Economy of The Central African Republic - Economic Aid and Development

Economic Aid and Development

The CAR is heavily dependent upon multilateral foreign aid and the presence of numerous NGO's which provide numerous services which the government fails to provide. As one UNDP official put it, the CAR is a country "sous serum," or a country hooked up to an IV. (Mehler 2005:150) The very presence of numerous foreign personnel and organizations in the country, including peacekeepers and even refugee camps, provides an important source of revenue for many Central Africans.

In the 40 years since independence, the CAR has made slow progress toward economic development. Economic mismanagement, poor infrastructure, a limited tax base, scarce private investment, and adverse external conditions have led to deficits in both its budget and external trade. Its debt burden is considerable, and the country has seen a decline in per capita gross national product over the last 40 years. Important constraints to economic development include the CAR's landlocked position, a poor transportation system, a largely unskilled work force, and a legacy of misdirected macroeconomic policies. The 50% devaluation of the currencies of 14 Francophone African nations on 12 January 1994 had mixed effects on the CAR's economy. Diamond, timber, coffee, and cotton exports increased, leading an estimated rise of GDP of 70% in 1994 and nearly 50% in 1995. Military rebellions and social unrest in 1996 were accompanied by widespread destruction of property and a drop in GDP of 2%. Ongoing violence between the government and rebel military groups over pay issues, living conditions, and political representation has destroyed many businesses in the capital and reduced tax revenues for the government.

The International Monetary Fund (IMF) approved an Extended Structure Adjustment Facility in 1998. The government has set targets of annual 5% growth and 25% inflation for 2000-2001. Structural adjustment programs with the World Bank and IMF and interest-free credits to support investments in the agriculture, livestock, and transportation sectors have had limited impact. The World Bank and IMF are now encouraging the government to concentrate exclusively on implementing much-needed economic reforms to jump-start the economy and defining its fundamental priorities with the aim of alleviating poverty. As a result, many of the state-owned business entities have been privatized and limited efforts have been made to standardize and simplify labor and investment codes and to address problems of corruption. The Central African Government is currently in the process of adopting new labor and investment codes.