The DRC: Spearheading Economic Diversification

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Read more on the DRC’s resource-rich potential in the Africa Energy Series Special Report: DRC 2020 – the leading investor resource for tracking the country’s current and future movements within the sector. Download the Report and other AES Special Reports here.

In 2019, under a newly elected government led by H.E President Félix Tshisekedi, the Democratic Republic of the Congo launched its National Strategic Development Plan, a multisectoral development plan spanning four years.

The resource-rich DRC boasts immense economic potential; while mining and agriculture have primarily served as the only drivers of revenue generation and job creation, the country is currently spearheading an economic diversification strategy that seeks to improve the domestic financial system through enhanced economic stability. Through a series of measures, such as the establishment of development banks and an extension of financial services to rural areas, the government is targeting 10 million bank accounts to be opened throughout the country by 2024.

Unlike other Central African countries, the DRC is not part of the Central African Monetary and Economic Community and has its own central bank: the Central Bank of the Congo (BCC). According to a study ran by the BCC in 2017, the DRC faces major challenges to strengthening its financial system, encouraging private and individual investment, improving governance in the sector and increasing access to the formal and decentralized financial system.

The BCC report states that the DRC’s economy is composed of 17 commercial banks, a single savings bank, three non-bank financial institutions, three specialized financial institutions, 137 savings and credit cooperatives, five financial companies and 23 microfinance institutions. However, the Congolese financial system suffers from a lack of quality fund management teams, market information and corporate governance, which hinders investments in small and medium-sized enterprises. This has led to slowed development of financing institutions.

The implementation of the National Strategic Development Plan (NSDP), in effect from 2019 to 2023, is based on strengthened capacity to mobilize all public and private financial resources to fund the developments underlined by the plan. In addition to efforts to enhance efficient public spending, the government intends to improve collection of public revenue through quicker implementation of reforms. Investment funds and sector-specific support funds will also be created.

The government has generated a comprehensive strategy for attracting both local and foreign private investment, which hinges on the improvement of the business climate across sectors, specifically in energy and mining. Investment will be oriented towards critical economic sectors as well as important geographical locations. Tax holidays, custom tax exemptions and other fiscal incentives will be put in place. The DRC’s vast infrastructure program will require an increasing number of public-private partnerships and similar models to be promoted by the country’s authorities. Other innovative funding mechanisms will be engineered and implemented. Private individual investment will be encouraged in the real estate sector, while the banking sector will be largely developed through finance sub-sectors, such as insurance, meso-finance and microfinance.

The execution of the plan, which is set to cost $47.55 billion in total, or $9.51 billion per year on average, will also strongly rely on increasing public revenue. The government intends to maximize fiscal resources for the budget while encouraging private investments. In this sense, resource allocation will be key, as the government will favor large, game-changing projects with a direct impact on job creation, poverty alleviation and other national priorities. As a guiding principle, strategies will aim to increase tax revenue not by raising rates, but by expanding the tax base and enhancing the transparency and stability of the tax system.

Ameliorating the business climate

The process of improving the business climate is one of the most important governmental objectives. Indeed, attracting investments, creating jobs and fostering sustainable and inclusive development are conditioned by a healthier business climate and enhanced legal and judicial security.

It is within this framework that the new roadmap of government reforms set to improve the business climate has been approved. The plan goes beyond reforms relative to the World Bank’s Ease of Doing Business Index, which focuses on only a few specific indicators. Instead, the government has cited seven objectives with the aim of improving local business operating conditions and increasing foreign direct investment:

  • Further simplify the business creation process and make it transparent.
  •  Simplify the process of obtaining a building permit, transfer of ownership and connectivity to medium voltage electricity.
  • Simplify the procedures, deadlines and costs of conducting cross-border trade and obtaining banking loans.
  • Reduce the procedures, times and costs of commercial disputes and clarify the conditions of entry, stay and residence of foreign investors in the DRC.
  • Find a long-term solution to the issue of licenses, permits and specific authorizations, as well as the tax collection system of duties, taxes and fees.
  • Revamp sector-specific regulations to make them flexible and modern, and restructure the tax exemption system.
  • Promote economically strong sectors and an entrepreneurial culture in the DRC.

Authorities have developed an ambitious economic diversification plan, which aims to increase economic growth and reduce poverty levels while improving access to electricity for its people. The NSDP relies on strong participation from the local and international investment community, as well as strict monitoring of public expenses and increased tax revenue.

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Sihle Qekeleshe is a Web Editor at Energy Capital & Power. She has experience as a Copywriter and Editor in various industries.

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