Report No. 61999-CG Republic of Congo Employment and Growth Study From jobless to inclusive growth December 2011 Poverty Reduction and Economic Management 3 Africa Region Document of the World Bank REPUBLIC OF CONGO Currency Equivalents Exchange Rate Effective as of November 30, 2011 Currency Unit CFA Franc USD 1.00 CFAF 493 Government Fiscal Year January 1 – December 31 Weights and Measures Metric System Abbreviations and Acronyms AfDB African Development Bank BEAC Banques des Etats de l'Afrique Centrale CEMAC Communauté Economique et Monétaire de l'Afrique Centrale CFAF CFA Franc CFE Centre de Formalités des Entreprises CGE Computable General Equilibrium CNI Commission Nationale des Investissements CNSEE Centre Nationale de la Statistique et des Etudes Economiques CNSS Caisse Nationale de Sécurité Sociale DGE Direction Générale de l’Economie ECOM Enquête Congolaise auprès des ménages pour l’évaluation de la pauvreté EESIC Enquête sur l’emploi et le secteur informel au Congo GDP Gross Domestic Product HDI Human Development Index HIMO Haute Intensité de la Main-d’œuvre HIPC Heavily Indebted Poor Country ILO International Labor Organization IMF International Monetary Fund IPU Informal Production Unit MAMS Maquette for MDG Simulations MDRI Multilateral Debt Relief Initiative NIU Numéro de l’identification unique OHADA L'Organisation pour l'Harmonisation en Afrique du Droit des Affaires ONEMO L’Office National de l’Emploi et de la Main-d’œuvre PAAGIP Plan d’Action pour l’Amélioration de la Gestion des Investissements Public PARESO Programme d’Action et de Relance Economique et Social PER Public Expenditure Review PIMI Public Investment Management Index PNE Politique National de l’Emploi PRCTG Projet de renforcement des capacités, de transparence et de gouvernance PRSP Poverty Reduction Strategy Paper RGPH Recensement Général de la Population SAM Social Accounting Matrix SCIEN Système congolaise d’identification d’entreprises STEP Skills Toward Employment and Productivity ii TFP Total Factor Productivity UNDP United Nations Development Program UNESCO United Nations Educational, Scientific and Cultural Organization USD US Dollar WDI World Development Indicators Vice President: Obiageli Katryn Ezekwesili Country Director: Marie Francoise Marie-Nelly/Eustache Ouayoro Sector Director: Marcelo Giugale Sector Manager: Jan Walliser Task Team Leader: Hannah Nielsen iii CONTENTS Executive Summary .............................................................................................................................................. ix Action plan: Recommendations for the short and medium term ........................................................................ xvi Introduction........................................................................................................................................................... 1 Chapter 1. Country Background ......................................................................................................................... 3 A. Macroeconomic developments ........................................................................................................................3 B. Population and social indicators .....................................................................................................................20 Chapter 2. Labor Market Developments .......................................................................................................... 24 A. Labor market trends .......................................................................................................................................24 B. Results from the employment and informal sector survey ............................................................................34 C. The link between education and employment ...............................................................................................45 Chapter 3. Main Challenges and The Way Forward .......................................................................................... 52 A. Labor demand.................................................................................................................................................52 B. Labor supply ...................................................................................................................................................70 C. Rules, regulations and policies .......................................................................................................................75 Appendix ............................................................................................................................................................. 94 Annex 1: Additional information for Chapter 1 .......................................................................................................95 Annex 2: Additional information for Chapter 2 .......................................................................................................96 Annex 3: Additional information for Chapter 3 .....................................................................................................100 Annex 4: Overview over international labor market policies and programs .........................................................104 References ......................................................................................................................................................... 111 Map of the Republic of Congo............................................................................................................................ 117 iv List of Tables Table 1.1: Key Economic Indicators, 1960-2010 (averages) ..........................................................................................3 Table 1.2: Supply side components, 2000-2010 (averages, constant prices) ..............................................................10 Table 1.3: Demand side components, 1990-2009 (averages, current prices) .............................................................13 Table 1.4: Estimates of capital shares in developing countries ...................................................................................15 Table 1.5: Contribution of TFP and physical capital per worker to GDP per worker (averages, percent) ...................15 Table 1.6: Development of fiscal indicators, 2000-2010 .............................................................................................16 Table 1.7: Medium-term projections for economic developments, 2011-2013 .........................................................18 Table 1.8: Development of tradable and non-tradable prices in Brazzaville and Pointe-Noire, 2000-2010 ...............19 Table 1.9: Population distribution by locality and age group ......................................................................................21 Table 1.10: Urban and rural population shares (percent of total population) ............................................................21 Table 1.11: Key social indicators, 1990 - 2009 .............................................................................................................22 Table 2.1: Employment trends in the formal sector 1984 – 2007 (number of employees) ........................................26 Table 2.2: Collective agreements for some sectors between 1990 and 2010 .............................................................27 Table 2.3: Average monthly wage per sector in 1990 and 2010 (in CFAF) ..................................................................28 Table 2.4: Average monthly wage by entry into the public service in 1992, 1010 and 2011 (in CFAF) .......................29 Table 2.5: Gap between job offers and applications in 2009 and 2010 ......................................................................31 Table 2.6: Historical trend of job offers and applications, 2006-2010 ........................................................................31 Table 2.7: Distribution of newly created businesses, by number of employees, 2003-2007 ......................................33 Table 2.8: Newly registered staff at the CNSS between 2008 and 2010 by sector .....................................................33 Table 2.9: Unemployment rate according to the ILO definition by city/gender and age group .................................35 Table 2.10: Median monthly wage by sector of activity and employment category (USD) ........................................39 Table 2.11: Job search approach used by the unemployed ........................................................................................41 Table 2.12: Demographic characteristics of the informal working-age population by employment status ...............42 Table 2.13: Informal sector turnover in Brazzaville and Pointe-Noire ........................................................................43 Table 2.14: Reasons for being in the informal sector (percent) ..................................................................................43 Table 2.15: Distribution of the employed working age population by educational level and sector ..........................46 Table 3.1: Major obstacles in the Republic of Congo and comparator countries (percent of companies surveyed)..53 Table 3.2: PIMI score – comparison with other countries in the region .....................................................................56 Table 3.3: Doing Business Indicator ranking for the Republic of Congo and other CEMAC countries (2010) .............59 Table 3.4: Development of enterprises created between 2003 and 2007 by legal form and nationality ...................61 Table A.1: List of the main state-owned corporations, and their net operating profit in 1986 ..................................96 Table A.2: Job loss prospects in the main corporations to be privatized ....................................................................97 Table A.3: Sectoral distribution of employment in the formal sector, 2003 to 2006 ..................................................97 Table A.4: Demographic characteristics of the informal working-age population by city and employment status ...99 Table A.5: Reasons for being in the informal sector (percent) ....................................................................................99 Table A.6: Overview over labor market regulations in the Republic of Congo..........................................................101 Table A.7: Unionization rate by city, gender and sector (percent) ............................................................................101 Table A.8: Arrangements for fixed-term contracts around the world in 2010 (number of countries) .....................102 Table A.9: Matrix of international labor market policies and programs ...................................................................104 v List of Figures Figure 1.1: Sector shares of nominal GDP, 1960 – 2010 (percent) ................................................................................4 Figure 1.2: Real GDP growth, GDP and GNI per capita, 1960-2010 ...............................................................................5 Figure 1.3: Oil price, volume and export receipts, 1990-2010 ......................................................................................9 Figure 1.4: Overall and sectoral GDP growth rates, 2000-2010 (percent) ..................................................................10 Figure 1.5: Private and public investment, 2000-2010 (percent of GDP) ....................................................................14 Figure 1.6: Development of gross public debt .............................................................................................................17 Figure 1.7: Development of exports and the exchange rate, 2000-2010 ....................................................................19 Figure 1.8: Age pyramid by gender (2007) ..................................................................................................................20 Figure 1.9: Population trends and prospects, 1960-2050 (in ‘000) .............................................................................21 Figure 1.10: Human Development Indicator, Congo and comparator countries ........................................................22 Figure 1.11: Under-5 mortality rate.............................................................................................................................23 Figure 1.12: Maternal mortality ratio ..........................................................................................................................23 Figure 2.1: Unemployment rates (in percent) .............................................................................................................25 Figure 2.2: Labor force participation rate (percent) ....................................................................................................25 Figure 2.3: Active population by sector of activity - countrywide (percent) ...............................................................25 Figure 2.4: Employment levels by sector, 2000-2007 (number of employees) ...........................................................26 Figure 2.5: Sectoral distribution of civil service employees (2005) .............................................................................26 Figure 2.6: Sectoral distribution of active population in 2005 ....................................................................................27 Figure 2.7: Employment in the formal sector (by sector), 2003-2006.........................................................................32 Figure 2.8: Unemployment rate by city and gender according to ILO and broad definition (percent) .......................36 Figure 2.9: Labor force participation rate by gender in both cities (ILO and broad definition, percent) ....................37 Figure 2.10: Labor force participation rate by age group in both cities (ILO definition, percent) ...............................37 Figure 2.11: Reasons for inactivity by city and gender (percent) ................................................................................38 Figure 2.12: Active population by sector of activity (percent) ....................................................................................38 Figure 2.13: Active population by professional category (percent) ............................................................................38 Figure 2.14: Median monthly wage by institutional sector (USD) ...............................................................................39 Figure 2.15: Educational level by gender (percent) .....................................................................................................40 Figure 2.16: Reason for loss of employment for those previously employed .............................................................41 Figure 2.17: Rate of wage employment in the informal sector (percent) ...................................................................44 Figure 2.18: Reasons for non-registration of IPU (percent).........................................................................................44 Figure 2.19: Unemployment rate according to ILO definition by city, gender and education level (percent) ............45 Figure 2.20: Marginal returns to education by sector (percent) .................................................................................48 Figure 2.21: Projected hourly wage in Brazzaville (CFAF) ............................................................................................49 Figure 2.22: Projected hourly wage in Pointe-Noire (CFAF) ........................................................................................49 Figure 3.1: PIMI overall index: Decomposition by Sub-Index ......................................................................................55 Figure 3.2: Real GDP growth rate (average 2010-2025, percent)................................................................................57 Figure 3.3: Unemployment rate in 2025 (percent) ......................................................................................................57 Figure 3.4: Front-loading investment versus back-loading with improved efficiency .................................................58 Figure 3.5: Employment growth by firm size between 2005 and 2007 .......................................................................62 Figure 3.6: Distribution of forestry export products (average 2000-2010) .................................................................66 Figure 3.7: Number of prospecting permits by region ................................................................................................68 Figure 3.8: Number of research permits by region .....................................................................................................68 Figure 3.9: Employment potential of mining projects (number of jobs created - estimates) .....................................68 Figure 3.10: Perception of labor regulation and labor skills in Congo .........................................................................71 vi Figure 3.11: Sectoral perception of labor regulation and labor skills in Congo ...........................................................72 Figure 3.12: Implementing the STEP framework as an integrated set of programs across workers’ life cycles .........74 Figure A.1: Value added of sectors (current prices, CFAF billion), 1960-2010 ............................................................95 Figure A.2: Education system in the Republic of Congo ..............................................................................................98 Figure A.3: Governance indicators for the CEMAC region .........................................................................................100 Figure A.4: Steps for implementing a public works program ....................................................................................103 List of Boxes Box 1.1: Lessons learned from the past economic developments in the Republic of Congo ........................................7 Box 2.1: African experiences with jobless growth .......................................................................................................34 Box 3.1: Cooperation between Singapore and the Republic of Congo .......................................................................64 Box 3.2: Best practices in linking education to employment in Africa ........................................................................73 Box 3.3: The Expanded Public Works Programme in South Africa ..............................................................................87 Box 3.4: Promising African initiatives ..........................................................................................................................89 vii Acknowledgements This is the final version of the Employment and Growth Study for the Republic of Congo. The study has been undertaken by the World Bank in close partnership with the government of the Republic of Congo. The team would like to thank staff at the Ministry of Planning as well as the counterparts at other ministries for their excellent collaboration throughout the preparation of this report. On the Government’s side, Mr. Raphael Mokoko (General Director of Planning) has coordinated the work and his contribution to the report has been invaluable. The report was prepared under the overall leadership and guidance of Jan Walliser (Sector Manager, AFTP3) and Eric Bell (Lead Economist, AFTP3), who provided support, input and advice during the preparation of the report. The team also benefited greatly from the support and guidance of Marie Francoise Marie-Nelly (former Country Director, AFCC2), Sylvie Dossou Kouame (Country Manager, AFMCG), Eustacius Betubiza (Country Program Coordinator, AFCCD) and Eustache Ouayoro (current Country Director, AFCC2). Preliminary results have been discussed with the Government counterparts and other stakeholders, including the university, private sector, unions, the national employment office and other development partners in March 2011. The final draft of the document has been presented and discussed in October 2011. Comments received during these consultations have been taken into account. The task team was led by Hannah Nielsen (Economist, AFTP3), the main author of the report in close collaboration with Monthe Bienvenu Biyoudi (Senior Economist, AFTP3). The first chapter was prepared by Hannah Nielsen and Edith Kikoni (Young Professional, OPCCS). Chapter 2 is based on a background paper from Monthe Bienvenu Biyoudi, survey data received from the CNSEE and a background paper prepared by Mathias Kuepié (Associate Researcher, DIAL and CEPS/INSTEAD) and Christophe Nordman (Senior Research Fellow, IRD, DIAL). The third chapter combines contributions from Hannah Nielsen, Monthe Bienvenu Biyoudi, Hans Lofgren (Senior Economist, DECPG), Rachidi Radji (Sector Lead Specialist, AFTED), Remi Pelon (Mining Specialist, SEGOM), Simon Rietbergen (Senior Forestry Specialist, AFTEN), Andre Rodrigues de Aquino (Carbon Finance Specialist, AFTEN), Mohamadou Hayatou (Consultant, AFTFW), Arvo Kuddo (Senior Labor Economist, HDNSP), Xavier Forneris (Senior Investment Policy Officer, CICTI), Alexander Krauss (Consultant, WBICR) and Shabani Ely Katembo (Consultant, AFTP3). The consultant team from the Ecole Supérieure de Gestion et d’Administration des Entreprises (ESGAE), led by Professor Roger Makany with support from Rene Samba and Bethuel Makosso has provided important contributions to the report, especially to Chapter 3. The team benefited from helpful comments from the peer reviewers, Humberto Lopez (Sector Manager, AFTP1), Mark Thomas (Lead Economist, ECSP1), and from comments and suggestions from Andrew Dabalen (Senior Economist, AFTP3), Louise Fox (Lead Economist, AFTP1), Christophe Rockmore (Monitoring and Evaluation Specialist, AFTDE) and Milaine Rossanaly (Consultant, AFCCD). The team would also like to extend its gratitude to Josiane Maloueki Louzolo (Team Assistant, AFMCG), Mariama Daifour Ba (Program Assistant, AFTP3), Paula White (Language Program Assistant, AFTP3), Appolinaire Sainteli Bouenda (Resource Management Assistant, AFTRM), Chantal Modeste Nonault (Resource Management Analyst, AFTRM), and Linda Tiemoko (Senior Program Assistant, AFCCD). The overall report was translated by Koffi Edoh, while Dounia Loudiyi provided translations of several background papers. Resources provided by the Diagnostic Facility for Shared Growth (DFSG) are greatly appreciated and have made several of the main contributions to this report possible. viii EXECUTIVE SUMMARY 1. Unemployment, especially youth unemployment, is a serious problem for the Republic of Congo. Despite the economic recovery and political stabilization in the last decade, insufficient employment has been created, leading to high unemployment rates, especially for the young population in urban areas. This situation of jobless growth has been caused by a number of factors, including the dominance of the public sector in the past, the limited activity of the private sector, the undiversified economy, a mismatch between the skills required by employers and those offered by job seekers and a regulatory and institutional environment that is not fully supportive of employment creation. 2. Action needs to be taken now to promote inclusive growth in the non-oil sectors and create sufficient employment opportunities. It is essential to remove the major obstacles to non-oil growth and employment creation. By using its resource wealth effectively, the Republic of Congo has a great potential to ensure that not only economic prosperity continues, but that its benefits reach all layers of the population and improve their livelihood. A special emphasis needs to be placed on improving employment possibilities for the young population. 3. This Employment and Growth Study seeks to provide recommendations to address the main challenges regarding non-oil growth and employment creation. The results of the study will help to inform government policy, especially in the context of the new PRSP that is currently being elaborated and the National Employment Policy that is under preparation. Based on extensive analytical work, actions are recommended to improve labor demand, labor supply and the regulatory and institutional framework. Congo’s current situation: Sustained economic growth, but high unemployment 4. The Republic of Congo has made substantial progress in economic reforms in the past decade. The country has a track record of solid economic growth and reforms and has reached middle-income country status in 2006. In 2010, Congo has even achieved the highest GDP growth rate in Africa and was among the 10 fastest growing economies worldwide. Reaching the Completion Point under the HIPC initiative was another milestone underlining the sustained reform efforts of the authorities, notably the implementation of the interim PRSP followed by the first full PRSP. 5. The macroeconomic performance has been good and remained resilient despite the global economic crisis and the medium-term, outlook remains favorable. Inflation decelerated significantly in the last decade and is expected to remain moderate. Congo’s external position has strengthened, allowing the build-up of international reserves. Fiscal balances have improved due to strengthened fiscal discipline and higher oil revenue. The debt stock has been reduced significantly by reaching the HIPC Completion Point, thereby freeing resources for spending in priority areas. 6. The economy remains dominated by oil. Since the start of oil exploitation in the late 1950s, the once diversified economy with large services and manufacturing sectors has experienced a structural change and is now dominated by the oil sector. In 2010, oil production and exports contributed 68 percent to GDP, 85 percent to exports and 79 percent to government revenues. The oil dependency makes the country vulnerable to economic shocks. Furthermore, a possible decline in oil reserves necessitates the diversification away from oil. ix 7. Dutch disease effects have likely contributed to the erosion of competitiveness of the non-oil sector. The weak performance of the non-oil sector and the decline in productivity has been caused by a number of factors, including the lack of infrastructure, weak human capital, a weak financial sector and poor business environment. In addition, the appreciation of the exchange rate in recent years as well as the higher increase of prices for non-tradables compared to tradables indicate that Dutch disease effects have been a factor in the weak performance of the non-oil sector. FIGURE ES.1: Sector shares of nominal GDP, 1960-2010 (percent) 8. Economic growth has not led to 100% the creation of sufficient employment 90% opportunities. Although the 80% Services unemployment rate has been declining 70% since the end of the civil war, it remains 60% high. The last country-wide assessment 50% Manufacturing reported an unemployment rate of 19 40% 30% Extractive percent in 2005, with large disparities Forestry Industries 20% between rural and urban areas. The 10% Agriculture Employment and Informal Sector Survey 0% (EESIC) carried out in 2009 covering the 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 formal and informal sector in the two main Source: WB staff calculation based on data from the IMF and the Congolese authorities urban areas Brazzaville and Pointe-Noire recorded an unemployment rate of 16 percent. 9. The youth is especially affected by unemployment. In urban areas, 25 percent of the 15-29 year old are unemployed by the ILO definition, and more than 40 percent if a broader definition is used that also includes discouraged job seekers. Country-wide, an unemployment rate of more than 40 percent was found in 2005 for the 15-29 age group. The TABLE ES.1: Unemployment rate according to the ILO definition unemployment rate declines significantly with age: by gender and age group only 5 percent of those over 50 are unemployed. Age group Gender Women are more affected than men with higher 15-29 years 30-49 years 50+ years Total Men 23.5 10.6 5.5 13.9 unemployment rates especially in the 30-49 age Women 26.4 15.7 5.3 18.8 group. The population is predominantly urban (62 Total 25.0 12.7 5.4 16.1 Source: EESIC 2009 percent) and young – 68 percent of the about 3.7 million inhabitants is younger than 30. 10. The economy is dominated by the informal sector. According to the 2005 household survey, about 77 percent of the population country-wide work in the informal sector. The employment potential and economic activity of the informal sector is therefore substantial, but there is little wage employment. The majority of the urban population active in the informal sector is working in the trade sector, predominantly trading processed products. In the current context, however, the informal sector can be seen as a result of the economic and regulatory framework rather than a constraint to growth and diversification. 11. There has been an upward trend in employment creation in recent years, but comprehensive data is lacking. Available information shows that since 2000, employment increased continuously in the private sector, especially in the services sector (mainly telecommunications and banking). The absence x of comprehensive employment figures for the private sector, however, makes an assessment of the situation difficult. Jobless growth was the result of a number of factors FIGURE ES.2: Employment levels by sector, 2000-2007 12. One underlying factor for the current (number of employees) employment situation is the political history of 140,000 120,000 the country. During the expansionary period of 100,000 the economy after independence and under 80,000 communist rule, the state followed a policy of 60,000 nationalizing businesses. Employment for young 40,000 graduates was promoted through automatic hiring 20,000 as civil servants and job opportunities created by - establishing close to a hundred state-owned 2000 2001 2002 2003 2004 2005 2006 2007 corporations. As a result, the private sector did not Civil servants Private sector employees develop, leading to the predominance of the Employees of state-owned enterprises public sector as opportunity for formal Source: MFPRE, DGE, CNSEE, ONEMO employment. In 2007, employment in the formal sector only reached about 125,000 jobs of which 72 percent were in the public sector and state-owned enterprises. 13. The limited private sector activity is compounded by the lack of economic diversification. The formal private sector is dominated by oil exploitation, which, however, does not contribute significantly to employment creation. The share of other primary sectors, namely agriculture and forestry, is low and the secondary sector is the smallest in the economy. The tertiary sector, however, especially commerce and transport and telecommunication, carry more weight and have recorded promising developments in the last years. 14. The main constraints faced by the private sector are the lack of reliable infrastructure, especially electricity, an unfavorable business environment and weak governance. More than 70 percent of companies FIGURE ES.3: Unemployment rate according to ILO definition by gender and education level (percent) report that the lack of 30 Men reliable electricity is a 25 Women major constraint, Total followed by political 20 instability and 15 corruption. Regarding 10 the business environment, Congo 5 ranks 177th of 183 0 countries according No schooling Primary General General Technical Technical Tertiary Total to the 2011 Doing education secondary seconday secondary secondary education education (I) education (II) education (I) education (II) Business report. Another major Source: EESIC 2009 obstacle given by xi more than half of the companies was labor skills, while labor regulation ranked fairly low on their agenda. 15. The education system does not meet the needs of the private sector. Historically, tthe educational system in Congo places more emphasis on general education than on vocational and technical training. The transition rate to tertiary education is high, but only a small share of students is enrolled in technical studies, while the majority studies arts and humanities, limiting job opportunities mostly to the public administration or teaching. Moreover, the quality of education has not kept pace with the improvement of the quantitative performance, leading for example to very high teacher-pupil ratios compared to the regional average. As a result, education does not protect against unemployment and those with no schooling are least likely to be unemployed. The high share of the well educated unemployed indicates a mismatch between the skills required by the private sector and those offered by job seekers. 16. The National Employment Office (l’Office National de l’Emploi et de la Main-d’œuvre - ONEMO) does not fulfill its role of coordinating labor supply and demand satisfactorily. Despite the fact that ONEMO used to have the monopoly for job placements and is still the main employment agency, a small fraction of job seekers approaches the agency to find employment. Those who did not submit applications to ONEMO are either not familiar with the process or do not think that it would be helpful. ONEMO is also in charge of a number of policies and programs promoting employment, for example a program for graduates, for the rural population and for the insertion of the youth in the labor market through public works. These programs, however, face severe financial constraints. Moreover, there is no evaluation of how successful they have been so far. 17. The coordination and distribution of responsibilities between the institutions related to the labor market is not always clear. Three different ministries as well as the National Employment Office are tasked with activities related to the labor market. Those are the Ministry of Labor and Social Security, the Civil Service Ministry and the Ministry of Employment and Skills Training, while ONEMO is supposed to coordinate labor demand and supply and run labor market programs. Their roles and responsibilities, however, are not clearly defined. Moreover, there is no overarching long-term employment policy clarifying the institutional framework. 18. Job market regulations remain rigid and wages have remained fairly constant over the past 20 years. The procedures for separations in the current labor code are cumbersome, complex and costly, also for layoffs for economic and technical reasons. This can prevent employers from hiring new employees formally. Wages are usually set by collective agreements in the respective sector. However, these agreements have not been renegotiated for some sectors in several years resulting in an overall small increase of wages in the formal private sector. In the public sector, wages did not change significantly either, except for armed forces and magistrates. The way forward 19. The challenge of jobless growth needs to be tackled from different angles, namely labor demand, labor supply and the regulatory and legal framework. First and foremost, a sufficient number of wage employment opportunities need to be created in the private non-oil sector. This requires the removal of the main constraints for private sector led growth. Secondly, the education system needs to xii be reviewed and adjusted to improve the quality of education and to be able to respond to the needs of the private sector. Lastly, the government’s role is to create an enabling environment by implementing clear and transparent rules and regulations that facilitate an improved business environment and a well functioning labor market. Labor demand: Promote private sector led growth in non-oil sectors 20. Concerning labor demand, the main constraints faced by the private sector need to be addressed. These include primarily the provision of reliable basic infrastructure and the improvement of the business climate. Furthermore, the economy needs to be diversified. The main recommendations in that regard are: a. Infrastructure: The government is currently scaling up investment substantially to improve the provision of basic infrastructure. The goal is to remove the main bottlenecks for growth and encourage especially private sector growth in the non-oil sectors. It is, however, important to improve the management of public investments to ensure that available resources are used in the most efficient way and possible negative effects on the competitiveness of the non-oil sector are mitigated. The recent PER identifies a number of actions that need to be taken to improve public investment management (World Bank 2010d). In addition, public investment spending can be used as vehicle for labor-intensive public works programs. b. Business environment: The improved public-private dialogue is a priority. In that regard, the recent establishment of the High Council for Public-Private Dialogue is a very welcome development. A fund to finance experts working with the council should be set up as soon as possible and experts recruited. To facilitate administrative procedures for companies, it is important to reform and restructure the Centre de Formalité des Entreprises (CFE) and strengthen its capacity. Regarding institutions supporting private sector development, the establishment of the “Maison de l’Entreprise� as well as an investment promotion agency is advisable. To address the limited access to finance, especially access to medium-term financing for SMEs, an SME guarantee fund is another priority. c. Diversification: Sectors with high growth potential are the forestry and mining sector. Both face similar challenges related to infrastructure, qualified personnel and weak administration and governance. A recommendation for both sectors is therefore to improve training possibilities in response to growing job opportunities in the private sector. Specific sectoral recommendations include: i. Forestry sector: Improved incentives for local companies and the government to use locally produced wood products could provide a boost for the sector, especially for processed products, such as furniture. Furthermore, to promote the forestry sector, a continued facilitation of the certification of forestry concessions is necessary through better enforcement of sustainable forest management controls and wildlife laws. xiii ii. Mining sector: To improve mining operations, the mapping of resources is essential to promote the mineral potential of the country and publicize it. There is also much room to enhance the capacity of the Ministry of Mines and Geology. Labor supply: Improve the quality of education and address the skills requirements of the private sector 21. Concerning labor supply, it is imperative to address the current skills mismatch and improve the quality of education. Key recommendations are therefore: a. To reduce the skills mismatch, technical and vocational training needs to be improved. Currently, the skills of job seekers are not in line with the demand of private sector employers. Technical and vocational training therefore needs to be reformed. An assessment of training programs currently in place should be carried out to identify measures for improvement. b. To ensure that the education reform leads to the desired outcome, a skills assessment should be carried out first. It is essential to know what exactly is needed by the private sector in terms of technical qualifications and skills. The assessment should involve surveying the labor demand and labor supply side in the formal and informal sector. The results from the assessment will then inform the development and design of curricula. c. The regular dialogue between the public and the private sector and training institutions is necessary to assure the continued relevance of the overall educational program. Any changes in the private sector environment and the potential impact on the skills requirement need to be considered. A good starting point would be the High Council of Public Private Dialogue, which has recently been established. d. Regarding the necessary improvement of the quality of general education, a first step is a Public Expenditure Review or Public Expenditure Tracking Survey for the education sector. Thereby, possible deficiencies in the system can be identified and solutions developed. Legal and regulatory framework: Create an environment that is supportive of private sector development and employment creation 22. Regarding the underlying legal and regulatory framework, clear roles and responsibilities have to be assigned to facilitate the coordination of the main actors, their capacity strengthened and current policies and regulations reviewed and revised. The main actions that need to be taken are the following: a. The adoption and implementation of a comprehensive long-term labor market policy is advisable. Currently, no comprehensive labor market policy exists. A National Employment Policy (Politique National de l’Emploi – PNE) is being prepared and is meant to address this shortfall. It should clarify the roles and responsibilities of the institutions involved in labor market issues and provide a clear plan of expected results. Timely finalization, adoption and implementation of the PNE would contribute substantially to a better functioning labor market. b. The restructuring of ONEMO and capacity building of its staff is essential. ONEMO plays a central role in coordinating labor demand and supply. To be able to carry out this role xiv effectively, it needs to be staffed and equipped adequately. Moreover, its structure and responsibilities should be clarified. c. The establishment of a working group of all involved institutions would improve the coordination of their activities. The working group would assist in clarifying the roles and responsibilities of the respective institutions, ensure that benefits from synergies of their work are realized and overlaps avoided. d. An updated and more flexible labor code would facilitate job creation. Certain provisions in the labor code, which might be a disincentive for companies in the private sector to hire employees on a formal basis, should be revisited. The labor code should also set minimum labor standards and not leave those to collective bargaining agreements. e. Well targeted employment policies and programs are important. Initially, a review of the programs and policies should be carried out. Based on the results of the review as well as experiences and best practice programs from other countries, policies targeted at the groups with the highest demand should be designed. A particular emphasis should be placed on programs for the youth. f. Labor-intensive public works programs could be an effective short-term measure to address unemployment. Ideally, labor-intensive components of the public infrastructure investment program will be identified, which can be linked to public works programs. It will be necessary to design the activities carefully as to assure the quality of the work as well as the long-term sustainability and impact of the programs, both financially as well as for the participants. 23. The findings from this study can help to identify areas for further research. Given the scope of the study, a number of issues are not directly addressed, but should be analyzed in further work. These areas comprise for example gender aspects of the labor market, the informal sector or the potential for growth and employment creation of the agriculture sector. Another important issue is the possible contribution of regional integration to growth, especially on the services sector, based on analytical work on the corridor approach as well as trade facilitation. 