Macroeconomics, Trade & Investment CEMAC Economic Barometer November 2024 2024 VOL. 7 Chad Central African Republic Cameroon Equatorial Guinea Gabon Republic of Congo Macroeconomics, Trade & Investment CEMAC Economic Barometer November 2024 2024 VOL. 7 2 Acknowledgments The CEMAC semi-annual Economic Barometer was prepared by a core Economic Policy team comprising of Robert Johann Utz (Lead Economist, Team Leader), Djeneba Doumbia (Economist, Team Leader), Erick Tjong (Economist, Team Leader), and Chris Belmert Milindi Katindi (ET Consultant), under the guidance of Sandeep Mahajan (Practice Manager) and Cheick Fantamady Kante (Country Director). Other team members include Samba Ba (Senior Economist), Rick Emery Tsouck Ibounde (Senior Economist), Demet Kaya (Senior Economist), Pierre Mandon (Economist), Blaise Ehowe Nguem (Economist), Sonia Barbara Ondo Ndong (Senior Economist), Francis Ghislain Ngomba Bodi (Economist), Mahamat Abdramane Moustapha (Economist), and Kabinet Kaba (Economist). The team is thankful for comments received from Kanta Kumari Rigaud (Lead Climate Change Specialist) and Stephen John Stretton (Economist) and to Irene Sitienei and Ifeoma Clementina Ikenye (Program Assistants) for their support. The team is also thankful to Ryan Milan Rafaty (Governance Specialist) for his contribution to the 2024 Economic Updates of 5 countries of the Economic Community of Central African States (CEMAC), whose analyses align with the special topic of this economic barometer. The report was cleared for CEMAC Economic Barometer – November 2024 (Vol. 7) publication by Cheick Fantamady Kante (Country Director). The update reflects information available as of October 1, 2024.1 1 Please contact Djeneba Doumbia (ddoumbia@worldbank.org) and Erick Tjong (etjong@worldbank.org) for any questions or comments. 3 Introduction The CEMAC Economic Barometer is a semi-annual World Bank publication that presents a snapshot of recent developments in and the economic outlook of the CEMAC region, followed by a brief assessment at the country level. The Economic Barometer also includes a focused technical section on a theme of regional relevance. This edition’s special topic provides policy options for the CEMAC countries to address the challenges facing the forestry sector, including effectively designing fiscal instruments, improving forest governance, and increasing financial and technical support from the international community. The CEMAC region is expected to grow by 3.4 percent in 2024, up from 1.8 percent in 2023. Inflationary pressures have been abating, supported by the BEAC’s tight monetary policy stance and improving global supply chains. The region’s fiscal position and foreign reserves deteriorated in 2023 due to lower oil prices, highlighting the high exposure of public finances and the overall economy to volatile commodity markets. Despite ongoing moderate growth, per capita growth remains stagnant, and poverty has been rising. A third of people in CEMAC are expected to live in extreme poverty by 2024, that is, under $2.15 per day in 2017 PPP. Unemployment, especially among youth, is high, with one in four young people being out of work, school, or training. To effectively CEMAC Economic Barometer – November 2024 (Vol. 7) tackle these social challenges, CEMAC countries should accelerate reforms foreseen in the regional economic plans, including the PREF-CEMAC II program and the upcoming Regional Economic Program. Key actions include enhancing business conditions to attract local and foreign private investment, and foster job creation and regional and international trade. Investing in human capital, road and energy infrastructure, and digital services will be crucial to build a more robust and sustainable growth path, capable of reverting the currently rising poverty trends and achieve more meaningful poverty reduction across the region. 4 The special topic of this edition highlights how fiscal instruments can be used to both incentivize sustainable forestry and generate government revenue. The Congo Basin – the world’s largest net carbon sink – is vital to supporting people, nature, and the economy and serves as a stronghold of resilience against climate change and global biodiversity loss. The six nations encompassing the Congo Basin — Cameroon, Central African Republic, Equatorial Guinea, Gabon, Democratic Republic of the Congo (DRC), and Republic of the Congo — are custodians of the world’s second-largest tropical forest, crucial for regulating the world’s climate. However, the Congo Basin forestland is increasingly under threat, with rising deforestation, particularly in DRC, but also, to a lesser extent, in Cameroon, Equatorial Guinea, and CAR. The contribution of the forestry industry to GDP and national budgets has stagnated in recent decades, in particular, because of the scale of illegal logging and a focus on exporting logs rather than developing local wood processing in most countries. The Congo Basin countries face difficult trade-offs between preserving forest ecosystems and using forests for other economic activities, and the lack of sufficient and consistent international funding to adequately compensate the region for the climate services it provides makes this task even more challenging. Despite its critical importance, Congo Basin forest receives less climate finance aid than other highly forested regions like the Amazon and Southeast Asian forests. Congo basin governments must, therefore, find ways to preserve their forest while developing other sectors like sustainable forestry and agriculture. In this context, well-designed fiscal instruments can be used to promote forest conservation. Fiscal policy reforms such as adjusting forestry taxes based on the ecological footprint of wood production, providing targeted incentives for sustainable practices, offering CEMAC Economic Barometer – November 2024 (Vol. 7) tax rebates for forestry certification and agroforestry, and reinvesting natural resource revenues can play a vital role in protecting Congo Basin forestlands. However, tax strategies are not standalone solutions. Combining fiscal instruments with better forest governance through improved enforcement, monitoring, and transparency will help Congo basin countries safeguard their forests while enhancing the forestry sector’s role in their economies. Credits: Freepik 5 CEMAC Economic Barometer – November 2024 (Vol. 7) SECTION 1— CEMAC Updates: Recent economic developments, outlook and key development challenges in the CEMAC region SECTION 1 — CEMAC Updates 7 I. Recent economic developments and outlook in CEMAC 0.7 percent. According to projections, following Table 1 - CEMAC 2023 a recession in 2023, the Equatoguinean economy Population, milliona 63.0 will grow by 4.7 percent in 2024 thanks to a rebound in the hydrocarbon sector following GDP, current US$ billiona 111.6 repairs at hydrocarbon platforms. In per capita GDP per capita, current US$b 3,542.0 terms, income growth in CEMAC is expected to increase to 0.9 percent in 2024 (up from -0.7 International poverty rate ($2.15)a 32.0 percent in 2023), well below the WAEMU level. Lower middle-income poverty rate 57.0 ($3.65)a Upper middle-income poverty rate 81.5 ($6.85)a The region’s fiscal position and foreign reserves Life expectancy at birth, yearsc 59.7 both deteriorated in 2023 amid lower oil prices Source: WDI, Macro Poverty Outlook, and official data. and commodity revenues, but the fiscal balance (a) Total for CEMAC countries. is expected to improve in 2024. In 2023, fiscal (b) Weighted average for CEMAC countries. (c) Simple average for CEMAC countries. balances deteriorated in all CEMAC countries amid lower commodity revenues, except for Cameroon and the Central African Republic which, however, remained in fiscal deficits. On Economic growth in the CEMAC (Economic and average, CEMAC’s fiscal position is set to improve Monetary Community of Central Africa) region and turn positive in 2024 at 0.15 percent of GDP decelerated to 1.8 percent in 2023, down from with expected improvements in all countries but 3.1 percent in 2022. The negative growth Congo and Gabon. The public spending to GDP in Equatorial Guinea and the more modest ratio is set to increase in CEMAC to an average growth in Gabon contributed to the overall low 20.5 percent of GDP in 2024, from 20.2 percent regional growth. However, growth is expected in 2023. Total revenues are projected to increase to accelerate in CEMAC in 2024, with an average at a faster pace, from 20.0 percent in 2023 to CEMAC Economic Barometer – November 2024 (Vol. 7) growth rate of 3.4 percent, below the average 20.7 percent in 2024, driven by an increase in growth in the WAEMU (West African Economic non-resource revenues. On average, resource and Monetary Union) which is projected at 5.7 revenues are decreasing as a share of GDP in percent. The pace of growth remains uneven the CEMAC zone but still represent more than 40 across the CEMAC region. In the Central African percent of total revenues, highlighting the high Republic, economic stagnation persists amid exposure of public finances and of the overall persistent fuel shortages and frequent power economy to volatile commodity markets. Fiscal outages in 2024, with growth projected at only space and liquidity are expected to remain 8 SECTION 1 — CEMAC Updates constrained in the CEMAC region, limiting options Despite moderate growth and a decline to manage new shocks and posing challenges to in inflation, poverty remains high and is contain public debt. The region’s fiscal balance increasing in all of CEMAC, due to insufficient is forecast to turn into an average deficit of 1.5 growth and economic participation. 33.2 percent of GDP in 2025-2026. Meanwhile, the percent of people in CEMAC are estimated to total debt-to-GDP ratio remains high in countries live in extreme poverty in 2024, under $2.15 like Congo (91 percent) and Gabon (71 percent), per day (in 2017 PPP), compared to 30.6 above the regional convergence criteria of 70 percent two years before. When other poverty percent of GDP. Furthermore, foreign reserves benchmarks are considered, poverty rates rise have been declining continuously, along with the to 58.2 percent of the region’s population living global decline in oil prices since 2022. The region’s with less than $3.65 per day, and 82.1 percent reserves stood at 4.5 months of imports as of of people living under $6.85 daily. The share October 2024. of extreme poor in WAEMU, in comparison, stood at 22.5 percent. Thus, a worrying trend Inflation began to decline in mid-2023 and the is that, while poverty rates vary significantly downward trend continued into the first half of within CEMAC, the share of poor is increasing 2024. Average (y-o-y) inflation in the CEMAC region across the region. Per capita growth has decreased from 6.3 percent in December 2022 to been stagnant, indeed being negative in 4.5 percent in December 2023. This decline can be 2023. Furthermore, the quality of growth also attributed to the BEAC’s continued tight monetary matters, as much of the region’s growth is policy, along with favorable trends in global supply driven by extractive industries such as oil and chain recovery. Although this development is mining, which are capital-intensive and do not positive, inflation remains above the convergence produce sufficient jobs and incomes for the criterion of 3.0 percent. In comparison, headline population. Unemployment is high, especially inflation in WAEMU was lower at 2.4 percent among the youth, as one in four young people in December 2023. The BEAC has maintained a are out of jobs, school, or training. Also, limited tight monetary policy, keeping the policy rate at social safety nets reduce the ability to support 5 percent since March 2023 after a cumulative the most vulnerable. Reforms to promote increase of 175 basis points from November 2021 higher and more inclusive growth, expanding CEMAC Economic Barometer – November 2024 (Vol. 7) to March 2023. In comparison, WAEMU’s policy private investment and job creation, are rates were also increased but remained lower at needed to reverse the region’s trend of poverty 3.5 percent. The easing of inflationary pressures increase. led the BEAC to resume liquidity injections in September 2024, following over a year of suspension. Meanwhile, the real effective exchange rate (REER) of most CEMAC countries has slightly appreciated during the first semester, negatively affecting CEMAC export competitiveness.2 2 An increase in the real effective exchange rate (REER) of a country means an appreciation of the country’s local currency against the basket of its trading partners’ currencies while a decrease in the REER reflects a depreciation. SECTION 1 — CEMAC Updates 9 The outlook for the CEMAC region is positive but global demand, especially from large importing subject to significant risks. The regional growth markets in Asia and Europe, could undermine rate is projected at 2.7 percent in 2025-2026. growth in the region. Risks of potential Except for Equatorial Guinea, where hydrocarbon inflationary upticks also persist, especially on production is projected to decline on account of the international front with the ongoing war in maturing oilfields, economic activity in all CEMAC Ukraine and the recent conflict in the Middle countries is expected to expand. The risks to the East. Regionally, other risks include heightened regional outlook are tilted to the downside. A political instability, worsening security faster-than-projected decline in oil prices would conditions in certain regions of countries such adversely impact CEMAC’s export earnings and, as CAR and Cameroon, a weakening in the pace consequently, reduce the region’s fiscal and of reforms, especially in electoral contexts that external balances. A further tightening of global risk absorbing the political agenda, and climatic or regional financial conditions, stronger global shocks. trade disruptions, and weaker-than-expected Credits: Ariel Nathan on Unsplash CEMAC Economic Barometer – November 2024 (Vol. 7) 10 SECTION 1 — CEMAC Updates CEMAC’s growth is recovering but remains below Meanwhile, GDP per capita gains are expected in its potential and that of the WAEMU region. some countries. Figure 1. Real GDP Growth (in percent) in CEMAC and Figure 2. Real GDP per capita growth (in percent) in WAEMU, 2019-2026 CEMAC countries, 2023-2024 7 6.5 4.0 5.7 5.8 6 5.0 5 1.0 4 3.4 3.1 3 2.3 -2.0 1.8 2 1 -5.0 0 -1 -8.0 -2 n a ad R n p. ne oo bo CA Re Ch er ui Ga o, .G m -3 ng Ca Eq Co 2019 2020 2021 2022 2023 2024f 2025f 2026f 2023 2024f CEMAC WAEMU CEMAC, 2024f WAEMU, 2024f The regional external position deteriorated The complexity of CEMAC’s exports has also been in 2023, and the trend is estimated to persist decreasing on average, with primary goods such in 2024 amid decreasing crude oil prices and as crude oil, gas, and minerals becoming more revenues. prominent in certain countries’ export baskets. Figure 3. Oil prices (rhs) and external position in Figure 4. Economic Complexity Index (2012 vs. 2021) CEMAC (lhs), 2019-2026 CEMAC Economic Barometer – November 2024 (Vol. 7) 15 100 0.0 10 -0.2 80 -0.4 5 60 -0.6 0 -0.8 40 -5 -1.0 -10 20 -1.2 -15 0 -1.4 2019 2020 2021 2022 2023 2024e 2025f 2026f -1.6 Current Account Balance (% of GDP) - CEMAC -1.8 Trade Balance (% of GDP) - CEMAC Congo Rep. Gabon Cameroon Current Account Balance (% of GDP) - WAEMU Trade Balance (% of GDP) - WAEMU ECI 2021 ECI 2012 Crude oil price (US$/bbl) (rhs) CEMAC 2021 CEMAC 2012 SECTION 1 — CEMAC Updates 11 As a result, extractive sectors accounted for over Regarding the fiscal position, spending increased 75 percent of CEMAC’s exports, highlighting a but at a slower pace compared to revenues, strong exposure to volatile commodity markets leading to an improvement in the fiscal balance. and insufficient job-intensive export activities. Figure 5. CEMAC’s main exports (% of value of total Figure 6. Fiscal position (% of GDP) in CEMAC and exports), 2023 WAEMU, 2019-2026 25 5 Crude oil 20 Cattle Others 0 Cotton 15 Cocoa Wood 10 products -5 Manganese 5 Gas 0 -10 2019 2020 2021 2022 2023 2024e 2025f 2026f Total expenditure - CEMAC (lhs) Total revenue - CEMAC (lhs) Fiscal balance - CEMAC (rhs) Fiscal balance - WAEMU (rhs) Fiscal balance - CEMAC convergence criteria (rhs) Resource revenues - CEMAC (rhs) Public debt to GDP is expected to decrease to 54 BEAC has maintained a tightening monetary percent in 2024, down from 55 percent in 2023. policy stance since late 2021, with a policy rate at 5.0 percent since March 2023. Figure 7. Public debt (% of GDP) in CEMAC and Figure 8. Evolution of policy rates in West WAEMU, 2019-2026 and Central Africa and in the EU, 2020-2024 80 CEMAC Economic Barometer – November 2024 (Vol. 7) 5.5 70 5.0 4.5 60 4.0 50 3.5 40 3.0 2.5 30 2.0 20 1.5 1.0 10 0.5 0 0.0 2019 2020 2021 2022 2023 2024f 2025f 2026f Jul-22 Oct-23 Feb-22 Dec-22 Jan-20 May-23 Sep-21 Nov-20 Mar-24 Aug-24 Jun-20 Apr-21 CEMAC WAEMU Debt - CEMAC convergence criteria WAEMU CEMAC ECB 95 90 12 SECTION 1 — CEMAC Updates Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 20 1 * Q3 Q 20 20 21 21 22 22 23 23 24 24 20 20 20 20 20 20 20 20 20 REER, CEMAC REER, WAEMU NEER, CEMAC NEER, WAEMU The real effective exchange rate of CEMAC CEMAC’s regional reserves have been declining, countries has increased, on average, in recent under pressure from lowering global oil prices months, reflecting the appreciation of CFA Franc and maturing oilfields, highlighting the region’s against the basket of trading partners’ currencies. dependence on volatile commodity markets. Figure 9. CEMAC: Real Effective and Nominal USD- Figure 10. Gross reserves CFAF Exchange Rates, 2020-2024 10 120 8 6 115 6 5 110 4 Number of months 4 2 105 0 3 100 -2 2 Jan-20 Jan-21 Jan-22 Jan-23 Apr-20 Apr-21 Apr-22 Apr-23 Jul-20 Jul-21 Jul-22 Jul-23 Oct-20 Oct-21 Oct-22 Oct-23 95 90 1 Core inflation Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 * Energy inflation Q3 20 20 21 21 22 22 23 23 24 0 24 Food inflation 20 20 20 20 20 20 20 20 20 20 WAEMU CEMAC Headline inflation CEMAC REER, CEMAC REER, WAEMU CEMAC Convergence criteria - Inflation NEER, CEMAC NEER, WAEMU 2020 2021 WAEMU 2022 2023 Headline 2024 (latest available)* inflation Average (y-o-y) inflation in the CEMAC region Poverty remains high, touching a third of the had decreased from 6.3 percent in December population, and has been increasing in all CEMAC 2022 to 4.5 percent in December 2023. countries. Figure 11. Average inflation in CEMAC (percent), Figure 12. Poverty rates (% of pop. living under 2020-2023 $2.15/day) 6 10 70 2022 8 5 2023 60 6 2024p Number of months 4 CEMAC 2024 4 50 WAEMU 2024 CEMAC Economic Barometer – November 2024 (Vol. 7) 3 2 40 0 2 30 -2 1 Jan-20 Jan-21 Jan-22 Jan-23 Apr-20 Apr-21 Apr-22 Apr-23 Jul-20 Jul-21 Jul-22 Jul-23 Oct-20 Oct-21 Oct-22 Oct-23 20 0 Core inflation 10 WAEMU CEMAC Energy inflation 2020 2021 inflation Food 2022 2023 2024 (latest available)* CEMAC Headline inflation 0 CEMAC Convergence criteria - Inflation Gabon Cameroon Chad Congo CAR WAEMU Headline inflation Sources: National authorities, BEAC, Bruegel, ILO, Harvard Growth Lab, World Bank, IMF, and World Bank staff calculations. Notes: Figures show weighted averages for CEMAC and WAEMU, based on countries’ shares of each region’s GDP. Poverty data is not available for all countries and periods and is based on nowcast and forecast projected based on actual data from national household surveys for Cameroon (2014), Central African Rep. (2021), Chad (2018), Congo (2011), and Gabon (2017). Data is not available for Equatorial Guinea. Scores obtained by countries in the 2021 Economic Complexity Index vary from 2.26 (Japan) to -2.44 (Liberia), with higher scores indicating a higher level of economic complexity. Data on economic complexity is not available for Equatorial Guinea, Chad, and CAR. Data on regional reserves is available as of October 2024. 