Report no.59631-ZR
Democratic Republic of Congo
Boosting Growth and Employment
Volume II: Historical and Macroeconomic Context
March 2011
Poverty Reduction and Economic Management 3
Country Department AFCCD
Africa Region
Document of the World Bank
__________________________
This document has a restricted distribution and may be used by recipient only in the performance of their
official duties. Its contents may not otherwise be disclosed without World Bank authorization.
Currency Equivalents
(as of December 2010)
Currency
1$US
= Congolese Franc (CF)
=
925 CF
System of Measurement
Metric System
Abbreviations and Acronyms
DRC
BDK
MPs
PPRD
MLC
MONUC
ICG
UDPS
AMP
NGO
CSO
SYNAMED
PALU
HIPC
SSR
IMF
EU
UN
Democratic Republic of Congo
Bundu Dia Kongo
Movement of the Liberation of Congo
UN mission in DRC
Non-governmental organization
Highly Indebted Poor Counties
Security Sector Reform
International Monetary Fund
European Union
United Nations
Vice President
Country Manager/Director
Sector Manger
Task Team Leader
=
=
=
=
Obiageli Katryn Ezekwesili
Marie Françoise Marie- Nelly
Jan Walliser
Johannes Herderschee
DEMOCRATIC REPUBLIC OF CONGO
HISTORICAL AND MACROECONOMIC CONTEXT
TABLE OF CONTENTS
ACKNOWLEDGMENT ................................................................................................................................... V
PREFACE
VI
CHAPTER 1:
I.
INSTITUTIONAL DYNAMICS ........................................................................................... 1
The Path towards the 2006 Constitution and its Main Institutional Features ................................. 2
A.
Towards the Origins of a Pluralist Political System: 1990-1997 ................................................ 2
B.
A Return To Personalization Of Rule And Descent Into Conflict: 1997-2001 ........................... 3
C.
The 2003 Interim Constitution .................................................................................................... 3
D.
The 2006 Constitution ................................................................................................................. 4
II.
System performance, checks, balances and mutual control ............................................................. 7
A.
Stability of the leadership in the executive .................................................................................. 7
B.
Legislative Output ....................................................................................................................... 9
C.
Implementation and the quality of public administration .......................................................... 13
D.
Upholding Laws and Decisions: Effectiveness of the Judiciary................................................ 17
E.
Conclusions: systemic performance, where does the shoe pinch? ............................................ 18
III.
Implementing key constitutional features: the decentralization process and illusionary
specificity ............................................................................................................................................... 19
A.
IV.
Illusionary specificity and political economy dynamics ........................................................... 22
Overall lessons: institution building in DRC and taking account of political economy factors 24
CHAPTER 2:
I.
MACROECONOMIC POLICY CONSTRAINTS ................................................................ 26
Sources of Recent Growth and Prospects for Future Growth ........................................................ 28
A.
Sources of growth by sector ...................................................................................................... 28
B.
Demand decomposition ............................................................................................................. 31
C.
Financing of growth .................................................................................................................. 38
D.
Growth accounting .................................................................................................................... 39
II.
DRC and the Natural Resource Curse ........................................................................................... 44
A.
Natural Wealth, Savings and Resource Rents ........................................................................... 44
B.
Using Mining Rents to Generate Growth .................................................................................. 49
III.
Macroeconomic Policies and Structural Reforms ..................................................................... 55
A.
War Economy (1996 – 2000) .................................................................................................... 55
B.
Liberalizing the Economy (2001-2005) .................................................................................... 56
C.
Democratic Transition with limited progress on economic reforms (2005-2008) .................... 59
D.
Financial crisis (2008-09) .......................................................................................................... 59
i
E.
IV.
Macroeconomic Stabilization and HIPC Completion Point (2009-10) ..................................... 61
CONCLUSION ......................................................................................................................... 61
CHAPTER 3:
63
I.
BINDING CONSTRAINTS TO GROWTH IN THE DEMOCRATIC REPUBLIC OF CONGO
Identifying the most binding constraints to growth: the HRV framework .................................... 64
A.
The HRV framework explained ................................................................................................ 64
B.
Benefits of applying the HRV framework to the DRC.............................................................. 65
C.
Limitations of applying the HRV framework to the DRC ........................................................ 66
II.
Context: growth collapse and postwar recovery ............................................................................ 67
A.
III.
Overview of the DRC's growth collapse ................................................................................... 67
The growth diagnostics applied ................................................................................................. 73
A.
National growth diagnostics ...................................................................................................... 73
B.
Kinshasa Province ..................................................................................................................... 80
C.
Katanga Province....................................................................................................................... 84
D.
The growth collapse................................................................................................................... 84
E.
Growth diagnostics .................................................................................................................... 85
F.
Bandundu Province ................................................................................................................... 88
G.
Province Orientale ..................................................................................................................... 92
IV.
Implications of the growth diagnostics on creating growth and alleviating poverty – a
perspective into a possible future ......................................................................................................... 100
ECONOMIC GROWTH AS AN INSTRUMENT FOR POVERTY
CHAPTER 4:
ALLEVIATION 104
I.
Inherited problems compromising social and economic progress ............................................... 105
A.
The considerable progress achieved in recent years ................................................................ 105
B.
Highly degraded social and economic conditions at all levels. ............................................... 105
C.
An array of problems specific to each province. ..................................................................... 107
II.
The country as a whole is impoverished ...................................................................................... 109
A.
Poverty is severe and affects the whole population. ................................................................ 109
B.
A multifaceted poverty problem .............................................................................................. 110
C.
Food insecurity remains a major issue for the entire population. ............................................ 111
III.
Population is facing difficult situations. .................................................................................. 113
A.
Work does not prevent poverty ............................................................................................... 113
B.
Poverty has different forms in different provinces .................................................................. 114
IV.
Population poverty is combined to a high vulnerability and uncertainty. ............................... 116
A.
Economic agents face multiple socio-economic risks ............................................................. 116
B.
Vulnerability and uncertainty at the core of poverty. .............................................................. 117
ii
C.
Instability and uncertainty reinforce the vicious cycle of poverty........................................... 118
V. Secure and stabilize social and economic environment to enable populations self protection in the
future .................................................................................................................................................... 120
A.
Restore the state authority to reassure actors........................................................................... 120
4.45.
Reinforce security in all its dimensions................................................................................... 120
B.
Stabilize the environment by giving agents the means to resists the risks. ............................. 121
C.
Allow the population to plan and capitalize for the future ...................................................... 122
D.
Support people to become the drivers of their life .................................................................. 123
VI.
Strong growth to alleviate poverty .......................................................................................... 125
A.
Alleviating poverty will require growth acceleration .............................................................. 125
B.
Agriculture, a key challenge to rebound growth and reduce poverty ...................................... 126
C.
Think global, act local ............................................................................................................. 128
D.
Different priorities per province. ............................................................................................. 130
REFERENCES ............................................................................................................................................ 139
BIBLIOGRAPHY ........................................................................................................................................ 142
List of Tables
Table 1.1: Office holders and period in office 2001-2010 ........................................................................... 8
Table 1.2: Laws and Decree-Laws ............................................................................................................. 10
Table 1.3: Number of decrees adopted and published ............................................................................... 11
Table 1.4: Number of ordonnances adopted and published ...................................................................... 11
Table 1.5: Coalitions in public service reform ........................................................................................... 16
Table 1.6: Administrative cases submitted at the ‘Cour Suprême de Justice’: treatment ratio ................. 17
Table 1.7: Civil cases: treatment ratio ....................................................................................................... 18
Table 1.8: Penal cases: treatment ratio....................................................................................................... 18
Table 1.9: Civil cases (‘Infractions de droit Commun’): Tribunal de Grande Instance............................. 18
Table 2.1: Subsector growth and contributions to GDP growth ................................................................ 31
Table 2.2 : Demand decomposition ........................................................................................................... 32
Table 2.3 : Export prices and volumes of significant products .................................................................. 37
Table 2.4 : Changes in prices and volumes of exports and imports ........................................................... 37
Table 2.5 : Growth accounting using the standard framework .................................................................. 40
Table 2.6 : Sources of economic growth (adjusting for human capital) .................................................... 42
Table 2.7 : Sources of economic growth (adjusting for quality of human and physical capital) ............... 42
Table 2.8 : DRC: Mineral and Petroleum Revenues in 2007..................................................................... 49
Table 2.9 : Mineral Revenues and Exports as share of GDP ..................................................................... 50
Table 2.10: Estimation of Mining Tax Collection Rate .............................................................................. 51
Table 2.11: Overall Ranking of Countries for Mining Investment ............................................................. 52
Table 3.1 : The collapse in mining and its impact ..................................................................................... 70
Table 3.2: Most severe constraint (2006)................................................................................................... 73
Table 4.1 : Measurements of poverty on a national scale and by area, 2004-2005 ................................. 110
Table 4.2 : Enrolment statistics of children by wealth quintile (%), DRC 2001 ..................................... 111
Table 4.3 : Changes in caloric and protein intake, DRC and Kinshasa, 1970-2000 ................................ 112
Table 4.4 : Measures of Poverty at national level and by province, 2004-2005 ...................................... 116
Table 4.5 : Priorities depending on high potential crops and agricultural growth poles.......................... 129
iii
List of Figures
Figure 1.1 : Illustrating regional differences in political allegiance .............................................. 5
Figure 2.1 : GDP and per capita GDP growth, 1960–2010 ......................................................... 26
Figure 2.2 : Post conflict recovery growth in perspective ........................................................... 27
Figure 2.3 : Contributions to growth by sector, 1996–2010 ........................................................ 28
Figure 2.4 : Evolution of sectoral composition of GDP, 2001–2010 .......................................... 29
Figure 2.5 : GDP and consumption growth ................................................................................. 33
Figure 2.6 : Public investments per capita in select fragile states in 2009 .................................. 34
Figure 2.7 : GDP and investment growth .................................................................................... 34
Figure 2.8 : The rate of return on foreign direct investment in DRC .......................................... 35
Figure 2.9 : Openness to Trade (exports plus imports as share of GDP), 1991–2010................. 36
Figure 2.10: Composition of exports and imports ........................................................................ 37
Figure 2.11: Capital flows, 1995–2010......................................................................................... 38
Figure 2.12: Gross national savings, investment and current account .......................................... 38
Figure 2.13: Countries with lowest per capita wealth................................................................... 45
Figure 2.14: Projected cobber, cobalt and oil production ............................................................. 46
Figure 2.15: DRC’s National Wealth............................................................................................ 47
Figure 2.16: Calculation of Genuine Savings ............................................................................... 47
Figure 2.17: Gross and Genuine Savings ...................................................................................... 48
Figure 2.18: Government Balance, Net Credit to the Government and Inflation ......................... 57
Figure 2.19: Terms of Trade, Exchange Rate and Official Reserves ........................................... 60
Figure 3.1 : The HRV (2005) growth diagnostics decision tree .................................................. 65
Figure 3.2 : Trends in per capita GDP ......................................................................................... 67
Figure 3.3 : Evolution of GDP and per capita GDP .................................................................... 69
Figure 3.4 : Gécamines production, copper, cobalt and zinc (index 1988=100) (left axis) and
export value/total exports (right axis) ........................................................................................... 69
Figure 3.5 : Recent growth evolution compared to SSA (Source: WDI, 2009) .......................... 72
Figure 3.6 : Interest rate and credit to the private sector ............................................................. 74
Figure 3.7 : diagrammatic map of the post-war transport system................................................ 76
Figure 3.8 : returns to education (Mincer) by province ............................................................... 77
Box 2.1 :
Box 2.2 :
Box 2.3 :
Box 2.4 :
Box 2.5 :
List of Boxes
Standard growth accounting framework .................................................................................... 41
Adjusting growth accounting framework for quality of labor and capital ................................. 43
Calculating DRC’s National Wealth .......................................................................................... 46
Calculating Genuine Savings ..................................................................................................... 47
Mining-for-Infrastructure – The Sino-Congolese Cooperation Agreement ............................... 53
List of Annexes
Annex 1: Legislative agenda for full application of the 2006 Constitution ............................................. 133
Annex 2: Political Economy Aspects of Selected Decentralization Reforms in the DRC....................... 136
Appendix
Appendix 1 ................................................................................................................................................ 138
iv
A C K NOW L E DG M E NT
v
PR E F A C E
vi
C H A PT E R 1:
I NST I T UT I ONA L DY NA M I C S
State re-building is a critical element of the development agenda of the DRC. Without a
minimally functional state it is hard to foresee how the country can bridge its
infrastructure gap, ensure effective investment in human capital and negotiate
effectively contracts with global firms engaged in mining, forestry and oil exploration.
Many of DRC’s development problems are a consequence of the absence of a
functioning state. Keefer (2010), in his political economy assessment, argues that this
in itself a result of the perceptions of the DRC’s political elite, which consider a strong
state to be a threat to their political survival rather than an asset in attempts to ensure
the economic and social development of the country. This conclusion may raise
controversy, as it is argued that the same elite has invested much political capital in
consolidating stabilization of the East. However, it illustrates the nature of the debate
on state building in the DRC: even the political will to construct an effective state is
questioned by analysts.
Thus, regardless of the fact that DRC has historically seen attempts by rulers to define
and implement a developmental agenda (Mobutu in the early 1970s, Joseph Kabila in
the context of the ‘cinq chantiers’ program), the implementation of these agendas has
time and again fallen foul of underlying concerns with security and regime survival
(see Keefer, 2010). This also explains the widespread perception that, regardless of
significant outside support and declared objectives, limited progress has been made on
re-establishing state structures. This has visible results in terms of still inadequate
security levels, limited progress on infrastructure development and crumbling public
service delivery systems. Even worse for the DRC’s population, a weak state also
provides ample opportunities for those that wish to exploit the natural riches of the
country for their own benefit, and is one of the reasons why the country only gets a
fraction of the revenue it should be getting out of national resource exploitation (World
Bank 2009). What should be done differently, both by the government and by its
partners, in order to bring improved results in state building, is therefore one of the
important questions to be addressed in this volume.
This paper reviews the various efforts, over the last 20 years, to create functioning
state institutions, initially primarily in the executive (1990-2001) and more recently
also in the legislature (2001-2010) and the judiciary. In recent years, since the entry
into force of the 2006 Constitution, a further dimension has been added to this, which
is the creation of elected sub-national institutions. The analysis is placed in the context
of Keefer’s analysis of the underlying disincentives to create strong institutions, as well
as the problems posed by a low level of elite coherence and absence of coalition
building, and the inability of citizens to demand accountability.
The period 1990-2010 has been selected as April 1990 marked the start of attempts to
pluralize the political system following more than 20 years of single party autocratic
rule. Thus the 1990-1997 and 2003-2006 periods present the appropriate frame of
reference for the post-election period (2007-2010) that used the institutional
1
framework of the 2006 Constitution, with the 1997-2002 period marked mainly by
disintegration and conflict.
This paper therefore first reviews briefly the pre-conflict period (1990-1997) in terms
of the institutional changes that it attempted to forge, which constituted the first
attempts to create a pluralist system of governance, attempts which finally broke down
as the DRC descended into conflict in 1997. It will also show the remaining
consequences of some of the features of the institutional system that marked this
specific period. Following this, it will analyze institutional patterns in the period from
2002-2010, which in itself breaks down in two distinct periods.
The main question posed here is whether current institutional arrangements, and the
way they are being used, are adequate in terms of mitigating risks of re-concentration
of power (as this would put into question the principles of power sharing on which the
2003 peace settlement was based) and, whether, at the same time, they create an
effective and expedient policy making processes and thus facilitate the management of
a complex reform agenda and stimulate long term shared growth. In this regard, the
ability of the DRC to establish a functioning investment climate and to develop the
human capital needed to create a competitive economy is of particular importance to
defining the economic future of the country.
In order the make this assessment, the chapter will both look at the extent to which
arrangements to create ‘shared power’ have worked and will assess institutional
activity and output during the post 2006 period in a comparative manner, looking at
progress in terms of the legislative agenda and performance of the judiciary in terms of
settling cases.
I.
A.
T H E P A T H T OW A R DS T H E 2006 C ONST I T UT I ON A ND I T S
M A I N I NST I T UT I ONA L F E A T UR E S
T owar ds the Or igins of a Plur alist Political System: 1990-1997
1.2.
The main features of the pre-1990 political system are well analyzed in the preceding
paper by Keefer. They comprised a dominant executive that operated a system based on rotation
and division, and through this created an increasingly feeble institutional system that was neither
able to maximize benefits from the DRC’s rich natural resource base, nor able to deliver public
service and, in the end, unable to provide security. As Keefer argues, the reason for this was
ensuring regime survival, as in the end a strong institutional system was in itself considered a
threat to the regime.
1.3.
The change of the international environment, in particular the end of the Cold War,
forced the Mobutu regimes into a change of course, as its survival was no longer guaranteed by
external forces. The 1990 process led to a constitutional revision (Law 90-002 of 5 July 1990)
which created the conditions for multi-partiism, recognized the separation of powers, the depoliticization of the public service as well as the freedom of assembly and independent trade
unions. This was followed by the ‘Conference Nationale’ (August 1991-December 1992), the
2
objective of which was to adopt a new Constitution. The Constitution was adopted by the
Conference Nationale on 4 August 1992 but never applied as Mobutu resisted many of its
aspects. Finally, a process of negotiations between Mobutu and the opposition led to the adoption
of a modified version of the Constitution of the Conference Nationale in the form of a
Transitional Constitutional Act.
1.4.
It should be noted that in this turbulent period the institutional system, feeble as it had
previously been, came to a virtual standstill and that for a period of time Mobutu reigned alone,
without a government and with Permanent Secretaries of the Ministries fulfilling the role of
acting Ministers. This created a situation which has repercussions until today: Permanent
Secretaries used the situation to push the adoption of the ‘Ordonnances 1993’, which gave them
the right to salaries at the level of 50% of those of the Ministers. While, like the Constitutional
Act of 1992, these Ordonnances were never published, nor applied in practice, they continue to
be invoked by public servants as a legal basis underpinning their reclamations for higher wages
and pensions.
B.
A R etur n T o Per sonalization Of R ule A nd Descent I nto C onflict: 1997-2001
1.5.
Following Mobutu’s expulsion in 1997, a period of concentration of power in the hands
of a single ruler returned, as Laurent Desiré Kabila took back control over the emerging
legislative and judicial branches of power. The period of civil war that followed saw the
temporary partition of the DRC, with the Eastern provinces cut off from the remainder of the
country and operating their own system of government. Like the period of rule-withoutgovernment under Mobutu, also this period has repercussions until today, as the provinces under
occupation recruited large numbers of public servants outside the legal framework, which the
main reason why the Eastern provinces in particular have a disproportionate number of
‘nouvelles unités’ in their public service systems. 1
1.6.
Thus, in conclusion, the attempts that were initiated in 1990 to break out of the vicious
circle of personalization of rule and weakening of institutions did not yield the expected results
in terms of stronger and more accountable institutions. This period also coincides with the
strongest economic decline that the DRC has known since independence as well as with
prolonged periods of war and civil conflict.
C.
T he 2003 I nter im C onstitution
1.7.
The 2003 interim Constitution was, much like the interim constitutional laws of 1990 and
1994, intended to be a step towards a pluralist system of governance, based on the principles of
separation of powers and checks and balances. It was also, like the transitional constitutional act
of 1994, the result of a negotiated settlement between various interested parties, but unlike its
precursor, the 2003 ‘temporary’ Constitution served to divide power between the main warring
factions, as part of the 1+4 arrangement. The 2003 settlement was effective in terms of appeasing
warring factions and preparing the road to the 2006 elections, but was also fraught with
1 Other provinces also have ‘nouvelles unités’ but not at the levels observed in the Eastern provinces
3
difficulties as suspicion between faction leaders led to an overly heavy system of mutual
controls, complicating progress on reforms. In particular, progress on legal texts that were
supposed to be adopted before the 2006 elections was not made, postponing several decisions on
critical institutional issues.
D.
T he 2006 C onstitution
1.8.
While the 2003 interim constitution served to preserve the delicate peace settlement by
creating an onerous set of checks and balances, the 2006 Constitution attempted to forge
permanent political stability, both by putting in place new checks and balances (President-Prime
Minister model replacing 1+4), by rebalancing power between central and sub-national
government, and by attempting to isolate critical constitutional provisions from the kind of
amendments that could drive a re-concentration of power.
1.9.
On the first point, the 2006 Constitution purposefully retains some of the rather onerous
checks and balances present in the 2003 interim Constitution, including a complex legislative
process built on largely equivalent powers of the lower and upper chamber of parliament.
1.10. The Constitution also introduces the position of Prime Minister, ostensibly as a way to
keep Presidential power in check. The fact that both President and Prime Minister derive their
authority from electoral processes (direct in the first case, indirect and based on the confidence of
the parliamentary majority in the second) makes the system a classical semi-Presidential model.
Furthermore, the Prime Minister, as per article 90 of the Constitution, leads the Government,
based on the Government program approved by parliament Thus, while significantly different
from the 1+4 arrangement under the 2003 interim Constitution, the President-Prime Minister
model serves a similar principle, which is to safeguard the institutional system from overconcentration of power. This in itself is a significant and positive feature. However, considering
the lessons drawn from the political economy analysis elsewhere in this volume, in particular the
complexities involved in reaching elite consensus in the DRC, these arrangements carry the risk
of imposing high cost in terms of the effectiveness and expediency of the policy process.
1.11. On the second point, the Constitution establishes a decentralized unitary state, which in
several of its aspects leans towards semi-federalism. The establishment of elected governments
at provincial level, the earmarking, in the Constitution, of domestic revenue allocation, and the
detailed provisions on competency allocations together provide powerful potential safeguards
against concentration of power. This is all the more important considering the fact that the
regional powerbase of the different political factions was different (see figure 1 below), and was
therefore an ingenious way of responding to a context of mutual elite distrust, while at the same
time reflecting the notion that the DRC, considering its size and its infrastructure, cannot be
effectively run as a centralized unitary state. However, as with the institutional provisions
discussed above, the risks posed by putting in place a potentially multi-polar policy management
system were also significant, as political decentralization could further complicate the ability of
the system to generate political consensus on key reforms, considering the features of the DRC’s
polity as discussed in Keefer (2010).
4
Figure 1.1 : Illustrating regional differences in political allegiance
1.12. Finally, a further intended safeguard against re-concentration of power was introduced:
the amendment of certain key provisions of the constitution was made illegal. These provisions
include the number of mandates a single president can serve, the republican form of government
and the principle of representative government and the division of powers between central,
provincial and local government. This was a further measure aimed at reinforcing confidence
between mutually suspicious elites as well as at inserting a sense of permanency in the
institutional system of the state.
1.13. While these particular elements of the Constitution constitute an appropriate response to a
context of low trust between elites and a shared fear of re-concentration of power, the weakness
of the Constitutional settlement lies in its combination of illusionary specificity and heaviness of
decision-making processes, which has created serious problems for consensus-building around
policies and reforms.
1.14. Illusionary specificity is a central feature of the constitutional settlement and consists of
crafting very precise and specific constitutional provisions, which in reality contain serious traps
and loopholes.
1.15. A first key example of illusionary specificity, and cause of several political crises over
the last 5 years, is the principle of the 60-40 division of domestic revenue between central and
provincial government, which is based on notions such as ‘retention at the source’ of domestic
revenue by provincial authorities. However, this deceivingly simple principle belies the technical
complexities of any revenue sharing system, and fails to take into account the real need for a
‘solidarity’ mechanism to ensure redistribution of parts of these funds, considering the vast
differences in economic development and the need for all provinces to provide primary and
secondary education, as well as basic health care. Further confusion then arises over the
5
provisions on a ‘caisse de péréquation’. While reference is made in the preamble to the
Constitution to the principle of solidarity, the ‘caisse de péréquation’, which one would assume
to be the instrument to achieving this, in reality is set up as an infrastructure investment fund and
not, as the title would seem to indicate, a fiscal redistribution facility.
1.16. A further example of the same is the mandatory administrative-territorial reform or
‘decoupage’, splitting the current 11 provinces into 26 within three years after the completion of
the institutions provided for under the constitution (with the Senate being the last institution to be
established end May 2007). While this is a further important measure to reduce risks of reconcentration of power and also would bring government closer to citizens, this provision also
provides an illusion of specificity. This time by setting a deadline, without taking into account
the complexity (and costliness) of a process of establishing 15 new provincial structures 2.
1.17. A final and most important element of illusionary specificity lies in the mandated
impossibility to change certain constitutional provisions: while this makes changing these
provisions potentially more costly from a political point of view, experience in other African
states provides ample evidence that such formal interdictions tend to be ignored, and that once
this happens, it discredits the whole constitutional set up.
1.18. It is important to highlight the context of this issue: while constitutionalism does not have
strong roots in Africa, and constitutions are often a front for an entirely different political and
institutional practice, they are an important feature in DRC politics. This is especially so if
constitutional provisions relate to issues that constitute general fault lines in DRC politics, e.g.
on the issue of decentralization the political class of the country is split in unitarists and
federalists. Thus the way constitution frames central-provincial relations was always likely to
become an issue of controversy, especially when provisions are framed in a way to provide
illusionary certainty on solutions.
1.19. As far as heaviness of procedures is concerned, apart from the risks of tension inherent
in any President-Prime Minister model, especially when this is based on a fragmented political
party system, and the ensuring risks of delays in decision-making, the DRC’s system also
provides for a multi-chamber parliament (though obviously appropriate considering the
decentralized context), in which both houses have largely equivalent powers. In this context, the
DRC shows some striking similarities with, for instance, the institutional systems of Romania
and Italy, neither of which are known for their expediency and stability. The procedures
(establishment of a ‘Commission Paritaire’) created to resolve differences of view between the
two houses are also similar to the provisions used in these two European states, where
historically this has led to protracted delays in decision making and legislative stalemate.
1.20. The risk entailed by heavy processes and procedures becomes all the more apparent
considering the huge legislative agenda set out by the Constitution itself. A table summarizing
the key texts to be adopted for the new Constitution to be fully operations is summarized in
2 Of the current 11 provinces 6 would be split in 21 provinces (thus creating 15 new provinces), while the other five
will remain in their current borders.
6
Annex 1 to this chapter, and includes some 96 legal texts to be adopted in the first three years
following the entry into force of the Constitution.
1.21. The remainder of this chapter will address two issues: system performance and
decentralization. As said in the introduction, mitigating the risk of re-concentration of power and
building a minimum of trust between the different political factions in the DRC was a critical
objective of the Constitution drafting process. The solutions brought out in the 2006
Constitution, such as strong checks and balances, decentralization and attempting to shield
critical provisions, will only provide lasting results if they can be made to produce results. Thus,
a check on where the DRC is on the implementation of these principles, 4 years after their
introduction, what is their impact on system performance and how to move forward from here is
a critical element of the assessment of the country’s overall economic management system.
II.
A.
S Y ST E M
PE R F OR M A NC E , C H E C K S , B A L A NC E S A ND M UT UA L C ONT R OL
Stability of the leader ship in the executive
1.22. Stability of the executive is one important factor determining the effectiveness of any
given policy management system. While in some countries (such as Belgium and Italy)
instability of the executive matters less (as the administration continues to work), in general high
turnover levels in government have a negative impact on government effectiveness. Table 1
below reviews relative periods in office of key office holders in the DRC, comparing the period
2001-2006 to the period starting after the 2006 elections. It also compares periods in office of
Governors. However, the interpretation of periods in office of provincial governors should take
into account that Governors were appointed in the 2001-2006 period and elected from 2007
onwards. The post 2007 system makes Governors more vulnerable as they are potentially subject
to removal by provincial assemblies as well as by the central government.
7
Table 1.1: Office holders and period in office 2001-2010 3
Entity
2001-06
2007-10
Number of quarters spent as Minister/Governor/Agency Head
Cross Cutting Ministries
Ministry of Finance
4.8
Ministry of Interior & Security
7.7
Ministry of Defense
4.8
Ministry of Civil Service
6.0
Line Ministries
Ministry of Agriculture
3.8
Ministry of Infrastructure
4.8
Ministry of Health
4.8
Ministry of Education
3.0
Minitry of Mining
3.9
Ministry of Energy
4.0
Other National Agencies
Prime Minister
Army
SOEs
Provincial Governors
Bandundu
4.5
Bas Congo
14.8
Equateur
10.0
Kasai Occidentale
6.6
Kasai Orientale
7.9
Katanga
7.7
Kinshasa
4.3
Maniema
6.9
Nord Kivu
25.8
Province Orientale
4.2
Sud Kivu
2.4
12.2
6.0
6.0
4.0
6.0
12.0
6.0
12.0
12.0
4.0
12.2
12.2
10.7
8.2
12.2
12.2
12.2
12.2
12.2
9.3
4.5
1.23. Based on the data provided the level of stability in the leadership of key institutions in the
DRC has improved since the adoption of the new Constitution. The average period in office of a
sample of cross-cutting and sector ministers has increased, with some office holders holding out
for a full three year period between February 2007 and March 2010, regardless of two
intermediate reshuffles. The number of ministerial posts for whom the period in office increased
is more than twice the number of those for whom the period in office decreased (public service
3 The Ministries listed have changed names on several occasions over the last 20 years, but the numbers provided in
the table are based on which was the Ministry to hold the main prerogatives in the sector in question
8
and interior/security being the two exceptions). A relatively similar pattern remains following the
March 2010 reshuffle.
1.24. At the level of provincial governors, the majority of governors are likely to serve out their
full term, with three notable exceptions, Sud-Kivu (by far the most unstable province in terms of
governance), Equateur and Kasai Occidental. This is a significant change as compared to the pre2006 Constitution period, when governors were changed much more frequently.
1.25. Regarding the stability of governors, while Keefer (2010) makes the point on
manipulations of their election (though vote buying), which would make them more vulnerable
to political removal instigated by the central government, it is important to note that where
governors were able to deliver economic improvement and/or public services, their resulting
popularity has insulated them to some degree from this trend. As an example, the Governor of
Equateur managed to stay in office for more than three years even though he was politically
opposed to the presidential majority. It is equally hard to envision that the Governor of Katanga
could be removed easily considering his strong support base in the province.
1.26. Political stability at the level of leadership had an added importance in the DRC
considering the nature of its public service system. Most policy is made (and arguably
implemented) by political cabinets and ad hoc task forces and Commissions, with the general
public service playing a marginal role. Any change of minister usually leads to the emergence of
a ‘tabula rasa’ in terms of policy, as cabinets and (often) staff of ad hoc task forces change with
ministers. Thus, stability at the level of Minister will logically correlate positively with
consistency in policy and, though less directly, stability in policy implementation. For the latter
to occur, progress on civil service reform will need to be achieved, a point to be discussed in the
next section below.
1.27. The new Constitutional set up does appear to have created more stability at the level of
political leadership, though some exceptions remain. This is interesting in particular considering
that, like the 2003-2006 government, the current government is also a (fragile) coalition
government, even though there are obvious and important differences between the 1+4
arrangement and the current semi-Presidential system, as discussed above. Stability in leadership
(read Ministers) is particularly important in coalition contexts: effective coalition management is,
to a large degree, about building trust, and, for the rest, about having effective structures and
procedures to forge consensus.
B.
L egislative Output
1.28. The above review of critical institutional features of the 2006 Constitution highlights
some key performance risks inherent in the system, especially considering the large legislative
agenda and the nature of the texts to be adopted. Four years after the installation of the first
government and the first parliament under the new Constitution, it is possible to compare the
‘productivity’ of these institutions in terms of legislative performance. ‘Legislative output’ in the
DRC comes in several forms; legislation (loi ordinaire and loi organique), decree-laws (decretsloi), ordonnances and (at provincial level) edits. The following tables compare ‘output’ levels
over time using the period of 1990 – June 2010 as the sample period. Only those legal acts that
are officially published (and can therefore be traced) were considered.
9
Table 1.2: Laws and Decree-Laws
Year
Number
Year
Number
1990
11
2001
4
1991
16
2002
21
1992
2
2003
11
1993
1
2004
33
2005
20
1994
1995
7
2006
21 4
1996
21
2007
15
1997
3
2008
14
1998
12
2009
11
1999
12
2010
11
2000
4
1.29. In summary, the number of primary legal instruments adopted was 61 in the period from
1990-1997, 56 in the period 1997-2002, 85 in the period 2003-2006 and 51 in the period 20072010. An analysis of the type of decisions adopted during the different periods shows that in
terms of weight the laws and decree-laws adopted in the 2003-2006 period include a large
number of critical and complex texts, even though the 2006 number is skewed as a result of the
unusually large number of Treaty adhesions and ratifications. Even taking this into account, the
volume of legislation adopted in the 2007-2010 pales in comparison, in particular considering the
number of 64 (Mukadi Bonyi et al.) legal texts that were to be adopted to make the new
constitutional system fully operational.
1.30. Tables 3 and 4 summarize the number of decrees and ordonnances adopted by the
executive. For this category of legal texts, data are not available for the years 1990-1997. This
includes only decrees that were published officially, even though the numbering of the decrees in
the official journal indicates that there is a large number of unpublished decrees. 5 Similarly, table
4 also only contains ordonnances that were published officially, though also in this case it is
clear that there is a large number of unpublished ordonnances.
4 This number includes the Constitution and an additional 11 decisions authorizing ratification of international treaty
instruments
5 It should be noted that Official Journal publications were regular up to 1990, but irregular during the period 19901997
10
Year
Table 1.3: Number of decrees adopted and published
Number
Year
Number
1990
2001
2
1991
2002
1
1992
2003
4
1993
2004
1
1994
2005
47
1995
2006
29
1996
2007
5
1
1997
15
2008
1998
9
2009
1999
2
2010
2000
Year
Table 1.4: Number of ordonnances adopted and published
Number
Year
Number
1990
1
2001
1991
1
2002
1992
2003
1993
2004
1994
2005
1995
2006
1
1996
2007
27
1997
2008
32
1998
2009
5
1999
2010
29
2000
1.31. The shift to the use of ordonnances instead of decrees in the 2007-2010 period is
explained by the nature of semi-presidential government, in which decisions adopted by the
collective of government are preferred over the use of executive decrees.
1.32. From the time when publication of decrees and ordonnances became a more established
practice (though many still remain unpublished), the total number of such decisions is relatively
stable, except for the years 2005, which had an exceptionally large number of published decrees
(in part due to a large number of public appointments made in that year) and 2009, which had an
exceptionally small number of adopted ordonnances, and no published decrees. The large
number of ordonnances adopted in the first 6 months of 2010 is explained by a batch of
ordonnances related to the retirement of specific groups of public officials.
11
1.33. Finally, when reviewing the output of provincial assemblies, for which there is obviously
no comparison possible, as they were first established in 2007, a sample of provincial assembly
output shows that these are generally limited to 3-4 edits per year in addition to the mandatory
decision on the adoption of the provincial budget.
1.34. From a purely quantitative point of view, the above data has some important limitations:
It can only assess published output and thus necessarily underplays output during the years of
conflict as well as under the latter years of the Mobutu regime, under which published decrees
and ordonnances were an exception rather than the rule. However, we work under the
assumption that those pieces of legislation and decisions that were critical for economic
management and had an impact on entrepreneurs would by their own nature have been among
the published texts.
1.35. Finally, while it is difficult to make a qualitative assessment of the volume of legal acts
adopted over the last 20 years, an inventory of its substance matter makes it clear that in terms of
relevance and importance to economic management there is little difference between legislation
adopted in the first half of the 2000-2010 decade and legislation adopted in the latter half of the
decade. More importantly, a lot of the legal basis adopted in 2002-2006 (such as the Mining
Code and other critical economic legislation) still constitutes the basis for the DRC’s economic
management system, even though its application and implementation has experienced delays, in
part due to bureaucratic inertia and in part due to resistance by vested interests (Kaiser et al.,
forthcoming).
1.36. Considering legislative output therefore, there appears to be a particularly significant
slowdown in the volume of legislation adopted by Parliament, with governmental legal output
being relatively stable. Obviously the level of parliamentary output is determined at least in part
by the submission of draft laws by Government, but a review of pending legislation at the level
of parliament shows that there is a clear decrease in speed of adoption of legal texts both before
and after the submission of drafts by Government to Parliament.
1.37. While acknowledging the limitations to the data available to the authors, the comparison
between constitutional periods shows that the ability of the institutional system to generate and
reach conclusions on critical legislative texts appears to have declined significantly since the
adoption of the next Constitution, with output comparable only to periods of serious instability
such as 1992-1995 and 1997-2001.
1.38. The combination of more stability in political leadership and declining output (in the
context of a heavy legislative agenda prescribed by the Constitution and required to ensure better
management of the country’s natural resource endowment) could point to two different types of
problems. One would be the absence of political will to implement the constitutional and reform
agenda/an absence of strategic direction. The second one would be problems in the policy
management process that prevent political decisions from being made. The latter could comprise
weak Center of Government institution and ineffective decision management procedures, or
relate to ineffective coalition management.
1.39. Referring back to the paper by Keefer (2010), ineffective coalition management is
certainly one part of the explanation for low output levels, especially considering the nature of
12
the DRC’s polity and its inability to forge credible commitments between key actors. In such a
context, even with more stable government membership, getting to shared decisions remains
extremely difficult.
1.40. However, various studies conducted over the last 3 years also point out the very weak
capacity and systems in place at the Prime Minister’s Office as a key source of weak output. A
case in point is the fact that during the last 6 months of 2010, the Council of Ministers was
convened only twice, with a very large number of laws and policy documents stuck in an ever
more clogged pipeline. An added problem are lengthy and cumbersome parliamentary processes,
that cause further delays in policy adoption once the first hurdle of government approval is
passed.
1.41. Three critical examples where reforms that were broadly agreed as necessary (though
certainly not without contestation from part of the elite) but suffered significant delays that
resulted from institutional practices include the Procurement Code, the Public Finance Law and
the OHADA treaty adherence. The first case in particular (which almost derailed HIPC debt
relief) is one that shown parliamentary procedural delays at its worst. The second case is one
where internal government procedural delays have combined with heavy parliamentary
procedures to cause delays for over one year, and this is after political opposition to the Law had
been largely overcome. OHADA adherence is a case where political divisions combined with
procedural issues to cause long delays, negatively affecting the business climate.
1.42. Finally, the decline in effectiveness of the policy management system is due to a vicious
circle of low levels of trust in the elite leading to the introduction of increasingly heavy checks
and balances in the decision-making system, which subsequently slows down decision-making to
a trickle and lead to a further decrease of trust between political actors. Add to this mix the
weakness of Center of Government (COG) institutions, in particular the Prime Minister’s Office,
and the results of the comparative review of legislative output should not come as a surprise.
C.
I mplementation and the quality of public administr ation
1.43. The 2006 Constitution includes some important innovations with regard to the public
service system, which is one of the Achilles’ heels of the DRCs institutional system: the public
service system does not provide adequate quality public services and, as a result of the
‘debrouillez vous’ mentality, is also a negative factor in determining the quality of the business
climate.
1.44. In terms of the 2006 Constitution, the split of the public service in a central, provincial
and local public service, each with its own management system, is of particular importance.
Putting public service institutions under those institutions that are accountable, at each level, for
service delivery, can only have a positive impact on what had become a frozen and outdated
system, which weighs heavily on public expenditure.
1.45. The serious issues affecting the performance of the public service in the DRC are well
documented (World Bank 2008, 2010) and include an outdated legal statute, the lack of clarity
on the actual number of staff employed, an over-aged public service and an opaque and
inequitable wage system.
13
1.46. All these issues have been subject to reform attempts; legislation has been drafted and is
pending approval by government, a public service census was initiated in 2005, but remains to be
completed, a public service retirement process was initiated in 2005, but was abandoned and a
first step of wage system reform was made in 2007, but has failed to see follow up.
1.47. The reason why this particular part of the reform process is critical goes beyond fiscal
and legal issues, and even beyond the quality of public services. The DRC has a public service
system that largely works in isolation from the political sphere and has, during the years of
conflict, become a system within a system. This is one of the reasons why implementation so
often does not follow policy decisions, and why often administrations act in open defiance of
adopted government policies and rules. The kind of uncertainty this creates for both citizens and
investors is highly detrimental for economic activity. Thus, the creation of a functioning
administration is important not only in fiscal terms (considering the importance of personnel cost
in public expenditure) and for better delivering basic services, but equally for creating a
functioning policy environment for businesses and investors.
