EPUBLIC TH CENTRAL AFRICAN R FIF PDATE ECONOMIC U Weathering Growing Risks Addressing Macro-Fiscal Challenges and Unlocking the Potential of the Agriculture Sector I © 2022 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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II Table of Contents Executive Summary 1 1 Recent Economic Developments and Outlook 13 1.1 Recent Economic Developments: Loss of Momentum 14 CAR’s economic growth stagnated in 2021 after a reasonable 1.1.1 15 performance pre-COVID-19 1.1.2 Monetary Policy and Financial Sector: Opening a Pandora’s Box 19 1.1.3 The country’s fiscal position is headed toward a cliff 22 COVID-19 and security-related shocks have worsened CAR’s 1.1.4 26 external position Economic Outlook and Risks: Positive Growth but Highly 1.2 28 Vulnerable to Headwinds CAR’s economic outlook is positive but highly vulnerable to 1.2.1 29 headwinds 1.2.2 Growing risks and uncertainties 34 Unlocking the Potential of the Agriculture Sector to Protect 2 41 Livelihoods The agriculture sector offers immense opportunities, but its 2.1 43 performance has been declining for decades 2.1.1 CAR’s agriculture sector has immense potential 43 2.1.2 Still, the contribution of agriculture to growth remains limited 47 Agriculture has suffered from weak performance over the past 2.1.3 47 decades III Several bottlenecks have prevented the sector to unlock its 2.2 51 potential 2.2.1 Weak budget allocation 51 2.2.2 Challenges in accessing improved seeds and fertilizers remain 53 2.2.3 Addressing persistent transhumance challenges 55 Closing the gender gap can help boost agricultural transformation 2.2.4 58 and reduce poverty 2.2.5 Major Effects on Food Insecurity, Stunting, and Malnutrition 60 Key Cross-Cutting Issues to Tackle to Successfully Transform 2.3 62 the Sector 2.3.1 Tackling Governance and Institutions 62 2.3.2 Improving Access to Markets 65 2.3.3 Addressing persistent transhumance challenges 67 Closing the gender gap can help boost agricultural transformation 2.3.4 69 and reduce poverty 2.3.5 Strengthening Access and Availability of Production Factors 71 References 75 Annex 76 IV Table of Figures Figure 1. Policy Priorities to Reduce Macroeconomic Imbalances and Support a Strong 6 Recovery Figure 2. In 2021, CAR’s annual real GDP growth stagnated and reached one of its 16 lowest levels since 2015. Figure 3. A contraction of private consumption and exports led to a stagnation of real 16 GDP growth. Figure 4. Inflation decelerated in the second half of 2021. 18 Figure 5. CAR’s trade competitiveness remained weak compared to peers in 2021. 18 Figure 6. Net foreign assets continued to mimic disbursements of donor budget 20 support. Figure 7. The share of private sector credits declined in 2021 but continued to 21 represent a significant share of total credit. Figure 8. CAR’s overall fiscal balance deteriorated in 2020. 22 Figure 9. Total government revenues increased in 2020 due to an increase in official 22 grants. Figure 10. CAR has implemented 97 bold economic reforms over the past 5 years … 24 Figure 11. …and their impact on budget execution has been remarkable. 24 Figure 12. The decline in official transfers contributed to the widening of the current 26 account deficit… Figure 13. … but CAR’s current account deficit remained the largest among peers. 26 Figure 14. The improvement in the financial account resulted in a moderate balance of 27 payment surplus. Figure 15. Personal remittances remain low, paying a marginal role the balance of 27 payments. Figure 16. Projected Impact of Overlapping Crisis on Real GDP Growth 35 Figure 17. The labor force is still mostly concentrated in the agriculture sector. 44 Figure 18. The agro-pastoral repartition of products highlights the significant potential 45 in all regions. Figure 19. Domestic investment in the agriculture sector has been relatively modest 52 over the past decade. Figure 20. Agricultural productivity has been flat over the past years. 52 Figure 21. Limited access to finance, technical support, and improved seeds are major 54 bottlenecks in the agriculture sector. Figure 22. Compared to regional peers, the use of fertilizers remains limited… 54 Figure 23. … and the proportion of land equipped for irrigation is low. 56 Figure 24. Almost half of the population is expected to be affected by acute food 56 insecurity. V Figure 25. A multitude of actors in the agriculture sector have had a meager impact. 57 Figure 26. Recurrent conflicts between herders and farmers significantly affect their 60 activities. Figure 27. Wandering animals, rural damage, theft, and killing of livestock are the major 64 sources of transhumance. Figure 28. Informal resolution of conflicts is the most preferred approach. 65 Figure 29. Lack of veterinary products and finance are the major constraints facing 73 herdersl. Figure 30. CAR adds meager value to its agricultural production. 73 Table of Tables Table 1. Key Policy Options to Revitalize the Agriculture Sector 10 Table 2. Financial Operations of the Central Government, 2017-2024 23 Table 3. Medium-Term Macro-Fiscal and Financial Projections, 2017–25 30 Table 4. Policy Priorities to Reduce Macroeconomic Imbalances and Support a Strong 40 Recovery Table 5. There has been a movement of labor from agriculture to services. 49 Table 6. The appraisal of recent agricultural policies highlights persistent structural 76 challenges. Table of Boxes Box 1. The budget execution rate has significantly improved thanks to public financial 24 management reforms Box 2. Toward a Fiscal Cliff: Socioeconomic and Security Impact at the National and 32 Regional Level Box 3. Overlapping Crises Could delay the Economic Recovery 34 Box 4: The Cryptocurrency law in CAR, and its potential regional spillover effects in the 37 CEMAC VI Abbreviations and Acronyms BEAC Bank of Central African States, Banque des États de l'Afrique Centrale CAR Central African Republic CEMAC Central African Economic and Monetary Community, Communauté Économique et Monétaire de l'Afrique Centrale COBAC Banking Commission of Central African States, Commission Bancaire de l'Afrique Centrale FCV Fragility, conflict, and violence GVCs Global value chains IMF International Monetary Fund NPL Non-performing loan SDR Special Drawing Rights SSA Sub-Saharan Africa VII Acknowledgments This is the Fifth edition of the Central African Republic Economic Update. It analyzes evolving economic trends in the Central African Republic (CAR) on an annual basis to assist the government and its development partners in identifying emerging opportunities and addressing persistent challenges. Each edition presents an overview of CAR’s evolving macroeconomic position, followed by a detailed exploration of a specific topic. The objectives of the series are to: (i) strengthen the analytical underpinnings of development policy in CAR; and (ii) contribute to an informed debate on policy options to enhance macroeconomic management and accelerate progress on the World Bank Group’s twin goals of eliminating extreme poverty and promoting shared prosperity in a context of state fragility. This Economic Update builds on the findings of previous editions, and it emphasizes the importance of relying on peace, stability, domestic resource mobilization, economic diversification, and human capital to achieve sustained economic growth and poverty reduction. The report reviews recent economic developments to assess human capital gaps and challenges and present opportunities to strengthen investment in the people to protect the future. The fifth edition of the Central African Republic Economic Update was prepared by a World Bank team led by Wilfried A. Kouame. Chapter 1 was prepared by Wilfried A. Kouame and Diderot Tomi. Chapter 2 was prepared by Wilfried Kouame, Senakpon Aurelia Dakpogan, Raoul Choumbou, Robert Djidonou. Nabil M. Chaherli provided excellent comments on chapter 2 and the report benefited from the constructive comments of peer reviewers: Diego Arias Carballo (Practice Manager, SLCAG); Abdoul Mijiyawa (Sr. Economist, EAWDR), Nathalie Picarelli (Sr. Economist, EAWM1) and Ashesh Prasann (Agriculture Economist, SLCAG). The team received guidance, insightful comments, and encouragement from Francisco Carneiro (Practice Manager), Raju Singh (Lead Economist), Abdoulaye Seck (Country Director), Han Fraeters (Country Manager), Clelia Rontoyanni (Program Leader), and Nabil M. Chaherli (Program Leader). The team is grateful to International Monetary Fund colleagues for their comments. Claudia Rocio Manrique, Irene Sitienei, and Appoline Yete (Program Assistant) supported the team during the preparation of the report. In addition, the team greatly benefited from consultations with key policymakers and analysts in CAR, including officials from the Monitoring Committee for Economic Reforms; the Ministry of Economy, Plan and Cooperation; the Ministry of Finance and Budget; the Central African Republic Institute of Statistics and Economic and Social Studies; and the Bank of Central African States. Credits: @World Bank Country Management Unit Summary Executive Developments Recent Economic 2 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Recent Economic Developments The economy of the Central African Republic Insecurity and disruptions in supply chains (CAR) stagnated in 2021 compared to 2020 . drove inflation above the regional ceiling of Economic activity suffered particularly in 2021Q1 as 3 percent in 2021 . Renewed conflict disrupted renewed insecurity amid election disputes disrupted food supply chains along the country’s main trade production and trade. Boosted by the resumption corridor and contributed to inflationary pressures of commerce along the Douala-Bangui corridor and in the first half of 2021. Thousands of freight trucks security gains, economic activity picked up in the remained stranded at the border with Cameroon for second half of the year. The protracted effects of approximately three months. As a result, inflation COVID-19 on the global economy led to persistent accelerated by 5.2 percent, year-on-year, in the first disruption in global value chains and low external half of 2021. As traffic gradually resumed on the demand, which affected international trade and Douala-Bangui corridor in the second half of the year, transport. As a result, real GDP growth settled at inflation decelerated markedly to an average of 4.5 0.9 percent in 2021—below the average of the percent, above the regional convergence criteria of 3 Central African Economic and Monetary Community percent. Surging domestic food prices accounted for (Communauté Économique et Monétaire de l'Afrique about 70.1 percent of inflationary pressures in 2021. Centrale, CEMAC) (2.1 percent), Sub-Saharan Africa The banking sector performed relatively well in 2021 (SSA) (3.5 percent), and countries affected by fragility, on a range of financial soundness indicators. However, conflict, and violence (FCV) (2.6 percent). On the net foreign exchange reserves fell sharply in the fourth supply side, positive developments in the agriculture quarter as donors’ appetite for budget support waned. sector prevented economic growth from decelerating further. On the demand side, private consumption Fiscal pressures mounted in 2021 and led to increased in 2021, reflecting the resumption of a deterioration in the fiscal position, lingering economic activity in the second half of the year. The debt vulnerabilities. Domestic revenues declined extreme poverty rate increased from 71.0 percent in from 9.1 percent of GDP in 2020 to 8.7 percent of 2020 to 71.4 percent in 2021—affecting more than GDP in 2021, due to the blockade of the Bangui- 3.4 million people—as the growth population rate Douala corridor and the protracted economic impact exceeded Real GDP growth. of the pandemic on international trade. Official 3 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE grants reached their lowest level in the last decade. CAR’s current account balance deteriorated Grants from international donors to CAR fell from further in 2021 due to a sharp decline in official 12.6 percent of GDP in 2020 to 4.9 percent of GDP transfers. The deficit in the current account increased in 2021, as geopolitical tensions and transparency from 8.5 percent of GDP in 2020 to 10.6 percent of issues on security expenditures pushed development GDP in 2021—the highest level since 2015—due partners to withhold their budget support. This to a sharp decline in official transfers. The trade situation generated substantial fiscal pressures balance improved but remained in deficit as exports throughout 2021 and posed a risk of a possible rebounded in the second half of 2021. CAR’s current default on essential obligations (fiscal cliff). CAR account deficit is expected to be larger than that of escaped the fiscal cliff due to cuts in public spending, comparator FCV, CEMAC, and SSA countries. The a reliance on bridge financing on the domestic market capital balance narrowed from 7.5 percent of GDP (3.3 percent of GDP), and the International Monetary in 2020 to 4.9 percent of GDP in 2021, reflecting a Fund’s Special Drawing Rights (SDR) allocation (1.9 downward trend in project grants, while the financial percent of GDP). Total public expenditure fell from account shifted from a deficit in 2020 to a surplus in 24.9 percent of GDP in 2020 to 19.7 percent of GDP 2021 with the decline in net public sector investment in 2021 as the government cut public expenses in and marginal increase in foreign direct investment. response to Treasury pressures and unwound its The improvement in the capital and financial accounts COVID-19 fiscal stimulus package. As a result, the has helped shift the balance of payments to a surplus, overall fiscal situation deteriorated further, from increasing foreign reserves, which reached a level a deficit of 3.3 percent in 2020 to a deficit of 6.1 equivalent to about 4.5 months of imports at end- percent of GDP in 2021. Public debt increased from 2021, up from 3.5 months in 2020. 44.1 percent of GDP in 2020 to 47.9 percent of GDP in 2021, driven by public borrowing from commercial banks to finance the budget and avoid a fiscal crisis. Economic Outlook and Risks CAR’s economic outlook is positive but highly The adoption of the cryptocurrency law and vulnerable to headwinds from overlapping the absence of budget support threaten financial crises. The economy is projected to grow by 2.2 and fiscal stability. The new law on cryptocurrencies percent in 2022—1.3 percentage points below raises several critical concerns, including the technical previous projections—as private consumption and ability of CAR to effectively oversee and monitor investments are expected to be adversely affected cryptocurrency transactions, preserve financial by the impact of the war in Ukraine, the government’s integrity, ensure the protection of personal data, fiscal adjustment plans announced in April 2022, and reduce money laundering risks. In the absence and uncertainties related to the adoption of Bitcoin of budget support, fiscal trade-offs will be difficult as legal tender. CAR’s economic growth is expected and costly regardless of the financing options. to average 3 percent in 2023–25, above the average The resulting inadequacy of the macroeconomic population growth rate. As a result, real GDP is framework will further reduce options to see a return projected to increase, albeit at a marginal rate. The of budget support in the medium term. Prolonged extreme poverty rate is expected to remain high at global uncertainty will compound existing domestic 71.2 percent, on average, in the medium term, while vulnerabilities, with food and fuel shocks expected on food insecurity and limited access to basic public top of the budget support shock. Even with significant services, especially in remote areas, will remain major cuts in non-priority spending and the full use of all concerns. remaining SDR, projections show that as of early 2023 4 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE it will be extremely difficult for the government to crisis support to vulnerable households affected meet its most essential obligations. by higher commodity prices. To guarantee a sustainable return of peace and security, CAR A reversal in security gains could potentially also needs to implement the recommendations jeopardize years of progress in poverty reduction. of the Republican Dialogue and pursue the Reforms aimed at addressing grievances of previous implementation of the 2019 Political Agreement crises and strengthening the fragile social contract for Peace and Reconciliation (Accord Politique pour could be delayed. Similarly, the implementation of la Paix et la Réconciliation) or update it in light of the recommendations of the Republican Dialogue, recent developments. held in March 2022, could be in serious jeopardy, increasing security uncertainties. In turn, this could → Pursuing the vaccination campaign to reduce lead to a higher country risk premium and continue the risk of new COVID-19 waves and the to discourage private investment. A deterioration of emergence of new variants remains critical and the security environment could disrupt agricultural will require both domestic and global efforts. production, leading to a shortage of food. This has the In parallel, CAR needs to maintain COVID-19 potential to generate inflationary pressure that is likely prevention, containment, and management to erode households' purchasing power, pushing many measures while strengthening prevention of them into extreme poverty. measures against infectious diseases. The country’s strong dependence on raw → Reducing fiscal imbalances by responding commodity exports prevents it from creating the to treasury pressures without adding to debt buffers needed to attenuate external shocks. The vulnerability. CAR could prioritize concessional fragile security situation, coupled with weak economic sources of financing and improve cash diversification, makes CAR extremely vulnerable to management to prevent the accumulation of shocks that influence the demand of commodities. new arrears. It could also minimize uncertainties External and internal shocks affecting the production and fiscal and financial risks associated with the and exports of its main commodities could undermine adoption of Bitcoin as legal tender by closely the country’s overall economic performance and following the guidance of regional monetary and macroeconomic stability in the medium term, as CAR financial institutions. On the revenue side, priorities does not have buffers to attenuate these shocks. could focus on implementing the decree on the interconnection of eDouane and ASYCUDA and the Delays in the global economic recovery and the monthly reconciliation of import-export data to impact of the war in Ukraine could be detrimental reduce fraud and corruption. to CAR’s economic outlook. A delayed recovery in international demand for the country’s commodities → Enabling trade and private sector development could worsen the current account deficit and reduce by: (i) reducing non-tariff measures (tracasseries) domestic revenue. This scenario, coupled with limited on the main trade corridor to allow firms and fiscal space, could widen the fiscal deficit, especially households to access inputs at a low cost and if grants continue to decline, undermining the delivery encourage investment spending; (ii) making import of public goods and services. restrictions and special regimes less complex and more transparent; and (iii) harmonizing trade In the short term, the proposed road to a procedures and streamlining non-tariff measures in robust, resilient, and inclusive recovery could be the Economic Community of Central African States based on the following four pillars (Figure 1): to reduce delays and ease the free circulation of goods and services. → Promoting peace and security and strengthening social safety net programs to cushion the impact of overlapping crises on the most vulnerable. This could be done by providing well-targeted 5 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Credits: @World Bank Country Management Unit 6 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 1. Policy Priorities to Reduce Macroeconomic Imbalances and Support a Strong Recovery Pillars for a robust, resilient, and inclusive recovery Promoting peace and security and strengthening the social safety net Implementing the vaccination campaign to reduce the risk of new COVID-19 waves and the emergence of new variants Resilient recovery Enabling trade and private sector development Reducing fiscal imbalances by responding to treasury pressures without adding to debt vulnerability Source: World Bank staff 7 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Unlocking the potential of the agriculture sector Overlapping crises are set to have long-lasting approach. Decades of conflicts, instability, and economic effects, making it urgent to adopt uneven progress on the structural reform agenda broad-based and robust reforms, especially in the have badly damaged the institutional framework agriculture sector, the most significant contributor of the agriculture sector. The current institutional to poverty reduction in CAR. With higher commodity framework is cumbersome and prevents innovation prices, disruption in supply chains, political turmoil and the availability of improved seeds and fertilizers, following the adoption of Bitcoin as legal tender, and which are critical to boosting productivity. Moreover, the impact of the war in Ukraine, CAR’s economic public institutions have limited capacity to deliver growth is projected to be lower than previously basic services to farmers and herders and fulfill their envisaged in the medium term, and risks are tilted to core mandates. the downside. In this context, unlocking the potential of the agriculture sector is paramount given the Challenges facing CAR’s agriculture sector challenges facing the country. Unlocking the potential include: of the agriculture sector could protect livelihoods, accelerate growth, create jobs, and improve the living → Outdated land laws that do not favor conditions of Central Africans. agricultural development . There are several flaws in the law of 1964 governing access to The agriculture sector has significant potential, land, including ownership of all land by the state which remains largely underexploited. The sector and cumbersome and costly land concession is economically, environmentally, politically, and procedures. Moreover, the current land law socially important. It produces more than 75 percent acknowledges but reduces the scope of customary of the country’s food products and provides jobs to 3 law, which dominates land access and tenure, out 4 Central Africans, mostly in the informal sector. mostly in rural areas. As a result, competition Approximately one-third of CAR’s total land area is between customary and land laws persists, considered suitable for agriculture. Rainfall patterns affecting property and use rights. A new agro- are suitable for crops, with long growing cycles, pastoral land law, which is expected to address and the country’s extensive river system provides some of these issues, has been pending in surface and groundwater for agriculture, livestock, Parliament for months. and wildlife. Despite its potential, the contribution of the agriculture sector to economic