SCCD: G. G. AFRICAN DEVELOPMENT BANK AFRICAN DEVELOPMENT FUND REPUBLIC OF CONGO COUNTRY STRATEGY PAPER (RESULTS-BASED) 2005-2007 COUNTRY OPERATIONS DEPARTMENT CENTRAL REGION DECEMBER 2005
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
ii
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
iii
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
iv
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.
v
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.
2
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.
3
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%
4
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.
5
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.
6
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
7
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.
8
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.
9
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
10
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.
11
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. .
12
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
13
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.
14
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.
15
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
16
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