70 SECTION 1 — CEMAC Updates 13 II. Key development challenges and reform priorities in CEMAC Achieving a more significant improvement in living incomes are low, leading to insufficient wealth standards and reversing the increasing trend of generation. High transport costs, inadequate poverty requires bold economic reforms across road infrastructure, frequent road inspections CEMAC. To address these challenges, strong and petty harassment practices hinder reforms are needed to improve human, physical, agricultural trade in the region.5 Informality, and institutional capital (Table 2). First, enhancing which represents more than 65 percent of jobs controls, accountability and transparency of on average in CEMAC, are another challenge resource revenues and of public spending will for formal firms. It also prevents workers from be key to enable countries that are fiscally obtaining access to credit, social protection, constrained to optimize public action and achieve and labor rights. Labor skills mismatches are their development goals in a cost-effective way. another important challenge, leading to high In particular, improvements are needed in the unemployment coexisting with difficulties management of procurement processes, public for firms to find adequate workers. Average investments, and human resources. unemployment in CEMAC, at about 9 percent of the active population, is more than four times Building conditions that are more conducive that of the WAEMU zone. To build a stronger to private sector growth, foreign investment, human capital, governments need to enhance exports, and job creation will also be essential investments in education, health, and training. for a higher and better growth path. CEMAC’s There are opportunities to increase and participation in international trade remains low, improve the quality of spending on social areas. with the region accounting for about 0.11 percent For instance, spending on education in the of global exports in 2021.3 Primary goods, mainly region averages 2.3 percent of GDP, lower than oil and gas, but also wood, aluminum, manganese, the SSA average of 4.1 percent. gold, and agricultural products, have been gaining prominence, with extractive sectors representing Intra-regional trade remains low in CEMAC three fourths of the region’s export basket in due, in part, to countries’ failure to implement 2023. Challenges to add more local value and certain community provisions, underdeveloped CEMAC Economic Barometer – November 2024 (Vol. 7) diversify exports have been translating to a infrastructure, the structure of exports, lower economic complexity.4 To become more and non-tariff barriers. Intra-regional trade competitive abroad and internally, local firms in CEMAC is low at only 5.1 percent of total need better access to infrastructure and credit, trade in 2019-2021.6 The implementation of trade facilitation, easier regulatory compliance, a free-trade area within the CEMAC region and the necessary labor skills to develop key has been difficult: numerous tariff and non- sectors. For instance, in agriculture, which is a tariff barriers persist, and the harmonization major part of the economy, employing about 47 of cross-border customs rules and policies percent of the region’s labor force, productivity and has been limited. Members apply the CEMAC 3 BEAC. 2023. Rapport Annuel; World Bank. World Integrated Trade Solution. 4 Based on the Harvard Growth Lab’s Economic Complexity Index, which scores countries based on how diversified and how complex their export basket is. 5 World Bank. 2019. CEMAC. Deepening Regional Integration to Advance Growth and Prosperity. 6 Source: Equatorial Guinea Country Economic Memorandum (forthcoming). 14 SECTION 1 — CEMAC Updates common external tariff (CET) on imports from third the Central African Republic rank lowest on countries outside the CEMAC region, which on the ND-GAIN Index on climate preparedness, average is high. Overall, CEMAC’s simple average highlighting the need for a regional climate tariff rate is 18.3 percent in 2023 (compared with change adaptation strategy. In 2024, Chad, 12.4 percent in the Economic Community of West Congo and Cameroon were severely affected African States, ECOWAS) is high. In the CEMAC by floods, which disrupted peoples’ lives and region, 37.1 percent of the tariff lines are subject economic activity. Additionally, the digital to the 30 percent rate and 45.5 percent are subject economy offers transformative opportunities to the 10 percent rate. Intra-CEMAC trade is also for growth and job creation, but CEMAC faces hampered by supply-side challenges, including a challenges such as limited connectivity, digital lack of trade complementarity and underdeveloped skills, and enabling regulations. Internet usage infrastructure. remains below the SSA average, with high data costs, with the price of data-only mobile Improving the quality and access to basic broadband connectivity higher than the global infrastructure and digital services, including with target of 2 percent of GNI per capita in all of a focus on strengthening resilience to climate CEMAC except Gabon. Reducing connectivity shocks, would be essential to boost trade and costs, fostering competition, and developing growth. Stable electricity, reliable transport digital infrastructure and skills are needed to networks, and efficient ports are essential for enable digital technology adoption. business development and job creation. Significant gaps persist across the region, particularly Accelerating ongoing reforms foreseen in the when it comes to electricity access, efficiency of region’s reform program, PREF-CEMAC II, customs and ports, trade regulations, and digital and operationalizing the upcoming Regional development. The World Bank’s 2023 Logistics Economic Program, would help address key Performance Index ranks CEMAC countries development challenges in CEMAC. PREF- on average at 109th, with Cameroon’s ranking CEMAC II (Phase II of CEMAC Economic dropping from 95th in 2018 to 134th in 2023. and Financial Reform Program, 2021-2025) Climate change is another major challenge to both focuses on five pillars: (i) fiscal policy, (ii) infrastructure and livelihoods, with CEMAC being monetary policy and financial system, (iii) CEMAC Economic Barometer – November 2024 (Vol. 7) highly vulnerable to climate-related shocks and structural reforms, (iv) regional integration, among the least prepared to respond. Chad and and (v) international cooperation. The first SECTION 1 — CEMAC Updates 15 pillar, which focuses on enhancing fiscal policy, aims to improve non-oil revenue mobilization, tax administration, and quality and efficiency of public spending. Ongoing reforms aim at fostering private sector development and investment in the region. Strengthening regional integration requires improved infrastructure. CEMAC institutions and member-states have made progress on reforms, including the development of a regional financial inclusion strategy, a draft regional industrial policy, and policies that contribute to enhanced productivity and the expansion of local industries (textile, agro-industry, wood and construction). Eleven CEMAC priority integration projects identified under PREF-CEMAC II, covering among others regional transport corridors, energy production and interconnection, and human capital and economic diversification, should ultimately help to strengthen trade, increase the supply of stable energy, improve connectivity via fiber optics, and the creation of centers of excellence for human capacity building. Overall, the latest monitoring report for the program shows that 62 percent of the actions in the program’s reform matrix had been implemented by the end of the fourth quarter of 2023 (2023Q4), compared to 59 percent in 2023Q3 and 56 percent in 2023Q1. The upcoming PREF- CEMAC III will align with the Regional Economic Program (Programme Economique Régional, PER CEMAC Economic Barometer – November 2024 (Vol. 7) 2025-2050) which is being prepared and should set out a long-term strategy for regional growth. 16 SECTION 1 — CEMAC Updates Table 2. Development indicators in CEMAC LEGEND (1) Indicator trend from 2020-2023a: ↑ Up = Stable ↓ Down Upper Middle Lower (2) Position in the income groupb: UT MT LT tercile Tercile Tercile (a) The table shows how the indicator value evolved over a three-year period (the timeframe of each indicator is specified in the notes). The value can either increase, decrease, or remain stable. (b) For each structural indicator, the country’s position in its income group is identified based on the most recent indicator value (2022 or 2023). The country can be in the upper tercile (countries with higher scores in the income group), middle tercile (countries with average scores in the income group), or lower tercile (countries with lower scores in the income group). Note: Blank cells in the table mean there was not enough data available to assess the trend or to identify the tercile position of the country. Upper middle income Lower-middle income Lower income group Equatorial Gabon Cameroon Congo CAR Chad Structural indicators Guinea (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) PRIVATE SECTOR Foreign direct investment, net ↓ UT = MT ↓ MT ↑ UT = LT ↑ UT inflows (% of GDP) Industry (including construction), ↓ UT = UT ↓ MT ↓ UT = MT ↓ UT value added (% of GDP) Agriculture, forestry, and fishing, = MT = LT = MT ↑ LT ↓ MT ↑ MT value added (% of GDP) Services, value added (% of GDP) ↑ MT ↓ MT ↑ MT = LT ↓ MT ↑ LT INFRASTRUCTURE Gross fixed capital formation (% CEMAC Economic Barometer – November 2024 (Vol. 7) ↓ LT LT ↓ LT ↑ MT ↓ LT ↓ LT of GDP) Access to electricity (% of ↑ LT = LT ↑ LT ↑ MT = LT ↑ LT population) WB logistics Performance Index. ↑ LT ↓ LT ↓ MT = LT UT Rank: Out of 139 countries HUMAN CAPITAL & DIGITALIZATION Government expenditure on ↓ LT ↑ LT ↓ MT ↓ MT ↓ LT ↑ MT education, total (% of GDP) Output per hour worked (GDP constant 2017 international $ at = UT ↓ MT = LT = LT ↓ LT = LT PPP) Individuals using the Internet (% ↑ LT ↑ LT ↓ MT LT ↑ LT ↓ LT of population) SECTION 1 — CEMAC Updates 17 Upper middle income Lower-middle income Lower income group Equatorial Gabon Cameroon Congo CAR Chad Guinea Structural indicators (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) CLIMATE CHANGE ND-gain index on climate = LT ↓ LT ↑ LT = LT = LT = LT vulnerability and readiness EMPLOYMENT Employment in agriculture (% of = UT = UT ↓ UT ↓ MT = UT ↓ UT total employment) Employment in industry (% of total ↑ LT ↑ LT ↑ MT ↑ MT ↑ LT ↑ MT employment) Employment in services (% of ↑ MT ↑ LT ↑ MT ↑ MT ↑ LT ↑ LT total employment) GOVERNANCE Percentile rank among all countries (ranges from 0 (lowest) to 100 (highest) rank) Voice and Accountability ↑ LT ↑ LT = LT ↑ LT = MT ↓ LT Political Stability and Absence of ↑ MT ↑ MT ↑ LT ↑ UT = LT ↓ MT Violence/Terrorism Government Effectiveness ↑ LT ↓ LT ↑ LT ↓ LT ↓ LT ↑ MT Regulatory Quality ↑ LT ↑ LT = LT = LT = LT ↑ MT Rule of Law ↓ LT ↓ LT ↑ LT ↑ LT ↓ LT ↑ MT Control of Corruption ↓ LT ↓ LT = LT ↑ LT ↓ LT ↓ LT CEMAC Economic Barometer – November 2024 (Vol. 7) (c) Foreign direct investment, value added (agriculture, industry, services), gross fixed capital formation, individual using internet, and out per worker are reported for 2021, 2022, and 2023. The 2023 value is used to allocate each country into its tercile within its income group. (d) The WB logistics performance index (LPI) is reported for 2023, 2018, and 2016. The 2023 value is used to allocate each country into its tercile within its income group. (e) For all other indicators, data are reported for 2020, 2021, and 2022. The 2022 value serves as benchmark for tercile allocation. Credits: Bdx / Wikipedia – licensed under CC BY-SA 4.0 18 CEMAC Economic Barometer – November 2024 (Vol. 7) 19 SECTION 2— Country Updates 7 CEMAC Economic Barometer – November 2024 (Vol. 7) 7 The Country Updates section is based on the World Bank’s Macro Poverty Outlooks (MPOs) for the 2024 Annual Meetings for six CEMAC countries. The MPO provides an overview of recent developments, forecasts of major macroeconomic variables and poverty during 2024-2026, and a discussion of critical challenges for economic growth, macroeconomic stability, and poverty reduction moving forward in a specific country. The MPOs for the 147 countries covered are released twice annually for the Spring and Annual Meetings of the World Bank and the International Monetary Fund. The MPOs for Sub-Saharan Africa can be accessed here: https://www.worldbank.org/en/publication/macro-poverty-outlook/mpo_ssa. 20 Cameroon Table 1 2023 Population, million 28.6 GDP, current US$ billion 47.7 GDP per capita, current US$ 1 663.5 International poverty rate ($2.15)a 23.0 Lower middle-income poverty rate ($3.65)a 46.7 Upper middle-income poverty rate ($6.85)a 76.0 Gini indexa 42.2 School enrollment, primary (% gross)b 110.7 Life expectancy at birth, yearsb 60.3 Total GHG Emissions (mtCO2e) 128.3 Source: WDI, Macro Poverty Outlook, and official data. CEMAC Economic Barometer – November 2024 (Vol. 7) (a) Most recent value (2021), 2017 PPPs. (b) WDI for School enrollment (2022); Life expectancy (2021). Cameroon’s economic growth shows sign of recovery after its slowdown in 2023. However, the growth rate remains below the target set out in the Nation’s development strategy (NDS30), implying limited poverty reduction and persistent scarcity of job opportunities. Sustained fiscal consolidation should keep the deficit at 0.8 percent of GDP in 2024 and support a further fall in public debt-to-GDP ratio. While growth prospects are more favorable, risks remain, including the upcoming presidential elections and commodity price volatility. SECTION 2 — CAMEROON 21 Key Conditions and Challenges Cameroon’s economy has shown resilience in the face of external shocks, but multiple structural weaknesses prevent it from reaching its potential. The overlapping crises between 2020 and 2023 resulted in average annual GDP growth of only 2.6 percent, far below the NDS30 targets, and stagnant per capita incomes. Growth is further hampered by poor quality of infrastructure, especially electricity, roads, and limited internet connectivity. Other factors include underdevelopment of the financial system and heavy dependence on commodity exports. The growing effects of climate change and fragility remain challenges to stronger growth and poverty reduction. For instance, the country was severely impacted by floods in 2024. Cameroon needs a major rethink of its growth model, placing stronger emphasis on private sector participation, redefining the role of the state in the economy, and addressing low labor productivity. Poverty rates have remained virtually unchanged since 2001. Combined with rapid population growth, this has resulted in a significant increase in the absolute number of extreme poor Cameroonians, surpassing 6.6 million in 2023. Inequality in Cameroon remains high, with a consumption Gini coefficient of 42.2, indicating significant disparities in living standards between regions, as well as urban and rural areas. Furthermore, fragility is increasing, as nine out of Cameroon’s ten regions are now affected by conflict, including spillovers from neighboring countries. Recent Developments Cameroon’s economic recovery slowed down in 2023, with real GDP expanding by only 3.3 percent, down from 3.6 percent in 2022, due to the decline in transportation activities following high input costs in this sector, and the depletion of oil fields and CEMAC Economic Barometer – November 2024 (Vol. 7) energy supply shortages in industry sector. A rebound occurred in the first quarter of 2024 with real GDP growing by 3.7 percent y-o-y, fostered by good performance of services and export-oriented agricultural production thanks to improved yields and higher prices in international markets. The current account deficit increased