Economy of the Democratic Republic of the Congo

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Economy of Democratic Republic of Congo
Kinshasa downtown.jpg
Kinshasa, capital and economic center of the Democratic Republic of the Congo
Currency Congolese Franc (CDF)
Calendar Year
Trade organisations
 AU, African Development Bank, SADC, World Bank, IMF, WTO, Group of 77
Statistics
GDP Increase $62 billion (PPP) (2015 est.)
Rank: 114 (2012 est.)
GDP growth
 Increase 9% (2015 est.)
GDP per capita
 $754 (PPP) (2015 est.)
Rank: 186 (2012 est.)
GDP by sector
 agriculture (44.2%)
industry (22.6%)
services (33.1%) (2012 est.)
line-height:1.1em
 Increase 4.1% (2015 est.)
Population below poverty line
 70% (2011 est.)
Labour force
 35.86 million (2012 est.)
Labour force by occupation
 N/A
Unemployment N/A
Main industries
 mining (copper, cobalt, gold, diamonds, coltan, zinc, tin, tungsten), mineral processing, consumer products (including textiles, plastics, footwear, cigarettes, processed foods, beverages), metal products, lumber, cement, commercial ship repair
183rd[1]
External
Exports Increase $8.872 billion (2012 est.)
Export goods
 gold, diamonds, copper, cobalt, coltan, zinc, tin, tungsten, crude oil, wood products, coffee
Main export partners
  China 53.4%
 Zambia 24.5%
 Belgium 5.6% (2012 est.)[2]
Imports Increase $8.187 billion (2012 est.)
Import goods
 machinery, transportation equipment, fuel, food
Main import partners
  South Africa 21.4%
 China 15.1%
 Belgium 7.9%
 Zambia 7.5%
 Zimbabwe 6.1%
 Kenya 5.1%
 France 4.9% (2012 est.)[3]
Increase $6.089 billion (31 December 2012 est.)
Public finances
Revenues $5.941 billion (2014 est.)
Expenses $5.537 billion (2012 est.)
Foreign reserves
 Increase $1.633 billion (31 December 2012 est.)
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Sparsely populated in relation to its area, the Democratic Republic of the Congo is home to a vast potential of natural resources and mineral wealth. Its untapped deposits of raw minerals are estimated to be worth in excess of US$24 trillion. Despite this, the economy has declined drastically since the mid-1980s.[4]

At the time of its independence in 1960, the Democratic Republic of the Congo was the second most industrialized country in Africa after South Africa. It boasted a thriving mining sector and its agriculture sector was relatively productive.[4] Since then, corruption, war and political instability have been a severe detriment to further growth, today leaving DRC with a GDP per capita among the world's lowest.

Economic Implications of Conflicts

The two recent conflicts (the First and Second Congo Wars), which began in 1996, have dramatically reduced national output and government revenue, have increased external debt, and have resulted in deaths of more than five million people from war, and associated famine and disease. Malnutrition affects approximately two thirds of the country's population.[5]

Agriculture is the mainstay of the economy, accounting for 57.9% of GDP in 1997. In 1996, agriculture employed 66% of the work force.

Rich in minerals, the Democratic Republic of the Congo has a difficult history of predatory mineral extraction, which has been at the heart of many struggles within the country for many decades, but particularly in the 1990s. The economy of the third largest country in Africa relies heavily on mining. However, much economic activity occurs in the informal sector and is not reflected in GDP data.[6]

In 2006 Transparency International ranked the Democratic Republic of the Congo 156 out of 163 countries in the Corruption Perception Index, tying Bangladesh, Chad, and Sudan with a 2.0 rating.[7] President Joseph Kabila established the Commission of Repression of Economic Crimes upon his ascension to power in 2001.[8]

The conflicts in the DRC were over water, minerals, and other resources. Political agendas have worsened the economy because very few people are benefiting in times of crisis while they let the people they are leading suffer. Made worse because of national and international corporations which are corrupt. The corporations allow the fighting for resources to continue simply because they continue to benefit from it. Many deaths are the result of not having basic needs which shows how the economy affects its people who are also treated like slaves. There have been lots of refugees since the fighting in 1998 which doesn’t help the poverty issue in the country. Taxes are not used for they are supposed to be used for because of those corrupt leaders fulfilling their own objectives instead of the country’s needs. The DRC is consistently rated the lowest on the UN Human Development Index.[9]

Economic history

Evolution of the DRC's GDP.

