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30/09/2016

As elections near, Congo seeks to diversify its economy beyond oil

Development Policy

As elections near, Congo seeks to diversify its economy beyond oil

NGOK is a Euro Pale Lager style beer brewed by Brasco in Congo Brazzaville

Like many of its sub-Saharan African neighbours, the Republic of Congo is a country of oil price fuelled boom and bust. But the future is away from oil.

Despite boasting a small population of around 4.5 million, Congo is the fourth largest oil producer across sub-Saharan Africa. Over 70% of the Congolese economy comes from oil, and close to 80% of government revenue.

A decade of high oil prices – peaking at $120 per barrel in 2014 – combined with the write-off of most of its foreign debts as part of the international community’s heavily indebted poor countries (HIPC) initiative in 2010, enabled Congo to pay for a series of high profile infrastructure projects.

President Denis Sassou Nguesso, who expects to secure re-election for a third term following Sunday’s elections, has staked great importance in eye-catching infrastructure projects, bringing the pan-African games to the country, building international standard stadiums in each of Congo’s twelve regional departments, while each department also has an international standard airport.

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“Isn’t the road from Ponte Noire to Brazzaville complete?” he asked supporters at his final campaign rally in Brazzaville on Friday (18 March).

For their part, the French development agency and the European Investment Bank are among the major development finance actors in the country. The European Union funded a highway between Brazzaville and the town of Kinkala, 60 kilometres to the west of the capital.

Chinese funds, meanwhile, helped pay for the August 15, 1960 suspension bridge, across the River Congo, named after the country’s independence day.

However, political opponents of the government and economic analysts contend that Congo has failed to take advantage of its oil riches.

“Look at the potential of our country,” supporters of opposition candidate Guy Brice Parfait Kollelas told Euractiv at a rally on Thursday (17th March). “We got more than $5 billion from oil and petroleum and what do we have to show for it? A couple of stadiums. We can’t eat stadiums”.

Over 40% of Congolese citizens live on less than 1.25 euros per day.

The era of plenty appears to be over – certainly in the short-term – for the oil industry, and economic growth in Congo has fallen sharply since the second half of 2014 when prices began to tumble. The IMF’s latest mission report in July 2015 forecast average growth of around 3 percent per year between 2015 and 2020.

To the IMF’s chief economist in Brazzaville, Tchicaya Gondet, the country’s infrastructure programme has lacked focus, with political vanity projects often taking precedence over cost effective ones.

“We can criticise the government for not strictly analysing what we needed to build,” he says, adding that “we don’t need a presidential palace in every department” and that only the airports in oil-centre Ponte Noire, and Brazzaville, attract good numbers of passengers.

The government had to table two supplementary budgets in 2015, and Gondet told Euractiv that a further supplementary budget will have to be submitted shortly after Sunday’s Presidential election. As it is, the government has had to resort to loans from China and short-term advances from its central bank, he adds.

Diversify or feel the pain

The tendency of oil-rich countries, unsurprisingly, is not to diversify when one economic hen continues to lay golden eggs. Now that the oil and mining industry is in severe difficulties – and likely to remain so throughout 2016 – Congo cannot diversify its economy quickly enough. “We’ve been talking about diversification for 20 years,” says Gondet.

There are, however, crumbs of comfort, and there is no reason why Congo cannot successfully diversify away from oil. It has some of the largest iron ore and potash deposits in the world, rich forests, a deep-water International Ship and Port Facility Security (ISPS), and fertile land.

If iron ore is unlikely to be a cash cow any time soon because of its exposure to China’s economic slowdown, prices for phosphate rock and potash are stable and likely to remain so. Both are used in farming fertilisers and Africa’s rapid population growth over the next decades should, logically, lead to increasing acreage for food production.

Meanwhile, a handful of companies have made multi-million euro investments in Congolese cement industry.

The Republic of Congo ranked 176 out of 189 in the World Bank’s 2015 ‘Doing business’ survey, and government’s first priority should be improving the business environment, Gondet states. The problem is not setting up a business, but a ‘para-fiscal’ system of informal taxes and levies emanating from local authorities, the police and port authorities, that exists alongside government tax collection.

As a former French colony – it is no surprise that French oil giants Total, and Perenco, together with Italian ENI have dominated the economic landscape in Congo. But the tide of ‘black gold’ is running dry. Congo – and its neighbours – will have to diversify or feel the pain.