Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized ACKNOWLEDGEMENTS The Report has been prepared by a team led by Norbert Fiess and consisting of Phillipe Aguera, Eric Kouevi, Nihal Bayraktar, Cesar Calderon, Leif Jensen, Joanne Gaskell, John Keyser, Hannah Nielsen, Alberto Portugal and Jose Signoret. A list of background paper commissioned for the report is provided below. The team also acknowledges the excellent guidance and support received from Elisabeth Huybens (Country Director), Francisco Carneiro (Practice Manager) and Mazen Bouri (Program Leader) throughout the process. Valuable guidance from Seynabou Sakho and Sona Varma at the inception of the report and helpful comments on technical aspects related to regional financial stability and trade facilitation from Ashani Chanuka, Myriam Chaudron, Ankur Huria and Cedric Mousset are gratefully acknowledged. The team would also like to thank the peer reviewers Ivailo Izvorski, Sandeep Mahajan and Christine Richaud for their very valuable insights. Research assistance from Soule Sow and Pierre Mandon (consultants), and administrative support from Silvia Gulino, Claudia Rocio Manrique, Angele Mountou and Irene Sitienei are also gratefully acknowledged. List of Background Papers for this Report: Bayraktar, N. and B. Moreno-Dodson (2018b). “Tax Structure and the Private Sector in CEMAC.” Calderon, C. and C. Cantu (2018): Foreign trade and growth in CEMAC: Intensity and Concentration”. Djiofack, C. (2018). “Using a dynamic global CGE model (ENVISAGE) to model the impact of removing petty harassment costs (“tracasseries”) on intra-regional trade and growth in CEMAC.“ Fiess, N. and A. Kouevi (2018). ”Productivity of non-oil sectors in CEMAC countries”. Fiess, N. and R. MacDonald (2018). “The CEMAC and Currency Regime Issues.” Haile. F. and L. Moller (2018). “Explaining Growth in CEMAC (2000-2016).” Nguh, A. and A. Ndedi (2017): “Factors hindering regional integration in CEMAC and the way forward”. Nielsen, H. and N. Fiess (2018). “Regional Integration and Convergence in CEMAC.” ii ACRONYMS AND ABBREVIATIONS AU African Union BEAC Bank of Central African States (Banque des Etats de l'Afrique Centrale) BEER Behavioral Equilibrium Exchange Rate CAR Central African Republic CEMAC Central African Economic and Monetary Community CEN-SAD Community of Sahel-Saharan States CET Common External Tariff CFTA Continental Free Trade Area CIT Corporate Income Tax COBAC Central African Banking Commission (Commission Bancaire de l'Afrique Centrale) EBA Everything but Arms Program ECCAS Economic Community of Central African States ECOWAS Economic Community of West African States EPA Economic Partnership Agreement EU European Union FATF Financial Action Task Force FDI Foreign Direct Investment FEER Fundamental Equilibrium Exchange Rate FSA Financial Sector Assessment GDP Gross Domestic Product GIABA West Africa Inter-Governmental Action Group Against Money Laundering HDI Human Development Index IMF International Monetary Fund MFN Most favoured Nation MPC Monetary Policy Committee NATREX Natural Real Exchange Rate NEPAD New Partnership for Africa’s Development NPLs Non-Performing Loans NTMs Non-tariff Measures OAU Organization of African Unity REC Regional Economic Communities SIPS Systemically Important Payment Systems SPS Sanitary and Phyto-Sanitary SSA Sub-Saharan Africa TBT Technical Barriers to Trade TFA Trade Facilitation Agreement TFP Total Factor Productivity UEAC Central African Economic Union (Union Économique de l'Afrique Centrale) UMAC Central African Monetary Union (Union Monétaire de l'Afrique Centrale) VAT Value Added Tax WAEMU West African Economic and Monetary Union WTO World Trade Organization iii CONTENTS ACKNOWLEDGEMENTS ...................................................................................................................... ii ACRONYMS AND ABBREVIATIONS ..................................................................................................... iii Executive Summary ........................................................................................................................... ix CHAPTER 1: Economic Developments and Convergence in the CEMAC Region ..................................1 A. Introduction ...................................................................................................................................... 1 B. Economic and social indicators ......................................................................................................... 1 C. Trade linkages have changed significantly over time ..................................................................... 13 D. Exchange rate developments .......................................................................................................... 14 E. Economic convergence remains limited ......................................................................................... 18 F. Conclusion and policy recommendations ....................................................................................... 21 Annex ...................................................................................................................................................... 23 CHAPTER 2: Constraints to Private Sector Development ................................................................ 28 A. Introduction .................................................................................................................................... 28 B. Obstacles to doing business ............................................................................................................ 28 C. The performance and productivity of firms in CEMAC ................................................................... 35 D. Conclusion and policy recommendations ....................................................................................... 38 CHAPTER 3: The Financial Sector in CEMAC ................................................................................... 39 A. Introduction .................................................................................................................................... 39 B. Overview of the financial sector ..................................................................................................... 39 C. Challenges of the financial sector ................................................................................................... 42 D. Vulnerabilities and risks .................................................................................................................. 43 E. Conclusion and policy recommendations ....................................................................................... 44 CHAPTER 4: Taxation and Regional Integration .............................................................................. 47 A. Introduction .................................................................................................................................... 47 B. The fiscal regime and tax structure in CEMAC ................................................................................ 47 C. The tax revenue performance in CEMAC ........................................................................................ 50 D. Conclusion and policy implications ................................................................................................. 56 iv CHAPTER 5: Trade Analysis and Trade Policy in CEMAC Countries .................................................. 60 A. Introduction .................................................................................................................................... 60 B. Trade analysis for CEMAC countries ............................................................................................... 60 C. Trade policy in CEMAC .................................................................................................................... 70 D. Conclusion and policy recommendations ....................................................................................... 76 Annex ...................................................................................................................................................... 78 CHAPTER 6: Barriers to Regional Trade in Agriculture .................................................................... 81 A. Introduction .................................................................................................................................... 81 B. Agriculture in CEMAC ...................................................................................................................... 81 C. Bottlenecks to agricultural trade .................................................................................................... 85 D. Conclusions and policy recommendations ..................................................................................... 93 Annex ...................................................................................................................................................... 95 CHAPTER 7: Political Economy Considerations of Regional Integration in CEMAC ............................ 96 A. Introduction .................................................................................................................................... 96 B. CEMAC and regional integration in Central Africa .......................................................................... 96 C. Political economy aspects