How Chinese investment can provide economic opportunities in the Central African Republic
This analysis shows that Chinese intervention and foreign direct investments in the Central African Republic can significantly improve economic well-being and household standard living conditions. Find out more below, or through the PEP Working Paper 2016-12 and Policy Brief 131.
The team’s advocacy with Ministry of Finance and Budget led to their recommendations informing the Ministry’s 2015-16 Action Plan for the Monitoring of Economic/Financial Reforms Unit. Find out more below or in the PEP Impact Brief.
Context, issues, and research objectives
In 2014 the Central African Republic (CAR) was ranked 187th of 188 on the Human Development Index and with 62% of the country’s population living in poverty, the CAR is one of the poorest countries in the world.
Successive political and economic crises over recent decades have resulted in the decline in the CAR population’s standard of living. These problems have been exacerbated by difficult climate conditions and exterior shocks such as the international economic crisis.
The CAR wants to promote economic growth while also reducing poverty and inequality. Due to low capital mobilization within the country, the CAR relies upon foreign direct investment (FDI) to support its development policies.
In 2012, China committed to invest 15 billion CFA francs in the CAR cotton industry, the country’s principal exported cash crop. But China’s presence in the CAR raises questions regarding the opportunities this investment offers for the country's economy. This is why a team of local PEP researchers set out to understand and quantify the overall economic impact of China’s involvement in the cotton industry, from cottonseed production to transforming the seeds into fibers and the fibers into cloth.
Research method and key findings
The team developed a computable general equilibrium (CGE) model and a social accounting matrix of the Central African Republic economy in order to simulate a 10% increase in productive capital in the textiles sector, and a 10% increase in world prices due to the depreciation of the euro.
The team’s analysis indicates that investment in cottonseed and fiber production would reduce cottonseed prices without increasing demand, due to a limited market for cottonseed and cotton fibers. However, investment in the textile industry would increase the market for the cotton production sectors and increase income for cotton producers. The findings also indicate that Chinese FDI can significantly improve well-being in the CAR with household purchasing power and business revenues increasing due to the depreciation of the euro (to which the CFA franc has a fixed exchange rate) against the US dollar.
Based on these findings, the researchers recommend that Chinese investment be oriented towards restoring the CAR textile sector. A fully developed cotton industry in the CAR, from cottonseed to cloth, would support sustainable growth throughout the country. Find out more about the research methods, findings and policy recommendations in the PEP publications posted below, in particular the Working Paper 2016-12 (full paper) and Policy Brief 131.
Project links and documents
|Find out more about this project - its analytical approach and outcomes - through the following links/documents:|
|PEP Project MPIA-12424||
Working Paper 2016-12 (PDF - English)
Aussi disponible en francais (PDF)
|Project proposal (Word)||Policy Brief 131 (PDF - French)|
|Final report (PDF)||Impact Brief (PDF - English)|
Policy engagement, consultation, and dissemination
From before the project was selected for PAGE funding, the research team held consultation meetings with an impressive number of high-level government stakeholders, including the Minister of Economy Planning and International Cooperation, the Minister of Economy of Solidarity and Microfinance, the Minister of Commerce, and a presidential advisor responsible for environment and sustainable development policy. These meetings raised considerable interest in both the project and the new expertise and tools being built with PEP support.
In March 2014, the team presented their progress to the Minister of Economy, Planning and International Cooperation during which she expressed her particular interest in the project and offered to help the team overcome any obstacles they may encounter. The Director of the Cabinet also requested to work with the team again in the future.
A month later, the Cabinet Director for the Ministry of Agriculture met with the team stating that the project and project tools (SAM and CGE model) were of particular interest to the Ministry in order to analyze the impact of rural development projects.
In August that year, the team was called on for a special advisory meeting at the Ministry of Finance and Budget to validate the proposed public spending reforms. The team’s advocacy with the Ministry of Finance and Budget led to the team’s recommendations being taken up as part of the 2015-16 Action Plan for the Ministry’s Monitoring of Economic/Financial Reforms Unit.
The team’s dissemination strategy has been equally effective; a successful partnership with national media allowed the team to reach key stakeholders at both the national and international levels including the IMF, the World Bank, the African Development Bank, UNDP, UNFPA, and NGOs as well as civil society.
In November 2016, the team organized a national policy conference in Bangui to present and discuss their findings and policy recommendations. The event attracted nearly 100 participants, including most notably, the national minister responsible for investment attending as the representative of the President. Representatives of the Ministry of Economic Planning and of the Ministry of Defense also attended. During the event, the President’s representative invited the team leader and main speaker at the conference to join a work group looking at governmental investments.
The expertise that the team developed during this project led to multiple invitations to both share their knowledge and undertake further research using the same methodologies, including consultations for the CAR Ministries of Agriculture and of Commerce.
Find out more in the PEP Impact Brief.
The project described above is one of the several projects selected for support under the PEP research and capacity building initiative for Policy Analysis on Growth and Employment (PAGE) in developing countries. The PAGE program is co-funded by UK's Department for International Development (DFID) and Canada's International Development Research Center (IDRC).
This particular project was selected in May 2013, the first of three competitive calls for proposals of the PAGE initiative. A total of 65 projects were selected for support under the three PAGE funding rounds. Find out more