Democratic Republic of Congo
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Democratic Republic of Congo The Democratic Republic of Congo has immense potential but remains a risky investment location. 2nd largest country in Main hurdles include pervasive poverty, political Africa turmoil, security issues, vast land area and inadequate infrastructure. If it were not for the numerous obstacles, the Democratic Republic of Congo (DRC) would be a highly Central African Republic South Sudan attractive investment location. It is the second-largest country and Lagos-Mombasa Highway has the third-largest population in Gabon Tripoli-Cape Town Highway Africa. Most significantly, the DRC is considered to have among the Kisangani Congo River Uganda largest endowments of minerals on the continent. North Kivu Province Social and economic conditions are very challenging and the Rwanda DRC is recognised as one of the most difficult places in which Congo Ilebo Burundi Pointe to do business in the world. In Noire Kinshasa Tanzania addition to these factors, transport Matadi infrastructure is a major impediment SNCC Port of to economic growth. Banana Port of (extensions/ Matadi deepwater port) An escalation in conflict in the Katanga Province Angola eastern DRC also stands to impact Atlantic growth prospects, but not as severely Kolwezi SNCC Beira-Lobito Highway as a commodity price crash scenario, Ocean Lobito Lubumbashi given the country’s high dependence on the mining sector. Zambia Notwithstanding the challenges it faces, the DRC should see sizeable economic growth over the short to medium term, while remaining an extremely challenging place in which to do business. These bubbles represent the cities of the DRC and the size of the bubbles indicates the population size of the city Airport Port Future Airport Future Port Future Railway Future Road Railway Road PwC 31 Gold industry largely underdeveloped A campaign similar to the one The country has significant offshore Conflict minerals established to control the spread oil and gas reserves. Angola and of blood diamonds, but focusing the DRC are negotiating a new “Conflict minerals are on conflict minerals, is gaining production-sharing agreement in the Democratic Republic of Congo Democratic Republic minerals originating from momentum. Section 1502 of the so-called ‘zone of common interest’ Dodd–Frank Wall Street Reform off the West Coast. the Democratic Republic and Consumer Protection Act of Congo or neighbouring requires electronics companies to The DRC has a relatively small countries. They include verify and disclose their sources of market size, with GDP estimated at tantalum, tin, gold, and certain minerals that are used in the US$17.2 billion in 2012. With per tungsten. manufacture of electronics such as capita GDP of just US$230, only smartphones and computers. Burundi and Malawi rate worse than the DRC globally. Companies are required to This was reinforced in 2012 when publicly disclose the use of the US Securities and Exchange Coming off an extremely low conflict minerals if those Commission (SEC) passed rules base, the country has nevertheless minerals are ‘necessary to the requiring companies to disclose experienced strong economic the purchase of tin, tantalum, growth, estimated at 7.1% annually functionality or production tungsten and gold from the DRC.i between 2010 and 2012. The IMF of a product’.” It is thought that making it more expects this to increase to an annual difficult to export conflict minerals average of 8.6% between 2012 and U.S. Securities and Exchange could decrease the level of conflict 2017. The economy is dominated by Commission (SEC) in some areas and perhaps allow the the agricultural sector, contributing country as a whole to benefit from around 39% of GDP and employing The economy and its mineral resources. over 60% of the labour force. resources The DRC has made distinct efforts The DRC has historically suffered to improve its integration with high levels of inflation, but International trade activity world trade. In the aftermath of authorities have recently managed contributes significantly to domestic a diagnostic study to draw up the to moderate price inflation and it economic growth in the DRC, with DRC’s trade policy – conducted in is expected that it should remain exports and imports accounting for 2010 with the aid of the World Bank within the single-digit range over 68% and 78% of GDP respectively. – the DRC set up a steering group to the IMF forecast period until 2018. There was notable growth in exports introduce a one-stop-shop reform to and imports between 2001 and simplify foreign trade operations. Risk to business 2011, estimated at 8.6% and 12.3% per annum respectively. The country is also a member of The greatest impediment to several African trade communities, economic development in the DRC Over 90% of exports are in the including the Common Market has been the political turmoil in form of extracted commodities. for Eastern and Southern Africa the