Congo-Brazzaville - Economy

Congo is the sixth-largest oil-producing country in Africa, with an estimated production rate of 350,000 barrels per day. In 2019, the government announced the discovery of four new oil deposits that would increase its daily production to 980,000 barrels. But the announcement aroused skepticism among oil exploration specialists, who believe it may be an attempt to foster the illusion of a bright future among the population. Located in the heart of the Congo Basin — considered the planet's second lung after the Amazon — Sassou Nguesso's country is paradoxically one of the poorest in sub-Saharan Africa. With a national debt amounting to 87% of its gross domestic product (GDP), half of the population lives below the poverty line. In this respect, the Republic of Congo is a case study for the "curse of the black gold," while its people still hope for a fair distribution of the land's wealth.

The economy suffered serious loses from destruction and looting in much of the south during the 1997 civil war and the 1998-99 conflict, particularly in Brazzaville. Oil and timber exports are the country's main sources of foreign exchange. Although per capita gross domestic product was estimated in 2001 to be approximately US$700, this figure included substantial oil export revenues, which were not distributed widely throughout the population. Approximately 70% of the population live in poverty. Lack of transparency and inefficient government has impeded economic development.

The majority of the population derive their livelihood from agriculture. Several cash crops were grown, including sugarcane, tobacco, oilseeds, cocoa, and coffee, but most agricultural production was for subsistence use. Soils were at best only moderately productive. Equatorial temperatures and heavy seasonal rainfall destroyed or removed humus and plant nutrients, and only the Niari Valley, in the southwest, gave hope of major agricultural growth.

In the years after independence, the economy was heavily dependent upon foreign financial resources for development. About one-third of total foreign and domestic investment during the 1964-68 period was directed toward the exploitation of the immense potassium chloride deposits at Ilolle. Production facilities were built during the late 1960s, and annual potassium chloride output was expected to expand rapidly to more than 800,000 metric tons, equivalent to about 500,000 metric tons of potash. Government planners anticipated important economic benefits from the project in the 1970s, particularly in the form of increased foreign exchange earnings and state revenues; the project was also expected to raise the gross domestic product by 15 percent.

During the 1960s one of the most important sources of foreign exchange was diamonds brought in illegally from Congo (Kin¬shasa), registered, and reexported. The most important export item produced within the country was lumber, mostly tropical hard¬woods. Other exports included petroleum, palm products, coffee, and cocoa. Imports were concentrated on consumer goods. Most capital goods were also imported.

The Congo played an important role in the transequatorial transportation system since the early days of the Federation of French Equatorial Africa. Its two railways and the navigable rivers have provided an outlet to the sea for shipments from the land-locked countries of Chad and the Central African Republic, as well as a short route to the port of Pointe-Noire for the export of manga¬nese ore from southern Gabon. The road network existing in the 1960s was not extensive and served primarily as a feeder to the railway and waterway systems. It was most dense in the southern part of the country, centered generally on Brazzaville. Because of the distances involved and the difficulties encountered in land transportation, air travel had increased in importance, and many of the population centers had airports with scheduled services.

The Republic of Congo is one of sub-Saharan Africa's main oil producers, though 70 percent of the population lives in poverty. Oil is the mainstay of the economy and in recent years the country has tried to increase financial transparency in the sector. In 2004 the country was expelled from the Kimberley Process that is supposed to prevent conflict diamonds from entering the world supply market. This followed investigations which found that the Republic of Congo could not account for the origin of large quantities of rough diamonds that it was officially exporting.

Since other nations relied on the Congo’s natural resources, the 1997 civil war could not be fought out in a vacuum. One of the strategic power generation centers in the area is the Inga hydro-electric complex; its two dams which generate up to 2,700 megawatts of electricity out of an installed capacity of 100,000 megawatts are located on the Congo river, one about 250 kilometers downstream from Kinshasa and the other about 50 kilometers upstream toward Matadi, the country’s major seaport. Throughout the civil war, the Inga complex was operating at 35 percent of capacity (slightly above 1,500 megawatts) due to Congo’s economic hardships. But Inga still supplied power to Kinshasa and the mining companies of Katanga in southeastern Congo, as well as northern Zambia and several countries in southern Africa.

The Republic of Congo (RoC) is a country of enormous potential wealth relative to its small population of 4.5 million. However, the RoC’s fiscal and external accounts have deteriorated due to the sustained crash of oil prices, owing to the country’s continued dependence on oil. Weak economic growth has been revised from 5 percent in 2015 to approximately 2.5 percent in 2016 according to Fitch Ratings. Oil remains a big driver of growth, but its contribution to government revenue is expected to be halved, from 80 percent a year ago to approximately 40 percent at current crude oil prices.