24. The following action plan summarizes the key recommendations of this study. It identifies concrete actions to be taken by the respective responsible institution as well as the appropriate time frame. xv ACTION PLAN: RECOMMENDATIONS FOR THE SHORT AND MEDIUM TERM Area of Recommendation Responsible agency Time Action to be taken improvement frame 1. Labor demand: Increasing job opportunities Problem identified: Weak business environment and insufficient public-private dialogue Facilitate public- Establishment of the expertise fund for MIDPPS; HCPPD; with Short Make two expertise funds available to the HCPPD to finance private dialogue the High Council for Public-Private support from AfDB and EU term studies linked to priority reform measures. Dialogue to finance and recruit experts Establish and Reform and strengthening of the MSME; with support from Short (i) Strengthen the capacity of the CFE; reform institutions capacity of the Centre de Formalité des AfDB and World Bank term (ii) Reform the procedures; responsible for Entreprises (CFE) (iii) Improve computerization and interconnection. private sector Establishment of the Maison de MSME; HCPPD; with Medium Discuss the terms and modalities of establishing the Maison de development l’Entreprise support from AfDB and term l’Entreprise. World Bank Establishment of an investment MIDPPS Short Create the investment promotion agency (APIC) based on the promotion agency term study carried out by UNIDO. Improve working Improved access to medium-term MIDPPS; MSME Short Create the FIGA (Fond d’Impulsion, de Garantie, et environment for financing for SMEs term d’Accompagnement des PME - Guarantee and Support Fund for private enterprises SMEs). Problem identified: Undiversified economy Promote forestry Completion of background study on MSDFE Short to Prepare the terms of reference for the study. sector operations incentives to use locally produced medium wood products term Improve Capacity building of staff of the MMG; MSDFE; with support Short Carry out a detailed training needs assessment. environment for Ministry of Mines and Geology and of from World Bank term mining sector and the Ministry of Sustainable forestry sector Development, Forestry and operations Environment Promote mining Mapping of resources and promotion of MMG Short Carry out the activities included in the 2012 budget for the sector operations mineral potential term mapping of resources. xvi Area of Recommendation Responsible agency Time Action to be taken improvement frame 2. Labor supply: Addressing the skills mismatch and improving the quality of education Problem identified: Mismatch between skills required by the private sector and offered by job seekers Improve the quality Assessment of performance of existing MEST; MHE Short (i) Identify training centers; of general as well as technical and vocational education and term (ii) Evaluate the teaching performance (programs, curricula technical and training centers and development of a etc.); vocational comprehensive reform program (iii) Train the teachers to ensure the quality of education; education and (iv) Develop comprehensive reform programs (strengthen the adjust to needs of performance, taking into account the needs of the the labor market students). Enhanced partnership between private MSME; with support from Short to (i) Develop an agreement between the partners in order to sector and training institutions regarding HCPPD medium structure and reform programs; curricula design and development term (ii) Facilitate professional internships; (iii) Establish a regular dialogue between the involved institutions. Skills needs assessment for priority Ministries of Education; Short Prepare the concept note for the skills assessment. sectors, involving surveying the labor with support from World term demand and supply side in the formal Bank and informal sector Public Expenditure Review or Public Ministries of Education; Short Prepare the concept note to identify the most important issues Expenditure Tracking Survey for the with support from World term in the sector. education sector Bank Problem identified: Poor quality of education and lack of entrepreneurship Assess quality of Development and implementation of a Ministries of Education; Medium (i) Plan reforms for all levels of education: family, informal education and reform program to improve student MCEY term sector and formal institutions (schools, training centers identify measures learning and to foster entrepreneurship etc.); for improvement (ii) Include community intermediaries in the education and communication strategy for young students. Establishment of mechanisms for career MEST; MCEY Medium Create information centers for the youth to inform them about orientation and training, especially for term career opportunities. the youth, ideally linked to primary and secondary education institutes xvii Area of Recommendation Responsible agency Time Action to be taken improvement frame 3. Policies and institutions: Creating and enabling environment for job creation Problem identified: Weak capacity and effectiveness of institutions responsible for the labor market; insufficient coordination between institutions Strengthen capacity Establishment of working group to MEST Short Formalize the establishment of the working group by adopting of institutions and improve coordination mechanism term an official document in that respect. improve their between ministries responsible for management education and labor Strengthening of ONEMO’s capacity to MEST Short (i) Take stock of the current situation and challenges; provide information on labor market term (ii) Develop recommendations to increase the execution rate dynamics (e.g. staffing, data entry and of the available budget. handling, hardware, etc.) Problem identified: Lack of comprehensive programs, policies and regulations for the labor market Evaluate and reform Reform and expansion of labor-intensive MEPI; MEST Short Develop programs and projects based on the HIMO strategy current policies and public works programs, ideally linked to term adopted in 2010. programs the infrastructure program of the government Comprehensive evaluation of labor MEST Short to Prepare the terms of reference for the evaluation. market programs currently in place medium term Implement Finalization and adoption of the revised MLSS Short (i) Consult development partners on the government proposal comprehensive and labor code term for the revised labor code; updated regulation (ii) Adopt the revised labor code. Finalization and adoption of the national MEST Short Update and finalize the draft National Employment Policy that employment policy term is currently under preparation. Note: HCPPD = High Council of Public Private Dialogue; ILO = International Labour Organization; MCEY = Ministry of Civic Education and Youth; MEPI = Ministry of Economy, Planning and Integration; MEST = Ministry of Employment and Skills Training; MHE = Ministry of Higher Education; MIDPPS = Ministry for Industrial Development and the Promotion of the Private Sector; MLSS = Ministry of Labor and Social Security; MMG = Ministry of Mines and Geology; MPW = Ministry of Public Works; MSDFE = Ministry of Sustainable Development, Forestry and Environment; MSME = Ministry of Small and Medium Enterprises and Handicrafts; ONEMO = National Employment Office (L’Office National de l’Emploi et de la Main-d’œuvre). xviii INTRODUCTION 1. The Republic of Congo is currently experiencing jobless growth. High growth rates in the recent past and a solid economic recovery have not been accompanied by sufficient employment creation. This is a particularly serious problem for the youth. According to the latest statistics, youth unemployment reaches over 40 percent in urban areas. Given that Congo’s population is predominantly young and urban, it is essential to address the causes for the current jobless growth. 2. The problem of high unemployment, especially for the urban population, is a longstanding problem. A report by the World Bank on the economic situation in the Republic of Congo from 1965 already states that “a high degree of urban unemployment has been a serious economic and political problem to the Congo since long before independence� (World Bank 1965). Since then, the economy has become less diversified and dominated by the oil sector, thereby aggravating the unemployment problem. 3. A number of underlying reasons can be identified for the current situation. These reasons include demand side aspects, such as the undiversified economy and limited activity of the private sector, supply side issues, such as the mismatch of skills offered by job seekers and demanded by employers, and a regulatory and institutional environment that has not promoted employment creation sufficiently. 4. However, a number of positive developments have been recorded in the last years. The reform effort of the government in many areas has to be commended, especially regarding public finance management. The implementation of the reforms will help the government to use its resources effectively. There is also a strong initiative to improve the business environment. Positive developments can also be seen in the private sector with increasing job creation in some sectors, such as telecommunication and banking. 5. The scope of this Employment and Growth Study is therefore to identify measures to turn jobless into inclusive growth. The report draws on extensive analytical work and background studies. Most of the background work has been conducted in the context of the Employment and Growth Study. Especially important has been the analysis of the Employment and Informal Sector Survey (EESIC, Republic of Congo 2010c and 2010d), carried out at the end of 2009, which had not been analyzed before. The report also integrates findings from already existing results, most importantly the 2010 Public Expenditure Review (World Bank 2010d) and the Africa Infrastructure County Diagnostic for the Republic of Congo (World Bank 2010c). The results have helped to identify the most pertinent issues and develop recommendations to remove the main bottlenecks for employment creation and inclusive growth. 6. A number of areas for further research have been identified. The report recognizes that a number of issues merit further analysis. These include a thorough analysis of the informal sector, its impact on the economy and its employment potential and gender aspects of the labor market. Furthermore, the benefits of trade facilitation and regional integration warrant further assessment. 7. Action needs to be taken now. The current situation does not seem sustainable and action needs to be taken now to address the main challenges the economy faces. In that context, the findings 1 of the report can contribute to the new PRSP, which is currently being prepared, as well as National Employment Policy. The study can also help to identify areas of further research. 8. The report is the organized as follows: The first chapter lays out the country background, outlining macroeconomic developments as well as population and social indicators. The second chapter discusses labor market developments, including results from a recently conducted labor market survey in urban areas. In the third and last chapter, the main challenges faced by the Republic of Congo concerning labor demand, labor supply and the institutional and regulatory framework are outlined and recommendations developed to address them. 2 Chapter 1. COUNTRY BACKGROUND 1.1. Congo’s economy went through fundamental changes in the last 50 years. What is currently a country dominated by oil used to be a diversified economy with a focus on the services sector. However, thanks to the resources stemming from oil exports as well as a successful reform program since the end of the conflict in 2000, the country has emerged from a low income country to reach lower middle income status. Its social indicators, however, remain far below the potential of the country and are more in line with low income countries, especially concerning the health of the population. 1.2. In the following, the growth dynamics since independence in 1960 are briefly outlined. This is followed by a detailed discussion of economic developments in the last decade, including sectoral dynamics, fiscal developments and the competitiveness of the economy. Moreover, population trends and Congo’s performance in the social sectors are described. A. MACROECONOMIC DEVELOPMENTS A.1. STYLIZED FACTS – GROWTH DYNAMICS SINCE INDEPENDENCE 1.3. Since independence in 1960, the Republic of Congo’s growth performance has exhibited considerable variation - partly reflecting the fluctuations in oil production and price but also showing the effects of political disturbances. Frequent crisis episodes, including three intense conflicts experienced in the 1990s (1993 and 1997-99) have tempered Congo’s post-independence decades of growth. As a result, real annual GDP growth averaged 4 percent in the 1960s, 5.5 percent in the 1970’s and 6.8 percent in the 1980s, compared to only 0.8 percent in the 1990s. TABLE 1.1: Key Economic Indicators, 1960-2010 (averages) Averages (percent of GDP, unless otherwise indicated) 1960-1984 1985-1999 2000-2010 Real sector Real GDP growth (%) 6.8 0.3 5.0 Oil (%) - - 1.9 Non-oil (%) - - 7.3 Real GDP per capita growth (%) 3.6 -2.1 2.4 Real GDP per capita (USD 2000) 825 1,116 1,138a Consumer price inflation (%) 5.6 4.6 3.2 Nominal GDP (CFAF billion) 745 2,289 3,444 External sector Exports of goods and non-factor services 49.6 58.7 79.7 Imports of goods and non-factor services 18.6 41.8 50.0 Current account balance 11.5 -6.3 -0.1 Real effective exchange rate (% change) - -0.6 1.9 Official development assistance 5.8 7.3 4.8 Fiscal sector Total revenue and grants - - 34.7 Oil revenue - - 26.8 Non-oil revenue - - 7.6 Total expenditure and net lending - - 26.1 Current expenditure - - 17.4 Capital expenditure - - 8.7 Non-oil primary balance (% of non-oil GDP) - - -40.8 Overall fiscal balance (commitment basis, incl. grants) - - 8.6 Investment and savings Gross fixed capital formation 35.3 24.1 21.9 Public - 7.9 8.4 Private - 16.1 13.5 Gross national savings 11.2 18.7 23.4 Source: WB staff calculation based on data from the IMF and the Congolese authorities. a Data from 2009. 3 1.4. Over the last decade, a strong recovery has taken hold. GDP has rebounded to its pre-crisis levels, but growth rates have not been consistent. The evolution in real GDP since independence can therefore be divided into three sub-periods: 1960-84, when output grew almost continuously; 1985-99 when it declined significantly; and 2000-10, when it recovered (Table 1.1). 1.5. The structure of the economy has changed fundamentally over the last five decades. In the 1960s, Congo was a diversified and relatively industrialized economy (see Figure 1.1 for shares and Figure A.1 in Annex 1 for absolute values). Manufacturing accounted for about 25 percent of GDP, dominated by the textile industry, concrete production and agro-business. Most businesses, however, were operated by publically owned enterprises. The services sector benefited from the role of Congo as transit hub for the region. The emergence of the oil sector, coupled by socio-economic problems and civil wars and structural adjustment, including the withdrawal of state interventions and the reduction of subsidies, have contributed to the current undiversified economy and overreliance on the oil sector. Box 1.1 outlines the lessons learned from the past. FIGURE 1.1: Sector shares of nominal GDP, 1960 – 2010 (percent) 100% 90% Services 80% 70% 60% 50% 40% Manufacturing 30% Extractive Industries Forestry 20% 10% Agriculture 0% 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: WB staff calculation based on data from the IMF and the Congolese authorities Output expansion, 1960-1984 1.6. Real GDP grew at a robust average of 6.8 percent during this period, stemming from both the non-oil sector and the rapidly booming oil sector. Real growth in the non-oil sector was fueled mainly by the expansion of timber production, as well as mineral extraction and commercial agriculture. A functioning transport infrastructure enabled the country to play the role of a transit hub, which led to the emergence of a dynamic service sector, accounting for almost half of production. This period was also marked by a significant expansion of oil exploitation between 1975 and 1984. Crude oil production rose from about 2,500 barrels per day in the mid-1960’s to an average of 65,000 barrels per day in 1980.1 Consequently, real GDP growth reached 8.8 percent per year, with peaks in the early 1980s of over 17 percent (Figure 1.2). Nominal GDP growth averaged 13 percent during 1960 to 1984, as oil prices rose from USD 17 per barrel during 1975-79 to about USD 33 per barrel in the first half of the 1980s. 1 Oil production commenced in 1957 from the onshore Pointe Indienne field. 4 1.7. In view of rising oil revenue, public investment grew rapidly. The Congolese authorities adopted a Five-Year Economic and Social Development Plan in 1981, which gave priority to improving basic infrastructure (roads, railroads, and waterways) and to rehabilitating state enterprises. Government investment increased from an annual average of 2 percentage points of GDP between 1970-74, to an annual average of 15 percentage points between the second half of the 1970s and the first half of the 1980s. 1.8. This period was characterized by increased state involvement in the economy. The government applied an interventionist role on economic management, with direct involvement in production through the creation of state enterprise monopolies and price controls. Current expenditures accelerated in line with the rapid rise in the public sector. Overall, the expansionary fiscal policy path led to a significant deterioration in public finances in the second half of the 1970s and continued to deteriorate in the first half of the 1980s. In addition, the country’s external indebtedness, which had been growing rapidly in the 1970s and early 1980s to finance domestic investment projects, doubled between 1980-84 and 1985-89. FIGURE 1.2: Real GDP growth, GDP and GNI per capita, 1960-2010 30 2,200 GNI per capita 2,000 25 1,800 20 GDP per capita 1,600 GNI threshold for lower 15 middle income country 1,400 1,200 percent US$ 10 1,000 5 800 600 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 400 -5 200 -10 Real GDP growth rate (LHS) 0 GDP per capita (constant 2000 US$, RHS) GNI per capita (Atlas method, current US$, RHS) Threshold - lower middle income country (GNI per capita, RHS) Source: WB staff calculation based on data from the World Bank, IMF and the Congolese authorities Output collapse, 1985-1999 1.9. This period witnessed a decline in output because of a collapse in the terms of trade and the eruption of civil war. Real GDP growth consequently averaged only 0.3 percent. The oil boom came to an end in the second half of the 1980s, as oil prices declined to an annual average of about USD 18.5 per barrel during 1985-89 from an annual average of about USD 33 per barrel during 1980-84. The steep fall in oil prices triggered macroeconomic imbalances and a large debt overhang. The budgetary deficit widened further during 1985-89 from an already large fiscal imbalance during 1980-84. The economic and financial imbalances were exacerbated by the weak performance of the large public enterprise 5 sector, which, even after receiving substantial government transfers and exemptions, experienced continuing losses, which led the government to take over the debt service obligations of some enterprises. 1.10. In order to reverse the declining trends in output, a series of structural adjustment programs were initiated. The government took internal adjustment measures, in the context of a 20-month Stand- By Arrangement with the IMF launched in August 1986, which consisted mainly of maintaining the fixed common peg, lowering the fiscal deficit through increases in tax rates and cuts in the wage bill, and restoring external competitiveness by reducing domestic costs and restructuring public enterprises. In addition, price regulation was reduced, with a view to eliminating subsidies, and the state enterprise export monopolies that had been established were abolished. Furthermore, the government undertook measures to strengthen public enterprise management and efficiency and liquidate financially unviable enterprises. 1.11. However, implementation of the reform programs was slow and limited. Adjustment programs agreed with the IMF during this period went off track because agreed reforms were not carried out. The Stand-By arrangements adopted in 1986 and 1994 fell short of program expectations because of the deviations of macroeconomic outcomes from program, owing to policy slippages and weak management capacity (IMF 2004). 1.12. Overall, the policy response during the period 1985-93 to the worsened external environment was inadequate, relying mainly on cuts in government investment spending and limited structural reforms. But while current and capital expenditures were lowered, they were not cut back in line with reduced resource availability. Furthermore, the cut in government expenditures, especially capital outlays, during 1985-89 had a deflationary impact on the economy. The real non-oil GDP and the consumer price index each declined by about 3 percent on average per annum during this period. As a result, economic activity stagnated and public sector and external imbalances widened markedly. External public debt and debt-service burdens grew to unsustainable levels and large domestic payment arrears were accumulated. In addition, the CFA franc became overvalued in the 1990s. 1.13. Given the magnitude of the macroeconomic imbalances in the late 1980s and early 1990s, it was evident that internal adjustments would be insufficient to put the economy back on a sustainable recovery track. The adjustment strategy was broadened in January 1994 with the 50 percent devaluation of the CFA franc2 and the authorities adopted a three-year program with the IMF under the Enhanced Structural Adjustment Facility in June 1996. The program focused on (i) raising the primary budget surplus, so as to reduce the unsustainably heavy external debt and debt-service burdens; (ii) increasing government outlays on education, health, and public investment; and (iii) stepping-up the implementation of a broad range of structural reforms. However, these reform efforts did not advance much, as the civil wars broke out in June 1997. 2 As a member of the Economic and Monetary Community of Central Africa (Communauté Économique et Monétaire de l'Afrique Centrale – CEMAC), the Republic of Congo is represented by the supranational central bank BEAC (Banque des Etats de l'Afrique Centrale). The BEAC conducts monetary policy that is consistent with the peg of the CFAF to the Euro, which has helped to anchor prudent macroeconomic management. In 1994, the CFAF was sharply devalued to improve the competitiveness of products from the region. 6 Box 1.1: Lessons learned from the past economic development of the Republic of Congo Lesson 1: A diversified economy in the 1960s After gaining independence in 1960, the economy of the Republic of Congo was relatively diversified. In 1963, the primary sector accounted for 23 percent of GDP, manufacturing for 17 percent of GDP and the private services sector represented the largest share of 34 percent of GDP. The remaining 25 percent of GDP were accounted for by government services. The country was believed to be poorly endowed with natural resources and the main export product was timber. Due to the former role of Brazzaville as the administrative and commercial capital of the Federation of French Equatorial Africa since 1910, Congo remained the administrative and transit center of the region. Transport services accounted for 10 percent of GDP in 1963. The country benefited significantly from the construction of the Congo-Ocean Railroad linking Brazzaville to the sea in the 1920s and the building of the port in Pointe-Noire in the 1930s. The ‘Federal Artery’ as the combined rail and river connection to the landlocked countries Central African Republic and Chad was called, was the primary channel for their imports and exports. Furthermore, France continued to finance government services after independence, the most important being a large military establishment. However, the French military establishment, an important source of income and employment, was in the process of being substantially reduced. The position of Congo as transit country as well as the centralization of the Federation’s administration in Brazzaville attracted numerous private (mostly foreign) enterprises, which were providing commercial and financial services. Several public enterprises existed as well, but foreign private companies accounted for more than two thirds of the value added to GDP in 1963. The manufacturing sector was small, but relatively diversified. The main activities consisted of processing of agricultural products, other consumer goods, construction and electric power production. The country was facing the difficult adjustment from an economy that was to a large extent dependent on services linked to the French military and administration to an economy relying more on the production of goods. Good prospects were seen especially for the potash, timber and sugar industry, where foreign investors were interested in large scale investment projects. At that point, debt servicing payments were modest, but the country was urged to limit additional borrowing and seek financing on soft terms. Lesson 2: The effect of oil boom and bust in the 1970s and 1980s Since the start of oil production in the late 1960s, the Congolese economy grew more and more dependent on the oil sector. Oil revenues provided the country with the much needed resources, but also exposed the economy to oil price volatility and the consequences of inadequate management of oil revenue. The oil price developments and the effect on the economy in the 1970s and 1980s are briefly summarized below:  Early 1970s: The optimistic forecasts for oil production and the related oil revenue led the government to significantly expand foreign borrowing in the early 1970s, much of it on hardened terms. The public sector grew, several new enterprises were launched and private investment in the non-oil sector stagnated due in part to uncertainties about the government’s public ownership policies. The public enterprise sector, however, was facing severe financial difficulties and relied on budgetary transfers from the already liquidity constraint central government, leading to the accumulation of arrears.  1973/74: The high oil prices in 1973/1974 alleviated the financial strain on the government temporarily, but the revenue increase was accompanied by a continued increase of public expenditure, both recurrent and capital. Public enterprises were supported further and public sector salaries were raised by 30 percent in 1975, thereby putting additional pressure on the government.  Late 1970s: Geological problems led to a fall in oil production in the following years, resulting in a large budget deficit, even after cutting investment spending and subsidies to public enterprises, and the rapid accumulation of arrears. At the end of 1978, the government had defaulted repeatedly on external debt servicing obligations, resulting in hardened terms for foreign credit beyond what the public sector could accept given its state of development.  1979-1984: Oil revenues increased substantially, again alleviating the situation, but “encouraging false hopes and wasteful policies� (World Bank 1987). The economy remained undiversified and the government continued its expansionary fiscal policy, including substantial employment creation in the public sector, resulting in serious overstaffing in the government administration and public enterprises.  1985-1989: As the underlying structural problems had not been addressed adequately during the oil boom, the following decline in oil prices consequently led to a significant deterioration of the economic situation. In addition, the policy response of the government to the terms-of-trade shock was slow and limited. Ultimately, public and external imbalances widened, the economy stagnated, and the debt burden reached unsustainable levels. Source: World Bank (1965, 1976, 1979 and 1987), Bhattacharya and Ghura (2006) 7 1.14. The period of civil war had a devastating effect on the economy. Besides the macroeconomic consequences, manifested by low growth rates and high inflation, the conflict has been detrimental for the country in other ways. Especially harmful was the destruction of infrastructure and the resulting difficulty in providing basic services by the government. The displacement of the population has also been disruptive for the economic activities. Output recovery, 2000-2010 1.15. Since the end of the civil conflict in 2000, the Republic of Congo has taken important steps towards consolidating peace and rebuilding the state. A new Constitution was adopted in 2002, legislative elections were held in 2002 and 2007 and presidential elections in 2002 and 2009, which saw the re-election of Denis Sassou Nguesso. All political parties have renounced violence, accepted all election results since the end of the war, and are pursuing their agenda for social change through the Parliament and decentralized legislative bodies. Almost all key political leaders exiled during the period of conflict have returned to Congo and are participating in the reconciliation process. The disarmament of the last remaining rebel group has been completed, and the social and economic reintegration of the rebels in their communities started in 2009. 1.16. Over the last decade, and in particular since 2003, economic performance in the Republic of Congo has been marked by the solid recovery in output and considerable progress in macroeconomic stabilization. The return to peace and the need to reconstruct the country boosted the economy, which grew by 5.0 in real terms on average between 2000 and 2010. Non-oil real GDP grew by about 7.3 percent per annum on average during 2000 and 2010, on the back of rising government spending on construction that also supported increased activity in the non-oil sector. 1.17. The government launched an ambitious reform program, structured around the PRSP. A full Poverty Reduction Strategy Paper (PRSP) was adopted in April 2008, following the interim PRSP from December 2004. The completion of the first full PRSP was a major achievement and provides a sound strategic basis for the country’s reform program. An IMF supported program has been successfully implemented and notable progress on the structural reform agenda has been made, particularly in the area of public financial management. Key achievements include the adoption of a new procurement code and the introduction of a Medium-Term Expenditure Framework and a simplified expenditure chain. Furthermore, a new public investment management system has been introduced and a governance diagnostic study completed. Important reforms of the oil commercialization system were undertaken, and Congo was one of the first signatories to the Extractive Industries Transparency Initiative, and its membership is expected to be validated in the near future. 1.18. Strengthened macroeconomic policies, in the context of a steadily improving security situation, have contributed to improved economic performance. Consumer price inflation decelerated significantly, helped by more reliable supply line from Pointe-Noire to Brazzaville. Inflation, which averaged 7 percent in the late 1990s, decreased to an average of 3.2 percent between 2000 and 2010. Prudent fiscal spending facilitated the monetary policy stance set by the regional central bank (BEAC) that has maintained inflation at single digits. Rising oil revenues created the fiscal space to scale up public investment spending, especially on infrastructure. Driven by higher oil export earnings, Congo’s external position has strengthened, allowing a build-up of international reserves to about 9 months of goods imports in 2010. The current account deficit has declined to 0.1 percent of GDP on average, over 8 the last decade. The implementation of the interim as well as full PRSP and the continued cooperation with the international partners made it possible to reach the completion point under the HIPC Initiative in January 2010. External debt has been significantly reduced to 12.5 percent of GDP with the help of additional MDRI debt relief in 2010. A.2. GROWTH CHARACTERISTICS SINCE THE END OF THE WAR Supply side 1.19. Congo’s economy remains dominated by the oil sector. Since 1957, when the first oil field, Pointe Indienne, was put into operation, the oil sector has been the foundation of the entire economy. In 2009, the sector accounted for 31 percent of real GDP, 71 percent of government revenues, and 84 percent of exports. However, its share of real GDP has declined over the past decade due to technical difficulties that have affected production levels. In contrast, the contribution of the oil sector to nominal GDP has increased manifold, owing to the surge in international oil prices since 2004. Figure 1.3 illustrates the steep increase in oil prices since 2001, leading to a significant increase in oil GDP in nominal terms, while production, determining the development of real oil GDP has stagnated on average, albeit with some recent increase since 2007. FIGURE 1.3: Oil price, volume and export receipts, 1990-2010 Crude oil export receipts (CFAF billion) Oil export price (USD/barrel) and volume (million barrel) 4,500 120 4,000 US$/barrel; million barrels 100 3,500 3,000 80 CFAF billion 2,500 60 2,000 40 1,500 1,000 20 500 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Congolese oil export price (US$/barrel) Crude oil export receipts (CFAF billion) Volume (million barrel) Source: IMF Source: IMF Primary sector 1.20. The share of the primary sector has declined over the last 10 years and its contribution to growth has been small or even negative (Table 1.2 and Figure 1.4). Including oil, the primary sector, accounts for about 43 percent of GDP per year between 2005 and 2010, down from 48 percent during the early years of the decade. The low contribution as well as the decline of the share of the primary sector is attributed to volatile production in the oil sector. 9 TABLE 1.2: Supply side components, 2000-2010 (averages, constant prices) 2000-2010 2000-2004 2005-2010 Contribution Contribution Contribution Share Growth to GDP Share of Growth to GDP Share Growth to GDP of GDP rate growth GDP rate growth of GDP rate growth Primary sector 45.3 2.4 1.0 48.0 -1.3 -0.7 43.1 5.6 2.3 Agriculture, livestock, fisheries 8.9 5.8 0.5 8.5 5.1 0.4 9.2 6.3 0.6 Forestry 2.2 2.4 0.0 2.4 11.6 0.2 2.1 -5.3 -0.1 Oil 34.2 1.9 0.4 37.1 -3.3 -1.4 31.8 6.3 1.9 Secondary sector 11.7 10.8 1.1 10.5 15.0 1.3 12.8 7.3 0.9 Manufacturing 8.1 10.5 0.8 7.0 14.5 0.9 9.0 7.2 0.6 Electricity, gas and water 1.8 11.6 0.2 1.6 17.5 0.2 1.8 6.6 0.1 Construction and public works 1.9 12.8 0.2 1.8 18.5 0.2 2.0 8.1 0.2 Tertiary sector 39.5 7.0 2.6 37.8 8.7 3.1 40.9 5.6 2.3 Transport and telecomm. 9.7 9.9 0.9 8.6 13.3 1.0 10.5 7.0 0.7 Commerce, restaurants, hotels 11.2 9.3 0.9 10.6 12.8 1.2 11.7 6.4 0.7 Public administration 11.5 3.6 0.4 11.9 3.4 0.4 11.3 3.8 0.4 Other services 7.1 6.5 0.4 6.7 7.9 0.5 7.3 5.3 0.4 GDP at factor costs 96.6 4.9 4.7 96.4 3.8 3.7 96.7 5.7 5.5 Indirect taxes (less subsidies) 3.4 8.8 0.3 3.6 12.8 0.3 3.3 5.5 0.2 GDP at market prices 100.0 5.0 5.0 100.0 4.1 4.1 100.0 5.7 5.7 Oil 34.2 1.9 0.4 37.1 -3.3 -1.4 31.8 6.3 1.9 Non-oil 65.8 7.3 4.5 62.9 9.4 5.4 68.2 5.6 3.8 Source: WB staff calculation based on data from the IMF and the Congolese authorities 1.21. The oil sector remains the most important sector in the economy. Oil production peaked at 273,000 barrels/day (b/d) in 2001, before declining to an estimated 226,000b/d in 2003-04, as large oil fields reached maturity. Production subsequently recovered to reach an estimated 270,000 b/d in 2006, but then declined drastically to 223,000 b/d in 2007, following the temporary closure of a large oil- producing platform. Since then oil production has been expanding rapidly with the coming on stream of the large Moho-Bilondo oilfield, which has an estimated production capacity of 90,000 b/d. New discoveries have been made in the shared Congo-Angola zone, and further prospecting work is expected in the ultra-deep offshore areas. Even then, production would stabilize only temporarily as the medium- to long-term outlook is for oil production to continue declining as older fields are exhausted. FIGURE 1.4: Overall and sectoral GDP growth rates, 2000-2010 (percent) 30 25 20 15 percent 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -5 -10 -15 Primary sector Secondary sector Tertiary sector GDP at market prices Source: WB staff calculation based on data from the IMF and the Congolese authorities 10 1.22. The agriculture sector (including agriculture, livestock and fisheries) is the largest contributor to primary sector growth. Growth has averaged at 5.8 percent over the last 10 years, but the sector share of GDP remains low and has steadily declined over the long term. Between 1960 and 2000, the agricultural share of GDP declined by more than half, from close to 20 percent to 8.2 percent. Today, the agriculture, livestock, and fisheries sector accounts for 9.3 percent of GDP, although around 50 percent of the population earns a livelihood from, or has links to, the informal agricultural sector. 1.23. The agriculture sector performs far below its potential. Although total land area available for cultivation is estimated at 10 million hectares, less than 10 percent is currently under cultivation (World Bank 2006). In addition, productivity in the sector is low, with yields of several key crops lagging behind other developing countries. The low productivity poses a serious threat to Congo‘s food security. Food production per capita, measured by the food production index published by FAOSTAT, has declined drastically since independence and is approximately 30 percent lower than in Sub-Saharan African countries. Today, the Republic of Congo relies heavily on food imports, which have increased in volume by 80 percent since the 1980s. 1.24. Other important sectors are forestry, sugar production and mining. The respective sectoral challenges for forestry and mining as well as recommendations are discussed in more detail in Chapter 3.  The forestry sector represents one of the major resources for the economy, is an important employer and produces the only other significant export commodity. Forestry products, which accounted for 2.4 percent of GDP in 2008, but only 1.2 percent of GDP in 2010, mainly due to the effect of the global financial crisis, are the country's second-largest export commodity, accounting on average 6.5 percent of total goods exports between 2000 and 2010. Forestry exports have been worth about CFAF 144 billion (USD 262 million) in an average year.  Sugar is one of Congo’s main agricultural commodities. It is the third largest export of the Congolese economy, accounting for 0.3 percent of goods exports in 2010. After wood, the sugar industry is the next major potential resource for the Congolese economy. Not very competitive internationally, production is mainly intended for the domestic market, rather than for export. This potential remains largely unexploited, however, mainly because of the absence of sugar refining. Production falls under the monopoly of a single company, Saris Congo. In 2004, owing to the increase in farmland obtained in the framework of the ten-year reflationary agricultural policy, production increased by 8.2 percent, up from 59.4 thousand tons to 64.3 thousand tons. However, a significant 4.8 percent fall occurred in 2005, mainly related to the difficulties in supplying the Brazzaville market and providing fertilizers, both of these related to the lack of adequate transport infrastructure. (AFDB/OECD 2006).  Congo’s mining sector remains largely unexploited, but its prospects are good. Congo has substantial potential to develop its non-oil minerals sector, including iron ore, bauxite, copper, gold, diamonds and precious stones. According to the Statistical Review of World Energy, published by the UK's BP, the country is thought to hold large reserves of iron ore, bauxite, copper and diamonds (BP 2010), but the territory remains largely unexplored. Currently the non-oil minerals sector in Congo is weakly developed and production has been limited to small or artisanal operations. However, recent interest and exploration work suggest that the sector 11 could well increase its share of GDP, to levels similar to those of neighboring countries with more developed mining sectors. The establishment of a new mining code in 2003, drafted with the assistance of the World Bank, together with political stability and the attractiveness of a market that has largely been closed to exploration for several decades, is stimulating interest in Congo’s mining sector. Secondary sector 1.25. At 11.7 percent of GDP on average over the last decade, the secondary sector is the smallest sector in the economy, although its contribution to GDP growth outperforms that of the primary sector. The sector – defined to include manufacturing, electricity, gas, water, construction and public works –exhibited robust growth across all sub-sectors, increasing its contribution to GDP over the last decade. Manufacturing, the main driving force of the secondary sector, constitutes about 8 percent of GDP, but remains poorly diversified. Apart from the oil refinery in Pointe-Noire, most manufacturing, which is based around Brazzaville, is concentrated in agricultural processing, saw milling and the production of consumer goods. Construction materials remain one growth area, including cement, bricks and wood products. In addition, recent investments should lead to a sharp increase in timber processing. 1.26. The construction sector accounted for around 2 percent of GDP in 2000-10, with activity benefiting from the ending of the conflict, as local businesses and the government undertook reconstruction works. Activity in the sector has boomed since 2005, with the government using part of the oil revenue windfall to improve the country's dilapidated infrastructure. There are now large projects in the energy, transport and housing sectors under way, and activity in the sector is expected to remain buoyant in the coming years, as the government continues to increase capital spending. Tertiary sector 1.27. The tertiary sector is the second-largest sector in the economy, accounting for 40 percent of real GDP in 2010. The sector has experienced an average growth rate of 7.0 percent and its share of GDP increased continuously over the last 10 years, up from 34 percent of GDP in 2000. This reflects primarily an increase in transport and communication, commerce and other services, while the share of public services recorded a small decline. The declining share is due to internal adjustment measures to scale back the rapid rise in the public sector, including the freezing of recruitment in the public sector and the closing down of state-owned firms. 1.28. Public administration is the second largest tertiary sub-sector, after commerce, making up around 26 percent of service activities in 2010. Commerce is at the heart of Congo’s informal economy, and most retail and trading activity takes place in street markets, while the modern retail distribution network is limited. Transport and telecommunication account for about 27 percent of the services sector in 2010. Telecommunications has enjoyed double-digit growth in recent years. Other services, including financial sector services account for 7.1 percent of GDP, despite their high growth rate of 6.5 percent on average over the last 10 years. Today, there are only four commercial banks in Congo, reflecting the undeveloped state of the country's financial services. 12 Demand side 1.29. On the demand side, growth is explained, among others, by the expansion in investment, both public and private. Decomposing historical GDP by its demand-side components shows that investment as a share of GDP has increased. Public investment grew by an average of 24.2 percent during 2000- 2010, reaching 11.2 percent of GDP in 2010 (Figure 1.5; see Table 1.3 for averages), reflecting the implementation of the government’s investment plan to improve infrastructure. TABLE 1.3: Demand side components, 1990-2009 (averages, current prices) 2000-10 2000-04 2005-10 Share of Contribution Share of Contribution Share of Contribution GDP to GDP growth GDP to GDP growth GDP to GDP growth Net exports 29.8 7.0 30.2 6.4 29.5 7.5 Exports of goods and non-factor services 79.9 13.4 80.7 9.6 79.1 16.5 Goods 75.4 13.0 75.2 9.5 75.5 16.0 Oil 67.0 11.7 65.3 8.2 68.4 14.7 Other goods 8.4 1.3 10.0 1.3 7.1 1.3 Non-factor services 4.5 0.3 5.5 0.1 3.6 0.5 Imports of goods and non-factor services 50.0 6.4 50.5 3.2 49.6 9.0 Goods 23.6 4.1 21.8 2.2 25.1 5.6 Oil sector related 5.6 1.0 4.4 0.2 6.7 1.7 Other goods 18.0 3.1 17.4 2.0 18.4 3.9 Non-factor services 26.4 2.3 28.8 1.0 24.5 3.3 Domestic demand 70.2 8.6 69.8 7.2 70.5 9.7 Consumption 47.8 5.9 45.7 5.3 49.5 6.4 Public 14.1 1.5 15.3 1.6 13.1 1.4 Private 33.6 4.4 30.4 3.6 36.4 5.0 Investment 22.4 2.7 24.1 2.0 21.0 3.3 Gross fixed capital formation 21.9 2.7 23.3 1.9 20.7 3.3 Public 8.7 1.7 7.8 0.9 9.5 2.3 Private 13.2 1.0 15.5 0.9 11.2 1.1 Oil sector related 8.5 0.2 11.0 -0.1 6.4 0.4 Non-oil sector related 4.7 0.8 4.5 1.0 4.8 0.6 Change in stocks 0.5 0.0 0.8 0.1 0.3 0.0 GDP at market prices 100.0 15.6 100.0 13.6 100.0 17.3 Source: WB staff calculation based on data from the IMF and the Congolese authorities 1.30. Capital accumulation on the part of the private sector remained fairly constant, mainly driven by oil-sector related activities. Private sector investment averaged from 15.5 percent of GDP in 2000- 2004 and 11.2 percent of GDP during 2005-2010. Private sector investment, however, has been dominated by investments in the oil sector. Growth in non-oil private sector investments has declined over the decade, from an average of 31.5 percent per year between 2000 and 2004 to an average of 12.5 percent between 2005 and 2010. Overall, gross fixed capital formation averaged 21.9 percent of GDP during 2000-2010. 1.31. The government is committed to increasing the role of the private sector as an engine of diversification and has stressed that in order to reduce poverty from 50.7 percent to 35 percent by 2015, it is necessary to maintain a 7 percent annual growth rate, which in turn requires an increase in the investment rate to 30 percent – with a private investment rate (excluding oil) rising from about 5 to 10 percent. 13 FIGURE 1.5: Private and public investment, 2000-2010 (percent of GDP) 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Public investment Private investment - oil sector Private investment - non-oil sector Source: WB staff calculation based on data from the IMF and the Congolese authorities 1.32. Investment growth was financed by increases in both foreign and domestic saving. Foreign direct investments, predominantly in the oil sector, have been substantial, averaging 22 percent of GDP since 2000. Gross domestic savings also played a large role, expanding from 39 percent of GDP in the 1990s to over 50 percent in the 2000s. Public savings and oil sector savings continue to be the dominant contributor to gross domestic savings, while non-oil private savings remain low. Barriers to private savings include inadequate financial services. Government consumption, on the other hand, has declined, reflecting prudent spending policies. 1.33. Congo has not been able to sustain a current account surplus over the last years. Exports of goods and non-factor services have been high continuously, averaging 80 percent of GDP over the last 10 years. Imports, on the other hand, have grown, mainly financed by the increasing level of oil export proceeds. On average, non-oil private sector imports have accounted for 55 percent of imports between 2000 and 2010, followed by petroleum sector imports at 23 percent, with public sector imports accounting for 22 percent. Despite the trade surplus however, the current account balance has been negative on average over the last decade, mainly due to very high profit remittances from the oil sector. Growth accounting 1.34. The growth accounting framework is used to analyze the contribution of physical capital and total factor productivity (TFP) to GDP growth. This analysis is done in two steps. First, a Cobb-Douglas production function is estimated to determine the long-term relationship between GDP growth and the development of physical capital. In a second step, the estimated elasticity between capital and output is used to decompose GDP growth into contributions of physical capital and a residual component, capturing changes in TFP as well as other factors such as external shocks, effects of war or institutional change. 