Legal Framework
1.48. Reform of public service legislation is complicated in any country, often subject to fierce
contestation by trade unions and seen as a no-win issue by politicians. However, in most
instances this resistance arises from an unwillingness to reduce acquired rights or a low level of
acceptance of new management principles, such as performance management etc.. In the DRC,
however, the outmoded legal framework has created an opaque situation which has generated
various forms of formal and informal public service employment, in particular the ‘nouvelles
unités’, staff that have no legal status, but still serve as office holders and obtain benefits from
their illicit employment (World Bank, 2010). 6 In addition, the multiple amendments of
legislation and in particular the multiple ‘statuts spécifiques’ have effectively destroyed the idea
of a unified administration and created a system, in which most ministers manage as they see fit.
However, without the issue of the legal framework being addressed, it is difficult to see how
sustainable progress on other aspects of the reform agenda could be made.
1.49. The design of a new legal framework was launched as early as 2005, with the assistance
of the Belgian Cooperation and UNDP. However, the work was left incomplete before the 2006
elections, and was picked up only after the change of government in 2007. Technical work on
legislation has continued, with both the Organic Law on the Public Service and the different
‘Statuts’ having been finalized and validated. However, while the drafts have been ready since
late 2009, no discussion at the Council of Ministers on these laws has as yet been scheduled.
Census
6 While the issue of nouvelles unités is complex, there are several types of such staff. A large portion of such staff is
found in the Eastern provinces and consists of staff recruited during the occupation by rebel forces, but never
recognized by Kinshasa. Another portion, in particular among teachers, are staff that have taken over positions from
staff that died or left positions, again without being recognized by the authorities. Some of these staff have been in
this situation for over 15 years.
14
1.50. The public service census, which is a precondition for Human Resource Management
reforms and aims to establish the real number of public service staff, has been ongoing since
2005 as well. While the history of the census is complex and it is not possible to discuss it in
detail here, a combination of logistical challenges, funding shortages, 7 disagreements in
government and challenges by ‘nouvelles unités’ and politicians that protect them have
combined to make this a 5-year effort, for which no end is as yet in sight.
The retirement process
1.51. The retirement process is a further key precondition for public service reform. Some 60
percent of current civil servants have passed the mandatory retirement age, which is 55 (though
this is likely to be increased to 65 under new public service legislation, once this enters into
effect). An earlier attempt to retire staff that have passed the mandatory retirement age, initiated
in 2005, failed to deliver results, as a consequence of political unwillingness to move forward
(funds provided were diverted to other uses) and a lack of clarity on some key legal aspects of
the process, notably the definition of benefit entitlements (World Bank, 2010).
1.52. The retirement process was re-launched in 2008 at the initiative of the Minister of
Environment, who moved to address the retirement issue in his own ministry with external
assistance. This was followed by an initiative by the Minister of Public Service to retire most
secretaries-general in 2009. The retirement process is currently the main area of reform where
progress appears possible: the legal obstacles that blocked the process in 2005 have been
removed by the adoption of a series of decrees in May 2010 and an overall government
agreement on a gradual sector-by-sector approach (starting with decentralized sectors) has also
been reached. The retirement process could even kick-start the census process, as staff
identification is an integral element of the process, and the methodology tested by the Ministry of
Environment, including biometric identification, might constitute an acceptable compromise to
the different parties that have thus far contested the census process.
1.53. Yet, a number of risks remain, regardless of the relative consensus on this issue and the
advanced level of preparation of this element of reform. Many public servants do not want to
retire, fearing that pension payments, if made at all, will provide much less than the necessary
cost of living and also dreading the loss of status. The election context may make it difficult for
government to move ahead with the retirement process. A further risk is politically motivated
replacement of staff, which would bring little if any qualitative difference to the public service
system. Finally, this will be a long term process that could take 6-7 years to complete due to
resource and other constraints, and thus entails risks of political reversal.
Wage system reform
1.54. The final key aspect of this element of the reform agenda is wage system reform. While a
first step in rationalizing the wage system was introduced in 2007, bringing base pay proportion
of total pay from 5 percent to approximately 40-55 percent, depending on grade and other
7 Funding was provided by the South African Development Cooperation Agency, but did not cover the full cost of
the exercise.
15
bonuses received, the reform process has stalled since. This is due to the fact that the next stage
of the process will involve addressing the problem of ‘primes spécifiques’ or specific bonuses,
which for some officials can constitute two to three times their normal pay (even though the law
limits the amount to be obtained from primes spécifiques to 60 percent of pay), and these
bonuses are paid primarily in the Ministries of Finance and Budget and in other ministries to the
most senior officials. It is difficult to envision an appetite for reforming this system in the very
ministries which it benefits the most. Finally, a further problem related to the ‘primes
spécifiques’ is that they are often contingent on fee and revenue collection rates and carry a
strong risk of leading to ‘shake downs’ or harassment of entrepreneurs.
1.55. Considering the fact that wages constitute over 40 percent of public expenditure, it is
essential that these funds are used in the most effective way. Currently the wage bill is both
thinly spread and unequally divided, benefiting few ministries, and the system of bonuses carries
a high risk of distortive use. Much of the explanation of the weak progress on this element of
institutional reforms arises from political economy factors, though in the case of public service
reform this coincides less with overall fault lines in the political class and more with clashes of
specific interests. Table 5 below details some of these contradictory interests.
Issue/Opponentsproponents
Legal and
strategic
framework
Table 1.5: Coalitions in public service reform
Key opponents
Key proponents
Balance
a. Sector ministries (currently
relatively free to do as they see
fit)
b. Nouvelles Unités and political
patrons (interest in retaining
current status)
Scope for rapid adoption
limited as legislation is
likely to stall
Risk of key provisions
being watered down in
government
Census
a. SECOPE: loss of autonomy
and income
b. Nouvelles Unités and their
political patrons (loss of
position)
b. Some political parties (passing
the buck to the provinces and
derailing decentralization)
Retirement
a. Trade Unions and public
servants (fear of non payment of
indemnities and pensions)
b. Some service delivery
ministries (replacement issues)
Wage reform
a. officials in financial ministries
and revenue collection agencies
(beneficiaries of bonuses)
b. Nouvelles unites and political
patrons (loss of income base)
a. Ministry of Public service
(regaining authority)
b. provincial governors
(interest in clarification of
legal status before staff
transfer)
c. trade unions, if benefits for
civil servants improve
a. Ministry of Public Service
(regaining authority)
b. Financial Ministries (budget
transparency) and allies
among other Ministers
c. Provincial governors
(interest in clarity before
transfer)
a. Coalition of sector
ministers, financial ministers
and public service minister
(program delivery and budget
flexibility)
b. provincial governors:
likelihood of possibility to
recruit
a. spending ministries (have
few if any bonuses)
b. public service ministry
16
Delicately poised but no
decisive coalition that
can unblock the current
stalemate, unless
financial ministers get
actively involved and/or
the issue gets coupled
with the retirement
process
Reasonable likelihood of
progress as long as the
political coalition around
this issue holds and it
does not get fully caught
up in the electoral
process
Might succeed under
current ministers of
Finance and Budget and
if combined with the
retirement process
1.56. The above table illustrates the complexity of building coalitions in favor of public service
reform, with some strong and powerful forces firmly opposed to key aspects of the process. It
highlights, as said, the fact that these coalitions vary, and while it is clear that building a coalition
on all elements of the reform process simultaneously appears to be virtually impossible, some
success would be feasible if the right issue is picked to start with and coalitions that could bring
support are carefully nurtured.
D.
Upholding L aws and Decisions: E ffectiveness of the J udiciar y
1.57. A final critical element of institutional performance, with a particularly strong impact on
the business climate, is the reliability and quality of judicial performance. Similarly to other
aspects of the DRC’s institutional system, the 2006 Constitution introduces a number of
important elements of reform in the judicial system. These include, for instance, safeguards to
judicial independence. As on other issues, the application of the Constitutional principles
critically depends on the adoption of legislation, on which, as in other areas, there have been
significant delays. In the meantime, the judiciary suffers from growing performance issues, as
highlighted by the below review of delays in the treatment of cases.
Table 1.6: Administrative cases submitted at the ‘Cour Suprême de Justice’: treatment ratio
Number of cases filed Number
of
cases Pending cases (percent)
(percent)
resolved (percent)
12/01/2000 au
22/12/2005
272
100
68
25
204
75
28/12/2005 to
08/10/2009
203
100
25
12.3
178
87.7
23/10/2009 to
11/11/2010
141
100
02
1.4
139
98.6
Total
616
100
95
15.4
521
84.6
Dates
1.58. In terms of administrative justice cases filed at the Supreme Court of Justice, there has
been an increase in number of cases filed (under 4 cases per month in the period 2000-2005,
more than 4 cases per month in the period 2005-2009), and a decrease in number of cases
resolved. In 2000-2005 25 percent of cases were resolved, while in the period 2005-2009 this
dropped to 12.3 percent.
1.59. Tables 7 and 8 below provide similar data for civil and penal cases and show a similar
pattern.
17
Table 1.7: Civil cases: treatment ratio
Number of cases filed
Number of cases
(percent)
resolved (percent)
Dates
05/01/1990 to
24/09/2003
28/01/2004 to
26/10/2010
Total
Pending cases (percent)
1317
100
560
42.5
757
57.5
679
1996
100
100
26
586
3.8
29.4
653
1410
96.2
70.6
886
67.6
Table 1.8: Penal cases: treatment ratio
Dates
02/01/2000 to
29/11/2010
1311
100
425
32.4
1.60. A final indication of judicial performance is provided by the below data on the treatment
of cases handled by the tribunal de Grande Instance de Kinshasa-Matete, which deals with
common law cases.
Table 1.9: Civil cases (‘Infractions de droit Commun’): Tribunal de Grande Instance
Number of cases filed Number of cases
Pending cases (percent)
(percent)
resolved (percent)
1st instance
3.275
100
2.485
75.9
790
24.1%
2nd instance
1833
100
1.728
94.3
105
5.7%
Appeal
45
100
39
86.7
6
13.3%
RCDJ
377
100
365
96.8
12
3.2%
1.61. While issues of judicial performance are common to many Sub-Saharan African states,
the pending case ratio for the DRC is particularly high (e.g. Tanzania has an average 22 percent
pending case ratio against the DRC’s 70+ percent), and, more worryingly, is increasing rapidly.
At the same time, attempts to address judicial performance through the reform of the system
appear to be firmly stuck, as very few of the legal texts underpinning this important reform area
have reached parliament.
E.
C onclusions: systemic per for mance, wher e does the shoe pinch?
1.62. The above review of the state of implementation of key aspects of institutional reform, in
the context of the implementation of the 2006 Constitution, paints a rather bleak picture of
limited progress on implementing institutional reforms and weakening results in terms of
outputs. The main institutional features of the system and its multiple checks and balances have
combined with the political economy dynamics reviewed by Keefer (2010) to slow down output
in terms of policies and legislation to a trickle. Implementation of decisions is hindered by a
faltering public service system and a weakening judicial system.
1.63. While the appropriateness of the institutional mechanisms put in place by the
Constitution is not in doubt, ways need to be sought to enhance the effectiveness of the decisionmaking system in the executive, in particular by strengthening both the Prime Minister’s Office
18
and the General Secretariat of Government. If serious progress is not made on this issuethe
country faces a rapidly growing backlog of critical legislation and policy, in particular if one
takes into account the likelihood of continued coalition government.
1.64. Increasing the effectiveness of parliamentary procedures is a further essential piece of the
puzzle, though the constitutional provisions that give virtual equality to the two houses will
continue to cause slow legislative output.
1.65. In terms of implementation, the challenges of introducing public service and judicial
reform are well known, but both are essential to improving public service quality and business
climate. While political economy dynamics, such as low levels of trust between elites,
marginalization of citizens (voters) and low level of ability to forge compromise in the public
interest, can only change slowly, and this may take a generation, addressing institutional
constraints that aggravate political economy dynamics can be done provided there is political
will. It is, therefore, essential that this political will be generated and motivated, and that
pragmatic and workable solutions to addressing both upstream and downstream institutions risks
be identified.
III.
I M PL E M E NT I NG K E Y
C ONST I T UT I ONA L F E A T UR E S : T H E DE C E NT R A L I ZA T I ON PR OC E SS
A ND I L L USI ONA R Y SPE C I F I C I T Y
1.66. The state structure of the DRC as enshrined in the 2006 Constitution foresees a strongly
devolved system of government, with autonomous provinces that have both broad authority and
responsibility. This was one key element of attempts to gain buy in from mutually distrusting
political forces for the new institutional system and to prevent a re-concentration of power.
1.67. While the Constitution foresees a decentralized unitary state rather than a federal system,
this is a large step removed from the historical pattern on intergovernmental management
(Mutamba Dibwe, 2009), which comes from a centralized tradition, without provincial or local
accountability, apart from the position of traditional chiefs.
1.68. Four years after the start of the decentralization process, several important steps forward
have been taken: the creation of functioning elected systems of provincial government and the
adoption of the principal pieces of legislation setting out the rights and obligations of provincial
and local governments. However, this alone is insufficient to create a functioning system of
intergovernmental management, and four key issues remain to be addressed, even after four years
of often heated political and social debate. 8 This concerns:
• Making operational the constitutional provision on revenue sharing
• The transfer of competencies and staff in decentralized sectors
• Territorial-Administrative reform or the ‘decoupage’
• The creation of elected local (sub-provincial) authorities
8 Annex 2 presents a broader analysis of issues and options
19
1.69. Of the four above issues, the first three relate directly to the notion of illusionary
specificity which characterizes many key aspects of the 2006 constitution.
The issue of revenue sharing
1.70. As regards the first issue, the Constitution mandates that 40 percent of domestic revenue
be allocated to the provinces and levied ‘at the source’. The interpretation of this provision has
created heated political debate; the ‘at the source’ element in particular has been subject to
various interpretations: e.g. for export and import duties, does this relate to the location of
collection or the location of production/usage? In order to arrive at a satisfactory interpretation of
this provision and to ensure the fiscal viability of all provinces, considering the functions
assigned to them, studies were conducted to test the impact of different possible interpretation of
this constitutional provision (see World Bank/European Commission, 2008a and 2008b). A
solidarity based formulate was agreed during the National Forum on Decentralization, held in
October 2007, but has as yet not been fully applied, even though the principles underlying the
formula are enshrined in the draft Public Finance Law.
1.71. The lack of application of the formula has generated serious political strife between
provincial governors and central government ministers, effectively preventing the development
of constructive dialogue on developmental issues and hindering the implementation of key
policies, including on infrastructure development. Available fora for debate on this issue, such as
the ‘Conference des Gouverneurs’, which according to Law would meet twice per year, have not
been used. This provides an illustration of the general features of the DRC’s polity as discussed
in the previous section: the low degree of elite cohesion and the inability of political actors to
have public interest prevail over private interest.
1.72. The non-resolution of this particular issue has important consequences for both the
business environment and the infrastructure development program in the DRC. Provincial
governments, deprived of what they consider to be their constitutional entitlement to revenue,
have started levying additional local taxes and fees, putting additional burden on private
operators. Only after a series of complaints by entrepreneurs and an aborted intervention by the
Minister of Economy, a temporary classification mechanism on local taxes and fees was adopted
following intensive consultations between the Prime Minister and the Governors, which lasted
for almost two weeks. In many ways this was an unnecessary conflict, as a fully developed draft
legal basis, which had the consent of the provinces, had been available since August 2010, but
remained pending Council of Ministers approval.
1.73. A further element of the development agenda that has suffered from the non-resolution of
the fiscal decentralization problems is the implementation of the infrastructure program. Central
and provincial authorities have so far failed to agree on a common strategy, and central
government has been spending resources that should have been attributed to the provinces ‘pour
le compte des provinces’ since the 2009 budget, without a clear underlying plan. The ineffective
use of funds 9 that has resulted from this has a clear negative impact on the quality of the
country’s infrastructure development program.
9 In particular the purchase of tractors, bridges and ferries without making a prior assessment of where and how
20
Competency transfers
1.74. A second key issue that remains unresolved to date is the transfer of competencies and
staff in decentralized sectors. Primary and Secondary Education, Health, Agriculture and Rural
Development are defined as decentralized sectors in the Constitution, implying that the
management of service delivery is the responsibility of the provinces and local governments,
while setting standards remains at national level. This principle has also been enshrined in the
Laws on Provincial and Local Self Government, adopted in 2008.
1.75. As of end 2010, no competencies have been transferred, though interim regulations on
public service management, applied since mid-2009, have effectively placed provincially based
staff under the authority of respective provincial ministers. However, without a clear and
definite legal framework and an explicit decision on transfer of authority, accountability remains
fragmented and provincial authorities have limited remedies to address service delivery
constraints. The issue is obviously linked to the previous one, as without a definitive settlement
of the fiscal intergovernmental system it is hard to see how provinces and local authorities will
ensure the provision of these services.
1.76. The impact of the non-resolution on economic development mostly relates to human
capital constraints: fragmented authority and accountability on staffing issues have fueled
allegations and recriminations on the misuse of wage bill funds (which make up more than 40
percent of expenditure) and while the extent of wage bill fraud cannot be definitively established,
its negative impact on the provision of public services is clear.
‘Decoupage’
1.77. Administrative territorial reform, or ‘decoupage’, is a further unresolved issue. The
Constitution provides for the split of the current 11 provinces into 26 within three years of the
establishment of the political institutions. As the last institution put in place was the Senate in
May 2007, this effectively means a split of provinces by May 2010. This has clearly not
happened. An impact assessment (political, fiscal and administrative) on the ‘Decoupage’ was
conducted at the request of the Minister of Decentralization in 2009, leading to the publication of
an in-depth analytical report (World Bank, 2010), which highlights the serious risks inherent in a
premature implementation of this constitutional provision. The report concludes that; i) the new
constellation proposed by the Constitution may have serious repercussions in terms of fueling
ethnic tensions in certain regions; ii) of the 21 new provinces 10 to be created, only 4 would be
potentially fiscally self-sufficient; iii) the creation of new provinces would require a massive
investment in administrative infrastructure, for which no funds are available.
1.78. While implementing the ‘decoupage’ is clearly not realistic under current conditions,
there is not yet any formal decision by the Government or Parliament to postpone the process,
arguably because this may require a constitutional revision. The uncertainty that results is
damaging in terms of the credibility of provincial authorities and has also given rise to a certain
these would be deployed
10 21 provinces to be created based on 6 existing provinces, while 5 others would remain in their current set up
21
degree of reluctance to investment in provincial infrastructure if the future of certain current
capital cities (e.g. Bandundu Ville) is uncertain. Finally, some of the future provinces that
dispose of natural resources (e.g. Ituri) have started claiming provincial status based on the
passage of the deadline set by the constitution, risking further incidences of political strife. Thus,
while there is a clear need for a decision on this issue, there is at this point no indication when
and in what form this will come.
Creating of elected sub-provincial authorities
1.79. While the Constitution and the Law on Local Self-Government (2008) provide for the
creation of elected authorities at self-governing level (the level of sectors, chefferies, villes and
communes), local elections have been repeatedly postponed and are likely to be pushed beyond
2012 at this point. While (valid) logistical and financial reasons have been given for the repeated
postponement of local elections, the absence of functioning local governments is a serious
hindrance to the implementation of any bottom-up economic development strategies.
Development partners such as UNDP and Belgium have made available significant resources for
locally driven economic development initiatives, but these have often faltered as a result of a
lack of functioning local government. A USAID funded assessment of the capacity and
performance of local governments confirms this risk (USAID, 2010).
A.
I llusionar y specificity and political economy dynamics
1.80. As highlighted in the introduction to this section, there are a number of objective reasons
why a decentralized system of governance is appropriate and potentially beneficial for the DRC;
considering geographical, historical, infrastructure and economic development factors the
institution of a decentralized unitary state, as mandated by the Constitution, was a logical choice.
Yet, even though there are obvious political and economic benefits to the creation of a
functioning system of decentralized governance, Government has appeared unable to create
some of the essential conditions for such as system to function, resulting in the existence of
politically accountable provincial governments without the required resources and competencies.
This not only reduces the credibility of the new governance modalities in the DRC, it also, as
argued above, has a negative impact on the business climate, the quality of public service
delivery and the implementation of infrastructure development, and pre-empts the
implementation of effective local economic development strategies.
1.81. The explanation for the sub-optimal results of the decentralization process lies both in
political economy and design (illusionary specificity) factors, and the two are closely
intertwined.
1.82. First, referring to Keefer (2010), the limited ability of citizens to engage in collective
action, in this case in favor of creating local and provincial level accountable governments and
the resulting lack of a bottom-up push for decentralization is a (minor) factor: political dynamics
and interests around the decentralization agenda are such that even a bottom-up push for progress
is hard to envision.
1.83. Second, the lack of coherence of the DRC’s polity has been a major factor in explaining
the issues that have affected the implementation of a decentralization approach. As explained in
22
detailed in Mutamba Dibwe’s analysis (2008), political fault lines in the governing coalition
coincide with a long standing underlying political fault line in the DRC; i.e. the debate between
federalist and unitarists that dates back to the initial years of independence. Since the formation
of the Gizenga government in 2007, the political balance has swung back and forth between the
proponents and opponents of decentralization, without either side being able to push the debate
decisively in one direction.
1.84. The Head of State, who has the potential to turn this debate in one of the directions, has
opted to remain outside it, except for two notable interventions to diffuse mounting tensions. 11
This, together with the inability of Governors to act effectively as an interest group to promote
collective interests, largely explains the enduring stalemate on this critical issue. Therefore,
while politicians of any faction acknowledge the inevitability and importance of creating a
functioning system of intergovernmental management, thus far none of the critical issues around
the decentralization debate (as highlighted above) has been resolved in final instance. Hence, the
decentralization process has become a typical example of the general difficulties in getting
politicians to act collectively in what is clearly in the common interest.
1.85. Finally, the difficulties in moving forward with the decentralization process are also an
issue of design and the issue of illusionary specificity that affects the decentralization provisions
in particular. Considering the general difficulties of reaching agreement on critical issues in DRC
politics, the expectation that provincial and local authorities would start to function automatically
and resources would be allocated (even not considering the serious technical difficulties in
defining a new system of intergovernmental fiscal relations) and competencies transferred, was
unrealistic.
1.86. If one adds the issue of prevailing private interests, both at political and public service
level, in maintaining an often profitable status quo (see Verhaghe, 2007) around the public
service employment and wage system, the arrangements were doomed to fail in the way they
were crafted. In this context, the fact that so much progress has still been made in creating
functioning provincial authorities becomes an achievement in itself.
1.87. Creating a functioning system of intergovernmental management remains a critical
element of the institutional reform agenda, and a critical condition for success of the
government’s economic and social development program. The lessons drawn from four years of
efforts to create such as system are that better design and more coalition building efforts around
the issue are critical if a move beyond the current situation is to be possible. While much has
been achieved in terms of creating functioning provincial governments, it is difficult to see how
to move beyond the current (unsatisfactory) situation if political economy constraints are not
addressed.
11 The first one in September 2007, when discussions between governors and central government over the 40
percent issue was giving rise to secessionist rhetoric, the second one during the first (and only) ‘Conference des
Gouverneurs’ in June 2009, when a temporary compromise between central government and provincial
governments was brokered.
23
IV.
OV E R AL L
L E SSONS : I NST I T UT I ON B UI L DI NG I N DR C A ND T A K I NG A C C OUNT OF
POL I T I C A L E C ONOM Y F A C T OR S
1.88. The above analysis illustrates the complications inherent in creating a functioning
institutional system in a context characterized by mutual distrust between competing political
factions and political economy constraints. The institutional system and arrangements put in
place served above all to keep all political factions on board, following a protracted period of
conflict, and in particular to address the perceived risks inherent in re-concentrating power. This
paper does not address the extent to which the constitution succeeded in the latter (though the
Keefer paper (2010) draws a negative assessment on this issue), but rather reviews the impact of
these features on the effectiveness of the current institutional set up, in particular its ability to
facilitate the implementation of a comprehensive reform agenda.
1.89. The conclusion drawn from this assessment is that the current institutional set up suffers
from two ‘design flaws’.
1.90. The first is the complexity of its checks and balances, both within the executive, between
the executive and the legislature and within the legislature. While ostensibly put in place to
respond to the mutual distrust of different political forces, these features, combined with the
political economy dynamic discussed in Keefer (2010), have had a serious negative impact on
the ability of the system to generate critical legislation and policy and get them adopted.
1.91. The same factor also affects the ability of the system to implement policy (deliver
services and maintain a healthy business environment) and uphold decisions, as progress on
administrative reform and judicial reform has proven difficult to achieve. Again this is due to a
combination of the political economy factors discussed in Keefer’s paper and the difficulty of
getting reforms adopted through the current policy management.
1.92. In terms of mitigating impact, options are limited. Political economy dynamics are
unlikely to change rapidly and a deep constitutional change would open a Pandora’s box (though
more limited modifications might be an option). Mitigating measures that are possible lie in a
serious overhaul of Center of Government institutions, in particular the Prime Minister’s Office
and the General Secretariat of Government, a review of decision-making procedures in
government (reducing the multiple approval processes now in place), and a simplification of
parliamentary procedures, with greater reliance on committee structures. Even with these
measures, decision-making is likely to remain cumbersome and realism in terms of expectations
on reforms should be exercised.
1.93. The second problem lies in the way the Constitution has sought to enforce key elements
of the pacification strategy. This is best illustrated by the case of the decentralization process,
which was analyzed in the second part of this paper. The decentralization process, while
generally agreed to be the best guarantee of keeping the DRC together and to guarantee
economic development, has suffered from what we call ‘illusionary specificity’; an approach to
design that appears to prescribe in detail key aspects of the intergovernmental system, but in
reality raises more questions than answers. The result of this feature is a growing disillusionment
with decentralization as (unrealistic) expectations are not met. If this gets translated into a
slowdown or even roll back of the process, this could eliminate one of the key pillars on which
24
both the post-conflict settlement and the institutional system were built, which could lead to
some political factions withdrawing their support from the system. As the DRC is still three
years away from meeting Collier’s 10 year test, this would pose serious risks of renewed
instability.
1.94. While some technical solutions are available to mitigate the consequences of the first
design issue, this is much more difficult for the second one; the only real solution lies in
addressing the features of illusionary specificity and broker solutions on the design of the
intergovernmental fiscal system, the administrative territorial structure and ensuring the actual
transfer of competencies. Only this will restore credibility on this critical element of
constitutional design.
1.95. The above conclusions set out an important institutional reform agenda, on which the
different political forces in the DRC need to reflect: without addressing these underlying
institutional problems it is unlikely that the 2011-2016 Presidential mandate will see better
progress on legislative and policy agendas than the previous period, nor improve service
delivery. However, if the pre-election period is used to evaluate the experience of the first
mandate under the new Constitution and address some of the issues raised here, the chances of
consolidation of peace and improved stability remain very strong, and the country would defy
some of the more somber predictions of the political economy assessment.
25
C H A PT E R 2:
M A C R OE C ONOM I C POL I C Y C ONST R A I NT S 12
The Democratic Republic of Congo (DRC) grew strongly in the last decade with
average real growth rate of 4.8 percent per year. 13 Although sizeable—especially given
the country’s dismal economic performance for previous decades—the growth in per
capita terms was around 1.8 percent per year (see Figue 1). 14 The economy turned
around after the revival of the peace process in 2001, which allowed the international
community to re-engage with the DRC. Inflows of foreign assistance resumed. The
government, with help from the international community, introduced economic reforms
to stabilize the economy. It removed price and exchange rate controls and ended the
vicious cycle of monetization of the government budget deficit, hyperinflation, and
currency depreciation. Inflation fell from over 500 percent in 2000 to 135 percent in
2001 and 16 percent in 2002. 15 In 2002, for the first time in more than a decade, the
economy expanded. The stabilization of the economy and the resumption of growth
helped strengthen the political effort toward a peace agreement. A power sharing
agreement was signed in 2002, a transition government was formed in 2003, and in
2006 the first democratic election in more than 60 years was held.
Figure 2.1 : GDP and per capita GDP growth, 1960–2010
25
20
15
10
5
0
-5
-10
-15
-20
GDP per capita growth (annual %)
GDP growth (annual %)
12 The authors would like to thank Eduardo Ley, Eric Bell, Giovanni Ruta, Glenn-Marie Lange, Jos Verbeek, Kirk
Hamilton, Lopamudra Chakraborti, Remi Pelon and Shiho Nagaki for very useful suggestions and comments on
earlier drafts of sections of this paper.
13This average real GDP growth rate is based on the IMF’s WEO data and includes 2010.
14 Average real GDP growth rate and per capita GDP growth rate are both based on the IMF’s WEO which has
more recent data, including data points for 2010. Figure 1 is based on World Bank’s WDI which has longer
historical data—going back to 1960—than WEO which goes back to 1980. For consistency, wherever possible, we
will use IMF data in this paper.
15 Based on the end of period percentage change in consumer price index (source: WEO).
26
However, there have been setbacks. Implementation of economic reforms slowed in
2005 as the authorities shifted their focus to the election. An increase in bank financing
of the budget rekindled inflation, which was 21 percent in 2005. The exchange rate
depreciated by 20 percent against the US dollar in the same year. However, strong real
GDP growth was maintained at 5–6 percent due to continued recovery in the private
sector. Then a sharp decline in world commodity prices in the wake of the financial
crisis slowed economic activity in 2009, while the escalation of conflict in the eastern
provinces led to higher security spending. Increased government borrowing from the
central bank led to more inflation and further depreciation of the exchange rate.
Figure 2.2 : Post conflict recovery growth in perspective
(per capita GDP growth in selective post-conflict countries)
1990-2000
-1.7
Angola
-4.0
Sierra Leone
7.4
-0.1
Ethiopia
5.5
2.2
Mozambique
1.3
Rwanda
Congo, Dem. Rep.
9.9
-8.6
1.7
5.5
4.7
2001-08
End of civil war in 2002
End of civil war in 2001
End of border conflict in
End of civil war in 1992
End of civil war/ genocide
(1990-94)
End of "second Congo
war" in 2003
Source: WDI and authors’ calculations.
Today, DRC is at the crossroads. As the country prepares for the next election late in
2011 or early 2012, political and security tension may make it difficult for the
government to implement tight macroeconomic policies. The economic situation is still
fragile and maintaining momentum for economic stabilization and reform is a
challenge. Can the government strengthen the macroeconomic management, prevent the
repeated cycles of policy slippage and tightening, and restore and strengthen
confidence of the private sector to begin investing in the future prosperity of the
country?
This note seeks to help the government and the international community thinks
strategically about the DRC’s future sources of growth and priorities for reform to
maintain growth in the medium-term. It analyzes the factors which underlay the
country’s growth in the recent past and highlights priorities for policy in the future.
Specifically, the note is organized as follows: Section I analyzes the DRC’s sources of
growth from demand and supply sides, using the method of growth accounting. Section
II analyzes whether the current use of natural resource rents is compatible with a
sustainable development path. Section III discusses macro policies and structural
27
reforms that have been implemented since 2001 and identifies further steps that could
be taken in order to ease the binding constraints on realizing the DRC’s growth
potential. Section IV concludes.
I.
A.
S OUR C E S OF R E C E NT G R OW T H A ND P R OSPE C T S F OR F UT UR E G R OW T H
Sour ces of gr owth by sector
2.1.
Growth in the first half of the decade was mainly driven by mining and construction,
while in the second half of the decade strong expansion of agriculture and services—especially
wholesale and retail trade—contributed most to growth. Figure 3.3Error! Reference source not
found. summarizes the contribution to growth of main sectors of the economy. Below, we
review factors behind growth in each of the main sectors and their prospects for future growth.
Figure 2.3 : Contributions to growth by sector, 1996–2010
1996-2000
2001-05
Agriculture -65%
13%
Transport & Comm.
Trade & Commerce
Public administration
12%
2%
3%
1%
24%
-18%
11%
18%
-3%
40%
16%
-12%
10%
5%
-3%
Other services
Total GDP growth
32%
-18%
Construction
Wholesale & Retail
24%
2%
Mining
Industry
2006-10
6%
0%
4%
0%
1%
­3.9%
-6%
4.0%
5.3%
(period average)
Source: IMF and authors’ calculations.
Agriculture
2.2.
The DRC’s economy is still largely agricultural, and most of its people are subsistence
farmers. Agriculture contributes around 40% of GDP and less than 2.5% of recorded exports, but
employs more than 60% of the labor force.
2.3.
Agriculture production collapsed during the civil war due to extreme violence,
widespread looting, and a large displacement of population. However, the sector had been on a
long period of stagnation since the independence in 1960 under the policy of “Zairianisation”
starting in 1973 and accelerating economic mismanagement thereafter. Agricultural output started
to recover in 2002 as producers and traders started to benefit from the return of peace in most of
the country and improvements in transportation. Between 2006–2010, the sector grew at an
28
average of 3 percent per year and accounted for about a quarter of total GDP growth (see Error!
Reference source not found.).
2.4.
Agriculture has a large potential to contribute to growth and poverty reduction in the
DRC but its potential is dwarfed by its many development challenges. The country has vast,
fertile land (about the size of Western Europe) but only a fraction of its land is cultivated. Unlike
in some other African countries, water is not a problem in the DRC. The country has regular and
abundant rainfall and, with the Congo River and its many major tributaries, enough surface water
to allow a diversified production of food crops and industrial cultures (coffee, cocoa, tea, palm
oil, cotton, etc). The barriers to raising productivity in the DRC include infrastructure to bring
crops to the market, availability of technical assistance and finance, access to information, and
availability and productivity of labor. Chapter X of the CEM is devoted to analyzing the
opportunities and constraints in agriculture.
Figure 2.4 : Evolution of sectoral composition of GDP, 2001–2010
100%
80%
60%
40%
20%
0%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Agriculture
Mining
Construction
Industry
Services
Source: IMF and authors’ calculations.
Mining
2.5.
Mining has been a pillar of DRC’s economy since the colonial times, and still accounts
for around 80% of export earnings. Since the early 1990s, industrial production of minerals has
declined substantially as a result of the civil war and mismanagement of state-owned enterprises.
Since 2001, new investment in the sector has boosted mining output. The sector grew at an
average of 11 percent per year in the first half of the decade, explaining around a third of the total
GDP growth for the period, and 5 percent per year in the second half of the decade, explaining
about 12 percent of the total GDP growth for the period (see Error! Reference source not
found.). Looking ahead, after the difficult conditions experienced in 2009, the sector is set to
recover strongly—at estimated 7.5 percent growth in 2010 and between 2011–2015 at an average
11 percent per year.
29
2.6.
The challenge is to transform the resource revenues into physical and human capital as
bases for sustainable growth in the medium to long run. While DRC has vast natural resource
wealth—among the largest reserves in Sub-Saharan Africa—it is also the largest country in Africa
in areas and third largest in population (see Section II of this chapter). Given its enormous size
and needs after 60 years of economic mismanagement and neglect, the resource revenues need to
be invested carefully and efficiently. In this regard, weakness in the state’s fiscal capacity—e.g.,
limited tax collection from mining, lack of transparency in handling contracts, and inability to
protect public priority spending in infrastructure—is an important constraint for growth, which
will be discussed more in detail in the following section.
Construction
2.7.
The construction sector has benefited hugely from donor-funded reconstruction projects.
In the first half of the decade, the sector grew at an average of 18 percent per year and accounted
for about a quarter of total GDP growth, and in the second half of the decade, it grew around 5
percent per year and accounted for 11 percent of total GDP growth.
2.8.
Looking ahead, the construction sector is expected to grow strongly and remain an
important driver of overall economic growth in the DRC. Public infrastructure projects financed
by China are expected to come on-stream in 2010-11. Chapter X in the CEM focuses on potential
growth contributions and constraints of the construction sector in detail.
Industry
2.9.
Non-construction industry (mostly manufacturing) accounts for less than 4 percent of
GDP, down from 7 percent in 1990. Most manufacturing is food processing, but there is also
some production of steel, textiles, chemical products, and construction materials. During the early
1990s and especially during the civil war, manufacturers suffered from looting of the capital.
Many lost everything and could not get insurance compensation, and so are cautious of exposing
themselves again. 16 Not surprisingly, manufacturing has not yet attracted significant new
investment since 2001, although there has been some limited recovery.
Services
2.10. Services account for about a third of recorded GDP and could be bigger—since much of
the economic activity in the service sector is said to be unrecorded (see Chapter X on the
expansion of informal sector and labor market constraints). The sector is dominated by wholesale
and retail followed by trade and communications (see Table 1).
2.11. The sector expanded rapidly in the first half of the decade—growing at an average rate of
5 percent per year and explaining about 40 percent of the total GDP growth—but it grew even
faster in the second half of the decade—at 8 percent per year and explaining around 50 percent of
total GDP growth—twice as much contribution to growth than the mining and construction
sectors combined (see Figure 3).
16 EIU 2008.
30
Table 2.1: Subsector growth and contributions to GDP growth
Services: Sub-sector shares
Sub-sector
1996-2000
2001-05
2006-10
Wholesale and retail trade
18.0
18.0
20.7
Transportation and communications
2.9
4.6
6.0
Trade and commerce
7.0
5.8
5.2
Public administration
2.7
2.0
0.8
Other services
-1.2
-0.2
-1.0
Total Services
29.4
30.2
33.3
Services: Sub-sector growth
Sub-sector
1996–2000
2001-05
2006-10
Wholesale and retail trade
-3.6
4.0
10.0
Transportation and communications
-2.5
15.6
8.5
Trade and commerce
-6.6
3.8
5.2
Public administration
0.9
0.5
-1.0
Other services
-6.6
-72.7
41.1
Total Services
-4.1
5.2
7.6
Services: Sub-sectoral contribution to growth
Sub-sector
1996-2000
2001-05
2006-10
Wholesale and retail trade
-0.7
0.7
2.0
Transportation and communications
-0.1
0.6
0.5
Trade and commerce
-0.5
0.2
0.3
Public administration
-0.1
-1.4E-02
-1.9E-02
Other services
0.2
2.0E-02
-0.3
Total Services
-4.1
5.2
7.6
Note: Subsector contributions to growth are calculated as subsector growth times subsector shares. Subsector periodaverages may not add up to the total sector average due to within-period volatilities.
Source: IMF and authors’ calculations
2.12. The key challenges for maintaining strong growth in the sector would be “getting the
economic fundamentals right” (McKinsey Global Institute, 2010)—improving security, political
and macroeconomic stability, and avoiding resurgence of inflation and currency instability—thus
providing predictable business environment for the private sector, both domestic and foreign, to
increase their investment in the future. Chapter X in the CEM will explore the urban sector
development as the potential driver of growth and employment.
B.
Demand decomposition
2.13. Consumption was an important force behind the economic growth in the last decade.
Government and private investments also grew strongly but from a very low base. Exports and
imports both grew strongly, but because of higher import demand for intermediate goods in
mining and construction projects, despite favorable terms of trade, net exports have been negative
and failed so far to contribute positively to growth. Figure 4 summarizes the growth contribution
31
of key components of aggregate demand. Below, we review growth in the main components of
aggregate demand in some detail.
Table 2.2 : Demand decomposition
(period average unless otherwise noted)
Growth rates (%)
Shares of GDP (%)
1996-2000
2001-05
2006-10
1996-2000
2001-05
2006-10
GDP
-0.5
3.2
5.7
100
100
100
Consumption
1.4
3.0
5.9
91
90
92
o/w Private
0.4
2.8
6.0
85
82
85
o/w Government
-65.7
23.0
39.2
6
8
7
Investments
-6.9
19.1
6.3
4
7
7
o/w Private
18.7
7.1
1.1
3
6
5
o/w Government 1/
-65.7
23.0
39.2
1
1
2
Exports
12.0
-11.0
2.4
18
12
8
Imports
30.2
-12.6
4.5
14
6
5
Source: IMF and author's calculations.
1/ Reported growth rates are median instead of average over the period. Series are highly volatile and averages are
uninformative due to extreme values.
Consumption
2.14. Consumption accounts for 95 percent of aggregate demand. Not surprisingly, therefore,
what happens to consumption largely explains what happened to GDP growth (Figure 4).
2.15. Private consumption accounts for 85 percent aggregate demand, and recovered strongly
especially in both the first and the second half of the decade (Table 2). The recovery in
consumption was explained by greater supply of consumer goods as well as higher demand for
consumer goods by the population. On the supply side, the end of armed conflict allowed the rural
population to increase food production as well as improved product delivery and transportation.
On the demand side, increased employment in construction, mining (especially in the artisanal
mining sector) and services, and higher wages in the public sector led to greater demand for
consumer goods. There are no reliable data on employment in the DRC, and much of the
economic activities in artisanal mining and services are unrecorded. 17 Most salaried workers are
said to be in the public sector.
17 EIU (2008).
32
Figure 2.5 : GDP and consumption growth
(in annual % change, 1991–2010)
30
20
10
0
-10
-20
Civil war
Real GDP
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-30
Consumption
Source: IMF and authors’ calculations.
