Microsoft Word - R-Congo - CSP 2005-07 _final_REPUBLIC OF CONGO
DECEMBER 2005
TABLE OF CONTENTS Accronyms and Abbreviations ...................................................................................................................ii Executive Summary....................................................................................................................................iv I. INTRODUCTION....................................................................................................................................1 II. COUNTRY CONTEXT .........................................................................................................................2 2.1 Political Context ...................................................................................................................................2 2.2 Macroeconomic and Structural Context Issues ....................................................................................3 2.3 Sectoral Context Issues.........................................................................................................................7 2.4 Priority Cross-Cutting Issues ................................................................................................................9 2.5 Poverty, Social Context and Issues.....................................................................................................13 2.6 Medium-Term Economic Outlook and External Enviroment ............................................................15 2.7 Private Sector Business Climate and Issues .......................................................................................16 III. NATIONAL DEVEVELOPMENT AGENDA AND MEDIUM TERM PROSPECTS ..............17 3.1 Key Element of Government Development Agenda ..........................................................................17 3.2 Assessment of Implementation Progress of I-PRSP ..........................................................................18 3.3 Partnership Framework.......................................................................................................................19 3.4 Challenges and Risks ..........................................................................................................................21 IV. BANK GROUPS COUNTRY ASSISTANCE STRATEGY ..........................................................22 4.1 Country Context and Strategic Selectivity .........................................................................................22 4.2 Porfolio Management and Lessons from Previous CSP.....................................................................23 4.3 RBCSP Frameworks ...........................................................................................................................23 4.4 RBCSP Pillars and Areas of Focus.....................................................................................................26 4.5 Regional Dimensions of Bank Group Assistance...............................................................................30 4.6 Bank Group Assistance : Allocation Based from Performance, Performance Criteria and Bank Operations ...................................................................................................................................................31 4.7 Partnership and Harmonisation...........................................................................................................33 V. RESULTS-BASED MONITORING AND EVALUATION ...........................................................33 5.1 Monitoring of CSP Outcomes and Bank Group Performance ...........................................................33 5.2 Managing Risks ..................................................................................................................................34 5.3 Country Dialogue Issues.....................................................................................................................35 VI. CONCLUSIONS AND RECOMMENDATIONS............................................................................35
This document has been draft following the preparation mission conducted from 8 to 22 July at Brazzaville, by a team made up of Messrs. I. Koussoubé Division Manager, OCCC.2, Head of Mission (extension 2158), P. Yembiline, Economist, OCCC.2 (extension 2880); Z. Amadou, Electrical-mechanical Engineer, OCIN.1 extension 2211), M. Ayachi, Agricultural Engineer, OCAR.3 extension 3380); and Mrs M. Diop Ly, Health Expert, OCSD.3 (extension 3435).
i Annexes 1. Bank Group Operations 2. Country Strategy Framework Matrix 2005-2007 3. Analysis of MDG Attainment 4. Key Economic and Financial Indicators 5. National Accounts (current prices) 6. National Accounts (Constant Prices) 7. Public Finance 8. Monetary Survey 9. Balance of Payments 10. External Financing Requirements and Sources Boxes 1. Congo- Country Snapshot 2. Findings of Petroleum Company Audits 3. Poverty Characteristics 4. Donor Intervention by Sector 5. 2005-2007 Congo CSP Consultation Process Tables Table 1 : Summary of Key Elements of Government Agenda Table 2 : Thematic Results Matrix Table 3 : Matrix of Results of 2005-2007 Congo DSPAR Table 4 : Reference Framework for Performance Management
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CURRENCY EQUIVALENTS (December 2005)
1 UA = 793.754 CFAF 1 UA = 1.42414 USD 1 UA = 1.21007 Euro
1. USD = 557.357 CFAF 1. EURO 655.957 CFAF
FINANCIAL YEAR : 1 January – 31 December
SYMBOLS AND ABBREVIATIONS ADB :African Development Bank ADF :African Development Fund AFD :Agence Française de Développement (French Development Agency) APEMEF Association Professionnelle des Etablissements de Microfinance du Congo (Congo
Association of Micro-finance Institutions) ARV :Anti Retrovirals AWF :African Water Facility BDEAC Banque de Développement des Etats de l’Afrique Centrale (Development Bank of Central
African States) BEAC :Banque des Etats de l'Afrique Centrale (Bank of Central African States) BPW :Building and Public Works BVMAC :Bourse des Valeurs Mobilières de l'Afrique Centrale (Regional Stock Exchange of Central
Africa) BWI :Bretton Woods Institutions CAIC :Crédit Agricole, Industriel et Commercial (Agricultural, industrial and commercial credit) CATO :Centres D'Appui Technique Opérationnels (Operations Technical Support Centers) CFA F :Communauté Financière Africaine (African financial Community currency) CFAA :Country Financial Accountability Assessment CFCO :Chemin de Fer du Congo-Océan (Congo-Océan Railway) CGP :Country Governance Profile CNCCF :Commission Nationale de lutte contre la Corruption, la Concussion et la Fraude (National
Corruption, Extortion and Fraud Comission) CNLP :Comité National de Lutte contre la Pauvreté (National Poverty Reduction committee) CNLS :Centre National de Lutte contre le Sida (National AIDS Control Center) CNR :Conseil National de Résistance (National Resistance Council) CNSEE :Centre National de Statistique et des Etudes Economiques (National Statistics and
Economic Studies Center) COBAC :Commission Bancaire de l'Afrique Centrale (Central Africa Banking Commission) COMIFAC :Commission des Forêts d'Afrique Centrale (Central African Forestry Commission CORAF :Congolaise de Raffinage (Congo Refinery) CPA :Country Performance Assessment CPAR :Country Procurement Assessment Review CSO :Civil society organization CSP :Country Strategy Paper DDR :Disarmament, demobilization and reintegraton DGB :Direction Générale du Budget (Budget Directorate) DGCF :Direction Générale du Contrôle Financier (Financial Control Directorate) DRC :Democratic Republic of Congo ECCAS :Economic Community of Central African States EIMP :Environmental Information and Monitoring System EMCCAS :Economic and Monetary Community of Central African States EU :European Union FAO :United Nations Food and Agriculture Organization
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GAR :Gross Admission Rate GDP :Gross Domestic Product HDI :Human Development Index HIPC :Heavily Indebted Poor Country ICP : International Comparison Programme I-CSP : Interim Country Strategy Paper IFAD : International Fund for Agricultural Development IFCOC : Initiative Fleuve Congo, Oubangui et Chari (Congo, Oubangui et Chari River Initiative) IGF : Inspection Générale des Finances (General Finance Inspectorate) ILO International Labour Organization IMCI : Integrated Management of Childhood Illness IMF : International Monetary Fund I-PRSP : Interim Poverty Reduction Strategy Paper ITTO : International Tropical Timber Organization LCB La Congolaise des Banques LI :Labour Intensive MDG :Millennium Development Goals MFI Micro-finance Institution MFI :Micro-finance Institutions MTEF Medium-term expenditure Framework NEAP :National Environmental Action Plan NEPAD :New Partnership for Africa’s Development NFAP :
National Forestry Action Plan) NGO :Non-governmental organization NHDP :National Health Develpment Plan OHADA :Organisation for the Harmonisation of Business Law in Africa PACE :Panafrican Programme for the Control of Epizootics PAGE :Projet d'Appui à la Gestion Economique (Economic Management Support Project) PARE :Programme d'Appui aux Réformes Economiques (Economic Reforms Support Programme) PCCF :Post Conflict Country Facility PRGF :Poverty Reduction and Growth Facility PSFE :Programme Sectoriel Forêt Environnement (Forest- Environment Sector Programme) RIASP :Regional Integration Assistance Strategy Paper (DSAIR) RPFS :Regional Programme for Food Security SAP :Structural Adjustment Programme
SME/SMI :Small and Medium-scale Enterprise/small and Medium-scale Industry SNDE :Société Nationale des Eaux (National Water Company) SNE :Société Nationale d'Electricité (Congo Brazza) (National Electricity Corporation, Congo-
Brazza) SNEL :Société Nationale d'Electricité (RDC) (National Electricity Corporation, DRC) SNPC :Société Nationale des Pétroles du Congo (Congo National Petroleum Corporation) SOPECO :Société des Postes et de L'Epargne du Congo (Congo Postal and Savings Company) SOTELCO :Société des Télécommunications du Congo (Congo Telecommunications) SPFS :Special Programme for Food Security STI :Sexually Transmitted Infections STP :Secrétariat Technique Permanent (Permanent Technical Secretariat) UA :African Development Bank Unit of Account UNDP :Untied Nations Development Programme UNICEF :United Nations Organization VAT :Value–added Tax VSE/SME :Very Small Enterprises/ Small and Medium-scale Enterprises WEO :World Economic Outlook WHO :World Health Organization
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EXECUTIVE SUMMARY
1. The aim of the Results-based Country Strategy paper, covering the 2005-2007 period, is to provide a framework of reference for the Bank Group’s strategy for reengagement in Congo, following a long period of inertia. The CSP analyzes the recent socio-economic developments as well as the main challenges to development, and then presents the pillars of Bank assistance.
