2009 Index of Economic Freedom

Quick Facts

Population:

• 4.3 million

GDP (PPP):

• $2.9 billion
• 4.0% growth
• -0.2% 5-year compound annual growth
• $691 per capita

Unemployment:

• 8.0%

Inflation (CPI):

• 0.9%

FDI Inflow:

• $24.3 million

The Central African Republic's economic freedom score is 48.3, making its economy the 156th freest in the 2009 Index. Its overall score is 0.3 point lower than last year, primarily because of worsening financial freedom and an increased perception of corruption. The CAR is ranked 34th out of 46 countries in the Sub-Saharan Africa region, and its overall score is lower than the regional average.

The CAR scores better than the world average only in government size, although this is likely a sign of government weakness and inefficiency. The overall tax burden is moderate, although personal income and corporate tax rates are high. Monetary stability is adequate, but government interference with market prices is extensive.

Other institutional weaknesses persist, impeding development of a more vibrant private sector. Regulation is burdensome, and business operations are significantly hampered by government interference and bureaucratic delays. Labor laws impose high costs on employers, creating a disincentive to hire more workers. Banking and the rule of law are vulnerable to political pressure. Property rights cannot be guaranteed, and corruption is rampant.

Background Back to the top

Despite rich resources, including timber, diamonds, gold, and uranium, the Central African Republic is one of the world’s least-developed countries. Most of the population is engaged in subsistence farming, and agriculture accounts for over half of GDP. Resources, aside from diamonds and timber, remain largely undeveloped. Infrastructure is poor, institutions are weak, and corruption is prevalent. The country has been politically unstable or under authoritarian rule for much of its history. A civilian government was overthrown in 2003 by General François Bozize, who then won the 2005 election. Fighting between rebels and government troops in the northern part of the country has displaced almost 300,000 people. Refugees from Darfur have flowed into the region as well.

Business Freedom 39.5 Back to the top

The overall freedom to start, operate, and close a business is impeded by the Central African Republic's national regulatory environment. Starting a business takes less than the world average of 38 days, but obtaining a business license requires more than the world average of 18 procedures and 225 days.

Trade Freedom 50.4 Back to the top

The Central African Republic's weighted average tariff rate was a high 16.8 percent in 2005. The government restricts imports of sugar and coffee, imposes import and export taxes, implements inappropriate customs valuation for certain imports, and subsidizes exports; other problems include inadequate infrastructure, weak regulatory and customs administration, and customs fraud and inefficiency. Fifteen points were deducted from the CAR's trade freedom score to account for these non-tariff barriers.

Fiscal Freedom 65.4 Back to the top

The Central African Republic has high tax rates. The top income tax rate is 50 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT) and a tax on check transactions. In the most recent year, overall tax revenue as a percentage of GDP was 7.7 percent.

Government Size 94.0 Back to the top

Total government expenditures, including consumption and transfer payments, are very low. In the most recent year, government spending equaled 14.1 percent of GDP. Public expenditure management has been the main target of structural reforms. Plans to privatize the national electricity company, Enerca, are moving forward slowly after repeated delays.

Monetary Freedom75.0 Back to the top

Inflation is low, averaging 2.5 percent between 2005 and 2007. The government influences most prices through the public sector, subsidies, and price controls on 17 food staples, coffee, cotton, electricity, water, and petroleum. Fifteen points were deducted from the CAR's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

Foreign and domestic investors are treated equally, but a number of sectors are closed to private investment. A weak security environment, non-transparent and corrupt bureaucracy, and inadequate infrastructure inhibit investment. Residents may hold foreign exchange accounts. All capital transactions, transfers, and payments to countries other than certain regional nations, France, and Monaco are subject to government approval and reporting requirements. Sale or issue of capital market securities and commercial credits likewise require government approval.

Financial Freedom30.0 Back to the top

The CAR's financial sector is not fully developed, and access to financing for businesses remains limited. The regional Central African Economic and Monetary Community (CEMAC) countries share a common central bank and a common currency pegged to the euro. In addition to a branch of the regional central bank, there are three commercial banks, a microfinance institution, and two postal financial institutions. The two largest commercial banks, Banque Internationale pour le Centrafrique and Commercial Bank Centrafrique, have been privatized, but the Banque Populaire Maroco-Centrafricaine is still partly government-owned. The banking sector is used to finance government expenditures, and the accumulation of state debt and lack of promised credits have undermined the system. There are two insurance companies, also overseen by the CEMAC. There is no stock market.

Property Rights20.0 Back to the top

Protection of property rights is weak. The constitution has been suspended, allowing the president to rule by decree. Judges are appointed by the president, and the judiciary is subject to executive interference. The courts barely function because of inefficient administration, a shortage of trained personnel, growing salary arrears, and a lack of material resources.

Freedom From Corruption20.0 Back to the top

Corruption is perceived as pervasive. The Central African Republic ranks 162nd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Informal market activity and smuggling, especially in diamonds, are extensive. The formal sector has contracted significantly because of regulation and corruption. A significant part of the population works informally. The police and the judiciary are among the country's most corrupt institutions.

Labor Freedom48.7 Back to the top

Highly rigid labor regulations hinder employment and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is relatively difficult. Regulations on increasing or contracting the number of work hours are rigid.