Democratic Republicof Congo

Kinshasa

key figures• Land area, thousands of km² 2 345• Population, thousands (2007) 62 636• GDP per capita, USD atconstant 2000 prices (2007) 93

• Life expectancy (2007) 46.5• Illiteracy rate (2007) 29.5

Democratic Republicof Congo

Lake Édouard

Lake

Lake Moero

Tanganyika

LakeMaï-Ndombe

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n Congo (DRC) - GDP Per Capita n Central Africa - GDP Per Capita n Africa - GDP Per Capita

——— Congo (DRC) - Real GDP Growth (%)

Per Capita GDP

Figure 1 - Real GDP Growth and Per Capita GDP(USD at constant 2000 prices)

Source: IMF and national sources data; estimates (e) and projections (p) based on authors’ calculations.

IN 2007, THE COUNTRY RECORDED economic growthof 6.2 per cent, lower than the objective of 6.5 percent but higher than the rate of 5.1 per cent rate postedin 2006. A faster growth rate is forecast for 2008 and2009.

However, 2007 raised many expectations amongstthe Congolese and not all have been satisfied.Institutions have been established and thedecentralisation process has been laid out, but conflictspersisted in the eastern part of the country. The newgovernment, installed in February 2007, has undertakenefforts to ensure the rigorous management of publicfinances. But macroeconomic stability did notmaterialise over the course of the entire year and

continuing reforms have not made sufficient progressto address the problems weighing on the Congoleseeconomy.

Poor macroeconomicperformance, slow reformsand non-implementation ofthe Growth and PovertyReduction Strategy Paper (GPRSP) prevented theDRCfrom reaching the completion point of the EnhancedHIPC (Heavily Indebted Poor Countries) Initiative atthe end of 2007 as planned.

Social tensions grew in 2007. Many companiesand government services were affected by strikes, and

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Public administrationTrade and commerce

Transport and communications

Wholesale and retail trade

Construction and electricity

ManufacturingMining and quarrying

Agriculture, forestry and fisheries

3.8%

47.4%

8.6%5.3%8.7%

16.6%

4.3%5.3%

Figure 2 - GDP by Sector in 2006 (percentage)

Source: Authors’ estimates based on local authorities' data.

the labourmarket has become increasingly tight; accessto drinking water and electricity remains problematic;hunger is killing thousands of people; the number of

people withHIV/AIDS continues to rise; and insecuritywas still a factor in 2007, especially in the eastern partof the country.

In November 2007, the Congolese governmentand its bilateral and multilateral partners met in Paristo discuss the economic performance achieved by thecountry in recent years and its future prospects. Theparties agreed to a new triennial programme (2008-10)with a budget of USD 4 billion. In December 2007,the World Bank decided to grant the DRC aid, asdefined by its Country Assistance Strategy (CAS), for2008-11. The strategy aims to expand the state’sauthority, restore security in the east, end violenceagainst women and children, promote good governance,fight HIV/AIDS and promote education.

Recent Economic Developments

Growth slowed in early 2007 because ofmacroeconomic instability and strong political tensions.The situation improved in the second half of the yearafter public finances were stabilised. Inflation declinedand productive activity accelerated, with a growth rateof 6.2 per cent, mainly boosted by the mining andquarrying industries as well as by the wholesale and retailtrade.

Some 70 per cent of the population are dependenton agriculture, which is the main activity in rural areas

and represented 48 per cent of GDP in 2006. In 2007,the agricultural sector recorded a growth rate of3.1 per cent, a decline from the previous year. This fall

was the result of the decreased production of certainproducts, particularly palm oil (down 45.9 per cent),cacao (down 31.3 per cent) and rubber (down14.6 per cent).The agricultural sector has considerablepotential for large-scale farming operations, but thecountry’s conflicts have prevented it from regaining itsvitality. The sector remains dominated by small farmsthat have had difficulty developing as a result of rundowntransport infrastructures and the lack of bank credit.

Mining and quarrying industries (8.2 per cent ofGDP in 2006) grew at a rapid pace. This performanceprimarily resulted from an economic upturn in Katangaprovince, an upswing in diamond production in thetwo Kasaï provinces,and growing world demand forminerals.The increased global demand for non-ferrousmetals led to a considerable price rise, which hasbenefited Congolese mining production. Copperproduction increased by 2.5 per cent, cobalt productionby 3.5 per cent and zinc production by 8.1 per cent.Total diamond production rose by 7.5 per cent at theend of June 2007 because of an increase in small-scaleproduction (19.1 per cent). Industrial diamondproduction declined as a consequence of a businessdownturn at MIBA (Minière de Bakwanga). MIBA issuffering from obsolete production equipment and adecline in the geological grade of industrial diamondscaused by the depletion of detrital deposits. Moreover,in the first half of the year, productivity declined atMIBA and its 6 500 employees demanded back payand threatened to go on strike.