2. The country context remains marked by the three civil wars in the 90s that took a serious toll on the population and the infrastructure. However, the socio-political climate has been stabilizing since the wars ended in 1999, owing to the peace efforts and the continuing process of demobilization, disarmament and reintegration (DDR) of some 9000 ex combatants. General elections were held in 2002, laying the basis for the democratic institutions provided for by the new constitution. Partial elections were organized more recently, in October 2005 to renew half of the Senate seats, in accordance with the 2002 constitution.
3. In the economic sphere, the GDP, stimulated by mounting world oil prices, recorded a real growth rate averaging about 4% for the 2000-2004 period and was expected to attain 9.2% for 2005, giving an average per capita income increase of 14.4% for 2004-2005. A significant growth decline is however projected for the 2006- 2007 period in view of a likely fall in world oil prices. Oil continues to dominate the sector context, representing 52.5 % of nominal GDP, 85 % of exports and 71% of budgetary revenue in 2004. The dominant and outward-looking oil sector increases the economy’s exposure to external shocks, and with its inadequate integration into the national economy, job creation and opportunities remain limited. However, since 2003, there has been a revival of non-oil sector activities (resumption of agricultural and forestry production, development of small-scale trading ventures and telecommunications), even if these sectors are still witnessing the destruction of infrastructure and being marginalized by the oil surplus syndrome. Inflationary surges were noted in 2003 and 2004, however the general price level is relatively stable for the 2000-2004 period, with the consumer price index rising by an average of 1.9%; this index is projected to remain at 2% for 2005.
4. The reforms implemented under the 2004-2007 three-year programme in addition to the favorable oil situation have made for net consolidation of the macroeconomic accounts. As such, the budget implementation has been characterized by a marked increase in income during the period, whereas expenditure has overall been contained within the limits of the programme. The primary budget balance showed a surplus of 10.5 % of GDP in 2004 and is expected to rise significantly to 17.7% of GDP in 2005. The country’s over-indebtedness is worrying, despite the relief obtained from the Paris Club in December 2004, with an external debt balance representing 144% of 2004 GDP. This debt took about 70% of the 2004 budget surplus to clear and it is estimated at 50% of this aggregate for 2005. Congo is scheduled to reach the HIPC decision point in January 2006, in accordance with the 2004-2007 three-year programme, which the IMF Executive Board?Governing Board has, in the context of the first review in August 2005, assessed as satisfactory. There has been major progress concerning transparent management of the oil resources, with the auditing of the financial accounts of the oil corporations, the certification of oil income, the audits of oil-related costs and the publication of the results on the government Internet site (www.mefb-cg.org). The contracts for the sharing of production with multinational oil corporations are also on this site. Conversely, the objectives of the 2004-07 programme of priority expenditure have not been attained, since they accounted for only 20.6% of the primary expenditure in 2004, short of the targeted 23%. Low levels of implementation have also been recorded in basic health and basic education.
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5. In the social sector, poverty deepened over the ‘90s, the economic crises leading up to the structural adjustment implemented between 1985 and 1995 hit the job market hard, resulting in significant job loss due to the disestablishment of State enterprises and the public service downsizing. Unemployment affected approximately 50% of the work force, with dramatic consequences in terms of pauperization and social exclusion, especially in the urban areas. Against this background, the socio-economic integration, not only of ex-combatants but also of the unoccupied youth, poses a major challenge. In 2001, the proportion of poor was estimated at 70%, compared to 36 % in 1990. The 2003 per capita income of USD 650 represented 70 % of the 1984 level, on account of the CFAF devaluation of 1994, but especially owing to the deterioration of living conditions in the wake of conflicts. Access to health and education services has also been seriously limited by the conflicts. The capacity of the government services to implement the indispensable reforms has been greatly impaired, resulting in the departure of many qualified senior staff, destruction of logistics resources and a weakened statistical base.
6. The Government in September 2004 adopted the 2004-2007 Interim Poverty Reduction Strategy Paper focused on the five following aspects: (i) Consolidation of peace and promotion of good governance, (ii) consolidation of the macroeconomic framework and revival of the key sectors; (iii) access to basic social services and social protection, (iv) infrastructure development and (v) reinforced HIV/AIDS control. The medium-term programme of reforms (2004-2007) for implementation of the I-PRSP is receiving the support of the leading donors, including IMF through the PRGF (approved in December 2004), the World Bank, and the Bank through an economic reform support loan (PARE). Its aim is to attain an annual average growth rate of 5.2% for the 2005-2007 period (with an annual average increase in non-oil GDP of 5.4% ); contain inflation at 2% per annum; and maintain the external account balance at approximately 3.3 % of GDP. The expenditure policy is structurally geared towards easing poverty through an increase in the share of resources allocated to the I-PRSP priority sectors, particularly education, basic health, HIV/AIDS control, basic infrastructure, water, energy and agriculture. It is estimated that the shares of these sectors in the primary expenditure will rise from 20.6 % in 2004 to 30 % in 2007.
7. The conflicts in the ‘90s seriously undermined the government’s and the populations’ capacities. It has become necessary, on the one hand to support the institutions and the administration and, on the other hand, to tackle the problems of socio-economic reintegration in the urban areas, where the conflicts have had the greatest impact. The strategy of the Bank’s 2005-2007 CSP is logically formulated around the two following pillars: (i) building economic management capacity; and (ii) contributing to socio-economic, and particularly urban reintegration. The first pillar aims to improve the efficiency and control of public finance management so as to rationalize public resource allocation in favor of the I-PRSP priority sectors. It will also improve the capacities of the bodies involved in monitoring and evaluating the impact of this expenditure in poverty reduction. The Bank’s entry point will be an institutional support programme. For the second pillar the Bank’s strategy will consist in supporting socio-economic insertion/reinsertion through a single integrated operation, in conjunction with UNDP and ILO, aimed at: (i) improving access to basic social services, notably in sanitation and health, with an emphasis on highly labor intensive works; and (ii) supporting economic reinsertion through vocational training in the most promising fields and promotion of self-employment. These two areas of intervention of the CSP have been identified based on consultation of the Congolese stakeholders on the occasion of the CSP preparation mission in July 2005.
Recommendations 9. The Boards of Directors are requested to approve the programme of activities of the present CSP and the operations proposed for Congo over the 2005-2007 period, within a maximum resource allocation for ADF X of UA 18.8 million in the form of a grant. The amount of this allocation has been determined based on the country’s 2004 performance. It will be adjusted in light of the country’s performance in terms of the CPIA.
I. INTRODUCTION 1.1 The most recent Country Strategy Paper on Congo, the 2004-2005 I-CSP, was approved by the Bank Board of Directors in December 2004 (ADB/BD/WP/2004/122). The Bank’s strategy for reengagement in Congo sought to clear the arrears, support reforms and rehabilitate the basic economic and social infrastructure. The Boards had noted that poverty affected 70% of the population and urged the government to apply the sector policies presented in the Interim Poverty Reduction Strategy Paper (I-PRSP), aimed at diversifying the economy and promoting growth in a sustainable manner. The Boards had urged the government to pursue the good governance reforms to ensure transparent management of the oil revenue. Lastly, the Boards stressed that the country’s excessive debt remained a major constraint, and encouraged the government to pursue its efforts in order to reach the HIPC Initiative decision point. 1.2 Implementation of the Board recommendations has been overall satisfactory. Congo’s arrears owed to the Bank were settled within the framework of the PCCF in December 2004. With regard to governance, marked progress has been made concerning oil sector transparency through the certification of the oil revenue received by the State, the auditing of the financial accounts of the two public petroleum corporations (CORAF and SNPC) and the audits concerning the contracts for oil production sharing with multinational corporations. The reports on these oil audits are regularly published on the internet (www.mefb-cg.org). Congo has also made progress in implementing its 2004-2007 programme of reforms, which in the context of the first joint (Bank-BWI) review in May 2005 was deemed satisfactory. On this basis, the IMF and the World Bank in August 2005 presented an initial joint debt viability analysis to determine the country’s eligibility for the Enhanced HIPC Initiative in January 2006, which would allow for sustainable action concerning the issue of debt. The operation financed by the Bank in 2004 within the framework of the I-CSP is the Economic Reforms Support Programme (ERSP/PARE) for UA 7 million. This aims to consolidate the macroeconomic framework, promoting governance, particularly in the oil sector, and reduce poverty. 1.3 The present Results-based 2005-2007 Country Strategy Paper (CSP) proposes a strategy for medium-term Bank withdrawal. It seeks to define a new reference framework for Bank operations in Congo, taking into account the country’s post-conflict situation. It is based on the priorities identified in the 2004-2007 interim PRSP. The CSP was prepared following a Bank mission in July 2005 and involved broad-based consultation of the actors, converging at the participatory seminar organized jointly by the mission team and the Congolese authorities. It has been formulated using documents provided by the authorities, particularly the I-PRSP, Bank internal documents and those of other development partners. 1.4 The CSP has been prepared using a results-based approach. It should be noted that the difficulty of such an exercise in Congo arises from the weaknesses in the public administration, the statistics system and the policy evaluation and monitoring mechanisms after a long period of conflicts. Such constraints have affected the quantity and quality of data. Moreover, the relevance of a results- based CSP is determined by the data contained in the full PRSP. Since the draft full-fledged PRSP currently under preparation is expected to be ready at the end of 2006, it appears appropriate to have this CSP cover the period up to 2007 and then review it to extend its scope to 2009 once the final PRSP has been completed.