activity has → Limited access to finance, which is a major been relatively modest. Its performance has been bottleneck for farmers. According to the latest dwindling over the past decades. The sector’s agriculture survey, more than 93 percent of farmers contribution to GDP growth fell from 55 percent in report access to credit as the major constraint 2011 to 32 percent in 2020 as the production of on their activities, followed by lack of technical crops, livestock, forestry, and fishery declined, and support and the absence of improved seeds. there has been a transition of the labor force toward Fond de Développement Agropastoral , which the service sector. Over the past decades, productivity is supposed to support farmers and overcome has been low and falling, driven by persistent challenges regarding access to finance, is not underinvestment, challenges in accessing improved operational. There are microfinance institutions in seeds and fertilizers, outdated land laws, and several the country, but they have failed to improve access other structural issues. to credit for farmers. In addition, CAR does not have institutional and legal frameworks regulating Weak policies and institutions have prevented rural finance, and none of the plans and strategies the agriculture sector from maximizing its designed to support the agriculture sector have potential. Sector-specific plans and strategies have addressed access to finance. been conducted using a stop-and-go and project 8 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE → Poor road conditions and the absence of a beneficiaries. Also, due to a lack of knowledge maintenance strategy, especially for rural and education, farmers do not know what types roads, which hinder access to markets . of fertilizers to buy or what dosage to apply. Weak Rural development policies and plans have not management in the supply of fertilizer is associated emphasized improving rural infrastructure and with the high cost on the domestic market. access to markets. Agricultural products are generally grown in remote rural areas, but only 16 → Uncertainties regarding the expected benefits percent of the rural road network is classified as of mechanization . Policies and institutions in ‘good’ or ‘fair’ condition. There is also no rural have not emphasized the use and adoption of road maintenance strategy, resulting in extended alternative farm equipment and tools (which can periods of poor maintenance of crucial road be acquired at a reduced cost) to increase labor networks. Much of the country is beyond the reach productivity. Farmers are still using rudimentary of the road network, limiting access to rural areas, farming methods due to the high cost of machinery. markets, and basic services. The National Road For instance, less than 1 percent of farmers use Fund, which is in charge of road maintenance, is tractors and tillers, primarily due to the high cost of hampered by weak governance and inadequate mechanization, with tractors being 15 times more resources. expensive than manual production. The push for mechanization fails to consider the smallholder → Persistent challenges in accessing improved nature of farmers and herders, the high cost seeds and fertilizers. One of the major barriers to of machinery, and the ability of farmers to use agricultural productivity in CAR is the continuous equipment productively. use of inferior seeds by smallholder farmers. For decades, Central African farmers have skillfully → Transhumance and tensions between operated their own informal seed systems, which herders and farmers, which have hindered has consisted of recycling non-resilient varieties the development of the agriculture sector . that are late maturing, low yielding, and has no Competition in the use of resources leads to resistance to pests and diseases. The regulatory attacks and reprisal killings between farmer and framework of seeds is cumbersome and time- herder communities, resulting in a rapid loss of consuming, limiting the quality and quantity soil fertility and deteriorating natural resources. of improved seed varieties. It is also limited Almost 70 percent of herders and farmers report to registration, certification, quality control, that the conflicts affect their activities. Wandering and delivery to farmers, which has hampered animals, rural damage, theft, and the killing of research and development related to breeding. livestock are the major sources of transhumance. The main supplier of improved seed varieties, Major difficulties facing herders include a lack of the Institute of Agronomy, faces technical and veterinary products, limited access to finance, financing challenges, leading to weak production poor technical support, and absence of dietary capacity. The country’s existing fertilizer policy supplements. The quality of veterinary services is has mainly emphasized inorganic fertilizer for hampered by limited human and financial capacity. crop productivity, neglecting the direct seedling The lack of synergy and coordination between mulch-based cropping system. The use of fertilizer stakeholders in the livestock sector has limited in CAR is one of the lowest in the region, primarily their capacity to adapt efficient copying strategies due to its high cost. Several humanitarian projects to face challenges such as climatic change, distribute fertilizers or help reduce their prices for epizootic diseases, insecurity, agricultural pressure, farmers. However, these distribution programs an extension of protected areas, and efforts to are not adequately targeted due to a lack of continue the extension of protected areas. rigorous methodologies and database on potential 9 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Bold and sustained reforms are needed to chains, and improving rural connectivity. Additional tap into the potential of the agriculture sector. reforms include reforming land policies to secure CAR has the potential to make agriculture the driver rights and improve resource allocations, especially for of economic growth and allow millions of Central women, and promoting and strengthening producer Africans to escape extreme poverty and precarity. This organizations to better tap into national, regional, will, however, require bold and sustained reforms. and global value chains. Table 1 presents key areas For instance, boosting agricultural exports would of reforms to unlock the potential of CAR’s agriculture require improving the quality of products to meet sector. product value standards, linking producers to supply Credits: @World Bank Country Management Unit 10 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Table 1. Key Policy Options to Revitalize the Agriculture Sector Immediate Priorities Short-Term Priorities Medium-Term Priorities (Next 3 to 9 months) (Next 9 to 24 months) (Next 24 to 36 months) Improving the • • quality of public Identify the types of Improve the budget management expenditure expenditure that are generally through appropriate budget information most productive and to ensure management systems, and staff with that the composition of current budget analysis capacities to monitor and budget allocation takes this adjust expenditure during the fiscal year. into account. Many studies have estimated, for example, that funding for research and development (R&D) has a very high rate of return of up to 34% in sub-Saharan Africa (Alston et al., 2000; Pardey et al., 2007). Improve access • • • to finance and Assess constraints to Design and set up an incentive risk-sharing Enhance financial inclusion land accessing agricultural finance. system for agricultural lending that and outreach of the risk- • includes: sharing system by using Set up a regulatory framework ¬ A credit guarantee fund; money transfer technologies for rural finance. ¬ Technical assistance to improve the and digital financial tools. • capacity of farmers (e.g., financial • Establish a national farmers literacy, financial management, Assist small-scale farmers database and divide farmers operating farming as a business, to have secure access to into clusters or groups. etc.) and financial services providers land in the form of land • (e.g., training of bank staff, product titles, long-term rental, or Adopt and promulgate the development support, customization of improved tenure, with a agropastoral land code. software, development of agricultural special focus on women and • credit processes, guidelines, systems youth. Have organizations working and procedures, loan underwriting • on women’s rights, human standards and requirements, support in Enforcing market-based rights, and land rights loan monitoring, etc.); and land reform and adopt continue to raise awareness of ¬ A bank incentive mechanism to provide: policies aimed at increasing women’s land rights through (i) a best agricultural lending bank agricultural productivity and comprehensive information, award; (ii) cash Incentives for banks to promoting integrated rural education, and communication conduct feasibility studies for market development. campaigns. entry, open up branches at remote places, hire new staff, cover monitoring costs, etc.; and (iii) cash incentives for borrowers that, for example, fully repay their loans with interest rebates. • Prepare and issue secondary legislation of the agropastoral land code. • Perform an inventory and mapping of agricultural land to develop a master plan for sustainable land management. 11 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Create an • • • environment Develop policies and Promote the creation of agricultural Enable the creation of local that can enable regulatory frameworks mechanization services enterprise centers. assembly or manufacturing mechanization governing the importation • of machinery suitable for of mechanization tools and Implement capacity building efforts smallholder farming. regulating commercial hire related to human resources at the artisan, • services for mechanization technician, and professional level, relative Synergize the agricultural technologies and services. to both hardware and software. mechanization strategy • with public investment in Enable a supportive fiscal the energy sector (i.e., fuel, regime, under which barriers electricity, and solar) and to accessing finance for road construction because equipment and services are of the central role power minimized or removed, while and infrastructure play in expanding innovative financing mechanization. models such as lease financing and rent-to-own arrangements (e.g., tax exemptions for farm tools). Address the • • • transhumance Operationalize and reinforce Build local capacity to resolve conflicts Enhance infrastructure tension between the transhumance and and give greater authority to local groups development related to headers and pastoralism platform. within a framework of basic principles and pastures. farmers as well as veterinary • justice. • services Restore the dialogue • Set up a multidisciplinary challenges between herders and farmers Set up an institutional mechanism for center for the management in the and involve community disaster prevention and management. and control of zoonotic management of leaders, local experts, and • diseases. disease control representatives from different Increase the availability of laboratory social groups in conflict equipment to facilitate the identification of management initiatives, as contagious diseases. this could reinforce mutual efforts to maintain peace and provide means to solve misunderstandings between herders and farmers. • Create transhumance strategies and adapt them to those of neighboring countries (Chad, Cameroon, and Sudan) for the control of transhumant livestock movements and trade (mainly cross-border transhumance). • Train more staff in the management of zoonotic diseases. • Strengthen multidisciplinary collaboration in the management and control of zoonotic diseases. 12 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Enhance access • • • to improved Simplify registration, Identify and invest in local seed Strengthen the collaboration seed varieties certification, and quality enterprises or seed producer groups and between Institut and fertilizers control procedures. build local supply chains (the risk sharing Centrafricain de Recherche • scheme to be developed will create an Agricole and the University Educate farmers to ensure the investment opportunity). of Bangui to create a new right mix and use of fertilizers • generation of crop breeders (e.g., ensuring that farmers Develop and harmonize CAR’s fertilizer in CAR by training scientists know that crops generally policy and regulatory framework through and implementing programs respond better to inorganic existing continental and regional to develop improved crop than organic fertilizers, but structures, which will benefit from varieties. that both types are needed to the development of regional fertilizer • maximize yield). markets by lowering barriers to trade and Use smart subsidies based harmonizing rules and standards). on electronic vouchers • and mobile phones to Design a program for the adoption and use improve targeting within of a direct seeding mulch-based cropping current humanitarian input system. distribution programs and • prevent abuse. Train farmers in how to use a direct • seeding mulch-based cropping system. Implement programs to increase the adoption and use of a direct seeding mulch-based cropping system. Increasing • • • farmer reach out Develop a national extension Promote the used animated video as Promote the use of with ICT tools strategy using ICT tool. support for extension training that can mobile phone to advertise help to convey key extension messages services and reinforce the that are needed by farmers. communication of key extension messages to reach millions of farmers Addressing • • • post-harvest Develop strategic policies Promote investment in post-harvest Develop policy reforms losses on improving storage processing facilities, market infrastructure. that promote commercial infrastructure and sharing agriculture. knowledge on best storage and preservation practices to significantly reduce food losses and increase food availability in local and regional markets in the country. Credits: @World Bank Country Management Unit 1 CHAPTER Recent Economic Developments and Outlook 14 1.1 Recent Economic Developments: Loss of Momentum The COVID-19 pandemic, political instability, and security threats have contributed to a deterioration of the Central African Republic’s (CAR) economic performance. Economic growth was revised downward to 0.9 percent in both 2020 and 2021 (-1.1 percent and -2.8 percent, respectively, in per-capita terms)—3.6 and 4.2 percentage points below pre-COVID-19 projections. The fiscal stance deteriorated as tax revenues fell while public expenditure rose due to the pandemic, the war effort, and the non-disbursement of budget support. In 2021, inflation accelerated, owing to the disruption of domestic and international supply chains, and the current account deteriorated, primarily due to the reduction in official transfers. The policy response from national and regional authorities helped mitigate the economic fallout of the pandemic and supported the economic recovery in the Central African Economic and Monetary Community (Communauté Économique et Monétaire de l'Afrique Centrale, CEMAC). The Bank of Central African States (Banque des États de l'Afrique Centrale, BEAC) quickly eased monetary policy in March 2020 and introduced accommodative measures to ensure adequate liquidity in the banking system and strike the right balance between supporting internal and external stability. Moreover, the Banking Commission of Central African States (Commission Bancaire de l'Afrique Centrale, COBAC), the regional banking supervision authority, eased prudential regulations to help banks delay pandemic-related losses. 15 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 1.1.1 CAR’s economic growth stagnated in 2021 after a reasonable performance pre- COVID-19 Global economic growth rebounded to 5.5 Still, pre-existing structural challenges such as weak percent in 2021 owing to the relaxation of economic diversification, a small private sector, and COVID-19-related lockdowns that boosted lack of fiscal buffers left CAR especially vulnerable global demand.1 This was a sharp reversal from to the COVID-19 outbreak and its socioeconomic the economic contraction of 3.4 percent in 2020, impact, despite the relatively limited health impact. which was caused by significant disruptions in the Real GDP per capita decelerated to 0.9 percent in global economy, international trade, and GVCs and 2020—its lowest level since 2014. The pandemic delayed investment spending due to pandemic- also affected CAR through its impact on global value related lockdowns in many countries. Growth in chains (GVCs), which reduced the demand for CAR’s low-income countries accelerated by 3.3 percent in exports—particularly from developed country markets 2021, up from 1.3 percent growth in 2020. Economic in Europe and North America—adversely affecting the growth in Sub-Saharan Africa (SSA), one of the country’s firms. Additionally, GVCs have been affected regions least affected by the pandemic, recovered by supply chain disruptions, which have created in 2021, with growth expanding by 3.5 percent in challenges for firms engaged in GVCs. 2021, from contracting by 2.2 percent in 2020. However, the economic recovery in the three largest On the back of the COVID-19 pandemic and SSA economies—Angola, Nigeria, and South Africa— renewed insecurity amid post-election disputes, was uneven, with output increasing by 0.4 percent, CAR’s economy in 2021 experienced a lackluster 2.4 percent, and 4.6 percent, respectively, in 2020. growth performance. Economic activity suffered In Angola, the slow pace of the recovery reflected a particularly in 2021Q1 as renewed insecurity amid strong recovery in non-oil sectors that was offset by election disputes disrupted production and trade. declining output from aging oil fields. In Nigeria, the Boosted by the resumption of commerce along the recovery was driven by the recovering non-oil sector, Douala-Bangui corridor and security gains, economic while the rapid recovery in South Africa was driven by activity picked up in the second half of the year. a strong rebound in the mining, manufacturing, and Mining and agricultural production accelerated, owing services sectors. Similarly, the economies in CEMAC to improved security around production sites and grew by an average of 2.1 percent in 2021, supported favorable rainfall. Public investment declined from by the relaxation of containment measures and fiscal 11.4 percent of GDP in 2020 to 7.5 percent of GDP stimulus. in 2021 as the government unwound its COVID-19 fiscal stimulus package. The protracted effects of CAR’s economy entered in 2021 with a loss COVID-19 on the global economy led to persistent of momentum. With growth averaging 4.1 percent disruption in GVCs and low external demand, which in 2015–19, CAR was experiencing its fastest five- affected international trade and transport. As a result, year average growth rate since independence, real GDP growth settled at 0.9 percent in 2021 (Figure supported by a relative improvement in the security 2)—below the average of CEMAC, SSA, and countries environment, enhanced macroeconomic stability, affected by fragility, conflict, and violence (FCV). and steadfast implementation of structural reforms with the assistance of development partners. This enabled a reduction in the number of Central Africans living in extreme poverty from 73.7 percent of the population in 2015 to 70.7 percent in 2019. 1 World Bank. 2022. Global Economic Prospects, January 2022. Washington, DC: World Bank. http://hdl.handle.net/10986/36519 16 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 2. In 2021, CAR’s annual real GDP growth stagnated and reached one of its lowest levels since 2015. Annual Real GDP Growth, CAR vs. Comparators, 2015–22 Percent (%) 6 4 2 0 -2 -4 -6 2015 2016 2017 2018 2019 2020 2021e 2022p CAR CEMAC SSA FCV Source: World Bank staff estimates using data from the WEO, GEP, and MPO. Note: Projections were used for real GDP growth in 2022. CEMAC, countries affected by FCV, and SSA do not include CAR. Figure 3. A contraction of private consumption and exports led to a stagnation of real GDP growth. Contribution to Real GDP Growth, 2015–2021 Percent (%) 8 6 4 2 0 -2 -4 -6 2015 2016 2017 2018 2019 2020 2021 Private Consumption Government Consumption Gross Fixed Investment Exports Real GDP Growth Source: World Bank staff estimates using MPO and WDI data. 17 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Private consumption increased in 2021, months as rising insecurity amid elections disputes in reflecting the acceleration of economic activities late-2020 resulted in a blockade of the Douala-Bangui during the second half of the year. Renewed conflict corridor. The impact on transportation and iceberg amid post-election disputes led to a blockade of the costs prompted forward-looking domestic suppliers Bangui-Douala corridor during the three first months to readjust their market prices on imported goods of 2021 The resumption of commerce along the upwards. Moreover, the production of local goods in Douala-Bangui corridor and security gains boosted remote areas was disrupted as people fled production economic activity in the second half of the year, sites to safe zones. As a result, inflation accelerated leading to an increase in private consumption by 0.5 by 5.2 percent, year-on-year, in the first half of 2021. percent in 2021, a sharp reversal from a contraction As traffic gradually resumed on the Douala-Bangui of 4.2 percent in 2020 (Figure 3). Meanwhile, public corridor in the second half of the year, inflation investment growth decelerated from 11.4 percent of decelerated markedly to an average of 4.5 percent, GDP in 2020 to 7.5 percent of GDP in 2021 as the slightly above the regional convergence criteria government unwound its COVID-19 fiscal stimulus (Figure 4). Surging domestic food prices accounted package. Despite a strong global economic recovery, for about 70.1 percent of inflationary pressures in goods export growth contracted for the second 2021. Prices of food and soft drinks accelerated by consecutive year by 5.5 percent in 2021 (from a 5.6 percent, year-on-year, driven by higher prices contraction of 2.8 percent in 2020), as renewed for cassava, beef meat, sesame, and palm oil. For insecurity weighed heavy on the exports of key example, CFAF 10,000 could purchase an average commodities such as diamond and gold. of 25.4 kg of cassava (Cossette) in December 2020, enough for a single household, while the same On the supply side, positive developments amount of money could only buy 19.5 kg a year later. in the agriculture sector prevented economic growth from decelerating further. Security gains in remote areas enabled the expansion of agricultural production, especially food crops, as farmers returned to work. As a result, growth in the agriculture sector decelerated from 4.5 percent in 2020 to 3.2 percent in 2021. Meanwhile, conflicts in the beginning of the year, particularly the blockade of the main trade corridor, prolonged the difficulties facing the industrial sector, resulting it to contract by 0.2 percent in 2021 despite an increase in the production of gold and diamond. The services sector recovered slightly from the COVID-19 pandemic, driven by the dynamism of the telecommunication subsector and hotel industry. The number of passengers arriving at Bangui M’Poko international airport increased by 38 percent, year- on-year, in 2021—following decline of 48 percent, year-on-year, in 2020 due to the pandemic—while the performance of the service sector was limited by the decline in wholesales and airport freight. Insecurity drove inflation above the regional ceiling of 3 percent in 2021. Renewed conflict in late-2020 disrupted food supply chains along the country’s main trade corridor and contributed to inflationary pressures in the first half of 2021. Thousands of freight trucks remained stranded at the border with Cameroon for approximately three 18 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 4. Inflation decelerated in the second half of 2021. Consumer Price Index (CPI), Food and Soft Drink Prices, % Change, y/y CAR-Cameroon border closure due to COVID-19 December 27, elections Blockade of the Bangui-Doula and blockade of the Percent (%) corridor Bangyui-Douala Corridor 8 7 6 5 4 3 2 1 0 -1 -2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 CPI Foods and Soft Drink Source: ICASEES and World Bank estimates. Figure 5. CAR’s trade competitiveness remained weak compared CAR's trade competitiveness improved in the to peers in 2021. fourth quarter of 2021 but remains weak relative Real Effective exchange Rate based on the Consumer Price Index, 2020-21 to other peers. The country’s real effective exchange rate index declined by about 4 percent, year-on-year, in the fourth quarter of 2021, as trade with its main Index, 2010=100 partners resumed after several months of blockade 150 due to insecurity. Notwithstanding, CAR’s trade competitiveness index remained high in 2021 (134.4) 140 compared to the average in SSA (97.4), CEMAC 130 (102.5), and FCV countries (106.5) (Figure 5). This 120 implies that CAR’s exports became more expensive and its imports cheaper relative to peers in 2021, due 110 to high local production costs resulting from several 100 factors, including the fragile security environment, high skills gap associated with low productivity, 90 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 poor infrastructure network (e.g., roads, electricity, and telecommunications), and the prevalence of 2019 2020 2021 CAR CEMAC SSA FCV informality. Source: IFS, WEO and World Bank estimates. 