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While the price of oil increased significantly in2007, Congolese production dropped by 4.2 per centcompared with 2006. This decline, which began in

2005, resulted from the temporary closing of certainwells, maintenance work on somemachinery and strikesagainst the enterprise Perenco, which operates in theMuanda costal area.

The construction sector recorded a growth rate of5.6 per cent in 2007, significantly lower than the figurerecorded in 2006. This downturn stemmed from aninsufficient supply of cement due to a quasi-monopolistic situation and the country’s limited cementproduction capacity (less than 100 000 tonnes permonth). Cement production did notmeet constructionneeds, particularly for PMURR (Emergency Multi-Sector Programme for Rehabilitation andReconstruction) projects. At the end of the first half-year, production by the country’s two largest cementmanufacturers – CILU (Cimenterie de Lukalu) and

CINAT (Cimenterie nationale) – totalled 249 839tonnes comparedwith 252 372 tonnes the previous year.That figure represented a one per cent decline while

demand grew by 2.6 per cent.The drop in productionresulted from equipment breakdowns at CILU andcash flow problems at CINAT. Demand pressures ledto a rise in cement prices.

Manufacturing production slightly increased in2007. Several factors explain this loss of momentum:obsolete production equipment, a limited ability touse new technologies and the lack of competitivenesswith foreign products.This situation also followed theApril shutdown of Congotex, one of the country’slargest textile factories, which faltered due to foreigncompetition. The manufacturing sector’s poorperformance wasmitigated by the increased productionof beverages. Between June 2006 and June 2007, theproduction of non-alcoholic and alcoholic beveragesrose by 9.9 and 15.3 per cent respectively.

Table 1 - Demand Composition

Source: IMF data: estimates (e) and projections (p) based on authors’ calculations.

Percentage of GDP Percentage changes, Contribution to real(current prices) volume GDP growth

1999 2006 2007(e) 2008(p) 2009(p) 2007(e) 2008(p) 2009(p)

Gross capital formation 16.5 13.4 10.0 15.7 17.5 0.8 1.3 1.6Public 1.1 3.4 10.0 15.0 16.0 0.2 0.3 0.4Private 15.4 10.0 10.0 16.0 18.0 0.6 1.0 1.2

Consumption 77.4 97.0 6.6 6.2 5.8 6.2 5.9 5.5Public 6.1 8.8 6.7 6.8 6.8 0.9 0.9 0.9Private 71.3 88.2 6.5 6.1 5.6 5.4 5.0 4.6

External sector 6.1 -10.3 -0.9 -0.6 0.0Exports 23.7 31.7 0.2 2.5 4.1 0.0 0.3 0.4Imports -17.6 -42.0 6.3 6.1 2.9 -0.9 -0.9 -0.4

GDP growth rate, volume - - - - - 6.2 6.6 7.1

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The very important water and electricity productionand distribution sector recorded a 0.8 per cent dropin 2007 because of its obsolete network and productionequipment. The sector’s poor performance imposesenormous economic costs on other sectors and has anegative impact on household conditions as well.

The transport and communications sector (4.1 percent of GDP in 2006) recorded actual growth of8.6 per cent in 2007. This performance results fromthe increased demand for mobile phones.The numberof subscribers reached 5 million. Over the past fewyears, the communications segment has experienced

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strong growth: an average annual figure of approximately67 per cent.

Faster growth beginning in the second half of 2007also stemmed from the good performance of privateconsumption and gross fixed-capital formation, whichrecorded increases of 6.5 and 10 per cent respectivelyin 2006. The expansion of wholesale and retail tradewas stimulated by the growth of private consumption.

The increase in the private investment rate reportedin 2007 reflects the rise in the investor confidenceindex.The attractiveness of themining sector, prospectsfor the country’s reconstruction and the strengtheningofmacroeconomic stability beginning in the second halfof the year also explain this trend.

GDP growth should accelerate in 2008 (6.6 percent) and 2009 (7.1 per cent), mainly thanks to theperformance of themining sector, the current structureof the world minerals market, and planned investmentin the mining sector (USD 3 billion).These economicgrowth projections could be achieved in view of goodprivate investment prospects related to the return ofpeace and the signing of several contracts for investmentprojects between 2007 and 2008.

Macroeconomic Policies

Public spending overruns recorded in late 2005and early 2006, added to structural reforms, had ledthe International Monetary Fund (IMF) to freezebudget aid for the DRC during the sixth review of theGovernment Economic Programme (GEP) in March2006. In compensation, the government put forwardan economic programme called Programme relais deconsolidation (PRC).Taking its lead from the GEP, thegovernment aimed to continue implementing reformsthat would support stabilisation efforts. The PRC wasnot conclusively implemented.The poor state of publicfinances again led to the failure of the stabilisationprogramme. As a result, it delayed progress towardcompletion point of the HIPC initiative. In order tomaintain dialogue with external partners and strive tore-establish the conditions necessary for a resumption

of formal relations with the IMF, the government setup an IMF StaffMonitored Programme (SMP).Withinthe framework of the SMP, it was agreed that

government budgetary policy should focus on stabilisingpublic finances and redirecting public spending to thepoor while reducing non-priority expenses.