Government
2.16. Higher revenues and a renewal of the DRC’s access to external financing allowed the
government to increase its consumption and investment spending.
2.17. Government consumption accounted for 16.3 percent of GDP in 2009—much higher than
its investment share in GDP at 9.6 percent of GDP (IMF 2010 Article IV, Table 2b). The public
sector pay has been rising since 2002—although from a lower base unchanged for decades—and
rising much faster than inflation and costing larger and large share of government spending: from
1.7 percent of GDP in 2002, 5 percent in 2006, to 6.3 percent in 2009.
2.18. Government investment has risen from 1.0 percent of GDP in 2002, 3.6 percent of GDP
in 2008, before increasing to 9.6 percent of GDP in 2009. Still, the level of public investments is
extremely low even by the standard of other fragile states (Figure 5). At 9.6 percent of real GDP
in 2009, public investment in DRC corresponds to around $28 per capita in constant PPP
dollars—near the bottom of public investment spending in other fragile states.
2.19. As mentioned earlier, beginning in 2010-11, public investment is expected to grow
strongly with Chinese investment coming on-stream and with the help of full external debt relief
under the HIPIC initiative. There are risks that planned increase in capital spending may not be
fully achieved, including weak state fiscal control, disruptions to project implementation due to
the election or remaining insecurity in parts of the country. Chapter X discusses government fiscal
management in detail.
33
Figure 2.6 : Public investments per capita in select fragile states in 2009
(in PPP 2005 dollar)
800
600
400
200
0
Source: IMF, WDI. and authors’ calculations.
Investment
2.20. Improvements in political and macroeconomic situation helped private investment
recover strongly, especially in the first half of the decade, although its share in GDP remains
fairly small (see Table 3). Most private investments are FDI, most of which has been directed into
mining, although future FDI is said to be expected in telecoms, construction, forestry, and to a
lesser extent, manufacturing. 18
2.21. FDI returns—albeit through a rough estimate—are high given the high risk in the country
compared to other countries in the region, but appear to have declined since 2005 as
macroeconomic stability began to deteriorate (see Figure 2.8). Chapter X in the CEM will
investigate further the business environment for private investments.
Figure 2.7 : GDP and investment growth
(in annual % change, 1991–2010)
80
60
40
20
0
-20
Source: IMF.
18 EIU (2008).
34
Gross fixed capital formation
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Real GDP
2000
1999
1998
1997
1996
Civil war
1995
1994
1993
1992
1991
-40
Figure 2.8 : The rate of return on foreign direct investment in DRC
Annual
2-year average
80
70
60
50
40
30
20
10
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2009
2010
Source: IMF.
60
50
40
30
20
10
0
2003
2004
2005
2006
2007
2008
Source: IMF, UNCTAD and authors’ calculations
Exports and imports
2.22. External trade has expanded rapidly since 2001, from about 40 percent of GDP to 120
percent of GDP by the end of the decade (Figure 9). The country’s most important exports are
currently copper, cobalt, and oil. Timber and other forestry products are the main component of
“other exports” in official statistics. Production and exports of forestry products are systematically
under-reported in the official statistics, however, and could be significantly higher.
35
Figure 2.9 : Openness to Trade (exports plus imports as share of GDP), 1991–2010
160
140
120
Importso f
goods and
services
100
80
60
40
2010
2009
2008
2007
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
2006
Exports of
goods and
services
20
Source: IMF and authors’ calculations.
2.23. Capital goods needed for private investment (e.g., mining) and donor-funded public
infrastructure investment have been the main component of steady increases in imports over the
past decade (Figure 10).
2.24. The current account deficit has grown sharply despite the favorable changes in terms of
trade (see Table 2.4). However, a deficit of this size could be considered a good sign for the
country’s economic recovery despite the rising cost of its financing: it is largely the result of
rising imports of capital goods which will increase the country’s productive capacity and growth
in both real GDP and exports. 19
2.25. Over 80 percent of recorded foreign trade is with developed countries. Belgium, the
former colonial power, is still the largest export market, but its share of exports is declining. The
US has been the DRC’s second-largest export market, because of its purchases of crude oil, but it
was overtaken by China in 2006 due to the latter’s growing purchases of copper and cobalt (EIU
2007). South Africa has established itself as the DRC’s main source of imports, which include a
wide range of capital, manufactured, and consumer goods, followed by Belgium and France.
19 IMF (2010).
36
Figure 2.10: Composition of exports and imports
Composition of exports
100%
80%
Other exports
60%
Coffee
Crude oil
40%
Diamonds
20%
Cobalt
Copper
0%
2005 2006 2007 2008 2009 2010
Source: IMF and authors’ calculations.
Table 2.3 : Export prices and volumes of significant products
Price changes (%)
2006-2010
2001-2005
2006-2010
11.9
20.4
6.5
11.6
17.6
22.0
12.5
14.3
23.4
19.0
25.0
29.2
14.4
34.6
8.0
18.7
Exports
Minerals Exports a/
o/w Cobalt
Volume changes (%)
2001-2005
b/
o/w Copper b/
o/w Crude oil
16.0
17.5
2.2
Source: IMF. Note: a/ Missing value in the volume change in 2001. b/ Volume changes for the period
are medians instead of averages to avoid influence of extreme values.
Table 2.4 : Changes in prices and volumes of exports and imports
Changes in terms of trade
Price changes
1997-2000
2001-2005
2006-2010
Exports
0.0
9.8
20.4
Imports
-5.2
4.1
3.1
Terms of Trade 1/
-4.7
6.6
15.6
Changes in volumes of trade
Quantity changes
1997-2000
2001-2005
2006-2010
Exports
-13.7
6.5
11.6
Imports
-0.5
24.8
20.7
Terms of Trade 1/
Source: IMF
-4.7
6.6
15.6
37
-1.1
C.
F inancing of gr owth
External capital flows
2.26. Official flows are still the most important foreign capital inflows in the DRC. In addition
to FDI, official flows are expected to increase further, after the full debt relief under the HIPC, to
fill the domestic savings and investment gap for rebuilding the country’s economic base.
2.27. There are no data on remittances, although they could be an important source of income
and consumption finance for households as well as the main sources of investment finance for
small domestic firms (see discussion below in the domestic banking sector).
Figure 2.11: Capital flows, 1995–2010
US$mn
2,500
2,000
FDI (net)
Portfolio (net)
US$mn
2,500
Other investment flows (net)
Official flows*
2,000
1,500
1,500
1,000
1,000
500
500
0
0
-500
-500
-1,000
-1,000
Source: IMF and authors’ calculations.
Figure 2.12: Gross national savings, investment and current account
(in % of GDP)
25
20
15
10
5
0
-5
-10
-15
-20
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Gross Investment
Gross national savings
Source: IMF and authors’ calculations.
38
Current Account, incl. grants
Domestic banking sector
2.28. The banking sector in the DRC is small even relative to low income SSA countries. The
total assets of the banking sector accounted for about 10 percent of GDP and 75 percent of total
financial sector assets. There are fifteen banks operating in the country, of which x are partially
state owned. The rest are totally or majority foreign-owned. State-owned banks account for x
percent of the banking sector assets. 20
2.29. The banking sector is highly dollarized, and most bank loans and deposits are
denominated in foreign currency (75 percent and 87 percent, respectively), mostly US dollars.
This is because of the history of hyperinflation: businesses prefer foreign currencies for settling
large transactions and individuals prefer foreign currencies for savings. The history of
hyperinflation also affects banks’ funding sources. The main source of funding is deposits in
foreign currencies, mostly short-term. Local currency deposits are 99 percent short term.
2.30. Banks extend very little credit to the private sector. In 2006 less than 3 percent of GDP
was loaned to the private sector, compared to the average 12 percent in the low-income SSA
countries. Most loans made to the private sector are short-term—either for working capital,
overdrafts, or letters of credit—possibly due to the funding structure of the banks. Loans are
concentrated on a small client base, including international or top-tier local companies especially
in mining and trade, the public sector, and wealthy individuals. Other businesses are left to
finance their operations and investments from their own revenues or from the informal financial
sector.
2.31. However, there are some signs of change. In 2005, a bank started operating specializing
in servicing small and medium-size enterprises. Other banks are also beginning to show an
interest in retail banking offering deposit accounts with lower minimum balance. Microfinance
institutions are growing in number and scale. In 2005, reports from 28 institutions showed their
total deposits and loans increasing by 50 percent (IMF 2007). Microfinance institutions mainly
support trade-related activities in urban areas; about 60 percent of their clients are women.
D.
G r owth accounting
2.32. Application of the growth accounting framework to the DRC for data in 1995–2010
shows that improved economic and political stability since 2001 was reflected in strong
improvement in productivity estimated by the Total Factor Productivity (TFP). The
decomposition of the TFP indicates that the improvement in productivity can be in part explained
by improvements in quality of human and physical capital—estimated by the higher expected
education attainment per population cohorts, lower adult mortality rates, and lower rates of capital
depletion. Below, we explain the methodology and discuss finding in some detail.
20 [check the latest figures]
39
Standard growth accounting
2.33. Growth accounting is a technique to analyze the sources of growth in a country or a
group of countries. Based on a neoclassical production function, the technique decomposes long
run growth in output into three possible sources: growth in labor, growth in capital, and changes
in total factor productivity (TFP). TFP captures that part of output growth which cannot be
explained by changes in labor or capital, and as such, it is interpreted as a measure of the
productivity. Technology and efficiency improvements are regarded as two of the chief reasons
why TFP changes over time. However, because TFP is a residual concept, it encompasses many
other factors that influence output growth but may not be well captured by changes in measured
quantity of labor and capital inputs, so care must be taken when interpreting the changes in TFP
as “productivity improvements”. Box 1 explains the framework.
2.34. Application of the growth accounting framework to the DRC for data in 1995–2010
shows that there has been a large improvements in TFP—explaining between 50–70 percent of
total growth—although factor accumulation (rebuilding of capital and increase in labor force)
played a relatively more important role in the latter half of the decade (Table 5).
Table 2.5 : Growth accounting using the standard framework
(in percent)
1992-95
1996-2000
2001-05
2006-10
-6.8
-3.9
4.3
5.3
1.5
0.5
1.7
2.6
Labor
3.9
2.4
2.8
3.0
Capital
-2.0
-2.4
0.0
2.0
-8.3
-4.4
2.6
2.7
Real GDP growth
Factor accumulation
Total factor productivity
Source: IMF and authors’ calculations.
Note: See Box 1 and 2 for methodologies and assumptions.
40
Box 2.1 : Standard growth accounting framework
The standard growth accounting framework is based on Cobb-Douglas production function, which
relates changes in output to changes in labor, capital, and total factor productivity (TFP):
Y = A LαKβ
eq (1)
y = a + l + β k
where Y is real GDP, A is TFP, L is total employment, K is the capital stock, α is output elasticity
with respect to labor, and βis the output elasticity with respect to capital. Variables in lower case
are in logs.
Neither A, , nor β can be directly observed. Under perfect competition,  corresponds to the share
of labor income in GDP. Under the assumption of constant returns to scale, i.e., ( + β) = 1, share of
capital income in GDP is given by β =(1– ). Substituting these parameters into the production
function, A can be derived as a residual:
– TFP = y –  l – (1–
) k
eq(2)
For most developing countries, labor share of income, , is not available from the national accounts
data. The standard is to use the assumption  =0.6. The results from applying this basic growth
accounting framework to the DRC data for 1995–2010 are given in Table 5.
2.35. Large role played by TFP in driving the DRC’s growth is consistent with our expectation.
TFP measures efficiency with which capital and labor are used to produce output. Thus it reflects
environment in which investments in physical and human capital take place. In this sense the
negative TFP growth in the 1990s captures problems such as lack of security, civil war, and
political and macro instabilities. The positive TFP growth since 2001 reflects significant
improvements made in these factors.
Growth accounting adjusted for quality of human and physical capital
2.36. To better understand growth process in the DRC and factors behind the large changes in
TFP, we make the following adjustments to the basic growth accounting framework. First, we
adjust labor inputs for quality of human capital using available data on expected educational
attainment and adult mortality rates before and after the conflict. Second, we adjust capital inputs
for varying degrees of depletion to capture deterioration (due to neglect, rooting, destruction,
etc.), using inflation rates as proxy. The latter is used as a rough estimate of the rate of capital
depletion during the period of economic mismanagement and civil war, and subsequent
improvements in political and macroeconomic stability. Box 2 explains the adjusted growth
accounting framework.
2.37. The results support the interpretation that the large improvements in productivity
estimated by TFP in part reflects improvements in quality of human and physical capital (Table
6–7). About 30–60 percent of improvement in productivity captured by original TFP estimates
(Table 5) can be attributed to improvements in quality of human capital. About 30 to over 100
percent of improvement in productivity captured by original TFP estimates can be attributed to
combined improvements in quality of human and physical capital. 21
21 “Over 100 percent” here implies that the growth in output was entirely explained by changes in quality and
quantity of physical and human capital per worker, to the effect that TFP growth after adjustments was negative. In
41
Table 2.6 : Sources of economic growth (adjusting for human capital)
(percent)
1992-95
1996-2000
2001-05
2006-10
-6.8
-3.9
4.3
5.3
2.8
-0.7
4.1
4.3
6.0
0.4
6.9
5.8
-2.0
-9.6
-2.4
-3.2
0.0
0.2
2.0
1.0
Real GDP growth
Factor accumulation1/
Labor 2/
Capital
Total factor productivity
Source: IMF, WDI, and authors’ calculations.
Note: see Box 1 and 2 for methodologies and assumptions.
Table 2.7 : Sources of economic growth (adjusting for quality of human and physical
capital)
(in percent)
Real GDP growth
Factor accumulation
Labor
Capital
1992-95
-6.8
1.7
6.0
-4.8
1996-2000
-3.9
-0.7
0.4
-2.4
2001-05
4.3
5.0
6.9
2.2
2006-10
5.3
5.1
5.8
4.1
-8.5
-3.1
-0.7
0.1
Total factor productivity
Source: IMF, WDI, and authors’ calculations.
Note: See Box 1 and 2 for methodologies and assumptions.
other words, after adjusting for quality and quantity of inputs there was no increase in productivity.
42
Box 2.2 : Adjusting growth accounting framework for quality of labor and capital
Adjusting for quality of labor using schooling
To incorporate human capital, the model in eq(1) in Box 1 is re-written:
Y = A (Lh)αK1-α
where Lh is the “quality-adjusted” labor inputs, namely, the number of workforce, L, multiplied by the average
human capital, h. The h is assumed to be a function of the average years of schooling in the population, s, according
to the formula:
h = eφ(s)
where s is average years of schooling, and φ(s) >0, i.e., a higher schooling implies a more productive workforce. a/
The TFP is calculated according to this model as:
TFP = y – α[l + Δφ(s)]– (1– α) k
where Δφ(s) is the change in values of φ(s) evaluated at st and st-1.
eq(3)
Adjusting for quality of labor using adult mortality rates
To adjust the quality of human capital to mortality rates, the model in eq(1) in Box 1 is re-written:
h=Ah eφ(s)
Ah= eφamr*AMR
where φamr < 0, i.e., a higher adult mortality rate implies a less productive workforce. Weil’s estimate for φamr (x100)
is –1.68 based on the cross-country regression estimate. See Collieri for more detail.
The TFP estimate after adjusting for AMR is given by:
TFP = y – α[l + Δφ(s)+ φamr ΔAMR]– (1– α) k
where ΔAMR is the change in adult mortality rate between t and t–1.b/
Adjusting for quality of physical capital
Capital is calculated as:
Kt = (1-δ)K t-1 + It
eq(4)
where I is the level of investment and  is the depreciation rate (usually assumed around 4–5 percent per year).
Initial level of capital is given by:
K0=I0/(g+)
where g is the long-run growth rate (assumed 0 in the DRC). This underlies capital stock estimate throughout the
exercise.
To model the behavior of capital depletion during and after the civil war we use inflation rate as the proxy. This is
arbitrary, of course, but plausible in that depreciation measures, in effect, the speed with which the re-sale value of
the capital diminishes over time, which could be proportional to the rate at which a fixed price asset loses value
(e.g., inflation rate). We are in effect assuming that during the time of war the rate of depletion of capital
increases—due to theft, destruction, rooting, or simply because productive activity is not taking place so value of
capital inputs for productive activity loses value—and after the peace returns the depreciation rate decreases.
To incorporate this idea, the model in eq(3) is re-written:
Kt = (1-δ)K t-1 + It
δ =πt
where πt is the inflation rate.
The TFP estimate after adjusting for time-varying capital depletion rate is given by eq (3) above. The results from
applying the adjusted growth accounting framework to the DRC data for 1995–2010 are shown in Table x and y.
Note: a/ Following Caselli (200x), we define φ(s) as a step-wise linear function of the following form: φ(s) =
0.134*s if s≤, φ(s)=0.134*4+0.101*(s-4) if 4< s ≤8, φ(s) = 0.134*4+0.101*4+0.068*( s -8) if 8 < s.
b/ Because data on adult mortality rate is available only from 1998 and the adjustment here yields similar qualitative
results as adjustment through education, results from this model are reported in the appendix.
43
II.
DR C
A ND T H E
N A T UR A L R E SOUR C E C UR SE
2.38. The DRC is a country blessed with abundant natural resources. It has Africa’s largest
deposits of copper, cobalt and coltan as well as significant reserves of diamonds and oil, one of
the largest tropical rain forests in the world, hydropower and fertile lands. Natural resources can
yield substantial rents and become a key source of financing a country’s development. But
exhaustible, subsoil assets, once discovered, can only be depleted, raising the question how
natural resources can be used most efficiently.
2.39. The government generally captures a fair share of the economic rents of exhaustible
resources. These rents can either be consumed and provide current well-being but at a cost to
future generations or they can be invested in other assets and used as an opportunity for
development. The choice between consumption and investment may be particularly daunting in a
country as poor as DRC, where poverty is prevalent and immediate needs are large. The argument
in favor of investing the rents is, however, bolstered by the fact that countries that invested natural
resources rents to increase their productive capacity managed to escape the natural resource curse.
2.40. The natural resource curse refers to that fact that natural resource richness does not
necessarily confer economic growth. It can work through a variety channels. Richness in minerals
and oils can erode a country’s institutions, which is discussed in detail in chapter X of this CEM.
Mineral rents can also provide incentives and means for engaging in conflict. While the academic
opinion on whether mineral and oil rents lead to conflict is far from unanimous, there exists
substantial anecdotal evidence that the last Congolese war that involved eight nations, was to a
large extend driven by the quest for minerals.
2.41. From a macroeconomic perspective, the key channel through which resource richness can
damage development prospects is through the Dutch Disease. Inflows in foreign exchange,
generated, for example, through mineral exports, can lead to a downward pressure on the
exchange rate and an upward pressure on domestic prices, resulting in a real exchange rate
appreciation. This can lead to a crowding out of non-resources tradable goods, weakening, for
example, the manufacturing sector. There are good arguments why diversification into
manufacturing or other sectors that produce non-resource tradable goods might be necessary to
achieve a higher income level. In addition, since volatility of commodity prices propagates to
resources revenues, resource richness can complicate fiscal management and if permeated to
aggregate spending, increase real exchange rate volatility, which can act as a tax on investment
2.42. This section analyzes analyses whether the current use of natural resource rents is
compatible with a sustainable development path by looking at genuine savings and by analyzing
the amount and use of DRC’s mining revenues. Whether current macroeconomic and fiscal
policies are appropriate to mitigate possible Dutch disease effects will be discussed in the section
III of this chapter.
A.
Natur al W ealth, Savings and R esour ce R ents
2.43. Notwithstanding its large natural resources, DRC figures among the poorest countries in
the world in terms of GDP and natural wealth per capita Its GDP per capita as of end 2009
amounts to 160 USD. It ranks 176 out of 182 countries on the UN Human Development Index.
44
Most strikingly, most of the least wealthy countries in the world rely on land resources, such as
cropland, pastureland or protect areas. The only poor country, that is rich in subsoil assets, is
DRC. (see Figure 2.13). 22
Figure 2.13: Countries with lowest per capita wealth
Zimbabwe
Niger
Sierra Leone
Guinea-Bissau
Madagascar
Malawi
Ethiopia
Liberia
Congo, Dem. Rep.
Burundi
0
1000
2000
3000
4000
5000
6000
Source: WDI and authors’ calculations.
22 It is a common feature that the wealthiest countries ten to have a very high proportion of intangible capital, i.e.
human capital, social capital and institutional capital, while the weight a natural capital in total wealth is relatively
high in Sub-Saharan Africa. See World Bank.(2010) for further details
45
Box 2.3 : Calculating DRC’s National Wealth
As natural resources are depleted and exported, a country’s GDP increases, but its wealth may decline. The
key to increasing future consumption and, thus the standard of living, however, lies in increasing national
wealth. Each time copper is taken out of DRC’s ground and exported, its copper assets decline. Unless this
lost wealth is compensated by an increase in other assets, e.g. through investment in human or physical
capital, DRC’s wealth is going to decline.
A country’s wealth can be estimated as the present value of its future consumption. It can also be calculated as
the sum of its produced capital, its natural capital, including agricultural land, forest land, oil reserves and a
range of energy and mineral resources, the value of its intangible capital and its net financial assets. Produced
capital can be estimated using information of historic capital formation or investment. Natural capital can be
derived by taking the present value of rents from natural resource use.1 These rents are defined as the product
of unit resource rents, which equal the difference between the international market price and the average unit
production costs, and the physical quantities extracted. Net financial assets are measured as the difference
between total financial assets a country owns, such as foreign direct investment assets, and total liability with
respect to the rest of the world, which includes debt liabilities. Intangible capital is the residual and comprises
human capital, social capital and institutional capital (see World Bank 2006).
DRC’s total wealth has been calculated using the present value of projected consumption of the next 25 years,
discounted at a rate of time preference of 1.5%. Due to data limitations, the underlying projections include
information available as of mid 2010 on current and future copper, coltan and oil production. In particular,
export projections related to the Sino-Congolese Cooperation agreement (see Box 5) are reflected in the
estimates (see Figure 2.14).
The projections exclude a number of important minerals – notably gold which is likely to increase in
importance over the coming years, as well as diamonds. Beginning in 2006, a very large oil field was
discovered in the Lake Albert Rift Basin in western Uganda up to the border. A significant share of this field
is on DRC’s territory and could potentially increase DRC’s oil exports in the future. But, to-date, no wells
have been drilled on the DRC side of the Albertine Rift Basin. The consumption projections therefore do not
include the possible impact of an exploration of the Albertine Rift or any other explorations that might take
place in the future. In general, explorations in DRC has been limited since independence and no reliable
estimates of total mineral and oil deposits on DRC’s ground exist currently. New discoveries could
significantly increase DRC’s wealth in the future.
1,600.0
Right Axis
in tonnes '000
1,400.0
1,200.0
1,000.0
800.0
600.0
Left
400.0
200.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Copper Production
Cobalt Production
46
Oil Production
180
160
140
120
100
80
60
40
20
0
in barrels million
Figure 2.14: Projected cobber, cobalt and oil production
Figure 2.15: DRC’s National Wealth
2.44. The share of natural capital in total
wealth is high in DRC. Amounting to 64
percent in 2006, it exceeds by far the average
share of low-income countries of 26 percent
and is 8 times higher than DRC’s produced
capital. The low level of produced capital
reflects the fact that till the beginning of this
decade capital formation has been low, even
negative at time. Since the end of the civil
war, government capital spending in DRC has
been continued to be among the lowest in
Sub-Saharan Africa. Improvements in the
political and macroeconomic situation have
helped private investment recover strongly in
recent years, but it continues to be small in
terms of GDP.
Source: World Bank (2010) and authors’
calculations
Box 2.4 : Calculating Genuine Savings
Genuine savings take several factors that affect a country’s wealth but are not reflected in gross
savings, such as depreciation of capital, depletion of natural resources and increases in human
capital, into account. The starting point of their calculation is gross national savings. Subtracting
fixed capital depreciation from gross national savings yields net national savings (see Figure
2.16). Genuine savings is then calculated by adding human capital investment and subtracting
natural resource depletion from net national savings.
Genuine savings are a much better indicator of whether a development path is sustainable.
Hartwick (1977) shows is that if genuine savings are equal to zero at each point in time, then a
country’s consumption can be maintained indefinitely, even if resources are finite and technology
fixed. Put differently, welfare can be sustained indefinitely if gross savings just equal the sum of
depreciation of produced assets, depletion of natural resources and pollution damages. A
persistently negative genuine saving rates, implies that a country’s welfare will decline in the
future.
Figure 2.16: Calculation of Genuine Savings
47
2.45. The change in a country’s wealth is generally measured by gross national savings.
Between 1970 and 2000, DRC’s gross national savings, the difference between production and
consumption was on a declining trend, even turning negative during the 1990s (see Figure 2.16).
Gross national savings, however, say little about sustainable development, since they ignore
depreciation of capital, depletion of natural resources and increases in human capital. The concept
of genuine savings overcomes these constraints (see Box 2.4. Calculating Genuine Savings). But
also DRC’s genuine savings were negative during most of the last 20 years indicating an
unsustainable level of resource consumption and depletion.
2.46. DRC’s natural capital, though large in absolute terms and as a share of total wealth, is
small when measured in per capita terms. Estimated at over USD92 billion in 2005 US dollars,
DRC’s total natural capital by far exceeds the equivalent capital of countries such as the Republic
of Congo, Gabon or even Bahrain. But with a population of about 50 million people its natural
capital figures among the lowest in the world in per capita terms, making the management of its
natural resources a particularly daunting challenge.
Figure 2.17: Gross and Genuine Savings
30
25
20
15
10
5
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
-5
-10
-15
-20
Gross Saving plus Education Expenditure
Gross Savings
Net Savings
Genuine Savings
Source: WDI and authors’ calculations.
2.47. The key to increasing future consumption and, thus the standard of living, lies in
increasing national wealth or generating positive genuine savings. Higher savings can be financed
48
by domestic as well as foreign savings transferred as aid or FDI. In DRC, government savings
have been negative throughout the last decade, which is discussed in more detailed in the last part
of this chapter and the private sector continues to be small. In recent years, differences between
genuine savings and national net savings have increased as the mining sector has rebound. As
mining production grew also more mineral resources have been depleted.
2.48. Low government savings are to some extend the result of a small revenue base, in
general, and low fiscal revenues from the mining sector, in particular. Increasing revenues via
increased capacity for tax collection or attracting increased investment in mining sector could be
one way to increase domestic savings and finance investments.
B.
Using M ining R ents to G ener ate G r owth
2.49. DRC’s fiscal revenues from the mining sector are low. Revenues from mining and the
petroleum sector were estimated to amount to USD405 million in 2007 by an independent EITI
audit report. Only 18 percent or 74 million corresponded to the mining sector, excluding
diamonds. As a result, DRC’s fiscal revenues from the mining sector corresponded to only 1.6
percent of mining exports or 4.5 percent of government revenues in 2007 (see Table 2.8). While
petroleum exports amount to only one fourth of mineral exports, fiscal revenues from oil
companies by far exceed the revenues from the mining sector. This current level of fiscal
revenues from the mining sectors is not only low when compared to mining production or exports
but also significant below past levels. In the mid 1980s, DRC mining revenues amounted to about
25 percent of GDP. 23
Table 2.8 : DRC: Mineral and Petroleum Revenues in 2007
Mining 1/
Petroleum
In USD Millions
74.0
331.0
In percent of mining or petroleum exports
1.6
54.1
In percent of total government revenues
4.5
20.3
Memorandum Items
Exports
4487.1
612.2
Fiscal Revenues
1/ Excludes Diamonds.
Source: Authors Calculations based on EITI Audit Report 2007, and IMF Staff Reports.
Total
405.0
7.9
24.8
5099.3
1632.2
2.50. DRC’s fiscal revenues from the mining sector are also low relative to other mineral
exporters. The share of DRC mineral revenue in GDP is similar to that of Chile or Namibia
although its of share of mineral exports to GDP is at least twice as large (see Table 2.9). Put
differently, in DRC mineral revenues amount to less than 2 percent of mineral exports while it
exceeds more than 10 percent in Chile or Namibia. In Zambia, DRC’s copper exporting neighbor,
fiscal revenues from the mining sector amount to about 4 percent of mineral exports.
23 IMF, “Democratic Republic of the Congo: Selected Issues and Statistical Appendix”, October 2005, IMF
Country Report No. 05/373.
49
Table 2.9 : Mineral Revenues and Exports as share of GDP
Country
Mineral
Revenues
Mineral
Exports
90.0
80.0
70.0
DRC
1.7
80.0
Chile
1.6
11.7
50.0
Guinea
2.4
19.0
40.0
Mongolia
2.9
26.3
Namibia
1.9
20.0
Papua New Guinea
5.6
47.9
0.2
10.1
Zambia
1.4
33.2
Zambia
30.0
20.0
Chile
10.0
0.0
0.0
Mineral Exports (in% of G DP)
Sierra Leone
DRC
60.0
1.0
2.0
3.0
4.0
5.0
6.0
Mineral Revenues (in % of GDP)
Source: EITI Report 2008 and authors’ calculations.
2.51. The low fiscal contribution of the mining sector can be explained by various factors,
including the structure of DRC’s mining sector, weak institutional and administrative capacities,
lack of control over DRC’s vast borders as well as wide-spread corruption.
2.52. A large share of DRC’s mining sector consists of informal artisanal mining with weak
fiscal linkages. The informal mining sector employs between 1 and 2 million miners, who work
under extremely harsh conditions, supporting the livelihood of about 5 to 10 million people. The
fiscal linkages with this informal mining sector are severely underdeveloped. 24 In addition, the
productive capacity of parastatal mining companies collapsed across DRC during the last decades,
and the fiscal contribution of GECAMINES, the only remaining active parastatal mining
company is negative with estimated losses of aboutUS$15-20 million per month. These losses are
particularly striking given that GECAMINES receives sizeable revenues from other mining
companies.
2.53. Fiscal revenues are also low in part because they are not collected, but even if collected a
large share of revenues is not recorded or misreported. While tax rates seem to be in line with
international standards. There seems to be widespread agreement that tax gaps, i.e. the differences
between taxes reported and received, are sizeable. The EITI reconciliation report estimated a tax
gap of approx. USD22 million. The World Bank (2008) estimated that in 2005 the government
should have received USD200 million, but only declared USD27 million as received. A Senate
Commission estimated that the state lost US$450 million in mining revenues in 2008. A critical
problem in DRC is that several agencies are involved in tax collection and often it is not clear
which agency should collect which tax receipts. As a result, tax collection rates also vary
substantially by tax (see Table 10).
24 See World Bank 2008 and Chapter X of this CEM for a more detailed discussion.
50
Table 2.10: Estimation of Mining Tax Collection Rate
Source
Year of publication
Year of estimation
Collection Rate
Royalty
Surface fee
Income tax
Overall
EITI
Senate
Commission
2009
2007
96%
60%
76%
88%
2009
2008
72%
31%
1%
48%
Mining
Sector
Review
2008
2005
13.5%
Source: World Bank (2010)
2.54. The scope for increasing tax revenues is therefore sizeable. Some authors estimate that
the fiscal take from the sector to represent less than 20% of its potential 25 (Garrett 2010) and
could reach one quarter of government revenues by 2020 (World Bank 2010). This increase could
be generated by improving the effectiveness of tax collection. The government has recognized the
importance of strengthening revenue collection, and is taking steps to improve the effectiveness
of mining sector tax collection. 26
2.55. Revenues from the mining sector could also be increased by raising overall mining
production. Attracting private sector investment has been hampered by a variety of factors,
including a weak business environment and the volatile security situation. DRC ranks among of
the worst countries with respect to mining investment. (see Table 2.11) The legal environment is
not conducive to mining investment, and SOEs often still hold the best known ground for mining.
As result, recent private sector led exploitation of copper and cobalt was mainly in form of joint
ventures with GECAMINES. In addition, geological mapping and geophysical work since
independence has been limited, restraining exploration and reducing the government’s capacity to
properly assess the value of its mineral deposit
25 However, estimates on collection rates vary a lot and can be as high as 85%.
26 In the Memorandum of Economic and Financial Policies 2009-12 (MEFP) the government intends to strengthen
the capacity of the tax department‘s (DGI) “Large Taxpayers Office responsible for revenue collection from the
sector, including by cooperating closely with specialized audit companies. Further, the collection of royalties and
mining taxes (outside customs) will be transferred from the Directorate of Administrative and State Revenue
(DGRAD) to the DGI, with the relevant legislation planned to be submitted to Parliament by April 2010. OFIDA
will also establish specialized centers to assess adequately the quality and values of key mineral exports.
‖(MEFP,
2009-12)”
51
Table 2.11: Overall Ranking of Countries for Mining Investment
Rank
Country
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Australia
Canada
USA
Chile
Mexico
Greece
Brazil
Ghana
Mongolia
Argentina
China
Nambia
Tanzania
Peru
India
Bolivia
S. Africa
Kazakhstan
Papua NG
Russia
Zambia
Indonesia
Venezuela
DR Congo
Zimbabwe
Socio Political System
Permitting
Currency
Tax
Corruption
Delays
Stability Regime
Econ. Political Social
9
9
8
8
10
8
7
10
10
6
5
10
9
7
10
9
4
3
10
8
7
9
8
7
7
8
7
4
8
8
5
8
7
6
8
8
8
3
3
5
8
6
6
7
6
5
4
6
6
6
5
5
7
4
5
6
6
4
6
6
3
6
5
6
6
6
6
4
5
5
8
2
4
5
2
9
5
5
6
3
5
4
5
6
5
5
3
7
3
4
5
6
3
1
3
4
7
5
6
6
2
3
3
5
3
5
1
1
5
3
4
6
3
4
1
5
2
8
2
4
3
4
3
1
4
4
4
4
1
2
2
4
5
2
3
3
3
1
4
6
3
3
2
5
3
2
4
3
5
1
3
1
1
3
1
1
1
4
1
2
4
1
2
1
3
1
1
4
1
1
1
1
1
1
2
Total
Points
59
57
51
50
50
41
40
38
36
38
35
34
32
29
28
25
25
23
22
22
22
17
14
13
8
Source: Behre Dolbear – December 2006; www.dolbear com.
2.56. Not only are fiscal revenues from the mining sector low, but few have been invested. As
mentioned above, the level of public investments in DRC is with 9.6 percent of real GDP in 2009
or around $28 per capita in constant PPP dollars near the bottom of public investment spending in
other fragile states. Most of its capital spending is foreign financed. Atkinson and Hamilton
(2003), however, find that countries that escaped the resource curse use resource rents as a source
of investment rather than source of public expenditure. Sachs (2007) and Collier et al (2009)
argue strongly that natural resource revenues should be spent in public assets (human and
physical infrastructure) with a high social rate of return. This strategy, however, requires that
countries invest in their capacity to invest in order to identify and implement public investment
projects with high returns. (see Ley 2009 for a discussion.) The selection of projects with high
return, as well as their cost effective implementation is a challenge for any government, and the
52
DRC faces particular difficulties given its post-conflict environment, institutional deficits and the
absence of Congolese experts who could supervise or work suppliers. 27
Box 2.5 : Mining-for-Infrastructure – The Sino-Congolese Cooperation Agreement
In 2008, a consortium of Chinese enterprises agreed to invest up to US$ 3 billion in infrastructure in DRC. The
loan was to be repaid with government revenues from a mining concession granted to a Chinese joint venture
with the Congolese state mining company.1 The Chinese project proposes a list of infrastructure project from
which the government will be expected to chose, including the construction of 3600 km of asphalt roads, which
will complement DRC’s existing road network of 2800 km. The mining concession is contracted to
SICOMINES, a private joint-venture between the Congolese state-owned mining company Gécamines, and
two Chinese parastatal companies that commit to invest some US$ 3.2 billion in the related mining project.
Committing resource revenues to repay foreign debt incurred to finance infrastructure provides security for
foreign creditors that loans will be repaid. In addition, it enables the Congolese government to implement the
projects without having to rely on their own state machinery. A paper by Doemeland, Briceno-Garmendia,
Farah and Herderschee (2009) concludes that these expenditures can, under certain circumstances, contribute to
economic growth and development. Public infrastructure projects would raise real GDP growth on average by
0.7 percent during the construction phase 2009–13, mainly through the impact of the higher investment on
domestic demand. The growth impact declines to 0.2 percent upon completion of the projects which reflects
gains in total factor productivity (TFP) associated with the improved public infrastructure. If DRC implements
only those infrastructure projects that have a high economic return, its debt sustainability outlook is unlikely to
deteriorate substantially and development gains could be large.
Calculations based on a model that assumes income generated by the mining project predict that the net
operating profits from the mining project would fully repay the public infrastructure loans by 2018. Net
operating income would have to decline by 65 percent of the amount projected in the baseline scenario in order
for the public guarantee to be invoked. These calculations indicate that the public guarantee is unlikely to be
invoked and hence, the risk for debt sustainability is manageable.
Whether this type of arrangement actually contributes to economic growth and development depends critically
on how three issues are handled. First, lack in mining expertise must be resolved and the joint venture
SICOMINES must ensure that the mine is able to generate the projected profits. Second, since the government
is responsible for the selection of infrastructure projects, the authorities will have to take steps to chose, based
on the list of proposed projects, those which are feasible and which offer the greatest potential returns. Third,
the government remains responsible for the cost effective execution of the projects, and is therefore responsible
for their efficient management and monitoring. Since repayment of the loans is assured by the mining
revenues, the Chinese investors have no interest in ensuring “value for money” of the infrastructure projects,
and as such the burden of success falls to the DRC authorities.
27 Include a footnote on China deal
53
2.57. The country’s best hope for channeling natural resource revenues into infrastructure
comes from the multi-billion-dollar resource for infrastructure deal with China (and a similarly
structured deal with Korea) (see Box 2.5). These resource-for-infrastructure deals can overcome
the governance and time-inconsistency problems as well as skills, materials, and equipment
bottlenecks which faces the country in transforming resource revenue into infrastructure. But they
also carry some risks, including very little domestic spillover in creating demand and jobs; a large
Chinese immigration creating racial tensions (as experienced in some African countries), and little
transparency in contracts being negotiated. Chapter X in the CEM is devoted to analyzing how to
get the most out of the mining sector.
2.58. In addition, while a majority of operating and capital costs may be paid to foreign
entities, the government can greatly influence how mines spent money inside the country. Mines
contribute to the economy in many ways, not just through paying taxes. Non-tax often exceed tax
benefits. Mines have to pay for capital and operating costs. Capital expenditure on construction,
plant, infrastructure and equipment is paid to contractors and supplies. Operating costs such as
wages, consumable, spares, power, water and services are paid to employees, suppliers,
communities and others. Because of multiplier effects the amount that is spent inside the country
has an even larger impact than just the actual revenue spent. The government can, for example,
require the company to invest in local community development or to pay taxes directly to the
affected community or provide regional infrastructure in remote areas.
2.59. While DRC’s potential for using mining resources for its development could be
enormous, the current level of natural wealth per capita suggests that these resources should be
used efficiently to be able to support a sustainable development path. But DRC’s fiscal revenues
from the mining sector are strikingly low and the political environment is not favorable for
mining investments. In addition, the limited fiscal resources are entirely consumed. While the
mining sector has substantially contributed to DRC’s growth in recent years and has likely
increased the well-being of millions of people who depend on it, it is also at the core of DRC’s
political struggles, as discussed in more detail in chapter X of this CEM.
54
III.
M A C R OE C ONOM I C P OL I C I E S A ND S T R UC T UR A L R E F OR M S
2.60. In 2001, DRC implemented an impressive program of economic reforms that ended the
vicious cycle of monetization of the government budget deficit, hyperinflation, and currency
depreciation within a year. This economic program was supported by an ambitious program of
structural reforms that supported the macroeconomic policies. As a result, economic growth
turned positive in 2002 for the first time in 13 years. These economic reforms slowed down in
2005 and came to a halt in 2008 as the financial crisis led to a substantial deterioration in DRC’s
external environment, while its security situation worsened at the same time. In 2010,
macroeconomic policies and structural reform implementation have resumed as DRC’s external
situation became more benign and as the government was committed to reach the completion
under the Heavily Indebted Poor Countries (HIPC) Initiative.
2.61. This section discusses the implementation of macroeconomic policies and structural
reforms since 1996 and links them to key macroeconomic outcomes. Contrary to many resource
rich countries, real exchange rate appreciation was not the key concern for DRC. But repeated
cycles of budget overruns and monetization of fiscal deficits followed by fiscal and monetary
tightening created substantial uncertainty in the economic environment. Combined with a very
unfriendly business climate, it obstructed the development of a strong private sector. As of today,
the tradable, non-mining sector is basically non-existent, the economic situation remains fragile
and structural problems loom large.