country. The unsettled socio- This fragility was exposed in 2009 (COMESA), the Southern African political environment is a key risk when a crash in commodity prices Development Community (SADC) factor for businesses. coincided with an escalation in and the Economic Community of conflict in the eastern region, Central African States (ECCAS). High political risk has severely revealing the country’s dependence undermined prospects for diversified on external demand and financial It is not only the recent issue of growth, while protection of property flows. conflict minerals that is holding rights is hampered by dysfunctional the DRC back from fully utilising public administration. Furthermore, Despite exports being expected to its massive mineral reserves. For enforcement of the complex legal increase, there could be temporary example, decades of conflict code is selective. Another challenge drops in volumes as a result of and turmoil have kept the gold is the local financial sector, which international developments. industry largely underdeveloped. remains fragile and underdeveloped. 32 Africa gearing up Large population of Potential to be Africa’s largest 65.7m power exporter High poverty, low productivity The DRC’s high taxes are a further The DRC has a large population, this publication, has a labour discouragement for investors, with estimated at 65.7 million in 2012. productivity of US$1 239 per person a corporate income tax rate of 35% A high population growth rate of employed. and additional types of taxes that 2.7% will intensify the already can increase the total tax payable challenging social conditions. Power potential significantly. According to the World Bank, approximately 50 million live on Power blackouts and electricity The DRC’s immense natural less than US$1.25 a day. The DRC shortages occur frequently and resources have fuelled conflict has a low HIV/Aids infection rate as present major problems to the rather than development. Human years of war and little infrastructure rising number of mining companies rights abuses and banditry deter development have restricted human operating in the country. This economic activity, but at the movement and the spread of the situation is fuelled by fast-rising moment this mainly affects the virus. demand for power and ageing country’s eastern region, close to the infrastructure. About 40% of firms borders with Rwanda and Uganda. Despite having a labour force of in the DRC own and operate their nearly 25 million, available labour own backstop generator to shield The eastern part of the country still is mostly unskilled, with only 23.2% themselves from frequent power sees frequent clashes between the of the population having secondary interruptions. rebels and government forces, and education. Labour productivity is there is sporadic fighting in other extremely low, with every person Despite these challenges, the DRC parts of the country. Security forces employed contributing US$691 has immense power generation are known to set up occasional, to national GDP. In comparison, potential. It boasts the largest and spontaneous roadblocks, especially Tanzania, the second-lowest most cost-effective hydropower after dark, which places a constraint of the ten countries profiled in potential on the continent and could on transportation and results in produce up to 100 000MW of power. delays. The entire installed capacity of sub- Saharan Africa is only 48 000MW Key indicators and the DRC has the potential to become Africa’s largest power Population size (million, 2012) 65.7 exporter. Population growth (2012-2020, avg p.a.) 2.7% The Government has ambitious GDP (US$ billion, 2012) 17.2 plans. While less than 10% of the population has access to electricity GDP growth forecast 2012-2017 (avg, y/y rate) 8.6% today, the Government has set GDP per capita (US$, 2012) 230 an ambitious target to provide electricity to 60% of the population Global competitiveness index 2012 (global rank/144 n/a (score 1-7)) by 2025. The first step in achieving this goal is the construction of the Corp. Income Tax (CIT) rate 35.0% Grand Inga dam, which will produce Top exports Cathodes and sections of about 40 000MW at a cost of US$80 cathodes (24.7%); Cobalt billion. ores and concentrates (17.8%); Copper ores and concentrates (11.9%) Logistics Performance Index 2012 (global rank/155 143 (2.21) (score 1-5)) Global Competitiveness Index 2012 - Infrastructure n/a (global rank/144 (score 1-7)) PwC 33 China promises Around 2/ of the country3 US$3bn is by navigable for road and urban waterways infrastructure Resources sector While the DRC’s economy is country declining from 85th to in the DRC is among the highest in currently dominated by the 143rd out of 155 countries on the Africa. Unless spending is increased Democratic Republic of Congo Democratic Republic agricultural sector, mining will be Logistics Performance Index. and efficiency improved, it will take the main driver of economic growth more than a century to redress the in the medium term.