Thursday, June 29, 2017 8:55 AM / BMI Research
BMI View: The Republic of Congo will see tepid growth in 2017 after activity contracted in 2016. Although the oil sector is set to strengthen, consumption will remain weak as the government pursues fiscal consolidation.
The Republic of Congo will see a modest growth recovery over the next few quarters. Although we had expected private consumption would remain supported in 2016, we now believe the economy entered recession due to government efforts to address its wide fiscal and current account shortfalls and severe interruptions to transport links between Pointe Noire and Brazzaville.
Over the next few quarters, oil production gains will support headline activity growth, although fiscal consolidation efforts will keep consumption under pressure. Meanwhile, political instability will limit investment outside the oil and gas sector.
A lack of data complicates efforts to measure the Congolese economy's performance, as no national accounts, balance of payments or fiscal data is available for 2016.
Nonetheless, we estimate real GDP contracted 2.4% in 2016, a figure broadly in line with the IMF's estimated 2.7% contraction, which it produced following consultations with the government in March.
This is a significant downward revision of our previous estimate for growth of 1.8%. In 2017, we project growth of 1.0%, with a sharper rebound of 5.3% in 2018 as consumption recovers.
Oil Will Remain King
The oil sector will remain the main pillar of the economy over coming years. Our Oil & Gas team expects Congo-Brazzaville to become the third largest producer in Sub-Saharan Africa by 2018 as new projects are brought online by Total, Eni and Chevron, which we forecast will drive production growth of 23.3% and 13.2% y-o-y in 2017 and 2018, respectively.
In March, Total announced the start of production at its Moho Nord offshore field, which has capacity of 100,000b/d. New production will drive export growth, while offering support to government revenues.
The oil sector will be a key driver of investment over coming years. Congo-Brazzaville's offshore oil fields hold appeal even in a low price environment due to relatively favourable cost structures.
Investment Undermined By Political Risk
Nonetheless, we expect investment to be minimal outside of the oil and gas sector.
Political risk will remain elevated as the disputed reelection of President Denis Sassou Nguesso in 2016 has fed through to a renewed insurgency, rising tensions with the opposition and increased scrutiny from international organisations and outside governments.
Although Chinese investment will offer support, projects, such as the Special Economic Zone in Pointe Noire that was unveiled in January, will likely see delays that generate headwinds to growth.
Consumption Has Further To Fall
Moreover, oil gains will be largely offset by deteriorating consumption as the government attempts to close its gaping twin deficits and conflict disrupts commerce.
We estimate the current account deficit at 30.9% of GDP and the fiscal shortfall at 23.1% of GDP in 2016.
The government's severe funding constraints led it to briefly default on external debt obligations in August 2016, and in March the government began discussions with the IMF to secure a possible financial arrangement.
Although we had assumed the inefficiency of public spending would mean cuts would have a minimal impact on consumption, public workers accumulated salary arrears over the last few months, signalling the government's deteriorating fiscal position.
Additionally, commerce in the country will continue to be severely affected by the severing of the train link between Pointe Noire, the country's primary port and its economic capital, and Brazzaville, the seat of government.
In November, two of the rail line's bridges in the southern region of Pool were destroyed by militants, part of an ongoing insurgency in the region.
Goods headed into Brazzaville now must be transported by road, which has led to rising prices and shortages, particularly of fuel. Repairs are not expected to begin for several more months.
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