Central Africa Economic Outlook 2018 Macroeconomic developments and poverty, inequality, and employment Managing forestry’s potential Central Africa Economic Outlook 2018 The opinions expressed and arguments employed herein do not necessarily reflect the official views of the African Development Bank, its Boards of Directors, or the countries they represent. This document, as well as any data and maps included, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries, and to the name of any territory, city, or area. Cover design by the African Development Bank based on images from Shutterstock.com © African Development Bank 2018 ISBN 978-9938-882-64-3 (print) ISBN 978-9938-882-65-0 (electronic) You may copy, download, or print this material for your own use, and you may include excerpts from this publication in your own documents, presentations, blogs, websites, and teaching materials, as long as the African Development Bank is suitably acknowledged as the source and copyright owner. CONTENTS Abbreviations v Executive summary 1 Part I The Central African economy 3 Economic performance and outlook 3 Macroeconomic stability 7 Poverty, inequality, and employment 11 Key policy recommendations 15 Part II Realizing the forest sector’s potential for sustainable and inclusive development 19 Forestry and the High 5s 19 Processing wood to promote competitiveness and economic diversification 21 Policy recommendations for the forestry and wood sector 23 Appendix 1. Methodology for employment elasticity estimate 26 Notes 27 References 27 Figures 1 Countries’ contribution to regional GDP in Central Africa, 2017 4 2 Real GDP growth rates for the Central Africa region, 2016–19 4 3 Real GDP growth rates for Central African countries, 2016–19 5 4 Average sectoral contribution to regional GDP in Central Africa, 2012–16 5 5 Demand decomposition of GDP in Central Africa, 2008 and 2015 6 6 Inflation in Central African countries, 2014–19 7 7 Terms of trade in Central African countries, 2010–16 8 8 Fiscal balances in Central African countries, 2014–19 8 9 Government expenditure in Central African countries, 2016–19 9 10 Current account balances in Central African countries, 2014–19 10 11 Gross national savings in Central African countries, 2015–19 10 12 Government revenues in Central African countries, 2016–19 11 iii 13 Gross public debt in Central African countries, 2014–19 12 14 Trends in poverty in Central Africa: Poverty headcount and poverty gap, 1981–2013 12 15 Contribution of manufacturing to GDP in Central Africa, 2012–17 14 16 Sectoral distribution of employment in Central Africa, 1991–2016 14 17 Elasticity of employment to growth in Central Africa and other African regions, 2008–14 15 18 Decomposition of labor productivity growth in Central Africa, 2005–16 16 Table 1 Trends in income inequality in Central African countries, available years, 1992–2014 13 iv COntents ABBREVIATIONS AfDB African Development Bank CFA Coopération Financière en Afrique centrale CEMAC Central African Economic and Monetary Community (includes Cameroon, Chad, Central African Republic, Congo, Equatorial Guinea, and Gabon) DRC Democratic Republic of Congo ECCAS Economic Community of Central African States (includes Burundi, Cameroon, the Central African Republic, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, and São Tomé and Príncipe) EU European Union FDI Foreign direct investment GDP Gross domestic product ILO International Labour Organization IMF International Monetary Fund PPP Public–private partnership US United States of America v EXECUTIVE SUMMARY his Central Africa Economic Outlook analyzes the recent economic situation and T prospects for the region. Part I focuses on the evolution of key macroeconomic indicators, including GDP growth, inflation, fiscal and current account balances, terms of trade, employment, and inequality. It also assesses short- and medium-term economic prospects based on key economic fundamentals, including structural and policy factors. In addition, it investigates employment generation, looking in particular at whether growth has created jobs and reduced poverty and inequality. Part II focuses on development of the huge forest and timber resources in the Congo Basin, which could be an important driver of diversification, economic resilience, and green growth for the six countries in the basin. Inclusive and sustainable development of the sector can also reduce the vulnerability to external shocks linked to commodity price volatility that results from Central African countries’ heavy reliance on nonrenewable oil and mineral resources. Economic growth in the region was slug- sector, particularly in economies that depend gish from 2016 to 2017. Estimated average less on extractive (oil and mining) sectors. growth for the region in 2017 is 0.9 per- The positive economic outlook for 2018–19 is cent, barely up from 0.1 percent in 2016 and driven by the same factors. noticeably below