CONGO BRAZZAVILLE: An Introduction to General Business Law

The Congolese Economy

The economic situation can be considered paradoxical, because on the one hand there are persistent economic difficulties, and on the other hand, there is long term optimism due to the country's significant potential in terms of natural wealth.

Sources of economic difficulties

The difficulties are related to the very slow diversification of the Congolese economy, which is mainly dependent on the export of crude oil, in a global context of numerous oil discoveries that create competition. In addition, the forestry sector, which is the second largest source of income, is subject to tensions linked to the authorities desire to switch operations currently under concessions, in the production sharing contract regime. This would be a world first in this area, and therefore worries the forestry community because of the uncertainty of the result.

Furthermore, in particular in view of the Debt level of the country, the State's oil resources are encumbered, which contributes to a foreign exchange deficit, forcing the strict restriction of foreign exchange exports by the implementation at the regional level (this is a problem affecting more or less all the States of Central Africa) of a very penalising regulation in terms of exchange controls, introduced in December 2018. The situation is aggravated by the need to import most of the most consumer goods and food to meet the needs of the population.

The business climate continues to improve on several levels, in particular:

Court decisions

It should be recalled that, as in the situation observed in other States of the sub-region, Congolese economic circles are still confronted with aberrant court decisions, the amounts of which are totally disconnected from economic and legal reality (sometimes amounting to billions of CFA francs).

In addition, there are still frequent attacks on landowners and real estate owners who have regular land titles.

This situation was considered so worrying (at the level of the sub-region in general) that it was necessary to adopt a CEMAC Regulation in 2012, to fight against the recurrence of seizures and untimely allocations of the accounts and financial assets of credit institutions housed at the central bank. In addition, another CEMAC Regulation of 2021 had decreed the immunity from seizure of the bank accounts of companies in the extractive sector, given the importance of the resulting financial flows, considered crucial for the external stability of the currency and the maintenance of foreign exchange reserves.

However, non-oil economic operators are still frequently confronted with these abnormal decisions, which contributes to legal uncertainty, and therefore constitutes a considerable brake on foreign investment.

Fiscal and para-fiscal pressure

Economic operators are constantly confronted with excessive pressure from the administrations, which is a source of anxiety and leads to a significant loss of time. This is also a major obstacle to investment.

In this respect, it is regrettable that regulatory texts deprive the State of most of the revenues related to administrative controls, for the benefit of administrative agents. This is seen particularly in the area of taxation and customs, where more than 75% of the revenue is attributed to the controlling agents, the State may receive only 15% of the total amounts received.

New Legislation/Regulations

Oil VAT

Following the repeal of the establishment agreements from which oil companies benefited, and the signing of new amendments to production sharing contracts, which took place in April 2022, and in accordance with the Hydrocarbons Code, oil companies were exempt from VAT for operations related to oil activities.

Nevertheless, a decree of 12 October 2023 called into question this legal exemption, by providing for a generalised liability to VAT (including for exploration activities, which is not economically desirable and is not applicable in other oil-producing states). This contested measure has caused discontent in the oil and gas sector, and this problem remains topical, as the hydrocarbons code has not been amended.

Fuel distribution sector

This sector has undergone several significant changes quite recently:

• Under pressure from the IMF, the price of fuel has increased significantly, twice in 2022 and 2023, ie an overall increase of more than 30%.

• By way of regularisation, it has recently been recognised that the entry price for distribution includes VAT, which was not previously applied, and this new tax resource has been allocated to the financing of road maintenance.

However, this measure does not solve the problems identified by a report that argues that the fuel sector has serious anomalies, which are considered to be equivalent to public subsidies, which must therefore be compensated for in the end by increases in prices at the pump.

Trends

The growing importance of local content

One of the characteristics of Congolese economic life is the emphasis placed on the involvement of local systems in the development of activities. This trend, which has become notable, certainly deserves to be considered. However, the respective roles of the private and public sectors should be clear and balanced, because while companies can be asked to make efforts in terms of internal training for their staff, the State must also make it possible to employ workers who meet the needs of these companies, which remains a long-term objective.

The authorities standardisation efforts

There is a growing willingness on the part of the authorities to remedy the dysfunctions weighing on economic activity, and this effort has been recognized in the reports of international institutions.

Conclusion

To achieve a remarkable result in this laudable objective, it will be necessary for authorities to promote a policy of close consultation with the private sector, through its statutory representatives, leading to mutual recognition of the validity of each others positions.