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Boosting Resilience to Economic Shocks through Diversification and Mobilization of Extractive Industry Revenue
Latest Issue: 
  • October 2015


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A miner works at a cassiterite mine in the DRC. Mining activities have replaced agriculture in many rural areas of the country. 


STORY HIGHLIGHTS
  • Although the Congolese economy is demonstrating sustained growth in a stable macroeconomic context, it continues to be vulnerable to external shocks.
  • To enhance economic resilience, the DRC needs to reinvest extractive industry revenue, diversify its mining sector, and “de-dollarize” its economy.
  • The Government should work to formalize small-scale and artisanal mining to create jobs, generate income for households, and boost tax revenue.

KINSHASA, October 15, 2015 - The World Bank Country Office in the Democratic Republic of Congo (DRC) has published its third Economic Update, a report monitoring the country’s economic and financial situation, entitled Building the Long-Term Resilience of DRC: the Role of De-Dollarization, Artisanal Mining, and Economic Diversification.

The report highlights the DRC’s record GDP growth rate of 9% in 2014, following an average rate of 7.7% from 2010 to 2014. Currently, GDP growth in the DRC remains robust, led by a dynamic mining sector and the recovery of the other sectors.

Furthermore, it also examines the role of the government’s macroeconomic policies, which have focused on monetary and fiscal discipline and have helped restore economic stability. In fact, in recent years, fiscal balances have often been positive and inflation has reached historic lows.

However, despite this solid performance, the report questions its long-term sustainability. According to Chadi Bou Habib, World Bank Senior Economist for the DRC, “Despite these positive results on macroeconomic stability and growth, the country’s long-term resilience requires increased mobilization of revenue from the natural resources sector, a decrease in dollarization, less economic concentration, and a diversification of actors in the mining sector.”

Shortfalls in State revenue and the erosion of foreign exchange reserves jeopardize the medium and long-term stability of the DRC. Revenue from natural resources is, however, very high, accounting for 36% of GDP in 2012 and ranking the DRC 16 out of 186 countries in the World Bank’s World Development Indicators. However, mobilization of revenue from natural resources did not exceed 14.4% of GDP, resulting in a ranking of 104 out of 117 countries. The high degree of dollarization of the Congolese economy (91% of credits and 86% of deposits) limits the flexibility of the monetary policy, increases the pressure on foreign exchange reserves, and deprives the Government of 1 to 2% of GDP in monetary income.

The report also notes the DRC’s excessive concentration of exports to China and the economy’s heavy reliance on commodities; factors that risk weakening the country’s economy. For example, a reduction of one percentage point of China’s GDP would lower the DRC’s GDP by 0.33 points, resulting in a decline in foreign exchange reserves of $107 million.

These findings point to the need for an increased diversification of the economy, which is, however, complicated by the lack of infrastructure and capacity. The emergence of small and medium mining enterprises alongside multinationals can be an asset when it comes to diversifying the extractive industries sector.  Their development should, therefore, be encouraged.  With the exception of copper and cobalt, the majority of mineral ore produced and exported in the DRC comes from artisanal mines. In several rural areas, mining has replaced agriculture. The report estimates that up to 870,000 people of both sexes (4% of people aged between 15 and 64) are employed in artisanal mining activities, which has a high demand for labor and is largely informal.

Formalization of small-scale and artisanal mining would allow the DRC to create jobs and generate income for households as well as national and local tax revenue. This transition from informal artisanal work to formal small-scale mining will guarantee land security for this kind of mining, ensure the establishment of an effective tax regime for the State, and provide technical assistance to miners (including for geological work), as well as better social organization.