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Box : Country Snapshot The Republic of Congo straddles the equator with an an area of 341 821 Km². The country shares its northern border with Cameroon and the Central African Republic, its southern border with Angola, its eastern border with the Democratic Republic of Congo and to the west it is bounded by Gabon and the Atlantic Ocean. The territory is made up of savanna and forest, with the forest covering 3/5 of the territory. The two major river basins are the Congo basin, made up of the Congo river and its tributaries (Oubangui, Likouala Aux Herbes, etc.) and the Kouilou-Niari basin consisting of the Kouilou-Niari rivers and their tributaries (Bouenza, Loutété and Nyanga). The country’s relief comprises hilly areas, plateaus and medium altitude mountains. Arable lands are estimated at 10 million hectares, but only 2% is cultivated. Rainfall is abundant on the entire territory varying between 1200 and 1800 mm per annum with peaks of 2000 mm in the extreme North.
With a population estimated at approximately 3.1 million inhabitants, the population density is 9 inhabitants per km2. The population growth rate is approximately 2.5% per annum, with a large proportion of youth under 15 years (48 %). The structure of Congo’s economy is characterized by a narrow productive basis, clearly dominated by the secondary sector, which in 2004, represented 66% of GDP, with 52.5% for the oil sector, against 27.7% and 6% respectively for the tertiary and primary sector. Though ranked 144th in the world (out of 177) en in terms of the HDI, and with a GDP per capita income of about US$ 656 in 2004 Congo is one of the poor , heavily indebed countries.. Infacnt mortality remains high (82.2 °/oo in 2003) and the country is threatened by food insecurity despite its agricultural potential. It is unlikely that Congo will achieve the MDG even though the authorities immediate objective is to eradicate hunger, raise the enrolment rate to 100% (86% in 2004) and promote gender equality.
II. COUNTRY CONTEXT 2.1 Political Context 2.1.1 Congo has for three decades (1960-1990) applied a centralized planning policy, with mixed economic and social results. It is emerging from a long period of armed internal conflict starting from the beginning of the ‘90s. In 1993, 1997 and 1998/99, the country went through three civil wars with serious consequences for the population, notably the 800,000 displaced citizens (about a third of the population), The 1993 and 1997 conflicts started in Brazzaville which still bears the scars, while those of 1998/99 were waged in the interior of the country, particularly in the populous southern and central regions. The end of the latter conflict brought a period of transition from 1999 to 2002, devoted to national reconciliation. A constitutional referendum was organized in January 2002, followed by presidential, legislative, local and senatorial elections from March to June 2002, which maintained the current regime in power. The democratic institutions (Court of Accounts and Budgetary Discipline, Constitutional Court, Economic and Social Council, National Human Rights Commission) provided for under the constitution have been set up, albeit behind schedule. 2.1.2 The signing of a peace agreement with one rebel faction in March 2003 and the promulgation of an amnesty law in August 2003 laid a basis for strengthening civil stability and security. Since 2002, alongside the national reconciliation efforts, the Government has pursued the process of demobilization, disarmament and reintegration (DDR) of the 9000 ex combatants with the support of the European Union and the World Bank, through the multi-donor trust fund. A phase of the DDR launched in June 2005 in the Pool (south) department involves the collection of arms from 450 Ninja ex combatants, with about 100 of them being put under training with a view to their reintegration. By and large, the country’s security situation is returning to normal, though tension is noted in Pool Department as well as in the urban part of Brazzaville where there have been sporadic outbreaks of violence, such as recently in October 2005. In addition, the integration of the ex-militia still raises problems, as does the number of weapons circulating in the territory. 2.1.3 More recently, in October 2005, partial elections were organized to fill half of the seats of the Senate, in accordance with the 2002 constitution. The partial elections (local, legislative, senatorial) scheduled for the end of 2005 in the Pool Region, where there had been no vote in 2002 owing to the clashes between government troops and opposition militia, could not be organized in the end. Finally, one of the key opposition figures in exile was granted amnesty in December 2005, a development which should contribute to easing the political tension. The electoral schedule provides for: (i) local and legislative elections in 2007; (ii) organization of senate elections in 2008; and (iii) the presidential election in 2009.
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2.1.4 The decentralization was affirmed under the 20 January 2002 constitution while the law of 17 January 2003 structured Congo’s territorial administrative organization, according to the principles of de-concentration and decentralization. The effective transfer of skills and the corresponding resources, as well as the training of local elected officers in the management of local affairs is nevertheless a major source of difficulty. The decentralized entities are still not operational, owing to the irregular payment of State subsidies and the structural deficiency of their resources (local taxation). 2.2 Macroeconomic and Structural Context Issues Macroeconomic Context and Impact of Rising Oil Prices 2.2.1 Growth and inflation: During the 2000-2004 period, the Congolese economy, benefiting from the environment marked by the consolidation of the peace process and the oil price hike, recorded average real GDP growth in the order of 4 %. It has been observed that the oil situation largely determines the phases of growth and recession of the national economy. The non-oil sector, which represents approximately 48% of GDP, also recorded significant growth with an average rate of increase of 5.2 % for 2003 and 2004, driven by the buoyant forestry activity and to some extent, by the catch-up effect observed with the revival of agriculture, manufacturing industry, telecommunication and commerce. The inflationary surges observed in 2002 and 2004, caused the consumer price index to rise by an annual average of 3.1 % and 3.6 % (compared to 1.5 % for 2003, 0.8 % for 2001 and 0.4 % for 2000). This increase reflects the pressure of the demand, given the oil revenue increases as well as regular interruption of supplies between Brazzaville and Pointe Noire due to recurrent rail traffic problems between these two major centers. 2.2.2 Public finance: in 2004, the very high oil prices and increase in oil production favored public finance. The oil revenue, representing 71 % of total government revenue rose by 26 % between 2003 and 2004, not only because of the favorable oil situation, but also owing to the transparent measures applied by the government with a view to reinforcing oil resource mobilization, notably through certification of the receipts and the auditing of oil corporations. The expenditure was contained within the limits of the 2004-2007 three-year programme (28.6 % of GDP) at end 2004. The budgetary policy averted procyclical management of expenditure and from 2001 maintained at 11.5% the ratio of the wage bill to non-oil GDP, which represents the most important current expenditure item. Expenditure in respect of poverty reduction accounted for 20.6% of the primary expenditure in 2004, against 23% targeted. Basic health, and to a lesser extent basic education were the sectors with low implementation levels. In all, the 2004 budget implementation showed a primary surplus of 10.5% of GDP (3.8 GDP percentage points higher than that of 2003), 70 % of which was used in external debt servicing and clearing arrears. 2.2.3 Money and Credit: The monetary situation has also benefited from rising oil prices, with a marked increase in net external assets, up to CFAF 6.24 billion from CFAF 6 billion at tend 2003, resulting in a net consolidation of the external currency coverage rate. The improvement in public finance made possible the stabilization of net credit to the State between 2002 and 2004. Credit to the economy, primarily in the short-term, recorded moderate growth (4%) in 2004. Following the trend of its counterparts, the money supply increased by 17.4% at the end of December 2004 compared to end December 2003. It is dominated by fiduciary circulation which represents 46 % of the money supply in 2004, against 37 % for sight deposits, and 17% for time deposits. The Central Bank pursued a prudent monetary policy, maintaining its base rate of 6% unchanged in 2004. 2.2.4 Balance of Payments: Having posted deficits from 2000 to 2003, the current account has turned to a surplus of CFAF 42.5 billion for 2004, which is 1.9 % of PIB, and the projection for 2005 is 5.6 %. The escalation in the price and quantity of petroleum exports has brought about a 20%