1.35. The estimation yields results that are similar to comparable countries. The estimated elasticity of output per worker with respect to capital per worker for the time period 1975-2010 is 0.50, implying that a one percent increase in physical capital per worker leads to a 0.50 percent increase in GDP per 14 worker. The coefficient is highly significant and falls within the range of values found in the literature for comparable countries (see Table 1.4). TABLE 1.4: Estimates of capital shares in developing countries Source Capital-output elasticity Country Akitoby and Cinyabuguma (2004) 0.34 Democratic Republic of Congo Bosworth et al. (1995) 0.4 Developing countries Sacerdoti et al. (1998) 0.35 West Africa 0.28 Mali Vera-Martin 0.45 Niger (2000) 0.22 Senegal IMF (2005) 0.4 Morocco IMF (2006) 0.34 Burundi Coulibaly et al. (2008) 0.42 Rwanda Nielsen et al. (2009) 0.42 Burundi 1.36. In the second step, the estimated coefficient for the capital-output elasticity is used to analyze the long-term growth of output in the Republic of Congo.3 The growth rate of real GDP per worker is decomposed into the contribution of real physical capital per worker growth and changes in TFP.4 Due to the specification of the long-run relationship, including only physical capital per worker as explanatory variable, TFP is treated as residual component and captures not only changes in factor productivity, but, as mentioned above, for example institutional changes and the effects of civil unrest. This decomposition of output growth is carried out for different time periods, according to the discussion in section 2. The results are given in Table 1.5. TABLE 1.5: Contribution of TFP and physical capital per worker to GDP per worker (averages, percent) Components Growth rate of Growth rate of real real GDP per physical capital per Growth rate Time period worker worker of TFP 1975-1984 5.2 3.8 1.4 1985-1999 -2.6 -1.4 -1.2 2000-2010 2.3 0.1 2.2 1975-2010 1.1 0.5 0.6 Source: WB staff calculation based on data from the WB, IMF and the Congolese authorities 1.37. The results show that over the entire period (1975-2010), physical capital has contributed more to output growth than changes in TFP. The difference is most pronounced in the early period of 1975 to 1984, most likely due to the large contribution of oil production, which is highly capital intensive, to growth. The period of instability from 1985 to 1999 was characterized by a decline in TFP as well as the destruction of physical capital. In the ensuing period physical capital has slowly recovered, but GDP growth has been mainly driven by increased TFP, which includes institutional improvements. Fiscal developments 1.38. Congo’s public finances remain highly dependent on oil related fiscal revenues. Booming oil revenue, on the back of higher oil prices, enabled the government to save a significant portion of the additional revenue, which resulted in improved fiscal balances and high public assets. The oil 3 See Ghosh and Kraay (2000), Akitoby and Cinyabuguma (2004), IMF (2005) and IMF (2006) for a similar application of the growth accounting methodology. 4 The decomposition is done according to the following equation: 15 dependency of the economy represents the key fiscal policy challenge to be addressed in the medium term, as revenue from hydrocarbon resources is projected to decline. The recently finalized Public Expenditure Review for the Republic of Congo discusses the challenges related to the effective management of oil revenues (World Bank 2010d). 1.39. Fiscal balances have improved since 2000 on the back of strengthened fiscal discipline and higher oil revenue. The overall balance improved from about 2 percent of GDP in the first half of the last decade to around 14 percent in the past 5 years. Oil related revenue increased by 12 percent of GDP alone. Since 2003, a budget surplus was realized every fiscal year. The same year, a stabilization mechanism was introduced, implying the transfer of oil revenues over and above the levels projected in the budget to a stabilization fund held at the BEAC. This has led to the accumulation of CFAF 1,271 billion at the end of 2010. A detailed analysis of Congo’s management of its oil wealth can be found in the 2010 Public Expenditure Review (World Bank 2010d). 1.40. Since 2008, the government has followed a fiscal adjustment policy to reduce the non-oil primary deficit to sustainable levels. Recurrent expenditures which accounted for 22.1 percent of GDP during the 1990’s declined to 19.1 percent of GDP over the period 2000 to 2004 and further to 16.0 percent of GDP over the period 2005 to 2010. Notably, the government wage bill declined over the last decade, from 5.4 percent of GDP during 2000-2004 to 3.5 percent of GDP between 2005 and 2010 (Table 1.6). This is lower in comparison to the average wage bill in other low-income countries which ranges between 6 and 7 percent of GDP. TABLE 1.6: Development of fiscal indicators, 2000-2010 2000-10 2000-04 2005-10 CFAF billion Percent of GDP CFAF billion Percent of GDP CFAF billion Percent of GDP Revenues and grants 1,254.9 34.7 635.2 29.1 1,771.3 39.4 Revenue 1,246.3 34.4 628.8 28.8 1,760.9 39.1 Oil revenue 990.1 26.8 449.3 20.5 1,440.8 32.1 Non-oil revenue 256.2 7.6 179.5 8.3 320.1 7.1 Grants 8.6 0.3 6.4 0.3 10.4 0.2 Expenditure and net lending 884.3 26.1 586.3 26.8 1,132.6 25.5 Current expenditures 570.9 17.4 417.5 19.1 698.8 16.0 Wages 137.8 4.4 117.7 5.4 154.6 3.5 Other current expenditures 328.9 9.7 214.5 9.9 328.9 9.6 Interest 104.2 3.3 85.3 3.8 120.0 2.9 Capital expenditure 312.7 8.7 168.4 7.8 433.0 9.4 Domestically financed 272.3 7.6 148.5 6.9 375.4 8.2 Externally financed 40.5 1.1 19.9 0.9 57.6 1.2 Net lending 0.7 0.0 0.5 0.0 0.9 0.0 Overall balance (commitment basis) 370.6 8.6 48.9 2.2 638.7 13.9 Primary balance 466.2 11.6 127.8 5.7 748.3 16.6 Non-oil primary balance* -523.9 -40.8 -321.5 -34.1 -692.6 -46.5 Source: WB staff calculation based on data from the IMF. * given as percent of non-oil GDP. 1.41. The increase in capital expenditure underscores the government’s intention to restore the dilapidated infrastructure in the country and improve public service delivery. Capital expenditure increased from 7.8 percent of GDP during the period 2000 to 2004 to 9.4 percent of GDP from 2005 to 2010 (Table 1.6), mostly finance by domestic resources. Externally financed expenditure accounted for less than two percent of GDP throughout the period. 1.42. Public debt has fallen significantly in the last decade. The gross public debt stock has fallen from CFAF 5,800 billion in 2004 to just under CFAF 1,000 billion in 2010, bringing the gross public debt to 16 non-oil GDP ratio, a key measure of fiscal sustainability, down to below an estimate of about 50 percent in 2010 (Figure 1.6). At the same time, the accumulation of significant assets in the stabilization fund mentioned above is projected to have brought the public sector into a net creditor position in 2010. FIGURE 1.6: Development of gross public debt Gross public debt (CFAF billion) Gross public debt (percent of non-oil GDP) 6,000 700 Domestic Domestic 5,000 600 External External percent of non-oil GDP 500 4,000 CFAF billion 400 3,000 300 2,000 200 1,000 100 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: WB staff calculation based on data from the IMF. Source: WB staff calculation based on data from the IMF. 1.43. Debt relief and sustained fiscal surpluses are the driving force behind the debt reduction. Since 2004 gross public debt has been on a firmly downward path, falling from 234 to 14 percent of GDP, or 540 to 47 percent of non-oil GDP, in 2010 (as estimated). Debt relief accounts for the largest part of debt reduction since 2000 (about 30 percent), while primary surpluses have contributed about 26 percent. Debt dynamics, the interplay of interest expenditure, growth and inflation, have also contributed to a net reduction of debt. Concessional financing at low rates, combined with robust growth have contributed to the favorable interest rate – growth differential. Nominal interest rates on gross debt averaged only about 2 percent since 2000, while nominal GDP grew on average by 15 percent, leading to an interest rate – growth differential of on average -13 points since 2000. Medium-term outlook 1.44. Economic growth is expected to remain high in 2011. Growth in 2011 is expected to be largely driven by oil production, but non-oil growth is expected to increase as well. The current account surplus is expected to increase substantially in 2011 backed primarily by high oil prices, leading also to a high fiscal surplus. Consumer price inflation is projected to increase slightly to 5.9 percent due to higher food and fuel prices. The increase in overall food prices has so far been subdued, mainly because of the improved road and rail network that has facilitated the transport of locally produced products, but some higher prices have been recorded on mostly imported items, such as meat, cooking oil and fish. The government has been monitoring the situation closely and has taken a number of measures to alleviate the pressure on food prices, including exemptions for certain food import duties at the Port in Pointe- Noire. 1.45. In the medium term, the outlook for Congo’s economy remains favorable (Table 1.7). Despite declining oil reserves and consequently reduced production and exports, overall growth will remain robust. The increasing stock of basic infrastructure will support the acceleration of non-oil growth, which is expected to off-set lower oil growth at least partially. Inflation is projected to remain low and 17 the current account balance positive. Non-oil revenue is expected to increase, leading to a reduction of the non-oil primary balance as well as the overall fiscal balance. TABLE 1.7: Medium-term projections for economic developments, 2011-2013 Actual Preliminary Projection 2008 2009 2010 2011 2012 2013 Real GDP growth (%) 5.6 7.5 8.8 6.3 5.3 6.4 Oil (%) 6.1 16.2 13.8 4.0 -0.1 -2.1 Non-oil (%) 5.4 3.9 6.5 7.4 7.8 10.2 Consumer price inflation (%) 6.0 4.3 5.0 5.9 5.2 3.5 Current account balance (% of GDP) 0.9 -9.1 5.7 10.2 13.7 15.3 Gross fixed capital formation (% of GDP) 17.8 22.1 21.5 18.5 19.2 19.6 Public (% of GDP) 8.6 10.7 11.2 10.7 11.3 11.3 Private (% of GDP) 9.2 11.4 10.3 7.8 8.0 8.3 Total revenue and grants (% of GDP) 46.6 29.2 37.8 51.9 52.6 51.2 Oil revenue (% of GDP) 40.1 20.7 29.8 44.0 43.4 40.6 Non-oil revenue (% of GDP) 6.1 8.2 7.9 7.7 8.5 9.8 Total expenditure and net lending (% of GDP) 23.4 24.6 22.7 21.2 22.2 23.0 Non-oil primary balance (% of non-oil GDP) -49.1 -39.1 -42.8 -45.9 -42.6 -36.5 Overall fiscal balance (% of GDP) 23.1 4.6 15.0 30.6 30.4 28.2 Source: IMF A.3. COMPETITIVENESS OF THE CONGOLESE ECONOMY 1.46. As pointed out in the previous sections, Congo has developed from a diversified into an oil- dominated economy in the last 50 years with the importance of non-oil exports declining continuously. Figure 1.1 documents the fundamental shift in the economy since the 1960s. At the same time, additional resources made available to the government from oil resources have not been used effectively to boost the competitiveness of the non-oil economy due to slow progress in the implementation of the structural reform agenda. As an overall result, the non-oil economy, from which a majority of the population relies on for their livelihoods, has stagnated in per capita terms and remains poorly developed. 1.47. Reliance on the oil sector is problematic for the Congolese economy, as this sector has a limited capacity to generate employment, and poses an inherent obstacle for improving competitiveness. Non-oil GDP and in particular non-oil exports have lost significant ground compared to oil GDP and exports, respectively, especially since 2003 (Figure 1.7). In 2010, non-oil exports represented only 11 percent of GDP and 7 percent of total goods exports. The main non-oil export commodities are wood and sugar. 1.48. A number of structural factors have contributed to the weak performance of non-oil exports. These constraints, which are outlined in more detail in the following section, include (IMF 2009):  the lack of infrastructure;  weak human capital;  limited access and poor quality of technological services;  weak financial sector;  poor business environment. 1.49. Productivity has declined over time. The construction of a productivity index (Ramirez and Tsangarides 2007), measuring the development of Congo’s real GDP per capita against its main trading 18 partners, also confirms a persistent decline of productivity since 1980. The different structural constraints are described in more detail in the following section. 1.50. Although it cannot be seen as the predominant cause for the bad performance of the non-oil sector, there are strong indications of Dutch disease effects contributing to the loss of competitiveness. Figure 1.7 (right panel) shows the continued appreciation of the nominal and real effective exchange rate – 30 percent and 25 percent, respectively, since 2000. An assessment of the real effective exchange rate by the IMF confirms an appreciation of the about 20 percent between 2000 and 2007 (IMF 2009). The appreciation coincides with the more pronounced decline in the share of non-oil exports in total export, particularly after 2003, also a period when oil output and prices increased. The IMF assessment also finds a moderate overvaluation of the real effective exchange rate during this period, reaching about 7 percent in 2007 (IMF 2009). The estimated overvaluation needs to be treated with caution, however, as it is not robust to statistical tests. FIGURE 1.7: Development of exports and the exchange rate, 2000-2010 Oil and non-oil exports (percent of GDP) Nominal and real effective exchange rate (index) 80 135 Nominal effective exchange rate 70 130 index (2000=100) Real effective exchange rate 60 125 index (2000=100) percent of GDP 50 Oil exports (percent of GDP) 120 40 115 30 Non-oil exports (percent of GDP) 110 20 10 105 0 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: WB staff calculation based on data from the IMF. 1.51. The evolution of tradable and non-tradable prices also points to the possibility of Dutch disease. Between 2000 and 2010, prices for non-tradables have increased more than prices for tradables, in Brazzaville as well as Pointe-Noire (see Table 1.8). In the case of Dutch disease, prices of non-tradables increase more than those of tradables, leading to an appreciation of the real effective exchange rate and ultimately to the contraction of the tradables sector. TABLE 1.8: Development of tradable and non-tradable prices in Brazzaville and Pointe-Noire, 2000-2010 (average percentage change) Brazzaville Pointe-Noire Tradables 2.4 1.9 Non-tradables 5.6 5.6 Difference 3.2 3.7 Source: World Bank staff calculation based on data from CNSEE 1.52. Dutch disease effects might not have been the main contributing factor to the erosion of competitiveness in the past, but the possibility of more pronounced negative effects in the future needs to be taken into account. In this context, it will be necessary to carefully manage the rapid and large increase in public investment. If oil revenues are not invested in areas that raise productivity and improve supply capacity, a further appreciation of the exchange rate could result with a negative effect 19 on Congo’s competitiveness. The management of the country’s oil resources is therefore critical for the success of the non-oil sectors. A more detailed analysis and recommendations for the effective management of Congo’s oil wealth are outlined in the 2010 Public Expenditure Review (World Bank 2010d). B. POPULATION AND SOCIAL INDICATORS B.1. POPULATION 1.53. Congo has a young population. Based on the last General Population Census (Recensement Général de la Population - RGPH) carried out in 2007, Congo's total population is estimated at 3.6 million. The Congolese population is mostly young (see Figure 1.8). The population under 15 is estimated at 1.4 million, representing 39 percent of the total population. The working-age population (ages 15 to 64) represents about 58 percent of the population, or 2.1 million people, about equally divided between men and women. The young working-age population (aged 15-29) is estimated at 29 percent of the population. The share of the elderly is small with only 3 percent being 65 or older. Overall, the average age of the Congolese population is 24.1 years. FIGURE 1.8: Age pyramid by gender (2007) 85+ Women 80-84 75-79 Men 70-74 65-69 60-64 55-59 50-54 Age group 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 4-9 0-4 16 12 8 4 0 4 8 12 16 Percent of total population Source: RGPH 2007 1.54. Congo remains a predominantly urban economy. The urban population is estimated at 2.3 million or 62 percent versus 1.4 million in rural areas (38 percent) as of 2007. 2.1 million people live in the main urban centers, Brazzaville and Pointe-Noire, representing about 57 percent of the total population. This is confirmed by the Employment and Informal Sector Survey (Enquête sur l’emploi et le secteur informel au Congo - EESIC) carried out in 2009, finding that 2.2 million people live in Brazzaville and Pointe-Noire of which 29 percent are between 15 and 29, confirming that results from the 2009 survey, carried out in the two main cities, cover the majority of the population. Strong rural-urban migration took place in the 1970s and 1980s (see Table 1.10) when the share of the urban population increased from 35 percent to 62 percent. 20 TABLE 1.9: Population distribution by locality and age group 0-14 15-29 30-64 65+ Total Brazzaville 488,515 441,405 411,244 32,218 1,373,382 Pointe-Noire 262,180 228,117 212,576 12,461 715,334 Other regions 677,319 399,740 456,861 74,854 1,608,774 Total 1,428,014 1,069,262 1,080,681 119,533 3,697,490 Source: RGPH 2007 TABLE 1.10: Urban and rural population shares (percent of total population) Urban Rural 1974 35.0 65.0 1984 49.3 50.7 1994 61.1 38.9 2007 61.8 38.2 Source: RGPH 1974, 1984, 1994, 2007 1.55. Congo’s population is projected to grow substantially in the medium and long term. According to the United Nation’s Population Forecasts, the population of the Republic of Congo will reach 6.9 million in 2050 (Figure 1.9), almost double the current population. The working age population (between 15 and 64) will grow to 4.6 million of which 1.7 million or 37 percent are between 15 and 29. FIGURE 1.9: Population trends and prospects, 1960-2050 (in ‘000) 8 000 65+ 7 000 30-64 15-29 6 000 0-14 5 000 4 000 3 000 2 000 1 000 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048 Source: UN Population Forecasts B.2. HUMAN DEVELOPMENT 1.56. Congo still faces fundamental challenges in the social sectors. According to the United Nation’s Human Development Index (HDI), Congo ranks only 126th out of 169 countries (UNDP 2010). Moreover, human development as measured by the HDI has not yet recovered to levels present before the war (Figure 1.10). Congo also lags behind other countries in the CEMAC region, which all show upward trends. 1.57. Poverty remains pervasive. According to the 2005 household survey, about half of the population (50.1 percent) lives below the poverty line. The situation is worst in semi-urban and rural 21 areas, followed by Brazzaville where 53.4 percent of the population lives below the poverty line. Pointe- Noire fares substantially better with only 32.2 percent. FIGURE 1.10: Human Development Indicator, Congo and comparator countries 0.7 1980 1990 0.6 2000 2010 0.5 0.4 0.3 0.2 0.1 0 Gabon Equatorial Congo Cameroon CAR Chad Guinea Source: UNDP; data for Equatorial Guinea and Chad for 1980 and 1990 not available. 1.58. Although social indicators are slowly improving, meeting the MDGs remains a challenge and Congo’s human development indicators are still far below those of countries with comparable levels of GNI per capita. As indicated in Table 1.11, education indicators, which worsened significantly during the conflict period, have started to improve, but some health indicators show a continued deterioration of the situation in the country. Poor health conditions and weak educational attainment can be seen as serious constraints for growth. TABLE 1.11: Key social indicators, 1990 - 2009 Indicator 1990 1995 2000 2005 2006 2007 2008 2009 Lower middle Sub- income Saharan countriesa Africaa Education Gross primary school enrolment rate (%) 123 116 85 114 116 115 114 120 107 100 Male 128 126 88 118 121 119 118 123 109 105 Female 118 106 82 110 110 111 110 116 105 95 Net primary school enrolment rate (%) 81b - - - 59 - - - 87 75 Primary school completion rate 59 - 55c 70 77 77 73 74 90 64 (% of relevant age group) Health Life expectancy at birth (years) 59 56 54 53 53 53 54 54 68 53 Infant mortality rate (per 1,000 live births) 67 70 74 77 78 79 80 81 43 81 Under-5 mortality rate (per 1,000 live births) 104 110 116 123 124 125 127 128 57 130 Maternal mortality rate - - - 781 - - - - 230 650 (per 100,000 live births) Immunization, measles 75 38 34 56 66 67 79 76 79 68 (% of children ages 12-23 months) Memorandum item Population (millions) 2.4 2.8 3.0 3.4 3.5 3.6 3.6 3.7 - - Source: World Development Indicators. Note: a = data from 2008 or 2009, b = data from 1991, c = data from 2001. 1.59. Compared to other middle income countries, health indicators are particularly bad. As Figure 1.11 and Figure 1.12 show, the under-5 mortality and the maternal mortality rate are very high compared to other lower middle income countries and similar to low income countries. In 2009, under-5 22 mortality stood at 128 per 1,000 live births compared to 57 for lower middle income countries. Moreover, under-5 mortality has been increasing rather than displaying a downward trend as could have been expected after the end of the conflict. The low health indicators can be assumed to have a negative impact on productivity. FIGURE 1.11: Under-5 mortality rate FIGURE 1.12: Maternal mortality ratio 250 1,600 Maternal mortality ratio (per 100,000 live births) Low income Low income Under-5 mortality rate (per 1,000 live births) 1,400 Lower middle income Lower middle income 200 Upper middle income 1,200 Upper middle income Congo 1,000 150 Congo 800 100 600 400 50 200 0 0 0 5,000 10,000 15,000 20,000 0 5,000 10,000 15,000 20,000 GNI per capita (PPP, current USD) GNI per capita (PPP, current USD) Source: WDI Source: WDI 1.60. In the education sector, quantitative performance has improved substantially, but has not always been accompanied by qualitative improvements (World Bank 2010b). School enrolment rates have increased significantly during this decade in all school segments. This development can be linked to the introduction of a fee-free schooling policy in 2007/08. However, major social differences still exist, particularly regarding geographical location and family revenue. Teaching conditions are among the most difficult in the region with, for example, teacher-pupil ratios of 1:76 in primary education, compared to a regional average of just below 1:50. In addition, public resources on education are spent in an unbalanced way, leading to a severe underfunding of primary education while tertiary education receives a relative allocation that is much higher than in other countries. This spending pattern is not fully consistent with the demands of the labor market. 23 Chapter 2. LABOR MARKET DEVELOPMENTS 2.1. Despite the continued high growth, unemployment has remained high, especially in urban 5 areas. Due to a number of factors, the economic prosperity has not translated into job creation in the formal sector. This chapter identifies overall trends in the labor market. It explores detailed information on the urban labor markets available from a survey carried out in 2009 on the formal and informal sector and establishes linkages between education and employment. It also shows that Congo is not alone with this situation, but that jobless growth has been experienced by a number of African countries. A. LABOR MARKET TRENDS 2.2. The labor market has evolved parallel to the development of the Congolese economy and can therefore be presented in a similar fashion. In this section, hence, the overall situation is outlined first, followed by a closer look at the different sub-periods. As a comparison, Box 2.1 describes Africa’s current unemployment situation. A.1. OVERALL SITUATION 2.3. Unemployment has been a long-standing problem in Congo with particularly high unemployment rates during the years of the conflict. Based on the 1974, 1984, and 1994 census data, and on the estimates of the 2005 household survey, country-wide unemployment levels remained relatively stable from 1970 to 1984, at 13.1 percent and 12.2 percent, respectively (Figure 2.1). Unemployment increased rapidly in 1990s, reaching 30.9 percent in 1994. The situation improved after the end of the conflict, although unemployment levels remained higher than in the 1970s and 80s. Unemployment rates in 2005 and 2009 were estimated at 19.4 percent and 16.1 percent (for urban areas), respectively. 2.4. Unemployment is a mostly urban phenomenon in Congo. Based on the 2005 household survey, the urban unemployment rate reached 32.6 percent in Brazzaville and 31.5 percent in Pointe-Noire, compared to an unemployment rate of only 5.8 percent in rural areas and 9.0 percent in semi-urban areas. 2.5. Unemployment affects especially the youth. Countrywide, according to the 2005 household survey, the unemployment rate was highest for the 15-19 age group (above 40 percent) and declined gradually thereafter with unemployment rates of 36.7 percent for the 20 to 24 year old and 27.7 percent for the 25 to 29 old. In urban areas, 25 percent of the population under 30 years is unemployed if the ILO definition is employed whereas this rate increases to more than 40 percent if a broader definition is used (as measured by the EESIC in 2009, see also section B.1). 2.6. A high share of the unemployed is well educated. Results from the 2009 EESIC show that education does not seem to protect against unemployment as the lowest unemployment rate has been recorded for those who have not completed schooling. This is particularly the case for Brazzaville, where unemployment rates increase rapidly with the level of education. 5 Generally, the ILO definition of unemployment is used, see footnote 11. The analysis includes the formal and the informal sector. 24 FIGURE 2.1: Unemployment rates (in percent) Conflict 30.9 Post-conflict recovery Growth period 19.4 16.1 13.1 12.2 1974 1984 1994 2005 2009 Source: RGPH 1974, 1984, 1994, ECOM 2005, EESIC 2009 (urban areas) 2.7. About 70 percent of the working age population participates in the labor force. This is in line with the overall labor force participation rate of 71 percent in Sub-Saharan Africa in 2009 (ILO 2011a). Labor force participation in Congo is with over 80 percent highest in rural areas, according to the 2005 household survey, while the share in Brazzaville is the lowest (57 percent – see Figure 2.2). The urban labor force rate is in line with the findings of the 2009 EESIC, reporting a participation rate of about 60 percent in urban areas. Most of the active population is working in the agriculture sector (Figure 2.3), especially the poor population in rural areas. FIGURE 2.2: Labor force participation rate (percent) FIGURE 2.3: Active population by sector of activity - countrywide (percent) 90 45 80 Poor 40 70 Non-poor 60 35 Total percent 50 30 40 percent 30 25 20 20 10 0 15 10 5 0 Primary Industry Commerce Services Source: ECOM 2005 Source: ECOM 2005 2.8. Congo's formal sector is small and dominated by civil servants and employees of state-owned enterprises. Starting from an already low base, employment levels in private businesses fell by almost 60 percent from 1984 to 1994 as a consequence of the civil war and low economic growth. Employment in state-owned enterprises also declined during that time. Overall, employment levels decreased from 158,500 in 1984 to 105,827 in 2000. However, employment levels in the formal sector have started 25 growing again since 2000, stimulated in part by the private sector where employment increased from 20,607 to 35,565, reaching an overall level of 125,137 jobs (Table 2.1 and Figure 2.4). TABLE 2.1: Employment trends in the formal sector 1984 – 2007 (number of employees) 1984 1994 2000 2004 2007 Civil servants 76,680 78,200 70,093 66,125 78,200 Private sector employees 50,100 21,500 20,607 28,442 35,565 Employees of state-owned enterprises 31,720 11,900 15,127 13,400 11,372 Total 158,500 111,600 105,827 107,967 125,137 Source: MFPRE, DGE, CNSEE, ONEMO FIGURE 2.4: Employment levels by sector, 2000-2007 (number of employees) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - 2000 2001 2002 2003 2004 2005 2006 2007 Civil servants Private sector employees Employees of state-owned enterprises Source: MFPRE, DGE, CNSEE, ONEMO 2.9. The largest share of civil servants is employed in the education, health and social affairs and defense and security sectors. Together, these three sectors employ 68 percent of all civil service personnel (Figure 2.5). The military sector (defense and security) is the only one that was not affected by the hiring freeze implemented in previous years, whereas education and health (including social affairs) are among those few sectors where new hiring was allowed in the early 2000s. FIGURE 2.5: Sectoral distribution of civil service employees (2005) Other Culture and 18% sport Education 3% 32% Defense and security 22% Health Rural and economy Finance and social and budget affairs forestry 6% 13% 6% Source: MFPRE 26 2.10. Much of the economic activity takes place in the informal sector. According to the 2005 household survey, countrywide 77 percent of the active population works in the informal sector. This share is significantly higher in rural areas (93 percent) compared to Brazzaville and Pointe-Noire (58 percent and 60 percent, respectively). Figure 2.6 illustrates the sectoral distribution of the active population. The economic activity in the informal sector is significant. In urban areas, the turnover in the informal sector reached more than 13 percent of GDP in 2009 (see section B.5). FIGURE 2.6: Sectoral distribution of active population in 2005 100 80 percent 60 40 20 0 Public sector Private formal sector Informal sector Source: ECOM 2005 2.11. Wages are usually set by collective agreements in the respective sector. The oil industry, however, is the only sector that modified its collective bargaining agreement continuously between 1990 and 2010, resulting in a regular review of base salaries (Table 2.2). Regarding other sectors, the latest collective agreements date from the beginning of the 1990s, renegotiations have only started to take place since 2008 due to economic and social stability and the willingness of the authorities to review compensation levels in the civil service as well as efforts to clear social arrears (wages and pensions). The collective agreements give an indicative level of wages by industry. However, in practice, companies often offer higher compensation (including other benefits) that is well above the standards set in the agreements. TABLE 2.2: Collective agreements for some sectors between 1990 and 2010 Sector Last negotiated agreement Situation since 2000 before the conflict Industry (non-oil), metallurgy 1990 Agreement negotiated in 2010 Oil research and production 1990 Agreement renegotiated in 2006, 2008 and 2010 Hotels and related services 1990 Agreement renegotiated in 2010 Agriculture and forestry companies 1990 No modification of the agreement (ongoing negotiations) Air transport 1992 No modification of the agreement (ongoing negotiations) Transit services 1992 Agreement renegotiated in 2009 Source: UNICONGO 2.12. Wages in the formal private have remained fairly constant in the past (see Table 2.3). It is evident that that wages have not changed substantially in Congo over the past 20 years. The oil sector has recorded the highest rate of average annual increase over this period especially for junior officers 27 and mid-level management. The low increase of wages for upper management in the oil sector could be explained by additional benefits that have not been included in the reported wage. 2.13. The increase in minimum wages has been well below inflation. The minimum wage for the modern sector has increased from CFAF 35,600 in 1990 to CFAF 50,400 in 2008, an increase of nearly 2.1 percent in 20 years. Over the same period, inflation has averaged 5.5 percent, well above the average annual growth rate of wages in all, but the oil sector. This leads to a loss of purchasing power parity. TABLE 2.3: Average monthly wage per sector in 1990 and 2010 (in CFAF) Grade 1990 2010 Annual average change (%) Industry (non-oil), metallurgy lowest 40,299 50,463 1.3 mid 71,554 87,383 1.1 highest 213,564 229,495 0.4 Hotels and related services lowest 39,750 54,936 1.9 mid 69,525 87,636 1.3 highest 137,235 169,386 1.2 Agriculture and forestry companies lowest 32,320 32,320 - mid 56,875 56,875 - highest 175,000 175,000 - Oil research and production lowest 97,914 234,900 7.0 mid 233,075 530,190 6.4 highest 1,147,621 1,359,400 0.9 Air transport lowest 42,503 42,503 - mid 160,362 160,362 - highest 549,020 549,020 - Transit services lowest 64,370 66,944 0.2 mid 99,586 103,569 0.2 highest 240,506 245,316 0.1 Minimum wage formal sector - 35,600 50,400 2.1 Source: UNICONGO 2.14. Wages in the public sector also remained constant in the past expect for armed forces and lawyers (magistrates). Under the structural adjustment program, wages in the public sector were cut by almost 25 percent in 1994 coupled with the recruitment freeze in the public service since 1992. As a consequence, wages in the public sector remained constant until the post-conflict period. In addition, the government was not able to pay wages regularly during the 1990s, leading to significant wage arrears of more than 15 months. The armed forces are the only sector where wages continued to be paid regularly, reviewed annually and promotions were accompanied by an additional financial benefit. The lawyers and magistrates were also part of the sectors that benefited from a special statute (statut particulier) as they were paid much better than the other civil servants (more than the double of wages of the other public servants). This was done to prevent this sector from corruption but instead created more frustration and social debates on the equal treatment among public servants. 2.15. A new salary scale for civil servants is in place and foresees a progressive salary increase during a three year period. The new salary scale is effective since January 2011, which increased the minimum salary by almost 25 percent from CFAF 50,400 to CFAF 60,000 (see Table 2.4 for details of the salary development of public servants). The new scale complements the number of measures that were introduced since 2008 to compensate the level of wages of civil servants. These included the payment of 28 a transport allowance of CFAF 10,000 per month, a risk premium for teachers6 and motivational bonus for nurses and social affairs staff. 7 TABLE 2.4: Average monthly wage by entry into the public service in 1992, 1010 and 2011 (in CFAF) 1992 2000 2011 Category 1 high 146,000 136,000 146,000 mid 118,800 108,800 118,800 low 104,400 94,400 104,400 Category 2 high 97,600 85,600 97,600 mid 92,800 80,800 92,800 low 82,400 70,400 82,400 Category 3 high 75,000 60,000 75,000 mid 65,400 50,400 65,400 low 64,000 40,800 64,000 Source: Ministry of Public Service A.2. EXPANSION : 1960-1984 2.16. As shown in the first chapter, economic activity was dynamic during this period and the public finance situation solid. Thus employment levels increased as a result of economic activity and the civil service became a major employer. The implementation by the Congolese Government of several rural youth insertion pilot programs listed in the 1964-1968 Interim Economic and Social Development Plan led to the hiring of several young workers. In this context, about 3,000 young individuals were recruited into FAO supported agricultural production projects, financed by an investment of about CFAF 1.1 billion 8 from the Government of Congo, and a CFAF 304 million grant from the World Food Program . Unfortunately, these investments failed to produce the expected results due to poor project design or management and/or too little interest on the part of young people for country life, which rapidly led to a sharp increase in migration to the cities (see Table 1.10). 2.17. The policy choices made during this period led to an over-involvement of the government. The policy of nationalizing businesses resulting from the communist rule at the end of the 1960s created a state sector that became the main driving force of the economy. Employment for young graduates was promoted through automatic hiring as civil servants and job opportunities created by establishing close to a hundred state-owned corporations and mixed-ownership ventures in several areas, including transportation, electricity, water, telecommunication, industry, marketing of agricultural and oil products, insurance, etc. (see Table A.1 in Annex 2). In only a few areas (such as banking, mining and oil), the government continued to compete or partner with the private sector, comprising mostly foreign businesses. 2.18. Employment levels in state-owned entities increased substantially. As a result of these policies, employment levels in state-owned corporations went from 29,145 in 1980 to 33,400 in 1983. The crisis that began shortly after, however, led to a decline of staff numbers after some businesses were restructured or closed. While the nationalization policy gave people hope by ensuring almost full employment, poor management skills, capacity constraints of officials and lack of authority, as well as 6 In the Republic of Congo, teachers receive a premium compensating for the risk of being in contact with toxic material (chalk). 7 Congolese public servants are classified into three categories: Category 1 comprises those with tertiary education, category 2 includes new hires with secondary education and category 3 covers those with primary education or less. 8 These resources mainly served to purchase agricultural production material and equipment and to train beneficiaries. 29 disorderly hiring practices compromised this strategic choice, the consequences of which began to be felt in the mid-1980s. A.3. COLLAPSE : 1985-1999 2.19. The collapse of the economy let to a decline in employment. This period saw the beginning of a breakdown in the broad macroeconomic balances; economic growth slowed and public debt levels became unsustainable. The first five years of this phase (1985-1990) mostly saw an increase in endemic unemployment, due to the fact that the national economy began stagnating in 1985. 2.20. The objective of the first five-year plan to create a significant number of jobs was not met. The first five-year plan implemented in 1982-1986, at an overall cost of about CFAF 350 billion had as objective to create 55,000 jobs by financing large infrastructure projects designed to spur local public works (leading to the creation of about 16,000 jobs), restructuring state-owned corporations and introducing competitive processes in the transportation and telecommunication sectors (4,000 jobs), as well as promoting microcredit (about 15,000 jobs). Despite the resources invested to implement the plan, these objectives were not met: not only did unemployment fail to decrease; it rapidly grew in the 1990s due to the conflicts. 2.21. An excessive burden was placed on public finances. Inadequate structuring and management led to negative operating results for almost all state-owned corporations, thus placing an excessive subsidy and public debt burden on the Congolese economy in general and on public finances in particular, with a budget deficit that became a permanent fixture throughout the 1990s. Austerity budgets were put in place, resulting in fewer public investments and the cancellation of subsidies granted to state corporations in the mid-80, leading to a decrease in employment levels in the formal sector in 1985-1987. 2.22. Consequently, three structural adjustment programs were successively implemented between 1985 and 1988 with IMF assistance, but failed to produce the expected results. In terms of employment, the structural adjustment programs resulted in:  A civil service hiring freeze starting in 1992;  The shrinking of state-owned and private corporations; and  The dissolution of some state-owned corporations. 2.23. The civil service wage bill increased at a worrisome pace in 1990-1991, following the disorderly hiring of about 8,000 new officers in various sectors (including health and education), bringing the overall number of civil servants to about 80,000 in 1991. Lacking sufficient resources, the government was unable to consistently pay them. Initiated in 1992, and exacerbated by repeated armed conflicts in the country, the civil service hiring freeze marked the start of a trend to close down public and private corporations, and shrink staff numbers. 2.24. Impact of privatization programs on unemployment. The dissolution or privatization of state- owned corporations led to the loss of an estimated 10,000 to 15,000 jobs between 1980 and 1997. In early 2000, according to the Privatization Committee, a surplus of about 4,190 jobs remained and could still be lost in the main State-owned corporations that were to be privatized (see Table A.2 in Annex 2). 30 A.4. RECOVERY: 2000-2010 2.25. Following efforts to restore peace and security, combined with enhancements to the macroeconomic framework and implementation of reforms, the economy started growing again in 2000, gradually regaining the trust of donors and the business world. This has led to a progressive increase in civil service hiring in some specific sectors (the military and pro-poor sectors, including health, education and social affairs), and in private sector job creation, spurred by the economic recovery. 2.26. Despite increasing employment levels in the last few years, a large gap remains between job supply and demand. The current rate of employment growth could fail to create a sufficient number of jobs, unless policies that promote employment are put in place. For instance, in terms of new hires in the public service in the past 4 years, only 13,000 employees were hired out of about 119,600 job applicants. 2.27. Data from ONEMO (L’Office National de l’Emploi et de la Main-d’œuvre) confirm the high demand for employment. According to data from ONEMO, between 2006 and 2010, only 15,069 out of 105,965 applicants were hired (see Table 2.5 and Table 2.6). However, since the office is not adequately computerized and therefore no electronic archiving of applicants takes place, the number of applicants most likely includes the same applicant multiple times. This is the case, because for each job offer, application materials have to be re-submitted. TABLE 2.5: Gap between job offers and applications in 2009 and 2010 Recorded offers Recorded applications Successful Success rate of Success rate applications applications of offers 2009 Brazzaville 837 12,811 652 5% 78 % Pointe-Noire 1,441 10,701 1,441 14 % 100 % Nkayi 2,441 6,316 2,443 39 % 100 % Other Locations 213 1,455 145 10 % 68 % Total 4,932 31,283 4,681 15 % 95 % 2010 Brazzaville 3,615 9,002 2,634 29 % 73 % Pointe-Noire 5,587 8,220 4,261 52 % 76 % Nkayi 322 1,946 107 6% 37 % Other Locations 648 2,949 523 31 % 81 % Total 10,172 22,117 7,525 36 % 74 % Source: ONEMO 2009, 2010 TABLE 2.6: Historical trend of job offers and applications, 2006-2010 Recorded offers Recorded applications Successful Success rate of Success rate applications applications of offers 2006 872 8,670 771 9% 88 % 2007 1,798 19,596 1,008 5% 56 % 2008 3,290 24,299 1,084 5% 33 % 2009 4,932 31,283 4,681 15 % 95 % 2010 10,172 22,117 7,525 36 % 74 % Total 21,064 105,965 15,069 14 % 72 % Source: ONEMO 2006-2010 2.28. A number of job offers cannot be filled due to inexistence of qualified workers in the local market, raising the issue of inadequacy between training and employment. Over the past 5 years, 31 according to data from ONEMO, 5,995 of the 21,064 job offers received from private companies could not be filled, equivalent to 28 percent of the job offers. This was mostly due to the high qualification required, which could not be provided by the local job seekers (for example building and civil engineering, telecommunication technology, oil sector, etc.). 2.29. The role of foreigners in the labor market is controversial. In 2010, ONEMO issued 4,027 work permits to foreigners of which 2,985 were temporary work permits. The lack of skilled workers in a number of areas necessitates the hiring of foreigners. However, the competition from foreign workers is not always well perceived. This confirms the importance of addressing the mismatch between skills required by the private sector and skills offered by job seekers. 2.30. However, a positive trend in labor demand has been recorded since the end of the conflicts. Since 2000, the dynamics of job creation has been positive in Congo (Table A.3 and Figure 2.7). In the private sector in particular, average annual employment increased by about 8 percent between 2000 and 2007, spurred by the construction (public works) and service sectors. Indeed, employment levels in the public works sector increased annually by 27 percent on average in 2003-2006, with a sharp uptake of 64 percent in 2004, which can be explained by the effect of activities resulting from public investment 9 related to the accelerated “municipalization� program. FIGURE 2.7: Employment in the formal sector (by sector), 2003-2006 8,000 2003 7,000 2004 6,000 2005 2006 5,000 4,000 3,000 2,000 1,000 0 Source: DGE, Report on the Balance Sheets of Modern Sector Businesses, 2003-2006 2.31. Employment levels have increased especially in the services sector. This includes the telecommunications sector where employment increased annually by an average rate of 19 percent 9 The accelerated "municipalization" program is a government initiative that invests in basic economic infrastructure in the county where national independence celebrations are to be held on August 15 of each year. The program also aims to highlight the vast infrastructure gap between large cities and other areas in the country (roads, health centers, schools, sanitation, drinking water, electricity, airports, cultural infrastructure, etc.) The program was launched in 2004 in Kouilou and Pointe-Noire. It took place in Likouala in 2005, Niari in 2006, Cuvette-Central in 2007, and Brazzaville in 2008, 2009 and 2010. It is scheduled to take place in Cuvette-Ouest in 2011 and in Pool in 2012. 32 between 2003 and 2006, following the opening of the mobile phone market. Employment levels are also rising progressively in the financial sector, which should remain dynamic given the current expansion of the financial market, and the interest expressed by several private international banks to enter the Congolese market. In terms of numbers, the logging and manufacturing industries are the largest employers, representing respectively 20 percent and 22 percent, followed by construction and trade (15 percent each), trade and financial and oil services (10 percent). Conversely, employment levels decreased slightly in agriculture and trade, possibly due to the temporary and often short-term nature of jobs created in these sectors. 