Central African Republic; steady progress continues; investment is encouraged - Business Outlook Abroad

Business America, Sept 1, 1986

CENTRAL AFRICAN REPUBLIC

The Central African Republic (CAR) is a landlocked country in the heart of Africa that occupies a land mass slightly smaller than the state of Texas with a population of 2.7 million (1985 estimate), which increases 2.3 percent annually.

In the 26 years since its independence from France, the CAR has made only slow progress towards economic development. A near-decade of serious economic mismanagement in the 1970s, aggravated by external factors, resulted in a decline of output and per capita incomes between 1978 and 1982. The governments succeeding the Bokassa regime in late 1979 began to address the CAR's economic difficulties with the aid of France, the International Monetary Fund (IMF), the World Bank group, and other bilateral and international donors. Since 1981, the Kolinga government has made considerable progress in both the economic and the political realms, and is continuing its impetus toward financial stabilization and structural change.

President Kolingba returned the government to civilian rule in September 1985, and since then a Constitution (suspended in 1981) has been drafted and will soon be submitted to popular referendum. Prospects are good that political stability will continue.

The economy in CAR is essentially free enterprise and agrarian. With an annual per capita income of $310 (IMF), it is among the world's poorest and least monetized. Between 1982 and 1985, gross domestic product and agricultural production rose (interrupted by the severe effects of the drought in 1983) at an annual average rate of 1.2 and 2.6 percent, respectively. Exports of cotton, coffee, and diamonds have risen significantly in the years since 1983. This modest economic expansion is expected to continue in 1986 and succeeding years.

Agricultural activities (including forestry) account for 42 percent of GNP; mining, manufacturing, and construction for 13 percent; and services for 45 percent. The large share of services is explained by the high transportation costs in domestic and international trade and an oversized civil service dating from the colonial era.

The CAR's landlocked location, difficult transportation conditions, low population density (outside Bangui), limited domestic market, and relatively unskilled human resource base are the principal constraints to the development of its economy. The economy, heavily dependent on primary commodities, remains vulnerable to world market and climatic developments, with little significant terms of trade improvement expected. Medium-term prospects are thus ones of inevitable austerity for the Kolingba Administration. In spite of this, the CAR's rich and reasonably well diversified resource base should allow its per capital income to grow at modest but sustainable rates in the future, provided appropriate macroeconomic and sectoral policies are continued.

Bilateral relations between the United States and CAR are excellent. Total current U.S. development aid to CAR is approximately $2 million annually, with a focus on food production. Trade between the United States and CAR declined steadily after 1982, but U.S. exports to CAR rose in 1985 to surpass their former level as the dollar value fell against that of the franc.

While the commercial opportunities offered by the Central African market are very limited, the CAR government unreservedly encourages private sector enterprise and investment, especially from foreign businesses, given the present weakness of the domestic private sector. The current urgent need of the government for investment ensures that liberal government incentive policies will continue for the forseeable future.

Most budgetary and development aid has been from European sources, especially France, which is traditionally the largest export and import trading partner as well. Present U.S. commercial interest in the CAR is minimal, since Americans have usually yielded to Europeans in such small African markets, but the CAR could be a conducive investment climate for American firms which are able to embrace the French language, the metric system, and the distance across the Atlantic. The limited amount of good quality government data and sparse academic and donor-supported research are other, but perhaps not overwhelming, constraints to American commercial expansion in CAR.

Private American investment in CAR has been traditionally concentrated in the diamond sector, but in 1984 these interests were sold. Smaller American investment exists in the tobacco sector (the General Cigar Co. of Virginia holds an 8 percent interest in the cigarillo manufacturing firm MANUCACIG), as well as the petroleum and gold industries.

Appropriate industries for investment by U.S. firms include renewable energy systems (especially hydroelectric generating equipment), light manufacturing or assembly (for ease of transport), and all types of food processing (especially fruit and vegetable). In addition, the CAR imports U.S. logging equipment and cotton gins. Expansion in the agricultural, mining, and petroleum sectors is likely to provide a market for related machinery, as well as for fertilizers, insecticides, and seeds. However, export of foodstuffs (particularly rice) from the United States would not be beneficial for CAR, since foreign supplies could easily flood the small CAR market, discouraging local production. Given the government's austerity program, U.S. suppliers may find their greatest opportunities for sales in conjunction with planned donorfinanced development projects.