Democratic Republic of the Congo Economy

Democratic Republic of the Congo Economy

Subchapters:

  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax System

Basic data

Thanks to its huge reserves of mineral resources and favorable climatic conditions, Congo is one of the economies very rich in raw materials and primary resources. However, the economy was severely damaged in the past by long-term internal conflicts and wars (often fought over control of raw material resources) and disastrous economic management. In recent years, however, the economic situation has been consolidating and GDP has been growing rapidly. However, the DRC still remains one of the poorest countries in the world. In addition to security problems and the related theft of natural resources, the country has been dealing with many serious problems for a long time – neglected infrastructure, a very unfavorable investment and business climate, huge corruption (according to international statistics, it is one of the countries with the highest corruption in the world), poor business management, inefficient state administration etc. Check ebizdir for economical facts of D.R. Congo.

The economy is very poorly diversified, currently completely dependent on the mining industry (copper, cobalt, oil, diamonds), services for the mining industry and logging. In the medium term, Congo will remain an exporter of commodities, so its economy will fluctuate cyclically depending on fluctuations in the prices of raw materials on world markets. A persistent problem of the Congolese economy is the large extent of the gray economy (especially completely uncontrolled exports of mineral wealth), which creates about 2/3 of the GDP. The DRC is the world’s largest producer of cobalt and the largest producer of copper and tin in Africa. However, the ongoing intense parliamentary debate on future mining legislation and the government’s recent decision to support the sector by exempting it from value added tax (VAT) exposes the chaotic way in which the sector is managed by the state in the country and increases tensions between the state and private owners in the area. Although both the government and businesses in the sector are expected to eventually reach a compromise on the new mining laws, mistrust between them, along with DRC’s reputation for unpredictable legislation, will affect the country’s medium-term economic outlook. The DRC’s mining industry contributes roughly 22% of GDP, generates more than three-quarters of export earnings and provides nearly 30% of government revenue. In 2015, the industry was hit by the drop in commodity prices.

The main export commodities are mineral raw materials (cobalt, copper, oil, diamonds, gold, coltan (tantalum columbite)), wood, electricity, coffee. The local manufacturing base is low, practically everything is imported, especially food, transport machinery, machinery of all kinds (including mining), consumer goods of all kinds (including clothing), fuel.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 4.4 -2.8 4.8 5.3 5.9
GDP/population (USD/PPP) 1,150.00 ON ON ON 1,320.0
Inflation (%) 4.6 14.6 ON ON 3.6
Unemployment (%) 4.5 5.3 ON ON ON
Export of goods (billion USD) 18.4 12.9 19.4 22.6 24.6
Import of goods (billion USD) 15.5 11.7 17.1 19.9 21.4
Trade Balance (Billion USD) 0.4 ON ON ON 3.1
Industrial production (% change) ON ON ON ON ON
Population (millions) 86.8 89.6 ON ON 98.4
Competitiveness ON ON ON ON ON
OECD export risk 07.VII 07.VII 07.VII ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) ON
Public debt (% of GDP) ON
Current account balance (billion USD) -1
Taxes 2022
AFTER 35%
F.O 0-40%
VAT 16%

The 2022 budget will be balanced, but the deficit is expected to fall from an estimated 1.2% of GDP in 2021 to 1% in 2022, before widening to 1.5% in 2023 as a result of the election. The government revenue/GDP ratio will increase in 2022-23 due to strong growth in mining, which is the main source of revenue. The recovery of global demand and the expansion of production at the Kamoa-Kakula copper mine, operated by Ivanhoe Mines (Canada), which was commissioned in 2021, will increase mining output – and with it the tax burden on the industry.

The implementation of policy measures such as plans to digitize tax administration and growing tax revenues in line with firmer underlying economic performance will also increase revenue. Expenditure plans will be based on the objective of creating fiscal space for development expenditure (on the social area and infrastructure of the target) by limiting non-priority recurrent expenditure. Only limited progress is expected in this area in 2022, as high public sector wage costs – a major component of current expenditure – and the planned domestic arrears repayment plan agreed with the IMF will drive a nominal increase in recurrent expenditure. Efforts to contain wage costs in education will also continue in 2022–23, but will be offset by increased health spending to support vaccinations. In 2023, election-related spending will be the main driver of government spending.

