L’espoir – Study of DRC Business Environment

The Democratic Republic of Congo can be said to be one country that has suffered the greatest in the world, a country that has been blighted by over 100 years of war, despotism and horror. The first stories to emerge about the economic environment of this wealthy country in central Africa were exposed to the world by Portuguese explorers in the 15th  century. Trade was taking place in the various kingdoms of the Congo and commodities such as ivory, cloth and ironware were exchanged and contact with the outside world then began.

Who would ever know that years later, Congolese exploits would be quickly seized upon by the most unlikely of colonial adventurers? King Leopold II of Belgium, who was devious, selfish, greedy and ignorant of African affairs, had been eyeing the unclaimed African gateau for some time, but he was having some trouble persuading the Belgian government to go along with  him. To solve the problem the arrogant monarch decided to acquire a colony in his own right. The resulting European furore became known as the ‘Scramble for Africa’.

Leopold inherited a country 75 times the size of Belgium, and he set about fleecing the Congo of its ivory, rubber, copper and other valuable material that would have aided economic development in the Congo. Leopold indeed acted as a pace setter as years later the Congo is still being partitioned by the various European powers, all wanting to benefit from the almost depleting resources of the Congo.

Later the Belgian government paid the king US$4 million in compensation so as to annex the land mass. This was a blessing in disguise as things seemed to take a turn for the better as the new Belgian administration built clinics, schools and roads, and eradicated sleeping sickness. By the 1940s the Congo was Africa’s richest country. With Patrice Lumumba, the Democratic Republic of Congo finally gained independence from the colonisers in 1960.

Mobutu came into power after he overthrew Lumumba, proving to be even more incompetent than Leopold. His reign was characterized by corruption and the squandering of state resources. He accumulated more than US$2 billion in US loans over a 30-year period and printed a lot of money, hence inflation. He stuffed more than US$5 billion into Swiss bank accounts and hired a Concorde to take him on shopping trips to the Champs Elysées. All this happened as the former European colonizers watched at bay, sometimes even consulted by Mobutu on economic and legal issues that concerned the people of the DRC. Congo’s history has affected its socio-economic and political issues to date.

The Congo’s economic and business environment has also been greatly influenced by its geography. Despite the political and economic turmoil the country is experiencing, it has still managed to stand on its feeble feet. The Congo’s vast, low-lying central area is a basin-shaped plateau sloping toward the west and covered by tropical rainforest, an area suitable for agriculture and construction of agricultural industries to save on expenses of transportation of  raw materials. The rainy season lasts from October to May and north of the Equator, from April to November. Along the Equator, rainfall is fairly regular throughout the year. The average annual rainfall for the entire country is about 107 centimetres.

The Democratic Republic of Congo’s GDP as of 2009 was recorded at $10.82 billion with an annual GDP growth rate of 2.7%. and per capita GDP of $171.

Natural resources in the Congo region include copper, cobalt, diamonds, gold, other minerals, petroleum and wood, and the region has been noted to have hydroelectric potential. Congo’s engagement in agriculture has seen the country produce cash crops such as coffee, rubber, palm oil, cotton, cocoa, sugar and tea. Food crops such as manioc, corn, legumes, plantains and peanuts are also produced.

The land use in the DRC is as follows: agriculture 3%, pasture 7%, forest/woodland 77%, other 13%. It is important to note that the  wooldland covers a vast area, and as expected, European companies cannot  help but notice this. Some European farms have been engaged in loggig activities in the Congo region hence destroying natural habitats and water catchment areas, and polluting water sources. The Congo forest region has experienced negative destructive business. As more families are displaced and logging continues, the  displaced families have nothing to show but just employment by these imperialist industries. The families, which, whatever little amount they are paid, cannot even take their teenage children to highschool. The economic situation in this region is a classic example of a man eat man society.

Industries in the Democratic Republic of Congo mainly deal with processed and unprocessed minerals, consumer products (including textiles, plastics, footwear, cigarettes, metal products), processed foods and beverages, cement and timber.

The currency used is the Congolese franc (FC). Sometimes the US dollar is used as legal tender.