The non-oil sector is primarily focused on the logging industry, but growth is also occurring in the telecommunications, banking, construction, and agricultural sectors. The RoC is a country poised for economic diversification, with some of the largest iron ore and potash deposits in the world, a heavily-forested land mass, a deep-water International Ship and Port Facility Security (ISPS) Code-certified port, fertile land, and a small but heavily urbanized population. The RoC has been AGOA eligible since October 2000, providing an additional enticement for export-related investment. RoC is a member of the Financial Community of Africa (FCA).

Despite continuing yearly improvements in the macroeconomic figures for the RoC, 46 percent of the population lives on less than $1.40 per day, putting poverty prevalence much higher than in peer oil-exporting countries. There is no apparent middle class with respect to education, skills, and material living standards. The RoC suffers from low education standards and little social mobility. Most of the population still operates in the informal sector of the economy.

In addition to risks stemming from fluctuating oil prices and income inequality, the RoC also faces periodic internal political and security risks. The RoC is a post-conflict society, with the final peace accord of the 1997-1999 civil war signed in 2003. In late 2015 and early 2016, political unrest resulted in over 30 dead, hundreds injured, and thousands of temporarily displaced persons. Such tensions may occur around elections.

The Congo was Africa’s fourth- largest oil producer and had vast un-tapped reserves. French and US oil companies naturally took an interest in developments. The Congo's economy is based primarily on its petroleum sector, which is by far the country's greatest revenue earner. The Congolese oil sector is dominated by the French oil company Total and the Italian oil firm Eni. The three American players in the petroleum production sector are Chevron, ExxonMobil, and Murphy Oil. Chevron is a longtime player in the Congolese market, but its participation has been limited to non-operator joint venture partnerships with Total and Eni. Chevron is exploring exploitation of new fields in the Lianzi region, a joint exclusive economic zone agreement between Congo and Angola, in which Chevron would be the principal operator. ExxonMobil owns a relatively small amount of oil-laden acreage and acts as a joint operator in all fields. Murphy Oil exported its first shipment of 600,000 barrels of oil in October 2009 and produces 15,000 barrels per day, or about 5% of Congo’s daily production, though revised 2010 figures may as much as double that amount. American companies including Baker-Hughes, Halliburton, Nabors, Schlumberger, and Weatherford also have an important stake in the oil services sector.

The return of stability to Congo also led to increased foreign investment in other areas. President Sassou-Nguesso sees the industrialization of the Congo as a key component of his plan to modernize the country. Mineral extraction is one key growth sector. MagMinerals, a Canadian company, recently began construction of a new potash mine that is expected to produce 1.2 million tons of potash (potassium carbonate) per year by 2013. This will make Congo the largest producer of potash in Africa. The most important mineral reserves, however, will likely prove to be iron ore. Seven mine sites have been identified in the north and west of the country, with a variety of international companies heading exploration. Three of the mines are expected to enter production by 2014, including the Zanaga mine, operated by the Swiss Xstrata company, which is thought to have ore reserves enough to be the world’s third-largest iron ore mine. The President’s plans also call for new lead, zinc, and copper concessions. Agricultural revitalization is also a cornerstone of this modernization plan, with the government recently signing a lease deal for over 100,000 hectares of farmland with a consortium of South African farmers to grow a variety of vegetables and grains. Currently, the American non-governmental organization International Partnership for Human Development (IPHD) operates the largest agricultural venture in the country, a 1,000-hectare corn farm in the southwest.

The country's abundant northern rain forests are a major source of timber. Forestry, which led Congolese exports before the discovery of oil, now generates less than 7% of export earnings. Wood production restarted after having come to a standstill during the war years, and new concessions were leased in 2001. Congo has been active in certifying sections of the forest for sustainable timber development through the Forest Trust Conservancy.

Earlier in the 1990s, Congo's major employer was the state bureaucracy, which had 80,000 employees on its payroll--enormous for a country of Congo's size. The World Bank and other international financial institutions pressured Congo to institute sweeping civil service reforms in order to reduce the size of the state bureaucracy and pare back a civil service payroll that amounted to more than 20% of GDP in 1993. The effort to cut back began in 1994, with a 50% devaluation that cut the payroll in half in dollar terms. By the middle of 1994, there was a reduction of nearly 8,000 in civil service employees.