Fiscal Policy

In mid-October 2006, to restore macroeconomicstability, the government announced a number ofmeasures designed to increase the collection rate ofpublic revenues and to reschedule certain pendingpayments. Despite these efforts, the state’s financialoperations posted a large deficit, which remained in placeuntil February 2007. Monetary financing of thegovernment deficit of over CDF 20 billion (Congolesefrancs) was envisaged, thereby leading to a monthlyconsumer price rise of 4 per cent and a monetarydepreciation of 10 per cent in two months. This trendwas subsequently reversed as a result of the strictmanagement of public finances instituted by the newgovernment. Beginning in July, however, certainspending overruns were noted, explained by the conflictsin the eastern part of the country and by the rise inpayroll costs that accompanied the establishment of localand provincial institutions and the decentralisationprocess. The monthly remuneration for members ofparliament rose from CDF 537.5 million toCDF 2 944.5 milllion, and payroll costs exceeded theceiling agreed upon in the SMP (5.5 per cent of GDP).

Notwithstanding the delay in the implementationof fiscal reforms, coverage of public expenditures bydomestic resources improved in 2007.The coverage raterose from 58 per cent to 76 per cent. One reason wasthe performance of government financial institutions.General Tax Department (DGI) revenue increasedfromCDF 157.9million in 2006 to CDF 256millionin 2007, while Customs and Duties Office (OFIDA)revenues rose from CDF 195.5 million to CDF 273.7million. Estimated at CDF 526.8 billion for the firstthree quarters of 2007, actual revenues, includinggrants, came to CDF 571.6 billion, a realisation of108.5 per cent. The under-utilisation of capitalexpenditures, however, is cause for concern

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(54.4 per cent). This situation can be attributed, inpart, to the low payment rate of external resourcesintended to cover them.

The soaring price of a barrel of crude oil (aroundUSD 100 at the end of 2007) slightly contributed toinflationary pressures, and should lead to an increasein the country’s energy bill. Combined with the dropin oil production, the rise in crude oil prices should havehad serious repercussions on public finances. Becauseworldmineral prices had climbed since 2005, theDRCwas able to make up the deficit in its energy balancethrough higher mineral export revenue.

The country’s fiscal balance improved in 2007thanks to a budgetary surplus resulting from the strictmanagement of public finances the government hadput into effect in February 2007. Even though thegovernment submitted a balanced budget in 2008, itcould still experience overruns. The various social andwage pressures, as well as the decentralisation process,could contribute to a budget deficit.

Monetary Policy

The DRC has a largely dollar-based economy.Exchange rate trends between the American dollar andthe Congolese franc greatly influence the country’seconomic activity, conveying credible signs of theCongolese economy’s health. Therefore, one of the

monetary policy’s objectives is to maintain the nationalcurrency’s stability while mitigating budget overrunswith the aim of preserving macroeconomic stability.

The beginning of 2007 was marked by majorfluctuations of the Congolese franc.These fluctuationsled to a certain degree of unpredictability about itsfuture value and, as a result, uncertainty and lack ofconfidence. This climate had a negative impact on thecountry’s economic growth and the effectiveness of itsmacroeconomic policies.The exchange rate depreciatedby 10.5 per cent between January and February 2007as a result, in part, to a widening of the governmentdeficit, which was fully financed by the printing ofmoney in the amount of CDF 28 billion.

The Central Bank of the Congo (BCC)subsequently conducted a prudent and restrictive policy,which led to a strong appreciation of the franc and amonetary surplus of up to CDF 76 billion. The bankwas thus able to compensate for the damage caused bythe restrictive budgetary policy, injecting the level ofliquidity necessary for the smooth functioning oftransactions. As a result, the exchange rate stabilisedduring the second half of 2007 before depreciating atthe end of 2007 and the beginning of 2008.

Inflation and the exchange rate moved in tandemuntil August. During this period, the return of inflationstemmed from problems in the goods market and the

Table 2 - Public Finances (percentage of GDP)

a. Only major items are reported.Source: IMF data; estimates (e) and projections (p) based on authors’ calculations.