2.32. Rising employment levels recorded in the private sector coincide with the growing number of new businesses registered in the formal private sector. According to information from the Centre de Formalité des Entreprises (CFE), 12,260 new businesses were registered created between 2003 and 2007, representing an average yearly increase of about 2,400 new businesses during that period (see Table 2.7). Out of these 12,260 businesses, 154 (only 1 percent) have 6 to 20 employees, and about 28 large businesses have more than twenty employees. This dynamic is supported by some improvements in the business climate, particularly advances made in restructuring the banking sector, as well as the adoption and implementation of a new and more attractive investment charter in 2003/04. Based on National Investment Commission’s previsions on new investments, this dynamic is likely to persist in the next few years. TABLE 2.7: Distribution of newly created businesses, by number of employees, 2003-2007 Business size 2003 2004 2005 2006 2007 Total 0-5 2,165 1,948 2,250 3,154 2,561 12,078 6-20 34 24 31 41 24 154 20 + 6 3 5 5 9 28 Total 2,205 1,975 2,286 3,200 2,594 12,260 Source: CNSEE, Statistical Yearbook 2007 2.33. Statistical data on job creation in the private sector is still limited. Data from ONEMO remains the main source of information. With the liberalization of the job market (previously recruitment had to be done through ONEMO), many formal enterprises use their own channels to recruit staff and this information is not tracked by ONEMO. Similarly, information from the National Social Security Fund (Caisse Nationale de Sécurité Sociale – CNSS), which is supposed to capture every new position created in the formal private sector as imposed by the Labor Code, shows that in practice not all new employees are automatically reported, including those of some large companies. Between 2008 and 2010, the CNSS has recorded about 7,600 new staff (see Table 2.8). This figure includes some employees registered in the respective year but also several cases of adjustments from previous years. Adjustments were particularly important in 2008 and 2009 as a consequence of massive awareness campaigns targeted at private companies carried out in the context of rolling out the new database of pensioners. TABLE 2.8: Newly registered staff at the CNSS between 2008 and 2010 by sector Sector 2008 2009 2010 Total Primary 1 16 1 18 Secondary 524 323 54 901 Tertiary 2,534 3,317 868 6,719 Total 3,059 3,656 923 7,638 Source: CNSS 33 Box 2.1: Africa’s experience with jobless growth The situation of the Republic of Congo is not unique. Despite the recent economic recovery from the global financial and economic crisis leading to increased growth rates, unemployment is a serious problem in Africa, especially for young people, women, the disabled and the elderly. The overall unemployment rate for Sub-Saharan Africa is 8 percent, while that for North Africa is close to 10 percent (see Figure Box 1). Especially affected is the youth in North Africa, where youth unemployment reaches almost 24 percent, comparable to the situation in the Republic of Congo. Figure Box 1: Unemployment rates in Africa (2010) 25 North Africa 20 Sub-Saharan Africa 15 percent 10 5 0 Total Men Women Adults Youth Source: ILO (2011a); estimates Moreover, the majority of workers in Sub-Saharan Africa (76 percent) are in vulnerable employment, which is defined by the ILO as either being self-employed or a contributing family worker in employment. Furthermore, working poverty rates are very high in Sub-Saharan Africa. In 2009, about 60 percent of the workers in Sub-Saharan Africa were among the working poor (less than USD 1.25 a day). Both these shares are much lower in North Africa with 40 percent vulnerable employment and 16 percent working poor in 2009. The majority of the working population in Sub-Saharan Africa is employed in the agriculture sector (59 percent in 2009), compared to only 31 percent in North Africa. The necessary structural transformation of the labor market has not yet taken place and the continued high rates of vulnerable employment and the working poor undermine the achievement of the MDGs, despite numerous declarations and commitments. Underlying reasons for the jobless growth experience in Africa are economic growth with a narrow productive base, rapid population growth and labor market imperfections. The continent continues to be heavily dependent on commodity production and exports and lacks sufficient diversification. Traditionally, in many countries, the public sector has been the main employer while the involvement of the private sector was not well developed. Due to these factors, even high economic growth neither creates adequate employment opportunities nor reduces poverty substantially. In addition, most of the economic activity in Africa takes place in the informal sector with few linkages to the formal sector and smaller multiplier effects of job creation. To address these challenges, comprehensive strategies need to be developed and implemented that address both demand side and supply side constraints as well as labor market imperfections. Source: UNECA (2010), ILO (2011a) B. RESULTS FROM THE EMPLOYMENT AND INFORMAL SECTOR SURVEY 2.34. Country level unemployment and employment data remain scarce and are mostly captured through general population censuses. The 2005 poverty survey provided a first estimate of post-conflict unemployment levels. Analysis of the employment situation is limited to available information on wage employment in the modern sector; the lack of data on the informal sector makes it impossible to carry out a comparative analysis over time or a cumulative analysis at the country level. To fill this statistical gap, the government has just completed an employment and informal sector survey, with Afristat's technical assistance, covering the two main urban centers Brazzaville and Pointe-Noire. 2.35. The 2009 Employment and Informal Sector Survey is the first of its kind and size in Congo. The Employment and Informal Sector Survey (Enquête sur l’emploi et le secteur informel au Congo - EESIC) is a 1-2 Survey carried out in 2009 in the two main cities of the country, Brazzaville and Pointe-Noire, by the National Center for Statistics and Economic Studies of the Republic of Congo (Centre National de la 34 Statistique et des Etudes Economiques – CNSEE, see Republic of Congo 2010c and 2010d). This is a composite survey, aimed at different statistical populations: individuals, production units, households. The first phase of the survey deals with employment, unemployment and working conditions for households and individuals. It documents and analyzes how the labor market operates, and is used as a filter for the second phase, where a representative sample of Informal Production Units (IPUs) is surveyed. Thus, during the second phase of the survey, the heads of the IPUs identified in the first phase are surveyed: the survey aims to measure the main economic and productive characteristics of production units, the main constraints encountered while developing the activity, and the type of support entrepreneurs in the informal sector expect from government services.10 In Congo, the survey covered 2,977 households (1,446 in Brazzaville and 1,531 in Pointe-Noire), thus representing a total of more than ten thousand people. B.1. UNEMPLOYMENT 2.36. The unemployment rate in urban areas remains high. The unemployment rate (as defined by the ILO11) in Congo's urban areas reaches 16.1 percent and is more pronounced in Brazzaville (17.6 percent) than in Pointe-Noire (13.4 percent); the latter being the economic hub of the country, resulting in more employment opportunities than in the capital city of Brazzaville (Table 2.9). Considering a broader definition of unemployment that also includes discouraged job seekers, the overall unemployment rate reaches 26.6 percent, 37.0 percent for women and 18.3 percent for men (Figure 2.8). TABLE 2.9: Unemployment rate according to the ILO definition by city/gender and age group Age group City Gender 15-29 years 30-49 years 50 + years Total Men 26.1 12.4 3.7 15.3 Brazzaville Women 28.7 18.1 4.5 20.5 Total 27.4 14.8 4.0 17.6 Men 19.2 7.6 10.3 11.5 Pointe-Noire Women 22.7 11.3 7.7 15.8 Total 21.0 9.1 9.3 13.4 Men 23.5 10.6 5.5 13.9 Total Women 26.4 15.7 5.3 18.8 Total 25.0 12.7 5.4 16.1 Source: EESIC 2009 2.37. Unemployment is a serious problem among the youth. As in most large African cities, youth unemployment is a serious concern in the Republic of Congo (Table 2.9): 25.0 percent of the youth below the age of 30 that enter the labor market do not find jobs, whereas this rate drops by half among 30-49 year old adults, and is only 5.4 percent among those older than 50. This only includes unemployment data as defined by the ILO, therefore referring to people actively seeking work. If the 10 In its complete version, a 1-2-3 Survey includes in a third phase a survey focusing on income and spending is carried out on a sub-sample of households selected during phase 1, to estimate the weight of the formal and informal sectors in household consumption, by product and by type of household. Phase 3 also helps assess the living standard of households and monetary poverty, based on income or spending. 11 According to the ILO, a person (older than 15) is unemployed if he/she meets the following criteria: (i) "to be without work", i.e. having no activity, even minimal, during the baseline week; "to be available for work", i.e. being able to accept any job opportunity that arises within fifteen days, free of any other obligation that would prevent a return to work; (iii) "to actively seek a job, or to have found one that will start at a later date". 35 notion of unemployment is extended to include those who have given up looking for a job, the proportion of working age youth who cannot find a job jumps to 42.2 percent. The average age of those who are unemployed in both cities is 30.5 years. It must be emphasized that for the overwhelming majority of these young unemployed, this is the first attempt to find a job. 2.38. Furthermore, more women than men are unemployed (respectively 18.8 percent versus 13.9 percent), for various reasons, including the possibility that they may be: less actively seeking employment than men; less skilled than men; or less attractive to employers than male workers, due to cultural biases that view certain job descriptions (or types of employment) as gender specific. FIGURE 2.8: Unemployment rate by city and gender according to ILO and broad definition (percent) 40 30 20 10 0 Men Women Total Men Women Total Men Women Total Brazzaville Pointe-Noire Total ILO definition Broad definition Source: EESIC 2009 2.39. Unemployment is a longstanding phenomenon. On average, unemployment lasts about 5 years (58.1 months), and long-term unemployment (over one year) is very frequent: 81.6 percent of unemployed Congolese have been without a job longer than one year. The share of women that are first-time job seekers and unemployed longer than one year is particularly high with 89.0 percent. 2.40. Migrants to the two main cities are less likely to be unemployed. The unemployment rate for migrants in Brazzaville and Pointe-Noire stands at 12.6 percent 18.6 percent of the natives of these two cities are unemployed. This applies equally to men and women. The migratory status is thus a differential factor in employment. One explanatory factor is that the natives are more demanding about the type of job sought, while migrants readily accept the jobs rejected by the natives. In Brazzaville and Pointe-Noire, 27 and 32 percent of the population has a migratory background, respectively. The main reason for moving to the city is to follow or join the family for both men and women. However, 28 percent of men cite job search as motivation to move, whereas only 6 percent of women identify that as underlying reason. 36 B.2. ACTIVE POPULATION AND COMPENSATION 12 2.41. About 60 percent of the working age population in urban areas participates in the labor force. The labor force participation rate, however, varies widely by gender and age (Figure 2.9 and Figure 2.10). According to the ILO definition, only 47 percent of women participate in the labor force compared to 72 percent of men. The labor force participation rate increases with age until 50 to 54, before it starts to drop, indicating that the old population has access to other sources of revenue. The participation rate is overall higher in Pointe-Noire (62 percent) than in Brazzaville (55 percent), but the gap between the cities depends on the age group. For the young (up to 24), the share of the active population is significantly higher in Pointe-Noire, similar between 25 and 49 and higher in the capital in the following years. Figure 2.9: Labor force participation rate by gender in both Figure 2.10: Labor force participation rate by age group in both cities (ILO and broad definition, percent) cities (ILO definition, percent) 80 100 70 90 80 60 70 50 60 40 50 40 30 30 20 20 10 10 0 0 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60+ ILO Broad ILO Broad ILO Broad Male Female Total Men Women Total Source: EESIC 2009 Source: EESIC 2009 2.42. The main reason for inactivity is school attendance. This is especially the case for men (70 percent), whereas only 47 percent of women are inactive because of school attendance (Figure 2.11). The school attendance rate for the youth with 98 percent for the 0 to 14 year old and 62 percent for the 15 to 29 year old is particularly high, as can be expected. 23 percent of women do not participate 12 Generally, studying compensation in Africa is a challenge, because most workers are employed in the agriculture or informal sectors, where accounting or payroll records are absent and individuals are naturally reluctant to state their income) Employment surveys such as a 1-2-3 survey provide estimates for all monetary and non monetary benefits related to employment that supplement basic income. However, as is typical in this kind of survey, measurement errors increase when dealing with non-wage earners, especially in the informal sector (including all production units lacking a tax or statistical ID or without a formal accounting system). To overcome these constraints, at least partially, two strategies were developed (see the Interviewer Manual, CNSEE, 2009): first, interviewers had to help non-wage earners (independent workers and employers) retrace their income by pulling together their cash inflow and their expenses over a given period of time. At the end of this process, the cash inflow received by non-wage earners is converted into a monthly total on the questionnaire. Second, individuals who were unable or refused to state their specific compensation were asked to provide a tranche, among six categories submitted to them, and defined by multiplying the statutory minimum wage. With these two strategies, it was then possible to estimate almost everyone's income. Indeed, only 5 out of 3261 working age employees gave no indication at all of their level of compensation. About 6 percent provided a tranche. For these, income was estimated at the tranche's mid-level. To calculate hourly compensation, this (net) monthly income was divided by the number of hours worked each month. Compared to similar employment surveys, the income statement is far more precise in the two main Congolese cities than in the capitals of the WAEMU, where on average, up to 36 percent of the working age population provided only the tranche where their income fell, and close to 5 percent gave no indication at all (Amegashie and others, 2005). 37 actively in the labor market, because of their role as housewives. The reasons for inactivity are very similar for the two cities. FIGURE 2.11: Reasons for inactivity by city and gender (percent) 70 60 Men 50 Women Total percent 40 30 20 10 0 Source: EESIC 2009 2.43. The majority of the active population in urban areas is self-employed and works in the services sector (Figure 2.12 and Figure 2.13). The services sector is the dominant sector in both cities, employing more than half of the active population, followed by commerce and industry. The share of the primary sector is negligent with only 4 percent which is mainly linked to the fact that the survey covers only urban areas, but is also partly due to the closure of agricultural companies. The overall most prevailing professional category is self-employment with 31 percent. However, this is closely followed by the category employee/worker, which is especially important in Pointe-Noire in contrast to management positions in Brazzaville. This reflects again the different dynamics in the two main urban centers in Congo. FIGURE 2.12: Active population by sector of activity (percent) FIGURE 2.13: Active population by professional category (percent) 60 40 Brazzaville Brazzaville 35 Pointe-Noire 50 Total Pointe-Noire 30 40 Total 25 20 30 15 20 10 5 10 0 Manager Employee, Unskilled Self-employed Domestic 0 worker worker help, Primary Industry Commerce Services apprentice Source: EESIC 2009 Source: EESIC 2009 2.44. The differences regarding compensation between Brazzaville and Pointe-Noire are evident. While the highest wage can be earned in Brazzaville, the administrative capital, by working in the public sector, the formal private sector pays best in Pointe-Noire, the city with a more active business 38 community. Wages earned when working for public enterprises are similar and fairly high, whereas the pay in the informal sector pay is lowest, as can be expected. FIGURE 2.14: Median monthly wage by institutional sector (USD) 350 300 250 200 150 100 50 0 Public Formal private Public Associations Informal enterprise sector administration private sector Brazzaville Pointe-Noire Total Source: EESIC 2009 2.45. Employees in the construction and transport sector are compensated best, followed by other services and industries (Table 2.10). A position in upper management pays significantly more than any other employment category. Except for business owners, the pay is either equal or higher in Pointe- Noire, which confirms that it is the business capital of the country. TABLE 2.10: Median monthly wage by sector of activity and employment category (USD) Sector of activity Brazzaville Pointe-Noire Total Construction, public works 191 202 191 Transport 202 191 191 Other services 191 159 183 Other industries 149 202 159 Commerce (wholesale trade) 146 127 138 Primary industries 85 159 115 Clothing industry 98 127 106 Restaurants 106 102 106 Commerce (small mobile traders) 96 85 96 Category Brazzaville Pointe-Noire Total Manager (upper management), engineer 318 488 318 Manager (middle management), foreman 212 236 212 Owner 212 159 212 Employee, skilled worker 191 191 191 Employee, semi-skilled worker 159 159 159 Unskilled worker 106 127 110 Self-employed 106 106 106 Apprentice 64 127 96 Domestic help 64 96 64 Source: EESIC 2009 B.3. EDUCATIONAL LEVEL 2.46. The educational capital accumulation in the Republic of Congo is significant: the number of schooling years completed averages about 9 years, and more than three thirds of individuals aged 15 and older (83 percent) completed primary school, 6 percent succeeded in finishing high school but didn't go any further, and close to 12 percent went on to higher education. Thus, a large proportion of 39 individuals (20 percent) fail to complete secondary education. Individuals aged 15 and older by educational level are similarly distributed in each city (Brazzaville, Pointe-Noire), while illiteracy (no education, or incomplete primary level) seems higher in Pointe-Noire13: 19 percent in Pointe-Noire versus 15 percent in Brazzaville; conversely, the number of individuals who went on to pursue higher education is higher in Brazzaville (13 percent versus 9 percent). Overall, these characteristics could indicate that the drop-out rate is high at the end of and during each educational level. 2.47. The long schooling tradition in Congo is reflected by the high share of the population up to the age of 50 that has completed primary education. However, little weight is given to vocational training, which never exceeds 8 percent among those older than 15, except for women in Brazzaville whose percentage is close to 10 percent. This means that the educational system focuses more on general education than technical and vocational training. This is the case for most of Africa (see Kuepié et al. 2009). Overall, however, women are clearly disadvantaged: over 20 percent did not complete primary school (13 percent of men) and only 7 percent enroll in tertiary education (17 percent for men).14 FIGURE 2.15: Educational level by gender (percent) 45 40 Men 35 Women 30 25 20 15 10 5 0 No schooling Primary Technical General General Tertiary education secondary secondary secondary education education education (I) education (II) Source: Kuepié and Nordman (2011) based on EESIC 2009 B.4. JOB SEARCH AND REASONS FOR UNEMPLOYMENT 2.48. Overall, the most important reason for losing a job is the closing of a company operating in the private sector. This questions the viability of the already limited number of companies in the private formal sector and highlights the importance of a business environment conducive for private sector development. Another important reason for job loss is the ending of the contract particularly in Pointe- Noire, indicating that many positions are filled by temporary workers. 13 According to CONFEMEN and MEPSA (2009), about 70 percent of adults know how to read and write after having completed 6 years of schooling, with vast differentials across social groupings (urban, rural, male, female). 14 See Figure A.1 in Annex 2 for a schema of the educational system in Congo. 40 FIGURE 2.16: Reason for loss of employment for those previously employed 25 Brazzaville 20 Pointe-Noire Total 15 10 5 0 Closing of Other End of Voluntary Reduction of Layoff company (involuntary) contract resignation workforce (private (insufficient (private sector) remuneration) sector) Source: EESIC 2009 2.49. Personal connections are the most used approach to find employment. About half of job seekers in urban areas approach the job market through parents or friends, in Pointe-Noire even 61 percent. The formal entry points to the job market, such as the National Employment Office (ONEMO) are rarely used. The main reason reported is that applicants are either not familiar with the procedures (57 percent) or do not think that submitting an application through these channels will help (28 percent). This confirms the need to strengthen the role and capacity of ONEMO. TABLE 2.11: Job search approach used by the unemployed Approach used for job search Brazzaville Pointe-Noire Total Personal relationship (parents or friends) 44.7 61.1 49.6 Direct contact with employers 10.7 13.6 11.5 Small advertisement (radio, newspaper etc.) 2.0 3.3 2.4 L’ONEMO 3.0 5.4 3.7 Competitive selection 3.2 1.2 2.6 Personal initiative 10.5 5.9 9.1 Placement by training center or school 0.3 1.0 0.5 Public service 23.5 6.6 18.5 Other 2.2 1.9 2.1 Total 100.0 100.0 100.0 Have you submitted an application to ONEMO, public service or public enterprises? Brazzaville Pointe-Noire Total yes 49.0 43.5 47.3 no 51.0 56.5 52.7 Total 100.0 100.0 100.0 Why have you not submitted an application? Brazzaville Pointe-Noire Total I am not familiar with the procedures of the public service 58.0 54.5 56.9 I don't think it would help 27.6 29.2 28.1 Other 14.4 16.3 15.0 Total 100.0 100.0 100.0 Source: EESIC 2009 41 B.5. INFORMAL SECTOR 2.50. In urban areas, the informal sector plays an important role in terms of job creation. In both Pointe-Noire and Brazzaville, 193,271 Informal Production Units (IPUs)15 are recorded, generating close to 254,304 jobs in commercial activities other than agriculture. These are mostly small-sized micro-units (of one or two people), for whom self-employment is the main management tool (i.e. more than eight out of ten units, representing 84 percent). 2.51. Women hold more than half (54 percent) of informal sector jobs (Table 2.12). They are far more likely to be leaders (49 percent owners and 67 percent self-employed) or to provide household help, than to receive wages or be paid as an apprentice (7 and 6 percent, respectively). They are more involved in trade (72 percent) than in industry or services (30 percent each). Their strong presence in "small trade" gives an indication of the challenges confronting them when they seek wage employment, one possible explanation being their lack of skills. 2.52. Only 20 percent of the employed in the informal sector are young. Individuals who are younger than 25 represent only 19 percent and 20 percent of the working age population employed in the informal sector in Brazzaville and Pointe-Noire respectively; the average age for both cities is about 35 (Table 2.12 and Table A.4 in Annex 3). Most paid and unpaid apprentices, however, are young, and many of them also work as family help (48 percent). These young people view this kind of employment more as a trial period or an apprenticeship to learn a trade, rather than a real job. TABLE 2.12: Demographic characteristics of the informal working-age population by employment status Women Under 25 Average age Employment Status (percent) (percent) (years) Owner 48.6 3.1 38.0 Self-Employed 66.5 8.8 38.1 Wage Worker 6.7 33.3 28.1 Paid Apprentice 5.5 83.4 22.1 Unpaid Apprentice 39.3 75.6 22.7 Family Help 57.1 48.4 27.3 Partner 11.4 17.1 36.0 Overall 54.1 19.6 35.1 Source: EESIC 2009 2.53. Despite their small size, IPUs generate a sizable volume of economic activity. The annualized informal sector turnover reached CFAF 603.8 billion in 2009 (USD 1.28 billion), representing about 13.3 percent of nominal GDP; it was mostly driven by commerce, followed by industry and services (see Table 2.13). The largest contributor to the very high turnover in the trade sector is processed products. The industry and services sectors are boosted by the public works and transportation sub-sectors. 15 IPUs are defined as follows: (i) not registered with the commerce register, (ii) no formal written accounting system, and (iii) workers are not registered with the social security fund. 42 TABLE 2.13: Informal sector turnover in Brazzaville and Pointe-Noire Employment Turnover Turnover Sector Sub-Sector (percent) (CFAF million) (USD million) Industry Food processing 6.0 22,102 46.9 Apparel production 3.9 9,052 19.2 Construction and public works 6.6 33,286 70.7 Other industries 5.3 23,441 49.8 Overall – Industry 21.8 87,880 186.6 Processed products 50.9 345,481 733.6 Commerce Primary products 16.9 98,048 208.2 Overall - Commerce 67.8 443,529 941.8 Households and businesses 5.4 29,706 63.1 Restaurants and hotels 2.3 7,661 16.3 Services Transportation 2.7 35,039 74.1 Overall - Services 10.4 72,405 153.7 Total 100.0 603,814 1,282.1 Source: EESIC 2009 2.54. The lack of employment opportunities in the formal sector is the main reason for working in the informal sector (Table 2.14 and Table A.5 in Annex 3). 41 percent of IPUs report the fact that they did not find employment in a large or small company as reason for their activity in the informal sector. 28 percent of respondents prefer an independent activity over being employed by a company and 10 percent overall and even 19 percent in the services sector stay in the informal sector to ensure a higher income. The informal sector can therefore be seen as a result of the economic and regulatory framework rather than a constraint to growth and diversification. TABLE 2.14: Reasons for being in the informal sector (percent) Did not find wage Did not find wage To achieve a To be Family Other Sector employment in a employment even higher independent tradition reasons large company in a small company income Industry 21.5 17.7 12.8 37.2 4.8 6.0 Commerce 21.1 19.6 7.8 26.1 11.2 14.2 Services 31.8 15.7 18.6 22.3 4.5 7.1 Total 22.4 18.8 10.0 28.1 9.1 11.7 Source: EESIC 2009 2.55. Wage employment in the informal sector is low overall, but highest in the services sector in Pointe-Noire. Overall, only 12 percent of employment in the informal sector is wage employment. This share is, however, significantly higher in Pointe-Noire than in Brazzaville, especially in the services sector where it reaches over 40 percent which can be linked to the stronger presence of private companies in Pointe-Noire requiring more services. In contrast, wage employment is very low in the trade sector, despite the high turnover in that sector. 43 FIGURE 2.17: Rate of wage employment in the informal sector (percent) 45 40 35 30 25 20 15 10 5 0 Total Total Total Total Pointe Noire Pointe Noire Pointe Noire Pointe Noire Brazzaville Brazzaville Brazzaville Brazzaville Industry Commerce Services Total Source: EESIC 2009 2.56. The registration rate of IPUs in the informal sector is very low. Regarding the 4 possible registration processes, the highest rate can be recorded with the Registre de commerce (2.8 percent), whereas no IPU had obtained a identification number for fiscal purposes (Numéro de l’identification unique – NIU) and only 0.5 percent were registered in the Congolese system to identify companies (Système congolaise d’identification d’entreprises – SCIEN), similar to the share registered at the CNSS). The predominant reason given for the lack of registration was the unawareness that registration was a formal requirement, followed by the cost of registration. FIGURE 2.18: Reasons for non-registration of IPU (percent) 35 30 25 20 15 10 5 0 Complicated Too Registration Not Not aware Not Other process expensive ongoing required that interested in registration cooperating is required NIU Registre de commerce CNSS SCIEN Source: EESIC 2009 2.57. The importance of the informal sector cannot be overemphasized. As Fox (2011) points out, even under optimistic scenarios, the formal sector will not be able to absorb the growing labor force. It will therefore be necessary to pay close attention to the dynamics in the informal sector and facilitate employment creation through informal businesses and improve the livelihood of those working in the informal sector. 44 C. THE LINK BETWEEN EDUCATION AND EMPLOYMENT 2.58. The discrepancy between increasing growth rates and continued high unemployment rates, despite overall high educational levels warrants further analysis of the link between education and employment. This section therefore aims at estimating various econometric models in order to assess the effect of diverse educational dimensions (number of years of school attendance, type of schools attended, i.e. general studies or vocational training, and degrees received) on: (i) Circumstances of labor market integration (participation and choice of sector), and (ii) Individual compensation resulting from the main activity.16 C.1. EDUCATION, UNEMPLOYMENT AND LABOR MARKET INSERTION 2.59. For the two main cities in the Republic of Congo, the unemployment rate is lowest among those who are least educated. It goes up for those who completed primary or secondary education and then decreases slightly among those with at least one year of higher education. It thus appears that human capital does not prevent unemployment. This is particularly true in Brazzaville, where unemployment is generally higher and increases rapidly with the level of education. The trend is less linear in Pointe-Noire (see Figure 2.19). 2.60. For men in Brazzaville particularly (and to some extent, for women), unemployment tends to initially increase with education level, then decrease slightly with the completion of senior high school and the start of higher education. Similar results were highlighted by Kuepié et al. (2010) in the cases of Cotonou, Dakar and Ouagadougou, where higher education had some effect on reducing the level of unemployment. This pattern could be explained by the fact that, being the country's political capital, a large portion of public servants are located in Brazzaville, where more university graduates can be absorbed than in Pointe-Noire, where adequate employment opportunities would be more limited. FIGURE 2.19: Unemployment rate according to ILO definition by city, gender and education level (percent) 30 Men 25 Women Total 20 15 10 5 0 No schooling Primary General General Technical Technical Tertiary Total education secondary seconday secondary secondary education education (I) education (II) education (I) education (II) Source: Kuepié and Nordman (2011) based on EESIC 2009 16 Incomes are estimated by applying a Mincerian type of earnings functions, taking into account the effect of sample selection on individuals' participation and choice of sector. In addition, the data allow addressing the issue of potential endogeneity of the education variable in the earnings function through several techniques that use information about the family background of compensated workers. 45 2.61. Results from a logit model confirm the descriptive analysis. The model takes into consideration characteristics of both individuals and households — such as age, gender, migration status, family status, each household member's income, the relationship between the person and the head of household and the household's dependency rate. All else remaining equal, individuals who didn't reach the minimum educational level seem less likely to be unemployed than those who have completed at least junior high school, and even less so than those who attended university. 2.62. Controlling for all variables, the risk of unemployment among youth does not decrease. Furthermore, the regression performed on the entire sample confirms that, even while taking into consideration observable characteristics of individuals and households, Brazzaville is confronted by a bigger unemployment challenge than Pointe-Noire.17 The quantitative analysis of the labor market therefore confirms that human capital accumulation fails to protect against unemployment, especially among the youth. 2.63. The level of education and the choice of the employment sector are very closely tied for the informal and public sector, but not for the private formal sector (Table 2.15). In both cities, close to 90 percent of workers, who never started or completed their primary education, work in the informal sector. Eighty-three percent of the working age population that completed its primary education but did not finish junior high school work in the informal sector, against only 58 percent of those who did finish the first level of secondary school. Only 28 percent of those who started university work in the informal sector, but this proportion varies widely across cities (22 percent in Brazzaville versus 42 percent in Pointe-Noire). In the capital city, 65 percent of workers who attended university work in the public sector, against just 13 percent in the formal private sector. Finally, the private sector seems to be rather indifferent regarding the education of the workforce. TABLE 2.15: Distribution of the employed working age population by educational level and sector (age 15 and older, percent) Overall Brazzaville Pointe-Noire Formal Formal Formal Public Informal Public Informal Public Informal Private Private Private Sector Sector Sector Sector Sector Sector Educational Level Reached Sector Sector Sector None / Incomplete Primary School 2.2 9.0 88.8 3.3 10.1 86.6 0.6 7.5 91.9 Completed primary school/ Incomplete 8.1 8.4 83.6 10.0 6.7 83.3 5.2 10.8 84.0 Secondary 1 Technical Secondary Training 30.1 16.5 53.4 40.7 14.8 44.4 12.1 19.4 68.5 Completed 1st Level of Secondary School / 31.3 10.6 58.0 40.5 8.1 51.4 14.1 15.5 70.4 Incomplete 2nd Level of Secondary School 2nd Level of Secondary School Completed 43.6 16.1 40.3 49.9 11.5 38.6 34.1 23.0 43.0 Higher Education 56.1 16.2 27.7 64.8 13.4 21.8 34.5 23.1 42.4 Total 23.5 11.3 65.2 30.2 9.6 60.2 12.2 14.1 73.7 Source: Kuepié and Nordman (2011) based on EESIC 2009. 2.64. Results of a multinomial logit model show that, regardless of the city and the education level, one more year of schooling always tends to have a positive impact on integration into the public sector, whereas more education leads to fewer opportunities in the informal sector. The lack of impact from years of schooling on access to the formal private sector is once again confirmed. This result is not specific to Congo alone. Kuepié et al. (2010) show that in 2002, in the cases of Ouagadougou, Bamako 17 The complete estimation specification and results are presented in Kuepié and Nordman (2011). 46 and Lomé, additional years of university attendance (i.e. over 13 years of schooling) had no effect on the probability to join the formal private sector rather than the informal sector. This finding could reflect the inability of formal private sector businesses in African countries to create highly skilled jobs for young university graduates. 2.65. While the educational level plays an important role in accessing the formal sector, so does the type of studies pursued. It appears that vocational training is an at least as efficient way to join the formal sector (public and private) as general education, particularly in Brazzaville. More than half the workers employed in the capital, who attended vocational training courses, work in the modern sector while 48 percent of those who completed general education work in the modern sector. 2.66. The youth is disadvantaged in accessing the formal sector. Furthermore, based on the sectoral choice equations, it appears that young people (between the ages of 15 and 29) find it more challenging to access the public sector than those aged 30-49, and even more so than those over the age of 50. Their only remaining option is the informal sector, where they are overrepresented. While the Congolese civil service used to be a natural opportunity for graduates, it now proves unable to satisfy an increased demand for jobs from the youth seeking to enter the labor market. The informal sector becomes their last refuge. 2.67. Women are in the same situation as the youth: all else remaining equal, while they run the same risk of unemployment as men, the probability that they will find formal employment is lower in both the public and the private sectors. These obvious, and less favorable to women, gaps in chosen sectors could reflect either straightforward discrimination against them on the labor market, or a rational choice on their part, assuming this sector makes it easier for them to reconcile their work and family lives (see Kouamé 1999). C.2. RETURNS TO EDUCATION 2.68. A flexible approach has been adopted to model earnings functions and returns to education. The econometric analysis of compensation is based on hourly, rather than monthly, compensation to take into account the heterogeneity of work duration in the various sectors. In addition to the educational level, migration status, family status, faith, seniority in main job, potential experience, gender and silent variables of the employment sector of each person are included. Instead of assuming a linear or quadratic relation between salaries and years of schooling, a piecewise linear spine function has been identified. More specifically, a distinction has been made between four levels of schooling: primary education, secondary 1 (junior high school), secondary 2 (senior high school) and higher education.18 Overall findings 2.69. By using only one model that includes all compensated workers, it is possible to observe the average effect of education on compensation resulting from specific effects noted in each employment 18 The endogeneity profiles of each city are quite different. In Brazzaville, the exogenous nature of the education variable cannot be rejected in the formal sector (public and private) at the usual 10 percent threshold. In Pointe-Noire, the reverse is true; education only appears as an endogenous variable in the formal sector, whereas in the informal sector, its exogenous nature cannot be rejected. In all regressions, therefore the estimates corrected for endogeneity are used, when the exogeneity of education is rejected and instrumentation is plausible. In all other cases, exogenous education variables are preferred. A detailed discussion of other methodological aspects as well as the results is given in Kuepié and Nordman (2011). 47 sector. When these effects remain similar across sectors, an overall model is sufficient to draw conclusions that can be applied to each segment of the labor market. Conversely, when these effects vary greatly, estimating returns to education separately for each sector becomes essential. 2.70. The empirical results show that in all sectors the breakdown by employment sector is justified and very different patterns can be observed. As expected, the models' explanatory strength is higher for the formal private employment and public employment than for informal employment. This is in line with the standard human capital model, reflecting the heterogeneity of compensation in the formal sector, where wages can be based on a predetermined matrix that explicitly takes these criteria into consideration (education, experience). On the other hand, in the informal sector, not only are errors more likely to occur, but other factors not included in the regression, such as the level of physical capital available to independent workers, are also likely to have a significant impact on compensation. FIGURE 2.20: Marginal returns to education by sector (percent) 14% 12% 10% 8% 6% 4% 2% 0% Brazzaville Pointe-Noire Total Public sector Formal private sector Informal sector Total Source: Kuepié and Nordman (2011) based on EESIC 2009 2.71. Estimates show that, across cities, marginal returns are highest in the formal private sector (12 percent), with the public sector (8 percent) and finally the informal sector (5 percent) following behind. When broken down by city, the situation is more nuanced: in Pointe-Noire, education is more valued in the public sector, with a marginal return above 13 percent. In the case of Brazzaville, it is however in the formal private sector that the return to education is highest (10 percent), followed very closely, and surprisingly, by the informal sector (9 percent). Conversely, the public sector falls behind the two other sectors (7 percent). The high level of profitability in the formal private sector contradicts its low ability to integrate those who are highly educated. Indeed, previous analyses of sectoral preference have shown that a high level of education does not necessarily mean entry into the formal private sector. On the other hand, when individuals succeed against all odds in accessing this market, human capital becomes very important; the descriptive analysis of compensation levels has shown that wage- earners received the highest salary in this sector. Convexity of returns 2.72. The relation between education and compensation is convex. These convex marginal returns indicate that education increasingly affects compensation. In almost all cases, one additional completed year of senior high school (10-13 years) leads to a higher return than one year in junior high school (7-9 years) or in primary school (0-6 years). In this regard, the formal private sector appears at times to be an 48 exception. This finding remains true for years of junior high school attendance, as compared to those in primary school, especially in the public and informal sectors. 2.73. Figure 2.21 and Figure 2.22 provide compensation forecasts given by earnings models in various sectors, based on the number of completed years of schooling. In all these sectors, compensation remains constant overall until about the 8th year of schooling, after which it starts to increase faster. This overall pattern can be applied to each sector, albeit with slight modifications. Convexity thus intervenes later for informal sector workers (around the 12th year of schooling). Based on these findings, the convex shape is, to a large extent, caused by the sharp increase in compensation that takes place when individuals complete higher education and start university, and mostly when informal sector workers complete their high school education. The high compensation increase for those with tertiary education can also reflect the effect of Dutch disease as employees especially in the oil sector have a high demand for well qualified staff and adjust their compensation accordingly. FIGURE 2.21: Projected hourly wage in Brazzaville (CFAF) FIGURE 2.22: Projected hourly wage in Pointe-Noire (CFAF) 3,000 3,000 Public Public 2,500 2,500 Formal Formal 2,000 Informal 2,000 Informal Total Total 1,500 1,500 1,000 1,000 500 500 0 0 1 3 5 7 9 11 13 15 17 19 21 1 3 5 7 9 11 13 15 17 19 21 Years of schooling Years of schooling Source: Kuepié and Nordman (2011) based on EESIC 2009 Source: Kuepié and Nordman (2011) based on EESIC 2009 2.74. These results contradict the conventional human capital accumulation model, where marginal education returns are assumed to remain constant or even decrease. This convexity has been observed for other African countries.19 It is important to observe the increase in education returns when moving from one educational level to the next because the notion that primary schooling is an effective tool to combat poverty relies partly on the assumption that the earnings function is concave, meaning that education received during the early years of schooling would be more profitable. Recommendations on measures required to promote primary education in Sub-Saharan Africa were based on this principle (Psacharopoulos and Patrinos, 2004). Yet, the literature offers several possible explanations for the emergence of convexity in education returns (Bennell 1996, 2002; Schultz 2004; Kuepié et al. 2009). For instance, a stronger growth in primary education could reduce its returns, as compared to following 20 cycles. Another example is the weakening quality of primary education over time , which could affect 19 See e.g. Schultz (2004), whose work is based on household surveys carried out in six African countries (South Africa, Burkina Faso, Côte d’Ivoire, Ghana, Kenya, Nigeria), Söderbom et al. (2006), using samples of wage-earners from manufacturing companies in Kenya and Tanzania, and Kuepié et al. (2009) and Dimova et al. (2010), who led the 1-2-3 Surveys in several economic capitals of West Africa. 20 In the case of Congo, the PASEC report (CONFEMEN and MEPSA, 2009) shows that up to ten years of schooling are required in Congo in order for 100 percent of individuals to actually learn how to read and write. 49 estimates of returns (Behrman et al. 2008). Another reason could be the slower growth of the formal sector, which may have tightened the demand for an educated workforce and affected more dramatically those with less education. 