Congo: Government struggles to diversify economy

04 Dec 2015

Congo: Government struggles to diversify economy

  •   The three-day Invest in Congo conference held in Brazzaville from 19-21 November marks the government’s latest efforts to diversify the economy in the face of a sharp decline in oil revenues since 2014.
  •   The government is also planning four new special economic zones, but has struggled to attract investors amid broader concerns about the country’s business environment.
  •   Despite the low world oil price, the hydrocarbon sector is set to remain the dominant force in the economy, creating an uncertain longer-term outlook with output set to peak in 2018.

Investor conference reflects need to diversify the economy

The Invest in Congo Brazzaville (ICB) Forum 2015 was marketed as the first major conference promoting business opportunities in Congo, and is seen as a launchpad for the government’s diversification strategy. Congo has been under pressure from the IMF for many years to diversify its economy away from oil, but progress has thus far been slow. The fall in world oil prices in mid-2014 has now created fresh impetus for the government to take action. Oil revenues make up more than half of Congo’s GDP, 75 percent of its budget revenues and 80 percent of export earnings. As a result of the sharp fall in prices, parliament voted in June to cut the USD 5.22 bn budget by nearly 12 percent, including cuts to investment spending by nearly a quarter to USD 1.8 bn.

To tackle these shortcomings the government is seeking investment across a range of sectors, prioritising agriculture, agro-industry, forestry and the timber industry, mining, hydrocarbons, construction, tourism and hospitality. Few deals were announced in the aftermath of the ICB conference, though several agreements were signed to promote trade, notably with delegations from Morocco and Turkey. The government also announced plans to privatise 46 public companies, mainly in agribusiness, hotels and tourism, forestry, water and electricity. State-owned enterprises, particularly in the utilities sector, have been criticised for previously crowding out opportunities for private investment.

Low take up for Special Economic Zones

The government also used the conference to promote planned special economic zones (SEZs), which it has identified as one of the pillars of its diversification strategy. There are currently four foreign trade zones - all in the planning stage - located in the main port and oil hub in Pointe Noire, the capital Brazzaville, and Ouesso and Oyo, both of which are in remote far north regions, the latter being President Denis Sassou-Nguesso's home district. No timeline has yet been issued for when the SEZs will be completed.

The government has so far struggled to attract investor interest in the SEZs, despite offering incentives, including minimal to zero tax and duty and single window export-import assistance. For the two northern SEZs, the remote locations and lack of adequate road and rail infrastructure create obvious disincentives for investments, considering the difficulty of getting products to export. The main SEZ in Brazzaville has also struggled to attract investors as it is reserved for companies producing for the domestic, rather than export market, significantly limiting the financial prospects of potential investors.

The broader business environment in Congo is likely a further factor that has deterred investment in the SEZs. Although SEZs are normally intended to create privileged areas with more competitive regulations and infrastructure, the lack of take-up reflects investor concerns around the broader economy and business environment. Congo ranked 176 out of 189 countries in the World Bank’s 2016 Ease of Doing Business survey, a fall by two places from 2015 and a continuation of the country’s consistently low ranking since the survey began. Difficulties in delivering large infrastructure projects and bureaucratic hurdles in Congo are common business complaints. Corruption, a lack of adequate skills and expertise, and political interference have all undermined past economic projects.

Oil sector to remain dominant

Despite ongoing concerns about the low oil price and Congo’s depleting hydrocarbon resources, the oil sector is set to remain the driving force in the economy. On 27 October, the government launched its 2016 licensing round for eight deep and ultra-deep offshore blocks and five onshore blocks. These projects will bring significant investment and result in a medium-term projected increase in output, which the IMF predicted in July would improve fiscal and external balances up until 2018. Low oil prices will, however, continue to constrain public infrastructure spending, a factor that will remain a key barrier to investment for the non-oil sector. This creates an uncertain economic outlook from 2018, when oil production begins to decline and reserves deplete over the next two decades, particularly if prices remain low.

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