to 4.1 percent of GDP in 2023 from 3.6 percent in 2022, mainly driven by the continuous decline in oil production and exports. The deficit remained at a high level for the same reason in the first quarter of 2024, at 4.7 percent of GDP, up from 3.1 percent in the previous quarter. Average inflation has declined to 5.7 percent as of end June 2024 from 7.7 percent one year ago, tempered by the restrictive monetary policy stance of the regional 22 SECTION 2 — CAMEROON central bank (BEAC), easing foreign inflation and government price control measures, despite the rise in pump prices in February 2024. The fiscal deficit continued to decline in 2023 to 0.8 percent of GDP, down from 1.1 percent in 2022, supported by reduced fuel subsidies and capital spending and significantly improved tax collection. Public debt fell from 44.6 percent of GDP to 42.0 between December 2023 and June 2024. Cameroon’s public debt is deemed sustainable, even though with a high risk of debt distress due to liquidity ratios breaching the thresholds. To address the inflationary effects of these measures, tax breaks have been offered to sectors like agriculture, and the minimum wage and public sector salaries have been raised. However, considering the substantial number of poor and vulnerable Cameroonians working in the informal sector, it is expected that these measures will have minimal impact on poverty reduction. Figure 1 / Cameroon: Real GDP growth and Figure 2 / Cameroon: Actual and projected contributions to real GDP growth poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 90 800,000 8 80 700,000 6 70 600,000 60 4 500,000 50 CEMAC Economic Barometer – November 2024 (Vol. 7) 2 400,000 40 0 300,000 30 -2 20 200,000 10 100,000 -4 0 0 -6 2007 2014 2021 2000 2003 2006 2009 2012 2015 2018 2021 2024 International poverty rate Gov. cons. Exports GFCF Lower middle-income pov. rate Inventories Private cons. Imports Upper middle-income pov. rate Statistical disc. GDP Real GDP pc Source: World Bank. Source: World Bank. SECTION 2 — CAMEROON 23 Outlook The medium-term outlook is moderately positive, with real GDP growth projected to 3.7 percent in 2024 and slightly above four percent in 2025 and 2026. This is driven by the following factors that should have a knock-on effect on other economic sectors: (i) an improved energy supply from the full commissioning of the Nachtigal hydroelectric dam which represents one third of the current energy supply, and (ii) scaled-up public investment, especially in infrastructure, with the aim to reach 7.0 percent of GDP by 2027 from 3.9 percent in 2023. Higher public revenues will support scaled up public investment, while the fiscal deficit would remain at 0.8 percent of GDP in 2024, and around 1 percent of GDP in the medium-term, allowing the debt-to-GDP ratio to decrease. While public investment on infrastructure projects under the NDS30 is projected to increase, improvements in the fiscal accounts in 2024 will be pursued through higher tax revenue collection and a better control of current expenditures, especially fuel subsidies that are expected to decline following an increase in pump price in February 2024. Average inflation will continue to decline from 4.7 percent in 2024 to 3.0 percent in 2026, under the effects of BEAC’s restrictive monetary policy stance. The current account deficit will remain over the medium term around 4.0 percent of GDP, reflecting the decline in oil production driven by oil field depletion, and the higher imports needed for the scaled-up public investment program. Real per capita growth is forecasted to be insufficient to reduce poverty over the next three years and consequently an additional 600,000 people will join the ranks of the population living in extreme poverty which, by 2026, could grow to a CEMAC Economic Barometer – November 2024 (Vol. 7) total of 7.2 million people. The outlook remains subject to risks associated with (i) commodity price volatility; (ii) a persistent security crisis; (iii) lower-than-expected budget support from external donors, (iv) persistent shortages in energy supply, (v) lower than expected public investment, (vi) possible tensions around the presidential elections in October 2025. 24 SECTION 2 — CAMEROON Table 2: Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 3.3 3.6 3.3 3.7 4.0 4.2 Private consumption 4.7 4.2 2.4 3.5 3.7 3.8 Government consumption 2.6 -3.3 0.2 0.2 0.3 0.2 Gross fixed capital investment -3.0 14.4 10.1 8.3 8.4 8.8 Exports, goods and services 19.8 -5.1 6.4 7.0 7.7 8.0 Imports, goods and services 9.0 7.3 9.2 8.8 8.9 9.2 Real GDP growth, at constant factor prices 3.3 3.6 2.9 3.7 4.0 4.2 Agriculture 2.9 3.2 2.5 2.9 3.1 3.3 Industry 4.1 3.6 2.5 3.6 4.3 4.2 Services 3.0 3.6 3.3 3.9 4.1 4.5 Inflation (consumper price index) 2.5 6.3 7.4 4.7 3.5 3.0 Current account balance (% of GDP) -4.0 -3.6 -4.1 -4.2 -4.3 -4.0 Fiscal balance (% of GDP) -2.9 -1.1 -0.8 -0.8 -1.0 -1.1 Revenues (% of GDP) 14.8 16.8 17.2 17.6 17.9 18.0 Debt (% of GDP) 48.1 45.3 44.6 42.2 39.2 38.1 Primary balance (% of GDP) -1.9 -0.3 0.3 0.3 0.1 -0.1 International poverty rate ($2.15 in 2017 23.0 22.5 23.4 24.2 24.3 23.5 PPP)a,b Lower middle-income poverty rate ($3.65 in 46.7 46.0 46.7 46.8 46.7 46.2 2017 PPP)a,b Upper middle-income poverty rate ($6.85 in 76.0 75.2 75.2 75.1 74.7 74.4 2017 PPP)a,b CEMAC Economic Barometer – November 2024 (Vol. 7) GHG emissions growth (mtCO2e) -1.0 0.4 0.9 2.2 2.4 2.1 Energy related GHG emissions (% of total) 7.0 7.0 7.0 7.1 7.1 7.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty data are expressed in 2017 PPP, versus 2011 PPP in previous editions - resulting in major changes. See pip. worldbank.org (a) Calculations based on 2021-ECAM-V. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. (b) Projections using microsimulation methodology. 25 Central African Republic Table 1 2023 Population, million 5.7 GDP, current US$ billion 2.6 GDP per capita, current US$ 457.6 International poverty rate ($2.15)a 65.7 Lower middle-income poverty rate ($3.65)a 85.8 Upper middle-income poverty rate ($6.85)a 96.2 Gini indexa 43.0 School enrollment, primary (% gross)b 110.7 Life expectancy at birth, yearsb 54.5 Total GHG Emissions (mtCO2e) 56.2 Source: WDI, Macro Poverty Outlook, and official data. (a) Most recent value (2021), 2017 PPPs. (b) Most recent WDI value (2022). CEMAC Economic Barometer – November 2024 (Vol. 7) With fuel import shortages unresolved and repeated power outages in 2024, economic stagnation persists, with growth projected at just 0.7 percent. In this context, the country is navigating a difficult macro- fiscal situation. Unless the authorities secure sufficient grant support for 2025, there are concerns about the state’s ability to cover its wage bill and fulfill its obligations without accumulating arrears in the foreseeable future. 26 SECTION 2 — CENTRAL AFRICAN REPUBLIC Key Conditions and Challenges The Central African Republic (CAR) remains entrenched in poverty and fragility despite its wealth of natural resources, notably gold and diamonds. Adversely impacted by conflict, external shocks, and policy missteps, its income per capita has fallen by a third since the escalation of civil war in late 2012. It is now among the poorest countries in the world, with two-thirds of its population living in extreme poverty. Additionally, the country has been unable to resolve fuel shortages since 2022, particularly those affecting about 80 percent of all fuel imports made via the Ubangui River. CAR’s public finances are under immense pressure due to weak revenue mobilization and social sector spending pressures, exacerbated by a de facto freeze on budget support from key development partners out of their concern over governance, use of fiscal resources to finance security-related expenses, and policy missteps. CAR remains at high risk of debt distress, with debt pressures having grown substantially in recent years, and with substantial liquidity risks that could jeopardize the government’s ability to pay for civil service salaries and essential public services. The successful implementation of policy reforms under the IMF’s ECF program and support from other development partners is crucial for restoring macro-fiscal stability. Critical areas for reform include revising the petroleum price structure and procurement system, to ensure sustainable fuel provision, strengthening domestic revenue mobilization, fiscal transparency, and enhancing debt management and sustainability. Recent Developments The economy has stagnated since 2023, partly due to a 13 percent drop in gold CEMAC Economic Barometer – November 2024 (Vol. 7) production, possibly linked to smuggling in conflict zones. However, the primary cause is the delay and uncertainty around the river campaign for fuel imports, which normally represent 80-85 percent of the total. Fuel shortages, now in their third year, continue to disrupt local trade and production. While requisitioning some fuel stations in Greater Bangui and the black market have prevented immediate collapse, the situation remains critical due to limited reserves. Additionally, potential malfunctions at Boali, and the need to rehabilitate the old power line to Bangui, have reduced nighttime light activity in Bangui during the first half of 2024 (2024H1) compared to 2023H1, impacting small businesses without reserves or alternative power. SECTION 2 — CENTRAL AFRICAN REPUBLIC 27 Regional monetary tightening, alongside economic stagnation, has kept monthly inflation below 2 percent since February 2024, mainly due to moderated food and housing prices. The BEAC has maintained a tight monetary policy, keeping the policy rate at five percent following a cumulative increase of 175 basis points since November 2021, and has scaled back liquidity absorption since early 2024. The fiscal deficit has reduced since 2023 due to forced consolidation especially on domestically financed capital spending, fiscal reforms, and increased grant financing, despite spending overruns on certain spending items, such as foreign missions and equipment for local armed forces. The detrimental fiscal direct and indirect impact of fuel shortages on revenue collection should be limited if fuel reserves remain. Although gold production has fallen, the current account deficit has stabilized around 9.2 percent of GDP since 2023 due to improved terms of trade and favorable gold prices. Challenges remain due to a lack of competitiveness and weak global value chain connections. Extreme poverty remains pervasive and deep in CAR, with 65.7 percent of the population living below the international extreme poverty line of USD 2.15 (2017 PPP) per person per day. CAR also exhibits significant spatial inequality. Approximately 74.4 percent of rural Central Africans live below the national poverty line, compared with 61.1 percent of urban residents. Regional disparities are also notable: in Bangui, the poverty rate at the national poverty line is 40.1 percent, considerably lower than the average of 73.3 percent for all other regions combined, and less than half the poverty rate of CAR’s poorest region, Haut Oubangui, where 84.7 percent of the population lives in poverty. Despite a decline in overall price inflation since 2023, poverty is expected to remain high due to weak economic CEMAC Economic Barometer – November 2024 (Vol. 7) performance and a decrease in per capita income. 28 SECTION 2 — CENTRAL AFRICAN REPUBLIC Figure 1 / Central African Republic: The dynamic and Figure 2 / Central African Republic: Actual and composition of public debt in recent years projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 70 120 300,000 60 100 250,000 50 80 200,000 40 60 150,000 30 40 100,000 20 10 20 50,000 0 0 0 2020 2021 2022 2023 2024e 2008 2015 2022 Domestic Debt International poverty rate External Debt Lower middle-income pov. rate General Government Debt Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Note: see Table 2. Outlook The projected growth rate for 2024 has been downgraded from 1.3 percent (Spring estimates) to 0.7 percent, mirroring last year’s underperformance, due to lower gold production and fuel shortages. Real GDP growth is projected to recover gradually, reaching 1.6 percent in 2025-26, partly due to base effects and the CEMAC Economic Barometer – November 2024 (Vol. 7) effective implementation of policy adjustments aimed at improving fuel supply after three years of shortages. Inflation is expected to slow down to 1.5 percent by end 2024. However, poverty is likely to remain high due to declining per capita income, compounded by already severe household budget constraints and a weak economic recovery. The fiscal deficit is expected to improve from 3.5 percent in 2023 to 2.8 percent in 2024. The overall fiscal balance is projected to gradually deteriorate in 2025 and 2026 in the absence of strong grants commitment from donor partners. However, this would be partially mitigated by significant efforts in DRM, including the digitalization of procedures and payments, the collection of excise duties, VAT, and miscellaneous revenues, as well as reforms in reference prices for timber and SECTION 2 — CENTRAL AFRICAN REPUBLIC 29 fuel pump prices, and revisions to the tax exemptions and VAT system. Public debt should stabilize at 58.3 percent of GDP in 2024, with domestic debt reaching 25.9 percent of GDP. The current account balance is projected to slightly improve due to increased gold production in the western prefectures and higher local sawn wood production, but it will remain in significant deficit from 2025 onwards, due to the energy, equipment, and food bill. Risks to the outlook remain skewed heavily to the downside. The 2025 presidential election could pose risks to security and stability. A reversal of recent security gains could negatively affect key sectors such as food production and processing, mining, transport, and retail, slowing economic growth and complicating the country’s efforts to emerge from fragility. Credits: MONUSCO/Myriam Asmani / Wikipedia – licensed under CC BY-SA 2.0 CEMAC Economic Barometer – November 2024 (Vol. 7) 30 SECTION 2 — CENTRAL AFRICAN REPUBLIC Table 2 / Central African Republic: Macro-Poverty Outlook Indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024f 2025f 2026f Real GDP growth, at constant market prices 1.0 0.5 0.7 0.7 1.1 2.0 Private Consumption 1.3 0.0 1.2 1.5 1.9 2.3 Government Consumption -3.8 -8.2 3.5 -4.5 -4.4 -1.9 Gross Fixed Capital Investment -15.9 -4.5 -2.7 -1.4 -0.5 2.1 Exports, Goods and Services -5.3 2.6 9.0 1.3 2.4 3.2 Imports, Goods and Services -11.5 -5.5 5.5 0.8 1.7 2.7 Real GDP growth, at constant factor prices 1.5 1.0 0.7 0.7 1.1 2.0 Agriculture 2.7 2.2 2.3 1.7 2.4 2.9 Industry -1.7 -3.9 -0.5 -0.5 0.5 1.2 Services 2.2 2.4 0.1 0.4 0.3 1.6 Inflation (Consumer Price Index) 4.3 5.6 3.0 1.5 2.3 2.9 Current Account Balance (% of GDP) -11.1 -12.7 -9.1 -9.2 -8.7 -8.3 Fiscal Balance (% of GDP) -6.0 -5.3 -3.5 -2.8 -3.5 -3.8 Revenues (incl. grants, % of GDP) 13.7 12.3 14.4 14.4 13.4 13.3 Debt (% of GDP) 48.5 51.1 57.7 58.3 57.9 57.3 Primary Balance (% of GDP) -5.7 -4.9 -2.9 -1.9 -2.5 -2.8 International poverty rate ($2.15 in 2017 65.7 65.3 65.8 66.1 66.8 67.4 PPP)a,b Lower middle-income poverty rate ($3.65 in 85.8 85.6 86.1 86.1 86.5 87.0 2017 PPP)a,b Upper middle-income poverty rate ($6.85 in 96.2 96.1 96.4 96.4 96.5 96.5 2017 PPP)a,b CEMAC Economic Barometer – November 2024 (Vol. 7) GHG emissions growth (mtCO2e) 1.5 -0.2 -0.2 -0.2 -0.2 -0.2 Energy related GHG emissions (% of total) 0.4 0.4 0.4 0.5 0.5 0.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty data are expressed in 2017 PPP, versus 2011 PPP in previous editions - resulting in major changes. See pip. worldbank.org (a) Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. (b) Projections using microsimulation methodology. 31 Republic of Congo Table 1 2023 Population, million 6.1 GDP, current US$ billion 15.3 GDP per capita, current US$ 2,508.8 International poverty rate ($2.15)a 35.4 Lower middle-income poverty rate ($3.65)a 59.1 Upper middle-income poverty rate ($6.85)a 83.5 Gini indexa 48.9 School enrollment, primary (% gross)b 87.7 Life expectancy at birth, yearsb 63.1 Total GHG Emissions (mtCO2e) 29.2 Source: WDI, Macro Poverty Outlook, and official data. (a) Most recent value (2011), 2017 PPPs. (b) Most recent WDI value (2022). CEMAC Economic Barometer – November 2024 (Vol. 7) Income per capita is expected to decline by 0.2 percent in 2024, resulting from a modest growth rate of 2.1 percent. Hence, the poverty rate is projected to slightly increase. Tax reforms are aiding domestic resource mobilization, maintaining a budget surplus projected at 2.8 percent of GDP in 2024, down from 3.6 percent in 2023. The growth outlook has improved but remains vulnerable to oil production decline, oil price volatility, and delays in structural reforms. 