2.75. This result is significant. In fact, according to Bennell (1996), unless the high proportion of informal sector workers is taken into consideration, returns to primary schooling could be overestimated, while simultaneously underestimating higher education returns. In this situation, convexity is highlighted for all sectors, including informal activities. Based on the estimation results, not only is the marginal return to primary schooling lower than for secondary and higher education attendance in all sectors, but it is also lower in the informal sector than in the formal private sector. Therefore, as assumed by Bennell (1996), excluding informal sector compensation would effectively lead to overestimating the returns to primary schooling. Gender and age specific return differentials 2.76. There is no significant difference between returns to education for men and women. The previous regression used merged data for both genders, which can be problematic, as women's participation in the labor market often shows less continuity than men's, especially in Africa. However, the results of the analysis show that the assumption that there are no gender specific effects regarding returns to education cannot be rejected.21 Therefore, these tests and estimates, as well as similar tests described in Kuepié et al. (2009), largely corroborate the hypothesis of cumulative effects for both genders (pooling assumption). 2.77. These results indicating little gender differentials in returns to education are surprising. Schultz (2002) analyzes gender gaps in education returns in developing countries, and finds that these estimates tend to favor women. In Africa, estimates are provided by Vijverberg (1993) for Côte d’Ivoire, by Glick and Sahn (1997) and Siphambe and Thokweng-Bakwena (2001) for Guinea's and Botswana's public sectors, and more recently by Nordman and Roubaud (2009) for Madagascar. Although results provided by Appleton et al. (1999) for Côte d’lvoire, Ethiopia and Uganda are mixed, they nevertheless show that education returns for women are higher. In contrast, Cohen and House (1993) find that men's education returns are higher in Sudan's formal sector. 2.78. In the case of the Republic of Congo, there are two possible reasons for the similarity in returns to education: first, the survey includes only urban areas, where gender differentials in the labor market are probably less apparent than in rural areas. Second, the decrease in marginal education returns at all educational levels could explain the higher returns for women (Schultz 2002), since women tend to be less educated than men on average22, and higher returns were often noted for lower educational levels. However, the convexity of marginal returns highlighted here is now likely to offset these higher returns for women. 2.79. Returns to education are significantly different for young compared to old workers in the public sector but not in the private sector. The assumption that returns to education are the same for different age groups (under 30 years versus over 30 years) can be rejected for the public sector in both cities. For the private sector, however, the hypothesis cannot be rejected. It can be observed that 21 Except for Brazzaville's public sector, where the assumption can be rejected, but only at the 10 percent confidence level. 22 This remains true here, particularly in the informal sectors of both cities, because women who hold a paid job completed 8.2 years of schooling, as opposed to 9.2 years for their male counterparts. 50 returns to higher education are always larger for the young cohort, particularly in the public sector in Brazzaville. This indicates that the convexity of the previously observed compensation-education profile is more pronounced for young workers. Therefore, the increasing returns to education apply mainly to the young workers. However, this pattern is less obvious in the private sector (particularly in Pointe- Noire). 51 Chapter 3. MAIN CHALLENGES AND THE WAY FORWARD 3.1. As outlined in the previous chapters, the Republic of Congo is experiencing sustained high growth, which is not accompanied by sufficient job creation in the formal sector. Labor market trends are determined by the balance or imbalance between labor demand and labor supply. The challenge of jobless growth therefore needs to be tackled from different angles. First and foremost, a sufficient number of jobs has to be created in the private non-oil sector to provide employment for the economically active population. Secondly, the quality of education needs to be improved and training programs put in place to equip the work force with the required skills, ease the transition of the youth into the labor market and reduced the number of working poor. Lastly, it is important to create an enabling environment for a well functioning labor market and private sector development. 3.2. This approach is in line with the new Africa Strategy of the World Bank. Under Pillar 1 ‘Competitiveness and Employment’, the Africa Strategy states that “A priority will be to focus reforms and public investments on areas of highest growth potential, a healthy and skilled workforce, women’s empowerment, and regional integration programs. Strategically targeted interventions will be complemented by deeper and broader interventions targeted at each of the three main investment climate constraints: infrastructure, business environment, and skills.� (World Bank 2011a) 3.3. The following sections outline the constraints for labor demand and labor supply that are restricting job creation and preventing the work force from acquiring the required qualifications. Furthermore, the regulatory and legislative framework is described and possible deficiencies highlighted. Based on the findings, recommendations can be developed that address the identified challenges. A. LABOR DEMAND 3.4. To enable private sector led growth and create the substantial amount of jobs needed in the non-oil sector, it is critical to address the key binding constraints for private sector development. The Republic of Congo has large untapped potential, especially in the areas of agribusiness, forestry, mining and services. The geographical position of the country is favorable as well for establishing a role as transport corridor for Central Africa through the deep-sea port in Pointe-Noire. In many developing countries, growth in the private sector – and especially growth in micro, small and medium enterprises – is the main source of job creation and a powerful source of sustained, broad-based economic growth. Thus, the challenge faced by the government is to address the constraints to encourage the necessary private sector activities in sectors with high growth potential. 3.5. A range of issues have been identified by firms in Congo as major obstacles (World Bank 2009b). An Enterprise Survey conducted in 2009 reveals that electricity is a major and by far the most important obstacles for the operation of companies. Moreover, Congo’s performance is worse than in comparator countries in almost all dimensions. Table 3.1 lists the major obstacles for Congo and comparator countries. 52 TABLE 3.1: Major obstacles in the Republic of Congo and comparator countries (percent of companies surveyed) Obstacle Republic of Cameroon Chad DRC Gabon Sub-Saharan Congo Africa Electricity 71 59 75 70 58 50 Political instability 69 n.a. n.a. n.a. n.a. n.a. Corruption 65 61 67 20 41 35 Practices of Competitors in Informal Sector 54 76 72 40 38 36 Labor skills 51 38 53 13 43 20 Transportation 48 28 46 30 49 27 Tax Administration 47 69 53 40 37 26 Customs and Trade Regulations 46 26 57 15 35 20 Access to Finance 45 55 47 60 30 46 Crime, Theft and Disorder 44 41 46 23 34 28 Tax Rates 41 46 60 52 31 38 Functioning of Courts 37 31 36 11 15 14 Permits And Business Licensing 29 28 37 23 22 16 Labor regulations 24 21 28 9 16 8 Access to Land 22 n.a. n.a. n.a. n.a. n.a. Source: World Bank Enterprise Surveys website custom query; http://www.enterprisesurveys.org/ and World Bank (2009b); n.a. = not available 3.6. The following sections summarize the main constraints to increased demand for labor in the Congolese economy. The constraints are grouped according to (i) infrastructure constraints, (ii) the business environment and SMEs, and (iii) sectoral challenges and opportunities. Each section describes the main constraints as well as the way forward. 3.7. Political instability and corruption have been identified as key constraints for the private sector as well. According to the 2009 Enterprise Survey (World Bank 2009b), the performance of the judiciary is weak, with less than one third of firms considering the court system to be fair, impartial and uncorrupted. Informal payments or gifts are commonly expected during tax inspections, when participating in public tenders, when applying for operating licenses or requesting connections to utilities. About 75 percent of firms indicate that they are expected to give gifts to secure a government contract with the value of the gift amounting to almost 4 percent of the contract. Congo also fares worse than its comparators in the CEMAC region. This is evidenced by the 2009 Governance indicators (see Figure A.3). In addition, indicators have either hardly improved over time or even declined with the exception of political stability. 3.8. Other indicators confirm the problematic role of governance in the Republic of Congo. The 2010 Ibrahim Index of African Governance, providing rankings for 2008/09, ranks Congo 41 st out of 53 African countries, an improvement of only 4 places since the beginning of the decade, but deterioration compared to the previous year (Mo Ibrahim Foundation 2010). The category ‘Safety and Rule of Law’ receives particularly bad rates with ‘Accountability and Corruption’ being ranked only 48 th out of 53 countries. According to the Corruption Perception Index (Transparency International 2010), Congo ranks 154th out of 178 countries worldwide and 35th out of 47 Sub-Saharan African countries. The Economic Freedom Index, measuring the degree to which the policies and institutions of countries are supportive of economic freedom, lists Congo as one of the ten bottom nations – 137th out of 141 nations (Gwartney et al. 2010). Congo scores particularly bad regarding the legal structure and security of property rights as well as access to sound money. 3.9. Governance reforms are necessary to boost competitiveness and growth. Poor governance poses a serious obstacle to economic development. To promote the private sector and attract foreign 53 direct investment, Congo needs to improve government’s effectiveness in formulating and implementing policies, address corruption and reinforce the rule of law. The effectiveness of government expenditure is particularly crucial in the context of scaled-up infrastructure investments. A.1. INFRASTRUCTURE Constraints 3.10. Growth remains constrained by the underdeveloped physical infrastructure, but efforts are under way to improve the situation. A cross-country statistical analysis conducted by the World Bank (World Bank 2010c) shows that the contribution of the infrastructure sector to Congo’s per capita growth over the past decade, at 0.5 percentage points, was considerably lower than in other countries in the region: 0.87 for Nigeria, 0.91 percentage points for DRC, 0.89 percentage points for CAR, and 0.99 for the SSA average. This growth in Congo was due mainly to increased access to mobile telephony while the poor quality and inadequacy of power supply acted as a brake to the economy. 3.11. Access to and cost of infrastructure present a major constraint to private sector investment. In fact, according to the Enterprise Indicator survey carried out in 2009, more than 70 percent of private firms consider the lack of electricity as the main obstacle for private sector development in Congo. Power cuts have cost 19 percent of firms turnover and 82 percent of firms have to rely on a generator which is costly. The quality of the fixed line telecommunication network is poor, and the international/regional connectivity is underdeveloped. The overall dilapidated infrastructure leads to exceptionally high input costs in all areas. Planned infrastructure interventions, however, have the potential to reduce costs for the private sector substantially (Briceño-Garmendia and Foster 2009). 3.12. Poor transport infrastructure and transport services sector remain a bottleneck to investment and trade. As reported in the Doing Business report (World Bank 2010a), it takes 50 days to import goods and 62 days to export goods. The railway between Pointe-Noire and Brazzaville is very inefficient with high freight tariffs, and the road between the two cities is still under construction. The rail network is among the worst in Africa in terms of service quality and safety, and tariffs are among the highest. Rail traffic fell by two-thirds during the conflict and has never returned to pre-conflict levels. Tariffs, at USD 0.16 per ton/km, are up to three times as high as in southern Africa. This is due to insufficient rehabilitation and maintenance of tracks, outdated and insufficient rolling stock, weak internal supervision, management deficits and human resources limitations. Surface transportation costs are more than double the southern African average (Briceño-Garmendia and Foster 2009). 3.13. The deep water Port of Pointe-Noire is one of the best natural ports in Africa and has the potential to grow significantly and become an important transport hub and the anchor of growth corridors (World Bank 2010e). The port has a strategic position as gateway to the Atlantic Ocean for Central Africa and entry point from various parts of the world. However, its performance and quality of infrastructure need to be overhauled to improve its regional competitiveness and attractiveness. Planned investments by the government to expand and modernize the infrastructure of the port and transform it into a major trans-shipment terminal and a main port for transit (for both export and import) will contribute to the development of the corridor linking Pointe-Noire with Brazzaville and neighboring countries including the Democratic Republic of Congo, Angola and Central African Republic. The port is an important potential source of growth and economic diversification which can create direct and indirect jobs and foster business opportunities for SMEs around the port and along the corridors. 54 The way forward 3.14. Infrastructure improvements can contribute substantially to growth. Infrastructure has the potential to contribute more than 3 percentage points a year to per capita GDP growth in the future, if access to and quality of infrastructure services were improved to the level seen in Mauritius, the leading African country in infrastructure quantity and quality (World Bank 2010c). This compares with an average of 2.3 percentage points for the whole Africa continent. Upgrading Congo’s infrastructure, in particular in the power sector, is a prerequisite for economic development and the provision of social services. 3.15. The government has embarked on an ambitious program to improve the infrastructure in the country. The authorities have, hence, scaled up investment spending substantially to improve the dilapidated infrastructure, particularly in the power and transport sectors. The investment budget is estimated to reach CFAF 1,015 billion (approximately USD 2.2 billion) in 2011, representing an increase of more than 50 percent compared to the investment budget of CFAF 674 billion (approximately USD 1.4 billion) in 2010. 3.16. This could pose a big challenge to the country’s limited absorptive capacity. Public investment remains heavily constrained by poor efficiency; according to the Public Investment Management Index (PIMI) developed by the IMF, the Republic of Congo ranked 70th out of 71 surveyed countries (Dabla- Norris et al. 2011, see Figure 3.1). The PIMI measures the performance of public investment management along 4 areas, namely appraisal, selection, implementation and evaluation on a scale of 1 to 4. The Republic of Congo ranks second to last, just ahead of Belize with an overall score of 0.50 while the median score for all countries is 1.65. Congo fares particularly bad in the appraisal and evaluation category with a score of 0 each. Figure 3.1: PIMI overall index: Decomposition by Sub-Index 4 3 Congo 2 1 0 Uganda Togo Armenia Senegal Trinidad and Tobago Kenya Zambia Colombia Yemen Gabon Swaziland Nigeria Cambodia Pakistan Mozambique Albania Malawi Serbia Bangladesh Afghanistan Tunisia Gambia Chad Sudan Egypt Indonesia Jamaica Namibia Ukraine Mali Jordan Moldova Kazakhstan West Bank and Gaza Lao PDR Tanzania Ghana Madagascar* Burkina Faso Rwanda Peru Thailand Haiti Guinea Azerbaijan Mongolia Kosovo El Salvador Turkey Botswana Brazil Sao Tome and Principe Barbados Benin Montenegro Ethiopia Cote d'Ivoire South Africa Solomon Islands Burundi Sierra Leone Djibouti Mauritania Philippines Lesotho FYR Macedonia Belarus Bolivia Belize Congo, Republic of Kyrgyz Republic Appraisal Selection Implementation Evaluation Source: Dabla-Norris et al. (2011) 55 TABLE 3.2: PIMI score – comparison with other countries in the region Country Appraisal score Selection score Implementation score Evaluation score Overall score Republic of Congo 0.00 1.20 0.80 0.00 0.50 Chad 0.00 0.80 2.53 0.67 1.00 Gabon 0.50 1.20 1.47 0.67 0.96 Sao Tome and Principe 0.00 0.80 1.47 1.33 0.90 South Africa 4.00 4.00 2.80 3.33 3.53 (highest score) Median 1.33 1.60 2.00 1.33 1.65 Source: Dabla-Norris et al. (2011) 3.17. The impact of government investments and the efficiency of their management are assessed by means of MAMS. The Maquette for MDG simulations (MAMS), developed by researchers at the World Bank, is an economy-wide model that simulates the impact of development strategies on the economic and social development of a country. Based on the detailed treatment of government activities, the model integrates a computable general equilibrium (CGE) model with a module that links government policies and other relevant variables to economic and social indicators.23 3.18. The government sector is disaggregated to allow the detailed modeling of government policies. For the Republic of Congo, it is disaggregated into 6 functions – three types of education (primary, secondary and tertiary), health, infrastructure, and other government services. The development of the MAMS for Congo therefore requires extensive data collection. It is based on a social accounting matrix (SAM) that is augmented with detailed information, such as government spending, educational indicators, population forecasts etc.24 The model has been carefully calibrated to ensure the robustness of the results. 3.19. In the context of this study, the focus is on the impact of increased government investment in infrastructure on growth and employment. Under the baseline scenario, it is assumed that growth remains moderate with on average 5.6 percent per year between 2010 and 2025 and with most variables following their historic paths. The base year of the model is 2009, but all available information and estimates for 2010 and 2011 have been taken into account, especially regarding the government budget. In the baseline scenario, unemployment is reduced slowly to 13.5 percent in 2025. 3.20. Under an alternative scenario, the government is scaling up infrastructure spending even more than currently planned. It is assumed that an additional CFAF 2,000 billion (about USD 4 billion) are spent either over 3 years (2013 to 2015), equaling CFAF 667 billion additional investment each year, or over 7 years (2016 to 2022), amounting to CFAF 286 billion annually. The delay in investing the additional resources in the second set of scenarios is assumed to be used to improve the productivity of infrastructure investments. 3.21. Delayed gradual investment is assumed to be coupled with improved efficiency of spending. Different scenarios have been developed to assess the effect of productivity gains related to the additional investment. These gains are modeled as an increase in the quantity of new capital that is produced from a given quantity of inputs, i.e. it can be produced more with given resources. 23 For a more detailed description of the MAMS, see for example Bourguignon et al. (2008), Lofgren et al. (2011) or Lofgren (2010). 24 The necessary information has been obtained, among others, from the IMF, the PRSP, the World Development Indicators, from World Bank (2010b), Guetsop Nangue (2009), budget information and UN Population Forecasts. 56 3.22. The scenarios are therefore defined as follows:  BASE: Moderate growth; variables follow their historical trend; no additional investment or productivity gain.  INF-FL: Front-loading of additional infrastructure investments (CFAF 2,000 billion in 2013-2015); no productivity gain.  INF-BL: Back-loading of additional infrastructure investment (CFAF 2,000 billion in 2016-2022); no productivity gain.  INF-BL(15), INF-BL(30), INF-BL(45): Delayed additional infrastructure investment similar to INF- BL with an annual investment productivity gain of 1.5 percent, 3 percent and 4.5 percent, respectively. 3.23. Delaying investments and improving their efficiency pays off. The results of the model show that higher growth rates and lower unemployment rates can be achieved when slightly delaying investment and simultaneously improving efficiency compared to frontloading investment with low efficiency. According to Figure 3.2, the highest growth rate of almost 7 percent per year on average can be achieved with scenario INF-BL(45), i.e. gradually scaling up investment and ensuring high productivity gains. Compared to the baseline scenario this implies an additional 1.3 percent of real GDP growth per year. Figure 3.3 shows that the unemployment rate in 2025 will be lowest for that scenario as well. 3.24. Back-loading of investment will also lead to lower pressure on domestic prices. In addition to the increased productivity, another reason for the better outcome for the scenario with a delayed expansion of investment spending is the lower pressure on domestic markets and the resulting lower price increase for relevant investment commodities, adding to the effectiveness of the spending in terms of generating new capital. The timing of investments for infrastructure improvement therefore needs to be considered carefully and measures taken to ensure that the country’s resources are used as productively as possible. FIGURE 3.2: Real GDP growth rate FIGURE 3.3: Unemployment rate in 2025 (average 2010-2025, percent) (percent) 7.0 13.6 6.0 13.4 5.0 13.2 4.0 13.0 3.0 12.8 2.0 12.6 1.0 12.4 0.0 12.2 Source: Authors’ calculation Source: Authors’ calculation 3.25. Delayed investment leads to a lower public debt burden. Investments are financed by drawing down of assets and covering any shortfalls through external borrowing. As can be seen in Figure 3.4, not 57 only does investing later and more gradually with increased productivity lead to higher growth, it also implies lower public external debt in 2025. FIGURE 3.4: Front-loading investment versus back-loading with improved efficiency (Average real GDP growth 2010-2025; public external debt as percent of GDP in 2025) 7.0 33.5 33.0 6.8 32.5 6.6 32.0 6.4 31.5 31.0 6.2 30.5 6.0 30.0 29.5 5.8 29.0 5.6 28.5 INF-FL INF-BL INF-BL(15) INF-BL(30) INF-BL(45) Real GDP growth rate (percent, left-hand side) Public external debt (percent of GDP, right-hand side) Source: Authors’ calculation 3.26. The increase in investment will have to be managed carefully to avoid the negative effects of Dutch disease. A cautious and gradual expansionary fiscal policy that focuses on areas that raise productivity and improve supply capacity is necessary to avoid an accelerated appreciation of the exchange rate, which could further erode the competitiveness of the non-oil sector. Furthermore, the implementation of parts of the infrastructure investment program through labor-intensive public works programs is advisable. 3.27. The management of public investments is, therefore, critical. Recent efforts to improve public finance management including procurement are steps in the right direction. However, in order to use the country's resources effectively and efficiently, public investment management needs to be improved in all areas of the project cycle. A government action plan for investment management (Plan d’Action pour l’Amélioration de la Gestion des Investissements Public - PAAGIP) is in place and specific recommendations have been given in the PER (World Bank 2010d) and in the context of the Capacity Building, Transparency and Governance Project (PRCTG 1 and 2), but implementation of the recommendations has been uneven. A.2. BUSINESS ENVIRONMENT AND SMES General constraints regarding the business environment 3.28. Congo has one of the most difficult business operating environments in the world, underscoring the adverse conditions for private-sector development in the country. According to the Doing Business 2011 report, compiled by the World Bank, Congo is ranked 177th out of 183 countries worldwide, 40rd out of 46 countries in Sub-Saharan Africa and 53th out of 54 lower middle income countries, just ahead of Sao Tome and Principe. Between the Doing Business Report 2006 and the 2011 Report, doing business in Congo has actually become more difficult. 58 3.29. Particularly problematic areas are to start a business, pay taxes, trade across borders, enforce contracts and protect investors (Table 3.3). To start a business, for example, involves 10 procedures and 160 days in Congo, while starting a business in good practice economies can be accomplished with one procedure in one day and even in other CEMAC countries, like Cameroon, takes only 6 procedures and 19 days. Similarly, to pay taxes in Congo, 61 payments are necessary per year, requiring 606 hours per year and implying a total tax rate of 65.5 percent of profit. In Gabon, the CEMAC country with the best ranking, the indicators in this category are 26 payments, 488 hours and a total tax rate of 43.5 percent of profits. TABLE 3.3: Doing Business Indicator ranking for the Republic of Congo and other CEMAC countries (2010) Republic of Cameroon CAR Chad DRC Equatorial Gabon Congo Guinea Ease of Doing Business 177 168 182 183 175 164 156 Starting a Business 176 131 161 182 146 179 153 Dealing with Construction Permits 83 118 148 101 81 109 67 Registering Property 133 149 141 137 118 79 132 Getting Credit 138 138 138 152 168 138 138 Protecting Investors 154 120 132 154 154 147 154 Paying Taxes 180 169 182 179 163 170 140 Trading Across Borders 180 155 182 171 172 137 134 Enforcing Contracts 158 173 173 164 172 72 148 Closing a Business 128 141 183 183 155 183 139 Source: World Bank (2010a) 3.30. Access to finance is seen as one of the most important obstacles for companies (World Bank 2009a). With less than 2 percent, the penetration rate of the banking sector is very low. The banking sector has grown rapidly, which is, however, only reflected in increasing deposits while credit remained low, leading to very high liquidity in the market. Credit to the private sector as percent of GDP increased slightly over the last years, but nevertheless only reached 4.8 percent in 2009. Additionally, high interest rates, a not adequately developed microfinance sector and the concentration of financial services in Brazzaville and Pointe-Noire hamper the access to finance. As a result, firms predominantly use internal funds and retained earnings to finance working capital and investments. A financial sector strategy has been approved in 2008 with the aim to strengthen the stability of the sector and improve access to financial services. 3.31. Particularly SMEs have very limited access to finance (AfDB 2009). Although funds are available, SMEs are not successful in securing loans. This is mostly due to the lack of capacity, training and assistance for loan applications. In addition, the provision of collateral is often not possible by the SME. Commercial banks are therefore reluctant to extend loans to prospective business owners due to the risk of not being able to recover the loan. 3.32. Finally, the private sector is not adequately supported. There is no formal and structured forum for public private dialogue which could have been used to raise and address critical constraints to the development of the private sector. Past policies have not been supportive for the promotion of the overall culture of entrepreneurship, which remains weak. The existing structures and institutions providing support to firms and workers are fragmented, ill equipped, inadequately staffed and do not coordinate their efforts effectively. In addition, there is no investment promotion body which could 59 assist potential private investors identify and exploit investment opportunities, and share or assist in scaling up successful experiences. Regulatory framework and overall SME development 3.33. According to the Congolese law (law 019/86 of 31 July 1986) a company is regarded as an SME if it is registered, has a bank account and maintains accounts. It is considered a small enterprise if it employs 5-19 employees registered with the CNSS, and a medium enterprise with 20 to 99 employees. SMEs may be organized as individual companies, cooperatives or corporations, and their capital can be private, public or mixed. This law is applicable to all economic and social sectors. 3.34. A number of institutions support the creation and operation of SMEs:  Businesses are registered at the Centre for Administrative Formalities of Enterprises (Centre de Formalités Administratives des Entreprises - CFE) considered as a one-stop window. This structure was created in 1995 to facilitate the procedures for business creation.  The Chamber of Commerce, Industry, Agriculture and Trade is a public institution established in 1996. Its mission is to represent and defend the economic interests of its members and is the interface between government and the private sector. The Chamber is also responsible to: 1) advise and guide companies in providing information relevant to their activities, and 2) participate in the promotion of the Congolese economy as well as training. The Chamber supports the easing of barriers to entry, if not their complete elimination, and it supports the training of entrepreneurs.  Several agencies have been created under the Ministry of SMEs and Crafts (Ministère des Petites et Moyennes Entreprises, Chargé de l’Artisanat) in 2005 (Decree No. 2005-327 of 29 July 2005) to improve the management of SMEs, namely o The development agency for SMEs (L’agence de développement des petites et moyennes entreprises); o The national agency for crafts (L’agence nationale de l’artisanat - ANA); o The guarantee and support fund for SMEs (Le fonds de garantie et de soutien aux petites et moyennes entreprises). 3.35. In terms of enterprise development, Congo has gone through several phases. During the period of independence, Congo has a considerable variety of food industries under the authority of the French company SIAN (Industrial and Agricultural Company of Niari). Besides sugar, for which the intent was to expand exports to other francophone African countries, production of fruits and vegetables offered interesting possibilities and one of the objectives was to produce canned fruit and juice for export. In parallel, plans for the creation of forestry and food industries, as well as for the production and export of potash and iron ore were under way. However, many of the plans have not been realized. 3.36. By the 1980s, most of the companies had disappeared. The main reasons were: 1) mismanagement – primarily for the state-owned enterprises, 2) difficulties to integrate into the national economic structure, 3) pressures and competition from foreign companies based in Congo. The overall weight of the political environment was a big constraint for state enterprises and the creation of a private company was a challenge 60 3.37. Following these failures, awareness for the challenges faced by SMEs in Congo was raised. In 1988, a commission for the accreditation of SMEs was created and in 1990, a policy of privatization and enterprise restructuring was defined. After the bankruptcy of state-owned enterprises, the focus was on SME development, in the context of economic disengagement from the government through privatization. 3.38. These developments as well as the conflict have led to the disappearance of some SMEs or their drift into the informal sector. The expansion of the private sector in the Republic of Congo was during that time to some extent constrained by the political ideology. Private economic activities were discouraged, thereby giving a monopoly to public enterprises, and little support was provided to support the private sector, particularly SMEs. 3.39. In 1986, the Congolese authorities had decided to make the private sector in general and SMEs in particular, a priority in the economic and social strategy, creating by a new institutional framework for the promotion of SMEs and SMIs. This institutional arrangement, however, after a promising start, has not proven to be as effective as expected. The institutional environment has remained inadequate and the support structures for SMEs (guarantee fund and development agency for SMEs) have not been instrumental. However, as outlined in section A.4, a positive trend in enterprise and job creation can be observed since the end of the conflict. 3.40. The Congolese private sector is characterized by a predominance of individual enterprises, reflecting a rather unique entrepreneurial culture in which companies with limited liability seem the exception. As shown in the Table 3.4, most of the companies are run by Congolese, while foreign companies are led mainly by Central and West Africans. TABLE 3.4: Development of enterprises created between 2003 and 2007 by legal form and nationality 2003 2004 2005 2006 2007 Legal form Individual Congolese enterprise 1,807 1,600 1,863 2,619 2,064 Individual foreign enterprise 157 180 159 113 98 Limited liability companies 209 174 240 406 394 Other legal forms 32 21 24 62 38 Nationality Congolese 1,991 1,751 2,066 3,009 2,420 Central African 38 46 71 46 28 West African 80 82 54 47 66 Southern African 11 16 33 14 14 Asian 51 43 34 40 42 European 28 34 23 35 20 Other 6 3 5 9 4 Total 2,205 1,975 2,286 3,200 2,594 Source: CNSEE 3.41. Small companies have recorded the highest growth rates in the last years. According to the results from the Enterprise Survey carried out in 2008, small companies with less than five employers grew fastest in terms of full-time employees between 2005 and 2007 (see Figure 3.5). Large companies with more than 50 full-time employees recorded the largest increase in absolute numbers (employing on average 35 employees more in 2007 compared to 2005), but a lower percentage growth than small companies. 61 FIGURE 3.5: Employment growth by firm size between 2005 and 2007 100 50 Percentage growth in employment Absolute growth in employement 80 40 60 30 40 20 20 10 0 0 6-10 11-20 21-50 1-5 50+ Absolute employment growth Weighted percentage growth Percentage growth Source: Authors’ calculations based on data from http://www.enterprisesurveys.org/ 3.42. Most SMEs operate in the services sector in the two urban areas, Brazzaville and Pointe-Noire. About 85 percent of enterprises that are created operate in the services sector, followed by 14 percent in the secondary and only 1 percent in the primary sector. Generally, activities such as trade in food products and clothing are the most popular Constraints specific to SMEs 3.43. Several constraints related to the external environment in which SMEs operate can be identified (Mbaloula and Edzoualiko 2011), namely:  Financial constraints: Most companies use internal funds to finance their activities. There is no development bank or other financial institution specialized in working with SMEs. Commercial banks no not usually provide financing for SMEs as they require collateral and offer only short- term financing. In addition, many business plans presented by prospective SMEs are not reliable. The registration of businesses through the CFE costs between CFAF 60,000 and CFAF 280,000, depending on the structure of the enterprise, which also constitutes a barrier to entering the formal sector.  Institutional constraints: The relationship between the administration and enterprises is not well functioning. SMEs report harassment from several agencies, including police, customs and tax officials. Conversely, documents submitted by SMEs do not always reflect the true financial situation of the enterprise. SMEs also complain about the inconsistent application of the legislation in favor of large companies.  Judicial and tax system: Despite the accession of Congo to OHADA, the new business law and the revision and adoption of codes for several sectors since 1994, the legal framework still does not appear to be supportive of SMEs by not taking sufficient account of their weaknesses. Trade regulations remain one of the most restrictive because of the lack of flexibility needed for SMEs. SMEs also complain about a very high tax burden. The small business scheme, defined in the 62 context of the Investment Charter, establishes eligibility requirements that cannot be met by many SMEs, for example the minimum investment required of CFAF 30 million.  Infrastructure constraints: The poor state of the infrastructure results in higher production costs and requires an adaptation of the technology used by firms. Especially the lack of reliable provision of electricity is a serious problem, preventing continuous production for firms that have access to electricity as well as the development of activities in areas where electricity is not provided at all. Similarly, deficiencies in water supply are an obstacle to business development. Furthermore, scientific and technological infrastructure is lacking, thereby preventing innovation. 3.44. Weaknesses related to the internal environment of SMEs include the lack of modern technology and insufficient use of marketing tools and strategic information as well as little managerial and accounting skills. Ultimately, the management of SMEs in Congo is far from the requirements of modern business management in a competitive global environment, including the formulation of an effective strategy that provides competitive advantages. This is compounded by a lack of technical and professional education of workers. 3.45. There is an overall lack of entrepreneurial spirit in Congo. The lack of entrepreneurial spirit leads to missing existing business opportunities. It can be traced to several factors, including the education system which is focused on general education, the interventionist regime of the state in the past leaving little room for the private sector as well as the lack of systematic access to comprehensive information systems and the resulting absence of information on possible markets and opportunities. The way forward 3.46. The action plan for investment climate reform, adopted in November 2009, addresses many of the above mentioned constraints (World Bank 2010e). The action plan includes the establishment of a platform for public-private dialogue, institutional and regulatory reforms, such as the drafting of an SME law, and measures to improve the access to finance, professional training and the promotion of entrepreneurship. The Economic Diversification Support Project of the World Bank also addresses several of the identified issues. 3.47. The improved dialogue between the private and the public sector is a priority. In that context, the newly created High Council for Public-Private Dialogue is a very positive development. After the establishment of a permanent secretariat for the High Council it is recommended that an expertise fund is established and experts recruited as soon as possible to facilitate the functioning of the council and the implementation of its recommendations. 3.48. Several measures can be taken to facilitate administrative procedures for companies. The central institution for business registration, CFE, needs to be reformed, restructured and its capacity strengthened. The implementation of recommendations resulting from an institutional and organizational audit would assist in simplifying procedures such as the registration of companies. This applies similarly to a recommendations based on a feasibility study for the establishment of a one-stop tax window. 3.49. The establishment of institutions supporting enterprises and promoting investment will contribute to the overall development of the private sector. In that regard, it is recommended to 63 finalize and implement the plan of the government to consolidate all enterprise support into the “Maison de l’Entreprise�. Furthermore, an investment promotion agency should be established an investment promotion strategy developed. 3.50. Regarding measures targeted specifically at SMEs, access to finance is a critical component. The establishment of an SME guarantee fund is therefore a priority, especially for medium-term financing. Furthermore, managerial skills need to be strengthened, which could be supported by training courses offered for example by the Chamber of Commerce or higher education institutes. 3.51. To benefit from the experience of other countries, Congo has recently started cooperating with Singapore. Box 3.1 outlines the areas of cooperation which are of benefit for the two countries. For the Republic of Congo this includes primarily the ease of doing business, the development of industrial parks and special economic zones as well as port management and logistics. Singapore, on the other hand, is interested in investing in priority sectors in Congo. Box 3.1: Cooperation between Singapore and the Republic of Congo Singapore is the largest ASEAN investor in Africa with a cumulative FDI of about USD 3.5 billion invested. With USD 7.5 billion in 2009, Singapore-Africa trade still only represented 1.5 percent of Singapore’s total trade volume. Singapore’s experience stands to benefit African countries. It has accumulated knowledge in areas of interest such as building and managing urban infrastructure, skills and vocational training, planned industrialization, and good governance. The Republic of Congo and Singapore see opportunities for collaboration that will help boost investment from Singapore in the Republic of Congo on the one hand, and on the other hand will allow Congo to benefit from Singapore’s expertise in areas such as ease of doing business, development of industrial parks and special economic zones, and port management and logistics. A recent World Bank supported mission of a delegation from Congo to Singapore raised public and private sector’s awareness of opportunities in the Republic of Congo. Congolese officials and representatives from the private sector identified areas of Singapore’s experience that could be beneficial for their country. These include opportunities for a collaboration that could help fast track the country's industrialization process with the development of industrial zones, the establishment of technical and financial partnerships with Singaporean firms to develop Congo’s high potential value chain, the development and strengthening of SMEs with capacity building and workforce training, and the reform of the business environment with ease of doing business implementation. In the private sector, opportunities exist for SMEs of both countries to form mutually beneficial strategic partnerships, and several large companies from Singapore are interested in investing in priority sectors in Congo including agribusiness or material construction integrating the value chain from production to transformation and commercialization. A.3. SECTORAL CHALLENGES AND OPPORTUNITIES 3.52. Diversification away from oil is essential for the development of the private sector. A number of sectors have high employment and growth potential. One of them is the forestry sector, which has been the main export sector in the pre-oil era and Congo can build it on its experience in this sector. Furthermore, the mining sector has large potential to contribute to exports, government revenue and employment creation and a number of promising initiatives are currently ongoing. These two sectors, in which Congo has or can develop a comparative advantage, are discussed in more detail below. This choice of sectors is in line with the recent letter of industrial policy (Republic of Congo 2011), which identifies mining, forestry, food processing and construction materials as the main catalysts for the industrialization of the country. Forestry 3.53. Forestry products are the second largest export products of the Republic of Congo. Exports of wood related products averaged 9.0 percent of total exports between 2000 and 2010. The share and 64 contribution of forestry products to GDP, however, has declined significantly over time, averaging only 2.2 percent in the last ten years. The country has 22 million hectares of forest, located mainly in three massifs, of which 15 million hectares are capable of producing construction-grade timber with a potential sustainable production under current conditions of 2 million m3 log equivalent per year (see Kimo Biampikou 2011, and AfDB/OECD 2010). If infrastructure improves and further processing is introduced, many more species would become marketable and a sustainable production of 5 million m 3 per year should be possible. 3.54. In the context of the revised forestry code, new institutions have been created, such as the National Center for Forest Inventory and Management (Centre National d’Inventaires et d’Aménagements Forestiers – CNIAF) and the Control Service for Forestry Exports Products (Service de Contrôle des Produits Forestiers a l’Exportation – SCPFE). The certification of forestry concessions has started and the stricter enforcement of the law to ensure sustainable use and management of the forests is planned. Congo is already now leading the other Congo Basin countries on a number of indicators, such as the forest area under Forest Stewardship Council (FSC) certification. The country has 1.9 million hectares of forest concessions certified under the FSC, accounting for about a fifth of Congolese forest concessions and for nearly half of all the FSC-certified forests in the Congo Basin. Over 50 percent of forest concessions have approved management plans and almost all other concessions are in the process of developing such plans. 