Selected Issues


Selected Issues

Natural Resource Management1

DRC remains one of the poorest countries in the world despite a large endowment of natural resources and has been prone to violent conflict over the years. The country lacks the critical institutions needed to ensure that natural resources promote sustainable inclusive growth. Increased transparency in their management and competitive bidding in the sale of assets and exploitation rights of state-owned enterprises would be key to reduce corruption and ensure that the state gets a fair share of the benefits.

A. Introduction

1. DRC has a rich and diverse endowment of natural resources but remains poor and prone to conflict. The country is the world’s fifth largest copper producer and produces some sixty percent of the global output of cobalt. DRC is the fourth largest producer of diamonds in the world, and the largest tin producer. Gold, crude petroleum, zinc, and tin are also produced. Oil is also produced but the country remains a net importer. Ironically, DRC remains one of the poorest countries in the world. In 2014, 77 percent of the population lived below the poverty line of US$1.90 (in purchasing power parity). The country ranked 176th out of 189 countries on the UNDP 2018 Human Development Index. DRC experienced state collapse in the 1990s, culminating in civil war from 1996 to 1997, and from 1998 to 2003. The two wars were fueled by the country’s natural resources, drawing in neighboring countries. Rebellion currently affects the eastern and central regions, with about 5 million people internally displaced persons, the most in any country in the world.

2. DRC’s experience to date resonates with the natural resource curse thesis. The thesis highlights the tendency for countries that are richly endowed with non-renewable natural resources to experience worse development outcomes than resource-poor countries. It pinpoints the following problems. First is corruption in the management of the resources, given the typically large rents. Second are overblown public expectations of the benefits and political pressures to spend the revenues—rather than save or invest them. Third, disputes over revenue allocation or the desire to appropriate the resources could trigger violent conflict. Fourth, some countries may simply lack the technical capacity to manage the resources. The powerful multinationals exploiting the resources often wield considerable advantage over the government in terms of expertise and access to information in the negotiation and implementation of contracts, and in dealing with complex natural resource taxation. DRC has experienced these problems. The country’s sheer size—it is as large as Western Europe and is bordered by nine countries—and the diversity of the natural resources create additional challenges, necessitating a well-developed management machinery. The vast terrain also makes it difficult to police the resources and prevent smuggling.

3. Some developing countries have managed their natural resources well, escaping the resource curse. Botswana, the world’s largest producer of diamonds, has been touted as the example par excellence. It went from being one of the 25 poorest countries in the world to becoming an upper-middle-income economy within thirty years (Meijia and Castel, 2012). Critical to this transformation was the fact that Botswana developed strong governance institutions before the resources were exploited. One specific policy it pursued was a fiscal rule that separates expenditures from revenues, shielding expenditures from fluctuations in diamond prices (Meijia and Castel, 2012).

B. Economic Contribution of Natural Resources

4. Contribution to GDP and export earnings. The contribution of natural resource extraction to GDP has been rising steadily from 11 percent in 2005–08 to 24 percent in 2012–13, and to 25–26 percent in 2014–17. Natural resources generate 95 percent of export earnings. Copper has accounted for over half of export earnings to date, followed by cobalt which now accounts for about a third. Natural resources account for about a third of government revenue. This figure excludes revenues generated by state-owned enterprises that do not pass through the Treasury.

5. Fiscal revenue from natural resources has been modest in DRC relative to African peers. It averaged 8.9 percent of commodity exports in DRC in 2014–17, compared with 17.5 percent among resource-intensive SSA countries—defined as countries for which natural resource exports make up at least 25 percent of commodity exports. DRC’s aggregate domestic revenue-to-GDP ratio averaged 14 percent in 2012–15, compared with 20 percent in SSA as a whole.

6. Artisanal mining is a major source of employment, especially for low-skilled labor. The mining sector accounted for 10 percent of total employment in 2014. About a million artisanal miners are estimated to be employed in the mining of diamonds and gold (US Geological Survey 2014). Artisanal and small-scale miners are also involved in the production of copper and cobalt.

7. Other benefits. Mining regions and communities also benefit from infrastructure and social services—roads, schools, and hospitals—provided by mining companies.

C. Rules and Regulations

8. The regime for mineral exploitation has seen various changes in the last three decades. Prior to the mid-1990s, the exploitation of copper and cobalt was monopolized by the state-owned Générale des Carrières et des Mines (Gécamines). During the 1996–97 civil war, a rebel movement captured the copper belt region and began selling off the assets of Gécamines and awarding exploitation rights to private investors. To end this disorderly process, a new Mining Code was enacted in 2002, in a context of a country emerging from state collapse and civil war. The country was desperate to attract foreign investment and offered very generous terms to entice investors to a high-risk environment. Exploitation rights were, in principle, issued on a liberal first-come, first-serve basis. The Code sought to liberalize the copper sector and create a level playing field for investors. It envisaged a uniform tax regime and a transparent process to secure mining permits. In reality, Gécamines became the private gatekeeper to exploitation rights to the copper and cobalt mines, exploiting a clause in the mining code that allows state-owned mining companies to retain their mining permits and sell them to other companies. Gécamines is now largely a junior partner in over 20 joint ventures with foreign companies. The production of copper and cobalt is now undertaken by nearly thirty companies. Gold and diamonds are mined by industrial and artisanal miners. A substantial proportion of their output is smuggled out of the country.