Before Leopold

Portuguese traders showed up around the 1480s and found that the people would be good slaves which led them to stopping any political power that could stop the slave trade. They traded weapons for the slaves which led to anarchy all across the nation.

After Leopold

Forced labor was important for the rural sector. The corporations that dominated the economy were mostly owned by Belgium, but British capital also played an important role. Independence caused the Congo to become the most industrialized country in Sub-Saharan Africa, after South Africa. 1950s was a period of rising income and expectations. Called the best public health system in Africa, huge wealth disparity. The Belgian companies favored workers in certain areas more and exported them to work in different areas and they took away opportunities from other people. The favored groups also got better education and were able to secure jobs to people in the same ethnic group which caused tensions to rise. In 1960 there were only 16 university graduates out of 20 million people in the country. Belgium still had economic power and independence gave little opportunity for improvement. “no elite, no trouble”, “before independence = after independence”, When the Belgians left they left nobody in the country with the skills to run the government or the economy. Before independence there were just 3 out of 5000 government jobs held by Congolese people.[10]

Congolese exports in 2006.

Zaire

After the Congo crisis Mobutu arose as the country's sole ruler and stabilized the country politically. Economically, however, the situation continued to decline and by 1979 the purchasing power was only 4% of that from 1960.[11] Starting in 1976 the IMF provided stabilizing loans to the dictatorship. Much of the money was embezzled by Mobutu and his circle.[11] This was not a secret as the 1982 report by IMF’s envoy Erwin Blumenthal documented. He stated, it is “alarmingly clear that the corruptive system in Zaire with all its wicked and ugly manifestations, its mismanagement and fraud will destroy all endeavors of international institutions, of friendly governments, and of the commercial banks towards recovery and rehabilitation of Zaire’s economy".[12] Blumenthal indicated that there was “no chance” that creditors would ever recover their loans. Yet the IMF and the World Bank continued to lend money that was either embezzled, stolen, or "wasted on elephant projects".[13] “Structural adjustment programmes” implemented as a condition of IMF loans cut support for health care, education, and infrastructure.[11]

1990s

International Bank for Reconstruction and Development (IBRD) Trust Fund for the Congo. Poor infrastructure, an uncertain legal framework, corruption, and lack of openness in government economic policy and financial operations remain a brake on investment and growth. A number of International Monetary Fund (IMF) and World Bank missions have met with the new government to help it develop a coherent economic plan but associated reforms are on hold.

Faced with continued currency depreciation, the government resorted to more drastic measures and in January 1999 banned the widespread use of U.S. dollars for all domestic commercial transactions, a position it later adjusted. The government has been unable to provide foreign exchange for economic transactions, while it has resorted to printing money to finance its expenditure. Growth was negative in 2000 because of the difficulty of meeting the conditions of international donors, continued low prices of key exports, and post-coup instability. Although depreciated, congolese francs have been stable for few years (Ndonda, 2014)

2000s

Conditions improved in late 2002 with the withdrawal of a large portion of the invading foreign troops. A number of IMF and World Bank missions have met with the government to help it develop a coherent economic plan, and President Kabila has begun implementing reforms.

Special Economic Zone

The DRC is embarking on the establishment of special economic zones (SEZ) to encourage the revival of its industry. The first SEZ was planned to come into being in 2012 in N'Sele, a commune of Kinshasa, and will focus on agro-industries. The Congolese authorities also planned to open another zone dedicated to mining (Katanga) and a third dedicated to cement (in the Bas-Congo).[14] There are three phases to the program that each have their own objectives. Phase I was the precursor to the actual investment in the Special Economic Zone where policymakers agreed to the framework, the framework was studied for its establishment, and to predict the potential market demand for the land. Stage one of Phase II involved submitting laws for the Special Economic Zone, finding good sites for businesses, and currently there is an effort to help the government attract foreign investment. Stage two of Phase II hasn’t been started yet and it involves assisting the government in creating framework for the country, creating an overall plan for the site, figuring out what the environmental impact of the project will be, and guessing how much it will cost and what the return can be made on the investment. Phase III involves the World Bank creating a transaction phase that will keep everything competitive. The program is looking for options to hand over the program to the World Bank which could be very beneficial for the western part of the country.