3.55. The Republic of Congo also intends to position itself as a provider of environmental services to the emerging global markets, and, in complement to this, aims to promote afforestation and reforestation efforts eligible for carbon credits. The country is also giving more prominence to its national parks, which contain globally significant biodiversity, as an international tourist attraction. More than 12 percent of the Republic of Congo's land area has been classified as national parks and other protected areas, and progressive forest management rules and monitoring systems are increasingly adopted, with varying degrees of enforcement. Local communities derive significant benefits from forest concessions, especially the larger, better-managed concessions in the North, which generate significant employment and are obliged by law to invest in social responsibility contracts. Sharing benefits with local communities living in and around protected areas, however, has proven to be more of a challenge. Nevertheless, there are some encouraging pilot experiences with benefit sharing from tourism in protected areas near Brazzaville and Pointe-Noire that merit scaling up (World Bank 2001c). 3.56. Artisanal production concentrates on firewood, charcoal and timber from the forests surrounding the Congolese cities. Firewood and charcoal are the main source of energy for the urban population. As a result, deforestation poses a serious problem around the main cities such as Brazzaville. Artisans also provide timber that is used to produce for example joists and planks in the informal sector, which is sold in depots. Administrative hassle, outdated equipment and high transport costs are the main constraints for artisanal producers. However, artisans prefer to deal with officials demanding fees along the transport routes rather than obtaining official permits (Yembe Yembe 2011). 3.57. Despite provisions in the 2000 forestry code, most of the exports are unprocessed logs. According to the forestry code, companies are required to process at least 85 percent of felled trees by 2014, achieving a level of 90 percent in 2016. However, Figure 3.6 shows that on average over the last ten years, only 18 percent of exports were processed products, namely sawn wood, plywood and rotary 65 veneer, while 63 percent were unprocessed tropical wood logs. Furniture is produced domestically at a small scale, but not exported. There is still considerable potential for import substitution of processed wood products, especially for furniture. FIGURE 3.6: Distribution of forestry export products (average 2000-2010) Eucalyptus Plywood logs Rotary veneer Sawn wood Logs Source: Kimo Biampikou (2011) 3.58. Government revenue from the forestry sector is small. Revenue from customs fees and taxes barely exceeded CFAF 10 billion in 2009, equivalent to only 0.2 percent of GDP (AfDB/OECD 2010). The new forestry code established in 2000 substantially raised taxes to align the country with the tax rate common to CEMAC. The goal is to promote job creation and improve management of the forest ecosystem. However, the tax hike could have been a disincentive for the expansion of production (AfDB/OECD 2006). 3.59. The Congolese forestry sector was hit hard by the financial crisis. After a strong expansion between 2001 and 2003, the growth in forestry production slowed down and decreased significantly in 2009. In 2003, the share of the forestry sector amounted to 2.7 percent of GDP, which declined to 2.4 percent in 2008 and only 1.3 percent in 2009 and 1.2 percent in 2010. On average, 56 percent of total production was exported between 2000 and 2010. The worsening trend in 2009, when the sector recorded a more than 40 percent decline can mostly be explained by the steep fall in external demand for Congolese timber that was caused by the global financial crisis. The Congolese forestry sector was hit earlier and more heavily than any other country in the sub-region: several companies have halted production and a few have closed. 3.60. Employment in the sector is limited but increasing. While employment in public enterprises in the forestry sector has continually decreased to only 65 in 200525, employment in the private formal sector is steadily increasing and has reached more than 6,000 in 2006. Artisanal production in the informal sector, however, contributes to employment creation in the forestry sector, but no estimates for the number of jobs exist. 3.61. The sector faces a number of constraints. First, the poor state of infrastructure makes transporting products to the port of Pointe-Noire very difficult. Companies, located mainly in the north tend to send their products out on Cameroonian roads to the port of Douala. Large companies usually have to build the necessary infrastructure from scratch. The absence of skilled personnel is another 25 Unfortunately, more updated information is not available. 66 major obstacle for the operation of the sector. Companies often have to rely on foreign workers, in the northern regions of the country especially on Cameroonians. Two schools, in Mossendjo and in Brazzaville, exist, but do not seem to provide enough adequately trained graduates. The relationship between logging companies and local communities is also a challenge, as communities often seek unrealistic social benefits from logging companies in a context of a complete lack of state-provided social infrastructure in remote areas. Moreover, corruption on a local level poses a problem, as companies are subject to a plethora of taxes at different levels of the administration in addition to parafiscality. 3.62. However, prospects for growth and employment creation in the forestry sector are good. Covering over 65 percent of Congo's land area, forests are key to the social and economic life of the country and a strategic asset to the global environment. Especially promising are reforestation and afforestation efforts for various purposes, including plantations of eucalyptus and other fast-growing tree species, plantations for charcoal production and small-scale agro-forestry for food and energy needs, among other potential industrial forestry niches. In 2007, a company producing wood chips from eucalyptus logs started production which plans to expand the size of the forest substantially (AfDB, OECD 2009). Noteworthy is also the government’s National Afforestation and Reforestation Program (Program National d’Afforestation et Reboisement - PNAR), which aims to provide incentives for reforestation of savannah lands to reach an ambitious goal of reforesting 1 million hectares over 10 years. 3.63. The key recommendations for an improved performance of the forestry sector are therefore  Improved training in forestry related activities;  Improved incentives for Congolese companies and government entities to use locally produced wood products;  A wider distribution of results from forestry related research also to small-holders;  The continued facilitation of certification of forestry concessions through better enforcement of sustainable forest management controls and wildlife laws. Mining 3.64. Despite the recognized high potential of the mining sector in the Republic of Congo, industrial mining production remains limited. Although the mineral resources are still insufficiently studied, it is known that Congo’s subsoil contains resources of noble elements and precious metals, precious stones, heavy and strategic minerals, ferrous and non-ferrous metals, solid fuels and industrial minerals. Historically, some episodes of industrial mining took place, especially potash production in the 1970s and copper production in the 1980s. Since then, however, besides construction materials exploited at a significant scale in a few areas across the country, only artisanal mining has been recorded, mostly of industrial minerals, gold and diamonds. 3.65. A number of promising projects are currently being developed in the sector. Since 2005, when the new mining code was passed and the later commodity boom, mining sector exploration activities have been revived. A number of prospecting and research permits have been granted (Figure 3.7 and Figure 3.8 showing the status as of end of 2010) for different minerals in almost all regions of the country. Moreover, three projects have reached the feasibility stage, while several more are at the pre- 67 feasibility stage. The projects currently in the feasibility stage are a potash mine close to Pointe-Noire in the Kouliou region, a polymetal mine in the Niari region and an iron ore mine in Nabeba in the Sangha region. FIGURE 3.7: Number of prospecting permits by region FIGURE 3.8: Number of research permits by region 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 Gold Iron ore Uranium Phosphates Diamonds Other Gold Iron ore Polymetal Potash Diamonds Other Source: Pelon (2011) Source: Pelon (2011) 3.66. The realization of some of the large mining projects could have a profound economic impact. Since 2007, at least USD 200 million has already been invested in exploration activities. If three of the projects that are currently in the feasibility or pre-feasibility stage are going ahead, between USD 1 and 2 billion could be invested between 2012 and 2015 and up to USD 7 billion until 2017. This will include large infrastructure investments, such as the construction of a new railway line from the site of a possible iron ore mine to a newly constructed mineral port. Export receipts could reach levels of between USD 1 and 3 billion by 2017, more than the current value of non-oil exports. The contribution to government revenues coming from only the mining royalty26 would be between USD 30 and 100 million. FIGURE 3.9: Employment potential of mining projects (number of jobs created - estimates) 12,000 10,000 8,000 Iron ore project 6,000 Potash project 4,000 Polymetal project 2,000 0 Exploration Construction Exploitation Source: Pelon (2011) 26 The royalty (3% of the production value in the case of iron, potash or copper) is the easiest government revenue to anticipate from the sector. In the longer run, income tax is usually far more significant, but is only collected after profitability has been reached, sometimes a few years after the launch of production. 68 3.67. The employment potential of the mining sector is substantial. Figure 3.9 shows the potential number of jobs created by three projects that could be launched in the Republic of Congo.27 Especially a large iron ore project has the potential to employ up to 9,000 people during the construction phase and 6,000 during exploitation. In addition to these direct jobs, a significant number of indirect jobs will be created that are linked to these projects. The workers will be primarily Congolese, although there will be a need to hire foreign experts. After a transition period, however, if improved training is available for mining sector specialist, Congolese workers will be able to be employed for most positions. 3.68. The regulatory framework is favorable for the development of the mining sector. The mining code which was adopted in 2005 envisages attracting private investment, opening the market to competition, streamlining administrative procedures, simplifying the tax and customs procedures, and strengthening measures for environmental protection and management of sustainable development impacts on the Republic of Congo. It incorporates some recent advances in mining policy and mining code development. The government has also firmly included the mining sector in its development strategy, particularly the PRSP, and shows a clear commitment to support the sector to contribute to the diversification of economy. 3.69. The mining sector faces a number of challenges. First of all, despite substantial work done so far, the acquired knowledge about the geological and mining potential is fragmented. As a result, no sufficiently detailed maps can be made available to prospective investors. The mining administration, furthermore, suffers from a lack of qualified staff. In 2010, the Ministry of Mines could only recruit about 20 new staff for 75 budgeted positions. The Université Marien Ngouabi in Brazzaville trains a number of geologists each year, but most of them are hired by oil companies. Insufficient infrastructure development, especially transport and electricity, is another critical challenge for the mining industry. 3.70. The proper management of the mining sector is important. The identified or likely mineral deposits in the Republic of Congo can certainly contribute to the economic and social development of the country. A well managed and well functioning mining sector can help the government to diversify its income sources and reduce poverty. However, if the sector is managed poorly, it could also amplify the damage to the environment or cause the return of reflexes mismanagement. 3.71. The key recommendations are therefore:  Compilation of a comprehensive map of mineral resources and promotion of mineral potential;  Capacity building of the staff of the Ministry of Mines and Geology as well as other key administrative agencies;  The development of a training plan to respond to the increasing job opportunities in the mining sector;  A study to quantify the backward and forward linkages between mining and other sectors (from infrastructure to local supply chains) to maximize the benefits from mineral resources. 27 These numbers are estimates based on simulations where 3 projects are launched that are similar to projects in the country that are currently in the feasibility or pre-feasibility stage. 69 B. LABOR SUPPLY 3.72. The labor supply mainly depends on demographic trends and labor force participation, which determine the economically active population. The population in the Republic of Congo is predominantly young and the population will grow substantially in the medium and long term, increasing the already high supply pressure in the Congolese labor market, exceeding labor demand by far. 3.73. Currently, in addition to the high labor supply, there is a mismatch between the skills offered by job seekers and skills required by employers. The qualification of the labor force, which is linked to the quality and provision of education, is therefore critical. Skills development is also essential for the employed population to improve productivity and working conditions, promote decent work and reduce the number of working poor (UNECA 2010). 3.74. The following section outlines the constraints for the development of an adequately skilled labor force, the importance of education and labor market policies for a well functioning labor market and the key recommendations to address the identified constraints. B.1. CONSTRAINTS 3.75. Education indicators in Congo are improving only slowly. As pointed out in section B.2, over the past few years, the primary school completion rate in the Republic of Congo has been low and only reached 74 percent by 2009, while this share was 90 percent for the average lower-middle income country in the same year (World Development Indicators). Education policies needs to boost the primary completion rate in order to minimize the need to provide second-chance opportunities for schooling among youth who never had the chance to even complete the primary cycle and lack a basic-skill set demanded at the workplace. 3.76. There is an apparent mismatch between the skills offered by job seekers and skills required by the private sector. This becomes evident by analyzing the results from the EESIC carried out in 2009. The unemployment rate is actually higher for the educated compared to those with no education, particularly for the young population. This is contrary to the expectation that education will improve the chances to find a job and lead to a better livelihood. This mismatch is also confirmed by the available statistics from ONEMO, which show that despite the large unemployment rate, a significant number of positions cannot be filled due to the lack of the required skills (see Chapter 2, section A.4, especially Table 2.5 and Table 2.6). This leads to the hiring of a considerable number of foreigners to fill the gaps. 3.77. The quality of technical and professional training is weak and not adapted to the needs of the economy. As outlined in section B.3, little weight is given to technical and vocational education, attracting less than 10 percent of students. The focus of the educational system remains on general education. The weaknesses of the current system regarding the quality and provision of technical and vocational training were already identified in a diagnostic study by the UNESCO in 1994, but little has changed since then. 3.78. The current system of higher education does not lead to better opportunities on the job market. The transition rate from secondary to tertiary education is high (estimated at 41 percent in 2007/08); currently, about 19,000 students are enrolled at the Université Marien Ngouabi and 7,400 at 70 accredited private higher education institutes. Overall, less than 20 percent of students are enrolled in technical studies, the majority studies arts and humanities. For university graduates from these subjects, job opportunities are mostly limited to working in the public administration or teaching (Makany 2011). 3.79. Inadequate workforce skills are seen as major obstacle for companies in Congo, more so than labor regulations. Of the surveyed firms, 51 percent consider workforce skills a major obstacle, whereas for 25 percent labor force regulations are a major constraint (Figure 3.10). This holds true for all companies regardless of the size or the sector they operate in. The only group with a different view is exporters, which are, however, the group which is most dissatisfied overall. This in line with findings from Fox and Oviedo (2008) that labor market regulations are not the most binding constraint for companies in Sub-Saharan Africa. FIGURE 3.10: Perception of labor regulation and labor skills in Congo (percent of firms considering labor regulation and labor skills a major or severe obstacle) Total Small Medium Large Manufacturing Services Exporter Non-Exporter 0 20 40 60 80 100 Labor regulations Labor skill level Source: World Bank (2009a) 3.80. Labor skills are seen as major or severe obstacle for almost all sectors. Figure 3.11 contrasts the perception of firms to what extent labor skills and labor regulations are seen as major or severe obstacle by sector. The lack of adequate labor skills appear to be especially constraining for the transport sector, hotels and restaurants, construction and other manufacturing28. On the other hand, firms in most sectors consider labor market regulations to be no or only a minor obstacle to their operations. An exception is the transport sector, where the majority of companies identifies labor market regulations as major or severe obstacle. 28 Other manufacturing comprises the categories chemicals, plastic and rubber, fabrication of metal products, machinery and equipment and other manufacturing. 71 FIGURE 3.11: Sectoral perception of labor regulation and labor skills in Congo (percent of firms considering labor regulation and labor skills a major or severe obstacle) Labor skills Labor market regulations 80 80 60 60 40 40 20 20 0 0 No Obstacle Minor Obstacle Major obstacle No Obstacle Minor Obstacle Major obstacle Other manufacturing Food Other manufacturing Food Construction Other services Construction Other services Hotel and restaurants Transport Hotel and restaurants Transport Source: World Bank (2009a) Source: World Bank (2009a) 3.81. The government recognized the skills issues, which led to the development of the ten-year plan to recover technical and professional training (Plan décennal 2007-2016 de Redressement et de Développement de l’Enseignement Technique et Professionel) in 2007. The strategy aims at providing easier and more equitable access and improving the efficiency of the training, improving the match between training and jobs and ensuring a better insertion of trainees in the labor market. B.2. THE FUNDAMENTAL ROLE OF EDUCATION AND SKILLS POLICY FOR LABOR MARKET FUNCTIONALITY 3.82. The link between policies aimed at alleviating poverty, enhancing educational outcomes and improving the labor market must be strong, given that a large share of households in the Republic of Congo are poor and their most important asset is generally labor. Youth’s early entry into the labor force without acquiring the requisite technical and soft skills is at times a necessity to generate sufficient income for the consumption needs of very poor households, although it can aggravate intergenerational poverty cycles and low labor market productivity. As a result of the effects of the civil conflict on the delivery of basic social services prior to 2000, early childhood development may have been affected, and schooling interrupted, for some children who are now at the point of transitioning into the work force or for some older youth who are now in low-productivity employment due to limited educational opportunities earlier in life. 3.83. Education-specific policies can ease the transition from schooling to work by better facilitating youth with marketable skills. The importance of the local and market relevance of the school curriculum needs to be emphasized. This can be achieved for example through public-private partnerships assessing educational and training content as well as the management of technical and vocational education and training (TVET) institutions. These partnerships are needed on a continued basis to minimize skill gaps with labor market demands, especially at the secondary school level and beyond. This can imply a mix of academic knowledge and soft skills combined with vocational training. Box 3.2 outlines the Ethiopian initiative as a good example for linking education to employment. 72 Box 3.2: Narrowing the skills gap by reforming higher education policy in Ethiopia In 2008, the Ethiopian Government issued a policy designed to shift the balance of subjects in all public universities away from the humanities and towards the sciences. Following a study of education systems that have promoted economic development, as well as the current needs of the Ethiopian labor market, the curriculum was split 70:30 in favor of science and technology. The policy reform is expected not only to produce professionals in industry and technology who will be able to help create a transformational emerging economy, but also to narrow the current skills gaps between graduates of higher education and labor market demand nationally and globally. The 70:30 strategy is based on an assessment that graduates of medicine, engineering and technology have generally better employment opportunities within and outside the country, while graduates in the social sciences and to some extent the natural sciences have limited employment opportunities in Ethiopia and abroad. Besides the labor demand argument, the strategy is also based on the belief that there is a current drive towards knowledge-based economies. Specifically, the policy reform introduces six bands in the higher education system: engineering and technology (40 percent of the total annual intake of 110,000 students), business and economics (20 percent), medicine and health sciences (20 percent), natural and computational sciences (20 percent), social sciences and humanities (10 percent) and agriculture and natural resources (5 percent). Source: UNECA (2011) 3.84. In fiscally constrained Sub-Saharan countries, public-private partnerships can represent a viable, sustainable and market-relevant solution. For example, in Mauritius the ‘Industrial Vocational Training Board’ ensures not only shared funding and delivery of training services between public and private providers, but also a competitive procurement process (World Bank 2006b). Private employers can deliver very relevant and effective training for youth. However, private-sector led training may not be provided in an equitable way to disadvantaged groups in society so that the public sector must intervene to fill gaps in the provision of technical and vocational training and to provide incentives for the private sector, which can be done in the context of public-private partnerships. 3.85. Mismatches in the education and skills supplied to youth in school and those demanded by the job market are a common problem in poorer developing countries. Once youth enter the work force, they begin to feel the effects—whether positive or negative—of earlier investments in human capital. Low levels of and gaps in education often lead to a career with lower earnings and to lower labor market productivity. In a country like the Republic of Congo with characteristics of both a low- and middle-income country, the right balance need to be found between providing youth traditional apprenticeships (given limited formal education opportunities at higher levels) with the expansion of mechanisms that link school with work (World Bank 2006b). 3.86. Larger and export-oriented companies are more likely to provide training. A study by Johanson and Adams (2004) found that in Kenya, Zimbabwe and Zambia, for example, manufacturing companies that employ more than 150 workers are two times more likely to invest in a form of external training for hires compared to medium-sized companies (employing between 51 and 150 workers) and are over 10 times more likely to do so compared to small companies (10 workers or less). The results also show that companies in African countries that provide training are often export-orientated, involved in foreign investment and are more inclined to adopt emerging technologies, while they are simultaneously more likely to provide training to employees with higher levels of schooling. Given these findings, public policy may need to place a greater focus on efforts towards providing smaller enterprises with respective incentive schemes to offer training opportunities for youth with limited or no work experience. 3.87. The World Bank has developed a simple conceptual framework than can help policy makers think though the design of systems to improve skills that enhance productivity and growth (World 73 Bank 2010f). The Skills Toward Employment and Productivity (STEP) framework consist of five steps, which are illustrated in Figure 3.12. The framework can guide the preparation of diagnostic work and subsequently the design of policies across sectors. It is, however, not meant as a fixed set of reforms to be followed similarly by each country. It could rather help the Republic of Congo to understand the challenges the country is facing in building the relevant skills to increase productivity and growth and find solution that work in the Congolese environment. It is also a comprehensive approach that should help to prevent single-minded solutions to address the skills gap. FIGURE 3.12: Implementing the STEP (Skills Toward Employment and Productivity) framework as an integrated set of programs across workers’ life cycles Source: World Bank (2010f) B.3. KEY RECOMMENDATIONS 3.88. A needs assessment is necessary to assess the skills required by the private sector. To be able to assess the skills the private sector demands from applicants, a needs assessment should be carried out for priority sectors. The results from this assessment will inform the development and design of curricula. A thorough assessment would involve employer surveys as well as an assessment of skills of the labor force, including tests of cognitive, non-cognitive and technical skills. A standardized tool for this kind of assessment is currently being developed by the World Bank in the context of the STEP framework (World Bank 2010f). 3.89. Technical and vocational training needs to be improved and adjusted to the needs of the labor market to play a key role in providing the required skills for the Congolese workforce. A number of measures should be taken to improve technical and vocational education. As a first step, an assessment of the performance of existing technical and vocational training programs and centers is necessary to develop a comprehensive reform program. 3.90. A continued dialogue between the public and private sector is essential. A close collaboration and partnership between the private and public sector and training institutions needs to be established. Thereby it can be ensured that the curricula design and development reflects the needs of the private sector. Regular consultations of the involved stakeholders are necessary to incorporate any changes in the private sector environment and possible impacts on skills requirements. 74 3.91. The quality of education needs to be improved. The Congolese education system is still suffering from a lack of qualitative improvements (World Bank 2010b). A Public Expenditure Review of the education sector or a Public Expenditure Tracking Survey would be a first step to assess the current situation and evaluate how funds are spent. Based on the outcomes, recommendations can be developed how the education budget can be used more effectively to improve the quality of schooling. 3.92. Promoting entrepreneurship would boost self-employment opportunities. The current lack of entrepreneurship hinders the development of the private sector. A reform program to foster entrepreneurship should be developed and implemented. The establishment of information centers could help particularly the youth by presenting job seekers with different career paths including self- employment opportunities. These information centers are ideally linked primary and secondary schools. Students could also benefit from guidance counseling in schools with a similar objective. C. RULES, REGULATIONS AND POLICIES 3.93. The legal and regulatory framework has an important role to play in the development of the labor market. Although labor market regulations cannot be seen as the main obstacle for employment creation, as demonstrated by the results of the Enterprise Survey (see Table 3.1) and confirmed by Fox and Oviedo (2008), the regulatory framework can create an enabling environment and help to remove obstacles for private sector development. Rules and regulations are equally important to protect the rights of the employees. 3.94. The following section outlines the current regulatory framework in the Republic of Congo, the role of the institutions in charge of labor market regulation and the relevant legislation. It furthermore discusses the role of labor market policies, describes programs and policies currently in place and suggests key recommendations. C.1. REGULATORY FRAMEWORK AND INSTITUTIONS 3.95. The overall job market legal and regulatory framework in Congo exists since the early post- independence period (a full list of rules and regulations can be found in Table A.6 in Annex 3). However, no policy has exclusively dealt with employment. In practice, "employment" components were included in various economic and social development programs implemented in the country, particularly the Interim Economic and Social Development Plan (Plan Intérimaire de Développement Economique et Social, 1964-1968), the Five-Year Plan (Plan Quinquennal, 1982-1986), the Program of Action and Economic and Social Recovery (Programme d’Action et de Relance Economique et Social [PARESO], 1994- 1997), the Post Conflict Interim Program (Programme Intérimaire Post Conflit [PIPC]), the Interim PRSP (2004-2007), and the final PRSP (2008-2010) currently under implementation. In the PRSP, the government's strategy for the "Employment" component focuses mainly on: (i) drafting and implementing a national employment policy; (ii) continuing the reform of the civil service and developing the private sector; and (iii) promoting agropastoral and handicraft work by helping farmers, breeders and craftsmen. 3.96. Job market regulations remain rigid, particularly related to separation. The current labor code includes cumbersome, complex and costly procedures for terminating an individual or collective employment contract, including economic and technical layoffs. As a case study of the Congolese 75 situation by the UN Economic Commission for Africa points out, this aggravates the employment situation by making employers reticent to hire new employees (UNECA 2010). 3.97. The influence of labor unions is declining. Labor unions played a major role in defending the interests of Congo's workers for a long time, particularly during communist rule and economic and social crises. The influence of labor unions has waned somewhat due to an increase in the number of trade unions since a multi party system was instituted in early 1990. Currently, about 30 percent of employees are organized in unions, according to the results from the 2009 EESIC (for a detailed breakdown of unionization, see Table A.7 in Annex 3). In the last decade, the government continuously communicated with various employers groups and trade unions in the context of the social truce; one of the main subjects of discussion remains the revision of the wage scale, and an automatic pay increase linked to a promotion, especially for civil servants. The social truce helped build social peace as it avoided strikes in the country since the post-conflict period. 3.98. In terms of discrimination, some progress has been made in the last few years, including by allowing a quota of handicapped staff (visually and hearing impaired, disabled, etc.) to be hired in the civil service. In 2008, the government also passed a law to protect people living with HIV in the workplace. Forced labor is rare in Congo, as is child (under age 15) labor. This is mostly due to policies set forth by the one-party regime from 1968 to 1990, mandating that all school-aged children (from the age of 6) attend school, which is confirmed by the findings of the EESIC. Congo signed the ILO convention, including the ban on forced labor (in 1960) and on the work of children under the age of 14 (in 1999), equal treatment (in 1999), ending labor discrimination (1999), and the freedom to establish associations (1960). In practice, these provisions have not been implemented, including in terms of applying sanctions pursuant to the law. 3.99. A National Employment Policy is currently being prepared. With the assistance of the ILO and UNDP, the government has drafted a National Employment Policy in 2009 (Politique National de l’Emploi – PNE, Republic of Congo 2010), which was reviewed by the Council of Ministers in 2010, but has yet to be finalized and implemented. The PNE builds on priorities set out in the PRSP, reforms supported by the Poverty Reduction and Growth Facility (PRGF), and the views expressed in the President’s vision “Road to the Future� (“le chemin d’avenir�), based on the industrialization and modernization of the Republic of Congo. The PNE and its related initiatives are still in the review process. The draft laws and related implementation decrees of the initiatives, which are part of the PNE, are still waiting for their review by the Social and Cultural Pole, before the submission to decision makers. 3.100. The PNE aims to reach the following five objectives: (i) Lowering the unemployment rate in urban areas by revitalizing activities, preserving existing jobs and modernizing the informal sector to increase its productivity; (ii) Increasing local employment opportunities especially in rural areas to slow down urban migration; (iii) Reducing the skills mismatch by promoting vocational and professional training and skills training in small trades; (iv) Improving the employability of a constantly growing workforce and the job quality to help increase the country's overall productivity; (v) Developing human resources to meet the needs of the economy; 76 3.101. The new policy also advocates support measures focusing on the institutional, legislative, regulatory and sectoral framework, including:  Government reform, including the revision of the Labor Code and the reform of ONEMO; establishment of an active administration with institutions and control functions that are well staffed with competent employees; the continuation of administrative and economic decentralization;  The establishment of an investment friendly environment aimed at encouraging investments and job creation by consolidating the macroeconomic framework, promoting good governance, expanding basic infrastructure, reenergizing the agricultural sector, etc.  The promotion of domestic entrepreneurship by training and providing incentives to local business people to encourage investments.  The restructuring of the educational system in compliance with the new national education policy, including: setting-up technical and vocational training; developing educational programs to match skills offered and demanded; creating technical, vocational, academic and research clusters with increased participation of the private sector.  The strengthening of partnerships between the private sector and the civil society, by establishing a multisectoral dialog framework bringing together the private sector and civil society, whose representatives meet on a regular basis. 3.102. Several ongoing initiatives aim to reform certain legislative provisions related to the job market, such as:  Drafting a law to establish a National Employment Agency (Agence Nationale Pour L’Emploi - ANPE), to replace ONEMO;  Setting-up a National Employment and Vocational Training Observatory (Observatoire de L’Emploi et de la Formation Professionnelle – OEFP);  Drafting a law to create an Employment and Training Support Fund (Fonds pour le Financement de L’Emploi - FFE);  Drafting a law to create a National Unemployment Insurance Fund (Caisse Congolaise pour L’assurance Chômage – CCAC). 3.103. Institutionally, the issue of leadership in implementing employment reforms still needs to be clarified. Three ministries are currently tasked with employment related issues: the Ministry of Labor and Social Security (Ministère du Travail et de la Sécurité Sociale), the Civil Service Ministry (Ministère de la Fonction Publique et de la Reforme de l’Etat), and the Ministry of Employment and Skills Training (Ministère de l’Enseignement Technique et Professionnel, de la Formation Qualifiante et de L'Emploi); however, the fact that these three ministries belong to the same socio-cultural cluster should help with their coordination. The Ministry of Labor and Social Security is responsible for labor regulation, leading the dialogue on the conventions and agreements with the private sector, deciding on the official public holidays as well as designing and implementing the pension reforms. The Ministry of Employment and Skills Training is in charge of designing and implementing employment policies mostly in connection with the private and informal sector while the Civil Service Ministry is in charge of employment policies in the 77 public service excluding the armed forces. The recruitment and management of armed forces including wage payment and career development are under the leadership of the Ministry of Defense. 3.104. Currently, job market management (the management of job offers and applications) is the main responsibility of the National Employment Office (L’Office National de l’Emploi et de la Main- d’œuvre – ONEMO). Given the progressive increase of unemployment over the years, however, this facility seems to have failed to meet its objectives, despite several attempts to restructure and revive it, in addition to opening local offices in all regions of the country. 3.105. A recently held Employment Forum, organized by the Ministry of Employment and Skills Training highlights the high level of attention that is paid to the role of the regulatory framework for employment creation. The objective of the Employment Forum, which took place in June 2011 in Brazzaville, was to discuss the underlying principles of the PNE and to raise awareness of public programs that are in place for the professionalization of the workforce, social inclusion and the fight against unemployment in the country. The forum helped lay the groundwork for a multi-sectoral consultation to review and update the PNE. The role of ONEMO 3.106. Created in 1985, ONEMO is an administrative and social government institution under the supervision of the Ministry of Labor. ONEMO aims to (i) promote employment and fight against unemployment, (ii) centralize and match job offers and applications, (iii) control hiring in State-owned corporations and joint ventures, (iv) promote the employment of citizens, (iv) produce employment statistics, and carry-out studies and research on employment, the workforce and vocational training, (v) organize, at the request of businesses, occupational skills testing, (vi) participate in the vocational training, skills improvement and retraining of adults, (vii) organize learning and skills improvement internships for youth seeking employment at the conclusion of their education, as well as school vacation internships, (viii) issue work IDs to national and foreign workers, (ix) issue working permits to foreign workers. 3.107. ONEMO is presented in most regions of the country. ONEMO's executive tasks are performed by a General Directorate; the Board establishes broad based employment guidelines, and approves the activity program and the budget. Based in Brazzaville, and supported by 9 regional offices, the General Directorate employs a total of about 350 workers (2010 estimate). These regional offices are located in: Brazzaville (covering the Brazzaville and Pool region), Pointe-Noire (including Kouilou region), Dolisie (Niari region), Ouésso (Sangha region), Nkayi (Bouenza region), Owando (Cuvette region), Sibiti (Lékoumou region), Djambala (Plateaux region), Ewo (Cuvette-Ouest region) and Impfondo (Likouala region). 3.108. Initially, ONEMO had the monopoly for job placement, thereby prohibiting the existence of private employment agencies. During the one-party period, ONEMO attempted to make private employment offices redundant that were present in the country at the time, including in Pointe-Noire. These employment offices were accused of unfair practices in granting jobs, and of giving preference to foreigners over Congolese citizens. This monopoly was renounced in 1988 in the light of the worsening economic crisis and increasing liberalism. 3.109. ONEMO’s main role is to manage the job market (supply and demand). Its role is to function as a single entry point to receive all employers' offers, disseminate them and short-list and select 78 candidates. The result is then sent to the employer who takes responsibility for hiring the selected job seeker. ONEMO focuses only on hiring for modern (public and private) businesses; it does not handle civil service employment, which is managed directly by the responsible line ministry (Civil Service Ministry). 3.110. Currently, in addition to managing the labor market, ONEMO runs professional training centers and tries to set-up job specific programs. The four professional training centers are located in Brazzaville, Pointe-Noire, Dolisie and Ouésso. Programs currently in place include skills training programs, programs to find wage employment and programs promoting self-employment. A more detailed discussion of the respective programs is presented in section C.4. 3.111. ONEMO is financed through different sources. One funding source is a government subsidy paid in form of salaries for the civil servants employed at ONEMO. Furthermore, companies pay an apprenticeship tax (taxe d’apprentissage) and an employer contribution of 1 percent of 0.5 percent of gross salaries, respectively. In addition, funds are raised through fees for work permits for foreigners and the sale of work authorizations. 3.112. The agency faces several challenges, which can be grouped into the following categories  Legal framework: Instability and ambiguity of the laws establishing ONEMO and lack of implementing legislation.  Financial constraints: Difficulties in obtaining government subsidies and lack of the acknowledgement of the importance of the programs to be put in place.  Human resources: Limited number and weak capacity of staff. 3.113. Reforms are ongoing, but more needs to be done. To date, attempts to reform ONEMO include human resource development (including drafting and implementing a training plan), the computerization of services for which an implementation study was carried out in partnership with the National Employment Fund of Cameroon, building and equipping of training centers and ONEMO's offices, etc. However, priorities are now capacity building of instructors and specialists such as employment or professional guidance counselors, training of statisticians working with labor market statistics and the qualification and specialization of staff. The role of the CNSS and CRF 3.114. The pension system in Congo is managed by two institutions, namely the Caisse Nationale de Securite Sociale (CNSS) and the Caisse de Retraite des Fonctionnaires (CRF). CNSS is responsible for managing the pensions of workers from the private sector, contractors working for the government (notably the staff in the offices of Ministers) and staff of autonomous institutions (municipalities, public enterprises, local councils, etc.). The pension of civil servants, including armed forces, is the responsibility of the CRF. The two institutions have suffered from a structural financial deficit over the past years due to the freeze in the recruitment in the public services and the civil conflicts. 3.115. CNSS is a key institution for the dynamic of the job market in the formal private sector. Established in 1956, the main task of the CNSS is to manage the social security system, including family benefits, occupational hazards and pensions. The CNSS is a public entity, however, with financial autonomy. It is administered by a Board of Directors, which defines the action plan and approves the 79 annual budget. The management of the CNSS is provided by a CEO appointed by presidential decree. The law establishing the Social Security Code was adopted in 1986. 3.116. The CNSS is confronted with severe financial problems. The CNSS faces several problems, the most important being the chronic financial deficit due to low contributions. The decline in the number of contributors during the recent times of crisis and conflict has progressively generated a fiscal deficit in the pension administration, which is estimated at CFAF 16 billion in 2010. Of the 30,977 employers affiliated with the CNSS, only 3,000, or 10 percent, pay their dues. Government subsidies in case of financial difficulties, although foreseen by law, have not been provided. As a result, the CNSS has accumulated significant pension arrears estimated at nearly CFAF 128 billion at the end of 2007, corresponding to 17 quarters worth of payments. Since 2009, the government has embarked on clearing arrears in pension payments in the context of an overall plan adopted in 2008 to pay off social arrears. 