Debt service (including payments to private creditors and official creditors outside the G20) will remain a significant part of spending, despite the continued suspension of some debt service payments through the G20 Debt Service Suspension Initiative (DSSI). In 2022, we expect spending to moderate slightly relative to GDP, with health and social support measures related to the pandemic being reduced. We assume that the fiscal deficit has decreased to 1.7% of GDP in 2021 (from an estimated 3.6% of GDP in 2020). In 2022, with further revenue growth and spending easing, the fiscal deficit will be reduced to 0.5% of GDP. As a result, we expect the public debt position to have declined to 81.5% of GDP at the end of 2021 (from an estimated 91.1% of GDP at the end of 2020), before falling further to 74.5% of GDP at the end of 2022.

Banking system

The banking sector has undergone reorganization and is currently one of the growing sectors of the economy. The offered services are gradually expanding. Strengthening supervision by the BCC and international financial institutions is one of the conditions of IMF assistance. The central bank of the Congo (Banque centrale du Congo – BCC) has a regulatory and control role. It is also responsible for controlling inflation, creating and maintaining monetary, credit and exchange policies. The central bank’s interest rate fell from 20% in late 2011 to 3% in late 2013. However, with much of the economy taking place in the informal sector, its decisions have only a limited impact on the country’s economy. Detailed information on the banking sector is available at http://www.bcc.cd/.

The following 20 banks operate in Congo: Access Bank, Afriland First Bank, Advans Bank, Banque Commerciale du Congo, Banque Internationale du Crédit, Banque Internationale pour l’Afrique au Congo, BGFIBank DRC, Bank of Africa, Byblos Bank RDC, Citigroup, Crane Bank Congo, Ecobank, First International Bank, Invest Bank Congo, Procredit Bank, Rawbank,, Standard Bank Congo, SofiBank, Trust Merchant Bank, United Bank for Africa. Furthermore, there are over 100 small credit unions, 12 exchange companies and 19 microfinance institutions operating in the country. But the banking sector remains small – most banks are located in Kinshasa and the Katanga and Bas-Congo provinces. Larger banks already issue ordinary payment cards, the number of ATMs in big cities is growing. Transactions in other parts of the country are still based on cash payments. It is also common to pay from accounts held by Congolese businessmen or the government abroad. Loans to entrepreneurs are still not widely available (perhaps with the exception of Rawbank) – the interest in this case is quite high (approx. 18%), most projects are still financed either by foreign entities (AfDB, WB…) or by private investors.

Tax system

The last tax reform was carried out in the DRC in 2012, when VAT was introduced. The tax system is very confusing, although the government is trying to simplify it, but without much success. Both foreign and domestic companies are often victims of harassment and collection of illegal taxes by tax collection authorities, which include the Customs Administration, the Enterprise Promotion Fund, the Directorate of the Transport Fleet, the Bureau of Import and Export Control, the Transport Bureau, the Bureau of Revenue, the Bureau of management of the land fund. There are two extremes, either the business pays no taxes thanks to bribes, or it pays excessively high taxes. The majority of the population does not pay any taxes, due to the large extent of the informal sector. Tax matters should always be referred to a local attorney. No changes are expected.

The Congolese official tax system consists of:

– Personal income tax – progressive according to income in the band 0% (annual income up to 524000 CDF) – 40% (income above 23 million CDF), this tax is paid by both natives and foreigners according to income in the Congo; a person who stays in the Congo for more than 6 months becomes a national; according to some data, the company also pays the so-called exceptional foreigner’s salary tax (IER) for the employed foreigner;

– Corporate tax – 35%, the company’s income obtained from activities in the territory of the Congo, reduced by deductible costs, is taxed; mining company tax is 30%,

– Value Added Tax (VAT) – 16%, VAT does not apply to some basic products (fuel, cement, wheat and flour, milk, bread and baby food), some medicines determined by a decree of the Ministry of Health; VAT is also not payable on export. Social Security – 11% of salary (4% pension and 5% health, 2% employment fund), 12.5% ​​in Katanga province;

Business is burdened by a number of other payments and levies (e.g. withholding tax 20%, vehicle tax, land tax – the amount depends on the decision of the provincial government, land or real estate transfer fee 5-10%, rental tax 22%, etc.).

Democratic Republic of the Congo Economy