Political Crisis Breeds Economic Disaster


BMI View: Violence and instability in the Central African Republic have decimated the country's already weak economy, and we expect that it will take years for production to match the levels seen in 2012. We predict that the republic's GDP will contract by 1.6% in 2014, having collapsed by an estimated 17.7% in 2013.

Newly-released government figures indicate that real GDP growth in the Central African Republic (CAR) came in at 4.0% in 2012, just above our estimate of 3.9%. This historical upgrade, however, is likely to be the country's last piece of positive economic news for quite some time; BMI believes that the anarchic situation in the CAR has caused an economic implosion of startling proportions.

An Economy Derailed
CAR - Real GDP Growth

We have downgraded our 2013 growth estimate from a contraction of 13.9% to a fall of 17.7% and predict that GDP will shrink by a further 1.6% in 2014. Investment and government spending have ground to a halt due to the collapse of state institutions. International trade has ceased almost entirely, with goods piling up at the Cameroonian border as truck drivers refuse to enter the CAR. Domestic trade is also breaking down as violence closes key transport routes and the country's Muslim minority - who traditionally dominated many commercial occupations - flees towards Chad.

The economic collapse would be even more pronounced were it not for the relative insulation of the agricultural sector, which is primarily made up of subsistence production. We stress, however, that UN reports indicate that the breakdown of transportation is preventing many farmers from buying seeds for the upcoming planting season. A failed harvest would destroy the remaining economy and cause a famine in a country where 1.6mn people are already in a state of food insecurity (see ' New President, Same Political Crisis ', January 21).

Worst Of The Worst
Global - Worst Performing Economies (Real GDP Growth, %)

A Gradual Recovery

Our current forecast assumes that French and African forces succeed in restoring some semblance of order to the capital and securing key transport corridors by mid 2014. We believe that violence will continue, but that a further escalation will be prevented and that food production will continue.

We predict that GDP will contract by just 1.6% in 2014 - a decline mitigated by base effects - but that growth will be restored in 2015. Economic expansion will be relatively rapid in 2016 as investment and public spending pick up, but the general growth trend will be lower than the already subdued pre-crisis trend. The CAR will be one of the slowest-growing economies in Africa over the duration of our forecast period.

Even in this scenario, however, BMI notes that the CAR will be one of the worst-performing economies in the world. We estimate that the country's 2013 economic contraction was sharper than that seen in war-torn Syria.

Lasting Fragilities

It is crucial to note that the CAR's economy is growing from a very low base; the country is one of the poorest and least-developed in the world. Real GDP growth at the levels we are projecting will be insufficient to provide for economic development or allow the government to address the underlying causes of the country's economic and social fragility. Poverty will remain widespread and a weak economy will not provide the state revenues necessary to build a more resilient state.

Falling Further Behind
CAR - Nominal GDP, Population Rebased to 1990

What few gains are made will be erased by rapid population growth. Political instability in the 1990s caused economic output to fall, only regaining its 1990 level in 2006. By this time, however, the CAR's population had expanded by 38.4%. Economic gains continued to fall behind population growth, and in 2012 BMI predicted that the CAR would regain its 1990 GDP per capita in 2015. The current crisis has caused us to re-evaluate that view, and we now believe that the country will only regain its previous output per person in 2022.

We believe that the CAR will remain an impoverished and fragile state over the duration of our forecast period. The country will be highly dependent on French economic and military aid, and we believe that attempts to meaningfully reform the state in order to address its structural weaknesses are likely to fail.

CENTRAL AFRICAN REPUBLIC - ECONOMIC ACTIVITY
2009 2010 2011 2012e 2013e 2014f 2015f 2016f 2017f 2018f
Nominal GDP, XAFbn 1 935.7 983.6 1,044.1 1,115.1 993.8 1,057.8 1,119.6 1,196.5 1,271.9 1,333.6
Nominal GDP, US$bn 1 1.8 2.0 2.1 2.2 2.0 2.0 2.1 2.2 2.3 2.4
Real GDP growth, % y-o-y 1 1.7 3.0 3.3 4.0 -17.7 -1.6 3.3 5.1 3.8 2.4
GDP per capita, US$ 1 425 462 464 494 440 435 437 447 466 479
Population, mn 2 4.3 4.3 4.4 e 4.5 4.6 4.7 4.8 4.9 5.0 5.1
Notes: e BMI estimates. f BMI forecasts. Sources: 1 BMI/UN Statistics; 2 World Bank/UN/BMI.
This article is tagged to:
Sector: Country Risk
Geography: Central African Rep.

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