A.
W ar E conomy (1996 – 2000)
2.62. Between 1996 and 2001, armed forces of seven countries and different rebel groups
fought a terrible war in DRC. The war resulted in 3 million deaths, millions of displaced people,
total isolation of large parts of the country and the destruction of infrastructure, including
hospitals and schools. In July 1999, the DRC government signed an accord at a conference in
Lusaka in Zambia with five of the seven countries involved in the conflict. The accord called for a
cease-fire and the disarmament of the militias by the de- facto administration in each region, and
promoted inter-Congolese dialogue reunify to country. The Lusaka Accord was, however, quickly
abandoned by all of the concerned parties.
2.63. The key objective of the government’s economic policies during this conflict period was
to obtain the foreign exchange to finance the war. To this end, it pursued a series of
interventionist policies, such as extortion of unreasonable taxes from the few still operating
enterprises and the granting of monopolies and mining concessions with tax privileges for the
production and marketing of key products, in particular diamonds. Multiple exchange rates and
price controls generated significant distortions in relative prices. The consequence was a shortage
of many items, including production inputs, which contributed to a continued decline in
production and a rise in the cost of goods and services.
2.64. By end 2000, DRCs economic situation was characterized by a vicious circle of
hyperinflation, a continued depreciation of the currency, increasing dollarization, a lack of
savings and falling production. The decline in economic activities, especially in the formal sector,
led to a fall in budgetary revenues to less than 5 percent of GDP. At the same time, expenditures,
mostly related to the war, increased drastically, reaching nearly 70 percent of total revenues. The
55
budget deficit got out of control, reaching an estimated 120 percent of government revenues in
2000. It was entirely financed by monetary expansion and the accumulation of domestic and
external arrears. The role of the central bank was largely reduced to printing the money for
financing the deficit. As a result, inflation picked up and by 2000 consumer prices rose at an
annual average rate of 554 percent.
2.65. The war combined with the dire fiscal situation, substantially weakened DRC’s external
position. Foreign official reserves fell to less than two weeks of imports of goods and nonfactor
services. The gap between the official and parallel foreign exchange rates widened to more than
550 percent. The public’s loss of confidence in the national currency led to extensive
dollarization. The banking system was largely insolvent, and about half of the existing banks went
bankrupt, triggering substantive financial disintermediation. By end 2000, real GDP was about 80
percent of its 1995 level.
B.
L iber alizing the E conomy (2001-2005)
2.66. Changes came in 2001. President Joseph Kabila who took office in January 2001, after
the assassination of his father President Laurent Kabila, endorsed in his first speech to the nation,
a political and economic program that represented a clear break from the policies of the past. The
speech called for the reactivation of the Lusaka Agreement, the formation of a Government of
National Unity, the normalization of the relations with the international community, the
stabilization of the macroeconomic situation and the liberalization of the economy.
2.67. The new government revived the peace process that had begun in 1999 with the Lusaka
Agreement but had not been implemented. A large UN peacekeeping force, the Mission
d’observation des Nations Unies au Congo (MONUC) was deployed throughout the country. A
power sharing agreement was signed in 2002. By end of 2002 the withdrawal of foreign troops
had been completed. On April 4, 2003 the new Transitional Constitution was enacted. Major
General Kabila was sworn in as President of the DRC on April 7, 2003 for a two-year transition
period, after which free, fair and transparent elections were expected to be held. On June 30, 2003
an all-inclusive government of national unity with representation of all key armed groups,
unarmed oppositions and civil society was appointed.
2.68. The progress with respect to the peace process enabled the authorities to re-engage with
the international financial institutions. The World Bank and the IMF sent a joint mission to DRC
as early as May 2001. In December 2001, a meeting of donors and the Congolese took place in
Paris in order to identify key investment projects that would allow the government to address the
most urgent bottlenecks. 28 DRC’s reform efforts which are described in more detail below also
paved the way for DRC to clear its arrears with international creditors and benefit from debt relief
under the Heavily Indebted Poor Countries (HIPC) Initiative. Since DRC failed to service its debt
for nearly a decade, 80 percent of DRC’s debt equaling US$10.6 billion was in arrears at end2001. About 16.9 percent of US$1.8 billion was owed to multilateral creditors. In the course of
the summer 2002, DRC cleared its arrears with key multilateral creditors, including the World
Bank and the IMF. Inflows of foreign assistance resumed. In September 2002, it rescheduled
28 Jean Clement (2005)
56
US$8.2billion of arrears owed to Paris Club bilateral creditors. In July 2003, DRC reached the
HIPC decision point, at which creditors committed debt relief of US$ 6.3 billion in net present
value terms. 29
2.69. The key objective of the economic reform program introduced in 2001 with support of
the international community was to break the vicious cycle of hyperinflation and currency
depreciation. It focused on improving public finances by strengthening budgetary procedures.
For the first time in years, Parliament approved a budget. Extra-budgetary channels were reduced.
And most importantly, the government adhered to the strict implementation of a monthly treasury
cash-flow plan, bringing the monetization of the budget deficit to an end.
Figure 2.18: Government Balance, Net Credit to the Government and Inflation
100.0
From 272
2.0
From 550
0.0
80.0
Right Axis
60.0
Left Axis
-2.0
-4.0
40.0
-6.0
20.0
-8.0
0.0
-20.0
-10.0
2000
2001
2002
2003
2004
2005
Inflation (Percent, annualized)
2006
2007
2008
2009
2010 *
-12.0
Net Credit to Government (in % change)
Government Balance to GDP (Cash Basis)
Source: IMF Staff Reports and authors’ calculations.
2.70. With monetary policy effectively tightened, inflation decelerated sharply, enabling the
government to introduce a floating exchange rate as soon as May 2001 and to liberalize most
prices. Prices of certain public of utilities, such as transportation and electricity, were exempt
from liberalization, but nevertheless adjusted. Prices of petroleum products, for example, which
had been heavily subsidized, were increased by about 300 percent to international levels on May
2001, eliminating not only subsidies but also smuggling to neighboring countries. This price
increase was accompanied with the implementation of a transparent and automatic price-setting
mechanism. And the import of petroleum products was liberalized. As a result, product delivery
and transportation as a whole improved and as the security situation became better the supply of
food from the producing regions to the cities increased.
29 International Development Association and International Monetary Fund (2003) “Democratic Republic of the
Congo – Decision Point Document for the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative”, July 2003,
Washington, DC.
57
2.71. These macroeconomic policies were underscored by a series of structural measures. To
strengthen the budget process, the authorities rebuilt the administrative capacity to collect
revenues, improved data collection and implemented new information management systems. A
new large taxpayers’ unit was established, exemptions monitored, and customs procedures
simplified. Foreign trade was liberalized; a simple three-tier tariff regime was introduced and a
Presidential decree allowed only 4 agencies to be present at the border. The authorities also
tightened and streamlined expenditure commitment procedures. In addition, all public enterprises
and government arrears with the private sector were audited and an audit of all ministries and a
review of services delivered by the social and justice ministries completed in 2002.
2.72. The government undertook also several steps to strengthen the financial sector. It adopted
a legal framework for the financial system, which included a central bank law that provided for its
independence, a banking law that gave the BCC full supervision of the financial sector and
established frameworks for bank licensing and liquidations and a new legal framework for the
restructuring of the banking system. For the first time in many years, external auditors conducted
an audit of the BCC accounts. Technical assistance strengthened the capacity of the central bank
to conduct monetary policy and banking supervision. The BCC also adopted a more flexible
interest rate policy and created in September 2002, the Consultative Group on Monetary Policy,
to facilitate the coordination of fiscal and monetary policy. In December 2002, the BCC
introduced central bank bills to absorb excess liquidity in the banking system. Several private and
public banks were liquidated and others restructured to strengthen the financial sector.
2.73. Changes in the judicial and regulatory environment were also comprehensive. A new
investment code was published in February 2002, followed half a year later by the publication of
a new mining code, consistent with international best practices. In addition, a new forestry code
consistent with long-term sustainability was adopted, and a large number of timber concessions
annulled. Exceptional military tribunals were replaced by civil courts for business and economic
affairs.
2.74. These efforts quickly translated into lower inflation and higher growth. The difference
between the official and the free market rate fell from 600 percent in May 2001 to less than one
percent by December 2001. The end-of-period inflation in December 2002 was 16 percent,
sharply down from 135 percent the year before. In 2002, economic growth turned positive for the
first time in 13 years and reached an average of 5 percent between 2002 and 2004. Fiscal
revenues increased from 6.5 percent of GDP in 2001 to 9.5 percent in 2004. Higher revenues,
combined with DRC’s renewed access to external financing, allowed the government to increase
its spending, including for reconstruction and other investment.
2.75. Still, there were several signs of unease on the horizon. In spite of the improvements,
dollarization of the economy remained high. In 2003, the share of US dollar deposits to total
deposits amounted to about 85 percent, reflecting to a certain extend a limited confidence in the
Congo franc and the banking system. The fact that the Central Bank was recording losses
substantially restrained its financial autonomy. In 2004, as the security situation in the eastern
provinces deteriorated, military expenditure grew and the fiscal policy stance relaxed, broad
money outgrew nominal GDP growth. The Congo France which had gradually depreciated
58
between 2001 and end 2003 became more volatile and the downward trend in inflation was
reversed (see Figure 19).
C.
Democr atic T r ansition with limited pr ogr ess on economic r efor ms (2005-2008)
2.76. Macroeconomic policy implementation started to weaken in 2005, as the transitional
government shifted its focus to the elections. In addition, periodic flares up of conflict in the
eastern provinces created a climate of uncertainty and additional fiscal pressures through
increases in security spending. As the government was unable to manage unplanned security
spending and demands for more bonuses from civil servants, current spending was overrun and
bank financing increased. As a result of the high dollarization of the economy, any domestic
borrowing translated immediately into inflation and exchange rate depreciation. Making things
worse, foreign investments and disbursement of official aid slowed down.
2.77. Inflation rekindled, the exchange rate depreciated and reserve levels became precariously
low. Inflation reached 21 percent in 2005. The exchange rate depreciated by 20 percent against
the US dollar in the same year. International reserves fell to US$131 million or 2.5 weeks of nonaid imports in 2005 and stood at US$154 or 1.4 weeks of non-aid imports at the end of 2006. In
the second half of 2006, the government started to fall back into arrears with bilateral official
creditors. Thanks to a continued recovery of private sector activity, real GDP growth remained at
6.5 percent in 2005, but slowed to 5.1 percent in 2006. 30
2.78. The implementation of structural reforms slowed down. A census of public employees
was conducted in 2005, but efforts to contain the size of civil service and to remove “ghost
workers” from the public payroll yielded only limited results. The pace of reform in the mining
sector, forestry, civil service, customs administration and public enterprises was not sustained,
and the BCC made little progress in strengthening its operations and reducing its large structural
deficit.
2.79. On 18 and 19 December 2005, a successful nationwide referendum was carried out on a
draft constitution which set the stage for elections in 2006. The first democratic elections in 40
years ended three years of political transition. Still, the security situation remained tenuous, as
violence in the eastern provinces continued, threatening peace and economic progress. And even
after the elections, the
D.
F inancial cr isis (2008-09)
2.80. DRC’s economic prospects deteriorated further during the last quarter of 2008. A drop in
copper prices substantially weakened its terms of trade and lead to a decline in mining production.
The fall in export receipts lead to a sharp depreciation of the Congolese Franc against the U.S.
dollar. As a result inflation rose to 53 percent at end year 2009. Declining mining output, and a
sharp reduction in investments sharply reduced economic growth. In the mining areas around
Katanga, the closure of small artisanal mines and reduction of output in large mines had an
30 International Monetary Fund (2007) “Democratic Republic of the Congo: Selected Issues and Statistical
Appendix”, IMF Country Report No. 07/329, Washington, DC.
59
immediate negative impact on employment, with an estimated 200,000 jobs and 1 million people
directly affected. In addition, conflict resurged in August 2008 in the North Kivu province,
triggering a security and humanitarian crisis. About 1.2 million people were displaced in the
Kivus alone. Of these, about 350,000 were in need of continuous emergency humanitarian crisis
which proved challenging given difficulties with logistics, security, the costs and scarcity of food
products on the international market.
2.81. Rapidly declining export proceeds lead to an increase in the current account deficit and a
drop in foreign exchange reserves. As a result of the sharp decline in exports proceeds and
expenditure pressures resulting from the security and humanitarian crisis, official gross reserves
declined to US39 million or at the end of January 2009, the lowest level since 2001. The decline
in export proceeds led to a drop in US dollar denominated deposits and banks’ gross foreign
assets, putting pressure on the Congolese franc. A fall in revenues combined with an acceleration
of security-related spending, turned the fiscal surplus, which DRC had recorded by mid-2008 into
a deficit by the last quarter of this year. The resulting increase in government borrowing from the
BCC combined with depreciation of the Congolese franc (35 percent between December 2008
and September 2009) put pressure on prices and inflation reached 40 percent.
Figure 2.19: Terms of Trade, Exchange Rate and Official Reserves
60.0
600.0
50.0
Right Axis
500.0
40.0
400.0
30.0
20.0
Left Axis
300.0
10.0
200.0
0.0
-10.0
-20.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
100.0
0.0
-30.0
-40.0
2010 *
Reserves (in weeks of non-aid imports)
-100.0
Terms of Trade
Offical Exchange Rates (in % change)
Source: IMF Staff Reports and authors’ calculations.
2.82. In this difficult economic and political environment, the reform process slowed further
down and the benefits of some of the reforms that had been implemented at the beginning of the
decade started to unravel. Reforms to restructure public enterprises and weak banks come to a
stand-still. Some improvements in the budget execution process were implemented, but poor
budget planning, circumvention of budgetary procedures and ineffective budget controls, together
with high nondiscretionary spending, undermined fiscal discipline and led to periods of increased
60
government borrowing from the central bank. Tax collection, in particular in the mineral sector,
remained low.
E.
M acr oeconomic Stabilization and H I PC C ompletion Point (2009-10)
2.83. In 2009, macroeconomic policy implementation improved as external conditions became
more benign and DRC was heading for the completion point under the HIPC Initiative,
benefitting from US$12.3 billion in debt relief. Some fiscal reforms started to bear fruits and
central government revenues increased (from 7.7 percent of GDP in 2003) to 16 percent. Higher
revenues, increased donor support, and better expenditure control, through improved management
of commitments and enhanced monitoring, led to a smaller than expected fiscal deficit. 31 This,
along with higher external budget support helped the government build significant deposits at the
central bank. The improvement in the fiscal position and increases in the central’s bank policy
rate helped contain base money growth and contain inflation. By end April 2010, inflation had
declined to 15 percent and official reserves reached seven weeks of imports by end-2009, up from
one week at end 2008.
2.84. In addition, structural reform implementation received a new momentum. The authorities
developed new sector strategies and medium-term spending plans for key sectors such as
education and health. New legal frameworks for procurement and businesses (OHADA) were
adopted by parliament in 2009-10, and reforms in the public financial management systems were
resumed. On financial sector reform, the BCC was restructured and reorganized as the first step
toward its recapitalization and eventual financial independence. Banking supervision was also
strengthened, as was the central bank’s capacity to conduct monetary policy
IV.
C ONC L USI ON
2.85. Today, DRC is at the crossroads. It has achieved sizeable growth rates during the last
decade. But its economic situation remains fragile and its unfinished reform agenda is large. The
reform agenda, as outlined in 2001, remains as important today as it was then. While the
government has undertaken courageous steps, in particular with respect to price and exchange rate
liberalization, to put the economy on a sound footing, management of fiscal resources remains a
key concern. The repeated cycles of policy slippages followed by fiscal and monetary tightening
combined with a very unfriendly business climate erode the confidence of the private sector in the
economy and severely constrain economic growth.
2.86. The key to increasing future consumption and, thus the standard of living, lies in
increasing national wealth or generating positive genuine savings. In DRC, government savings
have been negative throughout the last decade and the private sector continues to be small. To
increase savings, fiscal and monetary policies should aim at preserving price and exchange rate
stability. As discussed above, the hyperinflation of the 1990s had a severe and lasting impact on
domestic savings and growth. The taming of the inflation at the beginning of this millennium,
which was largely the result of putting a halt on the monetization of the fiscal deficit, lead to a
rebound in growth.
31 Not only was the fiscal deficit contained, but also pro-poor spending largely executed as planned.
61
2.87. Increasing public saving will require a better mobilization of fiscal revenues, on the one
hand, and a reduction in public expenditures on the other hand. This reduction should be
accompanied with improvements in the efficiency of public sector spending, focusing in
particular on priority sectors such as education, health and infrastructure. Weak management of
fiscal resources also prevents DRC from exploiting the opportunities that its mineral resources
provide. While the mining sector has substantially contributed to DRC’s growth in recent years
and has likely increased the well-being of millions of people who depend on it, it is also at the
core of DRC’s political struggles.
2.88. Some progress has been made in 2010 in better controlling public expenses. In addition,
the “Strategic Plan on the Reform of Public Finance” (Le Plan Strategique de Reforme des
Finances Publiques), which was initiated in 2010, promotes steps to increase the efficiency of
public spending, by strengthening procedures, capacity and management of the fiscal
administration. Private sector savings would also benefit from a simplification and reduction of
indirect fiscal pressures, which is one the objectives of the TVA, which is expected to become
effective in 2012.
2.89. The high level of dollarization in the economy also comes at a cost (see also Kokenyne
ey al. 2010). While its introduction in 2001 helped to restore confidence, it reduces the efficiency
of monetary policy, restrains the role of DRC’s Central Bank as lender of last resort and weakens
the signaling role of the domestic currency. It also reduces the ability of the DRC’s economy to
absorb external shocks, which is aggravated by the fact that the public sector constitutes a large
size of the non-mining economy. The Central Bank is currently considering steps to reduce
dollarization and plans, for example, to issue bills in local currency with higher face values in the
first half of 2011. Still, given that the hyperinflation is still fresh in the memory of many
Congolese, concerns have been expressed that the issuance of these bills could be interpreted by
some market participants as a sign of inflation and raise inflationary expectations.
2.90. The renewed impetus of implementing structural reforms in 2010 is encouraging. The
US$12.3 billion in debt relief that DRC has received provide the country with a unique
opportunity. But down-side risks are large as the country prepares for the next election late in
2011 or early 2012 and security tensions persist.
62
C H A PT E R 3:
B I NDI NG C ONST R A I NT S T O G R OW T H I N T H E DE M OC R A T I C
R E PUB L I C O F C ONG O 32
Setting economic priorities in post-conflict countries or regions represents a significant
challenge: the economic base has been in large part destroyed, populations have been
displaced, communities have been shattered, entire sectors or sub-sectors have disappeared,
and key formal and informal institutions have been critically weakened. Key social goods,
such as functioning markets and contract enforceability, has been damaged. The ability to
invest in the long term has been undermined.
Reconstruction, rehabilitation and the establishment of governance institutions will
necessarily top the list of urgent policies. This necessary effort is constrained in the
Democratic Republic of Congo, compared to many other post-conflict countries, by the fact
that strife and armed conflict in the country followed decades of economic mismanagement,
systemic corruption and bad political governance. The conflict years compounded what was
already a serious economic crisis. Now, with over 70% of its population below the poverty
line, poverty alleviation should remain the most pressing concern for the Democratic
Republic of Congo.
This priority and the cumulative set of enormous challenges confronting the country require a
fundamental commitment and coordinated effort by central and provincial authorities, in
extensive collaboration with the private sector and civil society. External public and private
partners must also bring their contribution to bear for the stability and the development of the
country and provinces. This effort should not be wasted on reforms, projects or investments
that may become counter-productive.
Counter-productive reforms, projects or investments are those with low expected success, low
rate of socio-economic return, low or negative impact on poverty levels, high socio-economic
opportunity cost, or administrative requirements that outstrip capacity. A concerted effort at
identifying priorities, understanding constraints and obstacles, documenting risks, measuring
likely impacts and determining opportunity costs should be established.
The present chapter aims at contributing to the development of this concerted effort by
providing an analysis of the most binding constraints to growth in selected provinces. It also
aims at providing perspectives on the direction that growth generating initiatives should take.
As important, it seeks to advice on reforms and initiatives that are unlikely to generate
growth, or may have high opportunity cost.
32 This paper was prepared by Markus Scheuermaier and Claude Baissac with contributions from Moise
Tshimenge. Markus Scheuermaier is a Program Coordinator at the Investment Climate Investment Climate Advisory
Services of the World Bank Group and manages the Special Economic Zone (SEZ) program in DRC. Claude
Baissac is a political economist. Moise Tshimenge joined the World Bank as resident economist in January 2011
and contributed to this paper since then. The paper draws extensively on a broader analysis conducted in 2009,
authored by Alfie Ulloa, Felipe Kast and Nicole Kekeh. At the time, Alfie Ulloa was Doctoral Fellow at the Center
for International Development, Harvard University; Felipe Kast was researcher at the MIT Poverty Action Lab and a
Professor at the Economics Department of the Catholic University of Chile, and Nicole Kekeh was on leave from
the World Bank. Funding from the Swedish International Development Cooperation Agency (SIDA) for this earlier
study and a grant from the Growth Diagnostic Trust Fund for this chapter are gratefully acknowledged.
63
I.
I DE NT I F Y I NG T H E
M OST B I NDI NG C ONST R A I NT S T O G R OW T H : T H E
HR V
F R A M E W OR K
3.2.
The chapter uses the framework developed by Professors Hausmann, Rodrigues and
Velasco (HRV) to attempt to determine the most binding constraints to growth in the Democratic
Republic of Congo, and five of its provinces: Bandundu, Katanga, Kinshasa, Orientale and SudKivu.
A.
T he H R V fr amewor k explained
3.3.
The HRV framework is designed to encourage highly contextual policy reforms and
interventions supported by economic analysis, rather than the “laundry list” approach of
implementing a generic list of “best practice” policies. The framework is founded on the
recognition that the “laundry list” approach to economic reform may in actuality either fail to
achieve its objectives or, worse, be counter-productive, by worsening the targeted distortions.
3.4.
The authors of the framework explain that:
The approach we advocate (…) is to design reform priorities according to the
magnitude of the direct effects. (…) This is the strategy that we think is the most
practical, as well as the most promising with regard to the likely bang from reform.
The idea behind the strategy is simple: if (a) for whatever reason the full list of
requisite reforms is unknowable or impractical, and (b) figuring out the second-best
interactions across markets is a near-impossible task, the best approach is to focus
on the reforms where the direct effects can be reasonably guessed to be large. 33
3.5.
The objective of the framework is thus to assist policy makers formulate “growth
strategies” that are “both operational and based on solid economic reasoning”. 34
3.6.
The Growth Diagnostics aims to identify the most constraining challenges for private
investment and economic growth in a given economy at a specific point in time. The framework
identifies and ranks constraints to investment by following a decision tree and nodes (see Figure
1) which list key structural economic factors impacting growth performance.
3.7.
The analysis follows an elimination-by-iteration process aimed at identifying the most
binding constraint to growth. Alleviating or removing this constraint will generate increases in
growth. Thus, the model helps to prioritize bottlenecks that pose the biggest challenge to the
economy, enabling policy-makers to focus their interventions on one bottleneck at a time.
Challenges that are discarded as non-binding constraints at a given time in a specific contextual
situation may be important at another point in time. They are not irrelevant and undeserving of
donors’ attention and support. They are simply a lesser priority at the time of analysis.
33 Hausmann, R., Rodrik, D., & Velasco, A., 2004, “Growth Diagnostic”. John F. Kennedy School of Government.
Harvard University.
34 Ibid.
64
Figure 3.1 : The HRV (2005) growth diagnostics decision tree
3.8.
To identify existing potential binding constraints, the analysis is founded on the
following four criteria. To qualify as a binding constraint to growth, a constraint must present: (i)
a high shadow price; (ii) a growth response to changes in constraint; (iii) firms trying to
overcome constraints; and (iv) existing/more dynamic industries are not intense in the constraint.
B.
B enefits of applying the H R V fr amewor k to the DR C
3.9.
The intent of the present study is thus primarily to provide an analysis of the DRC’s
growth experience in a way that has not been done before. This brings significant benefits:
-
Firstly, the focus on growth through a series of ‘growth narratives’ brings to the fore the
extent of the country’s secular counter-performance in a way that underscores the very
significant challenges that will confront any effort at growth acceleration.
-
Secondly, the growth diagnostics provides a novel perspective on the current economic
situation in the DRC, which may help dispel some current conceptions on the causes of
non-performance, and reinforce others.
-
Thirdly, while the analysis does not make specific policy recommendations, it does offer
some perspective on key policy issues confronting the country. These perspectives should
be used as a basis for in-depth policy work focused on a prioritized, growth-oriented,
policy agenda.
-
Fourthly, the analysis emphasizes the need to prioritize high growth impact reforms and
initiatives, and de-prioritize reforms and initiatives with low growth impact or high
opportunity cost. This is extremely relevant to the DRC, particularly if high growth
impact initiatives are also geared toward rapid poverty reduction.
65
C.
3.10.
L imitations of applying the H R V fr amewor k to the DR C
As Haussman, Klinger and Wagner recently explain:
At the center of the growth diagnostic problem is the fact that we do not know what is
the right growth model of the economy we are working on. Hence, the diagnostic
process should generate some idea of the possible constraints on growth in a
particular economy and affect the probability we assign to different alternative
hypotheses. 35
3.11. While the application of the HRV framework can provide critical insights on constraints
to greater growth, from this application does not mechanically derive policy ‘recipes’.
3.12. Furthermore, identifying or calculating adequate shadow prices is rarely easy. In most
situations, the framework calls for the identification of proxy measures capable of indicating
with sufficient accuracy (empirical, but also sometimes intuitive) the present of a binding
constraint.
3.13. In the case of DRC, any in-depth survey and analysis of the DRC’s economy is
confronted with the very significant challenge of obtaining data that is recent, comprehensive,
and sufficiently accurate. This challenge is most acute when it comes to the country’s provinces,
and particularly the poorest ones, where reliable data is in some cases simply non-existing.
3.14. The authors have sought to circumvent this obstacle by using proxy data, whenever
possible, or proceeded by elimination to derive meaningful conclusions. Generally speaking,
conclusions were provided only when the underpinning data was of sufficient quantity or quality.
The authors have also extensively relied on qualitative data, an essential source of data in the
DRC, through field visits and a large number of meetings and interviews.
3.15. The study should therefore be considered a first attempt at understanding what the
probable principal constraints to growth in the DRC are. In many instances, more in-depth
econometric analysis would be required to confirm the robustness of conclusions. Such an
undertaking would require, however, a more comprehensive data collection effort, which will
hopefully become increasingly possible as the Government, with the support of donor
organizations, restores a functioning statistical system.
3.16. Together with the caveats on the general limitations of the HRV framework, the
limitations on data availability necessarily impacts the study’s ability to reach firm conclusions.
While some conclusions are likely to be valid, others are presented as interim conclusions or
hypotheses that will require further validation through dedicated future studies capable of
identifying and generating more appropriate data.
35 Hausmann, R., Wagner, A., & Klinger, W., 2008. “Growth Diagnostics: A Mindbook”.
66
II.
C ONT E X T :
G R OW T H C OL L A PSE A ND POST W A R R E C OV E R Y
3.17. The DRC is a large country with (i) stark differences in terms of geography, endowments,
economic activity, poverty level and economic potential, (ii) with low mobility of goods and
factors within the country and large income differences among provinces, and (iii) with low
levels of economic diversification, where provinces tend to specialize on the basis of their
specific natural and human endowments. There is therefore reason to believe that solely focusing
on the national level will not be sufficient to address the DRC’s extremely serious growth
problems. The national analysis provides an essential perspective on the country’s growth
performance since independence, and identifies the binding constraints that will require policy
attention at the level of the Central Government. The provinces were selected to provide a
representative sample. They thus include the most important provinces in terms of economic
activity (Kinshasa and Katanga), two post-conflict provinces (South Kivu and Province
Orientale) and one of the poorest provinces (Bandundu).
A.
Over view of the DR C 's gr owth collapse
3.18. In 2008, the DRC ranked as the poorest country in the world, with real GDP per capita of
US$95 (in 2000 terms), US$ 25 cents a day. Since independence in 1960, real income has
plummeted: in 2008 it was less than one-third of its value in 1960, in constant terms. In fact, the
DRC has registered the largest drop in per capita income of countries for which data is available
in the World Development Indicators for 1960-2008.
3.19. Prior to recent conflicts, a
combination of adverse economic shocks
and economic mismanagement contributed
to poor economic growth. An export
collapse, exacerbated by a high dependency
upon two minerals (copper and cobalt) and
two agriculture products (palm oil and
coffee), triggered a vicious cycle of erratic
fiscal and monetary policies, loss of hard
currency,
financial
meltdown,
and
hyperinflation. This cycle in turn led to a
virtual halt in private and public investment.
The external shocks were exacerbated over
time by economic mismanagement. By 1991,
the country’s economy was de facto
bankrupt.
Figure 3.2 : Trends in per capita GDP
Source: WDI (2009)
1960s: the early Mobutu years
3.20. The late President Mobutu Sese Seko seized power in a coup in 1965, ending a five-year
period of uncertainty and instability that began at independence in 1960. In 1967 the country’s
mineral resources were nationalized and State companies were created and given monopoly
67
control over all mining concessions. The Générale des Carrières et des Mines (Gécamines) is
probably the best known. It was granted monopoly over copper and cobalt concessions in
mineral-rich Katanga. There, two other monopoly companies operated: the Kisenge Mining
Company exploited manganese and the Zaïre Tin Company (Zaïretain) mined tin. In the Kivus
the Société Minière et Industrielle du Kivu (Sominki) owned and mined tin and gold. In Province
Orientale the Office des Mines d'Or de Kilo-Moto (Okimo) had monopoly over gold
exploitation. In the Kasaï Oriental monopoly over diamonds exploitation was awarded to the
Société Minière de Bakwanga (Miba).
3.21. In 1970, Mobutu launched a 10-year plan (the “Goal 80”), designed to transform the
Congo into an industrialized country. To be financed through domestic and external debt
borrowing, it was pro-urban and neglected agriculture and many of its complementary factors.
One flagship project was the Inga dam (Bas-Congo) and the 1,110 miles-long power line
connecting it to the copper-producing Shaba province (Katanga).
The early 1970s: zaïrianization and radicalization
3.22. In 1971 Mobutu launched the “Zaïrianization”, an economic indigenization and
nationalization campaign. Initially, the campaign expropriated buildings, light industry, and
agricultural holdings, including large plantations. Most of the recipients had neither the
experience nor the capital required. Thirteen months later came a “radicalization” program aimed
at correcting Zaïrianization that led to yet greater concentration of interests and ownership in
well-connected hands. Radicalization widened the expropriation process by targeting the large
industrial companies (mostly Belgian-owned) that had been spared thus far. Private companies
were nationalized and consolidated into powerful parastatals.
3.23. Zaïrianization and radicalization severely weakened the economy. 36 They caused
inflation and unemployment, inventory and asset liquidation, shortages of basic commodities and
inflation. They scared domestic and foreign investors away, leading to massive capital flights.
The plantation economy virtually disappeared. At the same time, the State accumulated huge
debt arrears. The destructive impact of the program is still felt today.
The late 1970s and 1980s: the collapse of Gécamines
3.24. During the 1970s and 1980s, the country also suffered external shocks which further
destabilized it. In 1975, several years of boom in copper prices came to an abrupt halt. Prices
dropped 40 percent during that year (see Figure 20: evolution of GDP and per capita GDP).
3.25. At the same time oil prices rose dramatically. Due to the war, the Benguela Railway
connecting Katanga to the Angolan port of Lobito closed. Already crippled by the nationalization
programs, output shrunk starting the long decline in growth and per capita income. The latter fell
by almost one third between 1975 and 1981 (see Figure 2).
36
Zaïre: A Country study, Handbook. Library of Congress (1994).
68
Figure 3.3 : Evolution of GDP and per capita GDP
120
70.0%
100
60.0%
50.0%
80
40.0%
60
30.0%
40
20.0%
20
10.0%
0
0.0%
1988
1989
1990
1991
Export value/Total Expots
1992
Copper
1993
Cobalt
1994
Zinc
Source: DRC, Statistical Annex, IMF several years
Figure 3.4 : Gécamines production, copper, cobalt and zinc (index 1988=100) (left axis) and export
value/total exports (right axis)
constant 2000
US$
400
millions constant
2000 US$
9000
8000
350
7000
300
6000
5000
4000
3000
2000
1000
0
1960-1963
Independenc
e from
Belgium,
political
unrest and
secessionist
attempt in
Katanga.
1975,
collapse
in
copper
prices,
40%
reductio
n
250
1981,
second
collapse in
copper
prices,
45%
reduction
200
1986,
collapse
in cobalt
prices,
58%
reduction
GDP (millions of constant 2000 US$)
19961997,
first
Congo
war
19982003,
second
Congo
war
150
100
50
0
GDP per capita (constant 2000 US$)
Source: WDI (2009)
3.26. In 1986 the price of cobalt (DRC’s second most important export commodity) plunged by
58%. Despite the richness of mining resources in Katanga, remoteness, underinvestment,
mismanagement and obsolescence made Gécamines uncompetitive and very sensitive to external
price shocks. In 1990, Kamoto, the most important cobalt mine, collapsed after decades of
capital depletion and lack of investment. From 1988 on copper production collapsed: from some
470,000 metric tons that year to about 34,000 in 1995, a 90 percent drop (Figure 21). Production
of zinc, a byproduct of copper, was down to a mere 4 percent of its 1988 level. Its production
ceased in 1999. Manganese exploitation ceased in 1975. Cobalt production was stable from 1988
69
to 1990. In spite of increases in cobalt prices in 1991 production was at 20 percent its 1988 level
by 1993. Mining’s contribution to GDP shrunk from 11.3 percent to 4.7 percent in five years (see
tableXX).
Table 3.1 : The collapse in mining and its impact
1988
1989
1990
1991
1992
1993
1994
Mining production (000 tons)
Copper
Cobalt
Zinc
468,4
10
442,8
9,3
355,7
10
236,1
8,6
147,3
6,4
48,3
2,2
33,6
3,6
61,1
54
38,2
28,3
18,8
4,2
2,5
Mining sector (including all mining production)
Annual changes (%)
As % of GDP
-7,5
-3,6
-15
-22,8
-36,3
-17
-25,4
11,3
11,1
10
8,5
6
5,8
4,7
Transportation (in tons per km)
ONATRA
SSCC
900
857
754
412
193
124
95
1.701
1.659
1.340
815
448
169
193
-6.6
1.631
896
54.9
865
30%
26%
13%
-8.4
1.288
535
41.5
734
29%
22%
14%
-10.5
1.144
232
20.3
752
31%
21%
7%
-14.5
1.271
176
13.8
911
34%
14%
7%
-7.2
1.451
295
20.3
1095
27%
11%
14%
Aggregate statistics
GDP growth rate (%)
0.5
Total exports (US million)
2.202
Gécamines exports (US million)
1.389
Gécamines/Total exports (%)
63.1
Other exports
Diamonds
Crude oil
Coffee
Source: The DRC, Statistical Annex, IMF (several years)
-1.4
2.131
1.265
59.4
813
31%
20%
15%
3.27. The impact from Gécamines’ progressive collapse was huge and affected the entire
economy, with visible consequences throughout:
-
Firstly, a fiscal crisis developed as Gécamines was the main source of revenues for
Central Government. From 1990 to 1995, the company experienced massive losses.
Strapped for revenues, the government responded by printing money to cover public
expenditures and the regime’s expensive lifestyle, generating an inflationary spiral.
Bankrupt by 1991, the Government could not service its debt nor invest and pay the
wages of civil servants and the army. In September 1991, unpaid soldiers mutinied
throughout the country and led mass lootings (“grands pillages”) that targeted private,
public and industrial assets. New riots erupted again in December 1992 when soldiers,
demanding payment of salary arrears, conducted another campaign of lootings in the
main cities. A month later, after rejecting the payments received in new denomination
bills, the soldiers looted again (1,000 were reported dead in Kinshasa).
-
Secondly, an external crisis developed as Gécamines was the main provider of hard
currency and foreign reserves. From 1989 to 1995, total value of exports came down
from US$ 2.2 billion to US$ 1.4 billion. Without hard currency and willing external
lenders, imports collapsed from US$ 2 billion to US$ 870 million.
70
-
Thirdly, rail and river transportation came to a virtual standstill as operators could not
adjust tariffs in the face of high inflation and high oil prices. The collapse in exports
generated foreign currency scarcities. The outcome was a failure to invest in maintenance
and capital equipment. In 1995, total cargo trade was about 10% of its 1988 level. Critical
parastatals like ONATRA and SNCC experienced financial and operational distress. They
could not maintain and invest. As the transportation system consisted of a set of rail and
river networks linked to a large feeder system of roads connecting town to rivers/rail,
these problems amplified the nationwide collapse in output. ONATRA could not
adequately operate the ports of Matadi and Kinshasa, and the vital Kinshasa-Matadi
railway stopped operating. Private operators stepped in to ensure vital river transport and
trade along the Congo River. The more remote provinces of Katanga, Maniema, Province
Orientale, the Kasaïs and the Kivus suffered a great deal from the resulting economic
isolation. The agriculture sector that dependent upon these routes was hard hit, and
collapsed in several provinces.
-
Fourthly, the Central Bank became bankrupt as monetary and fiscal policies were
misguided and/or poorly implemented. Most banks had closed by 1993. The Zaïre, which
replaced the Congolese franc in 1967, was unrealistically priced at Z1 for US$0.50 in
1967. By 1985, after a series of devaluations, it was Z50 for US$1, and by 1990 the
official rate was Z719 per dollar. In 1991, devaluation brought its black-market value at
Z15,300 per dollar . Hyperinflation continued unabated. By the end of 1992 the Zaïre
stood at Z1,990,000 per dollar, and Z110,000,000 by the end of 1993.
-
Fifthly, Government stopped honoring its debt to utility companies, public enterprises
and private actors. By the end of 1995 it owed US$ 217 million to SNEL (electricity) and
US$ 156 million to REGIDESO (water). Gécamines, REGIDESO and other public
companies owed SNEL US$ 152 million. A domino effect of bankruptcies in the public
companies and parastatals was set in motion.
3.28. By the mid-1990s the country faced a risk of virtual disintegration due to hyperinflation,
financial, economic and growth collapse, and increasing internal political pressures in the
aftermath of a wave of Africa-wide democratizations (these political pressures forced Mobutu,
for example, to allow political parties for the first time). From 1990 to 1995, the contribution of
the industry, manufacturing and services sectors to the GDP plummeted, pushing the economy
into subsistence agriculture (see Figure 5). By the end of 1995, income per capita was only one
third its pre-independence levels.
3.29. Therefore, the country's economic collapse preceded the civil war in the 1990s. The
single most important factor in the destruction of the economy is not the civil war, but the
1991/93 lootings, which in Kinshasa alone resulted in losses in the order of $800m.
The postwar growth recovery
3.30. The inflexion point in growth stagnation and/or collapse came following the 2002 powersharing agreement. Since 2003, the country’s GDP growth has been positive and roughly aligned
with Sub-Saharan Africa averages, except during the presidential election in 2005/2006, which
71
resulted in a period of political and social tensions, and fiscal and monetary policy-induced
inflationary pressures.
3.31. Since then a fragile peace has been maintained, with military conflicts limited to specific
areas in the east. However, the fragility of the country’s economic recovery has been
demonstrated by its poor growth performance during the global economic crisis. GDP growth
remained positive in 2009 but slowed to 2.5% (from 6.2% in 2008). The DRC remains critically
exposed to international commodity prices and economic shocks, and to endogenous political
conditions.
Figure 3.5 : Recent growth evolution compared to SSA (Source: WDI, 2009)
3.32. By 2007 the economy returned to pre-war (1994) levels in terms of output composition
(see Figure 20: evolution of GDP and per capita GDP), a return to a period when the economy
was already very weak and impoverished, but an improvement nonetheless. The economy is now
dependent on agriculture (47 percent), followed by services (30 percent), industry (27 percent)
and a small manufacturing sector (6 percent). A large informal economy, mostly at subsistence
levels, remains unrecorded. In terms of mining production, only cobalt shows a positive
evolution, even though production remains at 1988 levels. Copper production remains at only 10
percent of its 1988 levels and zinc production remains marginal (see…..). The mining sector’s
contribution to total exports remains low, at around 15 percent in 2005 from 60 percent in 1988.
72
III.
A.