32 SECTION 2 — REPUBLIC OF CONGO Key Conditions and Challenges From 2015 to 2023, annual real GDP contracted by an average of 1.9 percent, leading to a 32 percent cumulative fall in income per capita. The economic recession began with the oil price downturn in 2014-2016, exacerbated by public spending cuts and domestic arrears accumulation, which in turn reduced private investment. The COVID-19 pandemic prolonged the recession, reducing GDP per capita to early 1970s levels. Hence, extreme poverty increased from 33.5 percent in 2015 to 46.6 percent in 2022, reversing previous progress in poverty reduction. The failure to adjust public spending when oil revenue started to decline has led to a sharp increase in the debt-to-GDP ratio from 42.3 percent in 2014 to a peak of 103.5 percent in 2020 and moderating to 96 percent in 2023. Thus, Congo was classified in 2017 as being in “debt distress” with unsustainable debt. Debt restructuring and debt management reforms have made Congo’s debt sustainable since 2021, but the country remains in debt distress due to ongoing restructuring and audit of domestic arrears. Reliance on oil revenues makes the economy vulnerable to oil production decline and price volatility, which adversely affects long-term growth prospects. Sustainable development requires diversifying national assets and strengthening institutions, human and physical capital, and balanced use of natural capital. Recent Developments In 2023, the economy grew by 1.9 percent, leading to a 0.4 percent decline in GDP per capita. The Congolese economy continues to experience modest growth, driven by the non-oil sectors. Non-oil growth in 2024H1 was driven by agriculture and manufacturing. Government support (tariff exemptions, protected agricultural zones, agricultural mechanization centers, etc.) and private sector investment boosted CEMAC Economic Barometer – November 2024 (Vol. 7) agricultural growth, while strong external demand for cement and new breweries drove manufacturing growth. Oil production declined by 2.7 percent in 2024H1 due to aging equipment and fields. Despite reduced oil revenues, the budget recorded a surplus in 2024Q1 due to improved tax revenue mobilization, fuel subsidy cuts, and restrained public spending. Domestic tax and customs revenue increased by 14 percent and 21 percent, respectively (y-o-y) in 2024Q1 while exemptions granted by the state were down by 9 percent at the same period. Public spending decreased, due to lower spending on goods and services and investment. After declining to 86.6 percent in 2022, the debt-to-GDP ratio reached 96 percent in 2023 due to audited domestic arrears. The SECTION 2 — REPUBLIC OF CONGO 33 current account surplus declined to 8.6 percent of GDP in 2023 due to decreasing export receipts and high import bills from investment in the gas production center construction. The banking sector remains solvent but vulnerable to non-performing loans. As in 2023H1, bank deposits and loans to the private sector increased in the first quarter of 2024. Inflationary pressures persisted at the beginning of 2024, driven by last year’s fuel price increase, cement and beer prices hike. The Bank of Central African States (BEAC) maintained its tight monetary policy stance to contain inflation and support the external viability of the exchange rate arrangement. After a cumulative increase of 175 basis points between November 2021 and March 2023, the BEAC has maintained its policy rate at 5 percent. Weekly liquidity injections were discontinued in early 2023 and BEAC has scaled down its liquidity absorption operations since the beginning of 2024. The poverty rate rose to 46.76 percent in 2023 due to negative GDP per capita growth. Figure 2 / Republic of Congo: Actual and projected Figure 1 / Republic of Congo: Real GDP growth poverty rates and real GDP per capita Poverty rate (%) Real GDP per capita (constant LCU) Percent change 6 100 1,200,000 4 90 1,000,000 2 80 70 CEMAC Economic Barometer – November 2024 (Vol. 7) 0 800,000 -2 60 50 600,000 -4 40 -6 400,000 30 -8 20 200,000 -10 10 -12 0 0 2019 2020 2021e 2022e 2023e 2024f 2025f 2026f 2011 2013 2015 2017 2019 2021 2023 2025 Oil GDP Non-Oil GDP Real GDP International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Note: see Table 2. 34 SECTION 2 — REPUBLIC OF CONGO Outlook The Congolese economy should experience modest growth of 2.1 percent in 2024 and an average 3.4 percent in 2025-2026. The oil sector, projected to grow by 2.3 percent between 2025 and 2026, will be supported by the renewal of equipment and oil fields thanks to upcoming investments. The non-oil sector, projected to reach an average growth rate of 4.3 percent in 2025-26, will be underpinned by the continued momentum in agriculture and industry. Non-oil activities will also be supported by the increase in domestic demand that is expected to result from the continued clearance of domestic arrears, the gradual increase in social spending and public investment. Bank deposits and loans to the private sector are expected to continue to rise in 2024 as a result of the upcoming payment of domestic arrears. Inflationary pressures are expected to persist, reaching 3.8 percent in 2024, returning to the BEAC target of 3 percent by 2025. GDP per capita growth is projected to remain negative in 2024 at -0.2 percent. The poverty rate is thus expected to marginally increase to 46.8 percent in 2024, before declining to an average of 46.0 percent in 2025-26. The fiscal surplus is projected to decline to 2.8 percent of GDP in 2024 and further to 1.9 percent in 2025-2026 due to the anticipated drop in oil prices. The projected medium-term rise in social spending and capital expenditure should have a negative impact on the budget surplus. However, new investments in oil equipment and fields may bolster oil production thus preserve fiscal surplus. Congo’s debt- to-GDP ratio remains high and a source of fiscal risk but is projected to decline to 86.6 percent in 2025-2026 thanks to recent reforms. The expected decline in exports should reduce the current account surplus to 2.9 percent, while the expected slowdown in imports should help preserve the surplus in 2024. The recovery faces low growth prospects with risks predominantly to the downside, CEMAC Economic Barometer – November 2024 (Vol. 7) including oil price volatility, weaker global demand, postponed oil investments, tighter financing conditions, adverse weather conditions, as illustrated by the severe impacts caused by floods in 2024, and weak reform implementation. However, the expected expansion of the gas industry presents an upside risk for growth, public finances, and the balance of payments. SECTION 2 — REPUBLIC OF CONGO 35 Table 2 / Republic of Congo: Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021e 2022e 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.0 1.5 1.9 2.1 3.5 3.3 Private consumption 11.5 5.0 4.9 5.6 4.7 5.0 Government consumption 2.1 -5.0 0.6 1.3 1.9 1.5 Gross fixed capital investment 14.0 10.0 8.6 7.0 4.4 5.1 Exports, goods and services -1.0 -0.7 1.0 -0.7 4.2 2.5 Imports, goods and services 25.0 5.9 8.9 6.5 6.3 4.9 Real GDP growth, at constant factor prices 1.0 1.5 1.9 2.1 3.5 3.3 Agriculture 1.9 3.0 2.8 2.8 3.4 3.7 Industry -3.3 -0.6 0.7 1.1 4.6 3.5 Services 2.0 3.1 2.9 2.8 3.2 3.4 Inflation (consumper price index) 2.0 3.0 4.3 3.8 3.0 3.0 Current account balance (% of GDP) 11.6 15.4 8.6 2.9 1.5 1.8 Net foreign direct investment inflow (% of 2.2 7.9 9.5 4.8 5.1 4.9 GDP) Fiscal balance (% of GDP) 1.2 7.9 3.6 2.8 1.9 1.9 Revenues (% of GDP) 21.1 28.6 24.3 24.0 23.6 23.5 Debt (% of GDP) 92.1 86.6 96.0 94.7 89.3 83.8 Primary balance (% of GDP) 3.1 10.2 6.4 5.6 4.7 4.6 International poverty rate ($2.15 in 2017 46.4 46.6 46.8 46.8 46.4 45.7 PPP)a,b Lower middle-income poverty rate ($3.65 in 70.6 70.9 71.0 71.1 70.7 70.3 2017 PPP)a,b CEMAC Economic Barometer – November 2024 (Vol. 7) Upper middle-income poverty rate ($6.85 in 90.6 90.7 90.8 90.8 90.6 90.4 2017 PPP)a,b GHG emissions growth (mtCO2e) -4.1 2.8 2.5 2.2 1.5 1.2 Energy related GHG emissions (% of total) 15.1 15.4 16.0 16.6 17.6 18.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty data are expressed in 2017 PPP, versus 2011 PPP in previous editions - resulting in major changes. See pip. worldbank.org. (a) Calculations based on 2011-ECOM. Actual data: 2011. Nowcast: 2012-2023. Forecasts are from 2024 to 2026. (b) Projection using neutral distribution (2011) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. 36 Chad Table 1 2023 Population, million 18.3 GDP, current US$ billion 13.6 GDP per capita, current US$ 745.0 International poverty rate ($2.15)a 30.8 Lower middle-income poverty rate ($3.65)a 62.8 Upper middle-income poverty rate ($6.85)a 88.8 Gini indexa 37.4 School enrollment, primary (% gross)b 90.4 Life expectancy at birth, yearsb 53.0 Total GHG Emissions (mtCO2e) 123.8 Source: WDI, Macro Poverty Outlook, and official data. (a) Most recent value (2022), 2017 PPPs. (b) Most recent WDI value (2022). CEMAC Economic Barometer – November 2024 (Vol. 7) 2024 GDP growth is expected to slow to 3 percent (-0.1 percent per capita) despite increased oil exports and public spending, as economic spillovers from the war in Sudan continue. Inflation will increase to 6.5 percent exacerbated by flooding, which has led to extreme levels of food insecurity. The poverty rate is expected to increase to 36.4 percent. Downside risks to the outlook include regional instability, insecurity, and further climate shocks. SECTION 2 — CHAD 37 Key conditions and Challenges Chad’s economic growth has been volatile and weak, reflecting the dependence on the oil sector, which accounts for 85 percent of exports and 56 percent of fiscal revenues. Economic diversification efforts are ongoing, with measures aimed at industrializing the livestock sector, facilitating access to inputs to the agro-pastoral sector, and limiting barriers to trade with non-CEMAC countries. Chad is also among the world’s most vulnerable countries to climate change. Insufficient rains as well as frequent intense flooding – most recently in 2022 and this year - adversely impacts agriculture production, which, together with conflict and displacement, has led to chronic food insecurity. Ending the political transition, President Mahamat Idriss Deby was declared the winner of the May 2024 presidential election, with limited violence. Security remains tenuous, with threats by Boko Haram in the Lake Chad region, and the armed FACT rebellion in the north. According to the International Organization for Migration, an estimated 910,000 people have crossed the border into Chad since the start of the crisis in Sudan in April 2023, including 213,339 Chadian returnees. The war in Sudan, as well as the rebellion from Libya, has induced higher humanitarian spending as well as military expenditures to secure the borders. Recent Developments Despite the strain caused by the ongoing refugee crisis – placing heavy demands on local resources and increasing fiscal pressures – Chad’s economy is expected to sustain 3 percent growth in 2024 (-0.1 percent per capita). Non-oil GDP growth is estimated to be 2.7 percent, down from 4.1 percent in 2023, as the growth of public investment decelerates. On the supply side, industry is expected to contribute 1.3 percentage points (pps) to growth, supported by a modest increase in oil CEMAC Economic Barometer – November 2024 (Vol. 7) production, followed by agriculture (1 pp), which has been negatively impacted by the major flooding, and services (0.7 pps). Net exports are expected to be the main driver on the demand side (+1.1 pps), with the volume of Q1 oil exports having increased 8.4 percent compared to the same period in 2023. Government investment and consumption are expected to contribute 0.6 and 0.3 pps to growth, respectively. The current account deficit is expected to slightly widen to 1.7 percent of GDP. Demand for imported goods (from investment and military expenditures and humanitarian-related operations in support of Sudanese refugees) remains high, with terms of trade declining. Inflation, after easing to 4.1 percent in 2023, is projected to surge to 6.5 percent in 2024, due to higher food and transport prices. The poverty rate is estimated to 38 SECTION 2 — CHAD increase by 2.6 ppts to 36.4 percent in 2024 with a total of 6.9 million in extreme poverty. Since mid-July, floods following heavy rains have affected over 1.5 million people, destroyed 259,000 hectares of crops, and caused the loss of nearly 70,000 heads of livestock. An estimated 3.4 million people (20 percent of the population) are facing severe food insecurity between June and August 2024. The Bank of Central African States (BEAC) has maintained its tight monetary policy stance to contain inflationary pressures and support the external viability of the exchange rate arrangement. The BEAC policy rate was maintained at five percent following a cumulative increase by 175 basis points between November 2021 and March 2023. Weekly liquidity injections were discontinued in early 2023 and BEAC has scaled down its liquidity absorption operations since the beginning of 2024. The fiscal deficit is expected to narrow from 3.5 percent of GDP in 2023 to 0.2 percent in 2024, despite increasing expenditures (+8.8 percent) in response to humanitarian needs, flooding, and presidential and local elections. The consolidation is driven by higher tax revenues (+20.5 percent), stemming from tax modernization and digitalization efforts, and oil revenues (+17.2 percent). Windfalls resulting from the increase in fuel prices and dividends from the Société de raffinage de N’Djamena have likewise contributed. Total public debt is projected to increase from 38.5 percent in 2023 to 41.4 percent of GDP in 2024. Figure 2 / Chad: Actual and projected Figure 1 / Chad: Real GDP growth poverty rates and real GDP per capita 6 Poverty rate (%) Real GDP per capita (constant LCU) 4 100 450,000 90 400,000 CEMAC Economic Barometer – November 2024 (Vol. 7) Percent, percent of GDP 2 80 350,000 70 300,000 0 60 250,000 50 -2 200,000 40 150,000 30 -4 20 100,000 -6 10 50,000 0 0 -8 2011 2013 2015 2017 2019 2021 2023 2025 2021 2022 2023 2024 2025 2026 International poverty rate Lower middle-income pov. rate CAB Fiscal balance GDP growth Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. SECTION 2 — CHAD 39 Outlook Growth is projected to average 2.8 percent (-0.3 percent per capita) over 2025-2026, as public investment is expected to fall from the highs of 2023-2024. Non-oil GDP growth is projected at an average of 3.3 percent. After three consecutive years above the target range, inflation is projected to moderate to an average of 3.1 percent in the medium term. The 2024 lean season is projected to be one of the worst in recent years. Flood damages and crop losses will lead to a drop in production and household incomes, and as a result, the extreme poverty rate is expected to increase by 2 ppts to 38.4 percent in 2025, which translates into an additional 588,000 people in extreme poverty. Continued security restrictions, low social protection coverage, and the ongoing Sudan crisis is expected to restrict poverty reduction, with extreme poverty projected to reach 39.6 percent in 2026. With declining oil prices forecasted and elevated public spending, fiscal accounts are projected to remain in deficit in the medium-term. As a result, public debt is projected to reach 42.6 percent of GDP in 2026. The current account deficit is projected to expand to an average 2.8 percent of GDP over 2025-2026. The outlook is subject to multiple downside risks, including lower-than- anticipated oil prices, regional instability, heightened insecurity, and further climate shocks and natural disasters. A CEMAC Economic Barometer – November 2024 (Vol. 7) prolonged Sudan war could worsen the humanitarian crisis, strain public finances, and increase inflationary pressures. Meanwhile, the conclusion of the political transition presents an upside risk if the government implements reforms that improve productivity, economic diversification and growth. Credits: Safari Consoler on pexels 40 SECTION 2 — CHAD Table 2 / Chad: Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024f 2025f 2026f Real GDP growth, at constant market prices -1.2 2.8 4.2 3.0 2.1 3.5 Private consumption 1.6 2.7 3.6 1.3 3.4 3.5 Government consumption 3.7 -1.5 -7.0 9.6 0.1 4.9 Gross fixed capital investment -4.3 -6.1 54.1 3.9 -2.4 0.5 Exports, goods and services -0.4 5.0 2.9 4.0 0.9 4.1 Imports, goods and services 5.1 2.0 16.0 1.8 1.1 3.1 Real GDP growth, at constant factor prices -1.2 2.8 4.1 3.0 2.1 3.5 Agriculture 6.2 2.0 5.0 3.1 3.4 3.5 Industry -4.6 4.1 3.3 4.1 -0.5 3.3 Services -4.3 2.3 4.1 1.9 3.2 3.7 Inflation (consumer price index) 1.0 5.8 4.1 6.5 3.2 3.0 Current account balance (% of GDP) -6.0 2.9 -0.9 -1.7 -2.5 -3.0 Fiscal balance (% of GDP) -2.5 5.1 -3.5 -0.2 -2.2 -1.9 Revenues (% of GDP) 16.3 23.5 18.3 22.5* 21.4 20.7 Debt (% of GDP) 55.9 42.3 38.5 41.4 41.8 42.6 Primary balance (% of GDP)* -1.3 6.6 -2.4 1.2 -0.1 -0.4 International poverty rate ($2.15 in 2017 28.2 30.8 33.8 36.4 38.4 39.6 PPP)a,b Lower middle-income poverty rate ($3.65 in 57.7 62.8 65.5 69.2 72.4 74.1 2017 PPP)a,b Upper middle-income poverty rate ($6.85 in 85.6 88.8 89.7 91.5 93.3 94.1 2017 PPP)a,b CEMAC Economic Barometer – November 2024 (Vol. 7) GHG emissions growth (mtCO2e) 2.8 2.1 2.0 2.0 2.1 1.9 Energy related GHG emissions (% of total) 2.3 2.2 2.2 2.2 2.2 2.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. (*) Includes one-off non-oil, non-tax revenues, such as windfalls from the increase in the fuel price and dividends from the Société de raffinage de N’Djamena a/ Calculations based on 2022-EHCVM. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. 41 Gabon Table 1 2023 Population, million 2.4 GDP, current US$ billion 20.1 GDP per capita, current US$ 8,231.1 International poverty rate ($2.15)a 2.5 Lower middle-income poverty rate ($3.65)a 8.1 Upper middle-income poverty rate ($6.85)a 31.2 Gini indexa 38.0 School enrollment, primary (% gross)b 100.6 Life expectancy at birth, yearsb 65.8 Total GHG Emissions (mtCO2e) 19.7 Source: WDI, Macro Poverty Outlook, and official data. (a) Most recent value (2017), 2017 PPPs. (b) Most recent WDI value (2022). CEMAC Economic Barometer – November 2024 (Vol. 7) Gabon’s economy grew by 2.4 percent in 2023, a lower growth compared to 2022, impacted by logistical disruptions. Triggered by the August 2023 coup, the ongoing political transition is an opportunity for reforms, with many actions underway. An orderly return to constitutional order will be crucial to avoid social, economic and financing risks. Strong reforms are required to reverse the current trend and set the country on a poverty reduction path, without compromising public finances. 