19 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 1.1.2 Monetary Policy and Financial Sector: Opening a Pandora’s Box CAR’s banking sector performed relatively to the central government (Figure 7). Credit to state- well in 2021 on a range of financial soundness owned enterprises increased by 39.6 percent in indicators . The total balance sheet of four 2021 and could represent a major source of financial commercial banks amounted to CFAF 354 billion in instability in CAR given their limited competitiveness 2021, up from CFAF 321.4 billion in 2020. The cash and weak management. flow surplus increased by 3.8 percent, year-on-year, in 2021, reaching CFAF 97.2 billion (27.5 percent of Net foreign exchange reserves fell sharply in the total balance sheet). The capital adequacy ratio the fourth quarter of 2021 as donors’ appetite for stood at 23.8 percent at end-September 2021. The budget support waned. CAR’s net foreign exchange capital adequacy ratio stood at 23.8 percent at end- reserves were strongly correlated with donor budget September 2021, above the minimum requirement support during the last two years. Improvements of 9.5 percent. Non-performing loans (NPL) have in net foreign exchange reserves have been mainly continued to decline steadily since the third quarter of associated with the disbursement of budget support 2020, averaging 15.2 percent in 2021, its lowest level from donors, leaving the country vulnerable to delays in the past five years. This increased performance or a freeze in external financing. Net foreign reserves was helped by the easing of prudential measures expanded by 16.1 percent, year-on-year, in the third implemented by COBAC, which aimed at minimizing quarter of 2021, mainly due to the disbursement the impact of COVID-19-related loans on commercial of CFAF 85 billion (about US$ 136.8 million) of banks’ asset liquidity and profitability. The short-term international Monetary Fund’s (IMF) Special Drawing liquidity coverage ratio has improved to 214 percent, Rights (SDR) allocations, which provided a timely mainly due to the BEAC’s refinancing operations. cushion and helped the country finance its balance- of-payment deficits. However, increasing expenditure Money supply expanded in the last quarter pressures, coupled with limited domestic resource of 2021 due to increased credit to the economy. mobilization and the freeze on budget support Credit to the economy expanded by 8.2 percent, disbursements due to the government’s security year-on-year, in the fourth quarter of 2021, policies, resulted in a sharp decline in net foreign reflecting commercial banks’ willingness to support exchange reserves of 25.1 percent, year-on-year, in the economic recovery and facilitated by the the fourth quarter. implementation of the BEAC’s monetary policy easing until November 25, 2021. As a result, money supply increased by 8.9 percent, year-on-year, in the last quarter of 2021 and an average of 11.5 percent on a yearly basis (Figure 6). Private sector credit continued to account for the bulk of total credits allocated in 2021, although its share in total credit contracted marginally. In 2021, the total volume of credit allocated amounted to CFAF 210.8 billion (US$339.4 million), of which CFAF 171.2 billion (US$ 275.6 million and about 81.2 percent) was allocated to the private sector, CFAF 23.5 billion (US$ 37.8 million, 11.2 percent) to non-residents, CFAF 11.9 billion (US$ 19.2 million, 5.6 percent) to state-owned enterprises, and CFAF 2.3 billion (US$ 3.7 million, 1.1 percent) 20 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Credits: @World Bank Country Management Unit Figure 6. Net foreign assets continued to mimic disbursements of donor budget support. Growth in Gross Money Supply, Net Claim on the State and Credit to the Economy, 2018–2021 Disbursement of IMF Disbursement, IMF SDR allocation, Disbursement of First and Second August 2021 EU and World Bank Reviews under budget support, the CEF Program, Percent (%) November 2020. January 2021 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 Credit to the economy Gross money supply (M2) Net foreign assets Source: BEAC and World Bank estimates. 21 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 7. The share of private sector credits declined in 2021 currency in member countries. Finally, by stating that but continued to represent a significant share of total credit. CAR will provide alternatives that allow users to make Domestic Credit Allocation by Entity, 2020 (Inner circle) transactions in cryptocurrencies and have automatic vs. 2021 (outer circle) and instantaneous convertibility into the currency used in the country (and vice versa), the law could 0.9 1.1 expose the country to significant fiscal risks given the 11.2 5.6 high volatility of cryptocurrencies. 3.5 1.4 COBAC has extended the easing of its 0.8 5.0 prudential measures until 2022 and bans cryptocurrencies as a means of payment in the CEMAC zone . From the onset of the COVID-19 pandemic, COBAC, the CEMAC region’s banking regulator, has decided to temporarily modify a set of 89.4 81.2 banking regulations to limit the adverse effects of the pandemic on the banking sector and guarantee the financial integrity of CEMAC. From June 1, 2020, to Central government SOEs December 31, 2021, COBAC decided, among things, Private sector Non-residents to: (i) increase the regulatory capital requirement Other to 10.5 percent; (ii) remove existing conditions for reclassifying restructured loans from NPLs into sound Source: BEAC and World Bank estimates. loans; and (iii) extend the default period since first default from 90 days to 180 days when reclassifying healthy loans to NPLs. In 2021, COBAC extended CAR has become the second nation in the its NPL-related measures until end-2022, while world to adopt Bitcoin as legal tender, threatening measures pertaining to capital requirements will financial and monetary stability and heightening remain in place until mid-2022. On May 06, 2022, fiscal risks.2 President Touadéra promulgated the COBAC confirmed the ban of cryptocurrencies as a law governing cryptocurrencies in CAR on April 22, means of payment in the CEMAC zone. In addition 2022, which is composed of 26 articles and sets forth to prohibiting all operations related to crypto assets, the scope, regulation, data protection, and sanctions COBAC has set up an identification and reporting on cryptocurrency transactions in the country. The system for transactions related to cryptocurrencies. new law on cryptocurrencies raises several critical As such, all financial institutions liable to COBAC are concerns, including the technical ability of CAR to required to identify transactions made or rejected in effectively oversee and monitor cryptocurrency connection with cryptocurrencies and report their transactions, preserve financial integrity, ensure results to COBAC and the BEAC monthly. the protection of personal data, and reduce money laundering risks. Moreover, the lack of consultation with the BEAC is problematic and poses significant risks to financial stability within the CEMAC region, given existing financial system linkages and the common currency. The provision of certain articles of the law that provide legal tender status contradicts the CEMAC convention (Article 20, Title II) stating that the BEAC has the exclusive privilege of emitting a 2 El Salvador was the first country to adopt Bitcoin as legal tender in September 2021. 22 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 1.1.3 The country’s fiscal position is headed toward a cliff Despite spending moderation, CAR’s overall but failed to fully offset the losses incurred during the fiscal situation deteriorated for the second first half of the year. As a result, domestic revenues consecutive year in 2021, driven by lower domestic declined slightly from 9.1 percent of GDP in 2019 to revenues and grants. The country generated an 8.7 percent of GDP in 2021 (Table 3). estimated overall fiscal deficit of 6.1 percent of GDP in 2021, reflecting a decline in domestic revenue and Total government revenues fell substantially the cancelation and postponement of budget support in 2021, driven by lower-than-expected external from donors due to geopolitical tensions and the lack financing. Grants from international donors to CAR of transparency on security expenditures (Figure 8). decreased from 12.6 percent of GDP in 2020 to 4.9 Excluding grants, the fiscal deficit narrowed from percent of GDP in 2021, representing 36 percent of 16 percent of GDP in 2021 to 11 percent of GDP in total government revenues. The donor community 2021 as the government unwound its COVID-19 provided lower-than-expected support due to fiscal stimulus package. During the first half of 2021, disagreements with international partners. Official domestic revenues increased by 4 percent, year- grants reached their lowest level in the last decade, on-year, driven primarily by an increase in non-tax generating substantial fiscal pressures throughout revenue. The blockade of the Bangui-Douala corridor 2021 despite cuts in public spending, forcing the that limited economic activities, combined with the government to rely on bridge financing on the domestic protracted economic impact of the pandemic on market. Total government revenue declined from 21.7 international trade, had a significant effect on customs percent of GDP in 2020 to 13.7 percent of GDP in and tax revenues, which declined by 1.3 percent, 2021 (Figure 9). year-on-year, during the first half of 2020. In the second half of 2020, domestic revenues recovered Figure 8. CAR’s overall fiscal balance deteriorated in 2020. Figure 9. Total government revenues increased in 2020 due to an increase in official grants. Expenditure, Overall Balance, and Revenues, 2015–2021 Revenue Composition, 2015–2021 Percent of GDP Percent of GDP 30 25 25 20 20 15 15 10 10 5 5 0 -5 0 2015 2016 2017 2018 2019 2020 2021 -10 2015 2016 2017 2018 2019 2020 2021 Direct revenues Taxes on goods and services Revenues Expenditure Overall balance Taxes on international trade Non-tax revenue Grants Source: World bank staff calculations using data from the Ministry of Finance and Budget, WDI, and MPO. 23 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Public expenditure also decreased significantly pressures. Overall, spending on wages and salaries in 2021 as the government unwound its COVID-19 fell from 5.8 percent of GDP in 2020 to 4.9 percent fiscal stimulus package and cut expenses of GDP in 2021. In addition, capital expenditure to minimize cashflow pressures . Total public decreased from 11.3 percent of GDP in 2020 to expenditure fell from 24.9 percent of GDP in 2020 to 7.5 percent of GDP in 2020, driven primarily by a 19.7 percent of GDP in 2021. In the first half of 2021, significant decrease in externally financed capital public expenditure increased by 3.3 percent, year-on- expenditure, which declined from 9.4 percent to 5.3 year, as both primary and investment expenditures percent of GDP in the same period, representing 70 increased. Public expenditure decreased further percent of total capital expenditure. Public financial during the second half of the year as the government management has improved over the years due to the pursued cuts in public expenses to reduce fiscal implementation of several government reforms (Box 1). Table 2. Financial Operations of the Central Government, 2017-25 2017 2018 2019 2020 2021 2022 2023 2024 2025 Actual Est. Est. Projections In percentage of GDP Total Revenue 12.8 16.6 18.3 21.7 13.7 12.3 13.3 14.6 15.6 Tax revenue 7.0 8.0 7.8 7.5 6.9 7.2 6.9 7.4 8.0 Taxes on goods and services 3.4 4.1 4.1 3.5 3.2 3.2 3.2 3.4 3.7 Taxes on profits and property 1.2 1.7 1.8 2.0 1.9 2.0 1.9 2.1 2.2 Taxes on international trade 2.4 2.3 2.0 2.0 1.8 2.0 1.8 1.9 2.1 Non-tax revenue 0.8 0.8 0.9 1.6 1.8 0.6 0.5 1.0 1.0 Grants 5.0 7.8 9.6 12.6 4.9 4.5 5.9 6.2 6.6 Expenditure 13.8 17.6 16.9 24.9 19.7 17.9 17.3 17.1 17.9 Current expenditure 9.3 10.2 11.1 13.6 12.3 11.8 11.0 11.0 10.9 Wages and salaries 4.7 4.8 4.9 5.8 5.5 5.2 4.9 4.7 4.5 Current transfers 2.0 2.2 2.9 3.8 3.0 3.0 2.6 2.7 2.9 Interest payments 0.3 0.4 0.3 0.3 0.3 0.4 0.5 0.7 0.8 Goods and services 2.3 2.8 3.0 3.7 3.5 3.2 3.0 2.9 2.8 Capital expenditure 4.5 7.4 5.6 11.3 7.5 6.1 5.8 6.1 7.0 Domestic 0.7 0.8 1.3 1.9 2.3 0.9 0.9 0.9 1.0 Donor-funded 3.8 6.6 4.3 9.4 5.3 5.2 4.9 5.2 5.9 Overall balance (incl. grants) -1.0 -1.0 1.4 -3.3 -6.1 -5.6 -4.0 -2.5 -2.3 Domestic primary balance -2.0 -1.7 -3.5 -6.6 -5.2 -9.5 -9.0 -9.4 -10.6 Overall balance (cash basis) -2.0 -3.6 -1.0 -4.5 -7.0 -5.8 -4.1 -1.9 -1.7 Financing 2.0 3.6 2.1 0.4 1.5 0.7 1.9 2.5 3.0 Externael (net) 1.0 1.4 0.9 0.6 1.4 0.7 1.8 2.3 2.8 Domestic (net) 1.0 2.2 1.2 -0.2 0.1 0.0 0.1 0.2 0.2 Source: CAR’s authorities and World Bank staff estimates and projections (as of June 2022). 24 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Box 1. The budget execution rate has significantly improved thanks to public financial management reforms Out of the government’s 97 public financial management reforms implemented in 2017–2021, 28 aimed to improve budget execution, curtail off-budget expenditure, and reduce the recourse to exceptional spending procedures, while 19 reforms aimed to support the country’s domestic resource agenda (Figure 10). The impact of the implementation of these reforms has been positive. For example, the budget execution rate reached 85.03 percent in 2021, up from 52.6 percent in 2017 (Figure 11). While the government’s public financial management reform efforts need to be consolidated, halting or slowing the implementation of fiscal reforms could lower growth and raise external debt risks. Figure 10. CAR has implemented 97 bold economic reforms over the past 5 years… Number of Reforms Adopted, 2017–2021 Budget execution and allocation 28 Revenue mobilization 19 Information system and institutional strengthening 15 Promotion of governance 12 Improvement of the business climate 8 Internal/external audit and citizen control 8 Budget preparation 4 Other 3 0 5 10 15 20 25 30 Number of reforms Figure 11. …and their impact on budget execution has been remarkable. Budget Execution Rate, 2017–2021 Percent (%) 90 80 84.9 85.0 81.8 70 77.3 60 50 40 52.6 30 20 10 0 2017 2018 2019 2020 2021 Source: MFMOD and World Bank estimates. 25 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Reduced access to donor financing has widened vulnerabilities. The non-disbursement of all expected CAR’s overall deficit and increased its debt-to-GDP budget support in 2021 led to substantial cash flow ratio. Public debt increased slightly from 44.1 percent problems and exposed the country to a possible of GDP in 2020 to 47.9 percent of GDP in 2021, driven default on essential obligations (fiscal cliff), including by public borrowing from commercial banks to finance the payment of salaries and debt service. The the budget and avoid a fiscal crisis. Domestic debt issuance of CFAF 48 billion (US$78.5 million) in T-bills increased—for the first time since 2014—from 9.4 (about 35 percent of its total domestic resources), percent of GDP in 2020 to 14.0 percent in 2021 while cuts in public expenses, and reliance on the IMF SDR external debt declined in the same period. Contrary to allocation of CFAF 35 billion (US$64 million) allowed other CEMAC and most SSA countries, CAR’s public CAR to meet its essential debt obligations in 2021. For debt had been on a declining path since 2014, but this 2022, the budget includes grants equivalent to 10.9 trend was reversed in 2021 due to the difficult fiscal percent of GDP, of which budget support amounts situation. The non-disbursement of budget support to 3.8 percent of GDP, which are expected to come in 2021—representing an estimated 3.7 percent of from CAR’s traditional partners (e.g., IMF, World Bank, GDP—pushed the government to seek bridge financing and the EU). According to the World Bank’s cash flow on the domestic market. projections, the absence of budget support could lead to a financing gap of 4.8 percent of GDP in 2022. Cash While CAR escaped a fiscal cliff in 2021, it finds flow pressures will continue in 2023 in the absence itself in an increasingly difficult fiscal position. The of budget support. Despite cuts in public spending, country’s budget relies heavily on external support. projections indicate that the government may have In 2020, grants accounted for 12.6 percent of GDP already exhausted its deposits at the central bank and (58 percent of revenues), of which budget support could be on a path to a possible default on essential made up 5.1 percent of GDP. This reliance on external obligations (fiscal cliff), including the payment of resources exposes the budget to serious risks and salaries and debt service. Credits: @World Bank Country Management Unit 26 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 1.1.4 COVID-19 and security-related shocks have worsened CAR’s external position The current account deficit has widened rate regulation contributed to maintaining the deficit due to geopolitical tensions that delayed the of the balance of net income to 0.1 percent of GDP disbursement of official transfers. The deficit in in 2021. The trade balance improved but remained the current account increased from 8.5 percent of in deficit at 15.0 percent of GDP in 2021, down from GDP in 2020 to 10.6 percent of GDP in 2021, the 16.8 percent of GDP in 2020, mainly due to a rebound highest level since 2015. This was mainly due to a in exports (e.g., diamonds and timber) in the second sharp decline in official transfers, from 6.8 percent half of 2021 (Figure 12). Against this backdrop, CAR’s of GDP in 2020 to 1.9 percent of GDP in 2021, as current account deficit is estimated to have remained geopolitical tensions delayed the disbursement of lower than that of peers in 2021 (Figure 13). budget support. Private transfers (i.e., remittances) increased by 0.9 percentage points in 2021, reflecting the growth of incentives targeting the diaspora to help local households cope with rising living costs. The continued implementation of the BEAC’ new exchange Figure 12. The decline in official transfers contributed to the Figure 13. … but CAR’s current account deficit remained the widening of the current account deficit… largest among peers. Composition of the Current Account Balance, 2015–2021 Current Account Balance Percent of GDP Percent of GDP 20 0 15 -2 10 -4 5 -6 0 -8 -5 -10 -10 -12 -15 -14 -20 -16 -25 2015 2016 2017 2018 2019 2020 2021 -18 2015 2016 2017 2018 2019 2020 2021 Balance on goods Net services Net income Net Transfers SSA CAR CEMAC FCV Current account balance Source: WDI, IMF-WEO, and World Bank estimates. 27 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE In 2021, the deficit in the current account financial account shifted from a deficit of 0.2 percent has been more than offset by financial inflows, of GDP in 2020 to a surplus of 0.1 percent in 2021. resulting in a moderate balance of payment This improvement resulted in a moderate balance of surplus. The capital balance narrowed from 7.5 payment surplus, which reached 0.5 percent of GDP in percent of GDP in 2020 to 4.9 percent of GDP in 2021, an improvement from a deficit of 1.2 percent of 2021, reflecting a downward trend in project grants. GDP in 2020 (Figure 14). Against this backdrop, CAR’s Notwithstanding persistent global uncertainties contribution to regional foreign reserves improved and stemming from the COVID-19 pandemic and a reached 4.5 months of imports in 2021, up from 3.5 relative stable security environment, foreign direct months in 2020 (Figure 15). investment increased by 0.1 percentage points in 2021, while net public sector investment declined by 83.3 percent in the same year. As a result, the Figure 14. The improvement in the financial account resulted Figure 15. Personal remittances remain low, paying a in a moderate balance of payment surplus. marginal role the balance of payments. Balance of Payments, 2015–2021 Inflow of Personal Remittances, 2011–2020 Percent of GDP Percent of GDP 10 10 9 5 8 0 7 4.52 4.20 6 3.90 -5 5 0.36 0.37 4 0.38 -10 3 2 4.05 4.34 3.75 -15 2015 2016 2017 2018 2019 2020 2021 1 0 Current account Capital account 2011-2013 2014-2017 2018-2020 Financial account BoP SSA CAR CEMAC FCV Source: BEAC, WDI, IMF-WEO and World Bank estimates. 