Financial Sector Overview
The Central African Republic (CAR) is a landlocked country at the heart of the African continent, embarking on an internationally supervised long path to recovery. Aside from abundant land, CAR is well endowed with natural resources such as timber, gold and diamonds. The agricultural sector generates more than half of GDP. Timber and diamonds account for most export earnings, followed by cotton. Deteriorating security accounted for stagnant growth from 2016 to 2017. Real GDP growth in 2017 was estimated at 4.5%, indicating some economic recovery, but fell short of the projected 5.3%. Growth was driven primarily by recovery in forestry and mining following the lifting of international sanctions, as well as by the vitality of the tertiary sector and trade. Public debt, 56.2% of GDP in 2016, is projected to fall to 51.8% of GDP in 2017, driven by the clearance of domestic arrears. However, the CAR remains at high risk of debt distress. The 2018 World Bank Doing Business indicators showed a modest improvement in CAR’s business environment (183 out of 190 countries). Yet CAR underperformed compared to the Central African Economic and Monetary Community (CEMAC) and sub-Saharan Africa (SSA) regional average. The government has been introducing reforms to facilitate setting up a business easier; enforcing contracts; and access to credit. Improving the business environment is a priority. To this end the government overhauled the investment charter in 2018 and is finalising public-private partnership frameworks. It is also going to revise the mining code in line with international standards.
Financial Sector Overview
CAR's financial sector is the smallest in the CEMAC region and accounts for only 17.6 percent of GDP; it is thus largely underdeveloped and plays only a limited role in supporting economic growth. The sector is also considered fragile due to deficient bank loan portfolios, inactive loans, known as non-performing loans (NPLs) and larger than average exposure to the public sector, making it vulnerable to losses due to government instability. For years now, financial institutions have consolidated their business in the capital, Bangui over security concerns. While the sector has seen some moderate expansion in recent years, financial intermediation levels are amongst the lowest in the world, and credit to the economy, which was 15% of GDP in 2014, represented only 12.9% of GDP in 2017. Financial depth in CAR is relatively shallow, particularly in terms of deposit mobilization. According to World Bank's Global Financial Development Data (GFDD, 2018), share of financial system deposits as a ratio of the country's GDP was 12.1% in 2015 (the latest year for which data is available), the second-lowest in Africa after Chad. In December 2017, CAR lending rate was 15.5% while the deposit interest rate was 2.52%. Deposit Interest Rate averaged 5.56% from 1980 until 2015, reaching an all-time high of 8.08% in 1994 and a record low of 2.45% in 2015..
With less than 15% of the total population holding a bank account, access to financial services is extremely limited in the CAR. Microfinance accounts only for 1% of the total credit facilities, serving 0.5% of the population. Low levels of mobile penetration – which stand at 30%, a significantly lower percentage than in the rest of the continent – dampen the potential expansion of access to financial services through mobile technology.
There is no stock exchange, but the country has access to the regional stock exchange for Central African states (BVMAC) based in Gabon, as well as to the Douala Stock Exchange (DSE) in Cameroon.
At end-December 2017, the CAR's financial system comprised four commercial banks (holding approximately 93% of the total financial system’s assets) with 0.70 branches per 100,000 adults (down from 0.94 in 2014). The main sectors benefitting from bank loans in 2017 were trade (20%), transport and communications (16%). Outstanding loans to the economy amounted to USD 491 million, a fairly stable level compared to 2015 and 2016. Banks remain adequately capitalized and non-performing loans have declined to around 22% from 31% at end-2015, but the sectoral distribution shows huge disparities. The mining, manufacturing, and real estate sectors have the highest NPL ratios, reaching more than 50 percent of total gross loans. CAR’s four banks have implemented key recommendations of the COBAC, the regional banking supervisor, related to governance and compliance with prudential standards. There are some delays, however, on implementing recommendations regarding internal controls and anti-money laundering including the identification of mobile banking users and the update of IT system by banks.
The 2018 World Bank Global Findex data shows that the percentage of adults who have an account with a bank or another type of financial institution or report using a mobile money service in the past 12 months has increased between 2011 and 2017 to 14%,
In recent years, credit access in the CAR has been made possible through a microfinance programme established by the U.N. Development Programme (UNDP) for entrepreneurs developing businesses. The UNDP opened a saving bank called Gogoro that gives users the opportunity to save money securely and have access to credit. The micro-credit scheme is reported to have saved many from hunger and deprivation.
As of December 31, 2017, there were only 24 approved microfinance institutions out of a total of 857 microfinance institutions in the Community of Central African States (CEMAC). CAR is a relatively smaller l market in the CEMAC zone with deposits, loans to customers and total balance sheet of MFIs accounting for respectively only 2% (23.5 USD million), 1% (6.9 USD million) and 2% (29.8 USD million) of total volumes in the region. 2016 data show that there were only 14,142 microfinance clients (0.8% of the CEMAC clientele).
There are 3 mobile operators –NationLink Telecom RCA, the largest operator, Telecel Centrafrique and Orange. Only Orange provides mobile money services. Domestic activity is modest with 3046 people holding active accounts in 2017. Expansion of mobile money services remains hampered by several constraints. Since 2016, telecommunications and information and communication technology services had improved slightly thanks to the introduction of 3G + in CAR, but the cost of communication remains relatively high compared to the purchasing power of the population. This can partly be explained by the lack of market competition in providing mobile phone services, and also because of the often-constraining regulatory environment that makes it difficult for new mobile network operators to obtain the required license. Also, whereas a small percentage of households and companies can afford mobile services in major cities, rural areas and smaller cities remain subject to limited geographic coverage and varying service quality.
However, ownership of internet-capable phones has spread rapidly in recent years and the Government has already committed to the IMF to expand financial services across the country and accelerate financial inclusion relying on financial technologies, most notably mobile banking services.
The CAR insurance industry is underdeveloped. The industry is regulated by the Conférence Interafricaine des Marchés d’Assurances (CIMA), which is responsible for regulation across the entire CFA franc zone. According to the Fédération des Sociétés d’Assurances de Droit National Africaines (FANAF), there were only two insurance companies operating in the country in 2017 (down from three previously). Sunu Assurance has 51.7% market share and Allianz Centrafrique Assurances 48.3%. This limited competition among insurers resulted in a lack of product innovation.
Insurance distribution is still underdeveloped. The distribution network in the country mainly comprises bancassurances, brokers and e-commerce. Insurers have started developing distribution networks based on target segments and product lines.
Social Security System
There is a National Social Security Fund – Caisse Nationale de Sécurité Sociale (CNSS) – dedicated to the pension system management. The CNSS is supervised by the Ministry of Public Administration and Social Insurance. The pension statutory age is set at 60 and the system covers the employed and excludes self-employed people. The rates of contributions for pensions are as follows: 4% at the expense of the employer, and 3% at the expense of the employee, however the CNSS collects a total of 19% as employer's share and 3% at the expense of the employee to cover all social benefits, including occupational risks, family benefits and maternity benefits.