The Central African Republic: Behind the Headlines
Before the peak of senseless violence in the CAR hit international headlines, dysfunctions of the country were on steroids: at work since 1960 when it had independence from France. Through steady breakdown of the economy, the ingredients for state collapse were falling into place, in a way that the world barely noticed.
A blessing
While the landlocked CAR falls under the group of least developed countries, it is richly blessed by nature. Below and above its top soil, lies a range of globally demanded economic resources. As one of the top-20 most-fiscally dependent economies on natural resources in sub-Saharan Africa, export of diamonds and timber are one of the biggest drivers of its economic growth. From 2005-2010, over 40 percent of the country’s exports were from extractive industries. Other important components of the economy are subsistence farming with 28.3 percent, and livestock agriculture 12.7 percent of GDP. The share of the manufacturing sector in the economy is very negligible.
Before the crisis, the CAR had undertaken macroeconomic reforms including adopting a Poverty Reduction Strategy qualifying for significant debt relief resources from international partners. Even with the present crisis, key international financial institutions including the World Bank and IMF have expressed their willingness to support the country to rebuild.
A curse
Combine with its perennial security crises, the consequence of the economic mismanagement has been a catastrophe. The real economy contracted from 1.7% growth in 2009 to –35 % growth in 2013. The per capita income shrunk from $963 in 1980 to $722 in 2010— more than 25% drop. The productive sectors have completely collapsed. Foreign direct investment dried up. From late 1990s to present, the number of foreign companies operating in the country has fallen from 250 to 25, and on the eve of the current crisis, the only mining company in the country was looted and closed down[2].
Worse still, the dismal economic performance is far below theannual population growth rate of 1.9 %. The government is the biggest employer, with a share of 18 000 workers, which is less than 1 percent of the active working population— age 15-64, as defined by ILO[3]. This gradual contraction of the economy has allowed the informal sector to flourish, employing almost 90% of the working population.
The result is an already thinned out tax base, in a state of steady erosion. Government’s capacity to raise and spend money is very weak. Tax revenue as a percentage of GDP is just 9%, a share far lower than the regional average of 26.8 %. And as a share of total government revenue in 2012, tax was even lower, 7%[4]. Aid, hence, becomes a life-support. In 2011, foreign development assistance (ODA) comprised 59 percent of the budget. The CAR is a ‘’darling’’ of donors, sourcing 10.6% of its Gross National Income. In fact, on a yearly basis, ODA accounts for 57 dollars per capita, which is 20 dollars more than the African average. It should be noted that the figure does not include significant assistance to the security sector, which the CAR receives considerable support. The EU, France and USA in that order, are the top donors.
The heavy dependence on donor funding in part, has undermined the Government’s capacity to strengthen the tax base. Despite its resource-rich subsoil, most of its extractive minerals leave the country in raw forms and unaccounted. Over 13.6 percent of the population depends directly for their livelihoods from artisanal mining of diamonds[5]. It is estimated that over 30% of the country’s diamonds disappears illegally from the country, an important loss of tax revenues[6]. The mining sector is unregulated. Further, an even more significant percentage of the huge timber resources leaks out of the tax system unnoticed.
A glimmer of hope
In spite of the challenges, the IMF projects, a slight recovery in economic activity for 2014: real GDP growing at around 1.5 percent, assuming a normalization of security conditions, the return of displaced persons, and a gradual resumption of economic activity, particularly in the agriculture and commerce sectors. The 6.8% overall bullish growth expected in the sub-region perhaps may add optimism to the picture.
The new interim Government is taking encouraging steps to strengthen transparency in the management of natural resources. And with support from Congo, the country is pursuing negotiations with the Extractive Industry Transparency Initiative, to reengage[7] with the Kimberly Process-- which will tighten loopholes and secure the supply chain against illegally sourced diamonds[8]. Also the discovery of oil in the northern parts of the country, is significant potential boost to the economy.
With the achievement of the Conclusion Point of the Highly Indebted and Poor Country Initiative, the CAR stands to benefit from significant debt relief. And with a debt to GDP ratio of 57%, the country has considerable macroeconomic space to borrow from the capital markets to fund urgent investment that will take off the economy.
A guarded hope
But future success depends highly on the way the security and political situation will evolve, in particular how they both interact with the real economy. The biggest threat in the horizon, is how the CAR elites and warring factions weigh the potential profits of waging war and sustaining violence. As key armed groups retreat from the capital to the resource rich areas of the country, they are likely to sustain their appetite for fighting by trading diamonds, timber and wildlife. While the link between anti-Balaka groups and natural resources remains uncertain, there have been particularly heavy battles around diamond producing areas of in Boda, Goya and in gold-producing areas stretching from Yokole to Angara, which is now under the group’s control[9].
But Selekas’ involvement with conflict-fueling resources is clear, and goes right up to the chain of command. ‘’Former Interim President Michel Djotodia and his close ally Zakaria Damane— who founded the Union of Democratic Forces for Unity (UFDR) in 2006,--- have been trading diamonds in Vakaga and Haute-Kotto’’[10]. With the suspension of the CAR from the Kimberly Process, they are reports of ‘’blood-diamonds smuggled through the porous borders into the supply chains of Cameroon, Chad and Sudan. Added to the conflict-diamonds, is the trading of elephant tusks[11].
Cross-border natural resources may pose an even greater threat to the already tense regional dynamics to the conflict. The possible exploitation of CAR’s share of the straddling oil reserves along its border may come in conflict with Chad’s interests, complicating an already tense relationship between the two countries. In the absence of negotiations for an oil sharing agreement, it is unclear how Chad will respond. Especially as some studies have shown that the CAR’s exploitation of its portion of the oil reserves may significantly affect Chad’s heavy dependence on its oil revenues[12].
[1] The World Heritage ranking covers key macroeconomic and microeconomic areas including rule of law, fiscal governance, regulatory efficiency and open markets.
[2] The Economic Intelligence Unit Country Report for Chad and Central African Republic
[3] Own calculations using World Bank Data
[4] Own calculations using World Bank Data
[5] International Peace Information Service (2008), « Handbook : Mapping conflict Motives in War Areas », IPIS, Anvers
[6] UN Office on Drugs and Crimes, Organized Crime and Instability in Central Africa: A threat assessment (2011)
[7] The CAR was suspended from the Kimberly process in May 2013 after the millitary coup and the danger of fueling conflict diamond.
[9] Human Rights Watch, ‘’Central Africa Massacres in Remote Village, Press release, April 3, 2014, http://www.hrw.org/news/2014/04/03/central-african-republic-massacres-remote-villages
[10] Agger K (2014), Behind the Headlines, Drivers of Violence in the Central African Republic, Enough Project Report.
[12] RMS Production Corp, ‘’Central African Republic ‘’(2004), http://www.unctadxi.org/sections/DITC/finance_Energy/docs/ditc_commb_energy_0171.pdf.
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