28 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 1.2 Economic Outlook and Risks: Positive Growth but Highly Vulnerable to Headwinds The war in Ukraine, coupled with the lingering effects of the COVID-19 pandemic, has hampered the global economic recovery.3 The impact of the war in Ukraine on global trade and commodity and financial markets will contribute to a significant slowdown of global economic growth. The price of goods and services is expected to remain high, driven by war-induced commodity price increases and broadening price pressures. Global economic output is expected to grow by 3.6 percent in 2022 and 2023—0.8 and 0.2 percentage points, respectively, below projections made before Russia’s invasion of Ukraine. Heightened uncertainty is expected to affect global demand and trade. In emerging market and developing economies, economic growth is expected to reach 3.8 percent in 2022, down from 6.8 percent in 2021. Real GDP growth in China, one of CAR’s major trading partners, is expected slow to 4.4 percent, as the combination of more transmissible variants and a zero-COVID-19 strategy is likely to hinder private consumption. The war in Ukraine, the COVID-19 pandemic and limited vaccine access, and monetary tightening and financial market volatility are likely to shape the near- term global economic outlook. New waves of COVID-19 cases in China have forced country to impose another set of containment measures, which is likely to slow down the global economic recovery. 3 World Bank. 2022. Global Economic Prospects, June 2022. Washington, DC: World Bank. doi:10.1596/978-1-4648-1665-9 29 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 1.2.1 CAR’s economic outlook is positive but highly vulnerable to headwinds CAR's economic outlook is positive but highly limited access to basic public services, especially vulnerable to headwinds . After the economic in remote areas, will remain major concerns. Weak stagnation of 2022 the country’s economy is economic diversification and the fragile security projected to grow by 2.7 percent between 2023-25 environment, along with the war in Ukraine and a (Table 3). With economic growth expected to remain potential new wave of a more contagious strain of above the average population growth of 2.3 percent in COVID-19, are significant risks that are likely to 2023–25, real GDP per capita is projected to increase shape short- and medium-term forecasts. Inflation is after 2022, albeit at a marginal rate. More than 3.5 expected to fall below the 3 percent regional ceiling million people are expected to continue to live in in 2022, before falling gradually in the medium term. extreme poverty in 2022–25, and food insecurity and Credits: @World Bank Country Management Unit 30 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Table 3. Medium-Term Macro-Fiscal and Financial Projections, 2017–25 2017 2018 2019 2020 2021 2022 2023 2024 2025 Actual Est. Est. Projections Annual percentage change, unless otherwise indicated Economic growth, income and prices Real GDP 4.5 3.7 3.0 1.0 1.0 0.0 3.0 3.8 3.8 Real GDP per capita 3.2 2.1 1.4 -0.9 -0.9 -2.2 0.8 1.5 1.5 Real GDP per capita (US$) 390 398 404 400 396 363 366 371 377 GDP deflator 6.5 1.4 2.3 1.9 3.2 6.7 6.6 3.0 2.7 CPI (annual average) 4.1 1.6 2.8 2.3 3.8 5.8 6.3 2.7 2.8 External sector Imports volume of goods -2.0 -0.7 10.4 1.7 -11.3 7.0 -4.7 1.0 7.2 Exports volume of goods 42.5 10.3 -6.7 9.4 -5.3 -6.5 8.2 3.6 16.3 Terms of Trade (deterioration -) -18.5 -12.4 13.8 -21.7 0.2 -17.5 15.3 8.2 14.4 % of GDP, unless otherwise indicated Fiscal account Expenditure 13.8 17.6 16.7 24.9 19.7 17.9 17.3 17.1 17.9 Revenue and grants 12.8 16.6 18.4 21.7 13.7 12.3 13.3 14.6 15.6 Overall fiscal balance (incl. grants) -1.0 -1.0 1.4 -3.3 -7.1 -5.6 -4.0 -2.5 -2.3 Annual percentage change, unless otherwise indicated Selected Monetary Accounts Base Money 10.3 14.0 8.9 11.5 14.6 6.2 9.8 7.0 6.4 Credit to the economy 1.4 11.5 -1.0 8.5 14.6 -2.2 9.5 8.0 5.3 % of GDP, unless otherwise indicated Balance of Payments Current Accoubt Balance -7.8 -8.0 -4.8 -8.8 -10.8 -13.2 -8.9 -7.2 -7.0 Imports of goods and services -33.8 -35.2 -35.8 35.8 31.8 33.1 30.6 29.8 30.7 Exports of goods and services 16.6 16.6 16.4 15.8 14.8 12.4 13.0 13.0 14.5 Foreign Direct Investment 0.8 0.8 1.1 0.1 0.6 0.2 1.0 1.4 1.4 % of GDP, unless otherwise indicated Public Debt Total government (end of period) 50.3 50.0 47.2 44.0 48.4 52.1 49.5 49.3 49.3 o/w External debt 35.4 37.2 36.1 34.7 34.4 34.4 30.3 29.6 29.0 Memo GDP nominal (US$ millions) 1,979.7 2,181.4 2,180.2 2,288.0 2,384.0 2,448.0 2,688.0 2,875.0 3,066.0 Source: CAR’s authorities and World Bank staff estimates and projections (as of June 2022). 31 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE On the supply side, a more favorable security avoid any liquidity constraints and sustain economic environment is expected to support higher levels activities during the crisis. Similarly, its Monetary of agricultural and industrial output . Timber Policy Committee decided to raise its main policy rate and forestry activities are projected to increase as from 3.5 percent to 4.0 percent on March 28, 2022, international prices rise and the authorities continue to help attenuate the impact of the war in Ukraine to resolve tensions within industries. Formal diamond on the economy of member countries. Domestic exports are projected to resume in the medium credit to the economy is projected to expand by 9 term as security in the production zones improve. percent in the medium term, assuming continued The construction sector is projected to continue to stability and security in the country. The adoption of expand in the capital city of Bangui, as the demand Bitcoin as legal tend creates, however, uncertainties for housing is expected to remain high. Limited regarding financial stability. The Bitcoin law raises access to a reliable power supply holds back the critical concerns about its impact on financial stability industry sector's positive dynamic and its potential and integrity, as well as about the risks entailed in to contribute more significantly to economic growth. cryptocurrency transactions, such as extreme price Policy reforms toward production, transportation, and volatility, crypto-crime, money laundering, terrorist reliable energy access will be critical to increasing the financing, and tax evasion. Moreover, the law energy supply and creating the necessary conditions creates substantial operational and solvency risks if for developing vibrant industries. After contracting commercial banks become exposed to cryptocurrency during the COVID-19 pandemic, the service sector transactions. Important work is needed to develop is forecasted to recover in the near term, growing appropriate secondary legislation to make the law at an average of 2.7 percent in 2022–25 driven implementable, if CAR decides to move forward by telecommunications and restaurant and hotel with it. The adopted law is relative vague and does services. not provide a framework for critical areas such as: (i) licensing requirements and conditions for different On the demand side, private consumption intermediaries; (ii) the functioning and governance of should continue to drive economic growth. Dynamic the trust fund and guaranteed convertibility; (iii) the private consumption is expected to continue to role of the BEAC and COBAC, if any; and (iv) regulatory support CAR’s economic recovery, provided there requirements, supervision, and customers protection. is stability and security in the medium term. The These areas will need to be carefully addressed in authorities' adoption of a comprehensive and time- secondary legislation if the authorities decide to move bound plan to clear domestic arrears will likely forward with the law. strengthen private consumption, which is projected to grow by 4.7 percent in 2022 (up from a mere 0.7 The overall fiscal balance is expected to percent in 2021), before averaging 5.0 percent in remain in deficit in the medium term, as donor 2023–25. However, business-friendly reforms, with financing gradually declines without being offset a special focus on improving the justice system, by domestic revenues. The fiscal balance, including protecting minority investors, and facilitating grants, is projected to improve from a deficit of 6.1 the acquisition of construction permits to attract percent of GDP in 2021 to a deficit of 4.8 percent of investors, are still critically needed to foster private GDP in 2022 (Table 2), as the government undertakes sector development. significant fiscal adjustments in light of the non- disbursement of budget support in 2022 (Box 1). In Monetary policy is expected to remain the medium term, the fiscal balance is also expected accommodative at the regional level, but the to improve as the economy gradually recovers and Bitcoin law is creating uncertainty . From the reforms boost domestic revenue collection. Capital onset of the pandemic, the BEAC has adopted a expenditure is projected to increase marginally from more accommodative stance, including reducing 7.5 percent of GDP in 2021 to 7.7 percent of GDP in its policy rate by 25 basis points in March 2020 to 2022, before averaging 7.2 percent of GDP in the near encourage commercial banks to lend to the private term. On the revenue side, official grants are expected sector. These measures have been adequate to to decline from a peak of 12.6 percent of GDP in 2020 32 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE to an average of 7 percent of GDP in 2022–25. Public debt is projected to continue to decline and remain sustainable, provided that the government adopts a prudent approach to new borrowing. Structural reforms such as streamlining public expenditure, limiting exemptions, and enhancing the efficiency of the tax administration and public investments will be critical to contain the fiscal deficit and create fiscal buffers in the medium term. The current account balance is expected to improve in the medium term but remain structurally in deficit. The current account deficit is projected to narrow from 10.8 percent of GDP in 2021 to 6.8 percent of GDP in 2022, reflecting an improvement in the trade balance. In the medium term, the capital account deficit should improve and reach an average of 5.6 percent of GDP, as the global economic recovery will likely stimulate exports, while imports are likely to fall. Box 2. Toward a Fiscal Cliff: Socioeconomic and Security Impact at the National and Regional Level The country has limited options to respond to the fiscal crisis. To fund its financing needs, the government will have to mobilize more domestic fiscal revenue, cut public expenditure, use the remaining SDR allocation, and/or borrow on the domestic market: ↗ Additional domestic resource mobilization. CAR’s revenue performance in 2022 is falling short of expectations, contributing to cash flow tensions. The government is accelerating efforts to improve domestic resource mobilization, but these will take time to materialize. ↗ Additional cuts in public expenditure. Assuming cutting salaries and debt servicing will be socially and politically costly for the government, the needed fiscal adjustment could rely on delaying payment obligations from the previous fiscal years and repayment of domestic arrears, freezing transfers, subsidies, and public investment and cutting expenses on goods and services. Under this scenario, domestic arrears (e.g., pensions, salaries, and commercial 33 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE arrears) could almost double and reach about 2 percent of GDP, and cuts in non-priority transfers and subsidies would likely affect the functioning of key administrative units providing services to the people. Financially constrained suppliers and households are likely to suffer the most from these spending adjustments. ↗ Using all the remaining SDR allocation. To mitigate the cash flow tensions, CAR could use its remaining SDR allocation of CFAF 29 billion (1.9 percent of GDP) in 2022. This could provide some temporary relief and enable CAR to avoid cutting expenses on goods and services and freezing public investments. This option would, however, not be enough by itself, and delaying payment obligations and arrears repayment and cutting expenses on transfers and subsidies would be difficult to avoid. The use of SDRs entails costs to the Treasury, as the funds will be on-lent to the government by the central bank. Moreover, this scenario would imply that CAR would exhaust all its SDR allocation this calendar year, raising substantial concerns about fiscal sustainability if budget support remains unavailable and leaving the country without any fiscal buffer. ↗ Borrowing on the domestic market. Further resorting to expensive domestic borrowing on the domestic market could undermine debt sustainability, as the country is already at high risk of debt distress. Moreover, the ability of the government to borrow domestically remains uncertain considering the deterioration of the sovereign creditworthiness if donor support remains absent. With debt service already representing 35 percent, on average, of domestic revenue in the medium term, any additional borrowing will force the government to face trade-offs vis-a-vis other essential current expenditures such as priority transfers and subsidies and the recruitment of much-needed additional personnel in health and education.. There are potential regional spillovers effects and risks of social unrest should the fiscal cliff materialize. More than 7 out of 10 Central Africans are living in extreme poverty, and about half of the population is facing acute food insecurity. A deterioration in social spending could push even more households into poverty and food insecurity. Social unrest could be further fed by frustrations with governments’ inability to pay salaries and domestic arrears. The implications on security are unclear since the financing of this sector lacks transparency, but the inability of the government to meet its obligations could jeopardize security gains, as it has in the past, triggering a deterioration of security. Such a deterioration of CAR's security and socioeconomic situation could spill over to neighboring countries. After the 2013 civil war, the number of Central Africans seeking refuge in neighboring countries reached its highest level at 15 percent of the population in December 2016, before declining gradually. Insecurity in international border zones, particularly in frontier areas in Chad and Sudan, could possibly spread to these neighboring countries. 34 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 1.2.2 Growing risks and uncertainties Risks to the outlook remain elevated and the momentum of adopting economic and social skewed to the downside. A reversal in security reforms (Box 1).4 Similarly, the adoption of the Bitcoin gains, uncertainties created by the adoption of the law as well as the lack of budget support threaten Bitcoin law, and waning donor appetite for budget fiscal, financial, monetary stability. support represent the main risks to the short- and medium-term economic outlook. Renewed conflict and violence could have a serious adverse impact on socioeconomic and fiscal outcomes, as it could delay Box 3. Overlapping Crises Could delay the Economic Recovery The war in Ukraine is directly and indirectly affecting CAR’s economy. The impact is expected directly through higher commodity prices (especially food and oil prices) and indirectly through less willingness among donors to provide budget support The war in Ukraine and growing anti-Russian sentiment will likely exacerbate existing geopolitical tensions and push donors to withdraw their budget support. Should this materialize, CAR will exhaust all possible buffers by the beginning of 2023, which could trigger a sharp deterioration of security and the already precarious humanitarian situation, causing significant hardship for the population. A prolonged war could imply the withdrawal or reduction of Russian mercenaries, with a risk of jeopardizing recent security gains. Commodity prices and trade disruptions: The war in Ukraine and the expected slowdown of China’s economy add to existing headwinds facing the global recovery by further disrupting supply chains. Supply chain disruptions caused by the war in Ukraine is leading to supply shortfalls and increases in international prices of commodities, including petroleum and essential food products. While direct imports from Ukraine and Russia account for less than 1 percent of CAR’s total imports, the imports of petroleum and food (grains) related products account for about 50 percent of total imports. The average price of food products increased by 12.5 percent, year on year, in April 2022. Sorghum (78.1 percent), groundnuts (23.6 percent), beef meat (9.1 percent), rice (7.7 percent), white beans (5.5 percent), oil palm (3.3 percent), and maize (3.1 percent) experienced significant price increases in April 2022. The export ban on selected 4 Between 2017 and 2021, CAR adopted more than 97 economic reforms supported by development partners. 35 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE essential goods (including rice) imposed by the Cameroonian government on April 22, 2022, along with the lingering effects of the war in Ukraine, are expected to exacerbate pre-existing inflationary pressures and food insecurity challenges in CAR, with 43 percent of the population facing acute food insecurity. This will continue to erode the purchasing power of Central Africans and disproportionally hurt the most vulnerable. Downward revision of growth projections: Private consumption and investments are expected to be adversely affected by the war in Ukraine and the government’s fiscal adjustment plans. As a result, medium-term growth projections have been revised downward. Real GDP growth is now forecasted at 2.2 percent for 2022, down from 3.5 percent (as of January 2022). Uncertainties regarding donor support in the near term and the impact of continuous fiscal adjustment on economic activities are the main factors explaining the downward revision of growth forecasts for 2023 and 2024. Figure 16. Projected Impact of Overlapping Crisis on Real GDP Growth Percent (%) 5 4 3 2 1 0 2019 2020 2021 2022 2023 2024 Post Ukraine war Pre war Source: World Bank staff projections. 36 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Renewed insecurity could prevent CAR from In the absence of budget support, fiscal trade- addressing the roots of the 2013 crisis and offs will be difficult and costly regardless of the pave the way out of fragility. It could trigger the financing options. The government is accelerating displacement of people; disrupt the production and efforts to improve domestic resource mobilization, supply of essential foodstuffs; and contribute to but these will take time to materialize and will be price pressure on domestic markets and worsen the compromised if growth slows down as expected already alarming food security situation. Inflationary because of external shocks. In fact, the government pressures could further erode households' purchasing will need to further cut spending, which will slow power, increasing the risk of thousands of people down economic growth even more. Cutting public falling into extreme poverty. Vulnerable households, spending as was done in 2021 is socially and mainly hand-to-mouth, are likely to suffer the economically costly and sub-optimal given the most from price pressures. Moreover, heightened scale of the population's growing needs and the uncertainties arising from renewed violence could importance of supporting the economic recovery. adversely affect private sector investment due to the Further increasing domestic borrowing will be costly country’s high risk premium and investment costs, and may be compromised if the government position with a potential significant impact on job creation and deteriorates, and it would increase debt distress to the economic recovery. unsustainable levels. The ability of the government to borrow domestically remains uncertain considering the deterioration of the sovereign creditworthiness if donor support remains absent. Finally, the full use of all remaining SDR could avoid a collapse in 2022 but would leave the country without a safety net in 2023. Credits: @World Bank Country Management Unit 37 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Box 4: The Cryptocurrency law in CAR, and its potential regional spillover effects in the CEMAC The Central African Republic is the second country in the world to formally make Bitcoin as legal tender after El-Salvador. The adoption of the CAR’s cryptocurrency law set forth the legal framework on the use of Bitcoin. However, the law remains silent at this stage, on how cryptocurrency transactions between private agents will take place effectively. The immediate effects of this law on CAR’s macroeconomy, including financial inclusion, and overall public finance management remains uncertain. However, there are strong similarities with the cryptocurrency law adopted by El-Salvador, which could provide preliminary insights. For instance, like El-Salvador's law, CAR's crypto-currency law states that bitcoins can be accepted as payment for goods and services, but also used to discharge debts in any transaction. Moreover, the law acknowledge that taxes can be paid in cryptocurrency while all payment obligations including those preceding the adoption of the law (expressed in US dollars and any other currency) can be paid in cryptocurrency. Regarding the convertibility of the crypto currency, the law highlight that the government will set up a fund to ensure convertibility between Bitcoin and the CFAF (XAF), but the mechanism remains unclear on how much the government is committed to put into that fund and how it will work effectively. Despite the disbursement of IMF SDR allocations, the freeze on donor budget support left the country with no choice but to rely on bridge financing to cover the deficit. However, the cost of domestic borrowing is high and could potentially represent a significant source of debt vulnerability in the medium term. The regional spillovers for adopting Bitcoin as legal tender in CAR are likely to weaken the financial soundness in the CEMAC, given the common currency arrangement and existing financial linkages. The monetary policy arrangement in the CEMAC, grants to the regional Central Bank, the BEAC, the exclusive privilege of issuing banknotes, which are legal tender and have legal tender in member states of the union (see the CEMAC convention under its article 2, Title II and the BEAC statutes). Hence, the adoption of this law could have serious adverse spillover effects on the financial inclusion, financial stability, consumer protection, money laundering and fiscal contingent liabilities in the region. For instance, the level of financial inclusion in CAR remains weak, only 13 percent, while the enabling digital and network infrastructure is limited. As a result, the adoption of Bitcoin as legal tender could undermine ongoing regional efforts in developing the mobile money and digital payments ecosystems, which are essential and proven to be effective in scaling up financial inclusion in many countries. Moreover, in the event of a wider adoption of Bitcoin by private agents, this could hamper the deposit rate and base of commercial banks, hindering their ability to play their role as financial intermediators. In addition, 38 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE the implication for solvency and operational risk profile of commercial banks could be high in the event they end up taking more exposure in buying crypto assets, given their high volatility. Fluctuation in the crypto-asset prices could pose significant challenges in the conduct of monetary policy, through its impact in de-anchoring inflation expectation, especially if a high share of transaction between private agents in the CEMAC are made in Bitcoin. Fiscal vulnerability is also a major concern, given that the guaranteed convertibility will expose the government to fiscal risks. While countries such as China and many other emerging market countries have taken further step to regulate the purchase and sale of cryptocurrencies, none of them has accorded legal tender status to their use as mean of payment. Other countries, including China, Nigeria and Turkey have even banned their use for economic and financial transactions. The country’s heavy reliance on foreign deteriorate the external position. The impact on the aid remains a major source of vulnerability . fiscal deficit could be unprecedented, especially if Continued access to external resources is critical to Russia’s war in Ukraine stalls and CAR continues to CAR’s stability and economic recovery, and external keep gasoline prices at the pump unchanged.5 Higher funding represented 66 percent, on average, of total international grain (wheat) prices could lead to higher government revenue in 2020, demonstrating the domestic prices for flour and bread, contributing to important role of development partners in helping pressures on domestic food prices. In the absence of the country escape the fragility trap. In this context, domestic food substitutes, inflation could continue to the non-disbursement of budget support in 2021- 22 accelerate and remain above the regional ceiling of 3 has weakened the country’s fiscal and external percent. The indirect impact of Russia’s invasion of position and economic growth prospects. To reduce Ukraine on CAR’s economic outlook could materialize its vulnerability to international aid flows, CAR needs through diminished donor confidence and less to strengthen domestic revenue collection, improve external financial support. According to the 2022 the management of natural resources, and prioritize budget bill, donor budget support is expected to productive investments. represent 13.1 percent of total government revenues (2.6 percent of GDP) in 2022. The absence of external The war in Ukraine, along with the worldwide budget support could prevent the government from sanctions targeting Russia and Belarus, could meeting its domestic commitments, leading to a hike adversely affect CAR’s economic outlook . in the accumulation of domestic and external arrears, Higher commodity prices, mainly of oil (petroleum) with possible non-payment of public wages if the and grains, are likely to have a direct effect. As a situation persists. This could result in social unrest landlocked and oil importing country, higher oil and jeopardize years of progress in poverty reduction. prices are expected to weigh on CAR’s import bill and 5 To reduce the direct pass-through of international oil prices to domestic oil prices, CAR has introduced measures to support importers of petroleum products under the budget line “support/restitution.” 