T HE
G R OW T H DI A G NOST I C S A PPL I E D
National gr owth diagnostics
Table 3.2: Most severe constraint (2006)
2003
%
Ranking
Electricity
Access to Finance
Competence of Informal Sector
Tax rates
Political Instability
Macroeconomic Instability
Constraint
47.06
13.82
8.24
7.35
5.59
3.53
1
2
3
4
5
6
Transport
Crime
Tax administration
Custom and Trade Regulation
3.24
1.76
1.47
1.47
7
8
9
9
Skills of available labor force
Telecommunications
1.47
1.47
9
9
Regulation on pricing and mark-ups
Licensing and Operating Permits
Access to Land
1.18
0.88
0.59
10
11
12
Corruption
Regulations on operation hours
0.59
0.29
12
13
Total
Source: ICA (2006)
100
Is access to finance the most binding constraint?
3.33. Access to finance has been a long-standing challenge for the DRC, due to erratic state
interventions (i.e. nationalizations), currency mismanagement, and weak economic institutions
(i.e. the Central Bank). As a result, FDI net flows were very low and often negative for years
between 1980 and 2006, because of the investment climate, but also because state-owned
companies, including Gécamines, were not able to attract investment.
3.34. However, once the mining sector re-opened to private investors in the 2000s, the stock of
FDI more than doubled to US$ 2.5 billion since 2006 (or five-fold their pre-war levels). In a
similar manner, domestic investment grew at a fast pace from 2001 and stabilized at about 10
percent of GDP in 2005. Since 2003, low and declining savings rates have been offset by
external aid flows and capital inflows. These have boosted domestic investment to 10 percentage
points higher than domestic savings, as measured in share of GDP. The relatively high rates of
domestic investment of 13 percent of GDP and of domestic savings of close to 5 percent show
the DRC benefits from some level of access to international finance.
73
3.35. The banking system is very small, with total sector assets accounting for around 10% of
GDP in 2006, below the average ratio of 25% in the rest of SSA. Total credit to the private sector
is also small compared to averages in SSA at 3% of GDP (in 2006) in the DRC vs. 12.3% for
SSA. As an indication, the number of bank accounts is estimated at between 60,000 and 100,000
accounts with about 60 branches across the country – a ratio of one branch per one million
inhabitants. Moreover, about 90% of the loans are short-term loans, covering overdrafts, working
capital and letters of credit. Further, financial and credit coverage is exclusively urban and
limited geographically, with only a few branches outside of Kinshasa, in cities like Matadi,
Lubumbashi, Goma or Bukavu.
3.36. The large majority (87 percent) of the firms surveyed by the ICA are not currently
seeking credit from financial institutions. Of the 13 percent of firms seeking credit finance, only
3.5 percent have received a loan. According the ICA survey, the most common reason for being
rejected (36.4 percent) is the incapacity to match the collateral requirements (especially
important for small entrepreneurs and SMEs). The second motive for rejection (15.1 percent) is
the incapacity to comply with the loan application (again mostly affecting SMEs). Only 12
percent of the rejected applications were failed because of insufficient profitability.
3.37. The high cost of credit does not appear to impact credit finance. In the ICA, only 7
percent of the surveyed firms cite high cost of credits as the main reason for not seeking credit in
2006. Credit to the private sector and interest rates (interbank rate) have both increased between
2004 and 2008, invalidating the hypothesis that interest rates are currently a constraint to the
expansion of credit. Thus, the current dearth in credit finance must be related to factors other
than high costs, such as poor capillarity (i.e. the absence of bank branches in rural areas and
cities outside Kinshasa); and credit rationing (i.e. banks lending primarily to specific-low risk
sectors and large international companies).
Figure 3.6 : Interest rate and credit to the private sector
billions of CDF
500
450
400
350
300
250
200
150
100
50
0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2004
2005
2006
Credit to the private sector
2007
2008
Real interest rate
(Source: IMF (2009), BCC (2009)
3.38. While the study concludes that access to finance is one of the most binding constraints at
the national level, this does not imply that the banking industry is at fault. A nascent but dynamic
banking industry—including several foreign banks—has emerged, albeit concentrated in limited
urban areas and catering specific sectors. The analysis suggests the limited access to credit in the
74
formal banking system is the result of appropriability issues. Out of the formal financial system,
the root causes of poor finance in the Congo must be found elsewhere, i.e. in the larger
dysfunctions of the macro-economic framework. According to the 1-2-3 Survey, only 1 percent
of households report having access to any form of credit finance. Of those, 65 percent are
financed by family-self-owned funds and 10 percent by family- or community-based savings
schemes such as “tontines” (see XXX). These modest savings schemes are used primarily for
working capital and as input into production (only 5 percent are used for investments). These
findings provide further evidence of poor finance for agriculture – the largest income-generating
sector, which provides livelihoods for the majority of the population.
Are low returns on economic activities the most binding constraint?
3.39. The transportation system inherited at independence integrated an expansive multi-modal
infrastructure network of road-rail- and river-ways that used the Congo River and its tributaries
as its backbone. At its peak, this multi-modal network served to integrate the country politically,
administratively, economically, and geographically. In addition, a dense network of 145,000 km
secondary feeder roads, maintained by local private industries, allowed the rural centers to move
their goods. This network has all but collapsed.
3.40. The Congo River can be considered as the DRC’s highway, crossing the country from
east to west and south to north, and to the Atlantic Ocean. Two other rivers – the Ubangi and the
Kasaï – are navigable all year round and serve as the main axes connecting the provinces within
the country and to the Congo River. Lake Tanganyika provides access to Tanzania and Burundi.
3.41. When river transportation business began to collapse, due in part to the bankruptcy of
Gécamines and its domino effect on the state transport system, private actors entered the market
to provide the services. The railways, which were developed to complement the waterways in
their impassable sections, were a public good that could not easily be privately provided. As a
result, the regions that suffered the most were those dependent on railway transportation, like
Katanga, Maniema and Province Orientale. Serviced by private boats, provinces accessible by
river like Equateur, Province Orientale, Bandundu and Kasaï Occidental saw an abrupt drop in
cargo transit, but less disruption in terms of connectivity. Regions that were connected to
neighboring countries like South Katanga, North and East Province Orientale and the two Kivus
could access markets only by using the infrastructure of neighboring countries or by flying their
goods to Kinshasa.
75
Figure 3.7 : diagrammatic map of the post-war transport system
3.42. According to the Doing Business Report, in terms of importing costs, the DRC is close to
the SSA averages, while in terms of exporting costs it is 50 percent more expensive. These
figures are better than expected, and firms surveyed in the ICA do not complain about
transportation. Transportation is ranked 7th (out of twelve) in the list of obstacles for private
investment in the DRC. However, an analysis of the ICA data by cities further shows that firms
in Kinshasa or Matadi do not complain about transportation while those in Lubumbashi place it
as the second most constraining factor. In addition, the ICA shows that small firms complain
about transportation, while large ones do not (being vertically integrated).
3.43. The electricity infrastructure is in a state of disrepair. Lack of reliable energy supply is
the number one constraint identified by private firms in the ICA. While electricity constraints are
common throughout, they are more important in some provinces than in others. In Kinshasa,
energy is the most limiting factor for current companies and likely also for potential investors. A
few large projects in Katanga Province are connected to the Inga dam and do not complain about
lack of electricity supply, though the rest of the province, including the industrial sector clustered
around mining, is constrained by poor provision.
3.44. The stock of human capital (by average years of study) in the labor force has been stable
at around 7 years for the last generations, indicating that the average Congolese has only
completed primary level education. Most of the educated labor force is concentrated in Kinshasa,
and the capital’s population has on average 2.5 years of education more than the rest of the
country.
3.45. One way to assess whether human capital is constraining growth is to evaluate whether
wage premiums are high. At a national level, the return of one extra year of education is 6
percent, which is a low return indicative of a labor market that does not need to offer higher
76
wages to attract educated workers. This is conditioned by the fact that the largest sectors in the
economy, agriculture, manufacturing and trade, need low levels of human capital. This is
indicative that human capital is not a binding constraint.
3.46. Returns to an additional year of schooling (calculated using the Mincer equation) vary
greatly between provinces. Uneven returns to education are indicative of the different
development paths of Congo’s provinces and the structure of their local labor markets. Further, it
also proves market failures due to low mobility of both capital and labor factors within the
country and across sectors.
Figure 3.8 : returns to education (Mincer) by province
20.0%
15.9%
15.0%
0.3%
-0.1%-9.3%
-5.8%
Kasai…
N. Kivu
Orientale
Equateur
-15.0%
Bandundu
-10.0%
Bas Congo
-5.0%
Kinshasa
0.0%
Kasai…
1.1%
Katanga
5.0%
8.8%
5.2% 4.3% 6.4%
Maniema
7.1%
S. Kivu
10.0%
Source: Authors’ calculations based on 1-2-3 Survey (2004-2005)
3.47. Recent reports from the private sector confirm that human capital is not in scarce supply
in the country. Firms surveyed in the ICA ranked human capital third to last (9 out of 12) in the
list of barriers to private investment. Considering that the survey was done in the largest cities,
where the demand for skilled labor is higher, it is a reasonable assumption to discard lack of
human capital as a binding constraint for growth.
Is it low appropriability?
3.48. The most disruptive force to the economic activity in the history of the DRC may be the
country’s own government, given the track record of nationalizations, expropriations, annulment
of decrees, arbitrary decisions and corrupt and kleptocratic attitudes that can be summed up as a
“textbook” case for government failures, as well as failure to maintain internal security, peace
and political stability. Even if much has improved since 2001, the legacy of Government failures
remains, and for most of private operators, the state’s institutions are largely predatory.
3.49. Property rights and contract enforceability pose a severe limitation to investment,
particularly for new investors looking to enter the market. The costs of starting a business in the
DRC amount to 435 percent of the GNI per capita. This is the highest in the world and four times
the SSA average. Moreover, poor contract enforceability and a weak legal and regulatory
framework continue to affect large investments in mining, forestry, and infrastructure.
3.50. Mobutu’s Zaïre was corrupt to such a level that the “Zaïre malaise” expression came to
represent grand, systemic corruption. Corruption, particularly bribery, has been internalized in
the state apparatus via a complicated and duplicative web of national and provincial fiscal
77
entities, customs agencies, police, and other competing border and immigration control agencies
within and between provinces. However, that corruption ranks only second to last in the list of
barriers for doing business in the DRC may suggest that corrupt practices have become so deeply
ingrained that they are taken as a fact of life and a way to “get things done.” Indeed, 84 percent
of firms admit to making payments to government officials (twice the level in SSA and the 6th
worst ranking in the world).
3.51. Although companies complain about tax rates and tax administration, with 52 percent of
the firms surveyed citing a barrier (compared to 41 percent in SSA), tax rates rank only as the
fourth constraint after energy, access to finance and competition from the informal sector. We
may therefore discard taxes as a suspect for the most binding constraint to private investment,
although they impact negatively the country at large, by limiting entry, promoting informality
and making corruption and bribery more profitable.
3.52. It is remarkable that political instability would be listed as only the 5th most constraining
challenges (behind taxes), with a mere 5 percent of the firms surveyed in the ICA (especially
medium and large firms) reporting it as a barrier. Surprisingly, respondents in Kisangani,
Lubumbashi and Matadi did not consider insecurity to be a pertinent concern; and only firms
located in Kinshasa listed it as a constraint. Crime is cited as the 7th top constraint by an
insignificant number of companies, and only 34 percent of the firms surveyed report paying for
security – or half the percentage of firms paying for security in SSA.
3.53. The DRC has long had a history of macro-economic volatility and instability that became
chronic before and during the wars, shaking the confidence of domestic investors. However, we
can discard macro-risks as a constraint for private investment in the DRC. First, even in the
midst of the inflationary spiral and currency devaluation in 2005/2006, only 4 percent of the
firms surveyed by the ICA cited macro-economic risks as a concern. Secondly, investment
inflows are at record levels, especially in mining and timber. Finally, the decrease in mineral
prices since the second half of 2008 has not resulted in the collapse of economic governance seen
in 1975 and 1986. More recently, completion of the HIPC process allowed the government to
secure a sustainable fiscal balance.
3.54. The past four decades illustrate the two main features of the economy. First, it is based on
extractive industries. Second, manufacturing and/or industrial goods never represented a
substantial contribution in the exports basket, even during periods of growth and
industrialization. Over a period of 30 years, the composition of the DRC’s exports basket has
remained based almost exclusively on extractive industries, even though the individual
commodities change (such as copper which went from 62 percent of exports in 1970 to almost
zero in 2000). Extreme concentration characterizes the extractive sector, i.e. the 3 or 4 top
exports represent as much as 80 percent of the country’s total exports. The authors do not,
however, conclude that self-discovery illustrates the most binding constraint to the economy
today. Growth and export-oriented activities can be re-started by being better at producing “more
of the same” at more competitive prices, and scaling up traditional industries that have been
struggling.
3.55. It appears that the lack of economic performance might be due in part to failures in
information and coordination in the market functions, following the collapse of key players in
78
key sectors in agriculture, industry and transportation. In the past, producers and economic actors
played an active coordination role in the economy. History, the economic crises and the wars
have reduced them to a passive role. These economic “interest groups” formerly contributed to:
i) the construction and maintenance of roads; ii) the coordination of financing mechanisms; and,
iii) the economies of scale gained by managing common/public goods. Infrastructure and finance
were the most impacted markets; their absence resulted in missing inputs and market failures.
Inevitably, the important sectors such as mining or agriculture reduced their output to noncompetitive levels.
Analytic conclusion
3.56. The scarcity of data and the inter-related nature of the challenges typical of post-conflict
settings make it difficult to first isolate and then rank the most binding constraints for the DRC
economy.
3.57.
However, and based on the evidence reviewed, the analysis concludes the following:
1. Human capital, macro-economic risks and market failures are not the most binding
constraints to growth.
2. The most binding constraints to growth are: i) government failures; ii) lack of finance;
and iii) lack of infrastructure (energy and transport).
3.58. The study argues that the highest returns in terms of growth would be gained if these
three binding constraints were resolved.
3.59. Government failure that is evidenced by the absence of the rule of law, particularly the
uncertainty of legal and regulatory frameworks and low enforceability of contracts, appear to be
most discouraging factors for foreign investors.
3.60. Rooted in the same institutional failure, the study identifies access to finance as a binding
constraint, in particular for domestic investors. Lack of access to finance is particularly
damaging to the agriculture sector, as small farmers lack alternate sources of funding and small
urban enterprises lack the financial literacy and assets to collateralize. However, the root causes
of existing limitations in the financial sector in DRC do not appear to lie within the banking
system. They appear, instead to be a symptom of government failures, such as the lack of
enforceability of collateral contracts and widely prevalent predatory attitudes that push private
firms and investors out of the formal sector.
3.61. The energy-related problems are mainly concentrated in the generation (availability) and
distribution (quality and coverage) of electricity, constraining growth in sectors that are energyintensive. Industry diversification away from the primary sector is thus prevented, limiting
growth in key economic growth poles like Kinshasa, Lubumbashi and Kisangani. The lack of
electricity also decreases returns to investment in the infrastructure and manufacturing sectors.
Weaknesses in the transport infrastructure are hurting the demand and the supply of goods, in
particular for those areas where river transportation is not available.
79
Policy perspectives
3.62. It is evident that the DRC could perform better if the right institutions were in place.
Policy interventions must therefore concentrate on a small number of key institutions that could
act as a “lever” in removing the most visible symptoms of government failures.
3.63. By focusing on a “short list” of institutions, the policy interventions should aim at
creating an “institutional bubble” around the few key “lever” agencies selected. The idea would
be to create a short list of entities, “ring-fence” their operations so they may become
transformative functioning institutions, in the realms of the economic sectors determined to be
most constrained; and bet that this institutional transformation could serve as a “lever” for
change. The transformative impact of the proposed “bubble” would be to establish a new
institutional “model” that would increase the cost of corruption, on the one hand, and exemplify
doing business differently.
3.64. Revenue collection agencies – including customs – might provide such “levers” and
immediate entry points, to boost transparency and efficiency of public management and reduce
evasive and corrupt practices. Similarly, the study would suggest creating efficient investment
promotion boards at the national and provincial levels, to develop confidence-building measures
and innovative coordination models of public-private partnerships. Special economic zones
(SEZ) could help implementing pilot programs in key cities like Kinshasa, Matadi and
Lubumbashi where collection agencies are more prominent and active, hence making the “ringfencing” more attractive.
3.65. It may be necessary, in the very initial phase to draw upon or “borrow” limited external
and credible capacity, to steer the process of institutional change. A roadmap with a set of
benchmarks would help build confidence in the process.
B.
K inshasa Pr ovince
3.66. Kinshasa, the ville-province, occupies 9,595 km² in a geographically privileged position
on the south bank of the Congo River. Kinshasa’s population is estimated at between 8 to 10
million inhabitants. The newcomers to the city settle on marginal land in the city's outskirts. The
city is expected to grow to 20 million by 2030. A major challenge is to create jobs to absorb a
labor force of almost 4 million people, expected to double in 15 years.
3.67. In 2008, Kinshasa’s economy was dominated by trade (48.2 percent), non-trade services
(21.6 percent), agriculture (10 percent) and industry (8.3 percent). Overall, the most dynamic
sector is the primary sector, led by the expansion of agro-pastoral activities – mainly through
urban agriculture.
The growth collapse
3.68. As the capital, Kinshasa once enjoyed a privileged position in trade and investment. The
city’s active port, reliable electricity grid, and large population provided several comparative
advantages. It attracted the headquarters of large manufacturing and industrial companies and of
80
financial and banking services. In the 1960s and 1970s, the capital boasted a growing industrial
and manufacturing sector that served the city’s population as well as large parts of the country.
3.69. Zaïrianization left its destructive legacy on Kinshasa’s economy and its most productive
sectors. Even if most companies were given back later to the original owners, they suffered
losses, capital flight and inventory and machinery depletion. Food processing and manufacturing
companies suffered—in addition—the shock of disruption in the production of raw materials
caused by the zaïrianization measures imposed on agriculture.
3.70. In addition, the collapse of the mining sector in the 1980s meant that the State and the
large parastatal utilities, transportation and mining companies, which were the main providers of
jobs and public goods in Kinshasa saw their revenues drop and cut salaries. The mass lootings
(“grands pillages”) of 1991 and 1993 contributed to accelerating the large-scale bankruptcies of
both parastatal and private companies, including the few foreign private investors who had
survived the chaos of the Zaïrianization. An estimated US$ 800 million of asset value and 94,000
jobs were lost in the capital during the lootings. The share of the industrial sector in the
province’s economy declined from 26 percent during the 1970s to 5.2 percent today.
Growth diagnostics
Is access to finance the most binding constraint?
3.71. Apart from mining investments and reconstruction projects in other provinces, most of
foreign investment is concentrated in Kinshasa, in sectors like telecommunications, construction,
banking, retail and services. The financial sector – the banking industry in particular – have
improved in Kinshasa. Institutions concentrate most of their activities in the city. Of the total
60,000 bank accounts in the country, a large majority is in Kinshasa, as are a number of microfinance programs. Nonetheless, access to finance was listed as the second most constraining
factor for firms in Kinshasa. For the firms that did apply but were rejected, the lack of adequate
collateral (37.5 percent of the cases) was the most cited factor.
3.72. Short- and long-term savings are higher in Kinshasa than in any other part of the country,
suggesting that savings can be mobilized. Private firms appear to use cash flows to finance
investment rather than facing the bureaucratic hurdles of credit application.
Are low returns on economic activities the most binding constraint?
3.73. Compared to the rest of the country, Kinshasa does not have mineral resources or good
agriculture land to exploit. The city’s main asset is its geographic position. Due to its high degree
of urbanization, Kinshasa has the best ratios of access to basic infrastructure in all of the DRC, as
measured in terms of distance to key infrastructure facilities. Almost all of Kinshasa’s population
has access to social and economic services within a short distance.
3.74. Urban transportation services are an exception, as they are overwhelmed. Nevertheless,
transportation was ranked only as the sixth most severe barrier. The trade links between
Kinshasa and Matadi, the capital of Bas-Congo, are vital to the national economy, as a whole.
The road, however, is the only infrastructure link, as the railway link between the ports of Matadi
81
and Kinshasa remains out of operation, resulting in a significant bottleneck to scaling-up the
economy. All private operators interviewed in Kinshasa and Matadi point to the rail link as the
most potentially important piece of transport infrastructure and an active constraint.
3.75. The share of households’ access to electricity in urban Kinshasa is 35 percent, by far one
of the highest in the country. However, 78 percent of firms that were surveyed by the ICA
indicate electricity as a “severe” or “very severe” obstacle. Access to electricity can be
considered a main determinant in the evolution of the provincial economy. Industry and
manufacturing now contribute just a small share of the city’s GDP, while services and
agriculture, which are less intensive in energy consumption, have become the more dynamic
sectors. The adaptation of the services industry is further seen in its capacity to attract new
investments – and to grow as a result.
3.76. The level of education in the capital is the highest of all provinces in the DRC. About 46
percent of all college graduates in the country live in Kinshasa, and firms are able to recruit a
qualified workforce. The analysis of returns to education suggests that the educational premium
is higher in Kinshasa than in the rest of the DRC (7.1 percent vs. 6.2 percent), although not
significantly so. Firstly, the wage premium for higher education is slightly lower in Kinshasa
compared to the rest of the DRC. This would suggest that labor supply of both skilled and
unskilled workers is not the binding constraint to economic growth in the capital-province.
Is it low appropriability?
3.77. The slow pace of the implementation of the fiscal decentralization process has left the
provinces struggling for predictable revenues. Provinces such as Kinshasa have created new tax
agencies, in effect adding a layer of red tape – and most often corrupt and predatory practices –
to doing business at the provincial level. As a result, the security of assets – and their ownership
– is cited as a constraint to private investment.
3.78. The city could grow just by reviving its defunct firms in the secondary sector, on which it
had comparative advantages. Moreover, the entrepreneurial capacity of the locals is evident
through the vitality of a vibrant informal sector. The province has not been able to rebuild its
industrial and manufacturing sectors to the scale of pre-1991, or to attract any new investment
into these sectors.
Analytic conclusions
3.79. Kinshasa is endowed with many positive factors: high human capital, high access to
health care services, a comparatively strong infrastructure network combining multiple nodes of
rail, road, air and river and high connectivity. Despite these, the province has failed to find
efficient ways to leverage its previously successful industrial and manufacturing base.
3.80. The province’s once powerful industrial sector is currently constrained by serious
infrastructure and capacity problems. The lack of a reliable electricity provision due to the
current deterioration of the Inga power station and an inefficient distribution network generate
losses. Further, manufacturing equipment is obsolete and capital investment has stalled since the
lootings of 1991 and 1993. The recent rise in private investment flows to services and
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telecommunications further suggests sector-specific constraints in manufacturing and industry.
Overall, electricity shows disproportionate signals of scarcity, and as such constitutes the most
binding constraint.
3.81. Government failures are a severe limiting factor for private investment in Kinshasa, given
its proximity to the Government’s reach. For new investors, uncertainty and an adverse
investment climate reduce the appropriability of private returns. Looking ahead, the challenge for
the province of Kinshasa will be to differentiate itself vis-à-vis other provinces and neighboring
countries vying to attract the same foreign investors.
3.82. Kinshasa is currently suffering from an accelerating population growth rate due to higher
birth rates, lower death rates and massive population inflows due to displacement and war.
Poverty in Kinshasa appears to be linked to joblessness and lack of income generation. With high
unemployment and under-employment rates, Kinshasa’s priorities must be to create urban jobs
both for the poor and for its large supply of skilled, educated workers.
Policy perspectives
3.83. Policy challenges in Kinshasa differ from those of other provinces. As an urban
metropolis, Kinshasa must generate a safe investment climate and opportunities for job creation
in the secondary and tertiary sectors. Kinshasa must develop sound industrial policies and
undertake an aggressive campaign to attract investment, with a view to resolving the existing
bottlenecks of basic infrastructure.
3.84. However, without first putting in place infrastructure solutions, policies for industrial and
investment promotion will not succeed. A proposed option would be to create special economic
zones providing energy, transportation infra- and super-structure coupled with a package of real
estate and fiscal incentives to attract a critical mass of investors. Insulating private investment
from appropriability risks and infrastructure limitations, such a special economic zone would
help new investors navigate the arcane central and provincial bureaucracies. Different from other
provinces where endowments pin down location, Kinshasa’s comparative advantages in terms of
manpower, location and access to energy remain its main asset.
3.85. Kinshasa will also benefit from the development of its surrounding and inland provinces.
Since the resolution of many of the constraints faced by the provinces relies on national
decisions taken in Kinshasa, obvious synergies would result from increasing connectivity
between the capital and the country’s food-producing provinces. Since Kinshasa relies on the
food production of surrounding provinces to feed its growing population, helping neighboring
provinces improve productivity and access to finance would contribute to reducing Kinshasa’s
costs for inputs and consumption goods.
3.86. Harassment and corruption are among the most binding constraints for those doing
business in the DRC. Proximity to the authorities exacerbates them in Kinshasa. Measures to
reduce the occurrence of arbitrary or predatory application of regulatory frameworks would be
an affordable step towards greater transparency, for example with electronic payments to help
control tax evasion, or a single flat-rate tax on businesses to simplify the fiscal regime. Both de
jure and de facto, however, the provincial and central administrations appear to be moving away
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from simplification, creating instead their own tax agencies and in effect adding further layers of
red tape. This trend must be reversed.
C.
K atanga Pr ovince
3.87. Katanga is the largest economy of the DRC. With an area of 496,000 km², it registered 8
million inhabitants in 2007. It has the highest urbanization rate. Katanga is to be divided into
four new provinces: Haut-Katanga, Tanganyka, Lualaba, and Haut-Lomami.
3.88. The primary sector is by far the largest contributor to Katanga’s GDP (66.9 percent in
2008), followed by the tertiary (16.3 percent) and secondary sectors (11.7 percent). Between
2006 and 2008 Katanga saw the dramatic recovery of its mining sector. It accumulated a
remarkable 164.5 percent real increase in output and became the main contributor to the
province’s GDP in 2008.
D.
T he gr owth collapse
3.89. Katanga’s industrial concentration around copper and cobalt mining occurs along the
“copper belt”, stretching from south of Lubumbashi to Likasi and west to Kolwezi. After
independence, the state-owned mining company, Gécamines, became the main economic entity.
Its collapse because of mismanagement and government intervention had a catastrophic impact
for Katanga. In particular, education, health services, and other social services provided by
Gécamines stopped, and the infrastructure systems (rail and river, mainly) came to a virtual
standstill. As a result, the vast agricultural areas in the north of the province (from the city
Manono up to the border with the provinces of Maniema and South Kivu) were entirely cut off
from trade and the main markets.
3.90. The recovery in cobalt mining and new investments in the exploration and exploitation of
copper projects contributed to reviving the cluster of economic activities around mining, by
boosting demand for labor and investments, especially for the services industry. In 2008,
services, including hotels, transportation, and financial and other services accounted for up to 50
percent of the private investments in Katanga. At the same time, the collapse Gecamines has left
behind blighted inner cities (or “cités”) all around Kolwezi and Manono, with thousands now
lacking job security and income, and also public services and infrastructure.
3.91. Most recently, Katanga’s economy has been hard hit by the effects of the global financial
crisis. Several investors have suspended their activities and new investments. Moreover, poor
contract enforceability and a weak legal framework continue to affect large investments in the
province, in particular in mining and infrastructure. The cancelation of First Quantum US$1
billion copper projects (the Kingamyambo Musonoi Tailings, Frontier and Lonshi mines) acts as
a reminder for foreign investors DRC offers no certainty for investments.
3.92. The overwhelming concentration of the economy in one sector and geographical area
bears important consequences for Katanga. Almost all investment projects in the province are
concentrated in the copper-belt and related to mining. Agriculture has yet to be reconsidered as
an attractive investment in Katanga, as it was decades ago. The production of traditional staple
foods and cash crops in Katanga has decreased or remained stagnant since 1986.
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E.
G r owth diagnostics
Is access to finance the most binding constraint?
3.93. Katanga has been the most successful province in the DRC at attracting international
finance, albeit uniquely concentrated in the mining sector. Between 2006 and 2007, Gécamines
concluded 38 public-private partnerships and granted over 1,600 mining licenses from which
some very large projects resulted Lack of international finance may represent a serious constraint
to investment if the global financial crisis should deepen. Challenges in mobilizing international
finance, however, are exacerbated by problems of appropriability in the form of targeted voracity
of authorities in the mining sector.
3.94. The domestic banking sector in the DRC is unable to mobilize large sums of money and
has played only a minor role in the recent take-off of the mining sector. Mining projects were
traditionally financed with foreign capital and have therefore not been constrained by lack of
local financing.
3.95. However, the lack of formal and long-term domestic credit directly affects the quality and
supply of equipment used in non-mining enterprises, further constraining the capacity of firms to
expand production, increase efficiency and to export. Only 4 percent of households report having
access to credit for working capital – a very low figure given the role of agriculture as an income
generating activity. Nevertheless, Katanga shows the highest proportion of “self-owned”
resources and family finance, indicating availability of domestic savings.
Are low returns on economic activities the most binding constraint?
3.96. Katanga is connected to major trading corridors, but transportation infrastructure is in
ruins: roads degraded, railroads abandoned, bridges old, waterways practically impassible and
airport equipment deficient. We consider infrastructure to be Katanga’s most binding constraint
to growth and to poverty reduction. Lack of connectivity condemns the vast rural areas to selfsubsistence and reinforces the province dependency on mining.
3.97. The rail network was once the vital means of transport route for Katanga. Southern
Katanga was connected to Kinshasa and to the world through a 3-part, nearly 2,600 kilometer
route via the Voie nationale. Similarly, three lines connected Katanga to the oceans. Following
the collapse of ONATRA and SNCC (these acronyms have not been introduced so far in the text)
, the river and rail transport system disintegrated, leaving Katanga disconnected from the rest of
the country and the large agricultural areas of the province (Haunt-Katanga and Tanganyka
districts) completely autarkic.
3.98. Roads formerly played only a secondary role in Katanga’s cargo transportation network,
and served mainly as feeder roads into the rail-river system. The only paved roads usable yearround are those along the 320 km from Kolwezi to Lubumbashi and the 100 km from
Lubumbashi to Kasumbalesa.
3.99. Katanga has large hydropower potential that could cover the demand for the entire
country. The province is endowed with abundant rivers, waterfalls and rapids. However, that
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potential is poorly developed, and less than 4 percent of the population has access to electricity.
Most of the large mining projects in the province (all former Gécamines facilities) are connected
to Inga and independent from the local network. But the local network is a barrier for growth for
all other sectors.
3.100. Thirty years ago Katanga’s education levels were substantially above the national
average, partially due to the workers attracted by the mining industry, and the extended
education program that Gécamines provided its workers and their families. The pool of workers
was mobilized again when Katanga’s mining and services industry recovered in the early 2000s.
However, unless that pool is renewed with younger and equally qualified generations of workers,
the mining and services industries will eventually be constrained by a lack of human capital.
3.101. Human capital is not a growth-binding constraint in Katanga. The skills-intensive
industries in the province (mining and services) would be able to absorb the pool of skilled
workers formally employed by Gécamines, who benefit from years of training and formal
education. Agriculture in Katanga neither demands nor rewards higher formal education – and
therefore is not constrained by human capital.
Is it low appropriability?
3.102. Despite remarkable progress, Katanga remains affected by issues of appropriability and
under-performing investment climate. The mining sector shows specific signs of instability,
which if unresolved, could deter investors from expanding capacity in the short-term. The
Government has completed a review of all concessions granted to foreign mining companies,
after a drawn-out two-year process that has created an acrimonious climate of finger pointing
between Kinshasa and Western bilateral and multilateral investors.
3.103. Another binding micro-level appropriability issue is the enforcement of contracts and the
overall legal and regulatory framework. A recently published Senate Report has highlighted the
failure of anti-corruption measures and persisting mismanagement in the mining sector. The
Report states that “during 2008 the State coffers received only US$ 92 million from the mining
sector, estimating that some US$ 450 million were lost through corrupt practices including
under-invoicing, tax evasion, ores smuggling, fraudulent contracts and poor accounting.
3.104. Fiscal revenue transfers (“rétrocession”) from the central authorities have fallen short of
set thresholds and has had a limiting impact on the ability of the province to provide
infrastructure, public goods and social services. The provincial government has made impressive
strides to increase the provincial revenue base, through fighting corruption and tax evasion,
pursuing more robust enforcement, introducing new levies, and raising corporate taxes.
Ultimately, however, there exists a risk that excessive new taxes at the provincial level will result
in over-fiscalization, and scare off private investment.
3.105. As a revenue-generating province, however, Katanga feels increasingly penalized by the
decentralization law and its provisions, whether by the lagging pace of revenue transfers or the
appropriation by the central government of an increasingly larger revenue base.
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3.106. For the most part, however, private firms including those invested in mining in Katanga,
have not assumed Gécamines’ previous role of provider of public goods. Given the magnitude of
current infrastructure needs, several mining executives have said they would be ready to
contribute greater public goods if the right pooling mechanisms for resources could be coupled
with tax incentives. Coordination failures do exist, though it would be difficult to say that they
represent the most binding constraint. Where this coordinating role would best be placed is not
clear, either.
Analytic conclusions
3.107. Given its location, history and immense natural and mineral wealth, Katanga has assumed
the role of the locomotive of the Congo’s economy. Mining in Katanga has for decades been the
largest single revenue provider for the central authorities in Kinshasa. Following record highs in
copper and cobalt prices in early-2000s, the mining sector in Katanga was poised for an
ambitious growth and expansion trajectory, and owes its recent recovery to this sector’s strength.
3.108. Thanks to foreign direct investment flows, the province had begun to rehabilitate obsolete
mines, and explore new ones. However, the drawn-out review of mining concessions, which
began in December 2007, might have eroded the private sector’s confidence in the national
authorities. As the risks of appropriability increase, foreign companies have delayed priority
investments, particularly for the mining sector, and the result is a financing crunch for small and
medium sized companies.
3.109. Having previously enjoyed a national comparative advantage in higher education and
literacy, the collapse of Gécamines meant the collapse of its free public education to the
workforce and their families. As a result, a previously abundant supply of skilled workers has
begun to converge towards the national average, but as yet does not pose a binding constraint to
growth for the mining sector.
3.110. The most binding constraints for agriculture in Katanga are the crippling lack of
infrastructure and access to finance. Particularly in northern Katanga, which was once the
“granary” of the province, infrastructure is a major concern. Railways, important for the
transport of goods and people to markets, are the weakest links in the infrastructure system.
Further, agriculture is not attracting the foreign investment and domestic finance it needs to
grow, and as a result the province is at risk of food shortages. Access to finance is extremely
limited in size and borrowing terms, especially in the agriculture sector. Unless productivity in
agriculture can be “kick-started” again, Katanga might find itself overwhelmed by demographic
explosion and face food shortages in the near future.
Policy perspectives
3.111. Strong governance by the provincial government is likely to be an important factor for
growth in the next several years. The current provincial government has implemented a number
of measures which appear to have encouraged investment and employment generation. Efforts
for good governance will need to be consolidated and government strategies reinforced to ensure
the strong, diverse, private sector led economic growth.
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3.112. The provincial administration is looking to the future of the province beyond mining ,
aware that increasing food insecurity and lagging health indicators point to growing inequality
between the “copper belt” and the agricultural regions.
3.113. The local government should take a pro-active approach towards infrastructure
development, as the lack of infrastructure can be blamed for many lost opportunities. For
instance, an unstable electricity supply can be blamed for the province’s failure to locally
produce cement. A cement plant on the Kabalo-Kalemie rail line could produce and export
cement, or substitute for imports arriving now from South Africa.
3.114. “Un-bundling” large projects could prove to be an effective approach to infrastructure
development. Public-private partnerships would allow resources to be pooled and for portions of
large infrastructure project of direct interest to private sector operators to be independently
financed. For example, the 200km from Lubumbashi to Pweto on Lake Mweru could be an
alternative route to Durban for mining firms to exports goods through the port of Dar-es-Salaam.
This may present more competitive export options, and its development could potentially
encourage private investors. Similarly, the construction and management of small energy plants
could be contracted to the private sector.
3.115.
Katanga would be one of the obvious locations for SEZs. With a large and qualified
labor force, and relatively good connectivity to important markets in the region it could add
value and process some of the mining output and attract providers of inputs for the sector. The
infrastructure bottlenecks in transport, energy or human capital could be partially resolved by
mobilization of private finance. The provincial and central governments must create appropriate
incentives for market coordination, pooled private finance and strong public private partnerships.
Failure to do so will compound existing market coordination failures.
F.
B andundu Pr ovince
3.116. With an area of 295,658 km² (12.6 percent of the national territory) – or about half the
size of France – Bandundu is the 4th largest province. The current population is estimated at 9.9
million, with a density of 30 inhabitants per km2 and about 77.6 percent of rural population (vs.
a national average of 60.5 percent). 75 percent of the households depend exclusively on
agricultural activities. Bandundu is the political capital, while Kikwit acts as the main economic
center. According to the new 2006 Constitution, the current provincial territory of Bandundu will
be further divided in three new provinces: Kwilu, Kwango and Maï-Ndombe.
3.117. The primary sector is by far the largest contributor to Bandundu’s GDP (85.4 percent in
2008), followed by the tertiary sector (11.5 percent) and the secondary sector (2.8 percent).
Within the primary sector, agriculture has the lion’s share with 56.1 percent of the provincial
GDP, followed by fishing and animal husbandry with 13.6 percent and 11.7 percent,
respectively. Agriculture is predominately for subsistence household consumption, with only 1-2
percent of the value of production coming from industrial production over the period 2006-2008.
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The growth collapse
3.118. With more than 15 million hectares suitable for forestry and 1.5 million for agriculture,
Bandundu’s growth path has been historically linked to the fate of its primary sector. Prior to
independence, Bandundu contributed the lion's share of the palm oil exports. Production was
mainly located in the Kwilu district. A significant number of foreign investors were engaged in
the sector. After Zaïrianization, commercial agriculture collapsed, leaving only subsistence
agriculture and a few other cash crops. A few foreign companies remained invested in cattle and
forestry concessions; their impact, though sizeable, remains localized. Palm oil output remains
insignificant compared to pre-independence levels.
3.119. The collapse of the industrial agriculture base has contributed to a vicious cycle of low
productivity reinforcing low investment. It seems that productivity is low even in comparison
with other provinces in the DRC, as indicated by the low labor costs compared to other
provinces. Low labor productivity seems to be due to low technological capacity and low capital
stock in agricultural enterprises. The low intensity of capital in agricultural exploitations in
Bandundu relative to the rest of the DRC is due to a severe shortage of investment, which is
constrained by the lack of finance in the province.
Growth diagnostics
Is access to finance the most binding constraint?
3.120. Despite its comparative advantage in human capital endowments and proximity to
markets in Kinshasa, Bandundu has attracted almost no any new investment project since 2006.
Sources of formal finance are severely limited throughout the province. No commercial banks
are operating in Bandundu-Ville, where financial intermediation is solely provided by money
transfer agencies. Only one commercial bank is reportedly operating in Kikwit. In the rest of the
province, a few NGOs appear to offer scarce micro-credit loans at high interest rates (above 40
percent). Informal sources of finance are also limited. Households have little disposable income
for savings and investment due to the severe levels of poverty and the importance of subsistence
agriculture for earnings.
3.121. The agricultural sector also suffers from constraints in the availability of financing, which
has resulted in a mainly subsistence based agricultural sector rather than an industrial one.
Recent country-wide trends in finance away from the agricultural sector have worked to the
detriment of Bandundu’s predominately agricultural economy. Credit allocated to agriculture in
the DRC has sharply decreased from 30 percent around pre-war levels (1994) to 6 percent in
2007. By contrast, in other provinces such as Bas-Congo, Katanga, Kasaï or North Kivu,
investments in industry, mining and commerce have helped buffer the shock of the collapse in
agriculture and provide some continuity in household income.
Are low returns on economic activities the most binding constraint?
3.122. Bandundu enjoys an impressive fluvial network with an extended river and lake system
(3,131 kms), making the province the second largest hydrologic reservoir in the country after
Equateur. Most of the province’s rivers are navigable year-round.
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3.123. The majority of the road network is extremely degraded, and most roads are impassable
during the rainy season. The rural population is largely cut off from the rest of the country due to
the weakness of the infrastructure.
3.124. With the collapse of the infrastructure network and the secondary/feeder roads to the
main national roads and river ways, small farmers – at least those far away from the main towns
and navigable rivers– are left with the only options are to cycle, walk or go by dugout canoe, to
move their goods to the main trading posts. Similarly, seeds, fertilizers and other inputs
determinant of productivity do not meet demand.
