Democratic Republic of the Congo: Selected Issues
Author:
International Monetary Fund. African Dept.
Search for other papers by International Monetary Fund. African Dept. in
Current site
Google Scholar
Close

This Selected Issues paper takes stock of poverty in the Democratic Republic of the Congo (DRC). Poverty has receded in the DRC over the last decade on the back of gradual stabilization in the security and political situation, strong economic growth, and sharp decline in inflationary pressures. Most social indicators also improved during the period. However, poverty remains pervasive with a level still among the highest in sub-Saharan Africa, and DRC will likely not achieve any of the Millennium Developments Goals by 2015. Policy actions should focus on fostering the development of labor-intensive sector, increasing social spending, and redirecting public resources to the poorest regions of the country.

Abstract

This Selected Issues paper takes stock of poverty in the Democratic Republic of the Congo (DRC). Poverty has receded in the DRC over the last decade on the back of gradual stabilization in the security and political situation, strong economic growth, and sharp decline in inflationary pressures. Most social indicators also improved during the period. However, poverty remains pervasive with a level still among the highest in sub-Saharan Africa, and DRC will likely not achieve any of the Millennium Developments Goals by 2015. Policy actions should focus on fostering the development of labor-intensive sector, increasing social spending, and redirecting public resources to the poorest regions of the country.

The Contribution of the Mining Sector to the Congolese Economy1

A. Background

1. The Democratic Republic of the Congo (DRC) is endowed with some of the richest and diversified deposits in the world. The 2.3 million square kilometers of the national territory contains about 1,100 mineral substances located notably in four provinces (Katanga, Kasai Occidental, Kasai Oriental, Northeast Congo, and Kivu-Maniema). The DRC has about 3 percent of the global copper reserves, 45 percent of global cobalt, and 25 percent of the global diamonds reserves according to the U.S. geological survey. Other important mineral reserves include precious minerals such as gold and tantalum, but also zinc, uranium or tin.

A03ufig04

Democratic Republic of Congo’s Mineral Reserves, 2012

Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A003

Source: The U.S. Geological Survey, 2013.

2. Mining activities are dominated by the production of copper and cobalt. Copper has been the DRC’s largest export with production steadily increasing from 98.5 thousand tons in [2006] to 1.06 million tons in 2014, equivalent to about 3 percent of world production. Cobalt is the DRC’s second largest earning export, with a production of 75,600 tons in 2014, which represented more than 50 percent of global cobalt. Production is largely in the hand of private corporations operating solely or in the joint venture with GECAMINES, the largest state-owned enterprise (SOE) in the mining sector engaged in the exploration, research, exploitation and production of mineral deposits.

B. The Mining Sector: The Engine of Economic Growth

3. The mining sector has been the driving force behind the DRC’s strong economic recovery over the last decade. Over 2002–14, the mining sector experienced a strong growth, contributing to about a third on average to the overall 9.2 percent GDP growth in 2014. As a result, its share in the GDP has reached 19 percent in 2014, up from 6 percent in 2002. The DRC now ranks among the top five African countries benefiting from the largest mineral rent as a percentage of their GDP. However, these figures underestimate the true contribution of the mining sector to the economy, as they do not factor in its catalyst role for the development of other economic activities (for instance, construction in the secondary sector, services and commerce in the tertiary sector). Given these multiplier effects, the total contribution (direct and indirect) of the mining sector to GDP was larger than indicated above.

Figure 1.
Figure 1.

Democratic Republic of the Congo: Contribution to Growth and Structure of GDP

Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A003

Sources: Central Bank of Congo and IMF staff estimates.

4. The mining sector has been the key driver of external sector developments. Mining sector (including oil) is estimated to have generated USD 11 billion in export earnings compared to USD 1.4 billion a decade earlier. It accounted for more than 94 percent of total merchandise exports in 2014, up from 80 percent in 2004. Over the same period, it has been the main driver of the large current account deficits on the back of increase in investment-related imports. It is estimated to have been the primary beneficiary of the surge in foreign direct investment (FDI) inflows (cumulative amount of more than $13 billion over 2002–14), which largely covered the large external current account deficits and contributed to the overall balance of payments surpluses recorded.

