Doing Business In Africa: Republic of Congo
In this AFKInsider series, we explore the regulatory conditions that an entrepreneur is likely to face when setting up a business in sub-Saharan Africa. AFKI presents Doing Business in Africa: Congo.
Doing Business in Africa: Republic of the Congo
Bordered by the DRC Congo to the east, Gabon to the west, Angola to the south and Cameroon and the Central African Republic to the north, the Republic of the Congo—also called Congo-Brazzaville to distinguish it from its eastern neighbor—came under the control of the French in 1880 and its capital, Brazzaville, became the administrative headquarters for much of French Central Africa during the colonial era.
After the Second World War—during which Brazzaville served as something of a symbolic capital for the Free French—the country benefited from increased attention from France in the form of greater spending on infrastructure, administration, and economic development. Then in 1960 the country was granted independence from France along with another of other French colonies in Africa.
As was the usual case in much of post-colonial Africa, Congo swiftly fell into political disorder after independence and affinity for anti-colonial rhetoric from the Easter Bloc led to the country adopting a more socialistic form of government after a coup in 1963.
A period of political musical chairs then followed with one leader deposing another until stability of sorts was imposed by Denis Sassou Nguesso, who took power in 1979 and ruled until 1992. For much of this period the Nguesso regime was heavily dependent on aid from the Soviet Union and when the Cold War ended pressure mounted for the former Moscow client to introduce economic and political reforms.
This was done and Nguesso lost the presidency in 1992, but civil war led to his return to the presidency in 1997—an office Nguesso still holds to this day. Meanwhile, under his steady, if corrupt, rule the country has liberalized and opened up to international trade and investment all while periodic elections keep Congo’s long-ruling president in office as a more-or-less elected strongman who totally dominates the country’s politics.
Ease of Doing Business
So how does all this influence business conditions? According to the World Bank, Congo currently ranks 177th out of 183 countries on its Ease of Doing Business Index – a measure created by the Bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses.
By way of comparison, the United States ranks 4th on ease of doing business, right after Singapore, Hong Kong, and New Zealand.
What does this ranking mean? Take, for instance, the Bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. From the figure one can see that the Bank defines business-creation costs as consisting of the time and money outlays involved in the series of legal steps necessary for the entrepreneur must take in order to legally establish an in-country firm. Using this framework, the Bank then tasks researchers to go through this process in order to establish in-country averages.
When this metric is applied to Congo, the Bank finds that Congo ranks 176th out of 183 in ease of starting a business, making Congo one of the worst places on Earth to start a legal commercial enterprise.
To start a business in Congo one has to complete 10 bureaucratic procedures that take a total of 160 days at a total cost of about $2,031 a minimum capital requirement imposed by the government of $2,379.
Figure 1:
How the World Bank Measures Ease of Starting a Business
Using similar metrics for other aspects of business operations, the Bank has ranked Congo in a number of other areas. To obtain a construction permit, for instance, Congo does much better, but still no great, ranking 83rd out of 183 as it takes the completion of 17 procedures, which takes on average 169 days at a cost of nearly $4,410. Clearly this is a very high price to pay and a clear barrier to your average citizen of Congo in building or expanding a business.
Continuing in its assessment, the World Bank has determined that in order to obtain and register property, Congo does worse as it ranks 133rd out of, again, 183 countries measured.
To register property in Congo, the Bank finds, it takes the completion of six bureaucratic procedures that takes, on average, 55 days and costs 10.7-percent of the property’s financial value in fees and other costs to complete. This makes Congo a moderately a fairly difficult place in which to register property.
Congo unfortunately does little better when it comes to obtaining credit, where it ranks 138th out of 183—making the country one of the worst in the world in this area.
Here, as depicted in Figure 2, the Bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges.
When lenders have both strong legal rights and easy access to a wide variety of information about the client’s creditworthiness, reasons the Bank, the more available credit will be. When information on borrowers is significantly lacking – as is the case in most of Africa – legal protections for creditors must in turn be very strong. Congo does poorly here because creditor rights are relatively weak and there is relatively little information available on potential borrowers.
Figure 2:
How the World Banks Conceptualizes Credit Acquisition
When it comes to protecting investors and minority shareholders, Congo is also a poor prospect. Here, the country ranks 154th out of 183 countries. Congo receives this score despite requiring a relatively strong degree of conflict-of-interest disclosures by directors because said directors are rarely held liable and shareholder lawsuits are difficult to carry out.