3.117. Recently held retreats on retirement issues in March 2011 have helped to define a list of actions to strengthen the role of the CNSS. These measures include: (i) a review of the parameters used in awarding pensions to ensure their viability on the basis of an actuarial analysis including adjustments of the contribution period to reflect the later retirement age, (ii) the pay-off of government debt owed to CNSS to enable the payment of pension arrears, thus contributing to easing social tensions, (iii) the diversification of sources of retirement funding to replenish the CNSS and ensure sustainability of the pension scheme. This also includes the removal of exemptions from social contributions when awarding public contracts. C.2. RELEVANT LEGISLATION Labor Code 3.118. The labor code in the Popular Republic of Congo was adopted by the Act 45/75 of March 15, 1975. The main provisions associated with commencing or terminating employment and during the period of employment are listed in the original labor code. The labor code was amended in 1996 with a special focus on temporary employment agencies, workers’ representatives, labor inspections, and fees and penalties for violations of the labor code. 3.119. The Republic of Congo has a mixed system of employment regulations with a combination of both law and collective bargaining, giving general or sectored collective agreements the force of law by creating procedures to make them ‘generally binding’. According to Article 56 of the Labor Code, the most important entitlements and provisions are set up by a general collective agreement. 3.120. However, in most developing countries, collective bargaining is not very widespread and collective agreements are relatively weak. Enforcement of the laws/codes is already problematic, due to weak institutional capacity (in labor inspectorates in particular). Enforcement of collective agreements is even more problematic since the relevant institutions and mechanisms are almost nonexistent. Thus, the role of legislation as a safeguard for workers is much more essential than in many high income countries where the majority of workers are somehow covered by collective arrangements. 3.121. A number of countries, particularly in Europe, make provision in their legislation for the extension of collective agreements to parties other than those who have signed them. Trade unions are very strong institutions in most European countries, and the bargaining plays an essential role in influencing labor market conditions. In most EU member countries it is legally possible that sectoral or 80 national level agreements be extended to third parties. However, the following principles usually apply:  First, the authority to extend a collective agreement is typically limited to agreements concluded by trade unions and employers’ associations for one or more sectors of economic activity, and does not apply to collective agreements concluded for a single enterprise or for a few enterprises.  Secondly, such authority typically depends upon the original parties to the agreement being sufficiently representative of the enterprises and employees within the sector or sectors of activity concerned.  Thirdly, extension is sometimes not considered unless one or all of the parties to the agreement request the extension.  Fourthly, some provision is made for consultation of other interested parties, such as the employers and trade unions to which the agreement is to be extended. 3.122. In the Republic of Congo, the legislation should therefore set minimum labor standards, which are extended by collective agreements. It is suggested that at least the minimum wage premium for overtime work, night work and holiday work if any; the maximum duration of the probationary period and minimum duration of the prior notice; paid national holidays and the minimum dismissal allowance (severance pay) be determined in the labor code (and not by the collective agreement, or by a decree as suggested in Article 83 of the Labor Code) as minimum social guarantees to the worker in case the parties failed to conclude a collective agreement; the worker and/or his union, or his employer is not part of the agreement, or for some other reasons the entitlements listed in the collective agreement do not apply to particular groups of workers. On the basis of these norms, parties – either in a collective or in an individual agreement – are free to negotiate terms exceeding the respective minimum standards. 3.123. Other provisions for which revisions should be considered are the following:  Fixed-term contracts: According to the Congolese Labor Code, fixed-term contracts cannot exceed two years, can only be used for temporary assignments and can only be terminated before the end of the term in case of gross negligence or fortuitous events. Many countries, however, including Sub-Saharan African countries, allow permanent tasks and longer durations (see Table A.8 in Annex 3). Moreover, fixed-term contracts should be allowed to be terminated for business reasons, such as staff reduction, enterprise bankruptcy or liquidation, etc., following standard procedures envisaged in the code, e.g., following the notice period and severance payments.  Termination of contracts: The Labor Code envisages extremely cumbersome, complex and costly procedure for termination of individual or collective employment contracts involving the dispute commission, the Minister of Labor, and the Labor Inspector. Moreover, for one year thereafter, employees thus terminated must be hired first in the same employment category. The Republic of Congo should consider eliminating or limiting some of these restrictions. Such a reform would give employers greater flexibility in responding to market fluctuations through their workforce. 81 Employers must have reasonable freedom to dismiss employees for economic reasons.29 If not, they will be reluctant to hire them and will be more inclined to operate in the informal sector.  Reasons for contract termination: The labor law should clearly define “just causes� or “serious reasons� for the termination of an employment relationship and the sanctions applicable to the employer in case of non-respect of this principle of just cause termination. The most comprehensive list of “just causes� for contract termination can be found in the Estonian Employment Contracts Act 1992 (as amended), given in Annex 3. Some other causes for contract termination can be found in labor legislation from other countries.  Economic and technical layoffs: A cumbersome practice on economic and technical layoffs is stipulated in the Labor Code. Moreover, economic layoffs can be initiated if the workers individually agree to it, and they cannot last longer than three months and can be renewed only once. It is unclear what happens if normal business conditions will not resume in the six months period, and the employer has no means to rehire the workers whose contract was suspended. Once again, employers must have reasonable freedom to dismiss employees for economic but also other reasons. Moreover, the Code stipulates that during economic or technical layoffs, the employer cannot resort to reducing the number of hours worked weekly or overtime for remaining workers, nor can he/she hire new employees. However, during economic downturn, working shortened hours might be one of the ways to avoid layoffs. Restriction of hiring new employees might be related only to positions on which layoffs were just imposed. Employers might still need new employees on some other positions/qualifications on which restrictions should not be applied.  Probationary period: According to the Labor Code, evidence and the reasons for terminating the probationary engagement need to be provided to the Labor Inspector or the competent Authority who shall assess its relevance. However, in most countries, an employment contract may prescribe a probationary period in order to confirm that the employee has the necessary professional skills and abilities, suitable social skills and health to perform the work agreed on in the employment contract. The employer assesses the results of the probationary period and may dismiss the employee if the results are unsatisfactory. Upon dismissal due to the unsatisfactory results, as a rule, the employer is not required to give prior notice or pay compensation to the employee. However, in some countries, a written notice of at least few days in advance by either of the parties is required prior to terminating the employment contract during the trial period. Therefore, both parties should be free to terminate the employment contract during the probationary period without the interference or approval of the Labor Inspectorate.  Temporary work agencies: The Code stipulates that a temporary work agency must at all times show that a deposit was made in a financial institution to cover, in case of default, the payment of wages and allowances, benefits and mandatory contributions to social security agencies. It is the responsibility of the primary employer to secure relevant funds to cover shortfalls in 29 “Economic� reasons include business-related causes for termination (e.g., declining demand, shrinking markets, increasing competitiveness, etc.) or technological and organizational changes in the business entity. This class of terminations stands in contrast to dismissals for “non-economic� reasons. 82 payments. However, it might be too costly to the temporary work agency to make the requested funds available in advance for each and every employee he hires. In addition, the paperwork needed by temporary work agencies that needs to be submitted to the relevant authorities on a monthly basis seems very detailed. Although these data should be available for inspection, it might be too much paperwork for the temporary work agency to submit each month to two government agencies the same data. A summary might be sufficient on a regular basis, with more detailed data on a needs basis, or at least limit submission only to one government agency. 3.124. Overall, the labor code needs to be updated to amend modalities that are no longer operative and insert new market requirements, including the integration of various economic sectors that have gained more importance in the economy, such as new information and communication technologies. Investment Code 3.125. The investment charter (“Charte des investissements�) of the Republic of Congo and its related decree was adopted in 2003 and 2004, respectively (Loi n°6-2003 du 18 janvier 2003 and Décret n°2004- 30 du 18 février 2004). The charter is comprehensive, well articulated and was influenced by both regional norms (developed by organizations such as CEMAC and OHADA) and international norms (e.g., ILO for labor, ICSID for investor-State disputes). 3.126. The charter is a combination of a traditional investment code and an investment policy statement. Besides specific clauses and provisions typically found in an investment code, the document also contains pronouncements and statements about the government’s intentions in a number of policy areas, including the macro-economic framework, labor policy and procedural simplification. In other respects, the document has more specific commitments that look like a clause or provision in a typical investment code. 3.127. The charter could gain by more specificity through more detailed and actionable provisions. The combination of the two types of documents (policy statement and investment code) is not unusual. However, while some of the provisions are relatively specific, (such as concerning the freedom to import, or freedom to transfer profits and funds), some of the statements lack the specificity and level of detail that investors would like to see and are necessary to make them operational and actionable. Investors usually prefer an investment code that gives them more specific rights and guarantees, more detail of what they can and cannot do and how they and their investment will be treated. The lack of specificity can be illustrated by the following two examples.  Property rights: Article 5 provides a general statement about the fact that the government guarantees property rights pertaining to a number of assets, such as land, buildings, equipment, intellectual property rights, and other movable goods. However, there is no specific provision by which the government guarantees not to expropriate, confiscate or nationalize the investment except in a limited number of extraordinary circumstances and against due process and prompt, adequate, and effective compensation. Investors know that expropriation is a risk, almost everywhere but particularly so in developing countries. Indicating that property rights are protected is not sufficient to reassure investors, whereas promising that expropriation will never occur would not be realistic either. It would be helpful for investors to specify that they will have 83 certain rights should an act of expropriation happen, particularly the right to a compensation that meets the above-mentioned standards (adequate, prompt, effective).  Rights to invest: Article 1 constitutes a general statement about “freedom to conduct a commercial or industrial activity�. While this is an important statement, it is not clear if it implies that there are no restrictions to private investment, and particularly, private foreign investment? This would place Congo among the most open countries in the world. In most countries there are sectors where private investment is not allowed, where only domestic investors can invest, where foreign participation cannot exceed a certain threshold, or has to go through a special screening mechanism. Eventual limitations and restrictions may be contained in other laws of the Republic of Congo, perhaps in sector-specific legislation. They should, however, be explained as well in the investment legislation as clearly and transparently as possible. If investment in oil, mining, banking, or other sectors is not governed or regulated by this charter but subject to specialized laws and regulations, it should be stated very clearly in the first provisions of the investment charter. 3.128. The investment charter could benefit from a detailed review of the incentive regimes. Currently, the charter and its decree provide a fairly generous set of incentives of different types depending on the nature, amount or location of the investment. There seems, however, to be room for improvement or simplification/consolidation of these regimes. A detailed review of the incentive regimes and the development of recommendations are advisable to indicate how these incentives meet or fail to meet international best practices and where and how they could be improved or simplified. C.3. THE ROLE OF LABOR MARKET POLICIES 3.129. Meta-analyses of labor market policies in developed countries show that the most effective programs are: job search assistance, on-the-job training programs and wage subsidies. A meta-analysis of 97 studies conducted over the period 1995-2007 by Card et al. (2010) found in highly-developed countries that programs that assist in job searching have a greater likelihood of producing positive results, while programs supporting public-sector employment have a smaller likelihood. School courses and job training programs have positive effects on labor market outcomes in the medium term, while they tend to yield insignificant or negative effects in the shorter term, making it critical to promote those on a longer term basis. Using a meta-analytical framework, a study by Kluve (2006) of active labor market policies in European countries found that the effectiveness of training programs is nearly entirely determined by the type of training program, and not by contextual variables like the business cycle or labor market institutions. In these countries, government employment programs seem harmful, whereas wage subsidies have the potential of being effective in improving employment opportunities. 3.130. However, programs effective in developed countries are rarely transferable to developing countries. In analyzing interventions that might help to guide policy makers in poorer sub-Saharan countries, lessons from high-income countries should be read with caution given limited applicability and transferability for low- and lower-middle income countries. For example, wage subsidies, which are common in developed countries, generally do not have much impact in poorer countries, due to the small share of formal wage employment (Peeters et al. 2009). This has influenced the selection of discussed interventions, with the strongest focus placed on those in low- and lower-middle income countries within Sub-Saharan Africa. 84 3.131. Hence, taking a particular focus on African experiences, this section seeks to provide answers to two central questions: (i) which labor market policies and programs have proven effective as well as ineffective in reducing unemployment especially among those targeting youth, and (ii) what are main issues and tradeoffs that policy planners and makers in the Republic of Congo would need to address in regard to reducing (youth-)unemployment based on the policy discussion? 3.132. The rationale behind not only discussing successful policies is that at times there is at least as much valuable information that can be derived from policies and programs that are less effective or even fail. Before concrete labor market interventions and reforms derived from relevant international policy literature are outlined and discussed, a general background and policy context is provided in the following. Labor market policy context 3.133. The policy challenge is large: making sure that youth have sufficient opportunities, that their educational and skills background matches job opportunities, and that second chance options are available for those who are very vulnerable and may not have a first chance. Despite the large challenge, a number of countries have made progress in implementing a successful mix of policies to achieve these objectives. 3.134. Ultimately, a country has to find the right balance between employment and employee protection and the flexibility of labor market policies. There is a trade-off between flexible labor market policies and regulations and the protection of employment and worker’s rights. Each country has to make the individual choice where to position itself regarding this balance. 3.135. What is the need for labor market policies? Labor market policies help create the environment within which employees and employers operate. They range from setting wages and benefit scales to establishing conditions to hire and fire workers, laying down minimum standards for health and safety at the workplace, determining rules and regulations for labor organizations and bridging the transition from school to work by fostering training programs, job creation and self-employment, among others. The selection of appropriate labor policies and their adaption is critical. The establishment of a minimum wage, for example, that is meant to protect employees, can reduce job opportunities for younger laborers who may—as a result of a (higher) minimum wage—become too expensive given their limited work experience (Peeters et al. 2009). Legally enforcing some labor policies and regulations, however, is a common constraint in many sub-Saharan countries given limited institutional capacities. 3.136. A country’s legal framework does not necessarily affect job creation in sub-Saharan Africa given implementation constraints. A study analyzing firm-level survey data of manufacturing companies within 20 sub-Saharan countries found that labor regulations are not a central constraint to employment creation, although this has not been the case among many developed and emerging economies (Fox and Oviedo 2008). This is likely explained by the institutional constraints facing many poor countries in implementing laws and regulations. As a country’s income level increases, laws establishing employment protection can increase the costs of hiring and firing, reduce the establishment of new firms and jobs, 85 and disproportionately disadvantage youth, but can also be effective in protecting jobs and minimizing job loss (World Bank 2006b). Youth employment and vulnerability 3.137. Youth are the most vulnerable group in the marketplace. There are several explanations for the high vulnerability of the young population. For one, high population growth in many low- and middle- income countries places large pressure on growing cohorts of new and competing entrants. Secondly, the increasing share of females participating in the job market will contribute to this pressure on the youth labor market. Thirdly, in terms of market inefficiencies, lack of access or poor access to credit and information can hinder progression onto higher levels of education—e.g. rural households may lack the funding for school and undervalue the importance of and returns to schooling (World Bank 2006b). There are, however, advantages to being young: youth are generally the most mobile group in society and they are the most dynamic and can more easily change sectors to make the most of emerging opportunities. 3.138. It is critical to ensure a smooth transition from the classroom to productive employment. Difficulties faced by young people in the school-work transition need to be addressed. The identification of viable initial employment opportunities for youth and the first experiences at the workplace can determine the extent of their further skills development, their career advancement and earnings. The importance of the first few years of work experiences can at times be comparable to the importance of their levels of formal education acquired. In reducing poverty through the provision of jobs for youth, policy must therefore bear in mind that the effects of job creation on poverty reduction may be constrained if measures are not taken to promote employment in higher-earning jobs. The policy and institutional framework can go a long way in easing this initial transition to (productive) employment by facilitating access to non-formal training and informal apprenticeships, which remain one of the main means of on-the-job skills acquisition for youth and of opening up initial job opportunities. It can also facilitate access to modern apprenticeships and other practical training programs. 3.139. Second-chance programs may help the most vulnerable youth but ensuring more equitable initial access to programs is more sustainable and cost-efficient. An impact assessment of 19 labor market programs in developing and developed countries by Betcherman et al. (2004) found that training programs only seldom lead to improvements in the types of employment and earnings of youth. This may provide evidence for the importance of ensuring equitable initial access to policies and programs to reduce the need for second chance programs. As some children and youth inevitably fall through national programs, especially in developing countries, second chance programs will remain an important social safety net. An example of a second-chance program is the ‘REPAGE Project for Marginalized Young People’ in Burkina Faso which has been effective in providing job assistance to disadvantaged youth who are out of school and unemployed (Garcia and Fares 2008). Public works programs 3.140. Public works programs are a widely used tool for social protection. Their objective besides infrastructural development, however, is important (World Bank 2010g). Public works programs can be used primarily as a short-term or long-term safety net to provide cash income to the participants in times of need. They are meant to smooth consumption protect the poor against income disruptions by providing temporary employment. They are especially useful in fragile countries 86 3.141. Beyond the use as safety net instrument, the objective of public works programs can be to permanently graduate participants out of poverty. The way to accomplish this objective is usually through extensive training components and the encouragement of savings. Through improved skills and access to seed money, participants are expected to either find long-term employment or become self employed. 3.142. To implement public infrastructure projects, high labor intensive techniques (haute intensité de la main-d’œuvre [HIMO]) can be used. With this approach, employment is created while generating public infrastructure. Studies show that labor-intensive programs cost less than capital-intensive programs, generate more tax revenue, create more jobs, promote more inclusive growth and have greater multiplier effects on other sectors of the economy (World Bank 2011b). 3.143. However, there are several challenges related to labor-intensive public works programs. Although these programs have a positive impact on the welfare of the population, the quality of the work needs to be ensured as the use of unskilled labor can lead to poor quality and unsustainable assets. A higher level of funding is required to supervise and support complex programs. Furthermore, the government capacity for the strategic planning and organization of labor-intensive programs is critical. Another challenge is the necessary identification of the labor-intensive components of the public investment program, if those are supposed to be linked. 3.144. Hence, when developing a public works program a number of factors have to be taken into account. These issues range from the objective of the program, to funding, targeting and the development of a management and supervision framework. An outline of the steps for implementing a public works program is given in Annex 2, Figure A.4. Box 3.3: The Expanded Public Works Programme in South Africa The South African Expanded Public Works Programme (EPWP) was officially launched in 2004. The EPWP is implemented on a national, municipal and provincial level, creating work opportunities in the infrastructure, economic, environment and culture, and social sector. It was initiated in 2003 at the Growth and Development Summit convened by the Government of South Africa against the backdrop of rising unemployment and high poverty rates. The program could build on lessons learned from previous labor-intensive public works programs, such as the “Gundo Lashu� provincial roads program in the Limpopo province. Within the Department of Public Works, a separate unit was created for the EPWP, which was staffed by people with a high level of knowledge and skills regarding labor-intensive programs. A Knowledge Management Policy was put in place to retain skills in the unit. Training is provided as part of the program, either in training modules or as on-the-job training. The EPWP has provided over 1.6 million work opportunities in its first phase between 2004 and 2009. Infrastructure is the predominant sector, with close to 1 million work opportunities provided during this time. Designated groups were targeted specifically and most of the targets were exceeded in the first phase, such as the target for employing youth (41 percent versus a target of 30 percent) and women (43 percent versus a target of 40 percent). However, concerns identified during the review of the program include the shorter than anticipated duration of work opportunities, thereby limiting the impact on poverty reduction, widely varying wage rates in the different sectors, and the varying performance of public bodies. The goal of the second phase (2009 to 2014) is to create 4.5 million work opportunities, equivalent to two million full-time jobs. The program targets that of the employed workers at least 40 percent are youth, at least 55 percent are women and at least 2 percent are people with disabilities. The overall use of labor-intensive methods is intended to be expanded. Source: Republic of South Africa (2010) 3.145. There are several examples of labor-intensive public works programs around the world. An example for a large-scale public works program with a large infrastructure component is the South African Expanded Public Works Programme (EPWP), which started in 2004 (see Box 3.3 for more details). Another example for the implementation of infrastructure projects via labor-intensive public 87 works programs is Madagascar (van Imschoot 2007). Further countries with similar programs include Indonesia, Liberia, Mali, Sierra Leone, Nicaragua, Paraguay and Timor-Leste (ILO 2011b). Strategic and policy tools for improved labor market efficiency 3.146. If a more equitable labor market—between youth and adults, women and men, disadvantaged and privileged—is to be achieved, it is by means of reforms and more effective strategies and interventions. While the general policy context has been discussed above, potential avenues are outlined below to improve the functionality of the market. In particular, options are provided for policies and programs that could be adopted in coming years to reduce unemployment, especially among the youth. Overall, country experiences have shown that a shift from partial reform approaches toward broader reform packages generally yield the greatest results in creating jobs, in particular for youth. However, it needs to be considered that measures supporting employment creation should be coupled with a certain degree of job protection (World Bank 2006b). 3.147. A comprehensive inventory of labor market policies and programs in Africa has been compiled. In exploring international labor market interventions that could be adapted and adopted to remedy existing challenges related to (youth-)unemployment in Congo, a comprehensive inventory of labor market policies and programs is given in Table A.9 in Annex 4. Experiences from African countries have predominantly been included; it is only referred to countries outside of Africa if an equivalent policy does not exist in Africa. For simplification purposes, labor market interventions are classified in the matrix according to the following broad categories based on their overarching objective:  Promote the macroeconomic environment;  Facilitate the legal framework;  Improve levels of education, training and skills;  Support job creation;  Foster self employment opportunities;  Provide second-chance programs to reintegrate the marginalized;  Promote other policies e.g. business advisory services and international partnerships. 3.148. A number of viable policy solutions have been identified within the policy matrix that could be appropriate for a transitioning country like the Republic of Congo, which has reached lower middle- income status, but still faces many challenges of lower income countries, especially in the social sectors. A few examples of policies that link the market demand for skills with youth training programs and employment are (see Box 3.4): (i) the Jua Kali program in Kenya that scales up traditional apprenticeships via market competition, strengthening the training providers themselves and facilitating the transition to better quality work opportunities; and (ii) young entrepreneur programs in a number of Sub-Saharan countries that provide skills training, business advisory services and access to credits and loans. 3.149. From a perspective of the education sector, improving access, relevance and outcomes of primary and secondary education is at least as important as these other interventions in building up the country’s skills base and preparing youth for the labor market. On the other hand, subsidized jobs, 88 for example, are likely to be less efficient and effective in mitigating unemployment among Congolese youth given the country’s large informal sector. Box 3.4: Promising African Initiatives 1) The Jua Kali program in Kenya: Scaling up traditional apprenticeships via market competition. A very innovative scheme is the provision of training vouchers that are driven by open market competition. Eligible beneficiaries, mainly unemployed youth but also employers, receive vouchers and can make their own decision to which training provider they will go. The program was adopted to improve youth’s and master crafts people’s technical and managerial skills, to help diversify their businesses and, among others, to enhance their capability to offer apprentices better training and marketable skills. Evidence shows that this voucher scheme raised the relevance of training that apprentices received (Riley and Steel 1999; World Bank 2006b; Haan 2001). In terms of funding, 90 percent of the voucher’s cost is subsidized by the government and participants pay 10 percent. As to its outcome, over the period 1997-2001 a total of 37,606 vouchers were issued to entrepreneurs and employees within enterprises with up to 50 employees (Betcherman et al. 2007). Several important lessons emerged from the experience. Firstly, the scheme has proven to be successful in scaling up the technological base for businesses and shows that this is possible in the informal sector through a well targeted skills program. Nevertheless, secondly, master craftspeople were not always interested in training and needed additional motivation. Thirdly, the program was not able to establish close partnerships with vocational training centers, in order to reduce the high government costs and improve its sustainability, but independent trainers in the informal sector were established as training providers and are an integral aspect to ensure the relevance of the program (Haan 2001). 2) Supporting young entrepreneur programs across sub-Saharan Africa: Providing skills training and access to credit. African youth often indicate that skills development and access to credit for self-employment are the best solutions to un- and underemployment (see e.g. Peeters et al. 2009). The following programs were designed to address these constraints:  The Umsobomvu Youth Fund in South Africa provides unemployed youth aged 18-35 with multiple business services including counseling, information access, training and micro-credits.  In Uganda, the Promotion of Children and Youth program provides rural youth aged 12-23 in up to 24 districts with comprehensive services ranging from counseling and advice for job searching to access to subsidized credit, and entrepreneurship and self-employment activities. An impact evaluation of the program found that the incomes of participants were 26 percent higher compared to other community members (Betcherman et al. 2007). Financed externally through GIZ, this program has also helped to scale up the local capacity of the government (Garcia and Fares 2008).  Another program in Uganda, the Youth Entrepreneurs Scheme, supports the acquisition of entrepreneur skills, the provision of start-up loans and the strengthening of institutions, but conversely targets the population 18-34 years of age. More than 4,000 young people have received training, among whom 1,812 were given loans (Okech 2005).  In Zambia, the Micro-Enterprise and Credit Support for Street-Involved Youth program (part of the Youth Skills Enterprise Initiative) supports 17-26 year olds who are out of school, spend most time on the street and have no prior work experience, many of whom are abuse victims—which is a joint venture between the Zambia Red Cross, the YWCA and Street Kids International. Taking a youth-centered participatory approach, this program helps vulnerable youth with training, credit access, and business management and expansion.  With over 80 percent of the labor force unemployed of whom 60 percent are youth, the Government of Zimbabwe adopted the Technical Skills Program that trains unemployed, school dropouts 16-30 years of age in a practical skill that trainees choose by qualified teachers (dressmaking, knitting and welding), provides them with one month intensive classes on business management and offers them loans, grants and guidance services to set up a small enterprise. In terms of outcomes, this program trains annually more than 50 unemployed young people and a survey revealed that 80 percent of participants found formal employment or self employment opportunities thereafter.  Furthermore, the Skills Development and Income Generation Project in Malawi targets poor communities within the three regions, particularly out of school and unemployed youth but also AIDS orphans, although the project’s impact is yet to be evaluated (Betcherman et al. 2007).  At the same time however, a number of other skills- and credit-promoting programs have been assessed as successful: Tanzania’s Gatsby Trust Entrepreneurship; Tanzania PRIDE Entrepreneurship; Burkina Faso’s FAARF Women’s Credit; and Burkina Faso’s FAPE Employment Promotion Fund (Garcia and Fares 2008). 3.150. Policy options and reforms discussed here could help inform authorities on ways to improve youth employment and the productivity of the labor force. For a number of the outlined reforms, however, it will be essential to review (to the extent possible) their potential impact, to ensure their funding and sustainability and to strengthen management and institutional capacity for their 89 implementation. For decision makers it is important to consider a number of criteria, such as policy priority and relevance, political feasibility and institutional capacity, financial sustainability as well as estimated outcomes and impact, while assessing different potential policy instruments and actions. Some of the policies and interventions will require comprehensive costing before officials can set policy priorities and will require ongoing assessment of results so that corrective action can be taken. 3.151. While there are important benefits and gains to many interventions discussed, there are also some inefficiencies and weaknesses. A critical point is that many programs appear to have a strong supply-driven character, underscoring the need to support technical and vocational training to better reflect the needs of the private sector. Furthermore, a large share of these employment programs is funded externally, raising the question of sustainability, which could be alleviated by cost-sharing between local communities and donors while also increasing local ownership. 3.152. At the same time, a review of the literature indicated that a large research gap exists in terms of conducting cost-benefit analyses and impact evaluations for a large number of the discussed policies and programs, in the absence of which some of their outcomes and impact may be overestimated. Evaluating policies is particularly relevant for a country like the Republic of Congo as it helps to increase financial efficiency of public expenditure. C.4. PROGRAMS AND POLICIES CURRENTLY IN PLACE IN THE REPUBLIC OF CONGO 3.153. As indicated above, the implementation of policies and programs promoting employment is the function of ONEMO. The activities of ONEMO in 2010 consisted primarily of the implementation of a number of specific programs initiated since 2009. The main programs are:  Employment Program for Graduates (Programme Emploi Diplômé – PED);  Program to Support to Rural Job Creation (Programme d’Appui au Développement des Emplois Ruraux - PADER);  Program to Support Micro-Enterprises (Programme d’Appui à la Micro-Entreprise - PAME);  Program to Provide Employment for Youth in Public Works (Dispositif d’Occupation des Jeunes aux Travaux d’Intérêt Public - DOJETIP); and the  Youth Leadership Program for Technical Job Search (TAR) through ICT, or e-Employment Project (Programme d’encadrement des jeunes aux Techniques de Recherche d’Emploi (TRE) par les TIC – Projet e-Emploi). 3.154. The Employment Program for Graduates (PED) is a program of placing graduates in a business for a period of 12 months to compensate for the lack of work experience that is usually required by private companies. This program operates on the basis of a training agreement signed between ONEMO and private companies, and the cost of training (the remuneration of the trainee) is shared equally between ONEMO and the private company. In that context, ONEMO signed a Partnership Agreement with the Chamber of Commerce and some private companies affiliated with UNICONGO (the largest employers' association in the country) to facilitate this integration. In 2010 nearly 1,546 students were placed under the PED compared to 650 trainees in 2009. These placements have been mainly in Pointe- Noire (77 percent) and Brazzaville (22 percent). 90 3.155. The Program to Support to Rural Job Creation (PADER) provides technical, material and financial support to various projects for the rural population. This program aims to contribute to the creation of income generating activities and the fight against the rural exodus. In 2010, 250 projects were selected (versus 2,998 projects in 2009) covering several sectors, including agriculture, livestock and fisheries, fish farming, market gardening, and small trade and services. The relatively small number of projects funded in 2010 compared to 2009 reflects the small amount of funding allocated to the program in the investment budget for 2010. These projects are only partially implemented due to the lack of funds. 3.156. The Program to Support Micro-Enterprises (PAME) aims to introduce the young unemployed to the creation and management of their own small and medium enterprise. These youth are either individually self-employment or organized as a small group in a micro-enterprise. The program primarily supports projects in urban areas (Brazzaville, Pointe-Noire and Dolisie). Similar to PADER, resources in the investment budget for 2010 have not been sufficient. PAME could therefore merely identify and support a total of 120 projects in 2010 (compared to 2,520 projects in 2009). 3.157. The Program to Provide Employment for Youth in Public Works (DOJETIP) is a program for the occupation of youth through the cleanup of urban centers. This program has not been realized in 2010 due to unavailability of funds. In 2009, this program supported nearly 1,620 unemployed youths over an average of 3 months each, for activities such as cleaning gutters, waste assessment, weeding and opening up of avenues. 3.158. The e-Employment Project (Projet e-Emploi) concerns the professional insertion of young graduates in companies using information technology and communication. This program was implemented with support from UNDP and the Economic Commission for Africa (ECA). This program has allowed the insertion of 70 young people from a total of 180 enrolled in 2010. The UNDP-supported project ended in July 2010, and ONEMO took over this component on its own funding. 3.159. As outlined above (section C.1), ONEMO faces several challenges related to finances, human resources and the administrative and legal framework. The implementation of several activities was often delayed or canceled due to the lack of funds allocated to its activities in the budget. Furthermore, ONEMO suffers from a lack of qualified personnel and there is no plan for continued training of staff to effectively lead the various programs. In addition, ONEMO disposes of its own training centers which are, however, not well equipped. Furthermore, the absence of several legal and administrative texts hinders the effective implementation of certain activities. This concerns for example the lack of regulations on internships in companies and the absence of a regulatory framework for the structure and organization of ONEMO, which is in line with the ongoing work program. 3.160. Emphasis should be placed on training that addresses the needs of the private sector, especially in promising sectors. In that context and concerning technical and vocational training, the government has in 2005 developed a policy for the rehabilitation and development of technical education and vocational training (Document Stratégique de Politique Générale en Matière de Redressement et de Développement de l’Enseignement Technique et Professionnel - DOSTRAPOGE), outlining a major reform in the design and reform of the current education. 3.161. The implementation of this strategy is supported by the French Development Agency (Agence Française de Développement - AFD). As a first step, two Centers for Education, Training and Learning 91 (Centres d’Education, de Formation et d’Apprentissage - CEFA) are being established: one in Brazzaville and one in Pointe-Noire. Designed in consultation with key stakeholders including representatives of the business community (UNOC, UNICONGO, Forum des Jeunes Entreprises, the Chambers and associated partners), the purpose of these CEFAs is to address the shortage of qualified labor observed in various sectors of the Congolese economy. Thus, the CEFA in Pointe-Noire is dedicated to careers in industrial maintenance, which responds well to social and professional demand in this city, the economic capital of Congo, where industrial activities are primarily linked to the exploitation of oil. The Brazzaville CEFA is concerned with building trades. Brazzaville, as the other main urban center has a strong demand for qualified professionals in this area. However, the centers are not yet operational. The construction of the first two centers is expected to start in 2012, with 15 centers envisaged to be completed by 2020. Their effective implementation still requires political will and the mobilization of appropriate resources. C.5. KEY RECOMMENDATIONS 3.162. An enabling environment is critical for employment creation. It is therefore the role of the government to implement clear and transparent rules and regulations that facilitate the improvement of the business environment and a well functioning labor market. The necessary interventions can be grouped in two categories, namely (i) the strengthening of the capacity of the relevant institutions and their improved management and coordination, (ii) the evaluation of current labor market policies and programs and the implementation of comprehensive and updated regulations. 3.163. The strengthening of ONEMO’s capacity to provide information on labor market dynamics is a priority. This includes computers, the necessary software, adequate staffing as well as training in areas such as data entry and handling. The improved capacity of ONEMO will be essential to fulfill its role as the central agency matching labor demand and supply. 3.164. At the same time it is important to clarify the role of ONEMO. Currently, it serves two purposes: it is the central agency for job placement and runs professional training centers and job- specific programs. It would be useful to adopt and implement the necessary legislation that clarifies the structure and role of ONEMO, also relative to the other institutions dealing with labor market related issues. It is furthermore necessary to allocate and execute a sufficient amount of funding in the budget for ONEMO and the programs the office runs. 3.165. A coordination mechanism should be established between the involved institutions. Currently, three ministries are tasked with labor market related issues in addition to ONEMO and the two ministries in charge of education.30 Their roles and responsibilities, however, are not entirely clear and certain overlaps exist. A working group meeting on a regular basis would be a possibility to improve the coordination. The working group could also ensure that the institutions benefit from synergies of their work. 3.166. A comprehensive evaluation of labor market policies and programs currently in place should be carried out. So far, no evaluation of programs that are in place now and have been implemented in the past has been carried out. It can, however, be noted that some programs, such as the PED, show promising results while others had to be scaled down mainly due to insufficient funds. The lessons 30 The Ministry for Primary and Secondary Education and Literacy (Ministère de l’Enseignement Primaire et Secondaire Chargé de l’Alphabétisation) and the Ministry for Higher Education (Ministère de l’Enseignement Supérieur). 