A03ufig05

Share of Mining Sector in GDP in Selected SSA Countries, 2012

(Percent)

Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A003

Source: Congolese authorities.
Figure 2.
Figure 2.

Democratic Republic of the Congo: Mineral Exports and FDI

Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A003

Sources: Central Bank of Congo and IMF staff estimates.

5. While generating increased revenues, the mining sector has not contributed its fair share through 2014. This is primarily because the fiscal regime under the 2002 Mining Code is more generous compared to peer countries (see Table 1). In 2014, mining revenues for the central government amounted to $829 million, equivalent to 16 percent of government total revenues or 2.3 percent of GDP. However, according to the Extractive Industries Transparency Initiative (EITI) reports, revenues collected by the general government (central government, provincial governments and SOEs) were multiplied by more than ten from $98.1 million in 2007 to $1.03 billion in 2014, with the bulk of these revenues going to the central government (62 percent). Mining revenues essentially came from three mains sources: tax on wages, customs duties, and royalties (see Figure 3). The structure has been shifting towards corporate income tax as large projects that started the early 2000’s are now facing an end to their tax holidays and accelerated amortization. For instance, in 2014, corporate income tax (CIT) accounted for 23 percent of mining tax revenues compared to 20 percent for both tax on wages and import duties, and 18 percent for royalties. In 2015, CIT would reach one third of total mining tax revenues.

Figure 3.
Figure 3.

Democratic Republic of the Congo: Mining Payments to Government and Tax Structure

Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A003

Source: Congolese authorities.

6. The mining sector’s contribution to job creation is also limited due to its capital-intensive nature. In 2014, the extractive sector accounted for 5.3 percent of total formal employment in public and private corporations.2 Comprehensive data on the employment generated by the mining sector in the DRC is not available. However, according to the 2012 EITI report, the mining and hydrocarbon sector formally employed about 85,814 workers in 2012. The mining industry Chamber estimated the overall payroll of its members at less than 100,000 workers. Finally, the National Employment office estimated in 2013 that 68,714 people were employed in the mining sector. In the artisanal sector, the number of workers ranged from 500,000 to 2 million people.

7. The mining sector has played a catalyst role for the provision of basic public services. Mining companies have financed projects in the electricity and transport sectors, which benefited to local communities. Examples of such projects include: (i) the development of power station by Randgold in Kibali (oriental Province), (ii) the construction of roads and bridges by Banro in Twangiza (South Kivu), (iii) the construction of four hydroelectric plants, and (iv) a transmission line by Tenke Fungurume Mining in the Katanga province. Mining companies have also provided basic public services such as healthcare, agriculture extension services, water supply, and education for host communities.

C. Factors Behind the Recent Mining Sector Growth

8. The stabilization of the political and security situation. The appeasement in the socio-political and security environment following the Sun City Agreement of 2002 and the launch of open political process helped establish progressively government control over areas of the country that were under warlords’ rule. These positive developments were critical in attracting large amounts of foreign investments in the mining sector.

9. The Mining Code of 2002. This code allows the private sector to access mineral rights, without being required as in the past (under the Mining Code of 1981) to have a partnership or special mining agreement with the State. The liberalization of the sector, together with the competitive tax regime, provided the needed impetus for a renewed private sector interest in exploration and exploitation operations.

Table 1.

Democratic Republic of the Congo: Mining Fiscal Regimes—DRC and Peer Comparators

article image
Source: FAD Fiscal Analysis of Resource Industries (FARI) database.

10. High international commodity prices. The renewed interest in the mining sector in DRC was also driven by improved profitability brought about by sharp increases in international commodity prices, particularly of DRC’s main mineral exports. Strong demands from emerging markets (China, India) fueled the commodity boom in the DRC during 2002–07.

