Central African Republic: Risk Assessment
Country Risk Rating
|D||A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.|
Business Climate Rating
|D||The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.|
The political crisis is hampering growth and weakening infrastructures
The political and security crisis triggered the severe recession in 2013. Growth is likely to rebound in 2016 amid a gradual recovery in commercial activities. Activity should mainly be underpinned by agricultural production, which accounts for more than half of GDP and employs almost 75% of the population. Agricultural production growth will, however, continue to suffer from the lack of productivity, the difficulty of accessing finance and disruptions due to security problems. The mining sector will probably also contribute to the upswing in activity following the partial lifting of the embargo against the country in June 2015. The suspension of sanctions should enable the Central African Republic to sell diamonds, while selling existing stocks, estimated at 70,000 carats. The road and air transport sector remains extremely dependent on the international forces securing sensitive sites (airport, axis Bangui-Cameroon), while the majority of businesses have had their production apparatus destroyed. Only the banking and sugar sectors should to a certain extent - and like local shops - see an upswing in their activity.
Domestic demand should remain listless given the exile of nearly one-quarter of the population (one million people have left the country and have not yet returned). Despite the emergency aid granted by the EU and the IMF, the country is still struggling to recover and investment is likely to remain very volatile in 2016.
Inflation is on a downward trend but should remain above the 3% targeted by the Central African Economic and Monetary Community. This slight fall will be due to reduced pressure on domestic agricultural prices (because of the increase in supply).
Public finances driven by international aid
Amid a deterioration in the budget balance (in particular a decline in budget receipts), the transition government will probably continue to rely on external financing, given its reduced borrowing capacity and the persistent insecurity that will still make it difficult to collect revenues. The EU is one of the country’s main donors, having provided an amount of aid estimated at USD 360 million since the conflict broke out in 2013, of which 10 million earmarked for humanitarian aid, 22 million for the Bêkou fund (European fund aimed at coordinating the aid) to support the economic and social recovery and 40 million in the form of budget support in order to fight violence during the organization of the 2015-2016 elections. The current account deficit worsened in 2015 because of the fall in oil prices which encouraged imports. It should start shrinking in 2016, due to the partial lifting of the embargo on Central African diamonds, leading to noticeable export growth. However, the recovery will probably be gradual, and exports of wood, coffee and cotton (the country’s main agricultural wealth) should continue to suffer, but less than in previous years, given the insecurity and the turmoil affecting the transport and logistics sector.
Very unstable political situation and significant deterioration in the business climate
In power since January 2014, Catherine Samba-Panza had to deal with an unstable political situation. The transition government has called for presidential and general elections on 30th December 2015, after the violence that delayed the presidential election initially scheduled for in October 2015. According to the new timetable, a national referendum on a draft constitution will take place in the weeks preceding the first round. A second election round is scheduled for 31st January 2016. The first partial results confirm that the former Prime Minister Touadéra is far ahead of the other thirty candidates to presidency. While awaiting the outcome of the election’s second round, the constitution allows the transition government to remain in place until the elected government is installed.
Despite a ceasefire signed between Christians and Muslims, the fighting has never stopped. Each of the two currents includes independent radical factions, which means the country’s growing polarization may continue. The massive destruction of infrastructures and the looting have had a severe impact on the economy’s productive structure.
In this war context, the business climate is likely to remain unstable and tense. Therefore, according to the World Bank’s indicators, the Central African Republic is one of the lowest ranked countries in terms of government efficiency, quality of regulations and rule of law. Given the political instability and the worst business environment in the region (corruption, difficulty in creating a business), it is unlikely that the country will be able to attract investors and no improvement is expected in the short term.