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DR Congo - Economy

Despite DRC’s abundant natural resources and its robust growth and overall strong macroeconomic performance of the five years 2010-2015, fiscal space remains limited and poverty widespread. While key social indicators improved, DRC will likely not achieve any of the Millennium Development Goals (MDGs) by 2015. Implementation of past policy recommendations was broadly satisfactory, but progress on critical structural reforms has stalled. DRC remains a fragile country with vulnerabilities on the rise. Outlook and risks. The outlook is favorable but vulnerable to adverse developments in commodity prices and spending pressures in the period leading to the 2016 presidential elections. A low foreign exchange reserves cushion leaves the economy vulnerable to external shocks. In addition, continued delays in adopting some economic legislations and lingering insecurity in parts of the country are also sources of risk.

DRC’s macroeconomic performance remained strong through 2015 despite a difficult external and domestic environment. Real GDP growth in 2014 is estimated at 9.2 percent, driven by copper production and the service sector. Year-on-year inflation stabilized at 1.0 percent at end-December 2014, on account of a prudent fiscal stance. The fiscal position recorded a small surplus, in line with the fiscal anchor adopted in 2009. The external current account deficit narrowed to 9.2 percent of GDP in 2014 from10.6 percent of GDP in 2013, reflecting an improvement in the terms of trade and strong exports of mining products. Sustained inflows of foreign direct investments contributed to an overall balance of payments surplus, despite decreasing official transfers.

The medium-term outlook is favorable but subject to downside risks. Real GDP growth is projected to remain strong at 9.2 percent in 2015—among the highest rates in the world—and average 8.4 percent in 2016–17 before stabilizing at around 6 percent in 2018–20. Inflation is targeted at 2.5 percent, as fiscal policy remains prudent. Despite a sustained projected increase in exports the current account deficit would increase to double digits by 2018 due to rising dividend outflows and imports. Nonetheless, the overall balance is expected to remain in surplus, but international reserves would remain at relatively low levels in the absence of interventions by the Central Bank of Congo.

Sparsely populated in relation to its area, the Democratic Republic of the Congo is home to vast natural resources and mineral wealth. Nevertheless, the D.R.C. is one of the poorest countries in the world, with per capita annual income of about U.S. $210 in 2011. This is the result of years of mismanagement, corruption, and war.

Water and electricity supplies are hugely deficient, even in large cities. Power failures are frequent even in Kinshasa where many neighborhoods, particularly at the periphery, are not on the grid. Many communes also have deficient water supply, forcing many people to purchase water from private trucks that circulate through neighborhoods or to walk considerable distances to get it from distribution points.

DRC's economy is dominated by the mining sector – copper, cobalt and diamonds. But decades of mismanagement and corruption, together with the war, caused virtual economic collapse. In January 2001, the government announced a comprehensive change to economic policy, freeing up the currency, lifting foreign exchange restrictions and ending the monopoly on diamond export sales. But progress in reversing decades of decline is slow.

DRC is potentially one of the richest countries in Africa, with rich mineral resources, timber (75% of the country is forested) and extensive energy resources in HEP. It is however one of the poorest. Real GDP per capita fell from $380 in 1960 to $115 by 2004. The tense political situation, corruption and smuggling, as highlighted by the UN Panel on the Illegal Exploitation of Mineral Resources of October 2003, have resulted in a shortage of development capital that has stifled the development of the mining and other sectors. The DRC signed up to the Extractive Industries Transparency Initiative (EITI) in 2005 and is a member of the Kimberley Process.

The Government of the Democratic Republic of the Congo (GDRC) has repeatedly cited attracting foreign investment as one of its highest priorities, yet the country remains a very difficult environment for investors. The GDRC is justifiably proud of achieving macroeconomic stability in recent years however reforms to improve the business climate have stalled. The economic outlook for the medium term remains generally positive although there are concerns the Congolese economy and budget are overly dependent on global commodity prices.

The DRC rebounded remarkably well from the global financial crisis thanks to improved fiscal policy, high global commodity prices and the largest debt forgiveness in history. The DRC averaged 6% annual growth over the last decade, including 8.5% GDP growth in 2013. Despite this recent growth the DRC has the world’s lowest gross national income per capita, it also ranks last in the UN Human Development Index, and near the bottom in business climate, hunger and many other indices.

The magnitude of the informal economy far exceeds official economic activity. In the early 1990s, Zaire's informal economy was estimated to be three times the size of the official GDP. In Zaire, as elsewhere, the size of the informal economy reflects the increasing inability of the official system to serve the needs of the populace. The informal economy has grown dramatically as economic and social conditions deteriorated and as purchasing power dropped. Smuggling and other unofficial activities constitute the real economy of Zaire. Second-economy activities are fully institutionalized and in most respects more rational and predictable than official trade and production activities. The second economy provides access to goods and services unavailable in the official economy and compensates for the deficiencies of the official system.

For decades, corruption and misguided policy have fostered a clandestine economy in the D.R.C. Individuals and businesses in the formal sector operated with high costs under arbitrarily enforced laws. As a consequence, the informal sector now dominates the economy. In order to combat corruption, in September 2009, President Kabila launched a “zero-tolerance” campaign. Within this framework, he established the D.R.C. Financial Intelligence Unit to combat money laundering and misappropriation of public funds. Nevertheless, very weak law enforcement and judicial systems are serious obstacles to progress in combating corruptions.

The informal sector has grown substantially in the years since independence, particularly in the cities. It consists of people who lack regular wage employment and who engage in a wide variety of economic activities. Typical occupations include tailoring, shoe repairs, housing construction, taxi and bus services, soft-drink vending, masonry work, petty retailing, artisanal crafts, prostitution, and petty criminality. In border cities, the latter category includes smugglers, who have sometimes grown wealthy from their illicit activity. Participation may be transitional or permanent. School leavers have been typical transitional members as they may engage in such activities on a part-time subsistence basis while searching for permanent employment. Older persons, women, and individuals lacking educational qualifications for wage employment have tended to remain in this sector permanently.

Agriculture is the largest contributor to Congolese gross domestic product (54% in 2010). Manufacturing accounted for just 6.7% of GDP in 2010, while services accounted for 34%. The main cash crops include coffee, palm oil, rubber, cotton, sugar, tea, and cocoa. Food crops include cassava, plantains, maize, groundnuts, and rice. However, commercial agricultural production or processing remains limited, with many producers engaged in subsistence food production.





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Page last modified: 02-04-2016 16:48:36 ZULU