39 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE While the security situation has stabilized, Upside risks include the successful human rights violations persist. With the help of implementation of the recommendations of the bilateral support, including from the Russian private Republican Dialogue . The Republican Dialogue security group Wagner, the government has been took place from March 21 to 27 with about 500 able to push back the Coalition of Patriots for Change, participants who came up with 600 recommendations led by ex-President Bozizé, which tried to overthrow spanning security, social, economic, and governance President Touadéra after his election victory in issues. The political opposition announced its boycott December 2020. By early 2022, the United Nations of the Dialogue the day before it started, after having Multidimensional Integrated Stabilization Mission in participated in the preparatory committee, although the Central African Republic reported that 72 percent some of its key figures and political parties broke of the territory is now under government control. rank and did participate. Armed groups had not been Armed groups have been weakened, dispersed, and invited to participate, which caused controversy, as experienced attrition through voluntary disarmament, their issues would continue to be dealt with under while their leadership has fled the country. Fighting existing peace initiatives. Civil society participated occurs mostly around gold and diamond mining sites, actively, and many organizations reported on the where the business interests of armed groups collide frankness of the dialogue while demonstrating with governmental forces and Wagner. All parties to disappointment over the opposition’s boycott. A the conflict engage in human rights violations, with successful implementation of the recommendations the trend of indiscriminate violence against some from the political dialogue could help improve the ethnic groups being particularly concerning. political climate and the security environment. In the context of overlapping crises and global uncertainty, policy priorities should focus on cushioning the impact of these shocks and implementing reforms to safeguard the economic recovery over the medium term (Table 4). 40 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Table 4. Policy Priorities to Reduce Macroeconomic Imbalances and Support a Strong Recovery Area Immediate priorities Short-term priorities (Next 3 to 6 months) (Next 6 to 18 months) Security • • and social Cushion the impact of overlapping crises on the most vulnerable. Accelerate the political dialogue. Implement the protection Provide well-targeted crisis support to vulnerable households recommendations of the Republican Dialogue and affected by higher food and fuel prices. In the context of pursue the implementation of the 2019 Political limited fiscal space, all social safety nets programs should be Agreement for Peace and Reconciliation (Accord strengthened through better targeting of beneficiaries and Politique pour la Paix et la Réconciliation) or update it in linkages to productive activities and social programs. light of recent developments to guarantee a sustainable return of security and peace. Fiscal • • Respond to treasury pressures without adding to debt Increase the efficiency of public spending and vulnerability. The government should focus on concessional strengthen accountability. Public investment projects sources of borrowing and financing. Exchanging high interest need to be managed effectively and transparently, domestic debt for highly concessional external loans could with careful identification, preparation, prioritization, reduce the costs associated with expensive domestic risk management, and integration into medium-term borrowings. A balanced mix of domestic and external borrowing strategies and financing frameworks. could mitigate the risks related to interest costs and exchange rate volatility. • • Strengthen domestic resource mobilization, including Improve cash management to prevent the accumulation of new monitor the implementation of Decree N 22.087 on the arrears by: (i) linking quarterly budget allocations to revenue interconnexion of eDouane and ASYCUDA, especially performance; and (ii) improving fiduciary management in the monthly reconciliation of import-export data. ministries, departments, and agencies through the deployment of budget officers and internal audit staff. • Minimize uncertainties and fiscal and financial risks associated with the adoption of Bitcoin as legal tender by closely following the guidance of regional monetary and financial institutions. Private • • sector and Address the regular fuel shortage by: (i) increasing storage Harmonize trade procedures and streamline non-tariff trade capacity and petroleum reserves; and (ii) diversifying the supply measures in the Economic Community of Central African channels of petroleum products. States to reduce delays and ease the free circulation of • goods and services, boosting trade and competitiveness Reduce non-tariff measures (tracasseries) on the main trade in the region. corridor to allow firms and households to access inputs at low cost, encourage investment in activities related to GVCs, • and reduce the cost of consumption for the country's poorest Make import restrictions and special regimes less households. complex and more transparent by providing: (i) publicly accessible and regularly updated customs duties, which reflect the latest pricing data; and (ii) publicly accessible criteria and conditions for import licenses and fines for violation for both civil servants and importers. Health • • Accelerate the vaccination campaign to reduce the risk of new Strengthen the prevention mechanism against COVID-19 waves and the emergence of new variants, which communicable diseases such as COVID-19 and Ebola. remains critical and will require both domestic and global efforts. • Maintain COVID-19 prevention, containment, and management measures to minimize the risk of new waves of contamination. Credits: @World Bank Country Management Unit 2 CHAPTER Unlocking the Potential of the Agriculture Sector to Protect Livelihoods 42 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE A combination of shocks is set to have long-lasting economic effects on CAR, making it urgent to adopt broad-based and robust reforms, especially in the agriculture sector, which is the most significant contributor to poverty reduction in the country.6 With lower commodity prices, disruption in supply chains, and renewed insecurity, CAR’s economic growth is projected to be 2 percentage points lower than previously envisaged, and risks are tilted to the downside if renewed conflicts persist. The COVID-19 pandemic, post elections crisis, and the impacts of the war in Ukraine have worsened the already precarious humanitarian situation and pushed additional Central Africans into extreme poverty. Among the groups most at risk are the 658,000 internally displaced persons currently in CAR (as of April 30, 2022) as well as women and children, people with disabilities, and the elderly, whose vulnerabilities are expected to worsen in the current climate. An important share of the labor force, including youth and women, is self-employed in the agriculture sector. These workers are likely to have been particularly adversely impacted by the current crisis, as CAR does not have a national social safety net. The country’s agriculture sector has a significant potential that remains underexploited due to the use of rudimentary methods and technics and several overarching issues hindering the development of the sector. Policies and plans to improve agricultural practices have failed to produce results, with substantial consequences for food insecurity and malnutrition. The sector also faces climate change- induced events, highlighting the importance of an urgent reform agenda for better resilience and adaptation. 6 A country opinion survey (COS) conducted in 2020 that includes feedback from stakeholders reveals that agriculture and rural development are the greatest contributors to poverty reduction. A total of 39 percent of stakeholders consulted in the COS would like to see the WBG’s interventions emphasize agriculture and rural development. 43 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE CAR needs to implement bold and sustained Agropastoral Equipment Office in January 2018, agricultural reforms to tap into the potential of which is yet to be operational. To ensure that this its agriculture sector. Plans and strategies in the institution operates efficiently, there is need to create agriculture sector have been conducted using a a sound framework for importing mechanization stop-and-go and project approach. The sector lacks tools and regulating commercial hire services for a comprehensive medium- and long-term vision mechanization technologies and services. Boosting that integrates all subsectors and stakeholders imports of agriculture products would require and builds a sustained value chain around a set improving the quality of products to meet product of agricultural products. The current institutional value standards, linking producers to supply chains, framework is cumbersome and prevents innovation and improving rural connectivity. Additional reforms and the availability of improved seeds and fertilizers, include reforming land policies to secure rights which are critical to boosting productivity. The push and improve resource allocations, especially for for mechanization does not consider the smallholder women, and promoting and strengthening producer nature of farmers and herders and the high cost of organizations to better tap into national, regional, and machinery. The government created the National GVCs. 2.1 The agriculture sector offers immense opportunities, but its performance has been declining for decades 2.1.1 CAR’s agriculture sector has immense potential The agriculture sector is one of the main income of rural households (Figure 17). Agricultural backbones of CAR’s economy, and it has products (i.e., cotton and coffee) account for about 2 significant potential. The sector is economically, percent of GDP. Approximately one-third of CAR’s total environmentally, politically, and socially important for land is considered suitable for agriculture.7 Similarly, the country. Behind the services sector, it is the sector the country is rich in water resources, revealing its that contributes the most to the formation of national agricultural potential. CAR has a large and dense wealth, as it represented more than 34 percent of hydrographic network, with its main water resources GDP in 2009–20. The agriculture sector produces flowing from the Chad Basin in the north and the more than 75 percent of the country’s food products, Congo Basin in the south. In addition, the country has provides jobs to more than 75 percent of the active a significant fishing potential and a favorable climate, population, and is the major source of livelihood in with consistent rainfall every year (IFAD 2019). The rural areas, providing more than 90 percent of the southern tropical zone receives between 1,500 7 https://www.land-links.org/country-profile/central-african-republic/ 44 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE and 1,800 millimeters of rainfall annually; Sudano- land is suitable for irrigation, but fewer than 5,000 Guinean receives about 1,100–1,500 millimeters of ha is currently irrigated. Finally, only 9 million out of rain annually, and the northern Sudano-Sahelian band an estimated 16 million ha of grazing land is used for receives between 800 and 1,000 millimeters per year rearing livestock. CAR’s livestock subsector plays a (Figure 18). major role in the national economy and is critical for rural livelihoods. Livestock represents an average CAR has abundant arable land and a generally of 15 percent of GDP and one-third of agricultural favorable climate for both agriculture and output. Cattle production was formerly confined livestock. Rainfall patterns are suitable for crops, to the savannah areas in the country’s central and with long growing cycles, and the country’s extensive northern regions but now extends into the southwest river system provides surface and groundwater forest areas. The national cattle stock is estimated for agriculture, livestock, and wildlife. Despite the at approximately 4 million head. The production of huge potential in terms of land availability in CAR, smaller livestock, such as sheep, goats, pigs, and agricultural land use (share of land area), arable poultry, is practiced in all regions and is often an land, permanent crops, and permanent pasture ancillary activity of farming households. Small stock were estimated at 8.2, 2.9, 0.1, and 5.1 percent, safeguard against shocks, support resilience, and respectively, in 2018. Although the climate is form an important part of a household’s productive generally favorable, variations in rainfall make assets. irrigation attractive. Up to 1.9 million ha of agricultural Figure 17. The labor force is still mostly concentrated in the agriculture sector. Sectoral Employment Share, 1991–2019 Employment share (%) 90 80 70 60 50 40 30 20 10 0 1991-2000 2001-2010 2011-2019 Agriculture Industry Services Source: World Development Indicators. 45 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 18. The agro-pastoral repartition of products highlights the significant potential in all regions. Repartition of Agro-Pastoral Products Source: World Bank.8 The fisheries sector also has significant result, the country imports fishery products to reduce potential. CAR’s fish production ranges from 15,120 the gap between demand and supply. Techniques on to 35,170 tons9 per year, with pond-raised tilapia and stocking or adding fish to a body of water should be river fish contributing substantially to household diets. disseminated to smallholder fisheries to increase their The country’s fisheries sector has been privileged productivity and supply. Investment in local fishponds with a dense inland freshwater system that covers could also be done through fishermen organizations, almost the entire national territory, which has been and the development of waterways in the Chari and described as a water reservoir of Central Africa. Oubangui/Shangha basins could improve fishing and There are also lakes; ponds (i.e., the Am Timan, Tissi, aquaculture output. Gata, Dahal, Makia, Amdafok, Mamoun, Kididji, and Tiringoulou ponds); artificial reservoirs that cover The deteriorating security conditions dampen a total estimated surface area of 20 km² rich and hopes for a rigorous agricultural recovery in the varied ichthyologic fauna; and terrain appropriate for Central African Republic. Conflicts are potential fish farming (Dipapoundji 2019). Still, CAR cannot limiting factors for agricultural production and meet the country’s consumption needs, mainly contribute to the recomposition of production and due to the subsistence level of production, the land control systems, exchange networks, and use of rudimentary fishing equipment, and lack of market corridors. In CAR, conflict affects households’ conservation facilities to facilitate processing. As a agricultural production through different channels 8 World Bank. 2018. Central African Republic Agriculture Sector Review Note. 9 https://donnees.banquemondiale.org/indicator/ER.FSH.PROD.MT?locations=CF 46 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE including direct attacks against the population such agricultural production to reduce visibility in the as destruction of yields, theft of productive assets, community and prevent attacks. They also reduce or land plundering, among others. Most of the time, other investments directed to increase productivity. non-state armed actors target certain groups of the These reductions in production may increase the community to instill fear, prevent civil resistance prices of agricultural goods. As CAR is striving to movements, or illegally seize assets. The risk of overcome the heritage of fragility and violence, and abandoning or losing the land discourages investment their effects on the agriculture sector, important in permanent structures or sunk costs that are difficult lessons can be learned from the experience of other to recoup. In addition, visible assets signal wealth, post-conflict countries such as Afghanistan and increasing the risks of deliberate attacks from non- Rwanda. state armed actors. Thus, households may cut back Credits: @World Bank Country Management Unit 47 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.1.2 Still, the contribution of agriculture to growth remains limited Agriculture is the essential engine to jumpstart The performance of CAR’s agriculture sector the country’s structural transformation. Agricultural has, however, been dwindling over the past improvements contribute to economic growth and decades. The sector’s contribution to GDP growth fell development by: (i) accelerating industrialization, from 55 percent in 2011 to 32 percent in 2020. This which stimulates overall labor productivity; (ii) raising performance is attributed to a decline of 46 percent agricultural surpluses, which is essential for capital in food crop production, 55 percent in livestock, and accumulation; and (iii) improving balance of payments 33 percent in forestry and fishery. Before the 2013 through exports. Transitioning away from traditional war, 75 percent of food consumed in the country was agriculture also helps achieve humanitarian goals produced locally.10 Another reason for the fall in the by increasing the revenues and productivity of poor agriculture sector's contribution to GDP is the growth farmers and improving nutrition. Improving household contraction recorded in the sector in 2013 (-44.5 access to nutrition can reduce child stunting and percent) and 2014 (-1.4 percent). This decline is enhance human capital. For countries such as CAR, mainly attributed to the armed conflict in 2013-14, agriculture has the potential to help improve living while the sharp growth acceleration afterward was conditions and generate income by reforming and due to the 5 year national recovery and peacebuilding modernizing the sector. plan, which promoted economic recovery and boosted productive sectors such as agriculture by encouraging food-related production systems and the diversification of the agriculture sector. 