1999 2004 2005 2006 2007(e) 2008(p) 2009(p)

Total revenue and grantsa 4.5 11.5 16.8 21.4 22.9 25.5 25.7Tax revenue 4.5 9.5 11.6 13.2 13.1 13.6 13.6Oil revenue 0.0 2.0 5.2 8.2 9.9 11.9 12.1

Total expenditure and net lendinga 9.5 15.6 19.9 22.1 20.8 25.9 21.5Current expenditure 8.5 12.8 16.5 18.7 17.5 19.4 19.3Excluding interest 6.3 9.2 12.8 15.3 14.7 16.8 17.1Wages and salaries 4.0 3.6 4.4 5.5 5.0 5.4 5.1Interest 2.2 3.6 3.7 3.5 2.7 2.6 2.2Capital expenditure 1.1 2.8 3.4 3.4 3.3 2.1 2.3

Primary balance -2.9 -0.5 0.6 2.8 4.9 2.2 6.4Overall balance -5.0 -4.1 -3.1 -0.7 2.2 -0.4 4.2

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implementation of certain fiscal measures. Thegovernment now imposes strict checks on goods boundfor the DRC before they are loaded for shipping. This

policy has lead to a rise in costs and in the price of certainimported products, such as foodstuffs. At year-end,inflation stood at nearly 11.4 per cent.

The country’s banking sector remains small. Sincethe restructuring process began, certain banks havebeen liquidated and others are in the process of beingliquidated. To expand banking services, the BCC hasjust approved the creation of a new bank, calledEcobank, and is in discussion with five other groups.The sector currently has 11 banks, and total assets,which amounted to USD 780 million in 2006 andUSD 480 million in 2005, reached the USD 1 billionlevel in September 2007.

These assets mainly comprise cash reserves (morethan half of the balance sheet). Outstanding debt is arelatively minor item, but its share has continued togrow over the past two years.With regard to liabilities,customer funds are the dominant item, largely composedof demand deposits in foreign currencies.This situationis characteristic of an underdeveloped financial sector.

In recent years, commercial banks have becomemuchmore open to small andmedium-sized enterprises(SMEs) as a result of the establishment of microfinanceinstitutions, notably Procredit Bank in 2005 andAfriland First Bank (operational in 2007). In 2008, theAfrican Development Bank and other partners willfinance the establishment of a new microfinanceinstitution in the DRC.

External Position

Since 2005, the DRC has been involved in the

Economic Partnership Agreement (EPA) negotiatingprocess, which encompasses the central African region.This agreement includes the countries belonging tothe Central African Monetary and EconomicCommunity (CEMAC) as well as Sao Tome andPrincipe. In view of problems linked to the regionalstructure of negotiations and slow progress relating todevelopment, theDRCwas unable to sign an agreementas at 31 December 2007. In terms of internationaltrade, the Congolese authorities decided to strengthenthe agreement’s enforcement over the control ofimported goods before shipping as of 1 January 2008.This procedure serves to fight fraud and counterfeitingand to increase the collection of customs duties.

Between 2006 and 2007, the trade balance deficitwidened, rising from 7.5 to 7.9 per cent of GDP. Thisdecline should be viewed in relation to the growthachieved in 2007: the economy imported the inputsnecessary for production on the one hand and theconsumer goods that entered thewholesale and retail tradeon the other.During 2007, equipment and rawmaterialimports grew by 29.9 and 44.5 per cent respectively.

Exports rose by 8.5 per cent as at the close of thefirst half of 2007. Despite soaring oil and metal priceson the world market, oil and diamond export revenuesdeclined due to a drop in production. In June 2006,exported diamonds had brought in USD 624.7millionwhile only generating USD 395.97 million in June2007, a reduction of nearly 40 per cent.

Table 3 - Current Account (percentage of GDP)

Source: IMF data; estimates (e) and projections (p) based on authors’ calculations.

1999 2004 2005 2006 2007(e) 2008(p) 2009(p)

Trade Balance 4.0 0.9 -5.7 -4.9 -0.8 -4.0 -4.1Exports of goods (f.o.b.) 7.6 27.6 29.2 27.1 29.4 29.9 29.6Imports of goods (f.o.b.) 3.6 26.7 34.8 32.1 30.2 33.9 33.7Services -2.0 -4.9 -6.0 -5.4 -5.4 -6.7 -6.7Factor income -3.1 -4.4 -5.8 -5.5 -6.7 -4.1 -3.7Current transfers 0.1 6.0 6.9 8.3 5.0 4.4 4.9

Current account balance -0.9 -2.4 -10.6 -7.5 -7.9 -10.5 -9.6

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As is common among sub-Saharan Africancountries, foreign direct investment (FDI) in the DRCis directed towards the mining industry. This trend

stems, in part, from the growth of world demand forminerals. In 2007, FDI reached USD 576 millioncompared to USD 500 million in 2006 and USD405 million in 2005. With regard to the behaviour ofthe world minerals market, an increase in FDI isexpected in 2008 based on China’s investment plansand reconstruction prospects.

In September 2007, foreign reserves amounted toUSD 215.4 million as against USD 177 million inAugust, moving the import coverage ratio to 3.5 weeks.The reserves were rebuilt to their December 2006 levelof USD 53.2 million. They proved their value whenthe BCC had to intervene in the foreign exchangemarket to preserve the stability of the national currencyand domestic prices.

