Christine Lagarde Managing Director of the International Monetary Fund (IMF), has described the Central African Economic and Monetary Community (CEMAC) as one of the most important regional groupings in Africa.
“Your countries are virtually the “heart of Africa.” The continent’s fortunes are tightly linked to those of the region,” Ms. Lagarde said in Cameroon during a regional tour which earlier took her to Nigeria.
Stressing that the slump in global oil prices means new reality for the sub-region where oil represents about 70 percent of exports and more than a third of fiscal revenues, Lagarde says the way to achieve strong and inclusive growth in times like this is to spend better, collect more, make the region work for you.
“The right set of complementary infrastructure projects is clearly a pre-requisite for sustainable and inclusive growth,” Lagarde said in Cameroon.
The IMF chief commended the efforts of several CEMAC members to ensure the windfall from oil revenues when prices were high was used to remove longstanding impediments in the economy. However, the sustained implementation of large infrastructure programs has brought fiscal pressures to the fore. Lagarde said the combined fiscal deficit for CEMAC is estimated to have widened to 6.5 percent of regional GDP in 2015, with only a modest improvement projected for this year. Now, the task before them, according to her, is prioritizing spending.
“That may mean scaling back some plans,” said Lagarde. “Selectivity in infrastructure development – based on economic merit and cost efficiency – can help guide this effort.”
She also stressed the importance of a more judicious approach to external financing. With the availability of non-concessional funding narrowing because of the buildup in commercial debt, the IMF MD advised CEMAC to tap into available concessional sources of financing so as to ensure preservation of that medium-term debt sustainability.
With the slump in global oil prices and insurgency in some parts of the sub-region slowing growth to about 2 percent in 2015, as fiscal deficit widens, CEMAC needs to improve its mobilization of domestic resources in order to alleviate fiscal pressures.
Lagarde stressed the need for the sub-region to work on expanding its non-oil revenue base.
“The good news is that non-oil revenue in CEMAC improved last year to about 13 percent of regional GDP. Yet there is scope to reach the regional indicative level of 17 percent,” she said.
She recommends how CEMAC can further improve its non-oil revenue. “By reducing the widespread use of discretionary tax and customs exemptions within the region. These exemptions undermine overall state revenues and weaken governance.”
She also advised that domestic resource mobilization focus on important international tax issues that affect the extractive revenue tax base. This includes areas such as indirect, offshore transfers of interest on assets located in developing economies. This can be particularly relevant for resource-rich nations, like some CEMAC members, to help avoid base erosion and profit shifting.
Make the region work for you
Intra-Africa trade will promote growth and development on the continent, but Africa hardly trades with itself. The situation is the same in CEMAC where less than 5 percent of all formal trade conducted by the six countries in the bloc involves intra-CEMAC commerce. Lagarde stressed the need for countries in the sub-region to work together.
“By leveraging new infrastructure projects, such as the deep-sea port and hydroelectric dams in Cameroon, the boundaries of the Community could expand well beyond its national limits. The big consumer markets in Nigeria and East Africa could be tapped, providing a significant impetus for private sector development and economic diversification,” she said.
But this requires Gabon, Cameroon, the Central African Republic (CAR), Chad, the Republic of the Congo and Equatorial Guinea to improve on business climate and regional integration.
IMF’s analysis indicates that facilitating tax payments and intra-CEMAC trade would significantly improve the business climate of the region.
On average, it takes 572 hours per year in CEMAC versus 304 in other African countries to pay business taxes, and the waiting time for clearing goods is of 40 days for exports and 50 days for imports. Lagarde noted that reforms in these areas would yield the highest benefits for the sub-region.
However, the IMF MD explained that improvements in the business climate are best achieved if supported by increased regional integration. Hence, the existing governance framework needs to become more effective by streamlining the decision-making process. CEMAC could also benefit from fiscal rules that set regionally consistent frameworks for scaling up investments.
“As the largest, most diversified, and least affected economy in CEMAC, Cameroon is well placed to sustain, and reinforce, the momentum of integration,” Lagarde said.
CEMAC was created in 1994 and became operational after the treaty’s ratification in 1999.