3.125. Air transport is effective, albeit prohibitively expensive, and suffers from capacity
limitations.
3.126. Endowed with many rivers and waterfalls, Bandundu has a large hydroelectric potential,
albeit under-developed. The current supply of electricity is insufficient, covering only the three
main centers of Bandundu-Ville, Kikwit and Inongo. In 2003, the electricity service ratio was
only 1.2 percent
3.127. The private returns to one extra year of education are about thirty percent lower in
Bandundu compared with the national average (4.3 percent in Bandundu vs. 6.2 percent of the
DRC). Further, skilled workers do not receive a disproportionate wage premium as compared to
the national average. The relative price of human capital as a factor would indicate that human
capital is not the binding constraint in Bandundu.
Is it low appropriability?
3.128. In Bandundu, the provincial administration is pushing an ambitious effort to increase
revenue collection from agriculture production. As the national study shows, however, this may
result in over-fiscalization, further complicating the regulatory framework for investors.
3.129. Anecdotal evidence collected by the authors seem to suggest that although illegal tax
collection (i.e. “gate-keeping”) occurs along the main export routes – especially along the river
ways – the economic significance of these forms of extortion (in terms of the total merchant
value) remains too small to represent a constraint to trade and growth.
3.130. Bandundu’s comparative advantage is in agro-pastoral activities, including agro-industry,
but the province still needs to find ways to produce and integrate itself into the national and
world economy. On the other hand, the province has yet to “self-discover” the industries that will
allow it to recover from the collapse of its mono-industry in palm oil.
3.131. The province is unable to attract new activities outside of agriculture that would in turn
generate a supply response in financial intermediation and services. The authors conclude that
population will remain trapped in poverty, unless and until a coordinated effort and support
exogenous to the province to kick-start the economy can be mobilized.
3.132. In Bandundu, the local elite have failed to invest locally in contrast to other provinces
such as the Kivus, Bas Congo or Katanga, where a middle-class of entrepreneurs has
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successfully sustained the local economy and seized new opportunities. The political power and
clout that Bandundu’s elite gained under the Mobutu regime may have encouraged rent-seeking
and “clientelistic” attitudes. It fell short, however, of translating into economic power for the
province.
3.133. The growth diagnostic demonstrates that poor access to finance represents the most
current binding constraint to economic growth and poverty reduction. More than elsewhere in the
country, the absence of formal domestic financial institutions compounds issues of savings and
credit needed for industrial agriculture.
3.134. A perverse cycle of: i) record-high dependency on agriculture; ii) lack of secondary
source of income; iii) low scale, and (iv) low-technology productivity, contributes to further
dependency and poverty, keeping households from saving and investing.
Analytic conclusions
3.135. Poverty will not be reduced until economic activity is re-established in the rural sector.
Bandundu needs more economic than social policies. The market has failed to provide the
information and coordination needed for investors to begin to take advantage of the province’s
resources and location. Finance will be crucial for stimulating the economy by restarting the
wheels of agriculture and agricultural industry in Bandundu.
3.136. The recovery of the province is consequently linked to attracting a critical mass of private
investments to “unlock” the economy and create jobs and growth. Only by breaking the perverse
cycle of low income-low savings-low investment-low productivity will it be possible to re-set the
economy of Bandundu on the path of sustainable growth.
Policy perspectives
3.137. A possible policy intervention could seek to create an external buyers’ “cooperative” of
agricultural products in the region, linked to graduate and flexible credit schemes and input
supplying support (seeds and fertilizers). The incentives of future returns on their investments
would encourage farmers to streamline their production in the more formal economy; generating
in turn, households’ income to access credit finance. Such a scheme would generate high social
returns. It could be co-managed through public-private partnerships with the private sector,
framers and agricultural NGOs.
3.138. The few large-scale investors operating in the province have had no choice but to
integrate vertically in transportation, energy and finance etc. Identifying “niche” services that
could directly complement local agri-businesses could be an entry-point for creating new jobs. A
combination of micro-finance for small entrepreneurs, training in agriculture and private-public
entrepreneurship ventures would help develop of these complementary ”niche” services to the
few viable industries in the province invested in agriculture, cattle and timber.
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G.
Pr ovince Or ientale
3.139. As the largest province in the DRC, Province Orientale occupies an area of 503,239 km².
In 2005 it had a population of 6.6 million. About 80 percent of the population lives in rural areas,
and with 3 in 4 households owning land, the province has the DRC’s highest land ownership
ratio.. The capital, Kisangani, had 895,880 inhabitants in 2005. The new constitution divides the
province into four new provinces: Tshopo, Ituri, Haut-Uele, and Bas-Uele.
3.140. The primary sector is by far the largest contributor to the province’s GDP (61.9% in
2008), followed by the tertiary sector (30.0%) and the secondary sector (7.5%). The three main
sectors accumulated real output gains between 2006-2008, with the secondary and the tertiary
sector gaining more than 10% over the period. Only mining, electricity and non-trade services
showed real output losses.
The growth collapse
3.141. Until the lootings of the early 1990s, Province Orientale was the third most industrialized
in Congo after Kinshasa and Katanga. It exported gold and coffee while locally made textiles,
sugar and the palm oil processing were consumed locally. The city of Kisangani, with its then
busy port, was the third most important in the country, but by 2006, most of the industries
located there were bankrupt. The ongoing violent conflict in Province Orientale is centered
around Ituri, leaving most of the provincial hinterland free of conflict. As a result, security issues
do not significantly constrain internal trade within the province.
3.142. The collapse of the province’s textile industry is representative of the post-independence
era. Cotton cultivation was introduced during colonial times, which led to the development of a
small producer sector, particularly in Ituri, who supplied a state-protected textile company,
Sotexki. Growth collapse was brought about by a combination of poor governance and growing
insecurity. Production has been brought to a halt by the interruption of cotton supply from Ituri.
3.143. The Office des mines d'or de Kilo-Moto (Okimo) was another prominent state-owned
entity in Province Orientale, operating on a model of state-sponsored services that provided
public goods such education, health, and infrastructure to employees and families living around
its 83,000 km² of concession. One of the largest gold fields in the world, Kilo-Moto currently
produces little, owing to lack of investment and the military conflicts, but following its
privatization production may restart.
3.144. Province Orientale was also a major center for the coffee industry, but the sector has been
brought to a halt.
Growth diagnostics
Is access to finance the most binding constraint?
3.145. Province Orientale is currently struggling to attract private investment outside mining.
The number of households that report having access to finance for working capital in nonagricultural enterprises is low, although not particularly low in comparison with other provinces.
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However, access to formal finance appears to pose a constraint, as evidenced by the important
role of “tontines” (family/community-based revolving credit schemes), the small average size of
initial capital and the high proportion of working capital provided by-own or family savings.
3.146. The province possesses some of the world’s largest deposits of gold, along with deposits
of coltan and diamonds. Endowed with rich soils and forests and abundant rains, it was once a
center of agro-industry with cotton and coffee as main products. Today, the agriculture-rich areas
are mainly “landlocked” due to the dilapidated infrastructure network and the presence of armed
militias.
3.147. Prior to the 1990s, the province was connected to major trading corridors and had some
of the few truck roads in the country, most of which have today fallen into disrepair. The port of
Kisangani in the Congo River was second to Matadi in importance and made Kisangani a major
trading hub. An extensive network of river, rail and roadways served the province. Today the
journey up on the Congo River from Kinshasa to Kisangani (1,734 km) takes can sometimes
takes several months, due to the lack of dredging and navigational equipment. Two important
economic centers, Isiro and Bunia, are virtually unreachable by road and/or rail.
3.148. Apart from Bandundu, Province Orientale is the province with the lowest connectivity to
markets. Almost one-third of the population is further than 5km from a market. It is important to
mention that Province Orientale is the one with the highest land access in the DRC. Access to
land is thus not a constraint: effective exploitation of the land, however, may be.
3.149. With several major rivers and tributaries to the Congo River, Province Orientale has
significant hydroelectric potential. However, the existing transmission lines and distribution
network are in poor condition, as are the hydro-electrical installations. Of the province's nearly 1
million households, only 8 percent can afford electricity at home.
3.150. Timber and gold extraction are the two industrial sectors still attracting private
investment into Province Orientale. The timber industry has circumvented the infrastructure
bottlenecks by exploiting the concessions nearest to the Congo River and to practicable roads
that were built and maintained by the companies themselves. The timber operators are vertically
integrated, using their own fleets of tug boats to push barges and floating logs and using their
own private ports in Kinshasa and along the Congo River. Finally, processing of the timber logs
for export is done in Kinshasa, where electricity is available.
3.151. In the case of the gold extraction industry, high gold prices and the prospects of new ore
deposits in high concentration have already attracted foreign private investors –South Africa’s
AngloGold and Randgold are to invest about US$520 million in the Kilo-Moto concession.
These investors are able to provide for the necessary security and infrastructure.
3.152. Other sectors appear not to be viable in an environment with no infrastructure and high
insecurity. Lack of investment and low outputs in the manufacturing, industry and services
sectors (excluding trading) have resulted in an increased dependency on subsistence agricultural
activities. This reduces opportunities for skilled workers to find jobs in the province, and both
university graduates and secondary-level graduates appear to be worse off than in the rest of the
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country. These findings are indicative of an oversupply of skilled labor. Education therefore does
not appear to be the binding constraint for growth in Province Orientale.
3.153. Given the almost complete disappearance of the urban economy, labor is now
concentrated in the rural sector, in informal agriculture (84 percent of the workforce). Private
formal employment is almost nonexistent, at 0.6 percent of the workforce, 3 times less than the
national average in this sector.
Is it low appropriability?
3.154. In addition to the physical destruction of assets and infrastructure, the conflicts in
Province Orientale have led to breakdown in the rule of law, and the rise of extortion and
informal taxation practices that are a by-product of the presence of uncontrolled armed groups.
Private firms are deterred from investing, and agriculture surpluses cannot be sold. As a result,
despite the high ratio of access to ownership, only 57 percent actually exploit the land for
agricultural purposes. The province has the lowest percentage of heads of households working on
their own agricultural land.
3.155. Province Orientale also faces a “self-discovery” dilemma. One feature of its economic
system is the exogenous way it came about. The cotton, rubber, sugar, palm oil and textile
industries were imposed either by the colonial authorities or by the state under Mobutu, who
implanted manufacturing industries in Kisangani to “pacify” the rebellious populations of the
province. Industrial activity thus emerged thousands of kilometers from the goods and supplies
that it required as inputs.
3.156. Without transport infrastructure to connect the vast territories of the province, electricity
to regain the once growth-generating industrial position and a vibrant financial sector to grant
credit and financing for investments, it is therefore difficult to see how economic agents can
single-handedly re-start the provincial economy.
Analytic conclusions
3.157. Insecurity and conflict have pushed the local economy into subsistence and informality,
and have also contributed to damaging investors’ confidence. The mass lootings of 1991 and
1993 have inflicted severe damages to the manufacturing sector and to the infrastructure grid that
are still prevalent today.
3.158. Moreover, the armed groups’ control over the province’s main natural resources and key
trading posts, and the infrastructure supporting these assets represent a deterrent to the
resumption of economic activity and trade. The local government and private actors are
prevented from mobilizing resources. The stranglehold of armed militias over trading routes,
including key transit roads within the province and into neighboring countries is crippling for the
formal sectors of the economy. The population is unable to travel to the markets to sell their
goods.
3.159. The presence of armed groups undermines the incentives to re-invest in formerly
profitable economic sectors – such as palm oil plantations that sit abandoned for thousands of
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hectares along the Kisangani-Wanie-Rukula road. The state of subsistence and deprivation is
maintained by the lack of access to markets, as farmers have no capacity either to sell the
surpluses or to shift towards more productive alternative sectors. New investors are also deterred.
Low appropriability and low social returns to economic activity due to the lack of infrastructure
today constrain investment and the formal economy, which in turn limit job creation (especially
in urban areas) and diversification.
3.160. The extractive sector (diamonds and gold) and timber might provide new opportunities
for investment. However, unless and until the root causes conflict can be addressed, it would be
difficult for new investors to invest in costly processing and manufacturing facilities, which do
require security protection.
Policy perspectives
3.161. Interventions to “unlock” the Province Orientale economy are vital. If action is not taken,
the province will experience continued economic separation from the rest of the country.
Security is the most binding constraint for the province, as armed groups occupy the productive
centers, deter investment and put merchants at risk. Rehabilitation of the transport infrastructure
in the province and of the electricity grid in the urban centers must be tackled in parallel, if the
province is to reap the benefits of these infrastructure improvements. The study recommends that
innovative public/private approaches be explored to “un-bundle” the large reconstruction and
infrastructure projects, and to incentivize the private sector to engage in the restoration of power
generation.
3.162. The risks of sliding back into conflict are very present. The private sector cannot be
expected to deliver peace and security. Neither will the provincial authorities or even the central
Government single-handedly deliver peace. The regional dynamics of the conflict must be
addressed, for the economy of the province to recover. Restoring security along the border areas
of the province would be an initial step towards restoring a degree of confidence both for
potential investors and for the population.
Sud Kivu Province
3.163. Until 1986 Sud-Kivu was a part of a larger Kivu province, which included the area now
comprised of Sud and Nord Kivus and Maniema. Sud Kivu occupies an area of 69,130 km² and
has a population of 4.4 million. The province is one of the densest in terms of population. The
population is primarily rural (78.4 percent). The main city is Bukavu (415,521 inhabitants in
2003).
3.164. The eastern provinces have been experiencing large shocks in their population since the
1990s, which have destabilized the fragile ethnic balance in the Kivus. These shocks include: (i)
the arrival of nearly one million Rwandan refugees in the aftermath of the 1994 genocide; (ii) the
refugee movements of over 400,000 Congolese to neighboring countries; and (iii) the internal
displacement of over three million people due to the internal conflicts.
3.165. Reflecting the largely rural nature of the province, the primary sector is by far the largest
contributor to Sud Kivu’s GDP (66 percent in 2008), followed by the tertiary sector (22 percent)
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and the secondary sector (8 percent). Within the primary sector, agriculture dominates at 63
percent of GDP. Instability and uncertainty led to poor performance during the period 20062008, during which time all the three main sectors accumulated real output losses. The primary
sector, which most of the population depends on for its livelihood, shrank by 30 percent.
The growth collapse
3.166. Prior to the collapse of the economy, Sud Kivu had a relatively strong, diverse economic
base. The province was an important industrial agriculture producer (sugar, cotton, tea,
quinquina, coffee and cattle) and a food exporter for the rest of the country (banana, potato,
sorghum and millet). The province also boasted a dynamic industrial mining sector, which
exported gold, tin, coltan and cassiterite. Sud Kivu was the first exporter of tin in the country, at
a time when the DRC was the seventh larger tin exporter in the world. Bukavu was also an
important center for services and trade, connecting Orientale, Maniema and Katanga with eastern
Africa.
3.167. With the onset of the conflict during the 1990s and continuing instability, the economic
situation in Sud Kivu has worsened. The ongoing conflict is closely linked to the exploitation
and illicit trade of natural resources in the eastern Congo. Apart from the physical control over
the mineral trade, armed groups have resorted to extortion in the form of taxes and fees. The
agricultural sector, which supports the livelihoods of most of the province’s population, has been
strongly affected by the presence of these armed groups.
3.168. Primary and secondary urban centers remain under the control of the Congolese army,
while rural areas have come under the control of various armed groups. As a result, the
population has sought refuge in the relative security of urban areas, thus contributing to the
collapse of the agricultural sector. Specifically, the share of agriculture relative to income
dropped from 75 percent to 54 percent. While this diversification in income sources may not be a
negative outcome per se, poverty in Sud Kivu is much higher than in other provinces, both in
rural and urban areas; and, it is extremely high in urban areas.
3.169. Data suggests that Sud Kivu has not attracted any new significant investment since
2003 outside of the mining sector and services - the later sector caters essentially to the large UN
and NGO community. In 2009, Banro Company started construction on the Twangiza mine, with
a capital cost for the first phase of the project at about US$145 million.
3.170. In addition to the destruction of the productive physical assets, the conflicts have
imposed significant costs on human capital. They directly affect the availability of human capital
in the province, by forcing large population migrations, and recruiting men in their most
productive years, disrupting education.
Growth diagnostics
Is access to finance the most binding constraint?
3.171. The formal financial system has almost ceased to operate in the province. However,
Bukavu still has five commercial banks, and Sud Kivu holds the highest percentage of
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households with access to working capital in the country. Also, credit finance (from commercial
banks and family-owned funds) is more readily available in Sud Kivu than in other provinces.
One possible explanation would be the ability for entrepreneurs in the Kivus to get credit finance
in Burundi and Rwanda.
3.172. Sud Kivu lost its role as a central economic hub for Maniema, Kisangani and Lake
Tanganyika that was undisputed until 1988. Roads in Sud Kivu are in very bad condition. In the
past, the private sector was the sole provider of infrastructure public goods (road construction
and maintenance), but has since stopped due to lack of finance and the presence of militias.
About 40 percent of villages are more than ten hours distant from the district’s main urban
centers.
3.173. Sud Kivu shows an electrification rate of 2.5 percent – markedly lower than the national
average rate of 10.3 percent. Consistent with this low electrification ratio, electricity provision is
extremely low in the main urban centers.
3.174. The deterioration in the stock of education for younger cohorts (under 30 years)
compared with older cohorts (between 30 and 50 years) is indicative of an educational system
unable to enroll and/or retain students. One extra year of education in the province yields no
increase in wages, whereas in the rest of the DRC one extra year of education adds on average 6
percent to the workers’ wages. Urban unemployment in Sud Kivu is twice (22 percent) as high as
the national average.
Is it low appropriability?
3.175. The impact of the wars has been dramatic and all encompassing, from the perspective of
appropriability issues, making the rule of law impossible to uphold. Assets have been lost as a
result of destruction, confiscation or extortion (illegal taxation). Contracts have become
unenforceable. Even traditional and customary law became null. This accounts for the structural
breakdown of the economy.
3.176.
That being said, Sud Kivu presents a striking paradox. The Kivus show the most
economic dynamism and entrepreneurship, a remarkable ability to self-discover profitable
business ventures. Self-discovery has also happened at industrial scale: in Bukavu for example,
the pharmaceutical factory Pharmakina produces anti-malarial and generic AIDS drugs. The
export agriculture sector around Bukavu is showing signs of resiliency, and tentative recovery.
Analytic conclusions
3.177. Conflict and insecurity represent the over-arching and crosscutting constraint to growth
in Sud Kivu. Conflict has disrupted every aspect of the economy and affected the livelihoods of
the province’s population. Indeed, each node of the HRV “decision tree” has been affected by
the long-lasting impact of the conflict: directly and indirectly, dynamically (e.g. through longterm demographic imbalances) and statically (direct causal impact). In that context, any approach
to peace and conflict reconstruction in eastern Congo must take into account the transversal
components to the conflict.
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3.178. Sud Kivu and its sister province to the North are today left in a state of “neither peace nor
war,” with the central Government trying to assert its authority and reclaim the monopoly of
violence, it has lost in the wars in eastern Congo.
3.179. Security and stability in Sud Kivu remain extremely volatile, as rebel groups are active
in this area and further afield. Years of wars and instability have left a lasting mark on
agriculture and agro-pastoral activities. Along Lake Tanganyika and the portion of the main road
from Bukavu to Uvira, square kilometers after square kilometers of land where cattle formerly
grazed have been left burned to the ground, the fields of maize destroyed, the once-green
pastures abandoned.
3.180. In sum, lack of security and law and order are the most important factors behind Sud
Kivu’s economic collapse. Each of the nodes on the HRV “decision tree” is, in turn, affected and
provides signals of scarcity, because the armed conflict—and the continued presence of armed
militias and groups—has so deeply damaged the economic system and the social fabric.
3.181. Security is also a binding constraint for poverty reduction, as it is insecurity what
brought the economic activity in the Province down and forced massive displacement that made
urban centers the poorest in the DRC and urban unemployment in the province twice the national
average. The precarious conditions of the population in the urban areas call for urgent
interventions in the field of health and education, lest urban poverty should become endemic. It
is unlikely that higher rates of growth by themselves will contribute to reducing poverty in Sud
Kivu and/or improving educational outcomes, unless growth-promoting policies are coupled
with targeted social policies.
Policy perspectives
3.182. The study has argued that security-related issues permeate every aspect of the economy
in Sud Kivu, and have created disruptions to a scale probably unique in the country—and
perhaps, even in the world. Neither economic growth nor poverty reduction is likely to occur if
the area is not secured.
3.183. Security must therefore be the first entry point of long-term reform and recovery in the
Kivus. The international community has been unable to bring the war in the Kivus to a stop, just
as it has not dealt with the phenomenon of armed groups that switch allegiances as they vie to
keep control of the Kivus’ natural resources.
3.184. The international community should promote long-term policy interventions targeting
ex-combatants and providing greater incentives for combatants to respect law and order rather
than picking up weapons to extort and terrorize civilians. Through the use of mobile banking for
example, a soldier can receive his/her pay at any mobile phone vending kiosks. Such initiatives
would help stop “leakages” (i.e. corruption) that occur during the physical transport of millions
of Congolese francs in bags from Kinshasa, and in the long-term, encourage combatants to put
down their guns.
3.185. Better access to health and education will require urgent policy interventions in urban
areas, as displacement will continue to perpetuate poverty and prolonged humanitarian crisis in
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the Kivus. Although bad outcomes in health and education do not pose binding constraints in the
perspective of the HRV framework, they do represent binding constraints for poverty reduction
and sustainable growth.
3.186. The study also touched upon an issue that would demand policy-makers’ attention; it is
that of the gender discrimination in access to education. In Sud Kivu, only 1.7 percent of the
female population aged 15 to 49 years completes secondary education, for 8.5 percent for men.
Nationally, 6.1 percent of women in the same age cohort complete secondary education.
Tackling these astounding social and economic inequalities should be a matter of long-term
priority for policy-makers.
3.187. Addressing the scars of rape should be a top priority of the international community, the
central and provincial governments, the private sector and local communities. Concerted
interventions must address the long-term implications on human development, but also
agriculture (women as breadwinners) and small-scale entrepreneurship.
3.188. Looking at potential policy interventions aimed at restarting the markets and private
investment, a first “low-hanging” entry-point would be to provide “oxygen” to firms such as
Pharmakina in Sud Kivu and ENRA in North Kivu, as well as to farmers and entrepreneurs
along the chain of production. A second entry point would be to build on and replicate the
successful business models of these high value-added local industrial agricultural firms. Thirdly,
reviving the sugar factory in Sud Kivu would require investment in capital, but will give a boost
to Uvira and its sub-market. The World Bank Group and its private investment arm are well
positioned to help pick these “low-hanging” fruits.
3.189. Restoring the infrastructure links that have collapsed would be a fourth area of policy
intervention. As with Goma, close proximity to the paved road network of East Africa and the
functioning eastern section of the Trans-African Highway to Mombasa may allow a faster
recovery than other Congolese towns. Bukavu's proximity to the Lake Tanganyika ports of
Bujumbura and Kalundu-Uvira give the town and the city an additional advantage, with access
on the lake to the railheads of Kigoma (linked to Dar-es-Salaam) and Kalemie (rail link to
Katanga, in need of rehabilitation.)
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IV.
I M PL I C A T I ONS OF T H E
G R OW T H DI A G NOST I C S ON C R E A T I NG G R OW T H A ND A L L E V I A T I NG
POV E R T Y – A PE R SPE C T I V E I NT O A POSSI B L E F UT UR E
Summary
The table below summarizes for each level of analysis (national and the five provinces):
National agricultural
National non-agricultural
Bandundu
Katanga
Kinshasa
Orientale
Sud-Kivu
Binding Constraints
- Security and public safety
- Infrastructure
- Access to finance
- Access to finance
- Electricity
- Government Failures
- Access to finance
- Low appropriability
- Human capital
- Access to finance (for agriculture)
- Electricity
- Low appropriability
- Security and public safety
- Lack of infrastructure
- Security and public safety
- Lack of infrastructure
A nalytic summar y
3.190. The national and provincial analyses demonstrate that within a widely varying
environment, the most binding constraints to growth are microeconomic:
1. Undoubtedly, the most significant binding constraint to growth is a broad governance
failure, systemic and structural, which encompasses most aspects of the responsibility of
the state: i) the provision of a safe and secure environment for citizens and investors
within a protected national ‘safe haven’; ii) the provision of good governance, including
inter alia, the rule of law, property rights enforcement, an effective judiciary, an effective
government and public administration capable of formulating and implementing growthgenerating and poverty-reducing policies; iii) an effective micro-economic policy
framework, framed within a sustainable macro-economic environment, and supported by
a growth-enabling economic infrastructure; and, (iv) the satisficing of the population’s
basic needs, or at least the creation of conditions within which basic needs can be
addressed.
Obviously, the DRC cannot be expected to turn the “ship of state” around overnight. This
is at least a generational process, provided the commitment is made. The point of the
HRV framework is to provide guidance on which of these governance failures are the
most egregious obstacle to poverty-reducing economic growth in the short- to mediumterm.
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2. Lack of finance is the second most binding constraint, affecting capital mobilization for
investment. This lack of finance affects domestic firms and the population most, and is
thus a critical contributor to underinvestment and continued poverty, both urban and
rural.
The weakness of financial intermediation derive part of it root in the preference given to
short-term, trade and real estate-focused lending. Trade finance is short-term and bears
high interest rates. Construction finance is securitized by the asset financed: the
preoccupation of formal and informal financial intermediates is the security of their
exposure. If dollarization and liberalization have increased the supply of money, there is
yet to see a meaningful increase in investment-focused financing. This problem has many
sources, include the above governance problems: confidence in the long-term prospects
of the country as a whole, and the economy in particular, remains elusive.
3. Lack of infrastructure (energy and transport) represents the third most binding constraint.
The country is beset by massive infrastructure bottlenecks that constraint supply, both in
terms of capacity and costs. This supply constraint is at the same time caused and
exacerbated by demand and policy constraints. In infrastructure as in other aspects of the
economy, the key factors form a systemic web difficult to break. Acting on one variable
is often necessary but not sufficient. Yet, there is evidence that, illustratively, cutting red
tape and import and export taxes and charges would boost demand for transport. There is
also evidence that targeting investment in some strategic infrastructure–like
decentralized, micro-hydroelectric capacity–would increase supply. Unbundling and
public-private partnerships should be considered as intervention options for such key
projects.
3.191. Low appropriability is a constraint, but there is ample evidence that the DRC hosts
ample entrepreneurial capabilities. The challenges of self-discovery, human resource capacity,
technical competency, and so on are largely consequential, but do not seem to represent
conditional boundaries to short-term growth.
B r eaking the Stalemate
3.192.
While the priorities vary from province to province, the commonalities mean that there
is a necessity – and an opportunity – for a new approach to accelerating growth in the DRC.
This new approach should seek to target the most binding constraints to growth in each province,
and in each coherent economic sub-system, by taking a systemic view of what is required to
resolve poor growth performance and high poverty. In the DRC, constraints to growth tend to be
interrelated, and causal relationships are complex. The report suggests that provinces such
Kinshasa, Katanga or Nord-Kivu (and most likely also Bas-Congo) could reignite growth
endogenously if some key constraints are relaxed, while others like Sud-Kivu, Bandundu and
Province Orientale (and most likely also Equateur and Maniema) would need an exogenous “big
push”.
3.193. The systemic interplay of growth-destructing factors could be largely resolved if a
strong, functional state existed and could invest in security and infrastructure, opening areas,
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fixing populations, and encouraging investment. The key constraint is clearly a fragile state that
lacks the capacity and the will to act as such a catalyst. Not only does the state lack the capacity,
perhaps as critically, it lacks perceived legitimacy, particularly in conflict-affected provinces and
areas. This lack of legitimacy has longstanding causes as well as causes directly linked to recent
and present behaviors of state agents – whether the administration, the armed forces, or others.
3.194. In this case, the key to growth and poverty alleviation is probably to remove constraints
to growth in targeted ways and through extensive cooperation between select elements of
government, the private sector, the non-profit sector and local communities. Targeted efforts
should possibly take the form of initiatives focused on localities or regions that have inherent
potentials or are performing well but below potential. These initiatives would be focused on
growth, with the secondary objective of turning them into growth poles or corridors capable of
“seeding” growth on regional bases. In this regard, some large flagship projects need be
encouraged, if only for signalling purposes. In the Western part of DRC, for example, the
development of a Special Economic Zone, possibly tied to the expansion of the Inga dam, and to
improved transport connections to the Atlantic Ocean, either through Matadi or Pointe-noire,
could spur investment and growth along a large corridor.
3.195. Given the well documented limits of the state and the prevailing lack of trust in its
institutions and agents, these initiatives would require extensive involvement of and cooperation
between public and private stakeholders alongside the central State. Such an "alliance for
growth" would bring several benefits: i) it would bring a balanced view of priorities; ii) it would
discourage predatory behaviors and intentions by providing “social collateral” that cannot be
easily expropriated; iii) it would bring broad ownership and enfranchisement, and thus generate a
political economic positive sum game; iv) it would facilitate financing mechanisms and, v) it
would signal a broad-based commitment to growth and poverty reduction which would
encourage investment. Furthermore, traditional institutions that where based on customary law
could regain their credibility easier and faster vis-à-vis modern ones. Even if these lack certainty
to attract large capital for mining or industrial projects could be effective in small and medium
agriculture enterprises.
3.196. In such a setup, each group of participants would be expected to contribute their unique
expertise. For instance, the private sector would act as catalyst for investment in ventures capable
of generating employment, core business infrastructure (at the enterprise level – roads,
electricity, water, communications), government revenues, foreign exchange, etc. These ventures
would thus constitute seed infrastructures that would structure socioeconomic relations in their
immediate surroundings, provide surplus income, and progressively impact physical and social
safety. In previously agriculture production areas, this could help “fix” impoverished
populations, which could reinvest wage surplus into improved subsistence agriculture. With
support from NGOs, education could be brought back, including on technical aspects of farming,
with a view to improving yields. Roads used by the private sector would serve as
communications and trade backbones. Communities would re-learn lost skills, and act as models
for communities further afield. A system of collective safety would progressively emerge,
facilitated by NGOs, as vested interest increases.
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3.197. The State would provide incentives for these initiatives through targeted reductions in
the fiscal, para-fiscal and administrative burdens which discourage investment and cooperation.
Such burdens could be addressed either through regulatory reforms or the development of, for
example, special economic zones that aim to reduce the level of administrative harassment.
3.198. Such “growth poles” could be supported by targeted funding from bilateral and
multilateral donors through technical and financial assistance, starting with pilot projects. They
could be flexible enough to enable both the exogenous (subsidies-driven) and the endogenous
(profits-driven) strategies tailor made for provinces and sectors.
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C H A PT E R 4:
E C ONOM I C G R OW T H A S A N I NST R UM E NT F OR POV E R T Y
A L L E V I A T I ON
Poverty is multi-dimensional. Not only can it be looked at from different perspectives,
but also the notion itself reflects the heterogeneous realities within a same country or
community. The bottom line is that there is not one but several types of poverty
depending on whether the reference is to monetary poverty, human poverty, or even to
the lack of opportunity. This observation made in most Sub Saharan African (SSA)
countries is even more valid in a country such as the Democratic Republic of the Congo
(DRC), a country in post-conflict recovery which continues to suffer from pockets of
insecurity and which is in the midst of political and socio-economic reconstruction
The populations consequently suffer not only from poverty in the monetary and/or
material sense of the word but also from multiple forms of exclusion, socio-economic
instability and physical as well as psychological insecurity. Such unstable conditions
create an environment of uncertainty, which relegates them to living in the short term
and by the same token prevents them from planning for the future. Their situation is
tenuous and there are few organized services available to them for dealing with the
many daily challenges they are faced with. They are thus vulnerable from an objective
standpoint, and, because they are conscious of the uncertainties, they feel their
vulnerability. This vulnerability adds another dimension to their poverty, inclining them
to seek liquidity above all else and in any way even if it means tolerating their situation
as long as it doesn't deteriorate.
To deal with this poverty which is not only serious but also massive, and affecting all
layers of the population, it is necessary to provide stability and reassure the population
so they can see their environment and their future in a different light. Stability and a
sense of security will free economic agents to take action, by freeing up their capacity
and abilities so they can actually take charge and become true economic players. In no
context is it possible for the government to reconstruct the country by itself. Therefore,
it is necessary to give the population the tools to act upon this situation. The fact is that
in provinces like Kivu where actors demonstrate a healthy resilience, and, this is borne
out by surveys, the populations want to participate and become involved in moving
forward and fighting against poverty.
Besides stability and security, the other pillar on which the fight against poverty rests is
economic growth. It's true that a certain number of studies have shown that economic
growth in itself is not enough to reduce poverty. However, in the DCR, given the degree
of decline of the economy and infrastructures, the difficulties in obtaining financing, the
burden of the economic and socioeconomic conditions inherited from the past as well as
the immensity of the country, only strong economic growth will help reduce poverty.
The aim of this chapter is to describe the different forms of poverty in the DRC and, as
well, the specificities related to each province, to observe the situation and to look at
issues in the light of vulnerabilities. This type of observations allows for the elaboration
of public policies that will enable economic actors to take action, engage in planning
their future, and gain access the tools needed for change.
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I.
A.
I NH E R I T E D PR OB L E M S C OM PR OM I SI NG SOC I A L
A ND E C ONOM I C PR OG R E SS
T he consider able pr ogr ess achieved in r ecent year s
4.2.
Acceleration of growth since 2002. Since 2003, the increase in the GNP has been
positive and aligned with the average growth of Sub Saharan African countries, besides during
the pre electoral period from 2005-2006, characterized by political, fiscal and monetary tensions.
Considerable progress toward a lasting peace and reconciliation has been made in these recent
years. There are still conflicts, but limited to particular areas in the eastern part of the country.
Per capita revenue has been increasing since 2002 reflecting the return to peace.
4.3.
Improvement shown in higher social indicator ratings. Simulations based on the
growth of per capita GNP tend to show that improvement in the macro economic situation could
have led to reducing poverty. The growth in the per capita GDP has been about 3 % per year
during the 2003-2008 period. In Bandundu, between 2001 and 2006 the human poverty level in
terms of Human Poverty Index had deteriorated in the first three years but since conditions have
improved, it has been going back up to initial levels. In Orientale Province, the poverty index
has shown an increase in poverty between 2001 and 2003, but the tendency was reversed
between 2003 and 2006 (World Bank, 2010f).
B.
H ighly degr aded social and economic conditions at all levels.
4.4.
The country's post independence period was characterized by successive periods of
political instability and conflict, which resulted in negative growth in half of from the mid 70s up
to 2002. The country was devastated by civil wars from mid 1996 to the end of 1997 and from
mid 1998 to mid 2003. However, long before the recent conflicts, a combination of shocks and
economic mismanagement, pillage and corruption contributed to poor economic growth,
followed by a collapse of the government and a serious decline in living conditions for the
populations. Per capita revenue began to fall in the mid seventies. Furthermore, different sources
show that the population was severely affected by the war, not only in terms of social, economic
and health matters, but also in terms of psychological wellbeing and perception of the future.
The effects of the war have been devastating for most of the population groups, not just for the
women and children affected by the violence but also for the men who couldn’t find
employment.
4.5.
The government is almost non-existent due to the lack of official power structure
and informal regulation practices over several decades. Mobutu had developed a system
which created complete and permanent confusion between the public and private spheres. The
confusion persists in the present day and facilitates, even promotes predatory behavior. The
internal organization and functioning remain deeply patrimonial. The political and governmental
spheres are perceived and used as ways to get wealthy and remain in positions of power. In this
context, there are many reasons for not reinforcing the state at all levels of the administration.
Furthermore, institutional structures are almost non-existent in a certain number of domains or
completely obsolete (for example, the family code). Moreover, considering the continuous
progressive weakening of the government, which went bankrupt in 1974, it is impossible to
move ahead with the work needed for redressing the economy. It has limited ability to develop
and implement new public policy, and at the same time to perform its core functions.
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4.6.
An anemic agricultural sector. Agriculture is the corner stone of the Congolese
economy, but while the country has 80 million hectares of fertile land, only 9 to 10 % do it is
currently being cultivated (World Bank, 2010d). In addition, agricultural productivity has
experiences a constant decline for 50 years and industrial perennial crops (coffee, cacao, cotton,
tea, hevea, palm oil) have failed due to the policy of "zaïnirisation" which has diminished
technical and managerial capacity and led to the disappearance of large modern farms and later
on of small family farms. The country imports more than 50 000 tons of palm oil whereas, it
was the second largest palm oil exporter in the world when it became independent (The World
Bank, 2010d). Cotton production has almost disappeared even though the country was once the
largest cotton producer in Africa. Manioc, the major crop cultivated on a large part of its
territory, has very low average yields due to the use of traditional varieties and not adapted
farming techniques. Rice production has declined steadily since the early 90s with a low of
17.23% between 1991 and 2002. Other food crops have, with the exception of corn, experienced
spectacular declines during the 90s (The World Bank, 2010d). In short, agriculture today is more
than anything else subsistence farming.
4.7.
The countries isolation linked to damaged infrastructure. Like all the other parts of
the economy, infrastructure, in particular, the highways have suffered greatly from years of
mismanagement and subsequent conflict. Damaged and/or neglected, more than half of the
existing roads need rebuilding. After decades of little maintenance, many roads cannot be used.
Secondary roads or waterways are practically not usable. This means that the areas of production
activities (especially farm areas) are cut off from centers of consumption. Furthermore, due to
the very size of the country, the road system is inadequate for meeting needs and linking the
population to economic centers. Currently, many areas of the country are inaccessible. Only two
chief towns (Matadi and Bandundu) are linked to the capital by road, two by waterways
(Kisangani and Mbandaka) and six by air. Only 5% of the 58 000 kilometers of national roads
are paved. Today, SNCC rail traffic is about a tenth of the tonnage of the 70s. (The World Bank,
2010d).
4.8.
Reduced availability of food due to the decline of the agricultural sector,
deterioration of infrastructure and security problems. The climate of insecurity has led
many farmers to abandon farming thus causing a generalized food deficit. This flight from
farming added to the high numbers of displaced persons and refugees has let to decrease the
number of jobs in farm production while war was destroying outlets for marketing products, in
particular in areas controlled by the rebels in Equateur, Nord et Sud Kivu, and Province
Orientale. The lack of adapted infrastructures has strongly curtailed the marketing of produces
(until recently, transportation of produce to Kinshasa was disrupted by the deterioration of the
Matak, Kinshasa-Kikwit road) increasing the food deficit. Lastly, the depletion of the soil due to
lack of fertilizer and, as well, the reduction of available land during fallow periods has
contributed to a drop in the overall available food supply. Between 1998 and 2002, grain and
tuber crop production decreased by 20% (World Bank, 2007). The same trend has been observed
in the case of cassava, which provides 70 to 80% of the caloric intake of the population. The
fisheries sector has suffered from a drop in the number of boats. The situation has gone from one
boat for every two fishermen before the war to one boat for every six fishermen afterward. Cattle
production has also fallen drastically. In the provinces of North and South Kivu and in the Ituri
district, the drop in livestock has reached 80 percent. Imports have not made up for the fall in
106
domestic production. According to Tollens (2003), the traditional fish and meat imports have
been replaced by grains and tubers, which are both less expensive and easier to store, but do not
supply the same nutrients.
4.9.
Years of instability have pushed most of the population (up to 90 percent) into
subsistence agriculture and black market. The great majority of the population is selfemployed (38% work in individual enterprises and another 38% in joint enterprises) due to the
weaknesses of the formal job market in both the government and private sectors. Unemployment
has risen, particularly in urban areas. Youth are especially affected, showing 77% unemployment
and underemployment. Besides provoking conflict and social instability, unemployment
negatively affects living conditions in families where the young are still expected to support their
households, in spite of investments made to give them access to education. The return on
education investments is especially weak in rural areas. This weak return is partially due to the
collapse of the formal private sector of the economy (and the reduction in real wages), thereby
limiting the gains associated with obtaining a better education. In terms of employment,
agriculture is largest sector of the economy (around 60 percent of the population lives in rural
areas).
4.10. The population growth puts additional pressure on resources and basic
infrastructure. The country has started a slow process of demographical transition with a trend
toward lower infant mortality (over the course of 20 years the country went from 109 deaths per
1000 to 62 per 1000 in 2002-2007) and with the fertility rate of about six children per woman
remaining constant. The population is young, with 67% under 24 years of age and almost 50%
less than 14 years old (World Bank, 2007). In total, the population is estimated at 55 million
people in 2005, 69 million in 2008, and is projected to be 78 million in 2015. With a population
growth rate of 2.9%, the population could double every 26 years. In most provinces,
demographical transition has been accompanied by increasing urbanization. Between 1960 and
2007 the percentage of the total urban population went from 22 percent to 33 percent.