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increase in export earnings, an improvement in trade terms and an overall positive balance, allowing for replenishment of external reserves. Congo’s external trade continues to be dominated by oil, which accounts for 87% of exports, followed by timber, for 8.5%. Conversely, the external competitiveness of the economy has been adversely affected by the appreciating Euro exchange rate of (the nominal anchor currency for the CFAF) to the dollar. 2.2.5 Debt sustainability: The public external debt stock representing over 85% of the overall total was assessed at CFA 3402 billion at end December 2004. The Congolese external debt remains a source of concern, despite the favorable treatment by the Paris club which in December 2004 brought its ratio of debt stock to GDP down from 200 % in 2003 (CFAF 3784 billion) to 144.5 %, which is 172% of goods and service exports and 448. 6% of tax revenue (excluding grants). The government signed bilateral agreements with members of the Paris club and discussions are ongoing with non- member bilateral creditors. Concerning the London Club creditors, discussions are underway with the Coordination Committee with a view to reconciliation of the debt amounts, estimated at end 2004 at over CFAF 580 billion, equivalent to about 25% of the GDP for that same year. The government plans to buy back debts owed to the Club creditors, with financial assistance from the World Bank. It is also pursuing contacts with the speculative funds1 (called Vulture Funds) which hold a third of Congo’s commercial debt, with a view to negotiating amicable solutions. Pending an adequate legal framework to manage the debt, the government has undertaken to definitively abandon the practices of pledging and pawning its oil revenue which are what attract the Vulture funds and entail a significant loss in public finance resources. The external debt is unbearable in HIPC initiative terms, and the traditional relief mechanisms will not be enough to render it viable. An initial debt sustainability analysis was presented jointly with the IMF and the World Bank in August 2005, with a view to enabling Congo’s eligibility for the Enhanced HIPC in January 2006, subject to the smooth implementation of the current three-year programme. 2.2.6 The public domestic debt, made up of the commercial and social debts is also high, though not clearly defined and verified. At end December 2004, it was estimated at CFAF 620.5 billion, representing 27% of GDP and 15 % of the global public debt. The government has set up a commercial arrears clearing strategy with the help of the World Bank. It consists in collecting the data, validating the credits and clearing those validated, after negotiation with the creditors. At end September 2005, the total outstanding commercial debt, as audited and validated by internationally renowned firms, is CFAF 154.6 billion, of which 21 billion was refunded by end December 2005. The budget revised in October 2005 to reflect the rising oil prices allocated a part of the additional oil resources to the payment of these debts. Concerning the social arrears (salary, pensions and benefits for employees of disestablished enterprises) a census conducted by Caisse congolaise d’amortissement (CCA) was audited by the IGF in December 2005. A repayment plan is to be set in respect of the 2006 budget to clear the audited arrears. 2.2.7 Impact of mounting oil prices. The annual production is estimated at 82.2 million barrels in 2004 with a projection of some 95 million barrels over the 2005-2007 period. The very high level of world oil prices was exceptionally favorable for the Congolese economy in 2004 and especially in 2005 with real GDP of the oil sector expected to increase by 16,7 %. The Government however adopted a cautious approach in preparing the 2005 budget, using a benchmark price of 4 USD/barrel
1 The activities of the speculative funds commonly known as the “vulture Funds” basically consists in buying up, with a discount, the debts of governments of oil producing or mining countries, owed notably to commercial banks. These vulture funds refuse to participate in any negotiations for the rescheduling of the countries’ debts with the London club creditors and they demand 100% payment of the credit, as well as the interest and other contractual penalties. Where the country fails to honor its debt, the vulture fund, having become the new creditor, initiates legal proceedings or arbitration, pursuant to the jurisdiction clause contained in the lending agreement, and has the country ordered to pay the entire debt. On the basis of this legal or arbitrated decision, it attaches the debtor country’s accounts, often abroad, and acquires all the amounts in them as well as future deposits, up to the full amount of the credit due.
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below the market price projections in determining oil revenue. It should be stressed that the combined effect of the increase in the quantities exported and firming of oil prices has raised the tax revenue from 31.4 % of GDP initially projected in early 2005 to 38.1 % of GDP taken into account for the budget as readjusted, in October 2005, allowed for a primary balance of 17.5 %, up from 10.5% for 2004. Aside from the favorable macroeconomic spinoff (See. 2.2.1 to 2.2.5), the oil revenue has enabled the country to normalize its relations with its external creditors, by regularly honoring current installments of its external debt, lowering the level of domestic arrears, and increasing expenditure in favor of the I-PRSP priority sectors2. In accordance with the technical protocol for monitoring the programme concluded with IMF, the Government has set up a special account at the Central Bank (BEAC) known as «fonds de reserve petrolieres” (oil reserve fund), to receive the unbudgeted surpluses brought about by the rising oil prices. This fund, while representing substantial savings, seeks to offset the oil price escalation and avoid the snare of procyclical expenditure. The replenishment of the account has been in progress since the entry into force of the supplementary finance act of October 2005 and its balance should be up to approximately 11 % of 2005 GDP. It will be counted as income under the 2006 budget and managed in accordance with the technical protocol, based on the medium-term expenditure framework (MTEF) to be formulated with World Bank support. To limit the adverse effects of the oil price hike on economic activity, particularly domestic transport and for social reasons, the Government maintained pump prices of the widely used consumer oil products (Super gasoline and domestic fuel), thanks to the subsidy granted to Société de raffinage du pétrole (CORAF) and the reduction of the oil product distributors’ margin. Conversely, the prices of fuel used for international transport, notably gas-oil for ships and kerosene for planes were raised in June 2005. Lastly, discussions are in progress with IMF to examine the practical modalities for putting in place an automatic mechanism for adjustment of pump prices, with a view to limiting subsidies. Structural Reforms 2.2.8 The government has made efforts in the implementation of structural measures of its 2004- 2007 three-year programme backed by an IMF PRGF, World Bank SAC and the Bank’s ERAP. In the area of public finance, remarkable progress has been seen, making it possible in 2004 and 2005 to intensify oil revenue mobilization. Specifically, the government commissioned (i) annual audits by internationally reputed firms of the 2003 financial accounts of the Congo National Petroleum corporation (SNPC) and those of the petroleum product refinery (CORAF) for 2002 and 2003; (ii) the 2003 annual audits of oil costs in respect of all the contracts for the sharing of oil production signed with the multinational oil companies; and (iii) quarterly certification of State oil revenue. The data relating to the SNPC and CORAF account audits, the data from the certification of oil revenue, the contracts for production sharing between the State and oil multinationals as well as the clearance of domestic arrears is available on the Internet (www.mefb-cg.org). 2.2.9 The fiscal policy involves avoiding procyclical expenditure and working against inflationary pressure through maintaining the ratio of the wage bill to non-oil GDP at the same level by controlling the size of the civil service, and rationalizing the policy of subsidies to public corporations. It underscores the share of the I-PRSP priority expenditure, which has in fact increased, even if the target of 23 % of primary expenditure was not attained in 2004 (20.6 %). The internal payment arrears have been cleared in a transparent manner, with the list of beneficiaries of the commercial debt payments regularly published on the internet site. Lastly, the government has pursued efforts towards the normalization of relations with external creditors. As part of its 2004-2007 programme of reforms, it
2 For the third quarter of 2005, under the supplementary finance act of October 2005, and in accordance with the technical protocol for monitoring of the 2004-2007reform programme concerning the application of additional resources, the Government accorded priority to regular supply of energy to meet the country’s needs (operational strengthening of Société Nationale d’Electricité); carrying through the process of restructuring of the banking system, the clearance of the domestic debt and financing of audits in the oil, forestry and banking sectors inn order to prepare the reform decisions in these sectors.
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has undertaken to follow up on a permanent basis the implementation of measures for transparency and for increasing the resources allocated to the I-PRSP priority sectors.