9. A revised mining code was introduced in June 2018, seeking to increase the benefits to the country. The following are the key elements of the revised code:

  • Higher taxes and royalties. (i) Royalties on copper, cobalt, and gold increase from 2 to 3.5 percent; a new 10 percent royalty is imposed on “strategic minerals”. The designation of a mineral as “strategic” is arbitrarily determined by government decree, based on “economic context” and taking into account “critical” or “geostrategic” considerations. The base for computing royalty changes from net to gross revenue. (ii) The allocation of free shares to the state on new projects increases from 5 to 10 percent, with an additional 5 percent increase each time a license is renewed. (iii) Income tax remains unchanged at 30 percent. (iv) Elimination of the option for accelerated depreciation of 60 percent. (v) A tax of 0.3 percent of business turnover is imposed as contribution to local development.

  • A new 50 percent tax on so-called windfall profit. Windfall profits are defined as profits realized when the price of the mineral resource is more than 25 percent higher than envisaged in the feasibility study.

  • The changes take immediate effect. This breaches and eliminates the stability clause under the 2002 Mining Code, which protected existing mining companies from any changes to the fiscal regime for the 10 subsequent years, a generous provision.

  • Additional provisions to increase domestic content. (i) At least 10 percent of the equity of any project must belong to Congolese nationals. (ii) Subcontractors must be Congolese, unless no local subcontractor is in a position to provide the desired good or service.

  • All export earnings in foreign currency should be repatriated to local banks once the investment is amortized (60 percent of earnings should be repatriated before the investment is amortized).

  • Permit holders not to exceed a debt-to-equity ratio of 1.5.

10. The revised Mining Code has its merits and flaws. The rates for royalties—except for strategic minerals—and the elimination of accelerated depreciation, are in line with standard practice.2 Terminating bilateral mining agreements outside the Mining Code would help create a more level-playing field for investment and reduce the incentive for rent-seeking and corruption. On the other hand, the windfall profit tax appears ambiguous. It is not clear how windfall profit would be distinguished from normal profit. The discretionary power to classify minerals as “strategic”, which carry the 10 percent royalty rate, would increase the risk and potential cost of investing in mining activity in DRC. The increase in the allocation of free shares to the state by five percent of total shares each time a license is renewed, would mean that, over time, the state would hold a large percentage of free shares in private mining projects. This would be excessive relative to international norms, serving as a strong deterrent to invest or renew mining licenses. The requirement to repatriate all foreign currency earnings once the investment is amortized would hinder profit repatriation, and thereby discourage investment. Lastly, the removal of the ten-year stability clause under the 2002 Mining Code raises legality and policy credibility issues.

11. Mining companies have been critical of the revised Mining Code, claiming that it would deter investment. They claim that they were not consulted during the revision process, and that the code could reduce fiscal revenues from natural resources, and threaten jobs, social programs, and infrastructure projects. They are also particularly concerned about the termination of the ten-year stability clause, which they perceive as a breach of a legally binding commitment. They have threatened recourse to international litigation.

12. President Tshisekedi, inaugurated in January 2019, has endorsed the revised Mining Code. Mr. Tshisekedi stated that his Government will continue to enforce the code while remaining open to dialogue with mining companies to hear their concerns.

D. Transparency and Accountability

13. The degree of compliance with a 2011 decree requiring the government to publish all mining, oil, and forestry contracts remains unclear. A Fund-supported Extended Credit Facility was suspended in 2012, and eventually discontinued, over the authorities’ failure to publish a mining contract. Environmental and social impact studies for mining projects have also not been published.

14. DRC signed the Extractive Industries Transparency Initiative in 2008. The EITI is a “global standard to promote the open and accountable management of oil, gas and mineral resources.” EITI requires mining companies operating in member countries to make public how much they pay in natural resource revenue and governments to also make public how much they receive. The last published report for the DRC was for 2016, published in 2018. The EITI reports show only a minor divergence between tax revenues paid by the resource sector and the amounts received by the Treasury. While reconciling payments made by mining companies and revenue received by government would help foster transparency, subsequent stages in managing the revenues remain weak—particularly at the provincial and local levels. Also, public enterprises generate substantial revenues that are not passed to the public treasury. These lie outside the EITI reconciliation exercises. Lastly, the EITI does not establish whether the government is receiving a fair share of the revenue from the exploitation of natural resources.