42 SECTION 2 — GABON Key conditions and Challenges The August 2023 coup was followed by a peaceful transition in Gabon, with significant institutional changes. A national dialogue was held in April 2024 and a new constitution was adopted by referendum in November 2024. Legal and policy reforms and investments are being made in roads, airports, energy and water, a new public bank for SME support, agriculture, housing, and social areas. Several development challenges persist. Despite Gabon’s resource wealth, extractives-based growth remains insufficient, vulnerable to price fluctuations, and unable to create enough jobs. One-third of the population lives in poverty, twice as much in rural areas. High urbanization has concentrated poverty in cities like Libreville and Port-Gentil. Income inequality is stark, youth unemployment is high and informality limits job opportunities. Infrastructure gaps hinder growth and investment. While major transparency initiatives are underway, such as the planned publication of oil contracts and validation of Gabon’s EITI membership, governance challenges impede efficient resource use. High social expectations–that the political transition will tangibly improve living conditions—are translating into higher spending, worsening fiscal and debt pressures. For instance, fuel subsidies have been expanded, at a significant fiscal cost. Substantial efforts are being made to clear past payment arrears, but accumulation of new ones remains a challenge. High fiscal and liquidity risks led Moody’s and Fitch to downgrade Gabon’s ratings, while the IMF’s May 2024 debt sustainability analysis assessed a high risk of debt distress, noting a significant deterioration in debt sustainability since the previous assessment in 2022. As outlined in the National Development Plan for the Transition, reforms are needed CEMAC Economic Barometer – November 2024 (Vol. 7) to create jobs and local value-addition in sustainable forestry, mining, agriculture and fisheries. Improving access to credit, labor skills, infrastructure, and public action, is essential for higher growth. The return to constitutional order within the announced timetable is crucial to avoid accentuating financing risks. Optimizing revenues and improving spending discipline, efficiency, and targeting will be key to reinforce fiscal sustainability. Recent developments In 2023, Gabon’s GDP grew by 2.4 percent, a lower growth rate compared to 2022, as landslides caused railway blockages that affected manganese and wood exports. As the new government restored international relations and accelerated public investments, the coup did not significantly affect growth, except for the impact of SECTION 2 — GABON 43 nighttime curfews on services. Demand-side growth was led by oil exports and public investment. The economy grew by 1.1 percent in 2024Q1 (q-o-q), led by higher-than-expected oil output and a recovering wood production, boosted by stronger Asian and European demand. The current account surplus remained high at 28.5 percent of GDP in 2023, supported by commodity exports, despite increased imports due to higher public spending. Despite stronger tax collection, higher expenditures increased the overall fiscal deficit to 1.0 percent of GDP in 2023, bringing the non-oil primary balance to -12.7 percent of non-oil GDP, due to electoral spending and the resumption of public service hiring, new social measures, and public works launched in late 2023. Additional debt components were identified since the transition, bringing public debt to 72.1 percent of GDP in 2023. In 2024Q1, higher-than-anticipated oil prices benefited oil revenues, which, combined with spending below budgetary forecasts, led to an estimated fiscal surplus of 1.5 percent of GDP. At 1.0 percent in June (y-o-y), inflation continued to ease in early 2024, in view of expanded price ceilings on essential goods, fuel subsidies, and a tight monetary policy. The BEAC kept the policy rate at five percent following a cumulative 175 basis point-increase between November 2021 and March 2023, discontinued weekly liquidity injections in early 2023, and scaled down liquidity absorption operations since early 2024. Yet, credit to firms expanded by 23.3 percent in June 2024 (y-o-y), with private demand coming notably from oil and construction. Lower growth compared to 2022 and insufficient job creation increased poverty. The share of Gabonese living under $6.85 per day (in 2017 PPP) is estimated to have reached 35.1 percent in 2023, or nearly 855,000 people. CEMAC Economic Barometer – November 2024 (Vol. 7) 44 SECTION 2 — GABON Figure 2 / Gabon: Actual and projected poverty rates Figure 1 / Gabon: Oil and non-oil GDP growth and real GDP per capita Percent change Poverty rate (%) Real GDP per capita (millions constant LCU) 15.0 45 3 40 3 10.0 35 3 3 30 5.0 3 25 2 20 2 0.0 15 2 10 2 -5.0 5 2 0 2 -10.0 2017 2019 2021 2023 2025 f f f 17 18 19 20 21 22 23 International poverty rate 24 25 26 20 20 20 20 20 20 20 20 20 20 Lower middle-income pov. rate Oil GDP Non-Oil GDP Upper middle-income pov. rate Real GDP Real GDP pc Sources: Official government data and World Bank calculations. Source: World Bank. Note: see Table 2. Outlook Moderate growth is projected to continue, at around 2.9 percent in 2024-26. CEMAC Economic Barometer – November 2024 (Vol. 7) Depleting reserves would start to reduce oil output in 2025, but growth would be sustained by expanding wood industry, oil palm and rubber plantations, and the entry into production of new iron and manganese deposits. Also, major public projects would drive construction and services. The current account surplus would reduce gradually over the years. Lower oil production would affect exports, while imports would decline more gradually in a context of constrained fiscal space. Slightly decreasing oil prices and lower production would reduce oil revenues in coming years. Further spending increases in response to significant spending pressures, coming from capital expenditures, fuel subsidies, other social measures, SECTION 2 — GABON 45 and the 2025 elections would worsen the fiscal situation. A deteriorating fiscal position, with deficits averaging 4.3 percent of GDP in 2024-26, would, without corrective measures to contain spending such as fuel subsidies, aggravate Gabon’s debt situation. Inflation should remain below the 3.0 regional convergence criteria. Yet, the prevalence of non-labor-intensive oil and mining industries, lack of private sector growth, and mismatching labor skills result in high unemployment. Joblessness and underfunded, poorly targeted social protection are expected to sustain elevated poverty levels, projected to reach 39.0 percent by 2025. The absolute number of individuals living in poverty in Gabon is expected to surpass one million by 2026. External risks for Gabon’s outlook include oil price shocks, lower Asian demand, stricter global financial conditions, and worsening geopolitical conflicts that could increase inflation and trade disruptions. Internally, delays in the transition could compromise stability and access to finance, and a stronger focus on the political agenda could stall growth-enabling reforms. CEMAC Economic Barometer – November 2024 (Vol. 7) 46 SECTION 2 — GABON Table 2 / Gabon: Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 1.5 3.1 2.4 3.1 2.4 3.0 Private consumption -1.4 -0.3 2.1 1.4 1.6 3.0 Government consumption 3.2 3.8 1.5 4.8 1.0 -2.1 Gross fixed capital investment 12.7 8.5 6.1 -2.3 4.7 -2.0 Exports, goods and services 12.8 12.9 -2.5 7.5 -2.2 -0.1 Imports, goods and services 17.4 12.5 1.3 1.5 0.0 -4.1 Real GDP growth, at constant factor prices 3.5 3.5 2.5 3.1 2.4 3.0 Agriculture 19.2 9.7 -2.0 1.8 4.0 6.6 Industry 3.2 3.4 3.8 2.8 -1.1 4.2 Services 1.3 2.5 2.5 3.6 4.3 1.7 Inflation (consumper price index) 1.1 4.3 3.7 2.4 2.3 2.2 Current account balance (% of GDP) 27.3 34.4 28.5 30.7 27.2 27.9 Net foreign direct investment inflow (% of 2.2 4.7 5.6 4.9 4.6 4.5 GDP) Fiscal balance (% of GDP) -1.9 -0.8 -1.0 -1.2 -6.0 -5.7 Revenues (% of GDP) 15.3 21.1 23.4 23.9 20.5 19.0 Debt (% of GDP) 68.5 57.0 72.1 71.5 77.3 79.1 Primary balance (% of GDP) 0.9 1.8 1.9 1.9 -2.8 -2.5 International poverty rate ($2.15 in 2017 2.3 2.3 2.8 3.0 3.5 3.3 PPP)a,b Lower middle-income poverty rate ($3.65 in 8.2 8.3 9.9 10.8 11.3 11.1 2017 PPP)a,b CEMAC Economic Barometer – November 2024 (Vol. 7) Upper middle-income poverty rate ($6.85 in 31.7 31.8 35.1 37.0 39.1 39.0 2017 PPP)a,b GHG emissions growth (mtCO2e) -2.8 -1.4 -1.6 0.0 0.0 0.7 Energy related GHG emissions (% of total) 14.2 14.2 13.1 11.8 10.6 9.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty data are expressed in 2017 PPP, versus 2011 PPP in previous editions - resulting in major changes. See pip. worldbank.org (a) Calculations based on 2017-EGEP. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. (b) Projections using microsimulation methodology. 47 Equatorial Guinea Table 1 2023 Population, million 1.7 GDP, current US$ billion 12.1 GDP per capita, current US$ 7,066.6 School enrollment, primary (% gross)a 51.2 Life expectancy at birth, yearsa 61.2 Total GHG Emissions (mtCO2e) 13.2 Source: WDI, Macro Poverty Outlook, and official data. (a) Most recent WDI value (2022). After contracting by 5.7 percent in 2023, economic activity in CEMAC Economic Barometer – November 2024 (Vol. 7) Equatorial Guinea is projected to pick up in 2024 mainly supported by stronger hydrocarbon output. Fiscal and external positions are expected to improve thanks to higher hydrocarbon earnings but will deteriorate in the medium term as hydrocarbon production declines. A more pronounced decline in oil production and prices than expected, a sustained tightening of global financial conditions, global trade disruptions and a decline in demand from main export partners represent downside risks to the outlook. 48 SECTION 2 — EQUATORIAL GUINEA Key conditions and challenges Equatorial Guinea’s oil dependent economy has contracted over the past decade amid a shrinking hydrocarbon sector, declining investment, and a series of external and domestic shocks. Between 2013 and 2023, economic activity contracted by 4.1 percent per year, on average. GNI per capita was estimated at US$5,240 in 2023, a 58 percent decrease compared to its peak level in 2008. Structural reforms are needed to prevent long-term economic decline, by diversifying growth drivers and building fiscal stability through domestic revenue mobilization efforts and more efficient public spending. Reforms have been adopted in recent years to improve governance and the business environment, including the passage of an anti-corruption law, the signature of a decree establishing a treasury single account, the drafting of a procurement law and a revised tax law, and more recently the passage of a presidential decree that introduces economic and financial measures in support of the sustainability of the economy and public finances. Yet, weaknesses persist in the governance of extractive revenues, human capital outcomes, and the business environment, preventing the country from achieving sustained, diversified, and inclusive growth. Despite its upper middle-income status, Equatorial Guinea ranks only 133rd out of 193 countries on the Human Development Index. Living standards remain low with life expectancy at birth estimated at 60.7 years. The II National Household Survey report, scheduled to be released in 2024, will fill knowledge gaps in poverty and inequality, enabling evidence-based policies to boost human development and reduce poverty. Recent Developments CEMAC Economic Barometer – November 2024 (Vol. 7) Following two years of recovery, the Equatoguinean economy contracted in 2023 with a real GDP growth rate of -5.7 percent, driven by lower hydrocarbon output. Production of oil and gas contracted by 21.7 percent and 13.5 percent, respectively, on the back of recent incidents at Zafiro and FPSO Serpentina platforms. However, the hydrocarbon sector has been showing signs of recovery. Preliminary data indicate a pick-up in hydrocarbon production (5.6 percent increase in 2024Q2, year- on-year). The current account deficit widened to 1.6 percent of GDP in 2023 (from 0.9 percent of GDP in 2022) on account of declining hydrocarbon export earnings. Lower oil production led to a 74 percent decline in oil revenues in 2023 and reduced the fiscal surplus to 2.6 percent of GDP in 2023, compared to 11.6 percent in 2022. Meanwhile, the non-oil fiscal deficit widened to 16.4 percent of GDP in 2023, compared to 12.7 percent of GDP in 2022. Preliminary data for 2024H1 indicate a decrease in revenues and spending by 12 percent and 7 percent, year-on-year, SECTION 2 — EQUATORIAL GUINEA 49 respectively. Over the period 2019-23, CFAF 572.2 billion (or 9.5 percent of GDP) out of the CFAF 1,382.5 billion was paid to reduce outstanding debt to construction companies. Nonetheless, as GDP shrank in 2023, public debt increased as a share of GDP from 35 percent in 2022 to 36.6 percent in 2023. The Bank of Central African States (BEAC) has tightened its monetary policy since 2022 to contain inflationary pressures and support the exchange rate arrangement. The BEAC policy rate was maintained at five percent following a cumulative increase by 175 basis points between November 2021 and March 2023. Weekly liquidity injections were discontinued in early 2023 and BEAC has scaled down its liquidity absorption operations since the beginning of 2024. Inflation decreased from 4.9 percent in 2022 to 2.4 percent in 2023, due to containment measures by the BEAC and the agreement to import food products from Serbia and the reduction of some import tariffs on imports. However, it inched up to 2.8 percent in August 2024, driven by higher prices of food and non-alcoholic beverages, and housing, water, electricity, gas and other fuels. High levels of non-performing loans - 32 percent of total loans in end-2023 - remain a source of banking system vulnerability. Figure 1 / Equatorial Guinea: Hydrocarbon production Figure 2 / Equatorial Guinea: Human Development (in thousands of barrels per day of oil equivalent) Index Thousand of barrels Human Development Index 300 0.8 250 CEMAC Economic Barometer – November 2024 (Vol. 7) 0.6 200 150 0.4 100 0.2 50 0 0.0 2022 2023 2024f 2025f 2026f Upper Middle Equatorial Guinea CEMAC Income Countries Sources: National authorities and World Bank. Source: United Nations Development Programme. 50 SECTION 2 — EQUATORIAL GUINEA Outlook The Equatoguinean economy is set to grow by 4.7 percent in 2024, driven by a rebound in the hydrocarbon sector thanks to expected repairs at hydrocarbon platforms following recent incidents. Barring strong structural reforms and substantial new hydrocarbon discoveries, average annual growth is projected at -2.6 percent in 2025-2026, reflecting mostly declining hydrocarbon production. Following a projected improvement in 2024, the current account balance is forecast to deteriorate over the medium-term to an average of –2.7 percent of GDP over 2025-2026 due to declining hydrocarbon export earnings. The fiscal balance is projected to improve to 3.4 percent of GDP in 2024 thanks to an increase in hydrocarbon revenues and fiscal consolidation but will decrease in 2025-26 as hydrocarbon revenues continue to decline. Risks to the outlook are tilted to the downside. A stronger decline in hydrocarbon production or prices would reduce the fiscal space and risks external stability given Equatorial Guinea’s overdependence on oil. Global trade disruptions affecting commodity and food prices amid a protracted war on Ukraine would increase food insecurity especially for the most vulnerable, as the country relies heavily on food import. A further tightening of global financial conditions and lower demand from China and India, Equatorial Guinea’s main export partners, could also undermine growth. On the upside, the government is continuing its efforts to optimize hydrocarbon reserves. The secular decline in hydrocarbon reserves indicates the need for Equatorial Guinea to adopt a new growth model and better leverage the remaining hydrocarbon resources to unlock alternative sources of growth. Ultimately, implementing the country’s economic diversification vision will require efforts to advance the governance and anti-corruption agenda, facilitate trade, boost human capital development, and improve the business environment and public financial management. SECTION 2 — EQUATORIAL GUINEA 51 Table 2 / Equatorial Guinea: Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 0.9 3.7 -5.7 4.7 -4.4 -0.8 Private consumption 2.0 3.1 2.2 2.1 2.0 2.1 Government consumption 4.3 8.5 2.4 -8.6 3.9 3.3 Gross fixed capital investment 6.8 7.2 5.1 -1.5 -1.1 -1.0 Exports, goods and services -5.1 7.6 -5.5 12.6 -7.2 -1.7 Imports, goods and services -3.4 13.9 10.4 4.5 3.0 3.2 Real GDP growth, at constant factor prices 0.9 3.6 -5.9 4.7 -4.4 -0.8 Agriculture 6.5 6.2 2.2 2.3 2.1 1.9 Industry -2.9 2.0 -11.9 6.2 -11.0 -2.5 Services 7.3 5.9 2.7 2.8 4.1 1.1 Inflation (consumper price index) -0.1 4.9 2.4 2.9 3.3 3.0 Current account balance (% of GDP) -2.1 -0.9 -1.6 -0.9 -2.6 -2.7 Net foreign direct investment inflow (% of 5.2 5.0 1.2 1.0 0.8 0.7 GDP) Fiscal balance (% of GDP) 2.6 11.6 2.6 3.4 1.5 0.2 Revenues (% of GDP) 15.4 26.9 22.3 22.0 20.8 19.7 Debt (% of GDP) 43.0 35.0 36.6 35.3 34.3 33.7 Primary balance (% of GDP) 3.7 12.7 3.7 4.5 2.7 1.4 GHG emissions growth (mtCO2e) 7.8 5.5 -7.2 5.7 -7.7 -3.2 Energy related GHG emissions (% of total) 29.6 34.7 32.6 39.1 36.5 36.2 CEMAC Economic Barometer – November 2024 (Vol. 7) Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. INEGE has recently revised GDP growth numbers for 2022 (3.2 percent) and 2023 (-5.1 percent). SECTION 3— Special Topic: Designing Fiscal Instruments for Sustainable Forestry in the Congo Basin countries SECTION 3 — SPECIAL TOPIC 53 The six nations encompassing the Congo Basin 8 — Cameroon, Central African Republic, Equatorial Guinea, Gabon, Democratic Republic of the Congo (DRC), and Republic of the Congo — are custodians of the world’s second-largest tropical forest, crucial for both regional and global climate regulation. The Congo basin forest plays an important economic role in most CEMAC member countries as a source of jobs, incomes, and government revenue. Beyond that, the forest provides an important global public good through the forest’s ecoservices, including its role as the world’s largest net-carbon sink. The special topic section of this CEMAC Economic Barometer (a) examines the economic importance of the Congo Basin forests, (b) discusses CEMAC countries’ efforts to preserve forests as well as the regional and international context, and (c) proposes policy options to address the challenges facing the forestry sector of CEMAC countries, including effectively designing fiscal instruments, improving forest governance, and increasing financial and technical support from the international community. I. Context: The vital contribution of the Congo Basin Forest to the global environment and to CEMAC’s economy CEMAC Economic Barometer – November 2024 (Vol. 7) State and Trends of Forests in the Congo Basin Countries The Congo Basin Forest is the largest net-carbon both regional and global environmental health. sink in the world and is home to the world’s The peatlands of the Congo Basin Forest store largest tropical peatlands, along with Brazil around 29 billion tons of carbon dioxide – while and Indonesia. Spanning across six countries the Basin absorbs nearly 1.5 billion tons of (Cameroon, Central African Republic, Democratic carbon dioxide a year, which is about 4 percent Republic of Congo, Equatorial Guinea, Congo of the planet’s annual carbon emissions.9 The and Gabon), the Congo Basin Forest provides a Congo Basin Forest also plays a crucial role in wide range of ecosystem services and is vital for regulating climate by influencing local weather 8 This Special Topic focuses on designing fiscal instruments for sustainable forestry in CEMAC countries that are part of the Congo Basin (Cameroon, Central African Republic, Congo, Equatorial Guinea, and Gabon). Section 1 discusses the importance of the Congo Basin as a whole. 