Box 2: Outcomes of Oil Company Audits and Certification of Oil Revenue The government has signed a three-year contract with a firm of international repute to conduct annual audits of he SNPC accounts for he 2003-2005 period. The 2003 audit revealed internal control weaknesses and non-justified operations on the company’s accounts. The basic financial statements were not consistent and their accounts could not be reconciled. The auditors were unable to access the company’s external accounts. In response to the auditors’ recommendations, the government replaced the SNCP management team in January 2005. The new management set up a quarterly programme for enterprise capacity building with the aim of bringing high accounting system and internal control operations in line with international best practice. The measures taken made it possible to improve the SNPC’s commercial performance with regard to the marketing of part of the production allocated to the State. A plan of action is being drawn up to refocus the activities pf SNPC, which was being run like a holding company, with activities other than its core activities (petroleum exportation-production refinery and distribution), such as share taking in real estate and financial establishments. Concerning the 2002 audit report, CORAF, whose resume is published on the government site, underscores the weaknesses of the accounting and internal control system. The company accounts are not in accordance the Congolese standards and do not present a reliable view of the financial situation. The internal control is deficient. There is no system of analysis and calculation of production costs, budgetary monitoring and procurement, nor is there an appropriate data processing system. The government is preparing, with the support of the World Bank, a study for restructuring and privatization of the oil receipts nearer to the oil companies, including SNPCA and CORAF, with Treasury receipts. This results in more or less wide gaps in favor of the state.
2.2.10 The Public Service is confronted with weak human resource capacity and the ineffective manner of assigning responsibilities that have affected the functioning of the administration and institutions. It is considered both overstaffed and ageing. It is characterized by slow administrative channels, non-respect of procedures and disparity with regard to remuneration of the employees of the different State corps. A census of all civil and military personnel, started 1 July 2005, has made it possible to adjust the government employee staff strength. Other reforms underway concern: (i) adopting the single public service pay file and the public service computerization; (ii) changing the recruitment mode by making competition a widespread practice; vi) implementation of the programme of incentives designed to encourage voluntary departures and early retirement. These reforms, though important in increasing civil service efficacy, are not playing out at the required pace, owing to the uncertainty as to the mobilization of financial resources to cover their social costs, the social sensitivity of these aspects and the bureaucratic inertia. As part of its 2005-2007 strategy, the Bank will contribute to the improvement of administrative channels for processing of public expenditure by building the capacities of the Ministry of Finance and the institutions involved in the public expenditure control. 2.2.11 The public enterprise privatization programme has fallen considerably behind schedule, among other reasons, because of the civil war and the lack of prior studies. The revival of the process starting from the end of the 1999 conflicts, is also being supported by two partners: the World Bank in the concessioning of CFCO, and AFD in the concessioning of the water and electricity public services, the restructuring of the ports of Pointe Noire and Brazzaville and the telecommunications sector. Overall, the results have been inadequate: out of the six enterprises classified in the first tier under the new privatization programme, only one, Hydrocongo, specifically its downstream segment (distribution of petroleum products) has been privatized. In the hydrocarbon sector, the aim is to focus the government’s role on the definition of sector and regulatory policies and ultimately transfer the entire commercial chain and the refinery operation to the private sector. To that end, distribution and storage contracts were signed between the government and the foreign oil companies in 2003, to liberalize the distribution circuit. As regards refinery activities, the CORAF privatization has been suspended. The Government, in May 2005, with World Bank assistance, initiated an economic and strategic study towards the adoption of a plan of action for the company’s restructuring. This study will help evaluate the operational viability of refinery-related activities and come up with recommendations for continued restructuring of CORAF. The government is also preparing a study on SNPC which is a quasi holding company covering, in addition to its core services (oil prospecting-production, refinery
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and distribution), certain related financial and real estate services. The study is expected to culminate in a plan of action making it possible to refocus the company’s activities on oil exploration-production. For the second tier, three hotels and three banks have been privatized. The budget cost of the privatization is nevertheless high, considering the fuel sector losses (refined products), and the electricity corporation (SNE) arrears owed to its RDC supplier (SNEL) representing 3.5 % of the 2004 GDP. 2.2.12 The financial system suffers from the lack of competitiveness and operational ineffectiveness, which are reflected in the high real interest rate margins, attaining 20%, but also in the large number of unproductive loans owing to the environment that does not generally favor the exercise of creditors’ rights. At end December 2004, the sub-regional banking commission (COBAC) rated two of the four banks as satisfactory, assessed one as being in a precarious situation and the other in a critical state. Before the sector restructuring, the majority of the banks were under state control with rather imprudent resource application including misuse of resources, which is still taking a heavy toll on the budget. The cost of the restructuring of the portfolio of the bank recently privatized (LCB derived from CAIC3) and recapitalization of another bank, COFIPA, is estimated at 0.3% of the 2004 GDP. The Government has adopted a strategy to limit the effects of these losses on the public finances so as to adhere to the initial objectives of the 2004-07 programme concluded with IMF. 2.2.13 The Microfinance sector comprises about a dozen microfinance establishments (MFE), approved by COBAC for global savings and credit volumes of CFAF 33.5 billion and 6.7 billion respectively, and with about 157000 members representing major segments of the rural as well as urban population. The sector is dominated by MUCODEC which at end 2004 controlled almost 90% of the volume of savings and 87% of that of credit. The relations between the MFE and the traditional banks are not just limited to the former opening accounts with the latter. Various other structures have been set up, run by religious and women’s associations. There are however weaknesses with regard to their internal organization and training, with the managerial positions occupied by retired staff and operated on a volunteer basis (case of the bodies initiated by church) and the basic staff receives derisory salaries. Despite these limitations, the microfinance meets the needs of the initiators of the growing numbers of micro-enterprises; as such, support to the most credible structures will be a means of furthering the government agenda. 2.3 Sectoral Context Issues 2.3.1 The primary sector (agriculture, stockbreeding, fisheries and forestry), accounted for only 6 % of GDP in 2004. The annual average increase of agricultural GDP between 2000 and 2004, is in the order of 1 % (largely below the population growth rate, which is 2.6 %), and the sector employs approximately one third of the work force, with production entirely consumed locally. Despite the country’s enormous potential for plant and animal production (over 10 million ha of farm land, very favorable climatic conditions, dense water network, diversified fish stock, etc.) the share of the agriculture and rural sector in national wealth formation has been constantly on the decline. The country is thus exposed to an almost complete reliance on external sources of food, with annual imports estimated at an average cost of CFAF 125 billion, which is about 27 % of the oil revenue. Food insecurity threatens over a third of the population. Congo’s agriculture, primarily based on small mixed crop subsistence farms, and is dominated by food crop production, with a rapidly dwindling farming population. The state’s sudden withdrawal of its support from this sector, without putting in place replacement structures, and the drastic cut in agriculture investment led to the disintegration of
3 When CAIC was privatized in March 2004, the Government gave the new owners of the bank an undertaking that it would cover the bad debts after validation by an independent audit of the CAIC portfolio.
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farmer supervision services. The relatively free access to land which is traditional in the forest zone tends to be reduced in the dense zones of in the peripheries of the cities, especially for prospective farmers who are not natives of the area and do not have the possibility either to purchase a plot or pre- finance it rental. In the 2004-2013 agriculture development plan, the government sets out to improve access to land through the March 2004 land law which recognizes customary and modern private property and governs access to land through purchase, renting or sharecropping. The government plan is supported by IFAD, the World Bank and the European Union. Its implementation has allowed for the establishment of an agricultural development support fund to be used in reviving cash crops and market gardening and promotion and decentralization of former support structures. 2.3.2 Forest production represents 1.5 % of GDP and approximately 8.5% of exports despite its great potential. Indeed the Congolese forest covers 22.5 million ha, of which 80% is considered as commercially productive. Wood production was the main source of foreign exchange prior to the petroleum era, contributing as much as 85 % of export income. Several measures are underway to preserve the forest sector, such as the establishment of a center for forest and fauna inventory and development (Centre national d’inventaire et d’aménagement forestier et faunique -CNIAF), the setting up of a Forest Fund in 2000 and the plans for development of parks and protect the implementing texts of the forest code and revision of the law on environmental protection. The law on fauna and protected areas is being examined by Parliament. The Bank will launch a study on the agricultural and forest sector in 2006, in order to chart its future intervention in these sectors for potential production and diversification. 2.3.3 Secondary Sector: Comprising the extractive and manufacturing industries, water and electricity and BPW, this sector is dominated by the oil industry, which in 2004 accounted for 52.5 % of the nominal GDP, 87 % of exports and 71% of the tax revenue. Today, the country ranks fifth among the Sub-saharan oil producing countries. The annual production is in the range of 96 million barrels with proven reserves estimated at 1.5 billion barrels, which is approximately fifteen years of production. The main oil operators are the multinationals and SNPC, the state corporation that emerged from Hydrocongo (the former national hydrocarbon distribution and marketing company) whose exploration rights were transferred to SNPC. The foreign firms are operating under a production sharing contract (Profit oil)4 concluded with the government. SNPC markets 20% of the daily production, on behalf of the state. It is in addition responsible for the oil field transfer, exploration and production, as well as the coordination and control of exploitation of these fields. The oil is refined by CORAF, a SNPC affiliate with a refinery capacity of 21,000 barrels/day. As part of the 2004-2007 reform programme, the government is preparing a strategy to refocus SNPC activities on its core domain (oil exploration-production). The oil sector domination makes diversification a major challenge for Congo’s economy, to be taken up without delay, in order to promote growth and prepare the ‘post-oil era’. The Bank’s intervention will entail economic and sector studies, notably in the agriculture and forest sectors, to assisting the country in developing the non-oil sector. 2.3.4 The industrial sector provides approximately 6 % of GDP, but is yet to take shape. The infrastructure and energy were greatly affected by the socio-political unrest in the 1993-1999, as the destruction and pillage caused major damage. The energy sector is weakened by the decline in technical operating conditions, and the lack of an appropriate institution and regulatory framework. The city of Brazzaville continues to be supplied with electricity imported from DRC. Only 44% of the population has access to clean water, with 71% of this population urban and under 14% rural. Load- 4 “Profit oil” corresponds to the quantity of production minus the oil-related costs arising from the exploration costs and various other exploitation costs arising in the permit zone. It breaks down as follows: where the oil-related costs exceed 60% of the value of net production, Congo receives 40 % of profit oil if net production is below 100 million barrels, and 50 % otherwise. Where the oil-related costs are under 60% of the net production value, the parties get equal parts.