While it has been admitted into theHIPC initiativeand has already prepared the final version of its GPRSP,

the DRC did not reach completion point in 2007because of to its poor economic performance at thebeginning of the year and the slow pace of structural

reforms. The final version of the GPRSP will have tobe implemented and evaluated before the initiative’scompletion point can be reached in 2008.

The debt service was not paid in full in 2007. Thegovernment only repaid debt services to multilateralinstitutions and the Kinshasa Club. At the end ofSeptember 2007, the external debt service totalledUSD 70.1 million as against a projected service ofUSD 76.7 million. These payments dropped by43.5 per cent over their 2006 level, mainly because ofa suspension of commitments to the Paris Club sincethe second half of 2006. With regard to the LondonClub, the non-payment of the debt service resultedfrom the failure to reach a compromise concerning theactual stock of debt.

The IMF noted that the external debt would remainunsustainable in the absence of a stock transaction

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Figure 3 - Stock of Total External Debt (percentage of GDP)and Debt Service (percentage of exports of goods and services)

Source: IMF.

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under theHIPC andMultilateral Debt Relief Initiative(IADM). If completion point is reached in the first halfof 2008, the maximum level of debt relief could be

attained under these two initiatives, which shouldreduce the net present value to less than 150 per centof exports.

The flow of aid experienced mixed results in 2007because of the failure of the PRC and the poor allocationof HIPC resources.This trend was somewhat offset bythe implementation of the SMP, and certain partnersreconsidered their position in view of the return ofmacroeconomic stability in the second half of the year.

It should be noted that the DRC, in light of theagreements it entered into withChina, will benefit froma significant level of development aid in the form ofprojects in 2008. Other Asian, European and LatinAmerican countries are in the process of entering intosimilar agreements.However, there are no specific termsof reference defining the implementation ofmost of theseprojects. Furthermore, it should be recalled that theDRC and its partners adopted a common statement ondevelopment aid harmonisation and coordination duringthe meeting of the consultative body.

Structural Issues

Recent Developments

Growth prospects still fall short of the country’spotential, largely because of problems related to theinstitutional framework and business environment.The 2007 Doing Business report ranked theDRC as theworld’s most difficult place to do business. In addition,the 2007Transparency International report ranked theDRC 168th out of 180 countries, based on the levelof corruption in the world of business. To expand thebusiness sector, it will be necessary to further clean upbusiness practices, fight corruption and instill goodcorporate governance.

In the second half of 2007, the governmentsubmitted four draft laws on: the transformation ofpublic enterprises; the state’s disengagement; the

organisation and management of the state’s portfolio;and general provisions applicable to public enterprises.The reform advocates the state’s withdrawal from certain

business sectors, the liberalisation of certain sectors byabolishing state monopolies, the privatisation of certainenterprises with negative economic and financial ratesof return, and the restructuring of enterprises that donot have the resources tomake the necessary investmentsin support of growth.

The government has identified its decentralisationpriorities and developed a draft decentralisation law.To ensure that all stakeholders and local decentralisedentities embraced decentralisation, the minister of theinterior set up a preparatory committee at the nationaldecentralisation forum.The committee carried out itstasks in October 2007.

The Congolese transport sector functions verypoorly and has been incapable of serving as a growthengine.The state has not yet honoured its commitmentto repair roads and restructure the transport sector.Certain projects launched several months previously arenot moving forward because of a half-hearteddisbursement of funds. After seemingly forging ahead,other projects found themselves practically back attheir point of departure as a result of the torrentialrains that struck the country in 2007.

Technical, commercial and financial difficultiesfaced by Regidesco (water authority) and SNEL(national electric company) are still making access toelectricity and potable water problematic. Only 46 percent of the population use high-quality drinking water,a percentage that masks the great disparity betweenurban (84 per cent) and rural (29 per cent) areas.Because of these poor results, the government is planningto restructure the two public enterprises and decentraliseboth sectors.

Given the gaps between drinking-water andsanitation needs and the services offered, it was decidedto revise theMillenniumDevelopment Goals (MDG)downward: 49 per cent for potable water and 45 percent for sanitation.The total cost required for achievingthese objectives has been estimated as USD217million.

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In the rural environment, 60 per cent of waterworksare no longer operational through a lack ofmaintenance.In 2004, only 12 per cent of rural households had

direct access to drinking water. Difficulty in accessingdrinking water underlies a number of water-borneepidemics and diseases, such as cholera, typhoid anddysentery. In general, rural and suburban populationsreceive their drinking water from non-governmentalorganisations (NGOs) and religious congregations. Atyear-end 2007, the Fonds social de la république (FSR,government social fund) approved microprojects,including the provision of drinking water, submittedby the Kinshasa Development Agreement (CODEK)in the amount of USD 2.5 million.

