Economic diversification away from oil crucial for reversing economic setbacks in Congo
The cost of over-reliance on oil has been painfully apparent in the past decade.
Economic diversification away from oil is crucial for reversing recent economic setbacks in the Republic of Congo and put the country on a pathway to long-term prosperity, says the World Bank in its latest Country Economic Memorandum report on the country.
The cost of over-reliance on oil has been painfully apparent in the past decade. A seven-year recession, induced by the end of the last oil-boom cycle, has led to a dramatic drop in income per capita, shrunk the size of the economy and weakened long-term growth prospects. While oil prices have surged more recently, returning Congo’s economy to growth in 2022, the current development model is unlikely to deliver sustainable economic growth and productive jobs going forward.
Attaining sustainable development in Congo urgently requires efforts to diversify national assets, focusing on stronger institutions, development of human and physical capital, and a more balanced exploitation of natural resources, says the report, titled Congo’s Road to Prosperity: Building Foundations for Economic Diversification.
“Congo’s oil-driven growth model has run its course. In order to achieve its aspiration for a more diversified and inclusive model, it is crucial for Congo to strengthen its policy ambition and accelerate efforts to transition to a people-centered, diversified economy,” said Korotoumou Ouattara, World Bank Resident Representative for the Republic of Congo.
The report highlights the urgency of diversification actions. Congo’s oil production is expected to decline in the medium term due to the depletion of oil reserves and reduced external demand from the global transition to a low-carbon economy. While oil accounts for 40% of GDP, the sector employs only a fraction of the country’s workforce, with three-quarters of Congolese employed in the informal sector. Underinvestment in health, education, and physical infrastructure, as well as weak government institutions underscore the limits of fossil fuel-driven growth and the importance of economic diversification.
It identifies ways in which Congo can achieve its economic diversification objectives and recommends policy reforms and investments in the following priority areas:
Remove barriers to competition by curbing state-owned enterprises’ market dominance, encouraging private sector participation in the electricity and telecommunications sectors, and modernizing competition law and enforcement capacity.
Accelerate digital transformation by enabling private sector participation, developing regulatory and legal support for digital financial services and facilitating digital technology adoption, and building digital skills.
Improve the supply of reliable electricity by restoring profitability, invigorating regulation, and investing in transmission and distribution.
Enhance trade competitiveness and diversification by cutting tariffs, reviewing non-tariff measures, concluding regional trade negotiations, and strengthening local markets.
Improve logistics efficiency by scrutinizing public-private partnership contracts and adopting unified information technology for maritime trade.
Support ecotourism development by improving regulation and allocating funding to protect natural assets, strengthening regulatory and enforcement agencies, and expanding transport infrastructure and marketing.
“The recent oil price volatility is a strong reminder of the need for Congo to reduce its exposure to the boom-bust cycles of global commodity markets. Urgent policy actions to develop the non-oil sector, enable the private sector, and strengthen government institutions can help catalyze growth for a prosperous, resilient and sustainable future,” said Vincent Belinga, lead author of the report.
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