Urbanization is due primarily to internal migration, and also to population displacement caused
by armed conflict. This strong population pressure, combined with accelerated urbanization,
contributes to a quantifiable drop in available resources. At a given level of GNP, an increase in
population reduces the GNP per capita.
C.
A n ar r ay of pr oblems specific to each pr ovince.
4.11. Insecurity, instability, economic mismanagement and the collapse of the state have
taken a heavy toll on the entire country, and the whole population continues to pay the
price. Still, each province has been affected differently based on its unique characteristics, its
comparative advantages, and its chosen mode of economic development.
4.12. Katanga, an unbalanced dual economy. Katanga’s economy rely on two sectors: a
mining sector struggling to recover from a collapse while having to deal with an unstable legal
and regulatory structure and a labor shortage, and a dying agricultural sector constrained by a
lack of transport infrastructure and financial capital. Unbalanced due to a strong economic
variation based on area, the province is characterized by an increasingly unequal relationship
between one sector which attracts virtually all investment projects and the other which struggles
to increase its productivity and to provide job prospects due to a lack of infrastructure. The
107
failure to balance economic growth and attract investment in agricultural areas also serves to
perpetuate the poverty cycle in rural areas that are deprived of revenues and basic public
services.
4.13. Bandundu, a primarily rural economy. Farming and fishing are the largest generators
of primary and secondary incomes. The province has a comparative advantage in agriculture,
particularly in agribusiness, due to its proximity to Kinshasa, the Kasai region and the Angola
market. Still, it has not yet determined its path to entering the national and international economy
nor how to recover from the collapse of its single industry in palm oil. Since then, a harmful
cycle of (i) heavy dependence on agriculture, (ii) lack of secondary sources of income, and (iii)
weak productivity has contributed to worsening dependence and poverty, which prevent
households from saving and investing. In spite of its proximity to Kinshasa and its comparative
advantages in human capital, Bandundu is the only province that has not attracted new
investments through the ANAPI agreement designed for their promotion (World Bank, 2010f).
Formal sources of finance are severely limited throughout the province. No commercial bank is
in operation in the city of Bandundu; financial intermediation is only provided by moneytransferring agencies. There is only one commercial bank in operation in the city of Kikwit. In
the rest of the province, there is just a handful of NGOs offering microcredit loans on rare
occasions and at high interest rates (above 40%). Only 0.2% of the population reports having
been able to receive financing. In addition, due to the virtual absence of external financing, the
average loan only amounts to 6,000 CF (World Bank, 2010f).
4.14. Kinshasa, a city and province privileged compared to other provinces, but
struggling to create jobs. Most financial institutions are concentrated in the city, which receives
the majority of investments. Still, the local economy is incapable of adjusting to rapid and
sustained expansion of the labor force due to strong population pressure. This situation
contributes to a rise in the employment rate, higher than in the rest of the country, and to the
development of risky and unstable business practices, namely in informal agriculture. 67.9% of
the labor force is considered to be underemployed or unemployed, which suggests that only
13.5% of the population holds a stable work position (14.2% countrywide) (World Bank, 2010f)
4.15. Oriental Province, a province hurt by the collapse of its basic industry and plagued
by persistent insecurity. Insecurity and conflict have forced the local economy into a
subsistence model and informal practices and have also contributed to the reduction of investor
confidence. The pillaging of 1991 and 1993 inflicted severe damage to the manufacturing sector
and to infrastructure, which puts on a strain the economy’s ability to bounce back. Add to that
the fact that the province has yet to realize its real comparative advantages. Also, the control of
its main natural resources by armed bands has prevented economic activity and trade from
making a recovery, and those involved in the public and private sectors are unable to mobilize
the resources that are available.
4.16. South Kivu, an insecure economy, ravaged by armed conflict. Insecurity and armed
conflict have affected all sectors of the economy and the quality of life of local populations, both
directly and indirectly, statically and dynamically (through long-term population disequilibrium).
Besides the destruction of revenue-producing property, armed conflict has taken a huge toll on
human capital by directly affecting the availability of labor as a result of migrations and forced
108
recruitment of the working-age population. The population has shown extraordinary resilience
and a surprising amount of economic dynamism. However, the strife has reduced returns on
economic activity by ravaging infrastructure and has put a stop to produce exchange and freedom
of movement in the province. Also, the province has not attracted any new investments
sponsored by the ANAPI (World Bank, 2010f). Existing sources of revenue are attached to shortterm commercial activities, to retail sales of palm oil and coal, as well as to day labor, all risky,
volatile enterprises that involve little capital.
II.
A.
T HE
C OUNT R Y A S A W H OL E I S I M POV E R I SH E D
Pover ty is sever e and affects the whole population.
4.17. The country suffers from massive poverty. Nationwide, the rate of poverty is
71.3%. The poverty trap, which takes into account the distance separating the poor from the
poverty line, accounts for 32.23% of the population (World Bank, 2007). Poverty is truly a
massive problem, even among families whose head of household is educated and works in the
formal sector, poverty is still high, though slightly lower than in the rest of the population. The
situation is such that the whole of the population can be considered poor.
4.18. GNP per capita is half of what it was 20 years beforehand. In 2001, the GNP per
capita represented only a fifth of what it was in 1974, and real household consumption was only
a quarter of its previous value. In 2008, the DRC was among the poorest countries in the world
with a GNP per capita of 94 US$ (in $US value from 2000), or 25 cents per capita daily, a third
of its value in 1960 (World Bank, 2007). Most households have not reached a level of
consumption at which they can meet their basic needs, and the great majority of households have
a very limited number of income-earners. As a result, around 80% of households report being
unable to meet many of their basic needs (World Bank, 2007).
4.19. By comparison with the rest of the world, the DRC appears to be one of the poorest
countries on the planet. The impact of poverty is significantly higher in the DRC than in the
other Central African countries for which we have available data 37(World Bank, 2007). The
human development index is much weaker than the average of the least developed countries as
well as that of the countries of sub-Saharan Africa. It has also been shown that at the current rate,
the DRC will not achieve the Millennium Development Goals by 2015.
4.20. Poverty is especially widespread in rural areas. The poverty rate is higher in rural
areas than in urban areas (75.72% compared to 61.4%). Most rural inhabitants are not only poor;
they also are likely to have received little education and to present greater health risks. Poverty is
greater in rural areas, with 35% in the poverty trap 38 compared to 26% in urban areas (World
37The only exception being Burundi, where the available data suggest that more than 80 percent of the population is
impoverished; in the other countries estimates vary between 50 and 60 percent.
38 The poverty trap measures the severity of poverty and is defined by the average distance separating an
individual’s revenue from the poverty line.
109
Bank, 2007). The probability of being poor is higher among heads of households or their spouses
who work in the agricultural sector.
Table 4.1 : Measurements of poverty on a national scale and by area, 2004-2005
Population distribution Poverty Index Poverty Trap
(%)
(%)
(%)
National 100,00
71,34
32,23
Urban
30,76
61,49
26,21
Rural
69,24
75,72
34,90
Source: (World Bank, 2007)
B.
A multifaceted pover ty pr oblem
4.21. The health and social situation is a cause for great concern. Life expectancy is much
lower than in the rest of the world. According to the Health Country Status report, infant and
maternal mortality, as well as HIV, are on the rise, particularly in areas of conflict, rural areas,
and among the impoverished. A study conducted in 5 different areas reveals that the mortality
rate among children under 1 year varies between 21 percent and 47 percent. Since the poor have
such limited access to health care, deterioration of health actually affects a large portion of the
population. According to the survey conducted by Berci in 2004, more than half of users of
health care services have difficulty obtaining care due to the cost associated with it. While the
majority tries to borrow funds to obtain care, the rest simply wait for a natural recovery or resort
to traditional medicine. Certain diseases are beginning to reappear, such as measles, whooping
cough, and the bubonic plague. The main causes of morbidity and mortality are malaria,
diarrhea, acute respiratory infections, and sexually transmitted diseases such as HIV,
tuberculosis, meningitis, and thyroid fever.
4.22. Access to education remains limited. The armed conflicts of recent years have led to a
decline in the rate of primary school enrollment and stagnation in enrollment rates for secondary
schools. Around 40% to 50% of school age children did not attend school during the conflicts,
including the majority of girls (World Bank, 2007). The International Red Cross estimates that
70% of children do not go to school in the east during the conflict. Only one in two Congolese
children go to school and only part of them finishes primary school with delay and difficulty.
31% of teens have never been to school and one in three adults is illiterate. If today the country
has better coverage for secondary schooling and higher education than most African countries,
Gross school enrolment rate of primary school is rather low (64%) (World Bank 2007). Many
children, especially in poor families receive no education. Their net enrolment rates are less than
half those in the richest quintile. The average annual cost in primary school is about $ 63 U.S.
plus school fees, snacks and other expenses that many parents are unable to fund. As a result,
many withdraw their children, especially their daughters because of the opportunity cost induced.
To the high cost add the problem of the school system’s quality, essentially linked to low income
earned by teachers which generate a lack of motivation and high absenteeism.
110
Table 4.2 : Enrolment statistics of children by wealth quintile (%), DRC 2001
Gross enrollment rate Net enrollment rate Share of total enrollment
All
93
51
100
The poorest (Q1)
80
39
17
Q2
80
39
17
Q3
86
45
19
Q4
104
57
22
The richest (Q5)
127
81
25
Source: World Bank (2007)
4.23. Women are particularly affected by poverty in all its forms. In a large majority of
cases, women are under privileged as a group. The rate of female literacy and access to education
is far behind the rate of male. Girls have less access to education than boys. The current average
enrolment rate is 36.2 percent for boys and 24.3 percent for girls (World Bank 2007). According
to the Demographic and Health Surveys, 28 percent of Congolese women (against 14% of men)
have never been to school. For the age group 15-49 years, the proportion of uneducated women
is four times higher than for men (21 against 5 percent). Their representation in politics is very
low. The job market in the DRC is characterized by a strong inequality, women (and young)
being particularly disadvantaged. This inequality exists both in terms of participation in the
workforce and pay. The participation of women in the workforce is almost half that of men (85
against 55 percent on average) (Asdi, 2009). The distribution by age groups also shows this
systematic inequality in activity rates. In 2009, the ratio of women’s income by men’s income
was estimated at 0.46, the lowest in Africa (compared to 0.69 in Uganda, 0.77 or 0.79 in Burundi
in Rwanda). Women have less access to skilled jobs than men and tend to be marginalized on the
job market outside of the agricultural sector. Only 28 percent of working women receive a salary
and 17 percent of women receive no compensation for the work that they do. Women on average
earn 50% less than men (Asdi, 2009). Women are more vulnerable to HIV/ AIDS. Women were
raped and high maternal mortality rate varies between 905/ 100 000 and 3 000/ 100 000. The
infant mortality rate, estimated at 850 deaths per 100 000 births in 1985, has now reached 1 289
deaths per 100 000 births, which is one of the highest rates in the world. In a country where 21
percent of households are headed by a woman, the human development index shows that the
GNP per capita of women is much lower than for men ($488 U.S. against $944 U.S., in
purchasing power parity, World Bank 2007).
C.
F ood insecur ity r emains a major issue for the entir e population.
4.24. Hunger affects the entire population. FAO (in World Bank 2007) estimates that the
DRC is the country where the share of the population suffering from malnutrition has increased
the most during the 90s. Even today food insecurity is a problem that affects all population
groups and is manifested in various forms ranging from chronic under nutrition to severe
malnutrition. Global Hunger Index 2010 shows that hunger increased and food insecurity was
prevalent. We consider today that 70 percent of the population suffers from hunger. According to
Tollens (2003) half the population of Kinshasa now takes only one meal everyday, and a quarter
of the population takes one meal every two days. To the question what is the main characteristic
of poverty, 37% of people interviewed put forward their inability to feed their families.
According to Nkembe Unsital (2006), food insecurity of farm households in rural areas is more
111
serious than that in urban areas. The stagnant chronically food insecurity faced by populations in
rural areas is due to both income poverty and food habits. Cassava is consumed in large
quantities while its nutritional content is low. The richest food sources are not consumed (meat,
oil, fish, and vegetables) either because they are too expensive or because they are sold for a
minimum cash income to purchase non-food items.
4.25. Food intake is poor and insufficient. The gradual disappearance of formal wage
employment in the private sector, the government’s inability to pay salaries of civil servants, and
the impact of inflation have combined to reduce the purchasing power of the population and
therefore their demand for food. Food intake in calories and protein dropped. From 1992 to 2000,
food intake decreased from 2044 to 1514 calories per person per day and the reduction in protein
was similar, from 33.8 grams to 24.3 grams. Compared with average of sub-Saharan Africa and
the rest of the world (respectively 2150 kilo calories and 2750 kilo calories), the situation is
alarming. A survey conducted in Kinshasa in August 2002 suggests that the average household
food intake is 1,349 kilo calories and 36 grams of protein per person per day (World Bank 2007).
The survey also shows that two thirds of the population of Kinshasa spends less than $ 0.5 U.S.
per day for food, 27.5 % spend between $ 0.5 U.S. and $ 1 U.S. and only 8% spend more than $
1 U.S. These results are reinforced by the work of Nkwembe Unisital (2006) shows that for the
city of Kinshasa between 2003 and 2004, the average consumption in terms of calories and
proteins never reach the international standards of FAO/WHO which is 2300 calories and 70
grams of protein per person per day. Another survey conducted by FAO in Lubumbashi in
October 2002 suggests levels of food intake even lower than those of Kinshasa (1335 kilo
calories per person per day) with a level protein intake slightly higher at 40.5 grams per person
per day. In Kikwit estimates are from 1835 kilo calories and 32.6 grams of protein per person per
day and 1116 kilo calories in Kindu and only 22.4 grams of protein per day (World Bank 2007).
All of these foods intake are below the recommended international standards.
Table 4.3 : Changes in caloric and protein intake, DRC and Kinshasa, 1970-2000
2000
1995
1990
1985-1986
1980
1975
1970
Entire nationwide
Caloric intake Protein intake
(Kcal)
per (grams)
per
person per day
person per day
1514
24.3
1741
28.6
2200
34.7
2192
35.9
2153
34.5
2235
38.0
Kinshasa
Caloric intake
(Kcal)
per
person per day
1368
1438
1471
1506
1797
-
Protein intake
(grams)
per
person per day
38.5
44.0
46.3
46.8
59.8
-
Source: Tollens (2003), based on partial data FAO.
4.26. The nutritional situation of families is precarious. Infantile malnutrition rates have
increased between 1995 and 2001 (MICS). These rates are especially high among the poor but
not only. Other indicators related partly to malnutrition, such as infant mortality which has also
become worse over time with results more alarming for the poorest populations. This reveals the
depth of the difficulties faced by households. As long as they are not able to improve their food
112
situation, households use most of their resources to access to sufficient and regular supply of
food. They don’t have the materials, economic, social and even psychological resources to
capitalize and to project themselves in the future.
III.
A.
P OPUL A T I ON I S F A C I NG
DI F F I C UL T SI T UA T I ONS .
W or k does not pr event pover ty
4.27. Different situations depend on the socioeconomic characteristics. Several
socioeconomic characteristics have an impact on the well being of households and therefore their
probability of being poor (World Bank 2007). As well, a family with more members is
associated with a decreased consumption of about 7 to 10% for each additional family member,
whether in urban areas or in rural areas. In rural areas, for each additional child between 5 and 14
years old, there is an increase of 2 points percentage that the household has only one meal a day.
Household headed by a man have better living conditions than household headed by woman. The
level of consumption per an equivalent adult increases with the level of education of household
head or spouse. In urban areas, secondary education provides 13% more consumption gains than
primary education. Socioeconomic status of household head has an impact on the well being and
the probability of being poor. Households whose family heads have high positions (frames) have
less low consumption levels. However, unskilled workers, self employed persons, apprentices
and family labour are at the bottom of the ladder and have higher probabilities of being poor.
4.28. The informal sector workers and unskilled workers are more likely to be poor.
Socioeconomic status of household heads has a relationship with the probability of being poor.
Entrepreneurs have a lower poverty level and those who have a business (between 45 and 50%).
60% of supervisors and skilled workers are poor. Half skilled workers, unskilled workers, self
employed people (mainly in agriculture), apprentices and family workers have higher rates of
poverty (World Bank 2007).
4.29. Different levels of poverty across provinces. Insecurity and economic collapse have led
to strong regional disparities in the numbers of poverty (World Bank, 2007 and 2010f). Three
provinces have 85 percent or more of poverty rates, Equateur, Bandundu and South Kivu. The
capital city of the province of Kinshasa (42% of poor people) is the least poor of the country,
followed by the Kasai Occidental and Maniema (Where incidence of poverty is less than 60
percent). However, Kinshasa’s population continues to suffer from a higher unemployment rate
than average and a worse health status than the rest of the country. Moreover, the different
measures of poverty show a more dramatic situation in the eastern province than in the rest of the
country. Isolated provinces such as Equateur or where zone of conflict persist also suffer
poverty more violently.
4.30. High employment rates do not mean that poverty levels are lower.
Paradoxically, the poorest regions have higher activity rates and lower unemployment rates
mainly because the poor cannot afford being inactive in these regions. However, their gains are
lower and correlated with lower consumption levels. This situation is related to the low levels of
individual income that explain the very high monetary poverty. The average monthly income is
approximately 8 427 CF $ 20U.S. in a country where a bag of cassava costs $30U.S.and a bag of
113
rice of 59kg costs $35U.S.Three provinces, Oriental, Bandundu, Equateur, have incomes
particularly low, the average monthly income is less than 6 200 CF.
B.
Pover ty has differ ent for ms in differ ent pr ovinces
In Katanga, poverty is both rural and urban, reflecting the collapse of public
sector. According to the 1-2-3 survey, over two thirds of the population of Katanga is bellow
4.31.
the poverty line (slightly below the national rate). The percentage of population living in poverty
is the same in rural and urban areas, although two thirds of population lives in rural areas.
Poverty is concentrated among agricultural workers (74.6%) and most of the population works in
this sector (71.4%). In addition, 68% of household heads working in public administration and
72% of those working for public enterprises are poor, reflecting in particular of collapse of
Gecamines (World Bank, 2010f). The opposition of mining against non mining sector is the most
discriminating variable in terms of poverty. Access to basic services reflects these disparities.
Agricultural sector are indeed behind the mining sector in terms of social indicators. There are
significant differences in enrolment rates for children aged between six and 11 years depending
on whether the household head working in either sector. Differences in education are visible in
all cohorts for the last 60 years. Furthermore, the results and health coverage in Katanga are
below the national average and with the rather disappointing results given the province’s
revenues. The traditional production of staple food and cash crops have declined or stagnated
since 1986. 90% of farmers in the north use poorer quality seeds found in local markets through
informal channels of distribution. The lack of connectivity has reduced the access to markets and
new technologies. Katanga now depends on imports from Zambia, Zimbabwe and South Africa.
Consequently, according to FAO, a large proportion of the population of Katanga is under the
threat of food shortages (World Bank, 2007 and 2010f). This puts the province in second place
after the South Kivu in terms of provincial populations at risk. With the population expected to
double within 20 years, Katanga faces real food safety risks.
Bandundu is the second poorest province in the country and suffers from a
particularly severe poverty. Almost 90% of the population lives below the poverty line.
4.32.
According to various measures of poverty, not only the proportion of people living in poverty is
20 points higher than the national average but the poverty trap of people living below the poverty
line is 40% higher than the national average (World Bank 2007).Moreover the squared poverty
trap suggests that extreme poverty is also significantly higher in Bandundu than in the rest of the
country. Not only is the poverty rate higher but the poverty is also more severe. Poverty is
concentrated in rural areas, representing nearly 80% of the population of the region. In these
rural areas, the poverty rate is 91.7% (against 71.97% in urban areas) and the poverty intensity is
substantially higher. The rates in urban areas are comparable to the national level. Inside of the
province, there are very variable situations. Practically the entire population of Kikwit is under
the poverty line, while in Tembo, being close to Angola and having mineral resources, the
poverty rate is lower (63%) than in the rest of the province and the country. However, the results
in terms of schooling are higher than in the rest of the country, especially for men. Bandundu
shows that enrolment rates are above the national rates and the rate of illiteracy is lower than
elsewhere for people over 15 years. Vaccination rates are also higher compared with the rest of
the country although infant mortality remains at national level. The ratio of population of each
health center is 40% lower than the national average and in 2007, 28% of the population had
114
access to safe drinking water against 46% at the national level (World Bank, 2010f). Access to
health and education are higher than in the rest of the country indicating that they are more
symptoms than causes of poverty. On the other side, the proportion of children suffering from
the malnutrition has increased over time.
In Kinshasa, poverty levels are the lowest in the country whatever the poverty
measure chosen. (World Bank 2007) The poverty ratio is 41%. However, the Human Poverty
4.33.
Index shows that the level of poverty has increased 3 percentage points between 2001 and 2006.
The national share of children vaccinated is twice the national rate. Kinshasa also has the highest
level of human capital in the DRC. In 2007 the enrolment rate primary and secondary were 20
percentage points above the national average. In tertiary education, the province attracts almost
half of graduates in the country. But the net enrolment rate in primary education has declined
from 76.3% to 74.8% between 2001 and 2005. This trend reflects the downward pressure
associated with the arrival of rural migrants on social indicators. In terms of access to health
services, Kinshasa has the higher of children vaccination. The ratio of doctor by population is 3.6
times higher in the capital than the national average. The connection to water is 5 times higher.
But the good results of Kinshasa disappear when shifted from access to results. Even with higher
indicators of access to health services, the results in terms of health are not necessarily better
than the rest of the country.
In the oriental province, the most educated are among the poorest creating
human capital trap risk. The level of poverty in the oriental province is 75.5 percent i.e. 4
4.34.
points above the national average. While at the national level, the most educated cohort of the
population has lower rates of poverty; in the oriental province, the relationship between
education and poverty is reversed. The less educated population has a poverty incidence lower
(59%) than the most educated cohort (77%)(World Bank, 2010f).With the poverty incidence
higher among the educated people, the oriental province may be caught in a trap in human
capital or the education level deceases due to lack of opportunities for the more educated.
Especially as in all conflict areas, education is limited. Which is reflected in the enrolment rate in
primary school, worse than the rest of the country. In Kisangani, 41% of children between 6 and
11 years are not attending school, compared to 32% in Bunia and 30% in Isiro (World Bank,
2010f). The PO completion rate for secondary education of girls is the lowest in the country.
Only 1.5% of girls complete secondary school (against 6% at national level). There are also a
higher proportion of children with low birth weigh and neonatal mortality rates significantly
higher which reflects the lack of access to health services. The ratio is one doctor for 38,485
persons (against 17,746 at national level). In addition, 30% of children between 12 and 23
months have not been vaccinated against 17% at national level and less than 2% of the
population has access to water (10% at national level).
4.35. South Kivu population suffers from all types of poverty. South Kivu is one of the
poorest provinces with a poverty incidence of 84.7% (World Bank 2007). The province has a
larger population under the poverty line compared to the rest of the country, and the level of
severity seems to be comparable. The urban and rural poverty are high in South Kivu,
particularly urban poverty is extremely high compared to national average. 1/3 of children have
not received vaccination. In Bandundu with similar poverty rates, the situation is reversed.
Because of the war, the FAO predicted that the South Kivu could face severe food insecurity
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(World Bank, 2010f), a second paradox in one of the most lush and irrigated country in the
world. Urban unemployment is twice the national average and is higher than in the rural areas of
the province. South Kivu also has a higher rate of gender discrimination in access to education.
Less than two percent of the female population aged from 15 to 49 years finished secondary
education. Moreover, the province has the lowest share of households having access to farming
in the country. Those who work in farming have very small production units insufficient to
ensure their food security.
Table 4.4 : Measures of Poverty at national level and by province, 2004-2005
Poverty rate
Total
Urbain
National
71,3
61,5
Kinshasa
41,6
41,6
Bas Congo
69,8
70,5
Bandundu
89,1
71,9
Equateur
93,6
83,5
Eastern Province
75,5
83,4
North Kivu
72,9
67,6
Maniema
58,5
69,4
South Kivu
84,7
84,6
Source:World Bank, 2007
IV.
A.
P OPUL A T I ON POV E R T Y
Rural
75,7
n.a
69,6
91,7
95,3
73,6
74,3
57,1
84,6
Poverty trap
Total
Urbain
32,2
26,2
13,4
13,4
23,8
29,9
44,8
29,9
50,7
44,4
33,9
38,6
32,2
27,9
20,9
27,7
38,6
42,8
Rural
34,9
n.a
22,3
47,1
51,8
32,8
33,4
20,1
37,4
I S C OM B I NE D T O A H I G H V UL NE R A B I L I T Y A ND UNC E R T A I NT Y .
E conomic agents face multiple socio-economic r isks
4.36. The population faces an array of different risk categories. Risks as identified during a
pilot survey on vulnerable groups prove to be multiple and related to each other. Unforeseen
events, risks are shocks that can reduce the well being of families and affect their daily life,
being a constant threat, requiring resource mobilization, and having a high cost when they occur.
They range from monetary poverty, war and armed conflict, lack of access to basic public
services, harmful traditional practices and family disruption. These risks can be individual,
idiosyncratic or micro, such as illness, loss of a job, death of an individual being the household
source of income. Risks can also affect the community, as in the case of floods, landslides and
other forms of violence. They can also be national as in the case of war, terrorism, currency crisis
or “coup d’État”. In DRC in recent years, all families had to deal with risks at a individual,
community and national level, and at the same time. It has led to an unstable environment,
harmful to economic activities, and reducing the population capacity to plan for the future.
However, besides risks linked to agricultural activity and agricultural practices (diseases, pests,
bad weather, stealing), commercialization of crops (underselling, misunderstanding of the
market) and land issues (theft), the population and mainly the poorest have to deal with risks not
exclusively depending on their activity, affecting the entire community and that can hardly be
insured.
4.37. Vulnerability is a reality for all the population. The capacities, (understood as being
the real freedom of action) of families to deal and manage their issues, are weak; due to a limited
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number of assets, inadequate and unstable incomes, absence of formal insurance networks and
reduced access credit. On the other hand, risks they face are intertwined, partly covariate, and
this hardly insurable. This situation leads to a very high vulnerability of families resulting from
the unbalanced relationship between capacity and risks. Surveys show high levels of
vulnerability in most of the population groups. Certain groups are much more vulnerable then
others: For example: (i) children living in difficult situations, including children living on the
street, children associated with armed groups, children accused of witchcraft as well as children
having problems with the law; (ii) women living in particular circumstances including teen
moms, women head of households with young children as well as women victim of sexual abuse,
(iii) people infected by the HIV or people who already have AIDS, (iv) people affected by
physical, sensorial and/or mental problems, (v) older citizens living alone, (vi) people displaced
from home due to conflict or natural disasters. The vulnerability of these groups is amplified by
the lack of resources to help them deal with their situation. Actions have been undertaken by the
Government, NGO or Civil society organization that seem very promising, but there often are
not enough human resources or financing available to spread the humanitarian activities to a
significant percentage of the population.
B.
V ulner ability and uncer tainty at the cor e of pover ty.
4.38. Uncertainty makes the population more fragile. Vulnerability is a tangible reality,
rooted in the the span and intensity of the risks faced by households families. Uncertainty have to
be added to vulnerability, being the perception of the population of their own sitution and their
capacity to identify solution and alternatives. Felt insecurities, level of exposure and fragility
generate levels of heterogeneous uncertainties that are the core of households fragility and
poverty. Uncertainties keep families away from visualizing themselves in the future, to imagine a
better environment. They therefore are not in any state of mind to help themselves, in their
poverty stricken life and their situation.
4.39. The weaken psychological state of mind of these populations, increase these
uncertainties. Conflicts affect mental health of individuals. Their capabicity to deal with stress
is therefore deteriorated and so is their capacity to face obstacles, consequently increasing their
feelings of uncertainty. The individual capacity to deal with stress can be divided in two major
components: self composer and self worth. Self worth is measured by the level of control used
when facing adversity, his or her capability to resolve problems and the feeling of being wellequiped to deal with the difficulties of life and the sentiment of dealing well with his/her future
in his/her own hands. Self composure and self worth can be degraded by conflicts. Over half of
the population has suffered from a form of stress whether it comes from nightmares (63.4% of
the population), sadness (70.4%), fear (53.1%), feeling angry ( 41.8%) (World Bank 2007). Poor
people are more stressed then non-poor people. 72.4% of poor people, evaluated on the basis of
objective poverty, say they feel sad (against 73.2% for subjective poors) compared to 65.5% of
objective non-poor (62.6% of subjective non-poor) (World Bank 2007). The poorest individuals
feel more acutely the insecurity that persists in the country. Women are more affected then men
and generally less capable to deal with psychological issues they could have had to deal with
Women have higher stress levels then men in all domains but their self-composure and selfworth aren’t as strong as their male conter-parts. However stress levels are high even for those
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who belong in the highest quintile of the rich population and whatever the objective poverty
level is.
4.40. The population’s perception of the poverty issue remains pessimistic. These
perceptions tell a great deal about the psychological environment in which they develop and
about their deep impact. The psychological effect of armed conflict, and more importantly, the
importance of uncertainty faced by families due to high risks and awareness of their limited
future, allow us to better understand why 33% of the population thinks that poverty will rise
above its current level. For those who think that poverty will be reduced, expectations are
modest; the majority of them think that it will decrease slightly rather than by a large amount.
Only 27 percent of the population believes that poverty will decrease in the DRC within the next
5 years (World Bank, 2007). These perceptions suggest that in spite of progress made, in recent
years, toward economic stabilization and recovery, these changes have not succeeded in altering
either the perceptions of the population or their level of uncertainty.
C.
I nstability and uncer tainty r einfor ce the vicious cycle of pover ty.
4.41. Families are developing various response strategies. These coping strategies are
essentially aimed at increasing income and decreasing spending. Households also report working
more (89.7 percent of the population, with impoverished individuals are more ready to work than
the non-impoverished), diversifying their sources of income (76.6 percent), or asking for a loan
(72.1 percent) to deal with financial difficulties (World Bank, 2007). Women get involved in
small farming business operations and subscribe to tontines that allow them to manage risk.
Impoverished and vulnerable individuals seek aid through NGOs, church groups, or members of
their family. The diversification of assets and business, the broadening of social networks, the
exchange of gifts, the transfer of funds following the emigration of a family member, as well as
putting away of savings, acquisition of microcredit, and holding communal land; are in fact
internal strategies to reduce risk and/or to develop ex ante response strategies.
4.42. Reactive rather than preventive strategies. Households often develop coping strategies
but not meant to prevent risk occurrence and/or diminish the potential impact of future risks.
Even if the developed strategies help managing difficult situations in the short run, they can
prove to be harmful in the long run. One of the most widespread coping strategies consists of
putting children to work in informal jobs, such as shop keeping or street work. Individuals with
HIV sometimes try to limit risk by concealing their infected status. Selling property such as
cattle is also considered as an option by 49.7% of the population. As for individuals having to
reduce their expenses, they will more often reduce their spending on food and basic needs
(84.4% of the population) rather than reduce social expenditures (75.1%) (World Bank, 2007)
4.43. In a context of instability and insecurity, food safety is often not considered as a
priority. Food safety is major issue for families. It is their core issue, and both the cause and the
effect of the degradation of their living conditions. As soon as social and economic instabilities
are internalized among the population, they can lead to alterations in behavior, with regard to
food consumption. Faced with a diminished income, an increase in instability as well as multiple
forms of insecurity, families will qualitatively and quantitatively modify their spending habits
and reduce the number of meals they consume. In a context of instability and uncertainty, while
''eating one's fill'' is often the primary objective of families and household heads, it is not unusual
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that a part of available resources will be used for other purposes than providing food, to develop
ways to deal with issues and maintain social networks for mutual support. Giving, helping and
sharing lead to creating bonds, providing a safety net to rely on when difficulties arise and
ensuring some stability. This support system can act as a form of insurance, albeit an inefficient
one, given the absence of legal status. However, with the exchange of goods for support, families
aim to establish a safe place, at the heart of which mutual support becomes possible.
Nevertheless, the development of this safe place comes at a cost and must be maintained; this
explains why a part of available resources do not go for providing food but rather for networks
maintenance (marriage, bereavement, baptisms, religious networks…). Survival is ensured by
this informal insurance arrangement which Kinoins refer to as ‘’coop’’ and which is founded on
a delicate balance of accumulated social capital in a game of reciprocal debt accumulation.
‘’Whoever is in need of problem-solving, a goods, or a service is inevitably a client of one or
several intermediaries’’ (Nzeza Bilakila, 2004).
4.44. Unable to plan ahead, populations can develop strategies constraining future
opportunities. In a context laden with uncertainty and instability, families see their options
dwindle. On the one hand, rather than make choices and invest, families will favor liquidity as a
mean to cope with their precarious situation and leave the future as open as possible. On the
other hand, they are unable to make projections and plan for the mid-to-long term future. High
exposure to risks results in feelings of insecurity and uncertainty, so that poor households are
discouraged from taking part in profit-generating activities. This hinders their ability to plan for
the long term. To garner the human and financial capital required to improve their lives, is
considered by many households a high-risk activity. In a context where a number of external
factors such as disease, unemployment and poor crop yield prevail; this can lead families into a
state of extreme poverty. Households favor liquidity instead of investments and will opt for realtime solutions when available: multiple network associations, multiple job position as well as
delaying decision-making. Rather than implementing changes, households may prefer to cope
with their current situation, unsatisfying as it may be (Sen, 2000), because it offers a degree of
predictability. Populations with low incomes tend to avoid taking part in higher profit-making
activities that appear to be risky. This can be explained, partly, by feelings of insecurity that can
be generated by high exposure to risks. Households can choose to remain poor to avoid greater
difficulties and shock-induced misery. By their very aversion to risk, poor households are
incapable of taking advantage of profit-generating activities made possible by sustained growth.
In such a perspective, being poor means to test out fewer opportunities and to condition
themselves to accept their inability to make changes. Therefore, a lack of resilience translates
into defensive strategies whereby individuals aim at avoiding any change to protect the status
quo. They limit themselves to managing in the immediate and the short term. Poverty, then, is
ultimately tied in with the aspirations of individuals who, because they are worried and fatalistic,
play a waiting game, resign themselves to their situation and put off trying out of fear of losing
everything. Wait-and-see strategies become a kind of flexibility and liquidity (Briand, 2007).
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V.
A.
S E C UR E
A ND ST A B I L I ZE SOC I A L A ND E C ONOM I C E NV I R ONM E NT T O E NA B L E
POPUL A T I ONS SE L F PR OT E C T I ON I N T H E F UT UR E
R estor e the state author ity to r eassur e actor s
4.45. REINFORCE SECURITY IN ALL ITS DIMENSIONS. Within the last two years, substantial
progresses have been made at the political level but insecurity persist in multiple forms thus
hindering economic growth and penalizing populations in their daily lives as well as their
capacity to initiate new dynamics. The state of insecurity is inacceptable not only because it
affects fundamental principles, but because it also affects mostly the poor, those without means
of getting security services. As a pillar of economic and political stability, security is also in
itself a fundamental right. Security and safety are among fundamental priorities of poor
populations (World Bank, 2002). In addition, it is not surprising that putting an end to conflicts is
one of the most frequent responses identified as a means of reducing poverty and increasing
security is one of priorities of the affected countries. Security of peoples and goods is one of the
regulatory missions of a State and through its impact contributes greatly to the economic and
social wellbeing of populations and permeates the expansion of the rule of law. In contrast,
insecurity has an impact on the social life, on the capacity of the State to fulfill its core functions
as well as its capacity to increase its revenue. It makes it hard to access certain basic services and
at the same time renders fragile the economic base. To bridge these challenges, the notion of
security must be considered in its widest sense, going beyond the traditional restrictive
framework to define it as a performance and economic development tool. It helps populations
exercise their activities in a serene environment, gives confidence to technical and financial
partners as well as all the economic actors. It contributes to the creation of a stable economic
framework, being the prerequisite to any increase in investments and rebound of growth thus
fighting against poverty.
4.46. Restore State authority to reassure economic actors. In spite of progress made since
2011, institutional weaknesses persist and for majority of private actors, state institutions are
devastative. Ownership rights and adequate contracts application are major obstacles to
investments especially for new investors. Lack of transparency and guarantees in the fiscal and
regulatory areas contribute to encourage fiscal evasion and corruption practices. The cost of
starting a business is the highest in the world and four times higher than the average of SSA.
Opening a business can take up to 115 days and closing one might take up to 5 years (2 years
more than the SSA average) (World Bank, 2010c). The country is below the average of SSA in
terms of license and regulations. This results in systematic corruption, generalized informal
dealings, and proliferation of facilitators and intermediate actors. Corruption has become the talk
of the day and is integrated as a necessary practice vis à vis an economy with distorted
regulations and taxations. 40% of enterprises complain of administration taxes (against 28% in
SSA). The numerous withdrawal carried by various organizations at the export level are plethoric
yet with no comparable services received by exporters. Instead, they are revenue gained in a
discriminatory way by organizations or individuals. Beyond the impact of exportation costs, the
most damaging effect of the proliferation of taxes and controls is the unjustifiable prolongation
of formalities. When it is an exportation, such constrains are particularly damaging because
goods as well as the transporting vehicle are blocked for one to many weeks. This leads to
substantial penalties (US$250/day) paid by the transporter and explains why the cost of transport
120
between Bukavu-Mombasa (US$220/t) is nearly twice that of Kigali-Mombasa (US$120/t) for
similar goods and nearly equal distance (this extra cost is called “Congo taxe”) (World Bank,
2010d).
Stabilize the environment to facilitate accelerated growth. In a country that is primarily
agricultural, it is essential that the government put in place a reform for the land policy that will
enable harmonious development of modern and family based agriculture. This can only happen
if the rights of all parties, especially rights of the poorest, are identified and acknowledged. It is
necessary to quickly engage in land legislation reform in general to adapt it to the various
demographic, economic, social and environmental changes in the country.
B.
Stabilize the envir onment by giving agents the means to r esists the r isks.
4.47. Stabilize the environment by giving families access to formal micro insurance.
Families are facing multiple risks. To face them, they get into informal insurance connections
and develop strategies that partially cover the needs, turn to be useless and/or can even be
dangerous in the future. The diversification of capital and business, the diversification of social
networks, gifts and counter-gifts, emigration of a family member and the transfer of funds of the
migrant, the creation of savings and the acquisition of a microcredit, the ownership of a
community land are some of the indigenous strategies against risks. Based on informal
traditional solidarity, these strategies appear insufficient and fragile because of weak barriers in
the mutual responsibilities, the absence of risks costing, demographic explosion, rural migration
or other forms of migration, community tensions and land pressures, process of individualization
especially in the urban areas that limit their impact and reliability. Families use part of the
important resources (financial, time and social) to manage risks that they face and at the same
time being conscious of their limited power to handle them properly. This creates great
vulnerability and high feeling of uncertainty, the two being damaging for any projection in the
future, which is a prerequisite to any investment logic. This is why it is important to help
families change their perception of the future and the environment in which they live by giving
them tools that allow them to stabilize their environment and manage risks in an optimal way and
thus mobilize resources for other ends, that being productive activities. Various studies show that
it is the insurance and saving that are preferred by the poor when they are left with choices.
Through various networks of local institutions and organizations that could be logical partners of
the micro insurance, the latter can override obstacles such as the high cost of transaction and the
challenge of protecting oneself against moral hazards phenomena and adverse selection related to
the insurance of the most vulnerable and poor. By giving some protection against certain risks,
the micro insurance complements other social and financial services and becomes an important
tool in the fight against poverty.