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shedding measures and water supply cuts are frequent, as well as uncontrollable interruption of the supply owing to the outdated facilities and inadequate maintenance of the equipment. The transport sector, which is required to play a lead role in opening up the hinterland and providing the road links envisaged in accordance with the Lagos Plan and the CAEMU, is in an advanced state of deterioration. It has ceased to be consistent with the county’s trade needs, even less with Congo’s transit role in the Central Africa sub-region. Only 1.264 km of road have been resurfaced out of 17.289 km identified. However, the Government has undertaken the rehabilitation of certain transport infrastructure with the support of the World Bank (restructuring and concessioning of Chemin de Fer Congo Océan–CFCO) and AFD (financing the modernization of the Pointe-Noire Port). As part of its strategy aimed at containing the adverse effect of high production factors, the government plans to rehabilitate and develop the energy (SNE), transport (CFCO) and water (SNDE) infrastructure. 2.3.5 Tertiary Sector: This sector accounted for about 27.7 % of GDP in 2004. It is primarily made up of communication services (6.1 %), businesses, restaurants and hotels (8.6 %) public administrations (6.6 %) and other services (6.4 %). The telecommunications branch is entirely decontrolled. The former Office national des postes et télécommunications has been split into two entities: SOTELCO for the fixed network and SOPECO. The telephone line network serves only some of the subscribers of the two major cities, even if the development of the cellular telephone network helped reduce difficulty in these areas. The poor quality and inadequacy of the infrastructure handicap trade development owing to the crosscutting and primordial role played by transport, electricity, water and telecommunications. The poor state of the roads makes agricultural produce marketing difficult, while the lack of electricity and water limits the performances of the other economic sectors. 2.4 Priority Crosscutting Issues 2.4.1 Governance: Efforts have been made with regard to transparency in the oil sector which has been a source of much irregularity in the past, however there are still many shortcomings with regard to establishment of the Rule of Law, and the obligation to report, anti-corruption measures and legal and judicial system reform. The diagnosis carried out by the government within the framework of the I-PRSP and the UNDP governance support programme in April 2005, identified poor governance as a major impediment to the country’s development. Regarding the establishment of the Rule of Law, the inception of institutions of the Republic and the Nouvelle Espérance Programme signal the political will to promote governance and achieve enduring results with regard to peace and social stability. Nevertheless, the new constitutional institutions, which attracted some criticism concerning the members appointed, do not yet have the necessary means to deliver on their mandates. The situation as regards fulfillment of the obligation to report is unsatisfactory, as the organs responsible for control in this domain (IGF, court of Accounts and budgetary discipline court and the Economic and Finance Committee of the National Assembly) which are understaffed considering the immensity of their tasks, are limited by a lack continuous training for their staff and institutional weaknesses. The parliamentary control exercised upstream through the voting of the Finance Act and downstream through the audited budget act is significantly hampered by the poor accounting and financial capacity. The jurisdictional control that the Court of Accounts is required to exercise is not yet on stream. 2.4.2 As previously indicated, considerable efforts have been undertaken from 2002 with regard to transparency in the management of oil resources. In 2004, Congo further registered its support to the Extractive Industries Transparency Initiative -EITI). The nation took major steps to accede to the Kimberley diamond process certification from which it was excluded in June 2004 due to non– compliance with the relevant regulations. Regarding participation, the functioning of the decentralized administrative entities has encountered difficulties owing to the irregular provision of state subsidies and the structural deficiency of the local tax revenue. The political parties, generally aligned according
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to ethno-regional criteria, are finding it hard to operate as democratic entities and to play their role in implementing real social projects. Civil society is, all told, inchoate, even if there are a considerable number of organizations in the NGO category, with over 6 000 associations registered. These NGO generally have tiny groups of members and rarely have effective action plans translating their social missions. The judicial system cannot function properly owing to the poor jurisdictional coverage of the national territory and the slow economic and criminal procedures. All these weaknesses increase the sense of legal insecurity. In addition the morality of the legal staff often comes under criticism and the financial resources allocated to justice are insufficient. 2.4.3 Regarding corruption prevention and control, the formulation of the national anti-corruption plan, the setting up of the new CNCCF and the appointment of its members in September 2005, attest that the anti-corruption and fraud stance represents a new challenge that the government intends to face squarely. To eradicate this plague5 in order to promote good governance which is the first priority pillar of the I-PRSP, the government envisages measures to build the CNCCF capacities, and putting in place sector units, sensitizing the population on the impact of corruption on development, as well as ethical and moral training of citizens. 2.4.4 Labor Market. Congo, as an ILO member country, signed and ratified 25 conventions concerning protection of workers and vulnerable segments and particularly the rights of children exploited under the minimum work age, as well as against all forms of discrimination at the work place. The 1975 labor code revised in 1996 conveys the prohibition of employment of young people under 16. A new code under preparation since 2005 and currently at draft stage, seeks to strengthen and regulate the training of the youth. As regards the labor market, the economic crises which were the origin of the structural adjustments conducted from 1985 to 1995 had serious effects on employment with job loss caused by the closing down of state corporations and the downsizing in public enterprises. The overall volume of jobs in the modern sector has dropped since the numbers have gone from 185 000 in 1985 to approximately 87 500 in 2004. The result is aggravated unemployment, particularly among young people, even the most highly trained, by an estimated rate of at least 50 %. The job market situation is characterized by a seemingly permanent divide between job seekers without the required qualifications and the needs of the productive world in terms of a qualified workforce. Moreover, the situation of jobseekers is aggravated as, contrary to the situation in many sub-Saharan African countries Congo has not succeeded in perpetuating the agricultural tradition, given the oil surplus syndrome and the accelerated urbanization which caused the concentration of about half of the population in Brazzaville. In addition, the informal sector is not dynamic enough to present an alternative for job applicants. The lack of a coherent job policy and vocational training facilities that are not adapted to the labor market needs, are the main factors explaining the limited possibilities socioeconomic integration of job seekers. However, a draft national policy on employment has been drawn up along the following broad lines: (i) job promotion with emphasis on adoption of community initiatives in favor of the vulnerable groups; and (ii) reduction of jobless rates. This project has a component devoted to vocational training geared towards meeting the market needs, which the Bank will be supporting within the framework of the present strategy. 2.4.5 Regional Integration. Congo is a member of several sub-regional integration organizations, notably the Economic Community of Central African States (ECCAS) whose overall output has been meager because of political conflicts and the budgetary problems the member states are facing, and the Economic and Monetary Community of Central African States (EMCCAF). The latter is relatively more active and Congo is one of its founding members. Owing to its proximity to DRC, Congo is an 5 The reality of corruption and fraud has been evaluated in «Etude sur la corruption et la fraude au Congo» published in November 2003 by the Ministry attached to the Office of the President in charge of State control. It showed that 97 % of the persons interrogated recognize its existence and hat no sector of activities is spared by this scourge, the most prominent in that regard being the financial administrations, the police, the courts and education.