The abolition of state monopolies, the repair ofinfrastructures, the development of an efficientintermodal transport system, and the state’s withdrawalfrom public enterprises are all priorities. Improvingthe business climate remains a major challenge forreviving economic activity in the DRC. In 2006, theCongo Business Federation (FEC) initiated a processto identify needs and analyse solutions per sector andregion in order to expand the private sector throughoutthe country. Plans call for dialogue with the governmentfor the purpose of discussing and implementing theprivate sector’s proposals in 2008.

In 2007, efforts to consolidate peace and securityhelped improve the business climate. Moreover, theCongolese authorities created a one-stop service tostreamline the business creation process, improvecustoms clearance procedures, eliminate bureaucraticobstructions and contain the consequent fraud. Amanual was distributed explaining customs clearanceprocedures as well as the decree establishing the one-stop service.

The audit and reform of business law, combinedwith the country’s new reconstruction framework, arepreconditions for the promotion of private investmentand the signing of public-private partnerships (PPP).TheDRChas expressed its interest in joiningOHADA(Organisation for the Harmonisation of Business Lawin Africa), which will lead to a simplificationof businesslegislation. Six commercial courts are to be established,

two of which have been set up in Kinshasa andLubumbashi. In addition, three legal reform projectshave been initiated. The first addresses the creation of

enterprises. The second concerns the Build, Operateand Transfer programme, with a view to facilitatingprivate investment in the infrastructure sector. Thethird modifies the investment code to encourage long-term projects.

In 2007, the government also adopted a draft lawthat eased the tax burden to make the business climatemore attractive and stimulate investment. Tax lawreform took into account the government’s objectiveof introducing a value-added tax (VAT) in 2009.

Moreover, a committee was set up in June 2007 toidentify mining contracts that are unfavourable to thecountry. This measure would enable the government toassess the impact of contracts signed in recent years oninvestment, growth and public revenues. It would alsoallow the government to explore wealth-creationopportunities that would result fromother forms of statewithdrawal; these projects would be conducted in fulltransparency.Themining sector investment and tax codesare currently being revised in order further to attractforeign capital and encourage the signing of new PPPs.

To improve the business climate and boostintermediary financing, the government, in partnershipwith the World Bank, has prepared studies on thecountry’s microfinance, leasing and security needs.Thebank has also recommended expanding the nationalfinancial system to local banks. In March 2007, inorder to develop a national policy for this sector andto provide it with a legal and regulatory framework, thegovernment initiated a programme to supportmicrofinance with the assistance of the UnitedNationsDevelopment Programme (UNDP).

The DRC has approximately 100 million hectaresof dense tropical forest, of which 60 million hectaresmay be able to support sustainable forest exploitation.In 2007, the government drew up a priority reformagenda focused on the development andimplementation of regulatory and legal foundations;establishment of zoning; nature conservation;

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development of forest resources; the sector’s contributionto economic recovery and poverty reduction;strengthening of institutions; andmanagement capacity

building.

Global Witness was brought in to monitor illegalforest activities.The organisation began its pilot projectin August 2007. In the second half of 2007, after thegovernment decided to examine old forest contracts,it completed a review of documents and an assessmentof 156 contracts for which a conversion request for newtitles had been introduced. Approximately 20 irregularcontracts representing nearly 3 million hectares werecancelled by order of the ministry of the environmentin March 2007. A moratorium on the awarding ofnew concessions, issued in 2002, is still in force. From2006 to 2007, eight additional implementingregulations of the forest code were signed. Six otherswere approved and are waiting to be signed.

Development of Technical and VocationalSkills

The underdevelopment of the DRC’s economystems, in part, from its low savings rate and its ineffectivemanagement of human capital. This situation resultsfrom the poor organisation of its education system,which no longer addresses the country’s socioeconomicneeds and problems.The government allocates meagrefunds to education in general and to technical andvocational training in particular. Education spendingas a proportion of the total budget dropped from 30per cent in 1960 to 2 per cent in 2004, and this figureonly represented payroll costs. The country has aninsufficient number of technical and vocational schools,which only constitute 10 per cent of the number ofgeneral education schools.

In recent decades, the Congolese education systemhas operated on the dwindling financial resourcesdevoted to the sector during a recessionary period.Enterprises, other employers and students show a lackof interest in technical and vocational education andtraining (TVET) because of this sector’s current weakperformance nationwide.There is a discrepancy betweenthe supply of qualified labour and the demand for

skills on the jobmarket.The education sector is poorlyorganised and lacks a strategic vision and consistentstructure for implementing programmes.

TVET is not a priority for the Congolesegovernment, evidenced by the fact that it is not addressedin the national education outline law and only receivesa brief mention in the strategy paper (GPRSP). Thissector, however, ought to have its place through twoof the president’s major projects, namely educationand employment. The low budgetary allocation toTVET supports this contention: 90 per cent ofTVETcosts are funded by families and students compared to10 per cent by the state.

TVET institutions are organised and managed byseveral different bodies, such as theministries of primary,secondary and vocational education; higher education;social affairs; youth; and public health as well as NGOsand the private sector. The management andcoordination of this sector are therefore complex andinefficient.