2.1.3 Agriculture has suffered from weak performance over the past decades The country’s crop production has also the yield performance in neighboring Cameroon is been uneven. There has been a drastic drop in estimated at 2 tons/ha, 3.5 tons/ha, and 9 tons/ha crop production, which further limits agricultural for maize, sorghum, and cassava, respectively, which development, with cotton and coffee being the further shows that CAR’s crop performance is far most affected cash crops, despite initiatives set up below the expected potential. The root cause of the to revamp the sector. Food crops account for 95 poor performance of the crop subsector is explained percent of total production, with the remainder made by Mendes (2012) to be due to: (i) low physical and up of cash crops, which consist of cotton, tobacco, financial accessibility of small producers to inputs and coffee (GAFSP 2019). The crop subsector has (e.g., fertilizers, pesticides, and suitable packaging) experienced low productivity in recent years despite and processing equipment; (ii) lack of energy in rural government initiatives to revamp it. For instance, areas to support small storage and food processing agricultural yields, particularly of the main food units; (iii) absence of a mechanism for managing the crops, are very low at 800 kg/ha for maize, 600 kg/ production/multiplication and distribution of improved ha for millet/sorghum, and 3 tons/ha for cassava. seeds; and (iv) low capacity for the intervention of By contrast, the yield potential of these food crops seed control/certification services (IFAD 2019). is estimated at 2 tons/ha for maize, 2/3 tons/ha for There are 3 constraints to the production, export, and millet/sorghum, and 12 tons/ha for cassava. Moreover, competitiveness of cash crops in CAR, namely: (1) 10 http://documents.worldbank.org/curated/en/363251558404110297/Central-African-Republic-Agriculture-Recovery-and-Agribusiness-Development-Support- Project 48 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE high transport and transit costs along the production goods and services. It is measured as output per chain; (2) low productivity caused by the inadequate input, implying that productivity will increase if organization of farmers, lack of extension services, inputs are optimally combined to produce greater and poor research facilities and structures; and (3) output levels. The country’s agriculture sector is deterioration of production infrastructure, marked by less productive than other sectors, with average the disruption of internal production, processing, and productivity in agriculture being almost 12 percent marketing systems (Mendes 2012). that of manufacturing and 24 percent that of services between 1992 and 2019 (Figure 20). To improve The agriculture sector is less productive agricultural productivity, farmers need to adopt labor- than other sectors in CAR. Productivity measures saving technologies. how efficient firms combine resources to produce Credits: @World Bank Country Management Unit 49 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Table 5. There has been a movement of labor from agriculture to services. Within component Structural Change Productivity Growth Agriculture Industry Service Within Agriculture Industry Service Structural change 1991-2000 0.28 6.63 0.24 7.15 0.03 0.12 0.05 0.2 7.35 2001-2010 8.64 3.43 4.07 16.14 3.82 0.97 1.66 6.46 22.6 2011-2019 -0.01 0.08 3.8 3.86 0.07 0 0.96 1.03 4.89 1991-2019 3.28 3.26 2.84 9.38 1.45 0.4 0.95 2.79 12.18 Source: World Bank staff calculations While the agriculture sector is the main firms in the industry and services sectors need contributor to productivity growth, there to adopt technologies to allow them to maintain have been few institutional and technological production with fewer workers. The industry sector improvements in the sector, and growth declined is attracting few workers, with a meager contribution over the last decades. Agricultural labor productivity of the structural change component of 0.4 percent increased by 4.73 percent in 1991–2019, with the in 1991–2019, compared to 1.5 and 1 percent for within-sector component contributing more than 69 the agriculture and services sectors, respectively. percent to total productivity growth in the agriculture Between 2011 and 2019, productivity growth sector. As a result, labor productivity growth in induced by the movement of workers to the industry agriculture comes mainly from institutional and sector was zero, demonstrating that an insignificant technological changes. The within-sector component number of workers moved to the industry sector. This of agricultural productivity was negative in 2011– was likely due to workers lacking the technical skills 2019, which means that the sector needs to be needed in the sector, which calls for targeted policy modernized with solid institutions to increase its interventions to transform the sector and facilitate productivity (Table 4). labor movements between sectors. Similarly, labor movements toward the services sector also call The agriculture sector is still, however, for targeted policy interventions to accelerate the attracting workers. Historically, workers have tended transformation of the sector. to migrate from the less productive agriculture sector to the more productive manufacturing sector (Lewis 1955; Djidonou & McGregor 2020). The agriculture sector attracts more than 50 percent of workers moving across sectors, highlighting that CAR is not experiencing this structural change. Therefore, 50 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Credits: @World Bank Country Management Unit 51 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.2 Several bottlenecks have prevented the sector to unlock its potential 2.2.1 Weak budget allocation There has been persistent underinvestment in the agriculture sector. Budget allocation for domestic agricultural production is marginal, representing 0.7 percent and 0.9 percent of budget allocation (including both research and intervention expenses) in 2020 and 2021, respectively. Research expenses are marginal and aim to address the brown streak of cassava and improve the productivity of key products such as staples, cassava, and banana. The budget allocated to agriculture comes mainly from foreign investment and donations, with domestic investments representing 17 percent of total agricultural investments in 2010–20. While the share of domestic agricultural investment has been decreasing, the share of foreign investment has been increasing (Figure 19). Intervention expenses represent the bulk of government interventions for domestic agricultural production. However, a significant share of these interventions is channeled toward financing and supporting institutions in the agriculture sector, while direct support to producers represents a marginal part of the budget allocation. Over the past decade, public investments in agriculture averaged less than 3 percent of total public sector spending—below the 10 percent target set under the Comprehensive Africa Agriculture Development Program. 52 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 19. Domestic investment in the agriculture sector has Figure 20. Agricultural productivity has been flat over the past been relatively modest over the past decade. years. Agricultural Investments (%), 2010–2020 Productivity Trends by Sector, 1992–2020 Investment in the Agricultural Sector (%) Thousands 100 30,000 90 25,000 80 70 20,000 60 50 15,000 40 10,000 30 20 5,000 10 0 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Domestic Foreign Agriculture Industry Service Source: Authors using data from the Ministry of Agriculture and Rural Source: World Bank staff using data from the World Development Indicators Development. CAR has not yet been able to allocate 10 There is a huge gap between the allocated percent of the national budget to agriculture and budget and operating expenses in the agriculture rural development as part of the African heads of sector. For instance, the ratio of operating expenses state’s commitments in the Maputo Declaration. to allocated budget in the sector declined from 6.2 Nevertheless, the share of the public budget percent in 2012 to 2.4 percent in 2018. This gap is devoted to the agriculture sector increased from 3.3 attributed to the state of insecurity in the country, percent in 2012 to 9.0 percent in 2022, above the lack of a strong income base, the limited absorption regional average of 5-6 percent.11 Expenditures on capacity of agricultural projects, and the lack of agricultural research increased from US$3.7 million prudent and accountable deployment of public in 2012 to US$5.2 million in 2015, before settling resources in the agriculture sector. There are also at US$4.9 million in 2016. This has been supported delays in budget approval, which can push budget by projects implemented by the Central African resource availability months into the implementation Institute of Agricultural Research, with the support of year, shift allocated resources to operations instead international institutions. This trend was expected to of investments, and result in a discrepancy between continue to the extent that in 2020 the government fiscal year and agricultural calendars. To narrow the will meet the target of 10 percent budgetary allocation gap, resource mobilization needs to be available on to agriculture (Global Agriculture and Food Security time, and budget approval needs to happen in the Program (GAFSP 2019). previous year to fast track the implementation in the subsequent year. 11 Sers and Mughal 2018. 53 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.2.2 Challenges in accessing improved seeds and fertilizers remain The agriculture sector remains dominated Farmers are still using rudimentary farming by small, subsistence-oriented family farms . methods due to the high cost of acquiring The sector is driven by food production, which machinery. Manual techniques continue to dominate accounts for 95 percent of value-added, compared the means of production, with 95 percent of farmers to 5 percent for cash crops, which consist of cotton, using these production techniques in 2022. Less tobacco, and coffee production. It is estimated than 1 percent of farmers use tractors and tillers, that approximately 70 percent of the population is primarily due to the high cost of mechanization, with engaged in subsistence farming, with the majority tractors being 15 times more expensive than manual of the country’s households living in rural areas and production. Similarly, farmers are likely to use cheaper producing most of the food they consume. Food crops alternative fertilizers to grow their farms. They use and livestock produced for household consumption slash and burn agriculture to weed and fertilize account for approximately 80 percent of the total the soil, and the use of modern crop fertilization is output of rural households, with cash crops and almost inexistent. The use of 0.1 kilograms per ha labor income representing the remaining 20 percent. of fertilizer (nutrient nitrogen) per cropland area is Households grow a mix of food crops, cash crops, and significantly lower than the average of 2.6 kilograms livestock. Food crops, including cassava, sorghum and per ha in CEMAC in 2009–2019. Farming practices millet, fruits and vegetables, and oilseeds, occupy are still oriented toward rain-fed farming, with quasi- an estimated 90 percent of CAR’s total cultivated inexistent opportunities to acquire a tractor, selected area and are the main source of employment and fertilizers, pesticides, and seeds. Moreover, land areas household income, especially in rural areas. Variations equipped for irrigation are limited, with only 672 ha in weather conditions, although generally favorable, of areas irrigated, much lower than the average of and local food markets, along with the frequency 24,122 ha in CEMAC. of conflict, have led most households to adopt production models that emphasize diversification and self-reliance and avoid the risks involved in specializing in cash crops or nonagricultural activities. Credits: @World Bank Country Management Unit 54 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 21. Compared to regional peers, the use of fertilizers Figure 22. … and the proportion of land equipped for irrigation remains limited… is low. Use of Fertilizer (nutrient nitrogen) per Area of Cropland, Land Area Equipped for Irrigation (ha), 2009-2019 2009-2019 7 100,000 90,000 6 80,000 5 70,000 60,000 4 50,000 3 40,000 2 30,000 20,000 1 10,000 0 0 R n AC R ea ad n n p. ea n o AC oo oo bo CA ng bo CA Re in Ch in M M er er Ga Ga Co Gu Gu CE o, CE m m ng Ca Ca Co Source : FAOSTAT. Source: World Bank data/ Africa Development Indicators. CAR’s seed policy is inefficient, mainly due the low productivity of smallholder farms that have to the weak production capacity of the Institute limited purchasing power to acquire bags of imported of Agronomy as the main supplier of improved fertilizer. To address this, CAR needs to focus on the varieties. One of the major barriers to improving education of breeders, the breeding of new varieties, agricultural productivity in the country is the and the production and delivery mechanisms required persistent use of inferior seeds by smallholder to create viable systems for dispensing high-quality, farmers. Farmers tend to recycle non-resilient high-yielding seeds. varieties that are late maturing, low yielding, and have no resistance to pests and diseases. For decades, Existing institutions and policies do not define farmers in CAR have skillfully operated their own soil testing, and the distribution of inputs is not informal seed systems. They have saved seeds from adequately targeted. In addition to limited access, one year’s crop for planting in the next and distributed farmers have no information on soil testing and these seeds through community networks. However, therefore do not know what types of fertilizer to buy the performance of local varieties of maize, cassava, or what dosage to apply. Due to logistic constraints, and other food staples has lagged far behind the they are also unable to afford to pay the high prices rest of the world. The country has been importing currently asked for fertilizers in CAR. The country improved varieties of seeds, increasing the gap is currently benefiting from humanitarian projects between demand and supply, and its fertilizer policy that help reduce the price of fertilizer for farmers, has mainly emphasized the use of inorganic fertilizer although these input distribution programs suffer from for crop productivity, neglecting the direct seedling inadequate targeting of beneficiaries. mulch-based cropping system. This could explain 55 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE There is a high cost of testing applications regulatory framework for the importation of fertilizer for imported varieties. As a result, importers may is too cumbersome, discourages potential investors, limit the number of varieties submitted for official and increases inequality among fertilizer dealers release to those that are likely to perform well in all across rural areas, affecting farmers' productivity. test locations. Varieties with a specific adaptation There is a need to simplify administrative procedures to agro-ecological niches or uses are less likely for import licenses and reduce the import tax levy, to be presented. This tends to contribute to a shift which could increase the supply. Also, there is a need in specificity to widely adapted varieties instead of to strengthen capacity building among farmers to varieties that suit the diverse needs of small-scale intensify their production, which could help them farmers (Louwaars 2005). The existing seed policy increase their output and incomes. framework is limited to registration, certification, quality control, and delivery to farmers, with little attention given to research and development related to breeding. This has meant that CAR has not joined or ratified any seed policies with any international regulatory organization. In CAR, the use of fertilizer is low at an average of 0.2 kg/ha, much lower than 13kg/ ha in Cameroon, 17.6kg/ha in Burkina Faso, 38kg/ ha in Mali, 30.9kg/ha in Côte d'Ivoire, and 19.7kg/ ha in Nigeria. The low use of fertilizer by Central African farmers is due to its high cost on the domestic market and the smallholding nature of farms, with plots averaging 1 to 2 ha. Fertilizer prices set by the government limit competition from potential private investors, thereby reducing the supply. The current 2.2.3 Addressing persistent transhumance challenges Transhumance and tensions between herders farmers and pastoralists started once the cattle and farmers have hindered the development of population increased to more than 4 million, leading the agriculture sector. Livestock and farming remain to competition for land resources (FAO 2018). CAR’s significant sources of income for many households in agricultural techniques are based on a slash-and- CAR. However, competition in the use of resources burn approach, leaving farmers no choice but to leads to attacks and reprisal killings between farmer practice itinerant farming since bush fires lead to and herder communities, resulting in a rapid loss a rapid loss of soil fertility and deteriorate natural of soil fertility and deteriorating natural resources. resources. Furthermore, the destruction caused by According to CAR's agriculture and livestock survey, nomadic cattle is detrimental to the development of more than 86 percent of breeders practice agriculture, the agriculture sector. For example, approximately while only 4.57 percent of farmers practice breeding. 60 percent of livestock owners have escaped to In fact, in addition to transhumant Fulani herders, bordering countries to protect their stock during the 90 percent of livestock breeders are Mbororo conflict, and thousands of farmers have abandoned Fulani, who arrived from Cameroon and Chad in the their farms (LandLinks 2021). The agriculture early 1920s. Initially, sedentary farmers practicing sector needs strong institutions to ensure efficient extensive agriculture welcomed the movement of management and regulations of agricultural and livestock breeders, who were expected to breed far livestock activities. from their croplands. However, the conflict between 56 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE The conflict between farmers and herders vandalized and destroyed when animals pass through significantly degrades agricultural production farms, and both farmers and herders encounter and leads to internal displacement and poverty internal displacement and poverty due to conflict. for both farmers and herders. Almost 70 percent Some farmers have lost their lands, and some herders of herders and farmers report that recurrent conflicts have been forced to migrate to other regions because affect their activities. For example, crops can get of local hostilities in their communities. Figure 23. Recurrent conflicts between herders and farmers Figure 24. Wandering animals, rural damage, theft, and killing significantly affect their activities. of livestock are the major sources of transhumance. Impact of Conflicts on Agricultural Activities Reasons for Transhumance Percentage of breeders Percentage of breeders 38 100 90 37 80 36 70 60 35 50 34 40 30 33 20 32 10 0 31 l e il s e ce ai al us ta ag et an im be am nd fb um an 30 of La ld to sh g ng ra ef rin an lli Th Ru de Tr Ki 29 an W 28 Yes No Not at all Very little A lot Source: World Bank staff using data from the agricultural and livestock survey. 57 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Wandering animals, rural damage, theft, and Farmers and herders advocate traditional the killing of livestock are the major sources chiefdom resolutions to effectively resolve of transhumance . Transhumance is one of the their conflicts. Very few of them turn to the police significant causes of instability in CAR. Clashes authorities to resolve their disputes. In CAR, several between transhumant herders and farmers have possibilities are available to resolve disputes between caused major population displacement. They have herders and farmers, including appealing to traditional also created a climate of mistrust that affects social chieftaincy, the police authorities, other breeders cohesion and economic activities. Several factors or farmers, or armed groups. Indeed, during the push herders to move with their animals. More than agriculture and livestock survey, breeders and farmers 70 percent of herders report wandering animals, rural were asked about their preferences in terms of damage, theft, and killing animals as the main reasons conflict resolution. The results show that herders and they migrate. farmers prefer informal conflict resolution. More than 65 percent of farmers and breeders prefer resolution by the traditional chiefdom, followed by appealing to other farmers or breeders (more than 20 percent) and the police authorities (less than 10 percent). Figure 25. Informal resolution of conflicts is the most preferred approach. Preferred Conflict Resolutions Satisfaction with Conflict Resolutions Percentage of Herders Percentage Breeders 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 s s ie ps ie ps s s m nt m nt er er ou o ou ge o ge fd m rm fd gr gr la ie ar la ie a ch ed ed ra nd nd ch ra tu m m al Ge tu Ge al Ar ul on Ar ul on e/ e/ ric ric iti lic iti lic ad ag ag ad Po Po Tr k/ / Tr ck oc to st s ve ve Li Li Yes No Satisfied Non Satisfied Source: Agricultural and livestock survey, CAR. 58 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.2.4 Closing the gender gap can help boost agricultural transformation and reduce poverty Women are significant agents of change in the agriculture sector in CEMAC, behind only Chad. in the fight against rural poverty, hunger, and Empowering them is essential for the well-being of malnutrition in CAR. They play an essential role families and rural communities and overall economic in achieving economic, environmental, and social productivity, as well as for improving food security, shifts needed for sustainable development and ensuring access to nutrition, and achieving the crop production. Women also have considerable Sustainable Development Goals. responsibilities in farming. For example, men clear the fields, while cultivation is essentially the duty of There is a considerable gender gap in the women, who grow cassava, corn, millet, sorghum, country’s agricultural research agencies. Ensuring rice, squashes, and peanuts for their families’ a gender balance among professional staff at consumption. While women account for more than agricultural research agencies is essential. Women 78 percent of agricultural labor in CAR, there is little researchers and professors contribute effectively and recognition of their work, and they do not have equal efficiently and provide insights and perspectives that access to the economic fruits of their labor. The help female farmers address challenges during their country has the highest number of female workers farming activities. The share of female agricultural Credits: @World Bank Country Management Unit 59 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE researchers in CAR fell from 26.0 percent in 2011 to Access to quality education, health, capital, 19.7 percent in 2016. The FAO (2011)12 predicts that and agricultural inputs could help women in if female farmers had equal access to resources as the agriculture sector to effectively reduce men, agricultural output in 34 developing countries poverty. One of the reasons the agriculture sector would increase by an estimated average of up to 4 is underperforming in many developing countries percent, reducing the number of undernourished is that women do not have equal access to the people in those countries by as much as 17 percent, resources and opportunities to be more productive. equivalent to lifting up to 150 million out of hunger. There is unequal access between women and men to resources that can improve their living conditions. The agricultural productivity gap and inefficient Primarily, unequal access to land and other factors over-allocation of inputs to male-managed of production (e.g., inputs and equipment), quality plots significantly affect overall productivity agricultural advisory assistance, financing, technology, in agriculture . Women are overrepresented in training, and markets are key bottlenecks that affect CAR’s agriculture sector. More than 77.8 percent, women in agriculture. Furthermore, limited access to on average, of the country’s workers were engaged education and early school dropout further worsens in agriculture in 1991–2019. While the trend has the situation of girls and young women in CAR. In rural been slightly decreasing, the share of women in areas, the school attendance rate for girls is less than agriculture probably remains high. There is an 55 percent, much lower than 88 percent for boys, unequal distribution of productive land between men leading to early marriage and pregnancy and a heavy and women in Africa. African women are an integral domestic workload. If women had equal access to part of the agriculture sector, as they represent up to productive resources, they could significantly increase 52 percent of agricultural workers and are responsible yields on their farms and thereby reduce hunger. for approximately 50 percent of agricultural labor on farms in SSA (Njobe and Kaaria 2015). In some cases, the productivity gap is partially driven by an inefficient over-allocation of inputs to male-managed plots, resulting in significant aggregate productivity losses in the agriculture sector (Akresh 2008; Udry 1996). Moreover, women are marginalized in terms of access to organic and chemical fertilizers, crop protection chemicals, improved seed varieties, mechanization, water, and credit and input and output markets, and they face various informal institutional constraints. A better allocation of resources to women in CAR can significantly improve overall agricultural productivity growth . In line with the existing literature, estimates show that women equipped with arable land, fertilizers, and agricultural technology contribute more to aggregate agricultural productivity and economic growth. Higher access of women to arable lands could boost aggregate productivity by 0.05. A combination of irrigated land and fertilizers has a high impact on productivity growth. 