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inevitable staging point for development activities and trade within ECCAS and intends to revive this role for the benefit of the landlocked EMCCAF states. Congo also participates in the implementation of NEPAD in Central Africa, the implementation of the transport master plan for central Africa (Plan consensuel des transports en Afrique centrale-PDCT-AC) and the regional HIV/AIDS control fund. Because of its geographic position, Congo plays a decisive role in the conservation and sustainable management of Central Africa’s forests in the Congo Basin within the framework of COMIFAC. The monetary policy is pursued at the community level by BEAC and Congo is subject to the exercise of multilateral surveillance of fiscal policies within EMCCAF. Two out of four of the surveillance criteria were respected6 in 2004. The country also took an active part in the new generation of community reforms, such as: (i) the harmonized exchange regulations; (ii) the projected establishment of the Central African Stock market (BVMAC); (iii) the project underway for sub-regional issuance of transferable government securities; and (iv) the community regulation on micro-finance adopted by COBAC. 2.4.6 Population. In the absence of a recent demographic survey, there are no reliable statistics available on the structure and trends of the Congolese population. Also, with the invalidation of the results of the 1966 general population and housing census, the national socioeconomic data available is outdated. The administrative sources were disorganized owing to socio-political conflicts. The available information comes from fragmentary surveys conducted in 1994. On that basis, in 2004, the Congolese population is estimated at 3.1 million inhabitants with a growth rate of 2.6 % per annum and a density of approximately 9 inhab/km2. The population under 15 years represents 48.2% of the population. The women represent 51% including 22.2% of child bearing age (15 – 49 years). The population is unequally distributed over the rural and urban area with two-thirds concentrated in the cities of Brazzaville and Pointe–Noire. This structure not only constituted a major handicap for agricultural and rural development, but also exerted great pressure on the infrastructure and urban reintegration. Life expectancy at birth has fallen from 52.4 years in 1984 at 48.6 years in 2003. A major challenge facing the government is that of formulating policies allowing for more effective integration of the consequences of the democratic boom in the poverty reduction. The conduct of the 2006 population census is a major priority in that regard. 2.4.7 Gender Parity. Despite the formal recognition of the principle of equality of the male and female genders in the national texts (Constitution, Tax Code, Penal Code, Family code) and despite the ratification of the Convention on the elimination of all forms of violence against women, there are several examples of gender inequality. An analysis of the situation of women reveals disparities with regard to land, new technology, inputs, health care and training. Of the 58 % girls who enter college, only 6 % reach university while 64 % of women remain illiterate. Moral and physical violence against women (rape, battery) delay the advancement of these groups. Despite the will demonstrated by the government to break this trend, women are always under-represented in the strategic decision-making institutions. There are for example 13.8 % women in government, 15 % in the senate, and 9.3% in parliament 8.5% in the local councils, 33% of the Economic and Social commission and 30% of the National Human Rights commission. In addition, the socio-political crisis arising from the conflict greatly destabilized the families and accentuated the number of women heads of family, as well as the gender imbalance in terms of access to and control of resources. In accordance with the Beijing recommendations, Congo has drawn up a national plan with the main objective of improving the social, economic and political status of women. To this end, several measure shave been undertaken, namely the establishment of Gender department within the ministry responsible for women’s advancement and Integration, the establishment of an information system on aspects of genre and
6 The criteria for non accumulation of payment arrears and the budget balance as a percentage of GDP have been respected. On the other hand, the criteria concerning the inflation rates and the ratio of debt stock to LGDP have not. .
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building the capacities of the Ministries of Women’s Affairs as well as the associations involved in gender-related activities . 2.4.8 HIVAIDS and Transmissible Disease. HIV prevalence is estimated at 4.25. Overall, adults of over 30 years (approximately 105 of men aged between 35 and 49 years and 7% amongst women aged between 25 and 39 years) are most affected by the HIV/AIDS epidemic. In response, Congo has drawn up a national AIDS control strategy, whose aims include strengthening prevention, improving the management and control of sexually transmissible infections (STI). This strategy is concretized by the implementation of the National AIDS Control committee which has drawn up a national multi- sector programme to combat HIV/AIDS. Congo also participates in the initiative involving the countries along the Congo Oubangui and Chari Rivers (IFCOC)7, financed by the Bank and the governments of beneficiary countries aimed at limiting AIDS propagation and the impact of STI and HIV/AIDS in the mobile populations along these rivers. The government has put in place an initiative allowing access to antiretroviral (ARV) at subsidized costs for persons living with HIV. The crisis has deteriorated the vaccination coverage for the 6 avoidable diseases identified under the extended vaccination programme, which ha gone from over 90% in the ‘90s to 50% in 2000, then 72% in 2003. In 2002, the coverage of vaccination against tuberculosis was 51% and that for measles, only 37% (HDI). The of recrudescence of these epidemics raises major threats, particularly in the case of the hemorrhagic fever brought on by the Ebola virus, which ravaged this country in 2003. The most deadly infectious diseases are malaria, the leading cause of under-five morbidity and mortality, acute respiratory infections and diarrhea. 2.4.9 Situation of the environment. Congo has 22.5 millions hectares of natural forests and has abundant and diversified fauna and flora. The status of the environment, as assessed in 1992, brought to light the following aspects: (i) irrational exploitation of natural resources; (ii) marked air pollution; (iii) marine pollution, destruction of aquatic fauna and coastal ecosystems; and (iv) elimination of foul odors and proliferation of insects. It has further been noted that the industrial installation do not comprise used water treatment systems. No Congolese town or cit has a municipal waste disposal system in conformity with international sanitary standards. The refuse is duped on vacant lots, side roads around markets. The used water or rain water drainage systems are effective, and constitute insect breeding areas and channels of transmission of malaria and diarrhoeal diseases. The gas emissions (CO2 and H2S) and dust polluting the atmosphere, deriving form mining activities, bring along lung diseases. Aware of the country’s environmental problems, the government drew up the National environmental action Plan (PNAE) and a Plan of Action on biodiversity in order to ensure the protection of the environment through rehabilitation, conservation of biological diversity and improvement of the living conditions of rural and urban populations and promotion of sustainable development. With regard to oil production, the government applied environmental protection measures, notably making it an obligation for each operating company to draw up an emergency plan for intervention in the event of pollution, establishing an anti-pollution bureau in the cabinet of the Minster for Hydrocarbons, conducting an environmental impact assessment for every oil prospecting, exploitation and production, research operation. Concerning the forestry industry, the main actions conducted concerned local reforestation based on pilot reforestation and agro-forestry development and the obligation for forestry enterprises to acquire exploitation plans in keeping with the objectives of conservation and sustainable management of forest. However these measures have had a limited impact so far, given the constraints of the resources and the disorganization of institutional capacities. 2.4.10 Participation: The country has for a long time been without any culture of participation and social dialogue in defining and implementation of public policy owing to the sociopolitical or regional 7 Democratic Republic of Congo, Central African Republic, Chad and the Republic of Congo
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divides. Following the successive politico-military crises, the current government is gradually adopting new approaches to concerted action in public management. The Civil Service Organizations (CSO), the NGO, the eleven departments of the country and the private sector were consulted for the diagnosis of causes of poverty and the selection of strategic pillars for the interim PRSP as well as the ongoing work for finalization of the full PRSP. It is in this spirit that the Bank mission, for the formulation of results-based PRSP received assistance from the authorities and of all the Congolese stakeholders in identifying and selecting the pillars of concentration of its 2005-2007 strategy for the country. However, one of major limits of the participatory process is that most of the basic structures do not have the skills and the human and financial resources required for their functioning and do not yet constitute a veritable force of alternative proposals. Moreover, though the country’s territorial organization de-concentrated and decentralized, there is no real power sharing, the practical management of public affairs has remained largely centralized. Thee issues of support to Parliament and the democratic institutions, the strengthening of the SCO and the capacities of the political parties remain crucial in securing the broad participation of stakeholders. 2.5 Poverty, social Context and Issues 2.5.1 Poverty. It has not been possible to draw up a credible poverty profile for Congo since the end of the war. The information available is the 1992 data and some partial surveys conducted at Brazzaville and Pointe Noire in 1995, 2001 and 2003. These attempt a partial study of poverty in the rural as well as semi-urban areas. These studies, particularly those supported by the World Bank in 2001, revealed the impact of poverty and indicate 70 % in Congo compared to 36 % in 1985. The 1995 poverty profile which is based on the date of the 1990 survey shows hat women made up 74 % of the poor. The increased femininization of poverty results from the fact that low-income activities are mainly carried out by women, especially in agriculture, where they make up 70 % of the assets and provide about 60 to 80 % of the production and substantially all of the traditional processing of agricultural produce. In addition, poverty affects all age groups, with a more marked incidence and depth of amongst the youth of 15 to 25 years and the elderly. The evolution of the number of poor amidst the population is the result of several factors, such as the economic crises entailing the disestablishment of state enterprise and state farms (inherited from the socialist option). These crises brought about a decrease in salaried jobs, social expenditure cuts, particular in health and education. Thousands of retirees or their beneficiaries are not receiving regular pensions and other allocations, following the bankruptcy of the two social welfare funds. The need for social and economic reintegration within the basic communities has raised the social demand, in the face of diminished urban job opportunities. As part of the I-PRSP, a national programme was put in place to improve the conditions and standard of living of the vulnerable populations through quality social protection: legal and social protection for women and young unmarried mothers in difficulty, socio-economic reintegration of crisis victims, increased support to community action, NGO capacity building, for total care of vulnerable persons and for health sector reform.
