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Backgrounds: Congo, Republic of the Economy
The Congo's economy is based primarily on its petroleum sector, which is by far the country's major revenue earner. The Congolese oil sector is dominated by the French oil company TotalFinaElf. In second position is the Italian oil firm Agip. ChevronTexaco (in partnership with TotalFinaElf) is the primary American oil company active in petroleum exploration or production. Murphy Oil has signed a contract but has not begun exploration or production. Congo's oil production is expected to decline over the next 15 years with fields yielding less. However, based on an agreement with Angola signed in 2002 to jointly administer certain Congo-Cabinda border areas, Congo's production could rise if exploration is successful. Murphy Oil signed a Production Sharing Agreement (PSA) with Congo in 2003 for two deepwater off-shore permits. Congo hopes to offset declining production in other fields with these new PSAs.
The country's abundant nothern rain forests are the source of timber. Forestry, which led Congolese exports before the discovery of oil, now generates less than 7% of export earnings. Wood production came to a standstill during the war years but has recommenced, and new concessions were leased in 2001.
Earlier in the decade, Congo's major employer was the state bureaucracy, which had 80,000 employees on its payroll--enormous for a country of Congo's size. The World Bank and other international financial institutions pressured Congo to institute sweeping civil service reforms in order to reduce the size of the state bureaucracy and pare back a civil service payroll that amounted to more than 20% of GDP in 1993. The effort to cut back began in 1994 with a 50% devaluation that cut the payroll in half in dollar terms. By the middle of 1994, there was a reduction of nearly 8,000 in civil service employees.
Between 1994-96, the Congolese economy underwent a difficult transition. The prospects for building the foundation of a healthy economy, however, were better than at any time in the previous 15 years. Congo took a number of measures to liberalize its economy, including reforming the tax, investment, labor, timber, and hydrocarbon codes. In 2002-03 Congo privatized key parastatals, primarily banks, telecommunications and transportation monopolies, to help improve a dilapidated and unreliable infrastructure. As of the end of 2003, Congo remains in discussion with the IMF regarding fiscal changes that need to be further advanced to secure an IMF program.
By the end of 1996, Congo had made substantial progress in various areas targeted for reform. It made significant strides toward macroeconomic stabilization through improving public finances and restructuring external debt. This change was accompanied by improvements in the structure of expenditures, with a reduction in personnel expenditures. Further, Congo benefited from debt restructuring from a Paris Club agreement in July 1996.
This reform program came to a halt, however, in early June 1997 when war broke out, and the return of armed conflict in 1998-99 hindered economic reform and recovery. President Sassou-Nguesso has moved forward on improved governance, economic reforms, and privatization, as well as on cooperation with international financial institutions. President Sassou-Nguesso also has made speeches outlining the need for good governance and transparency in the Congo, particularly during his 2002 and 2003 National Day Addresses.
Before June 1997, Congo and the United States ratified a bilateral investment treaty designed to facilitate and protect foreign investment. The country also adopted a new investment code intended to attract foreign capital. The country has made some commendable efforts at political and economic reform, but despite these successes, Congo's investment climate has challenges, offering few meaningful incentives for new investors. During 2003, the IMF has not been totally satisfied with the progress Congo has made on addressing some issues of fiscal responsibility, and the outlook for a poverty reduction and growth facility is not promising in the short term. High costs for labor, energy, raw materials, and transportation; a restrictive labor code; low productivity and high production costs; and a deteriorating transportation infrastructure were among the factors discouraging investment. Two years of civil conflict has further damaged infrastructure, though the privatization of some statal and parastatal enterprises has generated some interest from U.S. companies.
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