9 UNEP, https://www.unep.org/resources/report/economics-peatlands-conservation-restoration-and-sustainable-management 54 SECTION 3 — SPECIAL TOPIC patterns and contributing to global climate the forest is indispensable, providing essential stability through carbon storage. The value resources such as food, building materials, and of carbon sequestration services provided by shelter, which are integral parts of their daily the Congo Basin Forest is estimated to be at lives and cultural practices. Furthermore, its least USD 55 billion annually, corresponding rich biodiversity supports ecological balance and to 36 percent of the GDP of the region covered resilience, making it a critical asset for sustaining by the forest in 2021.10 For local communities, both human and environmental well-being. Credits: Gis Photography on pexels CEMAC Economic Barometer – November 2024 (Vol. 7) 10 Mitchell, I., & Pleek, S. (2022). How much should the World pay for the Congo Forest’s carbon removal? CGD. SECTION 3 — SPECIAL TOPIC 55 Trends in Deforestation Intense pressure from local and global demands DR Congo recorded the highest deforestation for food, wood, minerals, water, and energy rate among the Congo Basin countries. drives unsustainable resource extraction in the Common drivers of deforestation in Congo Congo Basin forests.11 The deforestation rate in Basin countries include small- and large-scale the Congo Basin countries increased from 0.34 agriculture, mining, wood fuel, unsustainable percent in 2000-2010 to 0.55 percent between logging activities, unregulated infrastructure 2010 and 2020 annually, higher than the world constructions, and urban expansion. and South America averages (Figure 1). However, Deforestation and forest degradation increase in the CEMAC region12 (excluding the DR Congo climate risks by impairing the ability of forests and Chad), the deforestation rate remained to act as carbon sinks and reducing biodiversity stable at around 0.13 percent annually from and the resilience of local communities to climate 2000 to 2020, with the highest rates observed in change. They also increase the risk of exposure Equatorial Guinea (0.34 percent) and Cameroon to emerging zoonotic diseases (e.g., SARS, MERS, (0.27 percent). During the same period, the COVID-19, Mpox).13 Figure 1. The deforestation rate in the Congo Basin countries increased from 0.34 percent in 2000-2010 to 0.55 percent annually between 2010 and 2020. In the CEMAC region, deforestation has been moderate at 0.13 percent annually. a. Annual forest area changes by region, in percentage 0.6 2000-2010 2010-2020 0.4 0.2 CEMAC Economic Barometer – November 2024 (Vol. 7) 0 -0.2 -0.4 -0.34 -0.6 -0.55 -0.8 Oceania Asia Europe North America World South America Congo Basin Sub Saharan Africa 11 World Wide Fund for Nature (WWF), https://origin-congo.wwf-sites.org/what_we_do/ 12 The Special Topic uses CEMAC region to define countries that are part of both the Congo Basin and the CEMAC. This excludes Chad and DRC. 13 Allen et al. (2017) 56 SECTION 3 — SPECIAL TOPIC b. Deforestation rate in the Congo Basin countries, percentage of forest area 2000-2010 2010-2020 0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 -0.9 Gabon Congo republic Central African Cameroon Equatorial Guinea DR Congo Republic Source: Food and Agriculture Organization (FAO). Land use change and forestry is by far the countries face in balancing environmental largest source of greenhouse gas (GHG) sustainability with the urgent need to combat emissions, highlighting significant challenges food insecurity and provide affordable, reliable in managing agriculture and mining expansion, energy. In 2021, 56 percent of the population in and providing affordable energy access to the the CEMAC region had access to electricity which populations. Land use change and forestry compares to only 14 percent in rural areas.15 activities contribute to GHG emissions by Many communities in these regions rely on wood releasing stored carbon from cleared forests, fuel due to limited access to modern energy CEMAC Economic Barometer – November 2024 (Vol. 7) reducing carbon sequestration, and introducing sources which, along with agriculture, drive new emission sources like methane from deforestation. Land use change and forestry livestock. These processes decrease the region’s is also directly related to forest degradation, ability to capture carbon and increase emissions, which has been steadily increasing over the worsening climate change. It is estimated that past decade. In 2021, approximately 2.2 million about 36 percent of GHG emissions in the CEMAC hectares of forest, equivalent to about 1 percent region come from land use change and forestry14 of the total forest area, were degraded.16 (Figure 2), which is the largest source of GHG emissions in DR Congo and CAR, and the second largest source in the remaining countries. This underscores the significant challenge these 14 GHG from land use change and forestry increases to 70 percent if the DR Congo is included. 15 Source: WDI (data for CEMAC countries, excluding Chad). 16 Vancutsem et al. (2021). SECTION 3 — SPECIAL TOPIC 57 Figure 2. 36 percent of the CEMAC countries’ GHG emissions come from land use change and forestry activities. Other sources Gases and electricity LUCF Transport Agriculture Manufacturing and Industry Source: Climate Watch Note: LUCF stands for land use change and forestry. Forestry’s contribution to the economy The forestry sector plays an important role shares of the forestry sector in the economy in the economies of Congo Basin countries; is notably a result of the emergence of the however, its contribution is below its potential.17 hydrocarbon sector in many CEMAC countries, In 2021, the forestry sector contributed between and to a lesser extent, mining activity in certain 4 percent and 6 percent of the GDP in Congo cases. This development goes in the opposite CEMAC Economic Barometer – November 2024 (Vol. 7) Basin countries despite its significant potential direction of countries’ strategies to diversify the for higher economic impact through improved economy and reduce reliance on extractives. forest governance and value addition in the The challenges faced in policies to promote timber industry. Over the past three decades, local wood transformation and the logistical, the share of the forestry sector in national GDPs infrastructure, labor skills, and trade obstacles has steadily declined. In Equatorial Guinea, it faced by companies have also constrained the decreased from 20 percent in 1991 to 2 percent development of the wood industry. Furthermore, in 2021, while in the Republic of Congo, it the insufficient infrastructure development also dropped from 6 percent to 3 percent during poses challenges to unlocking the region’s huge the same period (Figure 3a). The declining ecotourism potential, which would benefit from 17 Here, the forestry sector refers specifically to the forestry industry, which focuses on the commercial side of forestry, including businesses involved in the harvesting, processing, and selling of wood products. 58 SECTION 3 — SPECIAL TOPIC its biodiversity and forest coverage. Although harvesting non-timber forest products. Data no precise data exists to estimate its size, the suggest that between 100,000 and 200,000 people informal sector in the forest industry is likely are directly involved in the forestry industry vast, largely unregulated, and decentralized. in the region, both in the formal and informal Small-scale operators are involved in activities sectors.18 such as logging, charcoal production, and Credits: Matt Tomalty – CC BY-NC 2.0 CEMAC Economic Barometer – November 2024 (Vol. 7) 18 CIFOR : « Etats des forêts d’Afrique Centrale » : https://www.observatoire-comifac.net/publications/edf/2021 Estimated Employment data does not include informal employment from Equatorial Guinea and Central African Republic. SECTION 3 — SPECIAL TOPIC 59 Figure 3. The forestry sector’s economic contribution in the Congo Basin countries. a. Contribution of the forestry sector to GDP, Congo b. Wood products export quantity, 2022 Basin Countries, percentage 25 21 20 15 11 9 9 10 6 5 5 3 3 2 3 3 2 Ind. roundwood, 43% 0 Sawnwood, 47% Veneer, 9% bl n a n o n p. pu ica ne ng oo bo ic Re Re Afr ui er Co Ga lG o, m l ng DR ra Ca ria Plywood, 1% Co nt to Ce ua Eq 1990 2021 c. Primary processed wood product, export value d. Secondary processed wood product, export value (USD million), 2022 (USD million), 2022 900 835 25 21.9 800 702 20 700 600 15 CEMAC Economic Barometer – November 2024 (Vol. 7) 500 374 10 400 5.9 6.1 6.0 300 4.3 194 5 200 146 141 1.6 118 0.4 100 51 0 pu n ic o ire n a o n Re rica ng bl an ng bo oo 0 vo Gh Co Ga er Co f d'I lA m DR Ca ra te in l pu n DR ea ic o lA e n Eq ana o n Gu ria ng r Re ca ng bo oo Cô nt bl oi to fri Ce Gh Co Ga er Co Ce d'Iv ua m Ca te ra Cô nt Builder woodwork Cane & bamboo Mouldings Other SPWPs Ind. Roundwood Plywood Sawnwood Veneer Wooden furniture Source: WDI, International Tropical Timber Organization (ITTO). Note: SPWPs stands for secondary processed wood products. 60 SECTION 3 — SPECIAL TOPIC Almost half of wood product exports from the in 2022. Lack of infrastructure and skills, an Congo Basin countries are industrial round logs, unfavorable business environment, and trade which creates fewer local jobs and generates obstacles hamper the development of the wood less revenue, limiting the forestry sector’s industry across the CEMAC region. contribution to national economies. Value can be added to wood products through various levels of Forestry contributes modestly to public revenues processing. However, nearly 43 percent of forest in all CEMAC countries, and due to illegal product exports from the Congo Basin countries logging, a large informal sector, and corruption, are industrial roundwood (Figure 3b), not having a significant portion of potential forestry revenue undergone major processing like sawn wood, is not captured in national budgets. On average, plywood, and veneer. Gabon stands out by forestry revenue represented about 1 percent of transforming all of its forest products before total tax revenue and 0.2 percent of GDP in Congo export. This is the result of ambitious policies Basin countries in 2022 (excluding the Republic implemented in the timber industry, including of Congo) (Figure 4). Cameroon and Gabon are a national ban on log exports applied since the the countries where forestry revenue contributes early 2010s and the establishment of the Nkok the most to the national budget, but even in those Special Economic Zone in 2010 to promote local cases, its contribution remains below the sector’s timber processing and boost revenue. Cameroon fiscal potential. Illegal logging leads to significant and Congo are making efforts to transform at losses in tax revenues because the activities are least 40 percent of their products before export. conducted outside formal regulatory frameworks, In contrast, almost all wood exports from DR bypassing legal oversight, taxes, and fees. For Congo, CAR, and Equatorial Guinea consist of example, according to Chatham House, a think industrial round logs (Figure 3c). Although tank, 51 percent of wood product exports from increasing, wood transformation into finished the Republic of Congo were illegal in 2018. products like home and office furniture remains Similarly, it estimated that 45 percent of wood very limited in Congo Basin countries. Gabon exports from DR Congo and 39 percent from is the leading exporter of secondary processed Cameroon in the same year were also illegal forest products, such as moldings and wooden (Figure 5). Lower timber transformation also furniture, which generated approximately USD limits the forestry sector’s contribution to public CEMAC Economic Barometer – November 2024 (Vol. 7) 22 million for the country in 2022 (Figure 3d). revenues. Finally, another factor hampering the However, its relative importance to the overall fiscal potential of the sector is the wide use of tax timber export basket remains limited, due incentives by different governments, which leads to challenges faced to promote higher wood to high levels of foregone revenues. For example, transformation levels. Combined, exports of in Gabon, it is estimated that the wood sector secondary processed products generated benefited from 96 percent of all corporate income approximately USD 36 million for the Congo tax incentives in 2023, equal to CFAF 18.1 billion, Basin Countries in 2022, far behind South Africa, or five percent of all tax expenditures. whose exports generated nearly USD 200 million SECTION 3 — SPECIAL TOPIC 61 Figure 4. Share of forestry revenue in total tax Figure 5. Illegal export of wood-based products,19 revenues and GDP 2018 2.0 1.7 1.5 Cameroon 61 39 1.5 1.0 DR Congo 55 45 0.6 0.5 0.34 0.2 0.2 0.08 0.01 Republic of Congo 49 51 0.0 Cameroon Gabon Equatorial DR Congo Guinea 0 50 100 Share of Forest revenue in Total tax revenue Legal Illegal Share of Forest revenue in GDP Source: National authorities and World Bank staff calculations Source: Chatham House, https://forestgovernance.chathamhouse.org/ Note: Forest revenue data are from 2023, except for Cameroon, countries/cameroon where the data is reported for 2022. Note: Chatham House only reports illegal export data for the above three countries in the Congo Basin. CEMAC Economic Barometer – November 2024 (Vol. 7) 19 To evaluate the extent of illegal exports, Chatham House use a methodology based on forest policy evaluations, trade data analysis, surveys, and reviews of reports and secondary data. The likelihood of illegal practices is categorized into four levels: low, low to medium, medium to substantial, and substantial. These were assessed across five key areas: customary land rights, permit issuance, forest management and harvesting, financial payments in the sector, and transport and trade. Full details on the methodology can be found on their website, https://forestgovernance.chathamhouse.org/countries/cameroon 62 SECTION 3 — SPECIAL TOPIC II. Tapping into green financing opportunities: How can CEMAC countries preserve forests and mobilize international support? Congo Basin countries are taking steps to inclusive and participatory updates involving all fight deforestation and promote sustainable stakeholders. Ongoing efforts are being made forest management through various national to reform forestry codes. The effectiveness of and international frameworks and initiatives, frameworks aimed at combating deforestation but they face limited state capacity and largely depends on aligning objectives and financing. Key measures include the ratification decisions across sectors like agriculture, mining, of the Paris Agreement on climate change and infrastructure. However, such coordination and the elaboration of Nationally Determined often lacks in Congo Basin countries. Contributions (NDCs), with plans designed to reduce greenhouse gas emissions, particularly The Congo Basin countries face difficult trade- from agriculture, energy, forestry, and land use. offs between preserving forest ecosystems Additionally, countries have engaged in various and using forests for other economic activities, regional agreements to combat deforestation, and the lack of sufficient and consistent including partnerships with the European Union. international funding makes this task even Gabon was a pioneer in this regard, being the more challenging. The Congo Basin region faces first African nation to receive performance-based significant challenges in securing climate funding payments through REDD+, securing USD 17 for forest preservation. Official Development million of an anticipated USD 150 million through Assistance (ODA) remains one of the main CAFI, the UN-led Central Africa Forest Initiative. forest preservation funding sources. Although The Central African Republic, the Republic of the Congo Basin is home to the second-largest Congo, Cameroon, and Equatorial Guinea have forested region in the world, funding for forest developed and adopted National Strategies for and environmental protection is lower than Reducing Emissions from Deforestation and that received by other regions with significant Forest Degradation (REDD+). These plans outline forest coverage. Between 2018 and 2022, the national approaches and commitments to result- Congo Basin received only 120 million USD in CEMAC Economic Barometer – November 2024 (Vol. 7) based payments for reducing deforestation and aid from the Development Assistance Committee forest degradation. However, given the early (DAC) and other official donors, compared stage of the international carbon credit market, to 414 million USD for Southeast Asia and REDD+ initiatives have yet to deliver significant about 950 million USD for the Amazon (Figure financial returns. CEMAC countries have also 6).21 This amount, along with private sector committed to ban log exports by 2028.20 In contributions, is far from sufficient compared to general, forestry laws exist in the region, though the region’s vast financial needs and the global some are outdated and would benefit from value of the climate services these forests 20 Gabon has moved ahead of other countries by prohibiting log exports in 2010. The Rep. of Congo adopted this measure in 2023, but its effectiveness remains to be verified. Other CEMAC countries have committed to ban log exports by 2028. 