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The Pennsylvania State University The Graduate School College of Earth and Mineral Sciences STRATEGIC CONSIDERATIONS FOR RESOURCE ENDOWED COUNTRIES TO AVERT THE RESOURCE CURSE PHENOMENON: WITH A CASE STUDY OF THE DEMOCRATIC REPUBLIC OF CONGO A Thesis in Energy and Mineral Engineering by Joyce N. Masangu ©2018 Joyce N. Masangu Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Science May 2018 The thesis of Joyce N. Masangu was reviewed and approved* by the following: Jeffery Kohler Professor and Chair of Mining Engineering George H. Jr. and Anne B. Deike Endowed Chair in Mining Engineering Thesis Advisor Shimin Liu Assistant Professor of Energy and Mineral Engineering Sekhar Bhattacharyya Associate Professor of Mining Engineering Luis F. Ayala H. William A. Fustos Family Professor Professor of Petroleum and Natural Gas Engineering Associate Department Head for Graduate Education *Signatures are on file in the Graduate School ii ABSTRACT The discovery of a new valuable mineral deposit in a country does not always lead to economic growth or development in a nation. There are many examples of countries with abundant resources whose economic and social situations have not improved, and in many cases have worsened, because of their bountiful mineral resources. The “resource curse” describes the paradoxical fact that countries with an abundance of natural resources, specifically non- renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. The degree of the phenomenon’s effects varies from country to country. There are many causes and symptoms of the resource curse evident in the economics literature, but there is no clear guidance on how a country can avert its resource curse. This study aims to identify the factors that hinder resource-rich countries’ attempts to achieve sustainable development and economic growth. The relative importance of the factors is assessed, and a seven-point strategy is formulated to help resource-rich countries reduce the adverse effects of the resource curse. The study uses a qualitative-phenomenological methodology. Fifteen resource-rich countries, which either faced the phenomenon in the past, are still facing it, or never experienced it, were selected for the study population. Subsequently, the study focuses primarily on the Democratic Republic of Congo (DRC), one of the wealthiest in terms of resource endowment, but also the most affected by the resource curse within the study population. A comprehensive set of variables were selected to compare the DRC’s mining sector to that of Australia, Botswana, Brazil, Canada, Chile, Ghana, India, Ivory Coast, Namibia, Peru, South Africa, United States of America, Zambia, and Zimbabwe. This study finds that there are seven specific factors that enable a country to reduce adverse economic and social outcomes as a result of its vast mineral resources. The seven factors are the following: political will, competitive legislation and the enforcement thereof, strong institutions with targeted goals, economic discipline to achieve visions and goals, the diversification of the economy, the application of good governance practices, and motivation to learn from other countries’ experiences. By focusing on these determinants, mineral-rich countries can mitigate the effects of the resource curse, and as a result, they can experience the economic growth and sustainable development that should follow from their mineral assets. iii Table of Contents List of Figures .....................................................................................................vi List of Tables ......................................................................................................vi Acknowledgments ............................................................................................. vii Chapter 1 ............................................................................................................. 1 Introduction ........................................................................................................... 1 1.1 Problem Statement ................................................................................................... 1 1.2 Objective and Scope of the Study ............................................................................ 1 1.3 Methodology .............................................................................................................. 2 1.4 Thesis Organization .................................................................................................. 3 Chapter 2 ............................................................................................................. 4 Comparative Study ............................................................................................... 4 2.1 Study Population ....................................................................................................... 4 2.1.2 General characteristics of the countries included in the study .......................... 5 2.2. Selection and analysis of the resource curse factors .............................................. 8 2.3 Countries’ competitiveness based on indices ........................................................ 12 2.3.1 Taxes related to mining activities ..................................................................... 18 2.4 What can be learned from successful nations?...................................................... 23 Chapter 3 ........................................................................................................... 27 Case Study – The Democratic Republic of Congo ............................................. 27 3.1 Mining importance in the DRC ................................................................................ 27 3.2 Organizational structure .......................................................................................... 29 3.3 Challenges .............................................................................................................. 31 3.4 Mining Rules and Regulations ................................................................................ 36 Chapter 4 ........................................................................................................... 39 iv Findings & Discussion for the Democratic Republic of Congo ............................ 39 4.1 Positive Actions taken by the government ............................................................. 39 4.2 Discussions ............................................................................................................. 41 4.2.1 Artisanal & Small-Scale Mining ........................................................................ 41 4.2.2 Laws, regulations and ministerial decrees on mining ...................................... 43 4.2.3 Good governance ............................................................................................. 45 Chapter 5 ........................................................................................................... 48 Recommendations for the Democratic Republic of Congo ................................. 48 5.1 Recommendations for Artisanal and Small-Scale Mining ...................................... 48 5.2 Poverty Reduction Plan .......................................................................................... 52 5.3 Strategic Plan for DRC ............................................................................................ 53 Chapter 6 ........................................................................................................... 56 Conclusion .......................................................................................................... 56 References ........................................................................................................ 58 v List of Figures Figure 1: Chile’s Resource Governance Index scores ............................................... 21 Figure 2: The DRC’s Resource Governance Index scores ........................................ 21 Figure 3: Worldwide Governance Indicator ................................................................. 23 Figure 4:Structure on the governance of the mining sector in the DRC, ................. 30 List of Tables Table 1: Countries in the study ....................................................................................... 4 Table 2: Initial comparative factors ................................................................................ 9 Table 3: The Global Competitiveness Index ................................................................ 14 Table 4: Investment Attractiveness Index (IAI), ........................................................... 15 Table 5: Policy Perception Index factors, .................................................................... 17 Table 6: Taxation Regime factor of the PPI ................................................................. 18 Table 7: Corporate Income Tax and Mining Withholding taxes ................................ 19 Table 8: Corruption Perception Index and Resource Governance Index, ............... 20 Table 9: Quantification of commodities in DRC, ......................................................... 28 vi Acknowledgments I would like to express my gratefulness to the Most-High, my Lord and Savior Jesus-Christ, for the intellectual support, the strength, the encouragement, the protection and the love