Central African Republic: Risk Assessment
Country Risk Rating
Business Climate Rating
- Agricultural (cotton, coffee), forestry, and mining (diamond, gold, uranium) potential
- Substantial international financial support
- Extreme poverty (two-thirds of the population lives below the poverty line)
- Economy vulnerable to external shocks
- Weak transport infrastructure and energy production capacity
- Geographically isolated
- Unstable political and security situation (a large part of the territory is controlled by armed rebel groups)
Growth should return to pre-crisis levels
Healthwise, the Central African Republic (CAR) was only slightly impacted by the COVID-19 pandemic. In economic terms, growth in 2020 was anaemic but should return to its pre-crisis level in 2021.
The CAR economy is dependent on its exports (19% of GDP) and therefore on its partners, particularly France and China, which accounted for 33% and 13% of total exports in 2019, respectively. Demand in these two countries shrank because of the strong impact of the COVID-19 crisis, causing their imports to decline. Diamond sales were particularly affected as demand contracted due to the closure of cutting workshops in India and polishing workshops in Israel, as well as the suspension of certification in Belgium. Furthermore, demand for jewellery fell, as jewellery stores were closed in countries under lockdown. However, demand for diamonds is expected to increase in 2021, the stockpile built up in 2020 should be sold and production should increase. Agricultural production (nearly 40% of GDP) also decreased because of the pandemic. Harvests were poorer and difficulties in obtaining fertilizers affected production. There is considerable uncertainty about whether the agricultural sector will recover in 2021 due to its reliance on unpredictable weather conditions and the timid pick-up in demand. Wood exports (2/3 of total exports) fell sharply due to supply chain disruptions. They are expected to resume in 2021 thanks to massive government investment in the sector and the need to rebuild infrastructure destroyed by the civil war.
The weak export performance widened the current account deficit, which was nonetheless mitigated by lower imports, including lower oil prices and reduced household demand. Household consumption declined due to labour market distortions caused by COVID-19, which fuelled uncertainty about the future and prompted households to save. The deficit should be reduced in 2021 as exports gradually recover, but is expected to remain significant. Imports are also expected to pick up, on the back of a slight upturn in employment, which would stimulate household consumption. Purchases of capital goods are expected to resume rapidly, as the need for reconstruction is significant. Meanwhile, following COVID-19, the government may invest heavily in the health system. Conversely, the recovery of private investment remains uncertain, due to high-risk aversion among companies and the economic uncertainties related to the crisis.
Highly dependent on external aid
The government quickly adopted fiscal measures to support the economy, businesses, including through a fund to prevent business failures and job losses and the poorest and most vulnerable households. The intervention plan for COVID-19 is estimated at USD 268 million (12% of GDP). In addition to budget support, the plan includes loan rescheduling as well as additional assistance through the WHO. CAR remains highly dependent on external financing due to its low tax rate. This funding enables the country to limit its budget deficit, despite high public spending (17% of GDP in 2019). In the context of the health crisis, the French Development Agency, the African Development Bank, the World Bank and the EU have provided budget support of more than USD 400 million (18% of GDP). The IMF also provided two concessional loans under the Extended Credit Facility approved in December 2019. In terms of external debt, the G20 agreed to a debt service standstill.
A volatile political and security situation
The political and security situation remains highly precarious because of the civil war, which lasted until 2016. Because of the violence by rebels, encouraged by former President Bozizé, only half of those registered were able to participate in the presidential election of December 2020, of which Faustin-Archange Touadéra, the outgoing president, emerged victoriously. The second round of legislative elections on 7 February 2021 may not elect enough deputies. The elections focused on security issues, which are critical to economic recovery. Despite a new peace agreement signed in February 2019 between the government and rebel groups, which has contributed to a decrease in violence, the security situation remains very difficult. Clashes continue between factions of ex-Séléka, a mainly Muslim armed group, and anti-Balaka groups, which are mostly Christian. Many other armed groups are taking advantage of the instability to try to impose themselves locally. Sporadic violence continues to occur, particularly in the provinces. The new peace agreement provides for the integration of rebel representatives into the government and is designed to enable the national army to regain control of the territory (70 to 80% is in rebel hands), with units composed of soldiers from both the regular army and rebel groups. However, it is uncertain, to say the least, whether the agreement will be implemented. As of July 2020, the country had more than 680,000 internally displaced persons (13% of the population) and almost as many refugees in neighbouring countries. The UN peace mission, Minusca, appears to be under-resourced and is suffering losses in its ranks.