Rising Prices Affect World Bank Projects in Central African Republic

July 17, 2008 — How is a landlocked and post-conflict country supposed to deal with the high cost of living and mounting fuel prices? This is the painful question being asked by many economic operators, development partners and policy-makers in the Central African Republic (CAR), where implementation of World Bank projects is being seriously compromised by the current situation.

The face of Bangui, capital of the Central African Republic, bears witness to the difficult situation experienced by the country. The landlocked city is saddled with the triple handicap of high prices for basic commodities, attendant runaway inflation, and armed conflict. Unfinished construction projects, poorly maintained roads, ageing automobiles and wrecked houses all underscore the harsh fact that some countries are more gravely affected than others by rising oil prices.

Increased Transport Costs

Under normal circumstances, CAR gets its supplies of construction materials, household appliances and certain food products from the nearest port – Douala in Cameroon – 1,400 km away from the capital. The other option is the port of Pointe-Noire (Congo) 1,700 km away and reachable only by river during the rainy season. This severe handicap is in addition to other factors, such as the poor condition of the Bangui-Douala highway, the threat of rebellion, and “road blockers” or bandits who operate in the northern part of the country.

Projects, including those to improve Bangui's roads, have been halted for lack of materials.

According to a study carried out in connection with the CEMAC (Economic and Monetary Community of Central Africa) Sub-Regional Transport and Transit Facilitation Project, transport costs in Central Africa are among the highest anywhere on the African continent. For Chad and the Central African Republic, both of which are landlocked, transport costs account for 52 percent and 33 percent respectively, of the value of exports. The journey from Douala (Cameroon) – the main port and regional entry point– to N’Djamena (Chad) takes 15 days and the trip to Bangui (CAR) 10 days, plus an additional 28-day waiting time in the port.

These timeframes have a direct impact on transporters’ costs. The cost of transporting one ton of cement from Douala to Bangui, which was CFAF 75,000 in 2007, has nearly doubled this year, to CFAF 125,000. 

These costs, which are associated with landlocked status and a lack of highway security, make themselves felt in terms of the products available on the domestic market in CAR, where the payment of civil servants’ salaries is already six months behind schedule.

Soaring Prices Affect Infrastructure Projects

A 50-kg sack of cement, which previously cost CFAF 8,000, now sells for CFAF 19,000 in the building supply stores of the capital. A chicken costs between CFAF 3,500 and 4,000, compared to CFAF 2,000 to 2,500 just a year ago, while ready-roasted chickens go for CFAF 7,500 to 9,000.

Prosper Guyama, a young economic operator and owner of a poultry operation, explains that the increase is due to a tripling of the cost of veterinary drugs and feed for the poultry. Groundnut cake has gone from CFAF 12,500 to CFAF 20,000, and a sack of corn from CFAF 12,000 to 18,000. A 50-kg sack of rice that cost CFAF 18,000 last year costs CFAF 26,000 this year.

Given the difficult circumstances, problems are emerging with government projects financed by the World Bank, the most illustrative example being the Emergency Urban Infrastructure Rehabilitation and Maintenance Project, which has been under implementation since June 2007 by the Ministry of Urban Planning, through the public works agency AGETIP.

One of this project’s goals is the emergency rehabilitation and repair of vital infrastructures in Bangui, but work sites have had to be abandoned along some major thoroughfares in the capital.

Marcel Nganassem, Director General of AGETIP/CAF, explains.

“Water supply, drainage and other line flushing works had to be stopped two months ago, not only because of the high price of construction materials, but also due to the general scarcity of goods in the country,” he said.

Apart from the work stoppage, Nganassem also fears that the project may not be able to achieve its objectives. Due to the increased price of construction materials, he estimates that the 65 km of roads initially planned will probably need to be cut back as a result of updated project costs. Neither AGETIP nor the project’s designers had foreseen the steep increase in prices for construction materials that occurred between the time of the feasibility study and project implementation.

The World Bank is well aware of the seriousness of the situation. In a supervision report issued on June 25, World Bank economists point out that “some external factors are having a negative impact on the smooth execution of activities planned under Bank projects. The weakness of the US dollar against the CFA franc over the past few months, as well as the high price of fuel and imported items, have spurred generalized inflation in CAR. Initially planned budgets for project activities are therefore proving inadequate in most cases.”

Regional Solutions Needed to Move Ahead

The country’s hopes are now pinned on arrangements with neighboring countries with external access, such as Cameroon and the Democratic Republic of Congo (DRC), with a view to obtaining fresh supplies of construction materials, and especially cement. About 23,000 tons of cement are expected to arrive in July, but some importers are already taking advantage of strong demand to engage in speculation. According to the authorities, the arrival of this cement should allow prices to stabilize at around CFAF 12,000-14,000 per sack.

“Just enough to resume work,” hopes Nganassem.

In order to mitigate the negative impact on the population of oil price increases, and particularly the overall rise in the prices of imported products and food items, the Government recently decided to lower the value-added tax (VAT) rate on six products – milk, sugar, wheat, vegetable oil, frozen fish and cement – from 19 percent to five percent.

And, some donors, such as the World Bank, International Monetary Fund and African Development Bank have, for their part, already established special funds for which CAR is eligible and that are aimed at limiting the impact of overall increases in the prices of goods, services and oil.

*USD 1 = CFAF 400