92 learned from the evaluation would enable the development of improved programs and could inform projects currently being planned, such as the CEFAs. 3.167. The implementation of labor-intensive public works programs should be considered. The implementation of parts of the scaled-up investment program through labor-intensive public works programs could have a sizeable impact on employment. However, the capacity of the managing and implementing agencies needs to be improved and a proper organizational structure create to support a large-scale program. 3.168. Labor marketed policies need to well designed and targeted. Labor market policies and programs need to well designed and implemented to meet their objective. The policies should be targeted specifically at groups with the highest demand for these initiatives. The young population should be a particular focus. Congo can benefit from the experiences, good and bad, of other African countries and identified best practices. 3.169. The finalization and adoption of National Employment Policy (PNE) is essential. The PNE, which is currently in the review stage, has been designed to address many of the issued raised in this section, including the restructuring of ONEMO, the establishment of a National Employment and Training Observatory, the revision of the labor code and well staffed institutions. It is therefore important to finalize, adopt and implement the policy as soon as possible. 3.170. An updated and more flexible labor code would facilitate job creation. The current labor code contains quite inflexible provisions related to separations, which should be reviewed. Furthermore, many important provisions and entitlements are not set by the labor code but rather by collective bargaining agreements. To ensure sufficient protection of all workers, minimum labor standards should be set by the labor code and not be left to collective bargaining. A recommendation is therefore the finalization and adoption of revised labor code, which is also in line with OHADA requirements. 3.171. Finally, a review of the investment code could identify how the current incentive regimes can be improved. The current investment charter provides a fairly generous set of incentives, but there seems to be room for improvement and alignment with best practice. The investment charter could also gain from more specificity instead of general provisions. 93 APPENDIX 94 ANNEX 1: ADDITIONAL INFORMATION FOR CHAPTER 1 FIGURE A.1: Value added of sectors (current prices, CFAF billion), 1960-2010 6000 Services Manufacturing 5000 Extractive Industries Forestry Agriculture 4000 3000 2000 1000 0 1978 1992 1960 1962 1964 1966 1968 1970 1972 1974 1976 1980 1982 1984 1986 1988 1990 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: WB staff calculation based on data from the IMF and the Congolese authorities 95 ANNEX 2: ADDITIONAL INFORMATION FOR CHAPTER 2 TABLE A.1: List of the main state-owned corporations, and their net operating profit in 1986 Acronym Business Name Net Profit (CFAF million) ATC Agence transcongolaise de communication -6,195.7 SUCO Sucrerie du Congo -2,930.0 SCBO Société congolaise des bois d’Ouesso 2,318.7 OFNACOM Office national du commerce -2,219.3 CIDOLOU Cimenterie domaniale de Loutété -1,038.1 LINA-CONGO Ligne nationale aérienne congolaise -993.0 SOTEXCO Société des textiles du Congo -857.3 ONPT Office national des postes et télécommunication -842.4 SOVERCO Société des verreries du Congo -628.3 SEB Société nationale d’exploitation des bois -549.0 SIDETRA Société industrielle de déroulage et tranchage -507.2 SOCOTRA Société congolaise de transit -491.3 COPEMAR Congolaise de pêche maritime -468.0 STPN Société de transport de Pointe-Noire -423.1 NOVOTEL Hôtel M’Bou M’Voumvou -409.6 CAPN Complexe avicole de Pointe-Noire -393.7 Méridien Hôtel Méridien -382.4 SFAC Société forestière algéro-congolaise -336.8 OCMC Office congolais de matériaux de construction -252.4 SAPM Société agropastorale de Madingou -209.4 OIVEG Office national import/vente de viande en gros -203.0 RNPC Régie nationale des palmeraies du Congo -188,9 SOCALIB Société congolo-arabo libyenne des bois -174.0 UAB Usine aliment de bétail -168.2 IAD Industrie africaine de disque -113.2 UTS Usine de tissus synthétique -84.7 SONACEM Société nationale de commerce électroménager -71.2 CRETH Centre de recherche et étude technique pour l’hab. -70.5 STL Société des transports de Loubomo -63.8 OGB Office du gros bétail de Massangui -60.1 Stafruit Station fruitière du Congo -59.4 SIAP Société industrielle d’articles en papier -49.2 Atlantic Hôtel Atlantic-Palace -47.3 FM Ferme de Makoua -44.9 Motel Plage Motel de Côte Sauvage Ndindji -43.6 FPL Ferme porcine de Loubomo -38.8 FMB Ferme de M’Bé -34.9 SOCOMAB Société congolaise de maintenance du bois -34.2 Plasco Société des plastiques du Congo -31.4 OCT Office congolais du tabac -31.1 Chacona Chantier des constructions navales -23.4 CVTA Centre de vulgarisation des techniques agricoles -23.4 OCF Office congolais des forêts -7.4 SOCOME Société congolaise de transit -4.5 FPIB Ferme piscicole industrielle de Brazzaville -2.2 ONAPEC Office national de pêche continentale 0.0 SIACIC Silos à Ciments du Congo 0.0 CNPS Caisse nationale de prévoyance sociale 0.0 SIMOB Société industrielle des bois de Mossendzo 0.0 ONACI Office national du cinéma 0.0 UAIC Unité d’afforestation industrielle du Congo 0.0 SOCOREM Société congolaise de rech. et d’exp. minière 0.0 Sangha Palm Complexe agro-industriel du palmier à huile 0.0 Yaouterie Yaouterie de Brazzaville 0.0 FEK Ferme d’État de Konbé 0.0 OCV Office des cultures vivrières 0.0 OCC Office congolais du café et cacao 0.0 Ferme-Lait Centre expérimental bovin (P.K.45) 0.0 Soprogi Société de prom. et de gestion immobilière 0.0 Sonatrab Société congolaise de maintenance de bois 0.0 96 TABLE A.2: Job loss prospects in the main corporations to be privatized Name of Corporation Current Staff Size Typical Staff Size Excess Staff HYDRO-CONGO 832 382 450 ATC/CFCO 4,200 2,900 1,300 ATC/UNPTF 1,700 1,140 560 SNE 1,290 860 430 SNDE 670 550 120 ONPT 2,090 1,020 1,070 MAB 240 120 120 Sangha-palm 380 240 140 Total 1,1402 7,212 4,190 Source: Privatization Committee (Privatizations: Implementation Outcomes and Prospects, 2000s) TABLE A.3: Sectoral distribution of employment in the formal sector, 2003 to 2006 Sector 2003 2004 2005 2006 Agriculture, Livestock and Fisheries 599 590 587 584 Oil Industry 1,046 1,152 1,239 1,250 Logging Industry 5,098 5,771 5,869 6,098 Manufacturing 5,924 6,204 6,578 6,811 Construction 2,501 4,098 4,538 47,69 Transportation 2,555 2,520 2,542 2,595 Telecommunications 313 332 394 520 Financial and Oil Services 2,717 2,793 2,919 3,131 Trade 4,854 4,718 4,698 4,618 Hotels and Restaurants 552 560 560 581 Total 26,159 28,739 29,923 30,957 Source: CNSEE, Statistical Yearbook 2007 97 FIGURE A.2: Education system in the Republic of Congo Age School Level of Type of school and degree year schooling Doctorat 25 7 24 6 DEA (Diplôme d’Etudes Approfondies) 23 5 Tertiary Masters 22 4 Doctorate education Licence 21 3 20 2 Bachelor 19 1 Baccalauréat général Baccalauréat technique Diplômes professionnels 18 Final Secondary st General secondary school Technical secondary 17 1 education Professional training nd (second level) school (second level) 16 2 (second level) BEPC (Brevet d’Etudes du BET (Brevet d’Etudes Premier Cycle) Techniques) rd 15 3 Technical secondary th Secondary 14 4 General secondary school school (first level) th education 13 5 (first level) th (first level) Centre des metiers 12 6 CEPE (Certificat d’Edtudes Primaires Elémentaires) 11 CM2 10 CM1 9 CE2 Primary Primary schools 8 CE1 education 7 CP2 6 CP1 5 P3 Pre-primary 4 P2 Preschool centers education 3 P1 98 TABLE A.4: Demographic characteristics of the informal working-age population by city and employment status Women Under 25 Average age City Employment Status (percent) (percent) (years) Owner 37.6 2.6 40.3 Self-Employed 67.7 7.4 38.6 Wage Worker 11.3 18.9 29.7 Paid Apprentice 1.7 85.0 21.7 Brazzaville Unpaid Apprentice 35.1 76.3 22.7 Family Help 61.7 51.2 27.9 Partner 11.6 21.3 36.4 Overall 54.8 19.4 35.7 Owner 61.9 3.6 35.1 Self-Employed 64.1 11.7 37.0 Wage Worker 3.6 42.8 27.1 Paid Apprentice 13.5 80.0 22.8 Pointe-Noire Unpaid Apprentice 60.0 72.5 22.4 Family Help 45.0 41.3 25.8 Partner 10.3 34.2 Overall 52.9 20.2 34.0 Owner 48.6 3.1 38.0 Self-Employed 66.5 8.8 38.1 Wage Worker 6.7 33.3 28.1 Paid Apprentice 5.5 83.4 22.1 Overall Unpaid Apprentice 39.3 75.6 22.7 Family Help 57.1 48.4 27.3 Partner 11.4 17.1 36.0 Overall 54.1 19.6 35.1 Source: EESIC 2009 TABLE A.5: Reasons for being in the informal sector (percent) Did not find wage Did not find wage To achieve To be Family Other City Sector employment in a employment even in a higher independent tradition reasons large company a small company income Industry 25.0 21.2 9.4 36.4 4.2 3.9 Commerce 24.4 17.2 5.1 25.1 12.5 15.8 Brazzaville Services 32.3 18.4 14.9 21.9 3.9 8.6 Total 25.3 18.2 7.0 27.3 9.7 12.4 Industry 14.1 10.2 20.2 39.0 6.1 10.3 Pointe- Commerce 14.6 24.1 13.2 28.0 8.9 11.2 Noire Services 30.8 10.6 25.7 22.9 5.6 4.4 Total 16.3 19.8 16.0 29.7 7.9 10.3 Industry 21.5 17.7 12.8 37.2 4.8 6.0 Commerce 21.1 19.6 7.8 26.1 11.2 14.2 Total Services 31.8 15.7 18.6 22.3 4.5 7.1 Total 22.4 18.8 10.0 28.1 9.1 11.7 Source: EESIC 2009 99 ANNEX 3: ADDITIONAL INFORMATION FOR CHAPTER 3 FIGURE A.3: Governance indicators for the CEMAC region Voice and accountability Political stability GABON GABON EQUATORIAL GUINEA EQUATORIAL GUINEA CONGO CONGO CHAD CHAD CENTRAL AFRICAN REPUBLIC CENTRAL AFRICAN REPUBLIC CAMEROON CAMEROON 0 10 20 30 40 50 0 10 20 30 40 50 Government effectiveness Regulatory quality GABON GABON EQUATORIAL GUINEA EQUATORIAL GUINEA CONGO CONGO CHAD CHAD CENTRAL AFRICAN REPUBLIC CENTRAL AFRICAN REPUBLIC CAMEROON CAMEROON 0 10 20 30 40 50 0 10 20 30 40 50 Rule of law Control of corruption GABON GABON EQUATORIAL GUINEA EQUATORIAL GUINEA CONGO CONGO CHAD CHAD CENTRAL AFRICAN REPUBLIC CENTRAL AFRICAN REPUBLIC CAMEROON CAMEROON 0 10 20 30 40 50 0 10 20 30 40 50 31 Source: Kaufmann et al. (2010) 31 The governance indicators presented here aggregate the views on the quality of governance provided by a large number of enterprise, citizen and expert survey respondents in industrial and developing countries. These data are gathered from a number of survey institutes, think tanks, non-governmental organizations, and international organizations. The WGI do not reflect the official views of the World Bank, its Executive Directors, or the countries they represent. The WGI are not used by the World Bank Group to allocate resources. 100 TABLE A.6: Overview over labor market regulations in the Republic of Congo Act Purpose 16/62 Act of February 03, 1962 outlining the general status of civil servants 10/64 Act of June 25, 1964 instituting a Labor Code in the Republic of Congo 23/67 Act of December 12, 1967 implementing the program act to "Africanize" occupational posts 45/75 Act of March 15, 1975 instituting a Labor Code in the Republic of Congo 003/85 Act of February 14, 1985 creating the National Employment and Workforce Office, and modifying the Labor Code 001/86 Act of February 22, 1986 modifying the 001/86 Act of February 22, 1986 replacing the 003/85 Act of February 14, 1985 creating the National Employment and Workforce Office, and modifying the Labor Code 022/88 Act of September 17, 1988 modifying the 001/86 Act of February 22, 1986 replacing the 003/85 Act of February 14, 1985 creating the National Employment and Workforce Office, and modifying the Labor Code 21/89 Act of November 14, 1989 redesigning the general status of the civil service 6-96 Act of March 06, 1996 modifying and supplementing some provisions of the 45/74 Act of March 15, 1975 instituting a Labor Code TABLE A.7: Unionization rate by city, gender and sector (percent) Brazzaville Pointe-Noire Total Gender Men 31.2 26.9 29.6 Women 23.9 16.9 22.5 Sector Clothing industry 0.0 0.0 0.0 Other industries 40.6 28.2 31.3 Building and public works 29.5 23.4 27.0 Commerce (wholesale trade) 9.7 15.9 13.1 Commerce (small mobile traders) 0.0 11.5 3.3 Restaurants 0.0 10.3 9.8 Repair 0.0 55.5 46.0 Transportation 23.7 20.1 22.4 Primary sector 0.0 55.9 25.8 Other services 30.4 26.0 29.5 Total 28.8 25.3 27.7 Source: EESIC 2009 101 Comprehensive list of “just causes� for contract termination can be found in the Estonian Employment Contracts Act 1992 (as amended) An employer may terminate an employment contract entered into for an unspecified or fixed term prior to expiry of the term of the contract: (i) Upon liquidation of the enterprise, agency or other organization; (ii) Upon the declaration of bankruptcy of the employer; (iii) Upon layoff of employees; (iv) Upon unsuitability of an employee for his or her office or the work to be performed due to professional skills or for reasons of health; (v) Due to unsatisfactory results of a probationary period; (vi) Upon breach of duties an employee; (vii) Upon loss of trust in an employee; (viii) Due to an indecent act by an employee; (ix) Due to the long-term incapacity for work of an employee; (x) When the employee reaches a certain age; (xi) Upon hiring an employee for whom the position is a principal job; (xii) Due to an act of corruption of an employee. TABLE A.8: Arrangements for fixed-term contracts around the world in 2010 (number of countries) Region Number of Including: countries Are fixed-term What is the maximum cumulative duration of a fixed- contracts prohibited term employment relationship (in months - M), for permanent tasks? including all renewals? Yes No limit 12M 24M 36M 48M 60+M East Asia & Pacific 24 5 20 1 1 1 0 1 Europe & Central Asia 25 15 10 1 2 4 0 8 Latin America & 32 16 22 2 6 0 0 2 Caribbean Middle East & North 18 4 12 1 3 0 1 1 Africa High income: OECD 30 9 13 1 10 1 1 4 South Asia 8 3 6 1 1 0 0 0 Sub-Saharan Africa 46 20 23 3 8 2 7 3 Total 183 72 106 10 31 8 9 19 Source: Doing Business 2011 database 102 FIGURE A.4: Steps for implementing a public works program - Short term (seasonal, one-time shock) Determining the objectives - Longer term (insurance, guarantee, antipoverty) and model of the program - Public Works Plus (as a bridge to employment, antipoverty). - Geographical location Deciding the scope of the - Timing of the program program and design - Duration of the program - Targeting methods and number of beneficiaries - Project selection criteria Communication strategy Arrange community meetings, use radio and other media to inform potential participants about the main design elements of the program, including wage rates, beneficiary selection procedures and project selection criteria. Deciding the institutional - Centralized and decentralized implementation models arrangements - Determining role of stakeholders - Staffing needs Financial Flows - Financial flows - Procurement of inputs - Muster rolls and wage payments - Accountability and Complaints Setting up the Managing - Organizational structure Information System (MIS) - Information management - Application management - Infrastructure and equipment Actual selection of projects - Project selection - Environmental considerations - Project assessment and approval Actual selection of Beneficiary selection conducted according to agreed beneficiaries procedures. Management and supervision - Management structure - Worker organization of worksites - Worksite requirements Monitoring inputs and outputs Monitoring Identification of potential problems (e.g. delays in payments, project completion issues, etc.). - Implementation progress Impact evaluation - Targeting efficiency - Impact Source: World Bank (2010g) 103 ANNEX 4: OVERVIEW OVER INTERNATIONAL LABOR MARKET POLICIES AND PROGRAMS TABLE A.9: Matrix of international labor market policies and programs Background context / General policy Specific interventions / country situation or program proposals expected results Rationale: promote the macroeconomic environment A sound investment climate lays the Creating a better investment A better investment climate would help to overcome foundation for companies to be created and climate by improving the unjustified expenses, risk-factors and other obstacles to expand. The private sector plays a key regulatory and tax system, to competition (World Bank 2006b). Job creation role in this process and in driving meeting basic infrastructure would also likely be stimulated through a sound sustainable growth. needs, making information on business and investment climate. job openings more transparent and accessible, and promoting political security and stability By offering firms tax and trade incentives Consider providing export In Nigeria, for example, the Export Expansion Grant such as grants, they can help build up the promotion grants to stimulate scheme (which provide grants up to 15-30 percent of enterprise sector and thereby promote job creation for locals and the export value) or the Pioneer Tax Program (which employment and growth. expansion of exports provides tax holidays on corporate income to manufacturers who export 50 percent or more of their turnover) aim to support business and job growth (World Bank 2009c). Such schemes do not necessarily target youth but can help employ locals and diversify the economy, particularly relevant for natural resource exporting countries like the Republic of Congo. Evidence on the impact of these two policy schemes in Nigeria is however currently incomplete (ibid.). Fostering a positive macroeconomic climate Consider the applicability of Such interventions have proven to be successful within can help determine how well the labor adopting policies aimed at these countries in promoting a solid macroeconomic market functions and is able to push job trade openness such as those environment (World Bank 2006b). creation. that promote youth-intensive exporting sectors in Indonesia and Vietnam Rationale: facilitate the legal framework The adoption of a minimum wage aims to Consider setting a Establishing a lower minimum wage for the youth provide a degree of protection for laborers’ differentiated minimum wage population would ensure employers that hiring and salaries from decreasing to very low levels, scale by age to diminish the training youth is beneficial for them. In Chile, for while its enforcement is often confronted negative externalities on youth example, adopting apprenticeship wages below the with difficulties in poor countries. However, employment by offering youth minimum wage strongly promoted job creation among youth are generally at the bottom of the lower minimum wages to youth graduates (World Bank 2006b). national wage distribution, so that they are ‘subsidize’ training provided by more affected by variations in the minimum firms wage. In Brazil and Chile, increasing the minimum wage translated into job loss for youth, especially for the unskilled and females. The effects of changes in minimum wages within the formal sector spread out into informal sector wages, even in countries with very large informal sectors (World Bank 2006b). Some youth who acquire higher levels of Consider leveling out the gap in Evidence of policy effectiveness is not available on education will wait longer periods for an wages between the public and whether youth unemployment among those with opening within the public sector due to private sector to reduce the higher levels of education could be reduced with higher earnings. A World Bank (2006b) study share of youth postponing entry measures that seek to close or at least minimize the indicates that in 39 developing countries the into the labor market to attain public-private sector gap in salaries and the incentives wage premium is on average higher for the public positions associated with holding off for public sector positions public than for the private sector based on (World Bank 2006b). earnings regressions. Together with greater 104 job security, higher levels of income However, schemes that attempt to bypass this wage generated by public-sector laborers gap and guarantee public sector jobs for the educated, disincentives private sector engagement, such as in Morocco, Egypt, Sri Lanka and Ethiopia, have with for example the starting hour wage been assessed as unlikely to be successful (World Bank 42.5 percent higher within the public sector 2006b). in Morocco and the average wage premium for public-sector workers being 18 percent higher in Tunisia. Likewise, a large share of unemployed youth in Ethiopia seeks public- sector employment due to the associated benefits (ibid.). Rationale: build up levels of education, training and skills Open-market training vouchers can be Consider providing master In Kenya, this voucher scheme raised the relevance of provided to unemployed youth but also craftspeople, employees and training that apprentices received (for more employers, with which recipients decide on unemployed youth with access information see Box 3.3; Riley and Steel 1999; World which skills-training provider they will to emerging technologies and Bank 2006b; Haan 2001). attend. scaling up their skills base through competition as part of a voucher program targeting the informal sector to improve the relevance of their own training and that of their apprentices’ A persistent labor market problem is that Consider the adoption of a dual In 1995, the Mubarak-Kohl initiative (Egypt- Germany) employers are often confronted with system combining school with adopted the Co-operative Dual System in Technical serious constraints in finding workers who work to ensure acquired skills Education that set up a public-private system of are technically skilled and highly qualified. reflect skill demands of the training and practice for unemployed youth in Egypt. As an international model, Germany’s dual market, i.e. both schools and In terms of its assessment, the program is assessed as system merges schooling with enterprises cooperate to being successful (Brewer 2004), while also being faced apprenticeships/work. The rationale is that provide youth training programs with several implementation challenges such as employers ensure the local and market that fulfill commercial and related to its sustainability (World Bank 2006b). Such relevance of training and skills provided, industrial standards, dual-systems have also been adopted in several sub- keeping skill gaps to a minimum. It requirements and needs, and Saharan countries. In Cote d'Ivoire, the ‘Appui à promotes public-private partnerships and that have a strong practical l’introduction de la Formation Professionnelle par cost sharing in technical training. Adapting orientation Alternance’ specifically targets young primary or Germany’s dual system to developing secondary school dropouts but its impact has not been countries has been faced with some assessed although it likely contributes to better job difficulties, given their very large informal opportunities (Brewer 2004). In Nigeria, the National sector as well as the weak institutional Open Apprenticeship Scheme provides unemployed capacities and regulatory framework (i.e. and out of school youth with workshops and technical the need to set up an educational, instructors within private and public institutions in managerial, legal and financial framework). both the informal and formal sectors. More than In Ghana, for example, 80-90 percent of 600,000 unemployed youth received training within provided skills training takes place in over 80 different trades since 1987, over 400,000 of traditional apprenticeships (World Bank these youth started up a small business and almost 2006b). At the same time however, some 50,000 unemployed youth currently receive training African countries—e.g. Tanzania, Egypt, services (Betcherman et al. 2007). The ‘Modernisation Cote d'Ivoire, Guinea, Nigeria—have of the Apprenticeship System’ in Guinea addressed the implemented versions of the dual system. problem of an outdated apprenticeship system. An interesting feature of its co-operative training courses within labor intensive craft and service sectors is that it mainly targets those who have no access to formal schooling, especially girls. No evaluation has been carried out for this program yet (ibid.). In Tanzania, the VETA National Apprenticeship scheme has been proven as a promising policy measure (Garcia and Fares 2008). In spite of the adoption of some dual Support the provision of As a bilateral project between the Governments of systems and modern apprenticeship technical training for informal Zimbabwe and Germany (GIZ), the Informal Sector 105 programs across Africa, traditional sector businesses in order to Training and Resource Network Program provides apprenticeships will remain a key part of build up production skills and unemployed young Zimbabweans with technical youth training in the region in the longer- product marketability, and training for informal sector businesses. The program term especially given the large size of the create employment has been assessed as being successful measured by job informal sector. Traditional apprenticeships creation within host businesses and by newly started are known to work well in West Africa (see businesses (ILO 2000). also Peeters et al. 2009). Given this context, efforts could be made to scale up traditional apprenticeships and skills training for youth in the informal sector. Another problem to be addressed is not Support to improve the supply, In Mali, the Vocational Education and Training only the need to improve access to technical quality, efficiency and Consolidation Project, which targets unemployed and vocational training facilities but also relevance of pre-service youth aged 21 or below, aims to upgrade training improve the curricula that is being mediated technical and vocational facilities by promoting selected training streams and to young people. education and training to gradually eliminating outdated training streams, by ensure youth trainees receive enhancing instructional quality through curricula the appropriate tools and skills reform and by establishing training and enterprise that reflect labor market support units. The outcome of the project—aimed at demands attaining employment for 70percent or more of trainees within a year after graduation—has been unsatisfactory (Betcherman et al. 2007). In Rwanda, the Improving Technical Education Program aims to improve the relevance of TVET education for unemployed young men and women in technical colleges and provide them with relevant skills and training in order to facilitate the job search and self- employment. No program evaluation has been conducted yet (Brewer 2004). In South Africa, the Swiss-South African Co-operation Initiative is a PPP working with NGOs and ten private-sector corporations, which provide out-of-school males and females aged 16-26 (generally with acquired secondary school education and a background in entrepreneurial methods) with the skills and knowledge needed to make a living. The initiative has been evaluated as being very successful (Betcherman et al. 2007). Scaling up technical and vocational training, Support vocational skills A number of programs have proven to be promising: through both formal and informal channels, training programs that provide Entoto Technical and Vocational Education and is an integral part of enhancing youth’s skills youth with active labor market Training (Ethiopia); Hope Enterprises (Ethiopia); development. Education and labor market training Community Skill Training Centers (Ethiopia); PEVOT- policies can help to improve the scope and GTZ Program (Uganda) (Garcia and Fares 2008). The relevance of technical training. Republic of Tunisia Employment Strategy-Active Labor Market Programs provide unemployed youth in Tunisia with general vocational training but also assistance with job placement among first-time job seekers and access to schemes supporting self-employment. No evaluation of the project has been conducted yet (World Bank 2004). Many educated rural youth have the desire Consider training rural youth in In the Central African Republic, the Agricultural to migrate to urban centers, so that agricultural technologies who Services Development Project is an example of such a intensive training groups, easier access to are discriminated through e.g. project, although the project’s rural youth training credit and establishing support systems local traditions by training them component has not been evaluated yet. In Uganda, the could provide literate young adults, mainly in improved agricultural Bugaya Youth Dairy Farm Project aims to train rural farmers, with practical skills and technical methods, management individuals under the age of 35 in raising cattle, innovations that can be employed on the practices etc. managing farm animals and selling farm products, farm. Furthermore, in many rural areas, thereby increasing their levels of income. The project, farming is the sole source of generating implemented in villages of the Kabarole district in income and by providing agricultural Uganda, is seen as successfully supporting youth 106 training in areas where effective farming training (Betcherman et al. 2007). skills are scarce, poverty can be reduced. There is a continual need to improve the Consider providing targeted Community-based training programs could improve quality of employment and life of the community-based training for the quality of life, education and employment for disabled and to strengthen the institutional the disabled young people and adults with disabilities. In Namibia, capacity for decision makers in terms of the HRD for Community Based Training of Persons adopting and implementing coping With Disabilities targets disabled children, youth and strategies to integrate those with disabilities women. A tracer study found that while most project into the labor market. participants were unemployed during training, two- thirds had found employment after graduation (Betcherman et al. 2007). There is a need for greater public-private Promote better aligning upper This would augment the local and market relevance of cooperation in establishing school secondary and higher education and help reduce the share of youth who are curriculum and minimizing the gap in what education with the demands of waiting for public sector jobs. is taught in schools and what is needed at the labor market by setting up a the workplace. mechanism to allow private firms to articulate to the Ministry of Education which skills their young employees are lacking Higher youth unemployment is often Consider supporting initiatives As a technical cooperation between the Governments associated with higher crime rates, which to train youth as Community of South Africa and Germany (GIZ), the Urban Conflict may be particularly relevant for countries in Peace Workers equipping them Management Project in South Africa aims to a post-conflict setting. To help reduce the with the skills, for example, to simultaneously reduce levels of crime and prevalence of violence and to solve conflicts better identify conflicts within unemployment, targeting predominately men and at the community level, integral programs the community and to mediate women 18-30 years of age within selected poor can be adopted that promote voluntary between conflicting parties communities. Over 1,000 young adults have gone community service, life skills and technical through the volunteer project and it is assumed that training, and instruction in conflict many more have profited from project activities. 80 to resolution and prevention strategies. 90 percent of these community peace workers are able to find viable employment after completing the one year community peace service (Betcherman et al. 2007). In order to help decrease school dropout Consider expanding school School feeding programs, for example, are an effective and early entry into the labor force, policies feeding programs and school social safety net that helps increase school attendance need to minimize the financial burden of capitation grants, abolishing and the physical development of basic school age schooling on poor households. direct and indirect school costs, children. They have been proven successful in a reducing opportunity costs of number of countries, among others, Ghana. schooling etc. Conditional cash transfers to poor Consider the promotion of Conditional cash transfers have been successfully households that are contingent on school conditional cash transfers for adopted in numerous developing countries: LEAP in attendance and on no child labor vulnerable children not in Ghana, PETI in Brazil, PROGRESA in Mexico, and involvement can be critical to improve school or working Human Development Bond Project in Ecuador (World children’s and youth’s levels of education Bank 2006b). and reduce levels of child labor, such as the ‘Livelihood Empowerment Against Poverty’ scheme in Ghana. Rationale: support job creation Structural unemployment is a problem that Consider supporting short- and In South Africa, the Expanded Public Works Program needs to be addressed. Nation-wide medium-term programs aimed set the target of creating additional job opportunities programs have the potential to pull large at the provision of additional for at least one million unemployed people nation- shares of those who are unemployed into work opportunities coupled wide, including at least 40 percent of women, 30 productive work and enable them to acquire with on-the-job training for the percent of youth and 2 percent of disabled over the practical skills as they work and thereby unemployed period 2004-2009. The program is monitored on a promote greater income generation. quarterly basis. Another example is the Public Works Program in Egypt that targets unemployed rural youth who have left school and provides them with on-the- 107 job training in areas ranging from irrigation, drainage, water provision and agricultural land protection to road infrastructure and construction. In terms of results, more than 42,000 jobs had been created by 1997, of which 90 percent were classifies as temporary employment (Brewer 2004). Actions to mitigate unemployment in rural Consider promoting rural In Burundi, a rural youth employment program (the areas generally need to focus on training employment by targeting ‘Agricultural Services Sector Project’) targeting and employment programs in the unemployed youth in order to unemployed youth who are primary school leavers agriculture sector. facilitate their socio-economic was adopted in Ngozi and Kayanza provinces. The integration youth were supported by private firms through a pilot dairy farm program. However, the project has not been able to strengthen rural youth employment to date, a key objective of the project (Betcherman et al. 2007). To create environmentally-friendly Consider providing youth with In Lesotho, the Rural Development and Environmental employment opportunities for youth in both jobs to rehabilitate and protect Management program (part of the Support for the rural and urban areas, countries such as the environment as part of a Establishment of a National Environment Youth Corps) Lesotho have established projects that scheme to simultaneously targets youth who have left school and would be provide young people with training and promote job creation and to unemployed in the absence of this program, providing employment in environmental rehabilitation safeguard the environment them with access to training centers, on the job and protection programs, ranging from training, seminars and workshops, public awareness plant nurseries and tree planting to waste campaigns, and training fellowships. Though, no data collection and material recycling including is available yet on the program’s outcomes or impact glass, plastics, tires, scraps etc. (Betcherman et al. 2007). It is possible to encourage companies, which Consider fostering the provision This could provide the private sector with incentives to at times perceive risks associated with of wage subsidies to private hire unemployed youth, whether skilled or unskilled employing young laborers without firms to boost youth (Hungary, Poland, and the Czech Republic have experience, to hire new entrants via employment and/or training, implemented such schemes). In terms of the policy’s subsidies, possibly with a particular focus on which need to establish efficiency, a mechanism needs to be in place to ensure economically disadvantaged youth. concrete parameters and that wage subsidies are well targeted to young hires criteria for the target group as who are not employed at the cost of laying off other well as the types of labor employees and that the scheme targets those firms opportunities, their duration that may have low youth employment rates or may and quantity of the subsidies not have hired young workers without the scheme. Finally, wage subsidy schemes may be most appropriate for middle income countries, as they have a large financial burden and may not achieve expected results in countries that have large informal sectors (World Bank 2006b). Rationale: foster self employment opportunities Many young people lack the confidence, Consider supporting In Namibia, the Katutura Youth Enterprise Centre information and skills to start up and run community-based Scheme targets unemployed and out of school youth their own businesses, making it critical to organizations that provide aged 15-30, providing them with a ‘one-stop shop’ for support programs that promote information, skills training, business support service, including building up entrepreneurial knowledge and skills among work space and advisory computer competency, business start up knowledge, youth by offering training on writing project support to youth at initial and training in e.g. basic construction skills (carpentry, proposals, business and work plans, business start up metalwork, brickwork). This program trains about 600 understanding the legal framework and youth annually, of whom 25 percent successfully start carrying out feasibility studies. This situation their own enterprises. In Senegal, the Youth Enterprise is aggravated by the fact that many young and Capacity Building Program is an intensive two- people in rural areas are underemployed in week program that helps unemployed youth start up subsistence farming and some have few an enterprise by mediating knowledge on preparing prospects of breaking out of poverty due to project proposals, business and work plans, the legal a mix of reasons such as the scarcity of framework and how to carry out feasibility studies. In entrepreneurial skills, formal sector jobs and terms of outcomes, 98percent of new businesses alternative job options. started by participants have been successful, thereby promoting job creation as well as economic 108 independence and development in the community (Betcherman et al. 2007). In Ethiopia, the Regional Micro and Small Enterprise Development Agency prioritizes enterprises run by unemployed youth, females, school dropouts and those with disabilities. This intervention has been characterized as promising by a study from Garcia and Fares (2008). These schemes would also help to overcome the limited number of jobs available for young graduates. Youth are often faced with a scarcity of Need to widen equitable access By targeting unemployed youth 15-24 years of age, the employment and economic opportunities in to credit for unemployed youth Sohag Rural Development Project in Egypt promotes rural areas, towards which access to credit to support income generating access to credit to support economic activities in farm can help alleviate. activities production, processing food, packaging and drying fruits and/or vegetables, livestock raising etc. The project is yet to be evaluated (World Bank 1998). For example, ‘FINCA Lending Program’ in Tanzania and the ‘ZANU Finance Lending, Training, and Literacy Program’ in Burkina Faso have been assessed as successful credit-lending programs (Garcia and Fares 2008). Business promotion programs can produce Support young entrepreneur A wide-range of schemes promoting micro-enterprises young entrepreneurs, help reduce youth programs that are not only for youth through skills training, business advisory unemployment and expand small and designed to build up skills services and access to credit have been successful medium size enterprises. In addition, needed for self employment throughout sub-Saharan Africa (for information on supporting young entrepreneurs can be an but also especially to improve multiple programs and their assessments see Box 3.3). important policy tool to promote income- access to affordable micro- generating activities. credit services in order to facilitate youth’s engagement in income generation activities Given that most youth leave school without Provide unemployed youth An example of such a program is the Youth a solid foundation of business practices in with free business skills training Entrepreneurship Development Program in South the private sector, entrepreneurship covering entrepreneurship and Africa, but it is yet to be evaluated (Betcherman et al. curriculum programs can provide life-skills curriculum 2007). In Kenya, the ‘BAOBAB Project-Teaching Kenyan unemployed youth with the opportunity to Youth Skills for Independence’ targets poor rural broaden their understanding of and instill youth, mainly females, and provides grants of $100 to positive attitudes about business practices, 30percent or graduates to start up businesses and entrepreneurship and steps to self promote economic independence, while about 50 employment. percent of the grant recipients have had good to marginal success operating their businesses (Betcherman et al. 2007). Rationale: provide second-chance programs to reintegrate the very marginalized The concept of second chance programs Provide literacy and numeracy Facilitating vulnerable youth with training and skills to entails providing a second opportunity for programs to vulnerable youth enter or better compete in the labor force promotes a vulnerable youth who have not acquired any more equitable employment sector and enhances schooling or basic literacy skills or have levels of productivity while reducing poverty (World never entered the labor force or did so at an Bank 2006b). The Youth Entrepreneurs Scheme early age. These youth disproportionately Program in Uganda has successfully provided youth represent ethnic minorities, orphans and with a second chance by providing them with the disabled and these programs aim to necessary literacy and numeracy skills. Subsequently, increase their marketable skill sets (World over 4,000 young people have received business skills Bank 2006b). Improving literacy rates can through the program, 1,812 people 18-34 years of age foster trainability, i.e. for literate youth to have received credit and it has improved the capacity go onto other practical training programs. of intermediary institutions, but disbursement has been poor (Garcia and Fares 2008). The African AGETIP (Agence d’Exécution des Consider supporting public- The following schemes have been characterized as Travaux d’Intérêt Publique) programs are an private partnerships that promising: The ‘Dar es Salaam Solid Waste Municipal innovative way to support public-private require publically contracted Service Delivery’ in Tanzania; the ‘Productive Safety initiatives by joining measures to construct private firms to hire local youth Nets Program’ in Ethiopia; and the ‘PSTP/HIMO Public 109 public road, building and sanitation without work experience Works program’ in Burkina Faso (Garcia and Fares infrastructure with those to support training through public works projects 2008). In addition, an evaluation of the AGETIP and job creation for youth who are less program in Senegal revealed that about 450,000 youth educated, unemployed and economically have received on-the-job training and temporary jobs, disadvantaged (Pound and Knight 2006). and the number of construction and engineering companies involved in the scheme grew rapidly. Completing basic education is a necessary Provide second-chance For example, Tanzania’s ‘Complementary Basic foundation to acquire a basic-skill set for the education equivalency Education (COBET)’ and Uganda’s ‘BEUPA Equivalency marketplace. programs for youth who have Program’ are known as two promising interventions not been able to complete the (Garcia and Fares 2008). basic education cycle Rationale: promote other policies Many unemployed youth search for Consider providing counseling For example, the Labor Exchange Center in Tanzania is employment opportunities over long and job search programs to seen as promising intervention in providing periods of time, towards which advisory support unemployed youth unemployed youth with assistance in job searching services on job searching can play an (Garcia and Fares 2008). important role in finding employment. An alliance of global organizations ‘Alliance Other countries could consider Regional cooperation on youth employment has the for African Youth Employability’ was joining the Alliance for African potential to facilitate the flow of information, initiated in early 2004 by the International Youth Employability in order to knowledge about what works and what does not and Youth Foundation to facilitate the counsel and improve matching other cross-regional synergies, although tangible development of skills for African youth and and placement among youth outcomes and the impact of the alliance are not yet to strengthen their attitudes and behaviors who are disadvantaged, and available (Betcherman et al. 2007). in finding and keeping jobs. 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The boundaries, RIVERS colors, denominations and To any other information shown 6°S on this map do not imply, on M'banza Congo MAIN ROADS the part of The World Bank RAILROADS Group, any judgment on the legal status of any territory, ANGOLA or any endorsement or REGION BOUNDARIES acceptance of such boundaries. 12°E 14°E 16°E INTERNATIONAL BOUNDARIES SEPTEMBER 2004