4.48. The micro-insurance is not a simple addition of the microcredit. It designs the
adaptation of services to clients, especially the poor, having no access to the classical insurance
services. It requires knowing the population, their environment, their risks and their perceptions
of risks. Its development can be based on the existing IMF but not limited to it. In South Africa,
Hollard Insurance distributes micro-insurance package (Funeral cover, accident-invalidity,
mobile telephone) through the shopping chain Pep: eight hundred retail shops for populations at
low income. Other insurance such as Tata-AIC in India developed their proper network of
121
distribution by training micro-insurance officers. This presupposes the development of a culture
of micro-insurance in the vulnerable populations and putting in place packages that correspond
to their needs. New technologies can facilitate the sprout of micro insurance as a strategy of
poverty reduction. In Uganda and Malawi, insurance dealers created SIM cards for the poor
insured: they confirm their identity, indicate their cover rate and shows if they have paid their
contribution. In the Philippines, insurance companies reduced transaction costs related to the
collection of little amount by authorising payment through mobile phones. Technology itself is
not enough to override all the obstacles faced by micro insurance operations. However, it helps
to optimise investments returns and to fill operational gaps by promoting communication and
cooperation among different concerned actors. Results in some African countries are
encouraging. AIC Uganda is a predecessor. Partnering with IMF in Uganda, Malawi and
Tanzania, the American branch was covering in 2003, through a lending insurance (death cover
with accident/invalidity guarantee) more than 1, 5 million of peoples; an experience that brought
the American Insurance to multiply the micro insurance program and form teams that committed
to Africa, Asia and Central America.
C.
A llow the population to plan and capitalize for the futur e
4.49. Economic financing a key element of the stimulus. Economic growth is supported by
increased investments in the secondary and tertiary sectors. Investment is a key factor for
employment and poverty reduction as long as it permits the creation of new jobs in the modern
sector and helps in the creation of new enterprises. Indirectly, the stimulus of investments will
lead to offering decent salaries to workers. Since the peace agreement, investments regained
based on increased private and public investments. The domestic banking system is also dynamic
and contributes to the result. All in all, the risks of crowding out exist in that since 2008 public
financing went a little bit beyond private investments. To accelerate the regain of investments
without the risks of crowding out, authorities should aim at promoting public-private partnership
and accelerate modernization of the banking and financial sector. The lack of credit and credit
rationing are indeed major fears for the entire economy. The lack of financing is indicated as the
second constrain to business. Majority of interviewed enterprises (87%) by the ICA survey said
they do not look for credit from financial institutions, 20% because they anticipate a refusal and
35% fear bureaucratic procedures (World Bank, 2010f). Recent date from the Central Bank show
that it is the mine sector that greatly benefited from credits at the detriment of the agriculture and
industry when compared to years before conflict while these two sectors represents nearly 70%
of the DGP and employs majority of the population and particularly majority of the poor. The
only institution that gives credit at the short term is the Fonds de Promotion de l’Industrie (FPI).
But their loans are given at highly subsidies rates (15% per year in CF) and the investors demand
therefore high. In addition, the resources of FPI are very limited and the acquisition of a loan is
very complicated and the credit conditions (5 years with one year extension at best) are not
compatible with many investments particularly in the agriculture sector (irrigation, sustainable
crops) Finally, in DRC there is no institution supporting risky capital and/or that permit small
individual enterprises to get finance. Investments in agriculture, as well as other economic
sectors, must be financed by credit “off-shore”, which very few investors are able to mobilize,
either through personal resources.
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4.50. Microfinance as a key instrument to stimulate economic activity. Access to credit is
generally limited in the Congolese economy. The banking system includes above twenty
commercial banks whose branches are situated mainly in Kinshasa and in major provinces. It is
estimated that there are currently not more than 300 000 accounts for a population of more than
65 millions inhabitants. The number of banks is estimated between 60 000 and 10 000 accounts.
The banking system is very small with asset representing about 10% of the GDP in 2006 (below
25% for the rest of SSA). The total credit to the private sector is also low (3% of the GDP) in
comparison of the rest of SSA (12,3%) although these ratios increased strongly since 2006
(World Bank, 2010f). In addition, 90% of loans are on short term. The financial and credit
coverage is limited to urban and limited geographically with a number of branches outside
Kinshasa, in cities like Matadi, Lubumbashi, Goma and Bukavu. There are otherwise various
saving and credit cooperatives (COOPEC) mainly in Kinshasa, in Katanga, the Bas-Congo and
Kivu (there is none in provinces such as Bandundu). Numerous COOPEC have however serious
management problems and fragile financial situations. Only 90 COOPEC have so far been
accredited by the Central Bank of Congo, which started to regulate in a more controlled way
their development. Finally, there are numerous microcredit initiatives started by NGOs and%or
in the scope of development. Otherwise, activities of banks and COOPEC are essentially related
to the collection of savings and short term credit. None of the situations offer mid-term loan.
Interest rates are very high (40-50% for credits in Congolese Franc and 16-20% per year for
credits in dollars) and credits have to be secured by a guarantee that very few borrowers are able
to provide. According to survey 1-2-3 only a percentage says of having a certain form financing
credit. Among them, 65% are financed by funds that belong to the family and 10% by modalities
of community or family such as the tontines. Such modest saving mechanisms are used primarily
work capital and as input to production (only 5% are used for investments). These results show
the weakness of financing sources for agriculture, while being the biggest income-generating
sector, providing food to most of the population.
D.
Suppor t people to become the dr iver s of their life
4.51. Food security is a particularly important public good. Food security has an impact on
economic growth, poverty and productivity specifically because of what malnutrition and under
nutrition causes. The Copenhagen consensus shows that the provision of micronutrients is the
second best investment possible that a country can do to achieve the Millennium Development
Goals. Instruments of stabilizing the availability of food must aim at ensuring sufficient offer of
nutritional food. This can be achieved through domestic production, national stocking policies,
and food importation. Empirical research shows that the improvement of food productivity and
importation of non-donated food are most effective in reducing the volatile aspect of availability
of food. In addition, fighting against food insecurity means correcting information asymmetries
and thus intervention of authorities in the field. In fact, it is demonstrated that increase in
income helps family to access to more costly food but does not necessarily solve food insecurity
problems. Based on the level of knowledge and the representations of foods, families abandon
rich foods, favoring acute hunger instead of random hunger that help reduce malnutrition and
under nutrition, and they choose expensive foods but not rich in terms of nutrition. Strauss and
Thomas (1995) remind of the example of contrasting literature results on the role of income as
determinant of food security.
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4.52. Education helps to increase growth rate and change cognitive environment of
economic actors. A study by Lutz et al. (2008) shows that secondary education is key to many
countries struggling to attain an increased growth rate. These studies show that investing
massively in secondary and technical education helps to achieve high growth rate compared to
countries that do not. Results show that for DRC to move from the post conflict reconstruction
phase to an investment phase led by growth, the country will have to focus on the secondary
education system and thus obtain high impacts of growth. At the microeconomic level, the
impact of education on jobs and thus on growth is measured by the evaluation of return on
education. While in Africa the return on education is higher than 10%, (it means that an
additional year of education increases income by 10%), rates are discouraging in DRC. Rates are
low for primary and secondary education. These estimations are coherent with other results such
as the number of school years or the GDP per head, which are systematically lower, compared to
other countries. The government should take measures to increase return on education at all
levels and particularly at the primary and secondary levels which are susceptible to have an
important impact on poverty reduction. To do so, it is important to improve the quality of the
education system at large. The improvement of education system is a particularly relevant
objective in terms of fighting against poverty because it helps to react on the knowledge, which
is prerequisite to any action. The know-how can help change the cognitive environment of
people and help them to be actors of their own life by changing their mental conception. For
coherence purposes (cognitive dissonance principle), an individual can be brought to organize
information in a way that constitutes a logic, a cognitive resonance that reduces his or her
uncertainty. On contrary, increasing the know-how of an individual can help him or her modify
the thought path and reduce weight by opening new horizons. The know-how (information,
knowledge and representations) constitutes the cognitive scope from which economic actors
apprehend their socioeconomic environment. They form an understanding through which they
analyze, understand, and imagine solutions, takes decisions. By changing peoples’ aspiration and
helping them to have other path of thoughts and perception, the know-how becomes as a pillar.
The know-how is a driving energy of action. In absence of know-how, it is some norms and the
economy that takes over and contributes to maintaining the poorest in their accommodating
dynamics. It is in this way that the degradation of the education system and lack of access to a
performing education system by the population contribute greatly to a generalized pauperism. It
should be noted that the probability of becoming poor reduces with the increased level of
education of the head of household and that education is presented as a priority for poor
populations. Education comes front page in a list of priorities that families give to the state go
fight poverty (35% of response)
4.53. Improve financial, education and health accessibility. Access cost for education, and
health are very high particularly for the poor. The condition of access comes up often a reason
not to send children to school, not maintaining them to school in a regular way, or causing them
to leave school. For three out of four children, the reason of no schooling or expulsion out of
school are direct results of parents note being able to pay school fees. This does not however
mean that the issue of access is the main problem for the system or for all users of the education
system. Other major questions such as quality are raised. Many are parents who expressed their
willingness to pay more for improved quality. Health results are similar. The question of
accessibility appears on top of the reasons of not looking for health care or for not following
medical prescription. Again this does not mean access is the only important problem, where
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quality is also considered. However, to reduce poverty and ensure that most vulnerable segments
of the population benefit from health care, resolving accessibility problem is essential, to
strengthen capacities of households in poor areas to buy medication and pay their health care. A
wide accessibility would indeed create externalities, for instance for questions related to
immunization and contagious diseases such as tuberculosis, leprous, plague and other sanitation
and medicated programs that have shown results such as mosquito nets, home based malaria
treatment, water purification.
4.54. Stimulate coordination of people so that they become full-fledged actors. In the past,
economic producers and actors played an active role in coordination. Economic crises and war
brought them to passive action. These interests groups contributed to (i) the construction and
maintenance of roads, (ii) the coordination of financing mechanisms, (iii) the economy of scale
realized through public goods management. The coordination of production and delivery of
goods will probably have no tangible impact at the national level but it will help to restart
economic activities at the local, and particularly rural and remote areas that are active in
industries that were abandoned since then. This coordination and responsibility holding is
essential in a country going through reconstruction and whose geographical size, scare resources
are de facto reasons the country cannot be behind all the stimulus initiatives. This holding of
responsibility is desirable to the point that 9 individuals out of 10 say they will be ready to
contribute to community service to reduce poverty (World Bank, 2007).
VI.
A.
S T R ONG G R OW T H T O A L L E V I A T E
POV E R T Y
A lleviating pover ty will r equir e gr owth acceler ation
4.55. As the country is currently having a high poverty rate, reducing poverty in the
future will require stronger economic growth (World Bank 2007, 2010 f). The part of the
population considered to be poor depends on the consumption level per equivalent and by the
distribution of the consumption measured by the inequality. Inequality in consumption, measured
by Gini coefficient Index, was of 0.4 in 2004 – 2005. This is an internationally high level, but
average for African countries. International experience shows that in most of the countries,
inequality measurement does not vary a lot throughout the time. This implies that the potential
for reducing poverty by reducing inequality is often limited. Moreover, the poorer a country is,
the least are opportunities available to redistribute from the rich to the poor. In highly poor
countries such as the DRC, having limited operational instruments allowing redistribution, the
tax system is very low and mainly based on indirect taxes affecting all households. Considering
difficulties to implement redistributive policies through income tax systems or taxes on goods
consumption, social policies are crucial (education, health and social protection among others)
and remain the only way to improve opportunities and results for the poorest. Poverty has
slightly decreased during in the recent years mainly because of GNP growth per capita, and
poverty reduction will only be sustained if growth remains positive. High growth rate will thus
be the necessary condition to poverty reduction. A high GNP per capita growth rate per year
(corresponding to a 4% GNP growth per year, considering the 3% annual demographic growth)
will leave 67% of the population in poverty by 2015 (64% in 2020). A GNP growth rate of 2%
per year per capita (GNP growth of 5% per year) will lead to 56% of the population remaining in
poverty by 2015 (47% by 2020). With a GNP growth rate of 5% per year per capita (GNP
125
growth of 8% per year), 44% of the population will remain poor in 2015 (30% in 2020). Finally,
a GNP growth rate of 8% per year per capita (with a GNP growth of 11% per year, never reached
sustainably by any country) will contribute to reduce poverty to 28% in 2015 (12% in 2020)
(World Bank 2007).
4.56. Simplify processes and legal Framework for growth acceleration. The country
business environment is not conducive to investment. The DRC was ranked 182 on 183 in the
2010 Doing Business report. To sustainably restart investments and growth, will require
improving business environment to reduce transaction costs and attract new enterprises,
especially those with intensive work force consumption. Business environment combined to
endemic corruption has perceived as major risks for enterprises, in a context of insecurity and
instability. Contracts volatility and the weak legal and regulatory frameworks are largely
affecting investment in the mining, forestry and infrastructure sectors. Therefore property rights
reinforcement, simplification of business creation and closure procedures, as well as simplifying
recruitment and employment processes are necessary steps to attract investments.
4.57. Among the impeding factors, the FEC has identified: (i) the abundant taxation system,
complex and not transparent, collected by multiple institutions at the national, regional and local
level (the IMF as identify more than 900) and ruled by discretionary interpretation from civil
servant; (ii) generalized corruption of the public sector, translated into omnipresent racket, and
generalized « facilitation » withholdings; (iii) the high cost and uncertainty of legal actions; (iv)
and the unattractive code of investments, especially for agricultural and agro-industrial
enterprises, having mostly long terms and high risk investment.
B.
A gr icultur e, a key challenge to r ebound gr owth and r educe pover ty
4.58. Agriculture plays a key role in accelerating growth. The poverty diagnostic has
confirmed that any attempt to reduce high level of poverty have to focus on agriculture.
Especially when urban poles are currently suffering from high unemployment rates, and are not
able to absorb additional migrations from rural areas. The central role of agriculture in reducing
poverty is linked to its work force intensive dimension. About 40% of the work force is
employed in agriculture. Arabica production, for one acre, requires 450 days of work – two full
time agriculture jobs – including production and downstream activities. An additional 10.000
acres of production will thus create 20.000 full time jobs and revenue for 160.000 peoples
(World Bank 2010d). Palm oil and other industrial crops follow the same pattern. Agricultural
incomes tend to be spent on goods and services produced locally, having a multiplying effect on
local economy. Finally, growth in agricultural productivity reduces the cost of food goods,
providing « invisible transfers » to all the population and other sectors of the economy. Increased
rural incomes reduce rural poverty as well as urban poverty (the other way round being not true)
(World Bank 2010d). From all growth sources, the agricultural sector has the strongest potential
to reduce poverty. Moreover, poverty cannot only be reduced by social policies, promoting
access to health and education. On the contrary, poverty will be reduced with economic activities
will be reestablished in the rural sector. On average, on a sample of 35 countries, it has been
observed that a 10% growth of agricultural production increases the household incomes of the
lowest quintile of the revenue distribution by 16% (against 12% for industrial production and 7%
for services) (World Bank 2010d)
126
4.59. Environment seems conducive to a sustained rebound of agricultural growth on
national and regional markets. Rebound of national growth since 2002, should contribute to
revenue, and especially urban revenues to progress and sustain the demand for food goods. The
GDP growth per capita has been of 3% over the 2003 2008 period, and households have used an
important part of their incomes to improve and increase their consumption by including goods
with a higher value added to their diet (fruits, vegetables and meat) (World Bank, 2010d). The
combined effect of the demographic, incomes, and consumption of product with higher added
value, growth could lead to a 6% increase of the international demand for food goods. The
demand has a high potential for food production and livestock. Moreover, regional markets, have
had substantial growth since the late 90s, and could be an important source of growth for
Congolese producers.
4.60. World food markets could be another important opportunity for countries currently
having limited exportations. The increase of agricultural products prices on international
markets has created an important opportunity for Congolese agriculture, for export products as
well as for substitute to importations. There is a high potential for rice, corn, palm oil and
livestock, and probably for sugar (World Ban 2010d) Moreover, there is a High potential for
replacing wheat flour by manioc flour for bread production (20% of flour cassava doesn’t alter
the taste and improve the lasting and texture of the product) and gari production, could be, as in
west Africa, an alternative to rice and bread production. Substitutes to importation are an
additional source of growth that could be the result of a global increase of national demand in
food goods from 7% to 8% annually for the coming 5 to 7 years. If the response, from the
producers, was to be proportionate to this demand, it would have a major impact on poverty
reduction, especially in rural areas. An increase of agricultural incomes would have important
multiplying effects on non-agricultural economies, as well as on reducing poverty in other sector
of the economy and in urban areas (World Bank 2010d).
4.61. Agricultural development by uplifting structural constraints. Accelerated
development of the agricultural sector, especially industrial and or/ exportation crops, will only
be possible with the support of large scale and modern farms, having access to market, financing
and required services. These large scale farms – by providing neighboring family farms, access
to market and services through contractual arrangement – will be able to support the State effort
to promote family farm development, family farm being the only one able to guarantee sustained
growth of this sector and to have a positive impact on poverty reduction. The main constraints to
their recovery, at least in a first phase, are mainly cross cutting: (i) access to markets, in terms of
transportation, infrastructure, access to information, and in the medium term to quality and health
safety; (ii) access to land resources; (iii) availability and productivity of the work force ; (iv)
access to technology (equipment, inputs) and to advisory services ; (v) access to credit,
especially for investment required to rehabilitate crops and agro industrial equipment ; (vi)
business environment, and administrative impediments ; (vii) the implementation of a
multidimensional advisory services, available at the decentralized level, collaborating with
producers ; and mobilizing all available stakeholders operating on the field (NGO, private sector)
to support producers a and focus public sector interventions on financing, structuring the sector
and providing advisory services (World Bank 2010d).
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4.62. Increasing agricultural productivity. The current performances of the agricultural
sector are really low, due to the oldness of plantation, the limited productivity of the plants
material and/ or the equipments obsolescence (World Bank 2010d). In the sort run, these
equipments will have to be renewed. But agricultural agents are facing a lack of availability of
medium term credit, unless they have access to the Industry Promotion Funds or « off-shore »
credit. Nowadays, research is not producing selected plants material anymore and large-scale
industrial farms import and multiply what they need. They are also capable of mobilizing
required inputs and services. It is not the case for villagers and most if the medium size farms,
having no access to plants material and advisory services required to increase their productivity.
Mechanism should be implement, for example, using industrial farms as relay, as a part of
public-private partnerships, to facilitate dissemination of technological innovations (selected
plants, inputs, advisory services) to villagers’ farms and support them in implementing integrated
management practices.
4.63. The key role of transportation to support agricultural sector and boosting growth.
The disrepair of the major hinterland transportation networks; including the Congo river, needed
for transportation of Equateur, Oriental and Bandudu provinces agricultural production to
Kinshasa and Matadi; is highly limiting traffic, increasing time and costs of transportation and
therefore diminishing local production competitiveness. In the ICA Survey, transportation is
ranked as the seventh obstacle out of 12, to private investment in the DRC, enterprises based in
Lumumbashi rank it as the second obstacle. Transportation cost can be as High as US$0.20 per
tone/ Kilometer against US$0.13 in other Central African countries, due to the quality of
infrastructures and to: (i) inefficiency and cost of transport services; (ii) multiplicity of taxes and
deduction (legal and illegal) imposed by armed forces and various national, regional and local
institutions. As an example, the transportation cost of tea and Arabica between Kivu (Goma,
Bukavu) and Mombasa is about 300-350$/tonne against 150$/tonne paid by producers from
Uganda or Rwanda, and for shorter distance (World Bank 2010d). A 10% reduction of
transportation costs will lead to a 6% increase of agricultural production, i.e. an elasticity of 0.6
of agricultural production against transportation costs. If this reduction was realized on a 10
years period of time, it would annually add 0.6% to agricultural growth rate (World Bank
2010d). The « Pro-Road » program, currently being implemented, aims to rehabilitate more than
15.000 km of priority road (1/10 of the total road network). It should contribute to reduce
vehicles operational costs and therefore transportation costs. Nevertheless, to rebound
agricultural growth, the Government will have to tackle other factors – transport services and
racket – adding on transportation costs and competitiveness of Congolese agriculture, and mostly
penalizing small-scale enterprises.
C.
T hink global, act local
4.64. Indentifying anchor points to rely on field realities to create leveraging effects. The
DRC is a large country, with heterogeneous characteristics. Any Policy aiming to alleviate
poverty should be thought in a global way while having local implementation anchors.
Moreover, in post conflicts countries, everything as to be rebuilt, starting from the State and
basic infrastructures. In a context of resource scarcity, and especially limited financial resources,
anchor points and priority actions have to be selected, among the one having the strongest
leveraging effect, to boost growth, create dynamics and incentives for stakeholders to plan on a
128
better future. The rebound of agriculture has to be prioritized. The diagnostic study, on trade
integration, has shown that many production areas are currently split from their potential
markets, mainly because of infrastructure and transportation disrepair. Moreover, potentially
productive areas do not have the required population density, limiting work force availability and
making support services to production available at high cost. Population density tends to be more
important in areas having a good agricultural potential, such as the great lake hills areas, and
having a better access to market. Population migrating to these areas is looking for On this basis,
the study is identifying areas having a High agricultural potential (HP), a satisfying aces to
market (HM), and an important population density (HD), and which should be prioritized on the
short and medium term to rebound agriculture. These growth poles include, on top of the
supplying areas for the main cities of the country: the Matadi-Kasai-Oriental Axis; supplying
areas of Katanga mining areas ; the great lake region and ; and the northern part of the Congo
river.
Table 4.5 : Priorities depending on high potential crops and agricultural growth poles
Axis 1
(Atlantic
to
Kabinda
Kasaï Oriental)
Axis 2
Axis 3
(Mining cities (Great
in
Katanga region
province)
Priority crops
Axis 4
Lake (Septentrional
part
of
Equateur
region)
Palm
Oil,
Arabica,
tea,
Cocoa, Hevea,
quinquina,
Peanut,
Coton
Robusta
Manioc, Corn, vegetable, cane Beans, manioc,
rice,
peanut, sugar,
rice,
cattle Corn,
vegetable,
aquaculture,
plantain,
plantain,
vegetable
fisheries,
livestock, cane
sugar
Source: Diagnostic on trade integration, World Bank (2010d)
Robusta, cocoa,
plam oil, hevea,
(coton)
Manioc, corn,
rice,
peanuts,
beans, plantain,
vegetable,
coffee, cocoa,
cattle
4.65. Fight against states failure, according to provincial specificity. States failures and
weaknesses of the legal Framework are a main constrain for the entire economy. State failures
are a heavier limiting factor to private investment in Kinshasa, considering the closeness to the
government. It is the case for a lot of new investors, for who uncertainty and business
environment limited returns on investments. In spite of remarkable progress, the situation is
comparable in Katanga. The mining sector shows specific signs on instability, which are not
resolved so far especially on the legal Framework. A report from the Senate has been
highlighting failure of action taken against corruption and mismanagement in the mining sector.
As in Kinshasa, it would be required to clarify and simplify the legal Framework, for rules to be
applied and fight against corruption to be efficient. Intervening in these two provinces could
have a strong leveraging effect and send positive signal to potential investors. An entry point
could be to rely on a limited number of institutions, having a leveraging effect in removing the
most visible symptoms of states failure, while contributing to give state more visibility and
129
authority. Taking into account fast urbanization and developing real urban management policies.
In the recent years, major cities have been rapidly growing. In 2007, 38% of the DRC population
was living in Kinshasa against 35% in 1990. Youth represent about the half of Kinshasa
population (about 52% of the population is below 15 years old). This tendency should continue
with the decrease of mortality and an increase of fertility rates. The major stake will then be to
create employment to absorb a work force of about 4 million people, expected to double within
15 years; as well as to provide adapted social services to address the population needs. In 2025,
the province of Kinshasa could become the 16iest biggest urban area in the world with 16,8
millions inhabitants. As most of the oldest part of the population (beyond 55 and more) keeps on
working, the government will face an increasing pressure to absorb youth workers cohorts
arriving on job market. To alleviate poverty, guarantee stability and create an environment
conducive to sustainable development, real urban management policies aiming to fight
unemployment, will have to be developed.
4.66. Acting based on priorities of the poorest to modify their perception of the
environment. Among the poorest (26,2% of the population), water supply is the main priority
among a list of 15 potential priorities (World Bank 2007). Overcoming social isolation is the
second highest priority, and building schools comes at the third place. Other areas of public
interventions such as violence and insecurity reduction, construction of health centers of
promoting productive activities are also among the top priority in this list. Individuals consider
that the best way to alleviate poverty in their communities is by promoting income generating
activities (15,8% among the poorest and 21,5% of the non poor), improve security (14,2% with a
important part of households insisting on this dimension) et provision of basic services (11,6% of
individuals).
D.
Differ ent pr ior ities per pr ovince.
4.67. The drop in poverty levels in the city and province of Kinshasa will happen through
the creation of employment and the increase of resources and revenues due to investments.
The priority for this city/province is to create employment for the poor, for graduate people and
educated workers. Kinshasa must therefore put in place a policy to attract investments (as well as
reduce redundancy and corruption)as well as solve the basic infrastructural problems. A possible
solution could be to create a special economic zone that would offer energy, transportation
infrastructures and fiscal advantages to tempt good number of critical investors. Though if the
financial sector has improved in Kinshasa, the financial institutes have mainly focused their
investments in the city of Kinshasa (11 banks and 28 microfinance institutes), the access to
financing makes an apparition in the ICA investigation and report as the second most difficult
city/province to get any financing. Electricity is cited by 45.6% of commercial enterprises as the
principal issues against growth. Up to 78% identify electricity as the biggest or one of the biggest
obstacles (World Bank 2010f). Helping industries seem to have circumvented this obstacle by
having developed adaptation mechanism compared to other types of industries. This last is
constrained by infrastructures problems and an enormous lack of capacity. The lack of stable
electricity due to the deterioration of the Inga station and an inefficient distribution sector
generates important loses.
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4.68. Development of agriculture in Bandundu is a necessary step to restart growth and
alleviate poverty. Bandundu needs more economic policies then social policies. The market has
failed to convey the appropriate information and coordinates necessary to the investors for them
to take advantage of the resources linked to the geographic position of the province. The rebirth
of this province is linked to its capacity to attract a critical amount of private investors to open up
the economy and create jobs and growth. We must break this vicious cycle of low revenue, low
savings, low investments and low productivity to launch this province on a path of sustaining
growth. In general, the lack of employment explains the high levels of extreme poverty in
Bandundu. In the face of no other activity other then agricultural survival, the demand for
qualified workers is next to nil which explains why, compared to other provinces they are paid
less. A possible angel could be to create a group (coop) of external people who would buy the
agricultural products in relation with a gradual and flexible credit plan. The perspective of future
return on investments would encourage the farmers to rationalize their productivity in a formal
economic setting. This would also help households in having a greater income permitting them
to be able to have an easier access to financing. The coops could also be run by it, through the
private-public partnership the private sector, the farmers and the agricultural NGO.
4.69. Opening up the agricultural zone boundaries and alienate the resisting packs of
insecurities will be necessary to reduce the poverty of the oriental province. Today the richer
agricultural oriental zones are closed of due to the dilapidation of resources of the infrastructured channel and armed militias. The province has access to the most elevated earth but
exploiting ut effectively poses a problem. The infrastructures, from this point of view, are a
major constraint even in the most secure zones. The farmers are unable to reach markets and sell
their surplus thus enabling them to orientate their production toward more profitable sectors.
Without access to these markets, farmers sell their goods to miner camps, or quit being farmers
to become miner. A good access to the earth explains a good and secure way to feed and a lower
poverty level in the rural area then the urban area but will contribute much less to the growth or
reduction of poverty if the land isn’t commercially exploited. In essence, the province or state
must identify its comparative advantages. The industries that, in the past, were the origin of the
growth were imported by the coloniser or Mobutu. However, without infrastructure to transport
on this vase territory, no electricity to easily reach a position of an industrialized spot of growth
and a financial sector to lend out money and finance investments. It is excessively hard to
imagine how economic agents can restart the economic growth of this province by themselves.
This leads us to suppose a coordinated effort of the public authorities, the private sector and the
international community to invest massively in the railroad venture, streets and maritime gates
but first and foremost order and security have to be restored. Private-public partnerships must be
thoroughly explored to incite the private sector to invest. In all cases, battling insecurities must
be the number one priority in relation to battling poverty
4.70. Allowing the realignment of the katangaise economy towards agriculture by helping
accessing to sources of financing and development of the basic infrastructures. The Kantaga
policies of rebirth most concentrate particularly on their access of financing and re-establishing
infrastructures that will permit agricultural sector to develop and permit stability in the mining
sector. The mining projects are traditionally financed by International found. Therefore they
aren’t subjected to the lack and constraint of local financing until recently with the worldwide
financial crisis. In contrast, in non-mining districts, considering that the majority of activities are
131
informal and that is quite difficult to access to financing. The lack of formal credit and long term
payment plans affect directly the quality and the type of equipment used by agricultural and nonagricultural industries, reducing their capabilities to augment their production and making it
much harder to export. Furthermore, the agricultural system does not dispose of any access to
credit since the abolition of cotton trade and only 4% of households declare having access to
credit for work. Tontines are the most common credit approach to finance production.
Unfortunately, the informal financing approach only hands out limited sums which are no help to
farmers and small non-agricultural businesses to invest in the necessary inputs to boost their
productivity. Plus, transportation infrastructures are in shambles, roads in ruin, train tracks
abandoned, airport equipment not working properly, the maritime passages just about impossible
to navigate and electricity in Katanga mostly reserved for the mining cities. Though Katanga is
ranked the second most developed province when talking about the PNB per head, 1 person out
of 4 still lives over 5 km away from the market and more than half of the population lives further
then 10 km from a hospital. The lack of connection condemned the rural zones to auto-survival
and dependence of the province on the mining industry.
4.71. Securing south Kivu is an absolute necessity to stop the vicious cycle of poverty and
put in place a social policy or help the population in its reconstruction. The conflicts have
had direct and indirect consequences on the economy whether it is short, medium or long term.
Latent insecurity stays the main concern for the province and explains, regardless of the
resilience of those actors, poverty would hardly be reduced. The impact of the conflict over the
financial system has been devastating. Accessible channels are still possible trough social
channels but the importance of those loans is relatively small. Furthermore, there are no loans for
potential investments projects in heartlands and the majority of loans are centralized in cities.
The infrastructures, like roads and electricity, are destroyed. In addition, from wars and
population migrations, there has been a strong impact on education which will have
consequences over long-term poverty strategies. It is then hard to imagine that high growth-rate
could solely reduce poverty and/or improve results in term of education. It is essential to put
social policies in place to help populations to rebuild and project themselves ahead in the future.
132
Annexes – Chapter 2
Annex 1: Legislative agenda for full application of the 2006 Constitution
Criminal Law and Law Court
Short -Term
(0-6 months)
Medium Term
(6-18 months)
1. Draft organic law on the organization,
functioning and competence of the Constitutional
Court
2. Draft organic law on the organization,
functioning and jurisdiction of the Court of
Cassation
3. Draft organic law on the organization,
functioning and jurisdiction of the Conseil d'Etat
and the courts of the administrative order
4. Draft organic law on organization, functioning,
competence and procedure of the military courts
5. Draft law on procedure before the Court of
cassation
6. Procedure of individual referral to the
Constitutional Court
7. Draft law on the reform of the Higher Council
of the judiciary
8. Draft law on the new status of judges
9. Measures relating to the implementation of the
Rome Statute on the International Criminal Court
10. Draft law on the representation in justice and
judicial assistance (Bar, Legal Advocates and
Agents of the State)
1. Draft law on the reform of the prison system
2. Reform of the criminal code (incorporating
offences established by the Constitution,
enforcement of the law on combating the
laundering and terrorism, the fight against
trafficking in human beings, the protection of
vulnerable persons, enlargement of crimes against
humanities to sexual violence on any person with
the intention of destabilizing and dislocate a
family or obliterate a people, the amnesty and
extradition, abolition of the death penalty, etc.)
3. Draft law on child protection and treatment of
juvenile delinquency
Public, constitutional, administrative law
and human rights
1. Draft law on the status of political
opposition
2. Draft organic law on composition,
organization, functioning of decentralized
territorial entities and their relationships with
the State and the provinces.
3. Draft law on the administration of the
provinces and decentralized administrative
entities, their skills and resources
4. Draft law establishing the organization and
functioning of the Independent National
Electoral Commission
5. Draft law fixing composition, competences,
organization and functioning of the
Conference of Governors
6. Integration in Congolese law of all
international treaties ratified by the DRC from
1960 to date, in both criminal, judicial,
administrative, civil, commercial, economic,
etc.
Right private, Civil, Commercial, economic
and socio-cultural
1 Reform of the Mining Code
2. Reform of the Forestry Code
3. Enforcement of the law on the general regime
of property, real estate plan and security regime
4. Enforcement of the law on property regime
5. Revision of the Family Code
6. Draft law on the right of accession to the
OHADA
7. Reform of the business Code
8. Reform of the notaries
9. Reform of conservation of land titles
1. Draft law establishing the organization and
functioning of the National Fund Adjustement
2. Draft organic law on the delimitation of
provinces and the city of Kinshasa
3. Draft law laying down the procedures for
the exercise of the freedoms associated with
the right to the information
4. Draft law on freedom of the events.
5. Draft law laying down the procedures for
asylum law
6. Draft law on the constraints imposed by
national defense to citizens to their person and
their property
1. Draft law on the private international law
2. Draft law on the protection of copyright and
neighboring rights
3. Family Code enforcement actions
4. Draft organic law determining the conditions
for recognition, acquisition, loss and recovery of
the Congolese nationality
5. Draft law laying down the procedures for the
application of women's rights
6. Draft law laying down the procedures for the
application of the rights of the child
Long Term (1830 months)
1. Reform of Criminal Procedure Code
(incorporating the terms and conditions of arrest
and detention, forms and conditions of the visits
and search, implementation of the guarantee of
the rights of defense and appeal against a
judgment, etc.)
2. Terms of exercising the right of grace and
rehabilitation, communication and reduction of
sentence
3. Reform of the Code of civil procedure 4. Draft
law on the status of judicial, military and civil
staff.
5. Draft law relating to the proceedings before the
Court of appeal
6. Draft law on the organization of the
interlocutory proceedings
7. Draft law on procedure in the courts of the
peace
8. Draft law fixing the composition, the
organization and functioning of the Court of
Auditors
1 Act on taxes (establishment taxes,
exemption and fiscal relief)
2. Act on the issuance of money.
3. Act on borrowings and financial
commitments of the State
4. The status of Public Service
5. Law on the creation of enterprises,
establishment and public agencies
6. Law on political and trade union pluralism
7. Act on Media Organization
8. Act on the General account of my Republic
9 Act establishing the organization and
operation of the Central Bank
10. Act establishing the organization and
functioning of National Police
11. Act establishing the organization and
functioning of the Army
12. Act determining the organization,
competences an d the functioning of the
Higher Council of Defense
13. Act fixing the territorial subdivisions
within the provinces
14. Act establishing the Status of the Customs
Chiefs
15. Act establishing the organization and
functioning of public services of central
power, provinces and decentralized territorial
entities
16. Condition of the organization of elections
and referendum
17. Status of the media of the State
18. Emoluments and civil list of the President
of the Republic
19. Emoluments of the members of the
Government and the Prime Minister
20. Conditions for election and eligibility of
Deputies
21. Conditions for election and eligibility of
Senators
22. Procedure for attestation of the causes of
1. Law of employment rights
2. Law laying down procedures for exercising
the association freely
3. Law on education
4. Law on health and food security
5. Law on decent housing, access to drinking
water and electricity
6. Law on Social Security.
7. Law on Cooperatives.
8. Law on Culture and arts
9. Law on Sports and recreation
10. Law on agriculture, livestock, fishing and
fish farming
11. Law on the protection of the environment
and tourism
12. Initiative related to Private trade
13. Status of workers. Specific particularities to
the legal regime of professional orders and
exercise of professions requiring an academic
qualification
14. Conditions for exercising the right to strike
15. Conditions of production, storage,
manipulation, destruction and the evaluation of
the toxic waste and radioactive
16. Nature and modalities of execution of
compensatory measures, compensation of any
pollution or destruction related to economic
activity 17. Procedures for the exercise of
Association of freedom
18. Promotion and protection of the national
cultural heritage
property19. Promotion of environmental and
population health
ineligibility before the judicial authority
23. Indemnities of members of parliament
24. Act on Finance.
25. Conditions for grant of an additional quota
in the city of Kinshasa for the elections of
senators.
26. Electorate and eligibility conditions.
27. Formation and functioning of political
parties
28. Organization and functioning of the boards
of power...?
29. Terms of freedom of press, information
and broadcast
30. Implementing rules of the State of siege or
emergency rule
31. Rights and duties of citizens in time of
war, in case of invasion or attack on national
territory by foreign forces
32. General account of the Republic 33.
Nomenclature of the domestic local revenue
other than the ones allocated to the provinces
and their distribution terms
34. Exemption to the enjoyment of political
rights
35. Implementation of the guarantee of
freedom of expression
36. Conditions for exercising freedom,
peaceful and unarmed meetings.
37. Individual and collective petition right
38. Obligation to loyalty to the State
39. Obligation to preserve and strengthen
national unity
Annex 2: Political Economy Aspects of Selected Decentralization Reforms in the DRC
(based on Kaiser, Mabi Mulumba and Verheijen, 2010)
Issue
Fiscal Transfers/
Retrocession
Proposed Design
Reality
Constraints
Policy
Recommendations
Technical
Recommendations
Key
Stakeholders
- Provincial
allocations by
Solidarité formula
approach,
excluding oil
- Actual salary
payments rationed
by center based on
available resources
- Investment budget
controlled by
center, restricted
by available funds
- July 2007
Governors’
Conference
suggested
government would
automatically
transfer 1/3 by
Central Bank
withholding, and
remainder based
on realized
revenues
- Civil service
census stalled
- Weak revenue
mobilization
- Poor
governance,
waste of public
resources, poor
public financial
management
- Absence of
Public Finance
Law
- Apply Solidarité
Formula along lines
previewed by Finance
Law
- Parliament should
push for government
to present draft Public
Finance Law
- Arrange seminars
with key
commissions to
inform debate
- Prime Minister
Muzito and
Finance Minister
Matenda are not
champions of
Solidarité
formula
implementation
- Governors and
other
stakeholders
limited in
pushing for
proposed design
- Limited
leverage for
donors
- Limited political
constraints
- Technical issues
not of major
interest to
political
stakeholders
- Labor unions
not involved in
organized
workshops/
debates
- Continued
centralist
- Follow project
- Engage Parliament
and Senate
- Encourage government
to establish investment
- Parliament takes a
more proactive role in
- Fiscal transfers
cover wage costs
in mandatory
provincial
functions
(including
education, health,
and agriculture)
Transfer of Sectoral
Personnel and
Functions
- Greater
transparency
concerning actual
number of civil
servants (i.e., civil
service census)
- Rationalization of
civil servant
remuneration
Decentralized
Investment
- Investment initially
included in 40
- Prime Minister
took control of
- Prime Minister
Muzito and
Issue
Provincial Splitting
(Découpage)
Proposed Design
Reality
Constraints
Policy
Recommendations
percent domestic
revenue envelope
until revenue
situation improves
- Engage provinces
in project selection
- Engage Ministry of
Planning in project
selection and
monitoring
provincial
investment budgets
in 2008
- Purchase of
equipment did not
follow appropriate
procurement
processes
- July 2007
Governors’
Conference gave
assurances that
provinces would be
consulted
- Continue push to
implement
découpage within 36
months of
Constitution
tendencies
- Need by
political parties to
control
investment funds
- CNP organic
law has not been
approved
plan in accordance with
Poverty Reduction
Strategy Paper
- Implement
Procurement law
oversight of budget
Finance Minister
Matenda favor
centralized
control and/or
discretion over
investment
budget
- Delay risks
violating
constitution
- Law on
territorial division
not passed
- Push by certain
groups/ provinces
to change
provincial limits
- Opposition by
Katanga
- Limited
revenues to
transfer to 26
provinces
- Delay découpage until
minimum conditions in
place
- Avoid indefinite/nontime bound delay, or
risk demotivating civil
society/population
- Avoid premature
découpage
- Enhance
engagement by
Parliament and
Senate
- Increase dialogue/
workshops on topic
- Governor of
Katanaga and
Head of
Provincial
Parliament
opposed
- Governors of
Kasaï opposed
proposed
boundaries,
especially
concerning
Lomami
- Avert overly rapid
découpage
- Condition
découpage on
transfer of exclusive
functions and staff to
provinces
Technical
Recommendations
Key
Stakeholders
Appendix -- Chapter 3
Appendix 1
Table A1. Sources of economic growth
(adjusting for quality of human capital using adult mortality rates)
(percent)
1999-2000
2001-05
2006-10
-5.6
4.3
5.3
5.8
6.7
5.0
Labor
11.2
11.1
7.1
Capital
-2.3
0.0
2.0
-2.4
0.2
Real GDP growth
Factor accumulation3/
Total factor productivity
-11.4
Source: IMF, WDI, and authors’ calculations.
Note: See Box 1 and 2 for methodologies and assumptions.
* AMR data is available only from 1998, so the averages for initial period is not robust.
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