© Parfait Iloki | Ministry of Land Management, Infrastructure and Road Maintenance, Republic of Congo.
The Republic of Congo’s oil-driven growth model has reached its limits, says a new World Bank report entitled The Republic of Congo’s Road to Prosperity: Building Foundations for Economic Diversification. , development of human and physical capital, and a more balanced exploitation of natural resources. The report identifies ways in which Congo can achieve its economic diversification goals and recommends policy reforms and investments in several priority areas.
BRAZZAVILLE, March 15, 2023 – The World Bank today released a new edition of the Country Economic Memorandum report for the Republic of Congo. The report, titled The Republic of Congo’s Road to Prosperity: Building Foundations for Economic Diversification.
Here are some highlights from the report:
1. The oil sector dominates the Congolese economy
The structure of the Congolese economy has remained largely unchanged over the past 15 years. The hydrocarbon sector dominates the economy, accounting for about 42% of GDP, 80% of total exports and 60% of domestic revenues. The service sector is the second largest in the economy, with a share of 33% of GDP, while agriculture, forestry and fishing account for 6%. The manufacturing sector, which is mostly small-scale, accounts for an average of 6.5% of GDP.
Despite the outsized role of oil in the economy and the country
try’s industrial sector, it employs only a small percentage of the labor force, i.e. 20%. In fact, about 75% of the Congolese workforce (including most young people) is employed in the informal sector, either self-employed or in low-productivity jobs.
Congo’s current oil-dependent economic model is unlikely to deliver sustainable growth and productive jobs in the future given the expected depletion of the country’s oil reserves and the global transition to a low-carbon economy. The new report contributes to the government’s diversification agenda by identifying key policies and reforms to lay the foundations for more diversified development that will support long-term growth, increase productivity and improve the lives of Congolese people. population will improve.
The hydrocarbon sector plays a dominant role in the economy, but provides less employment
2. Low and falling labor productivity
Congo faces low and declining labor productivity compared to peer countries, limiting economic growth. The fall in labor productivity leads to a fall in per capita income and an increase in poverty. Based on the international poverty line of USD 2.15 per day, the poverty rate in Congo rose from 33% in 2014 to 52% in 2021.
Increasing labor productivity is key to prosperity, as productivity growth is the main driver of sustainable income growth and poverty reduction. The report analyzes labor productivity at the firm level, for the first time in the Republic of Congo, with a focus on the non-oil sector. It finds that the average worker in Congo has to work 2.6 times longer to produce the same output as a worker in a comparable country. In 2019, Congo’s total labor productivity, measured as value added per worker, was just $4,500, compared to an average of $6,200 in comparable countries in the region.
To increase productivity, Congo should prioritize policies to reduce distortions that lead to misallocation of resources between firms, ie by channeling factors of production to the most productive firms. Such policies should target the services sector, which appears to be most affected.
Labor productivity change compared to 2005 (%)
Source: WDI and World Bank staff calculations. June 2022
3. Increase productivity through competition
Competition is an essential driver for boosting long-term productivity and private sector development. In Congo, the government plays a major role in the economy through state-owned enterprises (SOEs) in the energy, transportation, banking and healthcare sectors. In some other sectors, the initial success with market liberalization has faded over the last decade and, for example, the telecommunications sector has been reduced to two market players. The lack of competition is reflected in the declining growth of mobile usage (see graph below).
The report recommends measures to promote access to the private sector and ensure a level playing field between private and public operators, modernize competition rules and establish an independent national competition authority.
It also recommends pro-competitive regulation in selected sectors such as electricity and telecommunications, as both are essential to the efficient functioning of other industries and critical to the digital economy, which Congo has recognized as a priority for economic diversification and growth. The lack of reliable electricity services undermines business productivity. Despite past reform efforts, the energy sector remains constrained by limited coordination and oversight, discouraging private investment. Similarly, despite recent investments in fiber, the information and communication technology (ICT) sector suffers from inadequate infrastructure and high prices for internet services, limiting the productivity of Congo’s companies.
The penetration rate of mobile telephony has risen sharply after ten years
Source: ITU/ICT database. June 2022.
4. Trade Competitiveness
International trade can help accelerate growth and improve living standards. Congo’s current trade is very limited in both the product range (mainly oil and minerals) and the export market (mainly East Asia). The gas and agricultural sectors offer Congo immediate opportunities to diversify its export package. Congo has the fifth largest proven natural gas reserves in sub-Saharan Africa, which remains largely untapped. Similarly, the arable land for agriculture in Congo remains untouched and as a result Congo is a net importer of food products.
To support export diversification, Congo needs to lower tariffs, increase regulatory transparency and accelerate the implementation of the African Continental Free Trade Area (AfCFTA). It should also strengthen efforts for greater integration in global value chains. This requires increasing the attractiveness of the country as a destination for foreign investment, improving access to credit, avoiding rigid regulation of the labor market, improving access to inputs, reforming customs and investing in ports and roads , and ICT connectivity. This policy would be essential to harness the positive impact of the AfCFTA.
Congo’s exports are heavily concentrated on oil and minerals
Source: World Bank staff calculations based on data from BACI (CEPII). June 2022.
5. Logistics and ecotourism
The report examines two major trade-related components that have the potential to significantly contribute to Congo’s export growth and economic diversification: logistics or trade facilitation and ecotourism. Improved efficiency of logistics processes can reduce trade costs, including for major imports, and increase exports of trade goods. Ecotourism, a sector with great untapped potential in Congo, could make an important contribution to job creation, rural development and the export of services.
Logistics efficiency can be improved by scrutinizing public-private partnership contracts and applying unified information technology for maritime trade. Ecotourism development can be supported by improving regulation and allocating funding to protect natural resources, strengthen regulatory and enforcement agencies, and expand transport infrastructure and marketing.
Congo’s logistics performance is improving, but is lagging behind that of peer companies
Source: World Bank. June 2022.
Distributed by African Media Agency (AMA) on behalf of the World Bank
The mail For the Republic of Congo, economic diversification offers a path to prosperity appeared first on African media agency.
Source: African Media Agency (AMA)