12 http://www.fao.org/3/i2050e/i2050e.pdf 60 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.2.5 Major Effects on Food Insecurity, Stunting, and Malnutrition Food insecurity, stunting, and malnutrition have living below the international poverty line (US$1.90 increased over the past years due to persistent per day, 2011 PPP) in 2020. Chronic malnutrition structural challenges and low productivity in the remains an issue for infants and young children, agriculture sector. Nearly 2.1 million people (43 with stunting affecting 37.5 percent in 2018.14 The percent of the population) were expected to be in COVID-19 pandemic and renewed insecurity amid crisis levels of acute food insecurity (Integrated Food the 2020 election disputes have increased the cost Security Phase Classification Phase 3+ or above) of living, as food prices have increased in markets between September 2021 and March 2022, according in Bangui and around the country while household to the most recent estimates by the Integrated Food incomes have stagnated or declined. As a result, Security Phase Classification.13 This represents a 7 vulnerability and the share of Central Africans at risk percent marginal decrease compared to the period of falling into extreme poverty have increased. between April and August 2021. Poverty is also elevated, with more than seven in ten Central Africans Figure 26. Almost half of the population is expected to be affected by acute food insecurity. Acute Food Insecurity, September 2021–March 2022 Source: Integrated Food Security Phase Classification October 2021. 13 FAO-WFP early warning analysis of acute food insecurity hotspots. May 2021. 14 https://globalnutritionreport.org/resources/nutrition-profiles/africa/middle-africa/central-african-republic/. 61 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE CAR suffers from acute food insecurity due measures to raise productivity in various agro- to armed conflicts and declining agricultural ecological zones by providing guidance and assistance productivity. Nearly 2.7 million people would likely to farmers, especially women and the youth. experience high levels of acute food insecurity through March 2023 in the absence of humanitarian Measures taken by the government to address assistance.15 Failure to immediately address rising malnutrition and food insecurity have mostly needs will result in additional loss of lives, increased failed, due to disruption related to the 2012 security vulnerabilities, and higher levels of food insecurity, crisis. For instance, initiatives such as the Rural as well as risk weakening the long-standing ability Development, Agriculture and Food Security Strategy, of humanitarian organizations to stay in the country which is the detailed sectoral strategy to make the and deliver in a highly complex and dangerous rural sector the driver of the economic recovery, and environment. With nearly half of the population the National Programme for Agricultural Investment unable to meet their daily minimum food needs, it is and Food Security 2011–2015, which aimed to secure crucial to continue providing livelihood assistance to the nation’s food needs, accelerate socioeconomic strengthen the resilience of vulnerable populations development, and reduce poverty and inequality, (FAO 2021). The current situation is due to persistent have fallen short of meeting their objectives largely conflict in several areas of the country, violence because of the 2012-13 armed conflict, which related to elections, structural weaknesses, and reduced their scope. Moreover, the high prevalence massive population displacement. In addition, the of infectious diseases has been exacerbated by the socioeconomic effects of the COVID-19 pandemic, rise in internally displaced people due to conflict, the war in Ukraine, and the devastating effects of and many government initiatives have suffered from natural disasters such as floods have exacerbated lack of planning and efficient management. CAR also households’ vulnerabilities. suffers from limited expertise on nutrition, which has hampered efforts to disseminate information There is insufficient coordination of and advice on dietary requirements for vulnerable interventions and monitoring of the deteriorating groups, especially children, and reduce the number food and nutritional security situation. CAR has of children seriously affected by acute malnutrition. To established an inter-ministerial committee on adequately address malnutrition and food insecurity, food security, which is under the supervision of the authorities need to: (i) increase the number of the Prime Minister’s office. However, to strengthen professionals trained in nutrition who can disseminate disaster prevention and management related to information on dietary intake; (ii) allocate funding food insecurity, the country needs to develop plans dedicated to nutrition activities; and (iii) increase the and strategies, like other countries such as Iraq. availability of food high in protein and micronutrients The international community and donors have taken by improving agricultural productivity. serious steps to mobilize resources in this regard. Moreover, the use of phone calls to monitor the situation by selected humanitarian organizations is unlikely to provide accurate insight into the country’s food insecurity emergency. The current war between Russia and Ukraine has also increased the price of cereal, which will have a multiplier effect on other commodity prices. To combat the challenges of food insecurity, the authorities need to implement 15 https://www.ipcinfo.org/fileadmin/user_upload/ipcinfo/docs/IPC_CAR_Acute_Malnutrition_2021Sept_2022Aug_Report_French.pdf. 62 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.3 Key Cross-Cutting Issues to Tackle to Successfully Transform the Sector 2.3.1 Tackling Governance and Institutions Policies and plans to improve agricultural development as well as specific training related to practices have failed to produce results. Recurrent the agriculture sector are quasi-inexistent, limiting the conflicts and violence have taken a substantial potential for expanding the sector. Several attempts toll on the agriculture sector. Decades of conflicts, have been made in the past years to set up strategies instability, and uneven progress on the structural to develop agriculture and reduce food insecurity reform agenda have badly damaged the agricultural through the empowerment of local communities. institutional framework. Public institutions still have limited capacity to deliver basic services to farmers While the institutional framework includes and herders and fulfil their core mandates. Over a multitude of actors, most of them are neither the past years, agricultural development has been functional nor effective. The institutional context guided by several strategic planning documents that governs CAR’s agriculture sector involves state that have existed without policy enforcement due to and non-state actors operating in centralized and complex institutional arrangements, a weak incentive decentralized structures. The efficiency of state actors structure, and high turnover at the managerial is questionable. For instance, l’Agence Centrafricaine level, and a lack of adequately trained staff have pour le Développement Agricole is yet to set a timeline weakened the effectiveness of other major sectoral for introducing the mechanization of the agriculture institutions. Despite these plans, resource allocation sector, and Agence Nationale de développement de to the agriculture sector has remained insignificant. l’Elevage has not revitalized the livestock subsector Agricultural productivity growth has been limited and by empowering herders to transform their activities constrained by outdated land laws. Research and from traditional to improved systems. Moreover, La 63 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Société d’Etat de Gestion des Abattoirs is not operating requirements, the agriculture administration must be at a full capacity due to the limited number of animals reviewed based on a long-term vision, with a focus on to be butchered, while Office National des Semences quality delivery. has a limited capacity in terms of equipment and personnel, which has led to administrative delays Parastatal public companies have poor- in certifying improved varieties of seed for use in functional structures . For example, all the preparation for upcoming farming seasons. Finally, institutional funds have already been dissolved Office National du Coton, which was created a few due to governance issues, and La Société d’Etat de years ago, still needs to fulfill its mandate, and Institut Gestion des Abattoirs lacks the equipment to operate Centrafricain de Recherche Agricole has not been able fully. The ORCCPA used to operate mainly based on to produce and disseminate substitutes for inorganic coffee revenues, but it is no longer operating and has fertilizer such as direct mulch-based cropping system accumulated debt since the fall of the coffee sector. or develop improved seed varieties for farmers. The Central African Oil Palm Company is also being liquidated, and Office National de Matériel Agro- Another organizational weakness is that pastoral has not yet been created (only a decree has the deconcentration of the agricultural public been issued). In terms of the participation of non- services is limited . It is almost impossible to state actors, rural professional organizations lack establish public agricultural offices inside the funding and proper synergy to operate efficiently. As country, in rural provinces that are sometimes for non-governmental organizations, their missions demographically important. This is partially explained vary from one to the another, which has led to conflict by the resurgence of insecurity. Indeed, entire of interest in the field and overlapping activities. areas deserted by the public authorities give way to uncontrolled gangs, road cutters, poachers, and other notorious thugs. As a result, there is an asymmetrical distribution of public agriculture services throughout the country, with a high concentration in the large urban areas, particularly in Bangui. Appointments in the rural provinces are a way out for undesirable staff who are in return demotivated and less productive. Furthermore, the infrastructures that host the public agriculture services in the CAR are a key challenge. Most of those infrastructures are derived from the colonial administration and have become old, dilapidated, and in ruins. It is not surprising to find buildings with no minimum working conditions, no water, no electricity, no toilets, and no comfort. This image is an illustration of the advanced state of degradation of the administrative infrastructure. This organizational weakness is reinforced by the material or equipment deficit. The little equipment that exists is concentrated in the hands of a few executive directors, to the detriment of the structures on the ground. The strength of CAR agricultural public services will result from their management capacities and their performance in terms ability to anticipate and timely support farmers. To meet these 64 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 27. A multitude of actors in the agriculture sector have had a meager impact. CAR’s Agricultural Institutional Framework ORCCPA SEGA ICRA ONASEM FIDE STATE ACTORS General RDs Directorates ACDA of the MADR CENTRAPALM FDAP ANDE ONMAP ONC Rural professional NGOs Private Sector organizations NON-STATE ACTORS – Chamber of Agriculture – Federations – Associations Source: World Bank staff elaboration. 65 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.3.2 Limited Access to Finance Access to finance is the major bottleneck for the microfinance institutions in the country, but they have development of the agriculture sector. According failed to improve access to finance, especially in the to the agriculture and livestock survey, more than 93 agriculture sector. Microfinance accounts for 1 percent percent of farmers reported access to credit as the of total credit facilities, serving a mere 0.5 percent major bottleneck to their activities. Lack of technical of the population. An alternative is mobile banking, support and absence of improved seeds are the which can serve people even in remote agricultural second and third major constraints facing firms. Due villages. But unlike in several other African countries, to inadequate market infrastructure and legal and mobile phone penetration remains low in CAR at 48 judicial frameworks, the financial sector is weak. Fond percent of the total population. de Développement Agropastoral, which is supposed to support farmers and overcome challenges regarding access to finance, is not functional. There are Figure 28. Limited access to finance, technical support, and improved seeds are major bottlenecks in the agriculture sector. Major Constraints Facing Farmers in CAR, 2021 Percentage of farmers 100 90 80 70 60 50 40 30 20 10 0 ng s n ) n ds s n es t rt d e t ) es s? gh ef ed ct ct tio ag io io an po as oo di fir th du du et st at ou tifi rt ra ll up n se Fl pe pl t sh op ho ro ro fu ra es Dr er ig ls de di lp Bu lp m cr ltu rs , (c r of en fo ca op g/ il ra ra al s icu ou ck De ox So ni ed Cr rn ltu in tu La ab ch gr s, se ot ul te icu l al te a lo s/ ric In ed im of gr y/ of du ag ov an e ra rit ck xo g pr of ta cu fo La ild le im or s se et (w ice ra Sh of In k Ru pr ar ps ck m ro er La of c w of Lo ck n La io at st va De Constraints for farmers Not a constraint for farmers Source: World Bank staff using the agriculture and livestock survey, 2021-22. 66 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE There are no institutional and legal frameworks The country’s low population density has not regulating rural finance in CAR. This has resulted favored traditional banking, especially in rural in limited access to basic capital for farming areas. Financial policy has not focused on increasing activities, hampering the potential development of the low banking rate, estimated at 5 percent, in CAR the agriculture sector and undermining the country’s due to the distance between bank locations (limited rural development. The inadequacy of services and number of branches located mainly in towns) and the deficient bank portfolios make it difficult for people low rate of urbanization. Mobile banking is relatively to access loans and other banking services. About new, relies on mobile companies' presence, and 70.2 percent of adults do not have an account at a remains contained to selected urban areas. Moreover, formal financial institution because of a lack trust.16 the use of mobile banking for agriculture remains Instead, 52.3 percent of adults borrow money from limited. People with access to mobile banking can an informal savings club.17 Government reforms carry out their financial transactions even in remote addressing collateral issues in financial institutions areas and reduce their use of cash, which requires are too rigid and above the resource mobilization savings and bank accounts. Many countries have capacity of average citizens, and reforms do not demonstrated how to increase access to finance with adequately consider the needs of vulnerable groups. mobile banking systems. In Ghana, for example, there As a result, many financial institutions find it difficult is rural banking to facilitate the payment to cocoa to provide credit. Making Finance Work for Africa farmers. In Uganda, Ensibuuko mobile payment (2018) identified the sectors that benefitted the enables cooperatives to offer financial services to most from bank loans in 2017 as traded (20 percent) its members with a mobile application called Mobile and transport and communications (16 percent). To Banking and Information Software (Mobis), while in increase access to finance, the authorities need to Nigeria the government set up a specific program create a rural finance regulatory framework and raise called Nigeria’s National Financial Inclusion Strategy awareness on the potential advantages of having to increase access to credit, especially for groups that access to financial capital from a formal financial face significant challenges such as women and the institution. Loans with single digit interest rates youth. through existing microfinance institutions associated with assisting farmers with capacity building would help the transition from subsistence to commercial agriculture, and investment in off-farm opportunities are required to boost the demand for loans. There are promising opportunities to set up a regulatory framework for piloting retail banking services, as adults have proved that they can responsible borrowers, and there is a long tradition of informal credit and savings arrangements that can be built upon. Also, many women engaged in agribusiness in CAR have entrepreneurial skills and are likely to need loans to carry out their activities. 16 https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Central pour cent20African pour cent20Republic.pdf 17 Ibid. 67 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Credits: @World Bank Country Management Unit 2.3.3 Improving Access to Markets Poor road conditions and the absence of a and inadequate resources. Agricultural products maintenance strategy, especially for rural roads, are generally grown in remote rural areas, but only hinder access to markets. Out of 24,137 km of 16 percent of the rural road network is classified national, sub-national, and rural roads, only 855 as in ‘good’ or ‘fair’ condition. Much of the country km (3.5 percent) are paved.18 The road network is is beyond the reach of the road network, limiting relatively small and suffers from limited maintenance, access to rural areas, markets, and basic services. constraining farmers’ access to markets and the To transport agricultural products at a lower cost to potential development of the agriculture sector. There markets, the authorities need to improve the quality is no rural road maintenance strategy, resulting in of transport and road infrastructures. The Douala- extended periods of poor maintenance. The National Bangui corridor is the main road for internationally Road Fund has been hampered by weak governance traded goods, accounting for about 80 percent of total 18 https://dlca.logcluster.org/display/public/DLCA/Central+African+Republic 68 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE imports and exports, but it is not entirely paved. The resulting from ongoing conflict and COVID-19. Unlike country’s existing road infrastructure suffers from their rural peers, they typically lack traditional coping inadequate maintenance and remains a significant mechanisms such as hunting and gathering. constraint to doing business, limiting farmers’ access to markets and essential social services. Rural development policy has not emphasized improving rural infrastructure. Policies over the past Recent crises (i.e., insecurity, political crises, decades have essentially focused on developing food and the COVID-19 pandemic) have exacerbated and pastoral production through agricultural projects challenges and bottlenecks regarding rural mainly funded by donors, such as the Agricultural development policies and institutions. Insecurity Recovery and Agribusiness Development Project and the widespread destruction of infrastructure, supported by the World Bank. Before the 2013 war, equipment, and livestock during the 2013 crisis there had been significant socioeconomic impacts on have deprived many farmers and businesses of the livelihood of the rural poor. The non-payment of crucial working capital, disrupted production, and arrears, widespread insecurity, and other externalities led to the collapse of agricultural input and output such as climatic shocks have negatively impacted the markets. During the crisis, many agricultural agencies livelihood of the rural population. People's standard suffered looting and the destruction of facilities and of living has fallen, and rural and urban migration has equipment. The loss of gene banks at the agricultural increased exponentially. The share of poor people research center was particularly damaging and has living in urban slums increased from 91.9 percent in further diminished the availability of improved seeds. 2000 to 95.4 percent in 2019. The country’s recent Crop and livestock production urgently need recovery rural development policy, launched in 2021 under after the crisis. Domestic demand for food remains the rural development support program, emphasizes unmet because conflict, violence, and instability have the empowerment of youth and women through: negatively affected the agriculture sector. According (i) professional training of agricultural participants to a World Bank report on the Agriculture Recovery in rural areas; and (ii) financial and non-financial and Agribusiness Development Support Project in services to sustain entrepreneurship in the rural areas CAR,19 75 percent of all food consumed before the around production basins (agropole). Although the war was produced by farmers. This dropped to 46 policy could contribute to improve the living standards percent after the crisis. The World Food Programme20 of women and young farmers, it is constrained by reports that among the urban population, including limited resource mobilization, limited access to people in the greater Bangui area, who are more productive inputs, and insecurity in many parts of the dependent on markets and wages for their livelihoods, country. 