The infrastructure is dilapidated and the educationaltools andmaterials are obsolete.Most of the institutionsthe Congolese State created in past years to providetechnical and vocational training are in a state of severedisrepair.The École nationale de l’administration (ENA:National school of administration) no longer exists, andthe Institut national de préparation professionnelle (INPP,Vocational training institute) and Centre interdisciplinairepour le développement de l’éducation permanente (CIDEP:Interdisciplinary continuing education centre) mustoperate on limited resources to fulfil their missions. Yetin the 1970s and early 1980s, these institutions wereable to provide the country with skilled workers forspecific occupations. This situation reflects thegovernment’s inadequate investment in schoolreconstruction and rehabilitation, which has a negativeimpact on enrolment capacity and the provision ofspecialised training at secondary schools and institutionsof higher learning.

Teaching quality has seriously eroded, particularlythrough an an increase in the number of pupils.Teachingstaff lack motivation, are largely underqualified and do

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not meet the labour market’s changing needs. Becausecompulsory retirement no longer exists, old teachersretain their positions and neglect practical training in

favour of theoretical, rote learning that ignorestechnological developments. The quality of curriculais declining because the subjects taught are out of date.Educational tools, equipment and textbooks are obsoleteand in poor condition.

The growing indifference on the part of employersand students is evidenced by the lack of relationsbetween the various schools and the institutions andenterprises that use them. Employers are increasinglyless likely to attend school boardmeetings. Because thediplôme d’état (state diploma) is seen as possessing alegendary value, students scorn technical and vocationaltraining, viewing it as intended for less important staff.

To meet training needs, some private enterprisesprovide job training through vocational schools orinstitutes of higher learning. Most of these schoolsteach their students how to practice a trade and earna living. Subjects include mechanics, sewing, masonry/bricklaying, leatherwork, beauty care and hairdressing.The value of certificates granted by these vocationalschools is a matter of subjective opinion.

Future prospects depend on theDRC giving seriousconsideration to technical and vocational training inits growth and development strategy. Several studiesconducted by the department responsible for TVETnoted the disastrous state of technical and vocationaltraining and recommended solutions to revitalise thissector. Recommendations included: providing greatersupport to the teaching staff; easing admissionrequirements and improving career prospects forstudents; increasing financing for infrastructure,equipment and new technologies; strengtheningcurricula by adapting them to labour market realities;and establishing an institutional structure thatencourages inter-school partnerships, public-privatepartnerships, dialogue and information sharing. Alasting and definitive solution depends on bettermanagement and coordination of TVET nationwideand, therefore, on implementation of the 2006interministerial order on educational policy in the

DRC. This order calls for placing the managementand administration of all technical and vocationaltraining scattered throughout the country under the

authority of a single regulatory body.

Political Context

The free and democratic elections held in 2006were a major political event for the DRC, establishingnew institutional and structural foundations.The newinstitutions were set up in 2007 with Antoine Gizengaas head of government, Vital Kamerhe as leader of thenational assembly and Léon Kengo waDondo as leaderof the senate. In November 2007, the ministerial teamwas reduced in size from 60 to 44 members.

In 2007, this new exercise in democracy was putto the test when government institutions seemed, attimes, to overstep their constitutional boundaries. Onmany occasions, the government was challenged byparliament about certain sensitive matters, such as anaeroplane crash, without demonstrating real concern.The state budget was reviewed by parliament beforebeing adopted and implemented – the first such exercisein 40 years. The supreme court of justice invalidatedthe terms of office of certain national and provincialmembers of parliament convicted of fraud.The countrynevertheless remains weak because of two factors: adifficult cohabitation between the current governmentand the opposition at all levels of government, and theinadequacy of the judicial system.

The fact that some opponents contested theoutcome of the presidential elections is a good example.In March 2007, this controversy led to several days oftension in Kinshasa. The tension degenerated intoconfrontations between members of the personalbodyguard of Jean-Pierre Bemba, candidate in thesecond round of voting in the election, and elementsof the regular army. After these events, the confidenceindex of enterprises and potential investors interestedin operating in the DRC fell significantly.

The resurgence of armed conflict in the easternpart of the country between the regular army and

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armed groups, such as the militia led by dissidentGeneral Laurent Nkunda, is fuelling insecuritythroughout the country. In the third quarter of 2007,

the first government of the Third Republic had raisedthe possibility of putting an end to the violence in theeast through the use of force. On 9 November 2007,a joint communiqué was signed in Nairobi by theCongolese and Rwandan governments stating theirrespective commitments to take specific steps tomanagethe situation in the east.