Implications of Instability on Economy

Ongoing conflicts dramatically reduced government revenue increased external debt. As Reyntjens wrote, “Entrepreneurs of insecurity are engaged in extractive activities that would be impossible in a stable state environment. The criminalization context in which these activities occur offers avenues for considerable factional and personal enrichment through the trafficking of arms, illegal drugs, toxic products, mineral resources and dirty money.”16 Ethnic rivalries were made worse because of economic interests and there was lots of looting and smuggling of coltan. Illegal monopolies started forming in the country where they used forced labor for children to mine or work as soldiers. National parks were overrun with people looking to exploit minerals and resources. Increased poverty and hunger from the war and that increased the hunting of rare wildlife. Education was denied when the country was under foreign control and very few people make money of the minerals in the country. The national resources are not the root cause for the continued fighting in the region, however the competition has become an incentive to keep fighting.[1] The DRC’s level of economic freedom is one of the lowest in the world putting it in the repressed category. The armed militias fight with the government in the Eastern section of the country over the mining sector or the corruption of the government and weak policies lead to the instabilities of the economy. The abuse of human rights also ruins economic activity considering that the DRC has a 7% unemployment rate, but still has one of the lowest GDP’s per capita in the world. A major problem for people trying to start their own companies is that the minimum amount of capital needed to launch the company is 5 times the average annual income and prices are regulated by the government which almost forces people to have to work for the larger, more corrupt businesses otherwise they won’t have work. It is hard for the DRC to encourage foreign trade because of the barriers of regulation.[15]

International Relations

International Bank for Reconstruction and Development (IBRD) Trust Fund for the Congo. Poor infrastructure, an uncertain legal framework, corruption, and lack of openness in government economic policy and financial operations remain a brake on investment and growth. A number of International Monetary Fund (IMF) and World Bank missions have met with the new government to help it develop a coherent economic plan but associated reforms are on hold.

Faced with continued currency depreciation, the government resorted to more drastic measures and in January 1999 banned the widespread use of U.S. dollars for all domestic commercial transactions, a position it later adjusted. The government has been unable to provide foreign exchange for economic transactions, while it has resorted to printing money to finance its expenditure. Growth was negative in 2000 because of the difficulty of meeting the conditions of international donors, continued low prices of key exports, and post-coup instability. 125 companies in 2003 contributed to the conflict in DRC showing the corruption.

World Bank

With the help of the International Development Association the DRC has worked toward the reestablishment of social services. This is done by giving 15 million people access to basic health services and giving bed nets to prevent malaria from spreading to people. With the Emergency Demobilization and Reintegration Program more than 107,000 adults and 34,000 child soldiers stood down their militarized posture. The travel time from Lubumbashi to Kasomeno in Katanga went down from seven days to two hours because of the improved roads which led to the decrease of prices of main goods by 60%. With the help of the IFC, KfW, and the EU the DRC improved its businesses by reducing the time it took to create a business by 51%, reducing the time it took to get construction permits by 54%, and reducing the number of taxes from 118 to 30. Improvements in health have been noticeable specifically that deliveries attended by trained staff jumped from 47 to 80%. In education 14 million textbooks were provided to children, completion rates of school have increased, and higher education was made available to students that chose to pursue it.[16]

Ease of Doing Business Rank (EDBR)

The Democratic Republic of Congo ranks 183 on the low end of the ease of doing business scale as ranked by the World Bank. This measures the difficulties of starting a business, enforcing contracts, paying taxes, resolving insolvency, protecting investors, trading across borders, getting credit, getting electricity, dealing with construction permits and registering property (World Bank 2014:8). [17] Noticeable changes in the Ease of doing business rank from 2015 to 2016 are an 83 rank increase in the ability to start businesses from 172 to 89. Another noticeable change was the rank of dealing with construction permits which increased from 157 to 131.[18]

International Monetary Fund

The IMF plans on giving the DRC a $1 billion loan after its two-year suspension after it failed to give details about a mining deal from one of its state owned mines and an Israeli billionaire, Dan Gertler. The loan may be necessary for the country because there will be elections in December 2016 for the next president and the cost of funding this would range around $1.1 billion. The biggest problem with the vote is getting a country of 68 million people the size of Western Europe to polling stations with less than 1,860 miles of paved roads.[19]

Sectors

Agriculture

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Main article: Agriculture in the Democratic Republic of the Congo

Agriculture is the mainstay of the economy, accounting for 57.9% of the GDP in 1997. Main cash crops include coffee, palm oil, rubber, cotton, sugar, tea, and cocoa. Food crops include cassava, plantains, maize, groundnuts, and rice. In 1996, agriculture employed 66% of the work force.