15. The law only requires companies to disclose their legal owners, not their beneficial owners. Requiring companies to disclose their beneficial owners can promote transparency and serve as a check against corruption and conflicts of interests. The 2015 EITI report for DRC states that more than half of private mining companies disclosed their beneficial owners.

16. Civil society has raised concerns over the management of the state-owned Gécamines. Such concerns include allegations of undervalued asset sales, outright failure to account for revenues, failure to publish contracts with joint-venture partners, political interference, and conflict of interest (Carter Center 2017, Global Witness, July 2017, Natural Resource Governance Institute 2015). Gécamines has refuted some of these allegations (Gécamines 2019), which, nevertheless, highlight the need for increased transparency and accountability in the management of state enterprises.

E. Revenue Management

17. Institutional capacity to assess and collect resource revenue is weak. The revenue agencies lack the skilled human and informational resources to monitor the activities of mining companies and deal with the complexities of natural resource taxation, especially where multinational corporations are involved.

18. Revenue agencies are permitted by law to issue penalties and keep a portion of the fines for their own funding, an incentive for predatory behavior. Penalties are sometimes imposed on spurious grounds and the fines can be considerable, running into hundreds of millions of dollars (Global Witness, 2017).

19. The SICOMINES joint-venture project between the Government and a consortium of Chinese firms has been operating as a parallel revenue and spending structure, bypassing the budget. The project involves a multi-billion dollar loan from the consortium for infrastructure and a signature bonus. The loan disbursement is made into SICOMINES’ accounts, with SICOMINES then directly disbursing money for specific infrastructure projects. The loan is repayable with future copper and cobalt output from the project.

20. Revenue sharing with the mining provinces has been problematic. The 2018 Mining Code stipulates that the central government keeps 50 percent of royalties; 25 percent to the provincial administration where the project is located; 15 percent to the area where the mining takes place; and the remaining 10 percent to a mineral fund for future generations. Civil society organizations have stated in the past that the mining provinces were getting much less than the stipulated amounts under the 2002 Mining Code, prompting the provinces to impose their own taxes and charges. The 2018 Mining Code requires mining companies to pay revenues directly to provinces.

F. Peacebuilding and Conflict Prevention Initiatives

21. In 2003 DRC joined the Kimberley diamond certification scheme (KPCS)—an initiative that unites government, civil society, and the diamond industry to remove conflict diamonds from the global supply chain. The Kimberley Process Certification Scheme (KPCS) imposes extensive requirements (*) on its members to enable them to certify shipments of rough diamonds as ‘conflict-free’ and prevent conflict diamonds from entering the legitimate trade. Under the terms of the KPCS, participating states must meet ‘minimum requirements’ and must put in place national legislation and institutions; export, import and internal controls; and also commit to transparency and the exchange of statistical data. Participants can only legally trade with other participants who have also met the minimum requirements of the scheme, and international shipments of rough diamonds must be accompanied by a Kimberley Process certificate guaranteeing that they are conflict-free (

G. Recommendations

22. Increased transparency is critical for reducing corruption and improving governance of natural resources. This can be achieved through the following;

  • Full publication of all future mining contracts, and contracts signed since 2012; and timely publication of all future EITI reports.

  • Active involvement of civil society in the management of the natural resources.

23. A review of the management of the state-owned Gécamines is urgently needed. The objective would be to enhance transparency and make the company commercially viable. A measurable milestone would be the timely publication of annual audited financial statements. An investigation into revenues that have not been properly accounted is warranted.

24. A review the Sicomines model with a view to reinforcing transparency and parliamentary oversight is also needed.

25. Simplification of taxation and rationalization of revenue agencies would improve efficiency, oversight, and transparency: There is a need to eliminate parallel state structures and centralize revenue collection. Discontinuing the practice of allowing revenue institutions to keep a share of the fines they levy, would remove the incentive for abusing the power to levy such fines.

26. Adopting a fiscal guideline or rule based on the non-mineral balance would help shield expenditures from fluctuations in natural resource prices and facilitate the building of buffers.


  • Africa Progress Panel, Equity in Extractives: Stewarding Africa’s Natural Resources for All: Africa Progress Report 2013, (2013)5.

  • The Carter Center (2017) “A State Affair: Privatizing Congo’s Copper Sector”.

  • Collier, P. and C. Laroche (2015) “Harnessing Natural Resources for Inclusive Growth”, International Growth Centre.

  • Gécamines (2019) “La Vérité sur les mensonges des ONG en République Démocratique du Congo”.

  • Meijia, P.M. and V. Castel (2012), “Could Oil Shine like Diamonds? How Botswana Avoided the Resource Curse and its Implications for a New Libya.” African Development Bank.

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  • Natural Resource Governance Institute (2015) “Country Strategy Note: Democratic Republic of Congo (DRC).”


Prepared by Victor Davies.


The elimination of accelerated depreciation had been recommended by the Fund’s Fiscal Affairs Department.