the estimated African aver- Domestic demand has continued to boost age of 3.6 percent. Low commodity prices growth in many countries in the region. Exter- accounted for much of the sluggishness of nal demand has remained subdued, more growth. The outlook for the region is positive, notably from advanced economies but also however, as commodity prices trend upward from emerging economies. The export values and domestic demand grows. Sound macro- of primary commodities were depressed as economic management and an improved a result of lower prices. However, Central institutional environment are expected to help African exports are expected to strengthen maintain Central Africa’s growth resilience in in 2018 and 2019 as the world economy 2018–19. improves. Growth is estimated to have reached Inflation in the Central Africa region is 0.9 percent for 2017 and is projected to estimated at 10.1 percent for 2017, up from increase considerably in coming years, 2.6 percent in 2016. It is expected to edge to 2.4 percent in 2018 and 3.4 percent in up to 10.4 percent in 2018 and then to dip 2019. Growth in 2017 was driven mainly by slightly to 9.1 percent in 2019. increased infrastructure investment, resilient As the euro zone continues its gradual service sectors, and a recovering agricultural recovery in 2018, the euro is expected to 1 strengthen against the US dollar. This will lead increased slightly to about 20 percent in 2017, to appreciation of the CFA franc, which is likely against public spending of almost 21 percent of to generate disinflationary pressures in Central G D P. Africa. Much remains to be done to unlock the full Fiscal deficits in the Central Africa region fell economic potential of the countries of Central from about 4.4 percent of GDP in 2016 to an esti- Africa. The negative consequences of the oil price mated 2.1 percent in 2017. The deficit position decline for African economies highlight the need is expected to continue to improve in 2018 and to accelerate and deepen structural reforms in 2019. Most countries in the region are expected to order to create more jobs for youth and build more have fairly low deficits, except Equatorial Guinea. resilient economies. Despite the steps already Gross national savings in the Central Africa taken and an abundance of natural resources, region increased considerably, from 5 percent of unemployment and economic exclusion remain GDP in 2016 to 12.4 percent in 2017, and is pro- high. Economic development has been held back jected to rise to 16.3 percent in 2018 and 17.3 per- by limited diversification and a sluggish private cent in 2019. sector. Some countries are trying to redistribute oil Much remains On average, government revenues seem to wealth through a system of social benefits, includ- match expenditures in the Central Africa region. ing public employment and social safety nets. to be done to The average revenue to GDP ratio was about Countries can take several measures to advance unlock the full 19 percent in 2016, against public spending of the goal of more rapid and inclusive economic economic potential about 22 percent of GDP, and is estimated to have development. of the countries of Central Africa 2 EXecutiVE summary PART I THE CENTRAL AFRICAN ECONOMY ECONOMIC PERFORMANCE AND OUTLOOK ight countries make up the Central Africa region: Cameroon, Central African Republic, E Chad, Congo, Democratic Republic of Congo (DRC), Equatorial Guinea, Gabon, and São Tomé and Príncipe. In 2017, Cameroon was the largest economy in the region, contributing nearly 29 percent of regional GDP, followed by DRC (24 percent), Gabon (13 percent), Equatorial Guinea (11 percent), Congo (11 percent), and Chad (11 percent; figure 1). The smallest economies were Central African Republic, which contributed 1.2 percent to regional growth, and the small island country of São Tomé and Príncipe, which contributed 0.3 percent. Economic growth in the region was sluggish particularly in economies that depend less on from 2016 to 2017. Estimated average growth extractive (oil and mining) sectors. The pos- for the region in 2017 is 0.9 percent, barely up itive economic outlook for 2018–19 is driven from 0.1 percent in 2016 and noticeably below by the same factors. the estimated African average of 3.6 percent. São Tomé and Príncipe, Central African Low commodity prices accounted for much Republic, Cameroon, and DRC are expected of the sluggishness of growth. The outlook for to record the highest growth rates in the the region is positive, however, as commodity region in 2017 and in the next two years prices trend upward and domestic demand (figure 3). Among countries whose econo- grows. Sound macroeconomic management mies contracted, Equatorial Guinea experi- and an improved institutional environment are enced the largest estimated GDP decline, expected to help maintain Central Africa’s at –7.3 percent in 2017, followed by Congo, growth resilience in 2018–19.