Box 3: Poverty in Congo The 2004 per capita income of USD 656 represented 70 % of its 1984 level, owing to the CFA devaluation in 1994, but above all to the deterioration of living conditions as a result of the conflicts. The country slipped from 109th place in 1985 (HDI: 0.556) according to the United Nations Human Development Index to 144th (out of 177) in 2004 (HDI 0.415). According to UNICEF, 11 % of children fewer than 15 years are orphans, 60,000 women have been raped and fought in the war. The gross enrolment rate went from 117% in 1995 to 56.9% in 1999. Life expectancy at birth was 52 years for the 90s and came down to 48.6 years in 2003. Te water supply access rate is low at 44 %, with only 14% for the rural areas. There is also a tendency towards a deterioration of health and education indicators with the recrudescence of infant and maternal mortality and malnutrition and illiteracy. Poverty is also seen through the job market, notably unemployment concerns 50% of the active population, particularly the youth of less than 25 years or under 25; less than 2% of the 16 to 25 year segment is employed in the formal sector.
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2.5.2 Education. The situation of education reflects the extent of economic and social degradation since the start of the 90s, causing the deterioration of the general and technical education. Primary school enrolment decreased substantially, with a gross enrolment rate dropping from 117% in 1995 to 56.9% in 1999. From the end of the 1999 conflicts, the gross enrolment rate started rising, going from 83% in 2002 to 92% in 2004, against a gross admission rate (GAR) of 71%, and a survival rate of 83%. The primary school repeater rate is high, at a national average of 23.7% for 2004. The teachers are largely replacement teachers, a situation which the government is in the process of regulating. The spatial distribution of the teaching corps is a source of major disparities, since the urban and regional centers are relatively well served, to the detriment of the rural areas, where a school had to be closed for lack of teachers. To that is added the quality of the teaching, which is affected by the teachers' lack of motivation, the lack of promotion and the low remuneration. The government undertook to significantly increase the budgetary allocations to the education sector within the framework of eh I- PRSP. The national reconstruction efforts devoted to the vocational training sub-sector are very limited. Most of the training centers were plundered during the conflicts and have not since been reequipped. In addition, owing to the limited number of trainers, certain successful specializations such as plumbing, electricity and mechanics cannot be offered. With the ever-increasing demand for jobs, the vocational training sub-sector must be transformed into an effective instrument of social promotion, in order to aid professional reintegration, including that of ex-combatants. These are challenges in respect of which the Bank intends to support the government measures within the framework of the 2005-2007 CSP, with a view to increasing the productivity of factors of production, especially in the growth- leading sectors. 2.5.3 Health. In this area, the situation is characterized by the qualitative and quantitative deterioration of services, owing to the degradation of socio-health infrastructure, the outdated equipment and the shortage of qualified staff and the concentration of the available staff in the three major cities. With regard to nutrition, the cases of low birth weight in 1996 were estimated at 24 % considering the weight –age factor. The rates of infant mortality and under-five mortality have stagnated at 82.2 and 122.6 per thousand, respectively. Access to drugs has completely deteriorated in the public health facilities, difficulties in the functioning of country’s main purchases center. The socio-economic crisis brought about direct application of tariffs for health services, with users having to pay excessive costs for care. The lack of a policy of exemption for the less privileged and the risk mutualization resulted in the exclusion of the poor segments making up a large part of he population. In order to meet the challengers identified in the health sector, the government adopted a national health development plan (PNDS) for the 2005-2009 period, with the aim of improving the performance of the health system. Some of the challenges in the implementation of the PNDS consisted in ensuring effective health infrastructure coverage and guaranteeing access to the generic essential drugs, and to quality health care and services and rationalizing the management of health personnel. The main constraints relate to the still limited translation of political will into the implementation of the PNDS, the limited decentralization of the health system, the inadequate financing for the rehabilitation and equipping of health center and the procurement of drugs, and the deficient continuous training of medical staff. The PNDS implementation process will require financial support to which the Bank will contribute as part of the present strategy in order to enable Congo meet the health sector MDG.
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2.6 Medium-term Economic Outlook and External Environment Constraints 2.6.1 There are numerous constraints in the development of Congo and in poverty reduction in the country. These are economic, structural and social. The economic constraints concern the viability of the macroeconomic framework, notably the unbearable economic debt and the inadequate diversification of the productive base of the economy, with the corollary of heavy dependence on oil. Congo is in fact one of the most heavily indebted countries in the world, per capita, and in 2004 it allocated over 70 % of the public finance primary balance to debt settlement. The GDP structure marginalizes the agriculture and forest sectors, despite the favorable climatic conditions and the significant growth potential of these sectors. The predominance of the outward-looking oil sector accentuates the economy’s sensitivity to external shocks, while its limited integration into the economy significantly reduces job creation opportunities. The economic and sector studies projected within the framework of 2005-2007 CSP will make it possible to identify growth-driving sectors other than oil in order to assist the government in the medium and long-term in diversifying the productive base. 2.6.2 The next level is that of structural constraints, which relates to the weakness of the private sector, the insufficient structures for production and processing of agricultural and forest products and the degradation of infrastructure. There is no real sector strategy or policy for the creation of a framework conducive to development of the private sector which continues to be adversely affected by country’s pas social-state orientation, the inappropriate policies and successive policies. Regarding the institutional set-up, there are weaknesses with regard to governance notably in public service management. The capacity of the public service to collect statistical information and formulate economic policies has been serious weakened through conflict. Under the 2005-2007 CSP, the Bank will help to remove the latter constraint by supporting the national statistics institute. 2.6.3 The social constraints concern the high incidence of poverty and unemployment which affect a major segment of the population, and explain the growing problem of social exclusion. The reintegration not only of ex-combatants, but also the numbers of underprivileged and unoccupied youth jobless youth raises a major challenge. Moreover, the high concentration of the population in the two main cities penalizes agriculture wile accentuating the pressures and social demand in the urban areas, where the basic infrastructure has been seriously affected by conflicts. Outlook 2.6.4 Macro-economic and Financial Outlook The medium term economic prospects and the progress in attaining the MDG will be affected by the implementation of the government’s reform programme (2004-2007) and of the sector plans for the I-PRSP. The medium-term programme of reforms is being supported by the lead donors, such as the IMF through a PRGF approved in December 2004, the World Bank through an economic revival credit and the Bank through an economic reform support loan (ERSL), the EU, UNDP and the French cooperation agency. The prospects will also depend on the trend in world oil rates, given the importance of this product to the Congo’s economy. . 2.6.5 Sources of rising inflation. The macro economic framework projects: i) a high real GDP growth rate for 2005 (9.2 %) and a growth deceleration for 2006 and 2007 with rates of 4.8 % and 1.5%. This retraction is considered to be linked with the downward trend in the oil price and the contraction in its production. The 16.7 % increase in oil GDP en 2005 is in fact expected to drop to 3.3% for 2006 for 2006 and turn negative (–6.3 %) in 2007 in light of assumptions concerning the projected price of the Brent barrel in line with the World Economic Outlook (WEO) but mostly the contraction in production in 2007. On the other hand, the non-oil sector is expected to record growth
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averaging 5.5 % as a result of the investments in revival of agriculture (cash cops) and forest production. Inflation is expected to remain moderate, at 2% yearly, as a result of the normalization of the Brazzaville-Pointe Noire road and assumption of a satisfactory budgetary policy and application of prudent monetary policy by BEAC. 2.6.6 Public Finance is expected to be characterized by the decline in tax revenue owing to the oil situation, with a primary budget surplus of 17.7% of GDP in 2005 and 10.4% of GDP in 2006-2007. Congo should however devote over 50% of its budget surplus to settlement of the external debt. The Government has undertaken to keep efforts at transparency in the mobilization of income and to give priority in allocation additional oil resources to increasing the share of resources allocated to the I- PRSP priority sectors8. The share of these sectors should attain 30 % of primary expenditure for 2007 against 20.6 % for 2004. The Government has undertaken to intensify dialogue with its Paris Club creditors, with a view to finalizing the bilateral agreements and continuing discussions with the London Club members and generally normalizing relations with all its creditors, including the speculative funds known as «Vulture funds». With a view to Congo’s attainment of the HIPC decision point, the efforts continue in close collaboration with the BWI, to examine and deal with the various categories of external debts owed by the government and the public enterprises.
2.6.7 Prospects of Attainment of MDG. The current medium-term programme based on structural reform and prudent macro-economic management constitutes