Estudios Económicos
Central African Republic

Central African Republic

Population 5.0 million
GDP 389 US$
D
Country risk assessment
E
Business Climate
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 4.5 4.3 4.3 4.4
Inflation (yearly average, %) 4.6 4.1 4.0 3.4
Budget balance (% GDP)* 1.6 -1.1 0.9 0.7
Current account balance (% GDP)* -5.5 -8.4 -8.9 -8.4
Public debt (% GDP) 56.0 53.4 48.6 44.4

 

(e): Estimate. (f): Forecast. *Including grants.

STRENGTHS

  • Agricultural (cotton, coffee), forestry and mining (diamond, gold, uranium) potential
  • Substantial international financial support

WEAKNESSES

  • Extreme poverty (75% of the population lives below the poverty line)
  • Vulnerability of the economy to external shocks
  • Weak transport infrastructure and energy production capacity
  • Geographically isolated
  • Unstable political and security situation (presence of many foreign armed rebel groups)

RISK ASSESSMENT

Growth hampered by the security situation

After stabilising in 2018, growth is expected to pick up again, driven by forestry, agriculture and mining. It will also be supported by the international aid mobilised for infrastructure projects, particularly in the water and communications sectors. The CAB project, which will enable the country to have a fibre optic network in 2022 and which is mainly financed by the AfDB, is a prime example. However, the country remains one of the world’s poorest, and still bears the scars of the 2013 humanitarian and security crisis. Growth will suffer in this fragile context, with the agricultural sector – which accounted for 42% of GDP in 2017 – affected by regular outbreaks of violence in rural areas. Despite this, the wood sector is expected to continue its development, generating nearly half of exports, ahead of gold, coffee and cotton. Diamond exports are expected to continue recovering, thanks to the partial lifting of the embargo in 2016. Domestic demand will remain weak, affected by the large numbers of people fleeing the country.

While staying above the CEMAC’s 3% target, inflation is expected to continue to decelerate in 2019. It will again be fuelled by oil prices, which are set to remain high, and occasional supply disruptions connected with the security situation. As the CFA franc is indexed to the euro, inflation will also remain impacted by movements in the euro-US dollar exchange rate.

Public finances bolstered by international aid

The country, which is committed to the IMF under an Extended Credit Facility, is striving to push on with fiscal reforms. These efforts led to the disbursement of the fourth loan tranche by the IMF in July 2018 and are expected to result in a small budget surplus once again in 2019. Revenues are expected to go up, driven by both domestic revenues and budget support, as the country remains dependent on international assistance from the IMF, AfDB, EU and others. The ratio of public debt to GDP is expected to decline further as arrears are paid off, but the country remains exposed to a high risk of over-indebtedness.

Despite remittances from international partners and expatriates, which together accounted for 10% of GDP in 2018, the current account, mainly linked to the trade deficit (16% of GDP in 2018), is still expected to show a large deficit. The expected increase in exports will be offset by growth in imports, which will be exacerbated by high oil prices. In addition, exports will suffer as insecurity impacts their supply. Subsidised loans from international organisations, whether project-related or not, will finance the current account deficit. In addition, foreign exchange reserves, pooled among CEMAC countries, have begun to rebuild, reducing the risk of a balance of payments crisis.

A president faced with a tense security and political context

President Faustin-Archange Touadéra is struggling to manage the country’s ethnic and religious conflicts, despite his initial vow to build a united republic. The country remains unstable, with ongoing clashes between the Seléka militia, a majority Muslim armed group, and the mainly Christian Anti-Balaka militia. Many other armed groups are taking advantage of this instability to try to impose themselves on the political scene. As of June 2018, the country had more than 600,000 internally displaced persons, representing nearly 13% of the population, and almost as many refugees in neighbouring countries, including Cameroon, Chad, the Democratic Republic of the Congo and the Republic of the Congo. The United Nations, which is present in the country as part of its Minusca peace mission, appears to lack sufficient resources and is suffering losses in its ranks. In addition, the President also faces dissension within his own political circles: in July 2018, the President of the National Assembly, Abdoul Karim Meckassoua, was accused of planning a coup d'État.

Against this backdrop, Bangui is maintaining close ties to Moscow. In August 2018, the two countries signed a military agreement, including the training of Central African soldiers. Russia also provides security for President Faustin-Archange Touadéra and has delivered weapons to the national army after obtaining an exemption from the UN embargo, an exemption that has been denied to China. This position allows the Kremlin to consolidate its influence in the region and reflects its interest in Central African mining resources.

As a result of this unstable environment, the business climate will remain mediocre. The Central African Republic is one of the lowest placed countries in the Doing Business ranking, coming 183th out of 190 countries.

 

Last update : February 2019

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