21 See OECD: https://www.oecd-ilibrary.org/development/data/systeme-de-notification-des-pays-creanciers_dev-cred-data-fr SECTION 3 — SPECIAL TOPIC 63 provide. The implementation of the REDD+ while Gabon secured USD150 million from CAFI, program—intended to compensate countries this development, while laudable, underscores for preventing forest loss or increasing forest the broader issue: funding through REDD+ is cover—has proven difficult. Despite significant a slow trickle rather than the needed torrent. efforts,22 participating countries have seen The lack of adequate funding to compensate minimal financial returns, significantly below conservation efforts at both international and the support needed to adequately compensate national levels hampers REDD+’s ability to them for their conservation efforts. Additionally, compete with revenue that can be generated the preservation of forests that are not in from forestry and other land uses. Fiscal immediate danger, as is the case for much of policy can come as a partial solution to cover the Congo Basin, remains unrewarded by the the existing gap in green financing. Reforming REDD+ process.23 While some believe REDD+ national fiscal policies to raise more tax revenues and voluntary carbon markets could become and increase the value added from sustainable financial lifelines for the Congo Basin forests, an forestry activities could help generate and assessment based on the current reality would channel funds more effectively toward both lead to a less optimistic picture. For example, economic growth and forest protection. Figure 6. Funding targeting forestry and global environmental protection received by three regions with high forest density between 2018 and 2022 800 1200 700 1000 600 Million of hectare 800 500 USD, Million 400 600 300 400 200 CEMAC Economic Barometer – November 2024 (Vol. 7) 200 100 0 0 Amazon Basin South East Asia Congo Basin Forest area (lhs) Forest Funds (rhs) Source: OECD, official donors (DAC countries, Non-DAC countries, Multilateral Organizations). Amazon basin includes 8 countries: Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname, and Venezuela. Southeast Asia includes 7 countries: Cambodia, Indonesia, Malaysia, Philippines, Thailand, Timor-Leste, Viet Nam. 22 To be eligible for result-based payment, countries need to develop national strategies or action plans, policies and measures, and capacity-building for reducing forest-based emissions. 23 Forest Declaration Assessment. 2022. Regional Assessment 2022. 64 SECTION 3 — SPECIAL TOPIC To combat deforestation and illegal logging, and NGOs in facilitating compliance could also impact the European Union has entered into various the effectiveness of the EU deforestation regulation partnership agreements with Congo Basin to promote incentivize forestry in the region. Taken countries. Enforceable from 2025, Regulation together, regional and international cooperations 2023/1115, the new EU Regulation on Deforestation- on forest-related regulations and governance Free Products, aims to ensure that a range of arrangements operating in the CEMAC countries products sold within the EU do not originate from demonstrate the need to have a multi-faceted deforested land anywhere in the world. This will approach to combating deforestation and promoting include commodities such as wood products, meat sustainable forest management; however, they require products, cocoa, coffee, palm oil, soy, rubber, increased state capacity, strong management, greater charcoal, and printed paper products. The imposition coordination, technical assistance, and improving local of the EU deforestation regulation on Congo Basin processing capabilities to add value to CEMAC’s wood countries could incentivize greater momentum product exports in a sustainable way. towards enforcement of certification regimes coupled with environmental fiscal policy reforms promoting sustainable forest management. By requiring stringent due diligence and traceability of products, the EU regulation sets a higher standard for environmental monitoring, reporting, and verification systems in the forestry sector. This could encourage producing countries to adopt more sustainable practices. However, the real-world effect of the EU deforestation regulation may be minimal in some countries and will depend on various factors, including the (limited) exposure of CEMAC forest-related commodity exporters to the EU market. CEMAC’s wood product exports to the European Union have decreased over the past two decades, shifting in favor of the Asian market. Between 2000 and 2022, exports to the EU dropped from 63 percent to 31 percent, CEMAC Economic Barometer – November 2024 (Vol. 7) while exports to Asia doubled, rising from 31 percent to 60 percent (Figure 7). China has become the largest market for these products, accounting for 35 percent of export value, up from 18 percent two decades ago. In 2019, China revised its Forest Law to include a ban on the “purchase, processing, or transportation of timber known to originate from illegal sources.” However, information regarding the concrete enforcement of this new law is limited. If effectively implemented, this measure could pave the way for greater transparency and legality in the timber trade, impacting not only Chinese imports but also the export of processed timber from China to the global market. The political will of the governments in the region, the capacity of local industries to comply with the EU standards, and the support from international bodies SECTION 3 — SPECIAL TOPIC 65 Figure 7. CEMAC Wood export destination by region, 2000-2022 70 60 Export value in percentage 50 40 30 20 10 0 Africa Asia Europe North America 2000 2022 Source: The Observatory of Economic Complexity (OEC). Credits: Daniel Ndzaba on pexels CEMAC Economic Barometer – November 2024 (Vol. 7) 66 SECTION 3 — SPECIAL TOPIC III. Fiscal policies for sustainable forestry: a solution to achieve economic, fiscal, and environmental goals in CEMAC? Well-designed fiscal instruments can be used revenues, for example, by removing contradictory as additional tools to preserve forests, by incentives that encourage land use change or creating financial incentives or disincentives deforestation.25 that encourage sustainable land use and forest management. Deforestation and forest In the CEMAC region, forestry taxation relies degradation stem from multiple market failures mainly on three main tools: royalty or surface and addressing them requires a combination of area tax, felling tax, and exit duty taxes. The policy interventions, including fiscal measures.24 rates, amounts, and collection methods for these So far, most efforts have focused on sectoral taxes are typically set or updated annually in regulations, private certification, and public each country’s Finance Law. Cameroon has the investments—important steps but insufficient highest taxation rates, and its forestry revenue is without aligning price incentives where tax significantly higher than that of Congo and Gabon, and subsidy policies play a critical role. Fiscal despite similar proportions of forest cover. In instruments, although underutilized, are Cameroon, the surface area tax is determined essential in climate-related land use policies. through a tender process, with a minimum For example, imposing higher taxes on activities price set at FCFA 1,000 per hectare to prevent that contribute to deforestation, such as excessively low bids (Table 1). The felling tax unsustainable logging or uncontrolled land increased from 2.5 percent in 2018 to 4 percent conversion for agriculture, can help discourage in 2019. Exit duties for logs have progressively environmentally harmful practices. Tax breaks risen, reaching 20 percent in 2017, 35 percent or subsidies can be offered to companies in 2020, and 60-75 percent of the Free On Board and individuals who engage in reforestation, (FOB) value in 2024. The gradual increase in sustainable forestry, or conservation efforts. the log export tax is seen as a precursor to Moreover, environmental fiscal policies Cameroon’s planned log export ban, which can contribute toward domestic resource was initially set to take effect on January 2023 CEMAC Economic Barometer – November 2024 (Vol. 7) mobilization and increase fiscal space. For but has since been postponed to 2028. Gabon example, environmental taxes, like carbon taxes introduced a differentiated forestry tax system on land use emissions, can help internalize based on certification and has been progressively the environmental costs of deforestation and increasing tax rates for the land area fee levied generate revenue that can be reinvested into on non-certified forest concessions. As per forest preservation initiatives. Reforms to the 2024 budget law, FSC26 or PAFC-certified27 existing fiscal policies can also free up domestic concessions are charged 300 FCFA/ha/year, 24 World Bank. (2021a). Designing Fiscal Instruments for Sustainable Forest Management. Washington: IBRD. 25 Op cit. 26 FSC (Forest Stewardship Council) is an international non-profit organization that promotes responsible forest management by setting standards for sustainable forestry practices. Its certification ensures that wood products come from forests that are managed in an environmentally and socially responsible way. 27 The PAFC (Pan-African Forest Certification) is a certification system designed to promote sustainable forest management in Africa. The certification system is similar to other international certifications like the FSC, but tailored specifically to the African context and regional needs. SECTION 3 — SPECIAL TOPIC 67 while concessions with legality certification face practices or obtain legal or private certifications. a moderately higher rate of FCFA 600 FCFA, and Finally, another source of revenue comes from non-certified concessions are charged FCFA export duties on processed wood products. 1,000. In Congo and Equatorial Guinea, the area Across countries, export taxes on finished wood tax rate is adjusted to reduce fiscal pressure in products are usually low, and these export taxes remote areas or regions with fewer commercial tend to vary depending on the processing level of wood species. However, unlike Gabon, no the wood product exported, in order to incentivize adjustments are made to incentivize concessions higher local added value. that adopt more sustainable management Table 1 / Forestry tax rates in CEMAC region Cameroon Gabon Congo Central African Republic Surface Area Tax Based on tenders; FCFA FCFA 200-500 per No data Floor price of 300/600/1000 hectare FCFA 1,000 per per hectare hectare Felling Tax 4% Felling tax is not 5% 7% applied Exit Duties and/or 60-75% Log exports 9-10% 11% Taxes on logs banned; 3-8.5% exit duty on processed wood Source: National authorities (data collected through surveys for the World Bank’s 2024 Economic Updates for CEMAC countries).28 CEMAC Economic Barometer – November 2024 (Vol. 7) 28 Data for Equatorial Guinea are scarce. Currently, surface area tax varies between FCFA 1500 and 2500 per hectare depending on the proximity between the forest zone and the port of Bata. 68 SECTION 3 — SPECIAL TOPIC While Cameroon, Congo, and Gabon have Forestry taxation often varies depending on the roughly similar forest areas of about 20-24 objectives of governments, including promoting million hectares, their forestry taxation systems sustainable forest management, encouraging generate different levels of revenue. In 2022, conservation, or maximizing revenue collection. Cameroon had the highest tax revenue collection, In some cases, lower taxes are set to incentivize generating FCFA 53 billion from forestry taxes. companies to invest in forestry operations while Gabon comes second with FCFA 41.9 billion maintaining sustainable practices. On the other of revenue generated in 2023 (Figure 8).29 hand, higher taxes may be applied to generate Meanwhile, in Congo, forestry taxes generated more government revenue or to discourage over- FCFA 19 billion in 2021. Equatorial Guinea and DR exploitation of forest resources. The variation Congo generate significantly less revenue, with in taxation also reflects the need to balance FCFA 2.6 billion and CDF 1.25 billion (FCFA 0.25 environmental protection with economic benefits, billion) in 2023, respectively. In terms of revenue as well as the differences in local forest policies, per hectare of forest, Cameroon leads with USD economic conditions, and market demands. While 4.18 per hectare, followed by Gabon (USD 3), initial tax rates may be low, the key factor is the Equatorial Guinea (USD 1.75), Congo (USD 1.57), increased processing and value addition to forest and DR Congo (USD 0.04).30 The findings should products, which create more economic value and be interpreted with caution as the reported job opportunities, particularly in manufacturing numbers usually do not include parafiscal and related industries. This growth stimulates revenues and revenue collected at decentralized other sectors, driving greater economic output levels (provinces and municipalities). Including and boosting government revenue, despite these may change the aggregate forest initially low tax rates. revenue amount and country ranking.31 Yet, this comparison is still useful to indicate potential fiscal revenues that could be generated from fiscal reforms for forestry, especially in certain countries where revenue potential is mostly underutilized. Adopting fiscal policies to tap into the potential of the forestry sector could help CEMAC Economic Barometer – November 2024 (Vol. 7) alleviate the dire fiscal constraints faced by many CEMAC countries. 29 The latest available forestry revenue data, sometimes reported for different years (as with Cameroon and Congo), is used for comparison. Though such comparisons may not fully capture real-time revenue differences, they offer valuable insights into general trends. 30 Forestry revenue in DR Congo is surprisingly very low compared to the country’s extensive forest land (the country holds 60 percent of the Congo basin forest). 31 Another limitation of the forest revenue per hectare indicator is that it does not account for the types of wood harvested and their impact on revenue. Some areas may contain wood species in higher demand and, therefore, generate more income than others. Despite this, the metric offers an average measure that remains useful for broad comparisons across countries. SECTION 3 — SPECIAL TOPIC 69 Figure 8. Forestry revenue per hectare (ha) 140 126 120 100 80 60 40 24 22 20 20 2.94 1.57 4.19 2 1.75 0.04 0 DR Congo Gabon Congo Cameroon EQG Forest, million of ha Revenue per ha in USD Source: Authorities and World Bank staff calculations Note: Revenue data from the Congo is from 2021, data for Cameroon is from 2022, while for the remaining countries, the data are from 2023. IV. Combining well-designed fiscal policies with better forest governance can preserve the forestland while increasing the forestry sector’s contribution to the economies of CEMAC Fiscal policy reforms such as adjusting forestry and conservation goals. The integration of taxes based on the ecological footprint of sustainability certification into forest-related tax wood production, providing subsidies for rates represents a forward-thinking approach to sustainable practices, offering tax rebates for environmental fiscal policy. Forest certification CEMAC Economic Barometer – November 2024 (Vol. 7) forestry certification and agroforestry, and promotes sustainable forest management reinvesting natural resource revenues can and facilitates access to international markets play a vital role in protecting Congo Basin and financing, ensures social benefits for forestland. However, forestry taxation must be local communities and legal compliance, and carefully balanced with economic, social, and supports ethical branding through transparency environmental considerations. Taxes and fiscal and traceability. Congo Basin countries can instruments should be equitable, transparent, consider adopting a “bonus-malus” system, like and effectively used to promote sustainable in Gabon’s land area fees, where non-certified forest management and conservation, while concessions are taxed more than certified ones. promoting local added value and job creation. In applying this approach, social and economic Striking a balance between discouraging harmful considerations are important, such as on the practices and supporting sustainable livelihoods need to provide financial support for small forest is key to achieving long-term development operators’ efforts to certify their concessions. 