The DRC mainly exports diamonds, cobalt, copper, coffee and petroleum. Its main trading partners, who also are summed as the countries which have only served to under develop the DRC, are the EU, Japan, South Africa, the US and China. DRC Imports consumer goods (food, textiles), capital equipment and refined petroleum products. Taking a closer look at the  products the DRC imports, the fact that DRC is capable of producing these products cannot but be noticed. Ironic is the fact that its official debt is estimated to be $13.5 billion.

The Democratic Republic of the Congo is home to a vast potential of natural resources and mineral wealth. Nevertheless, the DRC is one of the poorest countries in the world. This again is the result of years of mismanagement, corruption, war and imperialism from western European powers.

Minerals account for the vast majority of the DRC’s exports and represent the single largest source for foreign direct investment (FDI). Copper, cobalt, gold, coltan, tin and zinc are the big metals being mined and produced in the DRC. The diamond sector currently accounts for about 10% of the DRC’s export revenue. This is from both gem and industrial-grade diamond sales that were around $875 million in 2008 and were projected to approach an estimated $1 billion in 2009. All diamond production in the DRC is currently artisanal.

For decades, corruption and misguided policy have created a dual economy in the DRC. 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 DRC Financial Intelligence Unit to combat money laundering and misappropriation of public funds.

The Congolese Government approved a new investment code, a new mining code and designed a new commercial court. The goal of these initiatives was to attract investment by promising fair and transparent treatment to private business. The DRC Government established an inter-ministerial committee called the “Steering Committee for Investment and Business Climate Improvement” to support reforms that would improve the business climate. In December 2009, the Congolese parliament approved a law authorizing the DRC’s accession to the Organization for the Harmonization of Business Law in Africa (OHADA). President Kabila promulgated this law in February 2010. The Government of the DRC officially launched the National OHADA Commission in April 2010. The DRC was expected to sign and deposit the instrument of OHADA accession by November 2010. The OHADA treaty was to take effect in the DRC on January 1, 2011.

The government of the DRC continues to build on economic reforms initiated in aimed at stabilizing the macroeconomic situation and promoting economic growth. Reforms included liberalization of petroleum prices and exchange rates and adoption of disciplined fiscal and monetary policies. These policies have been successful in reducing inflation and supporting the resumption and acceleration of economic growth since 2002. The DRC’s economy grew by 5.6% in 2006, 6.32% in 2007 and 6.15% in 2008. Inflation was reduced from over 501% in 2001 to approximately 27.6% in 2008. As a result of unexpected internal and external economic shocks in 2009, the annual inflation rate stood at 53.44% in 2009. Inflation has been significantly reduced during 2010 and the annualized rate is currently projected at less than 10%.

The DRC’s development framework includes implementation of the Poverty Reduction Strategy Paper (PRSP), approved in mid-2006 by the IMF and World Bank boards, and the government’s 5-year program, approved by the National Assembly in February 2007. The 5-year program, known as the five pillars or “cinq chantiers” in French, is based on the PRSP and focuses heavily on President Kabila’s five priority areas; infrastructure, employment, education, water/electricity and health. This is to ensure the country’s economic development will foster a business environment for the natives of Congo and its trading partners.

DRC’s large size and strategic location in the centre of Africa, as well as its vast mineral wealth, have made the country a key regional player. The DRC’s relations with its neighbours have often been driven by security concerns. In addition, internal conflicts in Angola, Burundi, the Central African Republic, Congo-Brazzaville, Rwanda, Sudan and Uganda have at various times created bilateral and regional tensions affecting the business environment.

Over the past 6 years, the DRC Government has signed agreements with its neighbours to improve the security of the DRC and the wider region. There has been increased insecurity due to the political crisis in Somalia. Militia groups such as the janjaweed and al shabbad have threatened the ease of business in this region. Improvement in security would mean ease in business in the DRC and the neighbouring countries.

With the progress in the Sudan, the DRC is set to benefit from the predicted peace and stability in the region, as this would encourage regional trade.

There is indeed hope in the DRC. The future looks bright… and even brighter, when the people of DRC will realise what treasure they are holding in their hands and say “No” to imperialism.