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Republic of Congo to overcome oil dependance through ambitious diversification plan

Interview - June 24, 2015

Despite its challenges, the country’s banking sector is ready to support a more diverse Congolese economy and facilitate private sector involvement, according to the Minister of Economy and Finance Gilbert Ondongo.


What do you think about the current situation in the country?

The Congolese economy is generally doing well. What is remarkable and encouraging in the current economic development is the dynamism of all the non-oil related activities. Since 2010, they have had an average annual growth of 8.5%. It is a great sign of the forward progress of the diversification process promoted by the government. Better still, this diversification goes hand in hand with the creation of jobs.

What are the principles of management, good governance and transparency of public finances that your ministry has implemented?

The principles of good governance and transparency in the management of public finances, in general, are known to all. In Congo, emphasis is placed on results-based management, results that are related to people’s expectations.

Each public franc to be spent must go towards the completion of a program or an action for the general good or public service.

At the Ministry of Finance, we have the General Directorate of Budget Control and the General Directorate of Public Procurement Control, which ensure this daily.

Besides the ministry, there are the two Houses of Parliament and the Court of Audit and Budgetary Discipline that control the management of public finances, quarter after quarter for parliament, and year after year for the Court of Auditors.

At the international level, Congo joined the Extractive Industries Transparency Initiative (EITI). It is one of the few oil producing countries in Africa to have done that.

Each year, an all-round control of the country’s oil revenue management is carried out by this institution, which is deemed very rigorous and demanding.

Since February 2013, on the basis of the data produced in 2011 and 2012, Congo was declared compliant with the principles of the EITI. It has maintained this status after the analysis of the 2013 data.

Also at the international level, in 2013 Congo was subject to sovereign ratings by three international agencies: Moody’s, Fitch Ratings, and Standard & Poor’s. Congo got the sovereign rating of Ba3 by Moody’s; B+ by Fitch; and Standard & Poor’s B.

These ratings place Congo in fourth position in Africa. They were confirmed in 2014.

Finally, to quote the statement of the IMF, “the international reserves of the Republic of Congo and the deposits of the State at the BEAC, which represent 9.5 months of prospective imports and 20% of GDP, respectively, are the highest in the Economic and Monetary Community of Central Africa (CEMAC).”

What else can one say about good governance and transparency in the management of public finances?

Unemployment and poverty remain at a high rate within the population. What are the measures put in place to remedy this?

Unemployment and poverty have not entirely disappeared in our country, that’s for sure. It is equally certain that they have declined significantly.

Following the last major national survey, which took place in 2011, unemployment (according to ILO) decreased from 19.4% in 2005 (date of the survey previous to the last one) to 6.9% in 2011.

Poverty affected 37.5% of households in 2011, against 42.3% in 2005. However, the government continues to struggle constantly against unemployment and poverty.

One being the consequence of the other, the first remedy for both is employment, decent employment, which provides enough income to live decently.

Employment itself is due to the good health of the economy.

Maintaining diversification, growth and macroeconomic stability is, in our opinion, the suitable measure to address poverty and unemployment.

There are many other measures such as better redistribution of national wealth to alleviate extreme poverty or even the creation of public sector jobs to reduce unemployment.

These are all instruments at our disposal. We use them wisely.

In your opinion, where do you stand concerning diversification?

That’s a complex question that cannot be treated exhaustively in the context of an interview. Let’s make it short and simple, indicating that economic diversification in our country is going on.

I pointed it out in reply to your first question.

To be more specific, here is the evolution of real gross domestic product in some sectors of the national economy.

Agriculture, livestock and fishing: 7.9% in 2011, 7.8% in 2012 and 8.5% in 2013. Manufacturing: 8.6% in 2011 and 2012, 9% in 2013.

Buildings and public works: 10.5% in 2011 and 2012, 10.2% in 2013. Transport and telecommunications: 9.2% in 2011, 9.1% in 2012 and in 2013. Shops, restaurants and hotels: 9.2% in 2011, 9.5% in 2012 and 9.2% in 2013.

Two years from the end of the National Development Plan (NDP), as Minister of Planning, what is your perspective on what lies ahead?

Regarding the NDP, its major objectives were: “good governance, transformation of the economy for growth and employment, the development of economic and social infrastructure, social development, and the various dimensions of balanced development.”

You understand that these are areas where progress must be permanent.

We have already had progress in all these areas. We will continue working to have more.
What has been the impact of the fall in the price of oil on the economy of the country?

It’s not the fall in the price of oil that has mitigated the growth rate of the national economy. Dividing the price of oil by half is recent.

It will undoubtedly affect the budget revenues of the current year. What slowed down growth between 2011 and 2014 was the decline in the domestic production of oil.

Oil having a predominant part in the formation of national wealth, the decrease of the barrels produced (-9.6% in 2012 and -10.3% in 2013) has significantly slowed growth.

The expected impact of the fall in oil prices, as I’ve already mentioned, is the decrease of budget revenues with the corollary reduction in public consumption and investment.

It would cost one, two or three percentage points in the 2015 growth rate

What is the impact of the development of the banking sector on the country’s economy?

From the perspective of the role of financial institutions, the Congolese banking sector’s development is reflected in a greater collection of savings and a wider distribution of credits.

With 10 institutions, the Congolese banking system has seen customer deposits increase from 177 billion FCFA in 2004 to 1,990 billion FCFA in 2014.

At the same time, customer credits have increased from 108 billion FCFA to 1114 billion FCFA.

This positive impact is still insufficient because the total ratio loans/GDP, which is a good indicator of bank financing of the economy, is only 7%. Furthermore, most of the distributed credit is short term and concerns only a limited number of economic activities. These are all things to improve.

Despite a liquidity surplus, 25% of total deposits at the end of 2012, access to credit remains difficult for SMEs and individuals, so what should be done?

It is good to know the causes of the problem before putting forward solutions. Difficulties in obtaining credits are due both to the behavior of banks as well as those of applicants.

Banks are excessively conservative and require many guarantees. No doubt they want to protect customer deposits. But also, they lend at very high interest rates and very distant from the policy rate of the central bank.

Many potential credit applicants often fail to have bankable files or present insolvency risks in the eyes of the banks, and it is not possible to grant them with lines of credit.

What is appropriate to do is to encourage the creation of specialized financial institutions, with financing instruments tailored to the current reality of potential credit applicants.

The use of banking facilities remains relatively low (5%). In addition to the creation of the Postal Bank what are the actions implemented to address this?

The actions envisaged to improve the use of the banking system are, among other things, the following:

– The promotion and support of microfinance for its large-scale development. Thus, low-income, urban and rural populations will have access to financial and banking services.

– The continuation of the policy of attraction of new banks and the incentive of all banks operating in Congo to establish bank branches throughout the country.

– The development of new banking instruments, such as mobile banking.

What about an investment bank in Congo?

There should be more than one. I have mentioned the need to create specialized financial institutions. An investment bank is one. Consultations are under way with various developers across the world to create one in Congo.