Congo does even worse in the area of taxation. The World Bank estimates that pleasing the tax man in Congo requires a total of 61 payments over the course of a year which, in turn, takes up to 606 hours to complete and can consume up to 65.5-percent of a company’s profits. Accordingly, Congo’s tax burden is ranked 180th out of 183 nations, making it one of the very worst in the world in this area.
When it comes to engaging in cross-border trade, Congo once again fails to make the grade. In Congo, to import goods into the country one is required to have ten documents for customs officials to inspect. On average, it takes a total of 62 days to import goods into Congo with the cost amounting to $7,709 (excluding tariffs) per container shipped into the country.
The cost to export goods improves, however, as Congo requires 11 documents to be inspected by customs’ officials, while the total cost (excluding taxes) is $3,818 per container, with delivery taking up to 50 days from point of origin. Compared to global averages this nets Congo a ranking of 180th out of 183 on ease of engaging in cross-border trade.
Congo’s ranking improves however when it comes to contract enforcement, where it ranks 158th out of 183 countries ranked on this issue by the Bank.
On average, reports World Bank analysts, it takes a total of 44 legal procedures to take a contract from dispute to resolution, at the cost of 560 days spent in court or otherwise attending to legal issues. The financial cost of pursing a contract claim, says the Bank, typically accounts for 53.2-percent of the value of the claim.
Finally, in terms of closing or liquidating a business Congo ranks 128th out of 183 countries. Here it takes 3.3 years to close an estate or enterprise at a total cost of 25-percent of its value with an average recovery rate of 17.8 cents on the dollar.
Table 1 presents a summary of these rankings as well as Congo’s overall ease-of-doing business rating. As can be seen, the numbers indicate the country is one of the worst in the world in terms of doing business. On nearly every measure it ranks well below the median—indeed near the bottom—on these measures. If there is any category it does well in, however, it is in the area of construction permits where it does the least poorly.
Table 1:
World Bank Ease of Doing Business
Assessment and Rankings: Congo
Prospects
The Republic of the Congo, like much of sub-Saharan Africa, has the typical economic bifurcation seen in most developing states. On the one hand most of the country’s population is dependent upon smallholder agriculture and handicraft production while, on the other, a rich resource extraction industry pumps out the country’s wealth while enriching the country’s elites.
In this case said resource is oil and gas, mostly located offshore, which accounts for around 87-percent of the country’s export revenue in a given year.
A relatively minor producer, Congo on average produces around 310,000 barrels of oil per day and about 1.1 Billion cubic meters of gas. The French super-major Total SA dominates the country’s industry and, as might be expected, has major influence in the country’s political circles. Other oil firms represented in the country include Chevron, rival ExxonMobil, as well as a host of smaller players.
In addition to oil, Congo also has a great deal of mineral wealth that has only been partially tapped over the years—mostly due to political instability and the country’s long association with the Soviet Bloc during the Cold War. Gold is mined in some quantities and of late Western companies have begun prospecting for copper, which is now exported, in addition to zinc, iron ore, and other industrial metals.
Other minerals of note include potash—a vital component of fertilizer—and rare earths, which are believed to be present in the country in some quantity. Diamonds, too, are also found in some quantity.
Finally, another resource of note is timber. The country’s tropical forests retain some of the largest stands of desired hardwoods left in the developing world and as a result harvesting of the country’s stands of timber is another major economic activity. Here, logs are exported to China, which has become a major importer of Africa lumber, as well as Portugal, Spain, France, and Italy.
Figure 3:
Congo Economic Growth,
Percent Increase, 2003 – 2013
Outside the natural resource extraction industry, however, opportunities for investment would seem to be dim. The country’s terrible business conditions make starting a business, expanding such a business, and carrying out the day-to-day activities of a business extremely difficult.
If, that is, one adheres to the rules by not engaging in bribery of officialdom—which is an endemic practice in what is one of the most corrupt countries on the continent. Given the overall lack of political accountability, press freedom, and the stultifying rule of a kleptocratic president-for-life, opportunities in Congo are hard to come by for average people an politically unconnected Westerners.
Still, not all is hopeless. The country’s rich rain forests can be a source of eco-tourism dollars as well as timber sales, while consumer products and services that cater to the country’s rich elite are also sources of potential business.
Likewise, continued oil exploration and mineral prospecting will mean that firms and services associated with those industries will continue to do well. Finally, there is even the chance that large-scale commercial agriculture could take off if land reform and infrastructure improvements are made.
On the whole though, Congo is a place that needs much more reform before investors looking beyond resource extraction should begin considering the country a place to sink their money into. There are far better prospects, even within francophone Africa, than Congo.
Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFK Insider, Mint Press News and BAM South.