BANGUI, BRAZAVILLE, LIBREVILLE, MALABO, N¡¯DJAMENA, YAOUND?, December 20, 2024 ¨C ľ¹ÏÓ°Ôº launched today the 7th edition of the CEMAC Economic Barometer, a semi-annual report that analyzes the economic situation in the Economic and Monetary Community of Central Africa (CEMAC) region, comprising Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of Congo. This edition includes a special topic on fiscal policies to address challenges in the forestry sector.
Here are some highlights from the report:
1. Modest growth amidst volatile commodity markets
Countries of the CEMAC region are expected to grow by a modest 3.4% this year, up from 1.8% in 2023. The pace of growth remains uneven across the region. In the Central African Republic, economic stagnation endures amid persistent fuel shortages and frequent power outages in 2024, with growth projected at just 0.7%. In Equatorial Guinea, on the other hand, a rebound in the oil sector will drive growth to 4.7% this year.
Despite moderate growth and a decline in inflation, poverty remains high and is increasing in all CEMAC countries. About 33% of the region¡¯s 61 million people live in extreme poverty, i.e. under $2.15 per day (in 2017 PPP), compared to 30.6% two years ago.
The region continues to be heavily dependent on its extractives sectors, which account for about 75% of all exports. Oil, gas, and mining resources are finite and commodity prices are volatile, exposing the region¡¯s economies to a high degree of uncertainty and vulnerability. Extractive industries are not labor-intensive and tend to not create sufficient jobs for the region¡¯s young and growing population. In view of declining oil reserves and revenues, it is imperative for CEMAC to use extractive revenues to invest in human and physical capital in order to build resilient and inclusive economies.
CEMAC¡¯s export basket, 2023
2. Forestry sector¡¯s untapped potential
CEMAC countries, along with the Democratic Republic of Congo (DRC), are strategically located in the Congo Basin, the world¡¯s second-largest rainforest. Yet, across the region, the forestry sector¡¯s contribution to the economy and national budgets has remained stagnant and below potential. Cameroon and Gabon are the main exporters of wood products in the region. Although Gabon has achieved higher exports of processed wood products by combining a log export ban with incentives for local wood production, the log industry has struggled to move up in the value chains. Almost half of wood product exports from the region are industrial round logs, which creates fewer local jobs and generates less revenue.
Export values of primary (left) and secondary (right) processed wood products (USD million), 2022
The forestry sector¡¯s contribution to public revenues in all CEMAC countries is modest. Across CEMAC, forestry taxation relies mainly on three main tools: royalty or surface area tax, felling tax, and exit duty taxes. Due to illegal logging, a large informal logging sector, revenue losses from indiscriminate use of tax incentives, and corruption, a significant portion of potential forestry revenue is lost. As a result, revenue from forestry represented a negligible 1% of total tax revenue and 0.2% of GDP in the Congo Basin countries in 2022.
Forestry revenue per hectare
3. Tackling deforestation challenges
Together with the DRC, the CEMAC countries are the custodians of the Congo Basin forest, home to a rich biodiversity and the world¡¯s largest carbon sink, which is crucial for climate resilience and biodiversity. In the CEMAC region, deforestation has been moderate over the past decade. However, the Congo Basin forest suffers pressures due to illegal logging and unsustainable practices, especially in the DRC, Cameroon, Equatorial Guinea, and Central African Republic.
The timber industry, thus, offers an opportunity to partially take the place of the oil sector as one of the key drivers of the economy. Yet, the Congo Basin countries face difficult trade-offs between preserving forests and pursuing forest-related economic activities that may hinder forests¡¯ sustainability. The region receives less climate finance aid compared to other forested regions, further hindering conservation efforts.
Deforestation rate in the Congo Basin countries, percentage of forest area
4. Incentivizing sustainable forestry
There is room to increase government revenues and promote sustainable wood production through fiscal reforms. One option is to calibrate tax rates to the environmental impact of wood industry activities, in order to incentivize firms to adopt sustainable practices. Moreover, subsidies can target sustainable agricultural and forestry practices, while tax rebates can support forestry certification and agroforestry. Importantly, forestry taxation needs to be carefully balanced with broader fiscal, economic, social, and environmental considerations.
However, these strategies need to be part of a broader approach. A robust governance framework will be essential not only for effective implementation of tax policies but also for fostering the collaboration and transparency necessary for sustainable forest management. Also, strengthening regional cooperation through harmonized regulations, better law enforcement, and improved forestry policy alignment will better equip all Congo Basin countries to address cross-border challenges, enhance institutional capacities, and attract more international funding.