Between 1994-1996, the Congolese economy underwent a difficult transition. The prospects for building the foundation of a healthy economy, however, were better than at any time in the previous 15 years. Congo took a number of measures to liberalize its economy, including reforming the tax, investment, labor, timber, and hydrocarbon codes. In 2002-2003, Congo privatized key parastatals, primarily banks, telecommunications, and transportation monopolies, to help improve a dilapidated and unreliable infrastructure.

By the end of 1996, Congo had made substantial progress in various areas targeted for reform. It made significant strides toward macroeconomic stabilization through improving public finances and restructuring external debt. This change was accompanied by improvements in the structure of expenditures, with a reduction in personnel expenditures. Further, Congo benefited from debt restructuring from a Paris Club agreement in July 1996.

This reform program came to a halt in early June 1997 when war broke out, and the return of armed conflict in 1998-99 hindered economic reform and recovery. President Sassou-Nguesso has moved forward on improved governance, economic reforms, and privatization, as well as on cooperation with international financial institutions. President Sassou-Nguesso also has made speeches outlining the need for good governance and transparency in the Congo, particularly during his 2003 and 2004 National Day addresses.

Before June 1997, Congo and the United States ratified a bilateral investment treaty designed to facilitate and protect foreign investment. The country also adopted a new investment code intended to attract foreign capital. Congo has made some commendable efforts at political and economic reform, but despite these successes, the country’s investment climate has challenges, offering few meaningful incentives for new investors. High costs for labor, energy, raw materials, and transportation; a restrictive labor code; low productivity and high production costs; and a deteriorating transportation infrastructure have been among the factors discouraging investment. Five years of civil conflict (1997-2003) further damaged infrastructure, though the privatization of some statal and parastatal enterprises has generated some interest from U.S. companies.

In March 2006, the World Bank, International Monetary Fund (IMF), and the Paris Club group of official creditor countries approved interim debt relief for Congo under the Heavily Indebted Poor Countries (HIPC) Initiative, noting that Congo had performed satisfactorily on an IMF-supported reform program and developed an interim Poverty Reduction Strategy. Resources freed by interim debt relief granted to Congo had to be used for poverty reduction under a reform program closely monitored by the international financial institutions. The London Club of commercial creditors and Congolese Government also signed an agreement in November 2007 forgiving 77% of the country’s London Club debt. In 2008 and 2009, the government worked closely with the IMF and World Bank to implement reforms that would satisfy all of the “triggers” in the Poverty Reduction Strategy, and in January 2010 the IMF declared that the Congo had satisfied all of these triggers. Following this declaration, Congo was granted U.S. $1.9 billion in debt relief from the Paris Club in March 2010. Congo had paid over U.S. $900 million to a vulture fund in 2009 in order to avoid having problems with international financial transactions. The payment raised concerns at the Paris Club because it was not on “comparable terms,” but the Paris Club determined that it would grant debt relief nonetheless.

In November 2007, Congo was readmitted to the Kimberley Process, an international multi-stakeholder initiative designed to stem the trade of conflict diamonds. Congo had been suspended from the Kimberley Process in 2004, after reviews showed its diamond exports vastly outnumbered its production capacity. Congo is seeking Extractive Industries Transparency Initiative (EITI) validation and is listed as a candidate country. Significant transparency hurdles remain in the oil and transport sectors that hinder Congo’s candidacy.

During the 1970s and 1980s, the Congolese economy was dominated by state-owned companies. However, the promulgation of Law 24/94 on August 10, 1994, which introduced a framework for privatization, and its addendum, Law 10/95 introduced on April 17, 1995, which identified specific sectors to be privatized, ushered in a new economic era that is receptive to national, private and foreign investments. In the wake of privatization, the remaining number of State-Owned Enterprises (SOE) is quite small. The primary actors are in the energy & utility sector; these include the National Oil Company (SNPC), the Electric Company (SNE), and the Water Supply Company (SNDE).

International landlines are non-existent, but mobile phone saturation in the RoC is strong; however, supporting infrastructure, particularly for data communications, is lagging. Internet penetration is 7.1 percent and extremely expensive, providing significant room for competition and growth in that sector. And, while overall low income keeps people from having their own personal computers and internet services, prevalence of cyber cafes and other Wi-Fi hotspots is increasing, indicating both a desire for internet services as well as a potential market for local internet advertisers. However, the government closely controls internet and telecommunication access. This was demonstrated during the referendum to change the constitution in October 2015 when the government suspended internet and text, communication throughout the country for 10 days; and in March 2016 during the presidential election, it suspended internet, text, and voice services for four days.