Fishing

The Democratic Republic of Congo also possesses 50 percent of Africa’s forests and a river system that could provide hydro-electric power to the entire continent, according to a United Nations report on the country’s strategic significance and its potential role as an economic power in central Africa.[20] Fish are the single most important source of animal protein in the DRC. Total production of marine, river, and lake fisheries in 2003 was estimated at 222,965 tons, all but 5,000 tons from inland waters. PEMARZA, a state agency, carries on marine fishing.

Forestry

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See also: Deforestation in the Democratic Republic of the Congo

Forests cover 60 percent of the total land area. There are vast timber resources, and commercial development of the country’s 61 million hectares (150 million acres) of exploitable wooded area is only beginning. The Mayumbe area of Bas-Congo was once the major center of timber exploitation, but forests in this area were nearly depleted. The more extensive forest regions of the central cuvette and of the Ubangi River valley have increasingly been tapped.

Roundwood removals were estimated at 72,170,000 m3 in 2003, about 95 percent for fuel. Some 14 species are presently being harvested. Exports of forest products in 2003 totalled $25.7 million. Foreign capital is necessary in order for forestry to expand, and the government recognizes that changes in tax structure and export procedures will be needed to facilitate economic growth.

Mining

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Main article: Mining industry of the Democratic Republic of the Congo
Graphical depiction of DRCongo's product exports in 28 color-coded categories.

Rich in minerals, the DRC has a difficult history of predatory mineral extraction, which has been at the heart of many struggles within the country for many decades, but particularly in the 1990s. Although the economy of the Democratic Republic of the Congo, the second largest country in Africa has historically relied heavily on mining, this is no longer reflected in the GDP data as the mining industry has suffered from long-term "uncertain legal framework, corruption, and a lack of transparency in government policy." The informal sector .[6]

In her book entitled The Real Economy of Zaire, MacGaffey described a second, often illegal economy, "system D," which is outside the official economy (MacGaffey 1991:27).[21] and therefore is not reflected in the GDP.

exploitation of mineral substances as MIBA EMAXON and De Beers The economy of the second largest country in Africa relies heavily on mining. The Congo is the world's largest producer of cobalt ore,[22] and a major producer of copper and industrial diamonds. The Congo has 70% of the world’s coltan, and more than 30% of the world’s diamond reserves.,[23] mostly in the form of small, industrial diamonds. The coltan is a major source of tantalum, which is used in the fabrication of electronic components in computers and mobile phones. In 2002, tin was discovered in the east of the country, but, to date, mining has been on a small scale.

[24] Smuggling of the conflict minerals, coltan and cassiterite (ores of tantalum and tin, respectively), has helped fuel the war in the Eastern Congo.

Copper and Cobalt

Katanga Mining Limited, a London-based company, owns the Luilu Metallurgical Plant, which has a capacity of 175,000 tonnes of copper and 8,000 tonnes of cobalt per year, making it the largest cobalt refinery in the world. After a major rehabilitation program, the company restarted copper production in December 2007 and cobalt production in May 2008.[25]

Informal sector

Much economic activity occurs in the informal sector and is not reflected in GDP data.[6]

Transport

All aboard - a train from Lubumbashi arriving in Kindu on a newly refurbished line.

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Main article: Transport in the Democratic Republic of the Congo

Ground transport in the Democratic Republic of Congo has always been difficult. The terrain and climate of the Congo Basin present serious barriers to road and rail construction, and the distances are enormous across this vast country. Furthermore, chronic economic mismanagement and internal conflict has led to serious under-investment over many years.

On the other hand, the Democratic Republic of Congo has thousands of kilometres of navigable waterways, and traditionally water transport has been the dominant means of moving around approximately two-thirds of the country.

See also

References

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  5. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  6. ↑ 6.0 6.1 6.2 Dublin - Research and Markets
  7. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  8. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  9. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  10. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  11. ↑ 11.0 11.1 11.2 Lua error in package.lua at line 80: module 'strict' not found.
  12. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  13. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  14. ↑ [1] Le "paradis" où le droit fera la loi, L'Echo, novembre 2010 (French)
  15. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  16. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  17. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  18. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  19. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  20. ↑ Democratic Republic of the Congo economic and strategic significance
  21. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  22. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  23. ↑ "DR Congo poll crucial for Africa" BBC News. 16 November 2006.
  24. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  25. ↑ Lua error in package.lua at line 80: module 'strict' not found.

External links

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