47 percent of people suffer from food insecurity 19 https://documents1.worldbank.org/curated/pt/363251558404110297/text/Central-African-Republic-Agriculture-Recovery-and-Agribusiness- Development-Support-Project.txt 20 https://www.wfp.org/news/half-population-central-african-republic-grip-dire-food-insecurity-emergency-un-warns 69 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.3.4 Persistent Issues Regarding Ownership and Use rights of Land Land laws are outdated and do not favor There is a competition between customary law agricultural development . The Law of 1964 and land law. In CAR, property rights can originate classified land into the public domain—land not from either the country’s legal framework or its subject to individual rights—and the private domain— customs. Legal rights are enshrined in national and land that belongs to the government. Land concession international texts (e.g., conventions, international is a procedure by which the government authorizes laws, constitutions, and domestic laws and a person or community to occupy a portion of the regulations, etc.), while customary rights arise from national territory. It can lead to property if the community practices and habits without reference beneficiary enhances the land. According to the to a text formalizing them. Traditional rights often law, the land is enhanced if the old plant cover is conflict with textual rights, creating a distinction destroyed to build new constructions or plantations. between legal and legitimate rights. A significant This requirement limits the possibilities of access challenge in promoting peoples’ rights is to reconcile to the property for communities that protect the legality and legitimacy. environment. This limitation is accentuated by long, cumbersome, and complex land title obtention The administrative procedure is associated with procedures, which require efficient administrative a high cost of land acquisition. This has negatively and judicial processes and capacity. Rural populations impacted land registration (only an estimated 0.1 with limited access to institutions and education are percent of land is registered), land transactions, generally unaware of such procedures and therefore and land markets and has increased informal land do not generally follow them. In addition, many settlements. For example, registering property in CAR rural farmers already consider themselves owners requires five procedures, averages 75 days, and costs of the land they and their families have occupied for 18.5 percent of the property value (USAID 2021; generations. World Bank 2008; World Bank 1998; Furth 1998). In other African countries, land registration requirements The provision of Law No. 63 of 1964, which are shorter and less costly. For instance, land grants ownership of all land to the state, impedes registration in South Africa requires six procedures agricultural productivity growth and impoverishes and averages 17 days, and costs are based on the rural population . It stipulates that people market rates for the property value. In Kenya, land cannot practice farming activities without the state's registration requires five procedures, averages authorization, and they need to pay a tax to exploit 30 days, and costs 4 percent and 2 percent of the their property (Articles 180 and 189 CAR of Forest property value in urban and rural areas, respectively. Code 2008).21 Tax payments do not provide adequate public funding for the government to enforce laws that The current land law acknowledges but reduces prevent people from exploiting natural resources they the scope of customary law, which dominates do not have access to legally. However, rural farmers land access and tenure in rural areas. The law cultivate and use their ancestral lands without waiting limits customary law to land use right, which has for the state's authorization and without paying taxes potentially reduced land occupancy in rural areas because they see themselves as the real owners for forestry purposes, specifically for smallholder and not as simple precarious landholders. Small, farmers characterized by low purchasing power. There cultivated areas lead to small production capacity, is no legal instrument for managing and securing limiting their economic potential. agricultural land. Instead, the chief and notables allocate land without restriction, and this could 21 http://extwprlegs1.fao.org/docs/pdf/caf107432.pdf 70 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE lead to land disputes between crop and livestock for pasture and crop farming. Existing land laws do farmers, thereby reducing agricultural productivity. not protect vulnerable groups in the acquisition of Nevertheless, the Ministry of Agriculture has set cultivable lands, such as women and young people, up an agro-pastoral code to guide the acquisition who nevertheless constitute a strong segment and securing of agricultural land. It is paramount to of the agricultural value chain. This situation has hand over rural land management to customary law. consequently impacted women's participation in the Agricultural activities take place in rural areas, and sector during the past 20 years. this will also enable the efficient allocation of land Credits: @World Bank Country Management Unit 71 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE 2.3.5 Strengthening Access and Availability of Production Factors Enhance The registration, certification, and quality control of seeds is also access to cumbersome and time-consuming. This explains the limited quality and fertilizers quantity of available improved seed varieties, which affects agricultural productivity. Also, the time required for sampling, testing, and reporting is such that the seed quality may deteriorate beyond acceptable limits, and the procedures can lead to excessive delays in releasing varieties or seed lots. The registration and certification of commercialized seeds creates a significant problem for seed initiatives using local varieties or non-certified seeds. The formal seed sector needs to be regulated while avoiding interference with farmers’ seed systems. Indonesia, for example, has a specific exemption for farm-produced seeds marketed within the village, providing at least an opening for local seed production and dissemination (Louwaars 2005). There is an opportunity to boost agricultural productivity by using more fertilizer. The use of fertilizer especially for export crops like cotton and coffee is vital for agricultural productivity and food production, as agricultural products need essential minerals and nutrients for strong, healthy growth. The lack of fertilizer reduces agricultural productivity and, in turn, crop yields. The results of various regression analyses show that fertilizer use in CAR is positively correlated with agricultural productivity growth. An additional 0.01 kg of fertilizer consumed per ha increases agricultural productivity growth by 3.3 percent, highlight the potential role fertilizer use can have, even in a moderate proportion, in significantly boosting agricultural productivity in CAR. Carefully The authorities continue to push mechanization, but the expected assess the benefits remain highly uncertain. State-led mechanization efforts across Africa, costs and similar to the measures that are currently being tried in CAR, have mostly failed, benefits of largely due to widespread governance challenges such as lack of access to locally mechanization adapted tools and machinery and limited or no access to spare parts, qualified operators, and technicians. Programs to address these challenges, including large-scale machinery imports, have not led to the desired transformation of the agriculture sector. There are abundant stories in other countries about brand new tractors being left unused. Policies and institutions have not emphasized using and adopting alternative farm equipment and tools at a reduced cost to increase labor productivity. CAR needs to identify the correct models, resources, and incentives to take full advantage of mechanization. The challenges in enhancing the prevalence and uptake of mechanization include: (i) limited access to tractors and implements where and when they are needed; (ii) lack of contractors that operate farm mechanization businesses accessible to smallholder farmers; (iii) absence of maintenance and spare parts centers in rural areas; (iv) lack of agricultural mechanization stations; (v) agricultural technology development centers not set up to service the primary production of smallholder farmers; (vi) 72 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE lack of perceived need among farmers to pursue mechanization (farmer surveys show that farmers point to the importance of access to quality inputs, credit, roads, and markets); and (vii) absence of an ecosystem of knowledge, experience, and technical capacity that is needed to enable widespread mechanization. While there is a strong desire to support increased mechanization in CAR, the correct models, resources, and incentives must be aligned to unlock the potential of private-sector-driven mechanization services. Improve CAR’s livestock production has fallen below pre-crisis levels. The decline access to was characterized by the numerous movements of herders from their usual veterinary northwestern areas (Ouham, Ouham Pende) to the center and east of the products country (Bambari, Bria) due to recurrent insecurity in these areas. Many herders and increase experience livestock losses linked to looting, theft, and attacks by armed groups human and during their displacement. This has greatly disrupted livestock production and financial marketing from the beginning of the 2013 crisis until today. Also, animal health capacity remains a concern, with an increase in outbreaks of bacterial, viral, or parasitic diseases (e.g., Contagious bovine pleuropneumonia and Newcastle disease), the absence of a vaccination campaign since 2017, and the limited financial and administrative capacity of decentralized state services. Counterfeit drugs end up on the market, and farmers are left to administer vaccines without prior training or experience. According to livestock services, this situation has increased the livestock mortality rate, which varies from 20 to 50 percent depending on the area. Despite the persistence of insecurity and limited vaccine supply in certain areas, CAR’s livestock production ranks second in CEMAC, with a production index of 107.2 (2014-2016 =100), behind Chad (122.2), but ahead of selected SSA countries such as Nigeria (103), Botswana (94.7), and South Africa (99.8). The major difficulties herders face include a lack of veterinary products, limited access to finance and technical support, and the low supply of dietary supplements. Veterinary products are important for herders, as their use can increase productivity and improve the profitability of breeding. They improve the immune resistance of herds, which is often degraded by the stocking density of buildings and stressful breeding conditions. Some also have an anabolic effect that accelerates the growth of livestock. However, many Central African farmers are unable to access veterinary products. More than 90 percent of breeders report that they face difficulties in accessing both veterinary products and finance. 73 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Figure 29. Lack of veterinary products and finance are the Figure 30. CAR adds meager value to its agricultural major constraints facing herders. production. Major Difficulties Faced by Herders Imports and Exports of Agricultural Raw Materials, 1960-2021 Percentage of herders 100% 100 90% 90 80% 80 70% 70 60 60% 50 50% 40 30 40% 20 30% 10 20% 0 10% em e ur of t ents g en il sa s ts il W ary guid ) Th re l tail it te nc ta rin ta he duc d Ov tra e t o be be ica cre a tu 0% b o e e ve he ( pr h ch eri ppl lp er nc ft an ry l u co nd ic ea n ad n p. fin ina s oo ng bo bl su k o ial hn Re ef in in Ch er pu er Ga c Gu ec y o, t et m lit Re ve d ft ng po di Ca an bi of n Co la of e ca No ai of Lac ck ly fri Av ar La pp lA m ra de nt e Ce ck qu La an M Average 1960-2021 Agricultural raw materials exports Constraint Not a constraint Average 1960-2021 Agricultural raw materials imports Source: Agricultural and livestock survey, CAR. The quality of veterinary services suffers from limited human and financial capacity. There is a law mandating the profession of veterinary services to handle animal health and diseases in CAR. However, similar to the management of about four epidemic diseases since 2016, the timely control and management of contagious diseases is nearly impossible in the country. There is a significant lack of veterinary services to help farmers. Instead, many farmers rely on inefficient, traditional techniques to treat livestock. The latest agricultural and livestock survey shows that less than 17 percent of herders use modern equipment and methods to handle livestock. This calls for a multidisciplinary collaboration to strengthen veterinary services in case of emergency. More staff should be trained in zoonotic disease management to ensure the quality of the available labor force. Also, more laboratory equipment should be made available to facilitate the identification of contagious diseases. There is lack of synergy and coordination between stakeholders in the livestock sector. This has limited their capacity to adopt efficient copying strategies to face challenges such as climatic crises, epizootic diseases, insecurity, agricultural pressure, an extension of protected areas, and efforts to continue the extension of protected areas. There is inter-community tension 74 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE between cattle rearing and farmers in CAR. The absence of land demarcation areas for farming and pasture in the country’s land law has increased informal settlements. As a result, whenever external herds mix with those of semi- nomadic internal herds, there is a risk of livestock theft, destruction of crop fields, and disease transmission (Kyra 2020). There is a need to adopt the agro-pastoral law to involve the full participation of all stakeholders to reduce conflict between pastoralists and crop farmers. Promote Agribusiness has the potential to create more jobs and economic agricultural opportunities. In SSA, agribusiness accounts for roughly 25 percent of GDP entrepreneurship and a staggering 75 percent of employment. In CAR, less than half of the region’s and agribusiness value-added is in manufacturing and services. This untapped potential is mainly due to: (i) weak promotion of agricultural entrepreneurship and agribusiness; (ii) insufficient consideration of agricultural production, processing, and marketing infrastructure from a value chain perspective; (iv) lack of interconnectivity between the various links in the supply chain; (v) and low level of coordination and synergy between stakeholders during implementation (PASTAC-PEJA 2019). This despite the implementation of a project to support the transformation of the agricultural sector through the development of promising agricultural value chains and the promotion of youth employment in agriculture and agro-industrial sectors in 2017. CAR, however, adds meager value to its agricultural production. Its exports are predominantly raw and semi-finished agricultural commodities and minerals. These are low value-added products in terms of export earnings and provide little sustainable employment. To create more sustainable jobs, agricultural raw materials need to be transformed to encourage the creation of higher-value downstream processing jobs in the domestic market. Value addition involves converting or transforming primary commodities into intermediate or finished goods that are more valuable. CAR is among the countries in the region with a high level of agricultural raw materials exports, representing more than 32 percent of its total merchandise exports in 1960-2021, much lower than the CEMAC average of 25 percent. 75 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE References Akresh, I. R. (2008). “Occupational Trajectories of Legal US Immigrants: Downgrading and Recovering.” Population and Development Review 34(3): 435–56. FAO (2018), République centrafricaine. Stratégie d’appui à la résilience - Renforcement des moyens d’existence agropastoraux (2018-2023), Rome, FAO. 53 Action Against Hunger translation : Guy-Florent CRA / IFAD. (2018). Project to revive agropastoral production in the savannah (PREPAS). - Design Report Dipapoundji, B. (2019). Water Governance in the Central African Republic (Water, Fisheries and Fish Farming). Case study Djidonou G. R. and McGregor N. F. (2020). Stagnant manufacturing growth in India: The role of the informal economy. Maastricht Economic and social Research institute on Innovation and Technology (UNU‐MERIT). Working paper series. P32 FAO (2021). Central African Republic, Response overview. Pp2 Furth, R. (l998). Central African Republic. Country Profiles of Land Tenure: Africa 1996 (Land Tenure Center Paper 130), ed John Bruce, 41-45. University of Wisconsin, Madison. Global Agriculture and Food Security Program (GAFSP). (2019). Call for proposal on Enhanced Resilience and Food and Nutrition Security in Kémo and Ouaka Districts (PARSANKO), Central African Republic International Fund for Agricultural Development (IFAD). (2019). Central African Republic Country Strategic Opportunities Programme 2020 – 2024. Pp 81 Kyra, D. (2020). Climate change hits Central African Republic in its border Zones. https:// genevasolutions.news/ Accessed on 02/04/2022 Lewis, W. A. (1955). The theory of Economic growth. The journal of Economic History, 18 (1):70- 73 Louwaars, E. (2005). Biases and bottlenecks: Time to reform the South’s inherited seed laws? Seedling, 9pp Making Finance Work for Africa (MFW4A) (2018). Financial Sector, Overview Mendes, J. R. (2012). Central African Republic MDG Acceleration Framework: A commitment to food security and nutrition. Pp108 Ndjobe, B., and Karaaria, S. (2015). Women and Agriculture: The Untapped Opportunity in the Wave of Transformation. Strategie de Transformation de L’agriculture Centrafricaine et de Promotion de L’entreprenariat des Jeunes dans le Secteur Agricole (PASTAC-PEJA) (2019). Rapport sur la la Republique Centrafricaine. Udry, C. (1996). Gender, Agricultural Production, and the Theory of the Household. Journal of Political Economy, 104(5): 1010-1046 UNICEF (2021). Central African Republic Humanitarian Action for Children. UNICEF and WFP (2021). Central African Republic: 1 in 8 people face alarming food crisis as lean season approaches. USAID (2021). Property Rights and Resource Governance, Central African Republic, Country Profile World Bank. (1998). Central African Republic Poverty Note. Report No. 18 134-CA. Washington DC: World Bank. World Bank. (2008). Doing Business 2009: Country Profile for Central African Republic. 76 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Table 6. The appraisal of recent agricultural policies highlights persistent structural challenges. ANNEX Period 2020–2030 Agricultural National Agricultural Policy (PAN) (ongoing) Policy Specific 1. Increase and diversify agricultural policy to strengthen food and nutritional security. Objectives 2. Improve producers' access to markets to increase their income. 3. Support the development of small and medium-sized agricultural enterprises to increase their contribution to the country's economic growth and national gross domestic product 4. Promote the creation of decent and remunerative jobs to reduce poverty and inequality. Achievements • Agricultural activities (Agropole) implemented in production basins, with women and young people as beneficiaries. Constraints • Limited financial capacity. • Absence of the agropastoral code to ensure access to land. • Unavailability of agricultural inputs. • High rate of insecurity. Strengths • Specialized approach to agricultural activities planned by zones. • Involvement of producers in creating agricultural policy. • Gender approach considered in the development of objectives. Weaknesses • Many areas of intervention planned over 10 years. • No endogenous measure of mobilization of resources at the local/communal level. • A predominance of projects approach and supply chain approaches for cash crops. • Lack of measures to ensure sustainability of measures at the end of the project. Period 2017–2021 Agricultural National Recovery and Peacebuilding Plan (agriculture plan) Policy Specific 1. Ensure food security and resilience. Objectives 2. Boost and develop productive sectors: agriculture and livestock farming. Achievements • Increased access to improved seeds, promoting the empowerment of people. • Integration of agro-ecological practices into the agricultural practices of beneficiaries. • Training of community agents in animal health. • Initiation and access to short cycle breeding as a professional activity for young people and women. • Development and strengthening of small processing industries for agricultural and food products (oil mills, soap factories, mills). Constraints • High rate of insecurity. • Difficulty in mobilizing internal resources. • High rate of Internal displacement of people. • Persistent conflict between livestock breeders and farmers. • Insufficient humanitarian organizations to support the initiative. Strengths • Involvement of locals in the establishment of objectives. Weaknesses • The mechanism drafted to address agricultural productivity and food security were inappropriate in the context of insecurity. • Limited mechanisms/strategies to empower producer organizations. • Predominance of the project approach and supply chain approach for cash crops. • Lack of measures to ensure sustainability of reforms at the end of the project. • Absence of consideration for disadvantaged groups. • Lack of a gender approach. 77 THE WORLD BANK | FIFTH CENTRAL AFRICAN REPUBLIC ECONOMIC UPDATE Period 2011–2015 ANNEX Agricultural Rural Development, Agriculture and Food Security National Livestock Development Policy in the Central Policy Strategy African Republic Specific 1. Promote the marketing of agricultural products 1. Strengthen the institutional intervention Objectives inside and outside CAR. framework. 2. Promote and develop professional and agricultural 2. Improve capacity building. organizations. 3. Revitalize local value chains and improve their competitiveness. Achievements • The training of households on the use of animal • Implementation of a law creating the training of traction, which has made it possible to increase veterinary personnel. production, particularly food production. • Implementation of livestock projects that empowered selected local communities. Constraints • High rate of internal displacement of people. • High rate of internal displacement of people. • Persistent conflict between livestock breeders and • Persistent conflict between livestock breeders and farmers. farmers. • Insufficient humanitarian organizations to support • Insufficient humanitarian organizations to support the initiative. the initiative. • Limited access to inputs and finance. Strengths • Specialized agricultural projects/programs set up • Emphasis on the training of veterinary personnel. and implemented to achieve the objectives. Weaknesses • Non-involvement of local populations/producers in • Non-involvement of local populations/producers in the development of objectives. the establishment of objectives. • Predominance of the project approach and sector • Predominance of the project approach. approach for cash crops. • Lack of measures to ensure the sustainability of • Lack of measures to ensure the sustainability of reforms at the end of the project. reforms at the end of the project. • Absence of consideration for disadvantaged • Lack of gender approach. groups. • Lack of gender approach. Credits: @World Bank Country Management Unit