the treatment of agricultural production andagro-industry, in which the country has a certain comparative advantage. Finally, the countrysstrategic geographical position, with a coastline and a deep-water port, is a major advantage forCongos SMEs in accessing regional and international markets. Despite the strong hand it holds,Congos integration into GVCs is held back by major structural obstacles.

The main constraints hindering Congos wider participation in GVCs are the absence of qualitytransport infrastructure, of adequate energy supply, the lack of skilled workers, of technologicalcapacity and an uncongenial business climate. Infrastructure shortcomings are specially markedin the transport sector, with only 10% of roads paved and a dilapidated railway, and are a majorobstacle in accessing foreign markets. Moreover, despite increased energy production, theunreliable electricity supply is one of the main factors weighing upon the competitiveness of theCongolese economy and restricting foreign investment. Lack of infrastructure also stops Congofrom taking advantage of regional trade.

The underqualified available workforce and skills shortages are a further serious impedimentto Congos progress towards adding value in GVCs. The country is still confronting a majorchallenge improving its technical and scientific education and strengthening its technologicalabilities. Technical and professional training attracts fewer than 10% of pupils. The dearth of

skills, combined with an absence of investment in technology, prevents local enterprises fromimproving their competitiveness and meeting quality norms of international markets. The seriousdeficiencies in the business climate, as illustrated by Congos poor showing in the Doing Business2014 ranking are a major hindrance to the private investment needed to transform the economy.

Knowing the opportunities GVCs can give Congo to speed up its industrial development, thegovernment wants, through its 2012-16 national development plan, to step up its efforts to createconditions conducive to the countrys having a significant participation in GVCs. To this end, thestrategy identifies seven clusters, which should act as the principal vectors of Congos participation


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p in GVCs. These include in particular agriculture and agro-business, forestry and timbers, oil andhydrocarbons as well as mines. But optimal exploitation of these clusters necessitates certainreforms and specific measures. In this regard, government is prioritising : i)increasing investmentto build competitive infrastructure; ii) speeding up the implementation of the action plan to

improve the business climate; iii)creating specialised institutes to meet the needs of sectors witha high potential for creating added value. (the government has already set up specialised technicaland vocational training centres under 120 educators in 12 key areas); iv)increasing investmentin science and technology; and v) improving access to finance to support the development ofbusinesses productive capacity.

The authorities are also considering setting up four special economic zones, with the aim ofdiversifying economic activity and exports and supporting integration into the global economy.These zones, for which feasibility studies are complete, will be devoted to petrochemicals, mining,timber and agro-business as well as transport, financial and logistical services. At the same time,an agency for the promotion of investment and a fund to encourage, guarantee and support SMEshave been created and ought soon to be operational. Finally, given that regional markets are veryimportant for Congo because of the small size of its economy and that they can assist the country

in joining GVCs quickly, the government intends to increase investment in building an efficientregional infrastructure, to eliminate bottlenecks strangling regional integration and trade.

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