Because of continuing conflict in this region, thepresident of the tepublic convened, in January 2008,a conference on the peace, security and developmentof the North Kivu and South Kivu provinces. Theconference, which took place in Goma from 6 to 23January 2008, brought together more than 1 000people, including several key officials and all thebelligerent parties. The meeting resulted in a peaceagreement signed by all armed groups.The agreement’sprovisions include a resolution demanding a ceasefire,the dismantlement of all armed groups, and thedeployment of observers andUN forces.Welcomed bythe population and the international community, theagreement put the country back on the path of securityand peace on condition of an unequivocal and effectiveimplementation.

Social Context and HumanResources Development

In spite of renewed growth since 2002, the DRCremains one of Africa’s poorest countries. About 80per cent of Congolese live on less than USD 1 a day.In 2007, the DRC was ranked 168th out of 177countries in the category of human development. Thevarious programmes created over the past few yearshave not improved people’s safety, and inequalitieshave widened.The poverty rate in theDRC is very high,hovering at 70 per cent in 2006.

In respect of education, the school enrolment rateis declining. In 2000/01, according to national sources,the rate stood at 33 per cent for primary schools andno higher than 12 per cent for secondary schools. Only

29 per cent of children finish primary school and 4.7million young children, including 2.5 million girls,receive no education at all. Since 2005, teachers have

incessantly been demanding the salary increase agreedwith the government in February 2004 (Mbudiagreement). This sets the monthly minimum wage atUSD 208 whereas a teacher now only earns an averageof USD 67.Teachers’ salary demands delayed the startof the 2007/08 school year. In November, teachersfrom universities and public institutes went on striketo demand their pay. To resolve the problem, theparliament decided to devoteCDF18 billion to teachers’salaries in the 2008 budget.

To reform the educational system in line withMDGprinciples, the government considered variousmeasures:renovation of 140 schools under the PMURR’s socialplan; implementation of the quarterly programme forallocating funds to operate publicly administeredprimary and secondary schools in order gradually toreduce the school fees paid by parents; an increase inthe proportion of the total budget devoted to educationfrom 3 per cent to 12 per cent; and adoption of priorityaction plans by the education sector.

Over the past few years, Congolese women haveincreasingly taken on the role of head of householdbecause men have either been unable to support theirfamilies or have died. About 90 per cent per cent ofwomen engage in subsistence activities, such as workingthe land, running a small shop or prostitution. As ageneral rule, women’s rights are routinely ignored andthere are major disparities concerning access toeducation, health care and resources. In the east of thecountry, women are assaulted, robbed and raped byarmed men.

According to national sources, the prevalence ofHIV/AIDS in the DRC hovers around 10 per cent,including 37 per cent among prostitutes in Kinshasaand 25 per cent among pregnant women in the east.These figures can be attributed, in part, to the presenceof foreign troops from countries with a high prevalenceof HIV/AIDS. These troops are operating amid asocially disorganised population victimised by frequentacts of violence, particularly of a sexual nature.Themost

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commonmodes of transmission are sexual (83 per centof cases), mother-to-child (2 per cent) and by bloodtransfusion (2 per cent). Approximately 3 million

people live with HIV in the DRC. The 20-49 agebracket is the most affected and women make up themajority of cases.

The poor access to safe drinking water andenvironmental hygienic conditions plays a significantrole in the spread of disease in the country. Theproportion of the population without access to waterfacilities is 78 per cent.Only 9 per cent of the populationuses hygienic methods for wastewater disposal.

In the DRC, health coverage does not meet thestandards set by the World Health Organisation(WHO). Access to health services is very poor: only26 per cent of the population live less than fivekilometres from a facility. Even if reports indicate onehealth centre per 10 218 inhabitants (standard: 1 per10 000 inhabitants), one maternity clinic per 40 613inhabitants and a major general hospital per 180 397inhabitants (standard: 1 per 150 000), relative to thecountry’s area and population distribution, these figuresclearly demonstrate a shortage of health centres.

As a result, death rates are dramatically high, withestimated figures of 1 837 per 100 000 live births formaternal mortality, i.e. three times greater than the

continent’s average rate (640 per 100 000), and 113.5per 1 100 for infant mortality, while the continent’saverage stands at 80 per 1 000. Infant mortality is

largely caused by diseases that could have been preventedby vaccinations. Available data indicates that nearlyone out of five children has never been vaccinated.Life expectancy at birth (46.5 years in 2007) is lowerthan the African average. Approximately 1 200 people,of whom half are thought to be children, die every dayin the DRC through to violence, disease and hunger.

The national unemployment rate is estimated at8.9 per cent and the underemployment rate at81.7 per cent. In general, unemployment andunderemployment affect men and women in equalnumbers regardless of their level of education.With 28per cent unemployment among the working populationunder 24 years of age, youth unemployment is a majorconcern.

The labour market is also characterised by anemployment rate that is relatively low in comparisonto the average rate in sub-Saharan Africa: 63.1 per cent(50.8 per cent in urban areas as against 68.1 per centin rural areas). This situation mainly stems from arelatively late entry into the labour market due tomoreyears of schooling.Women andmen are equally involvedin the labour market.

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