A03ufig06

Democratic Republic of the Congo: Price Index of Mineral Export

(Percent changes)

Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A003

Sources: Central Bank of Congo and IMF staff estimates.

D. The Current Landscape

11. The new mining code under discussions would further increase the mining sector’s contribution to fiscal revenues (see Table 2). The new code would also enhance transparency and accountability in the sector. Key proposed changes to the mining fiscal regime include: (i) increase in the royalty rate; (ii) alignment of CIT (30 percent) to the general regime (35 percent); (iii) introduction of super profit tax; and (iv) provisions to secure corporate tax basis. The draft mining code includes provisions on real ownership and sanctions against the lack of transparency, principles for corporate social responsibility and environmental protection and provisions on local content and subcontracting. It contains stability clauses favorable to actual operators. Mining corporations operating under the convention regime would not be subject to the application of the new mining code.3 However, mining corporations regulated by the 2002 code will have their tax regime preserved, provided they agree to pay the new royalty rate as of the date of implementation of the new code. Consultations are underway with all the stakeholders to build a consensus around the new code. The IMF has provided technical assistance for the use of FARI model4 to simulate the impact of various fiscal regimes in order to inform discussions with all various stakeholders.

Table 2.

Democratic Republic of the Congo: Comparative Fiscal Regimes Under Current and Draft Mining Codes

article image
Source: Congolese authorities.

12. Despite projected low international mineral prices, the contribution of the mining sector to the economy would continue to expand. In particular, copper and cobalt production are projected to increase as new projects enter into the production phase, notably Sicomines with a medium term forecast of 250 000 tons of copper (see Figure 4). Prospects will depend on progress in fostering an enabling environment, notably by addressing electricity bottlenecks and some governance issues. Government revenues generated by the mining sector are also expected to increase with notably the coming into maturity phase of exploitation of several copper and cobalt mines and the new fiscal regime under discussion.

Figure 4.
Figure 4.

Democratic Republic of Congo: Mineral Production, 2014–201

Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A003

Sources: Central Bank of Congo and IMF staff estimates.1 2015–20 are projections.

References

  • Extractive Industries Transparency Initiative, 2014, Democratic Republic of the Congo: Reports 2007 to 2013.

  • Mupepele Monti L., 2012, “L’industrie minérale congolaise: chiffres et défis (L’Harmattan).”

  • World Bank, 2008, “Growth with Governance in the Mining Sector.

  • World Bank, 2012, “Résilience d’un géant African: Accélérer la Croissance et Promouvoir l’Emploi en République Démocratique du Congo,” under the supervision of Herderschee J., Mukoko Samba D., Thimenga Tshibangu M., Mediaspaul.

    • Search Google Scholar
    • Export Citation
1

Prepared by Jean-Paul Mvogo and Mesmin Koulet-Vickot.

2

Total formal employment in private and public corporations was estimated by the National Employment Office (ONEM) at 1.7 million.

3

Corporations under that regime represented a fifth of copper production in 2014.

4

The Fiscal Analysis of Resource Industries (FARI) model is a tool developed in the IMF’s Fiscal Affairs Department to compare fiscal regimes within a single country or across commodity producing countries.

  • Collapse
  • Expand
Democratic Republic of the Congo: Selected Issues
Author:
International Monetary Fund. African Dept.
  • Democratic Republic of Congo’s Mineral Reserves, 2012

  • Figure 1.

    Democratic Republic of the Congo: Contribution to Growth and Structure of GDP

  • Share of Mining Sector in GDP in Selected SSA Countries, 2012

    (Percent)

  • Figure 2.

    Democratic Republic of the Congo: Mineral Exports and FDI

  • Figure 3.

    Democratic Republic of the Congo: Mining Payments to Government and Tax Structure

  • Democratic Republic of the Congo: Price Index of Mineral Export

    (Percent changes)

  • Figure 4.

    Democratic Republic of Congo: Mineral Production, 2014–201