70 SECTION 3 — SPECIAL TOPIC Canada’s forestry sector: An example of sustainable forest management and greater contribution to economic growth — Canada is one of the top manufacturers of forest products in the world. With approximately 347 million hectares of forested land, Canada has the third largest forest in the world, covering about 9 percent of the global forest area. The forestry sector is an important contributor to Canada’s economy, playing a vital role in both national prosperity and local livelihoods. The forestry industry added USD 27 billion to Canada’s GDP in 2022. On average, between 2012 and 2022, forest sector GDP accounted for 1.2 percent of Canada’s total nominal GDP. The sector generates more than 200,000 direct jobs, particularly in rural and Indigenous communities, where it is often a primary economic driver.32 Royalties and stumpage fees are primarily collected at the provincial level in provinces such as Ontario, British Columbia, Alberta, Quebec, and New Brunswick. Provinces like British Columbia and Quebec impose additional taxes on profits from logging activities.33 In 2020, the forest sector generated about USD 1.7 billion in revenue for provincial and territorial governments.34 The forestry industry in Canada as well as in Brazil and Australia produces advanced wood products, including wood pulp, wood panels, lumber, paper products (e, g. newsprint, and writing paper), office furniture, and biofuel. These commodities have been crucial for both domestic use and export, fostering economic growth and employment across various regions within the three countries. In 2022, the export value of forest products was estimated at USD 37 CEMAC Economic Barometer – November 2024 (Vol. 7) billion in Canada, USD 16 billion in Brazil, and USD 2 billion in Australia.35 Paper manufacturing accounted for 46 percent of wood products export value in Canada, 74 percent in Brazil, and 67 percent in Australia, compared to only 1 percent in CEMAC countries. This highlights the significant value-addition gap in the forestry industry between the CEMAC region and other highly forested countries. 32 The state of Canada’s forests, Annual report 2023: https://natural-resources.canada.ca/sites/nrcan/files/forest/sof2023/NRCAN_SofForest_Annual_2023_EN_ accessible-vf(1).pdf 33 Under the Canadian Constitution, provinces have jurisdiction over natural resources and the authority to levy royalties and fees on them. 34 The state of Canada’s forests, Annual report 2023 35 OEC https://oec.world/en/profile/country/can SECTION 3 — SPECIAL TOPIC 71 Figure 9. Share of primary-secondary processed wood products and paper manufacturing in total wood products export in Canada and other forested countries and regions. 100% 1% 46% 74% 67% 80% 60% 99% 40% 54% 20% 33% 26% 0% Canada Brazil Australia CEMAC Primary and secondary processed wood products Paper products Source: OEC Note: Primary and secondary processed wood products include roundwood, sawnwood, fuel wood, plywood, veneer, office furniture, etc. Paper products include newsprints, toilet paper, brochures, kraft papers, etc. As global demands shift and environmental concerns rise, Canada’s forestry sector is evolving to include a range of innovative products that go beyond traditional timber and paper markets. From bioenergy and biodegradable plastics to wood- based textiles and advanced construction materials, the sector is expanding its scope to meet the demands of an increasingly environmentally conscious world. These innovations not only help diversify the market but also reinforce Canada’s leadership in sustainable forest management and its ability to compete in emerging global markets, ensuring that forestry remains a dynamic and essential part of the economy. CEMAC Economic Barometer – November 2024 (Vol. 7) Canada’s forestry sector is also recognized for its commitment to sustainable practices with strict environmental regulations. In 2022, more than 40 percent of the Forest area was under an independently verified forest management certification scheme (e.g., Forest Stewardship Council), and 60 percent of the forest area had a long-term management plan.36 Forest harvesting on public lands is managed through agreements (tenures or licenses) with forest companies. These agreements, typically lasting 20–25 years, require companies to follow sustainable forest management principles. Forest management plans must be approved by the relevant province or territory before any harvesting begins. 36 FAO statistics https://www.fao.org/faostat/en/#data/SDGB 72 SECTION 3 — SPECIAL TOPIC International support would help Congo Basin Combining fiscal instruments with better forest countries face revenue losses from granting tax governance through improved enforcement, discounts on sustainable forestry practices. In monitoring, and transparency will help Congo the Congo Basin countries, offering tax discounts basin countries to safeguard their forests while to encourage sustainable forestry practices enhancing the forestry sector’s role in the would likely result in short-term revenue economy. Fiscal strategies are not standalone losses for governments, as they would forgo solutions, but they are components of a a portion of their tax income from traditional comprehensive policy mix that addresses the forestry activities. These discounts are intended multifaceted challenges of forest conservation. to incentivize practices that protect the forest From regulatory measures to economic and promote long-term environmental benefits, instruments and informational campaigns, the but the immediate reduction in tax revenue success of forest conservation and sustainable could impact the ability of governments to fund development strategies and efforts hinges on essential services and conservation efforts. the ability to implement a coherent, integrated To offset these initial losses and facilitate the strategy that leverages the strengths of each transition to sustainable forestry, international approach. The role of governance, in this context, assistance may be required. This support could cannot be overstated. A robust governance include financial aid, technical expertise, and framework is essential not only for the effective capacity-building programs from international implementation of tax policies but also for organizations and donor countries, helping to fostering the collaboration and transparency bridge the gap and ensure that sustainable necessary for sustainable forest management. practices are adopted without compromising Experience highlights the importance of aligning economic stability. In addition to international fiscal instruments with sustainable forestry support, part of the solution to sustain public management goals. It also points to the need for finances in CEMAC countries could come from inclusive policy-making processes that involve the abovementioned bonus-malus system where all stakeholders, including local communities taxes are increased on less sustainable wood and forest-dependent populations, to ensure that exploitation practices. forestry reforms support both environmental sustainability and economic development. CEMAC Economic Barometer – November 2024 (Vol. 7) V. Regional cooperation and international support are crucial, as they enhance resource management, funding, and enforcement of conservation efforts across borders Strengthening regional cooperation through capacities, and attract more international harmonized regulations, better law enforcement, funding. Better coordination of forest and improved forestry fiscal policy alignment preservation policies in Congo Basin countries will better equip Congo Basin countries to face will help ensure consistent enforcement across cross-border challenges, enhance institutional borders, reduce illegal activities, and improve SECTION 3 — SPECIAL TOPIC 73 sustainable management practices. Although critical environmental contributions. Acting as Congo basin countries have legal frameworks a significant carbon sink and providing vital that aim at regulating forest management and ecosystem services that benefit the entire protection, the lack of regional guidelines, and world, the Congo Basin forests are underfunded. enforcement often hinders the implementation The Congo Basin countries face a substantial of these laws. Strengthening the Central African financing gap for their climate commitments, Forestry Commission (COMIFAC), particularly receiving only a small fraction of the required through its Central African Forest Observatory funds. This stark disparity highlights the urgent (OFAC), is essential for harmonizing national need for increased and equitable investment in institutional frameworks and data collection. the conservation and sustainable management Harmonizing fiscal policies, particularly to of these forests. Adequate financial backing encourage forest management plans and is crucial to sustain conservation efforts, certifications, and aligning agricultural and combat deforestation, and promote sustainable mining policies with forest protection efforts can development in the region. Fair compensation for significantly contribute to forest preservation. these ecosystem services would not only help While aligning countries to commit to a ban on preserve these vital forests but also bolster the the export of logs to promote the domestic timber economic stability and growth of Congo Basin sector is a significant step, it is not sufficient. countries, paving the way for a more equitable Complementary policies include enhancing the and sustainable future for all. To this end, coverage, quality, and monitoring, verification, countries also need to enhance their readiness and enforcement of sustainability certifications to effectively mobilize available climate finance for forest-linked commodities. options. The World Bank, through a regional ASA initiative,37 is supporting these nations in The international community needs to step building the necessary capacity for results-based up its support and provide fair and adequate climate financing. This approach considers the compensation for the global public good comprehensive value of forest ecosystems provided through Congo Basin forests’ carbon and environmental services, including carbon sequestration ecosystem services. Despite sequestration, biodiversity conservation, soil their pivotal role in global climate regulation conservation, and water retention. CEMAC Economic Barometer – November 2024 (Vol. 7) and biodiversity preservation, these forests receive inadequate financial recognition for their 37 The World Bank, through its Congo Basin Forests Advisory Services and Analytics (ASA), is assisting CEMAC countries and the DRC in developing natural capital accounts to capture the comprehensive value of forest assets and ecosystem services, thereby enhancing national planning and decision-making for sustainable forest management. Additionally, the initiative supports these countries in building the necessary capacities and readiness to leverage both existing and innovative options for results-based climate finance. 74 SECTION 3 — SPECIAL TOPIC Going forward, addressing the multifaceted challenges facing the CEMAC’s forestry sector, a coherent set of solutions is proposed, focusing on both fiscal reforms and measures to promote long-term sustainability of forest management and conservation as well as socioeconomic goals. These include the following policy options: Best practices Policies Details Use Forestry Encouraging forest certification and forest management plans by certification to improve adopting, like in the case of Gabon’s land area fee, a “bonus-malus” forest management system where non-certified concessions and timber products are and discourage taxed more than certified ones. deforestation Reform of agricultural Rationalizing tax expenditures for agriculture to improve their subsidies and tax targeting and better align them with environmental goals. A better incentives targeting of fiscal incentives for agricultural inputs could serve both fiscal and environmental goals, reducing foregone public revenues and better incentivizing more sustainable agricultural practices. Also, public authorities could consider implementing a monitoring system to ensure that tax expenditures are used effectively and aligned with environmental goals. Digitalization to improve Promoting user-friendly digital services for the forestry sector, Monitoring, reporting, including processes for permit applications, tax and fee payments, and verification and real-time tracking of forestry activities and wood traceability, systems. ensuring these platforms are available in remote areas to increase efficiency and transparency. As part of capacity building, the government could provide training for forestry officials and concessionaires on the use of CEMAC Economic Barometer – November 2024 (Vol. 7) digital tools to improve efficiency and transparency. Auctioning of forest Issued through a bidding procedure, license fees work as a tax on concessions logging rents. Forestry operators could be willing to bid up to the value of their expected net profits derived from the concession. Such auctioning can increase tax collection by using competition among companies for access to resources; and Foster transparency in permit allocation through the comparison of proposals and, ideally, the publicity and transparency of the allocation procedure. SECTION 3 — SPECIAL TOPIC 75 Promising policy options Policies Details Varying the tax rate on Adjusting forestry tax rates to reflect the ecological footprint deforestation-related of timber production methods. By leveraging the detailed commodities according assessments conducted by forest certification agencies, fiscal to production methods authorities can align tax rates more closely with the environmental impact of production methods. Promoting agroforestry Investments in agroforestry projects that integrate tree and sustainable land cultivation with non-wood forestry products and agricultural management practices crops, coupled with training and technical support for farmers, can facilitate the transition to more sustainable agricultural practices, such as crop rotation, organic farming, and soil conservation techniques, thereby reducing deforestation and forest degradation. Encourage REDD+ Engaging with local communities in expanding and initiatives strengthening the implementation of REDD+ projects across CEMAC’s forestland to ensure they benefit directly from carbon sequestration efforts. This could include financial incentives or alternative livelihood programs. Secure performance-based funding from international donors by demonstrating measurable progress in carbon sequestration and community benefits. CEMAC Economic Barometer – November 2024 (Vol. 7) 76 SECTION 3 — SPECIAL TOPIC Improve legal framework and Timber sector value addition Policies Details Update forest codes and Implementing comprehensive legal reforms such as forest codes legal forest governance to strengthen forest governance and law enforcement. Updated forest laws should include clear definitions and regulations to ensure sustainable forest management, strong enforcement mechanisms to protect against illegal activities, and provisions for the involvement of local communities in decision-making processes. Securing land tenure Community-based Forest management and forest revenue for forest communities benefit sharing foster a sense of ownership and responsibility and enforcing the among community members, encouraging them to protect the benefit-sharing of forest forests from overexploitation and illegal activities. revenue For full effectiveness, community forestry programs need clear tenure rights, capacity building, and support from higher levels of governance. Fostering regional Regional policy alignment initiatives are essential to avoid cooperation and beggar-thy-neighbor policies, which can undermine collective international progress by shifting unsustainable logging practices to less partnerships regulated countries. CEMAC countries should more actively seek international cooperation to attract climate finance, technical assistance, and capacity-building support. By engaging with global environmental initiatives, international donors, and climate funds, CEMAC countries can secure more resources for forest conservation, community adaptation strategies, and sustainable livelihood programs. CEMAC Economic Barometer – November 2024 (Vol. 7) Increase value addition Increasing efforts to develop a robust local wood processing in the wood industry industry, to create more jobs, and generate more revenue compared to exporting raw timber. Investing in vocational training programs to build a skilled workforce capable of supporting a thriving wood processing sector. 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THE TEAM Robert Johann Utz Djeneba Doumbia Erick Tjong Samba Ba (Lead Economist, Team Leader) (Economist, Team Leader) (Economist, Team Leader) (Senior Economist) Rick Emery Tsouck Demet Kaya Sonia Barbara Ondo Ndong Pierre Mandon Ibounde (Senior Economist) (Senior Economist) (Economist) (Senior Economist) Francis Ghislain Blaise Ehowe Nguem Kabinet Kaba Mahamat Abdramane Moustapha Ngomba Bodi (Economist) (Economist) (Economist) (Economist) Chris Belmert Milindi Katindi Sandeep Mahajan Hans Anand Beck (Extended Term Consultant) (Practice Manager) (Practice Manager) Irene Sitienei Ifeoma Clementina Ikenye (Program Assistant) (Program Assistant) Credits: Bobulix – CC BY-NC-ND 2.0 Macroeconomics, Trade & Investment