Thursday, June 23, 2016

For observers of the Democratic Republic of the Congo there is rarely good news. Headlines always seem to indicate the country is aflame with violent conflict, fueled by ruthless parties who see the DRC as a place to grab what you can and make a fortune in the process.

But that is all changing. A fragile peace is taking hold in the troubled Eastern Congo, where the conflict has been centered, and the DRC has turned in a tremendous string of growing gross domestic product (GDP) figures for the past few years.

In its country overview, the World Bank says: “With 80 million hectares of arable land and over 1,100 minerals and precious metals identified, the DRC has the potential to become one of the richest countries on the African continent and a driver of African growth.”

The Bank goes on to say: “After an economic slump in 2009 that brought the growth rate down to 2.8 percent due to the global financial crisis, the DRC posted an annual average economic growth rate of 7.7 percent during the 2010-2014 period, and of 7.7 percent, in 2015, both of which are well above the average in Sub-Saharan Africa.”

Looking ahead, the World Bank says that, “The economy is expected to continue to grow at an estimated rate of around 8 percent, owing to increased investment and growth in the extractive industries and the contributions of public works and the tertiary sector.”

Other sources put the GDP growth rate at 8.4 percent and 9.0 percent for 2015.

The International Monetary Fund (IMF) figure of 8.4 percent growth for 2015 makes the DRC the eighth fastest-growing economy in the world that year.

The World Bank’s assessment of DRC’s potential echoes a common view. Indeed, the potential is there for all to see: vast natural resources waiting to be exploited. The country clearly has all the natural ingredients for prosperity. It just needs good management to realize its potential.

If you take a look at the map, you see that the DRC is virtually in the center of Africa, stretching from the Atlantic in the west all the way east to the Great Lakes Region of East Africa, bordering Lake Albert, Lake Edward, Lake Kivu and Lake Tanganyika.

Its neighbors, going in a clockwise direction from the east, are: Republic of Congo (Brazzaville), Central African Republic, South Sudan, Uganda, Rwanda, Burundi, Tanzania, Zambia and Angola. These countries together represent a potential market of 262 million people.

With Sudan now divided into two countries, Algeria has become the largest African country by area, and the DRC, at 905,600 square miles, has moved up to second place. But in terms of natural wealth, the DRC is unmatched in Africa.

Half of the forestland of Africa is in the DRC — including the second largest rainforest in the world — and there are 80 million hectares (20 million acres) of agricultural land. The country is crisscrossed by major rivers, including the biggest by volume in Africa, the mighty Congo.

Already almost all of the DRC’s electricity is generated by hydropower plants, and there is potential to electrify all of Africa from expanded hydropower capacity in the DRC.

Under the fertile soil, the DRC is a treasure trove of precious mineral resources, from copper and cobalt to gold and diamonds. Significant oil deposits have also been found. Demand for these resources, from timber to rare metals, is global and growing.

Yet with all this natural wealth, the World Bank estimates that the GDP per capita for DRC’s 85 million people is about $746 a year (in 2014), making it the second poorest country in the world (only Central African Republic is lower, at $594 a year). The IMF has the GDP per capita figure at $770 for 2015 and the CIA World Factbook estimates it at $800 for 2015.

How could this be?

A quick look at the map will provide the first reason. For a country two-thirds the size of West Europe, there are only 2,000 miles of paved roads and 2,200 miles of railway tracks, many of these in poor condition. By comparison, Britain alone has 213,750 miles of paved roads, including 2,173 miles of motorways, and some 10,000 miles of railway lines.

The Congo and other major rivers and lakes provide some transportation relief in the form of 10,000 miles of navigable waterways. But how can you develop an economy in the 21st century without roads and railways to move materials and finished products from and to markets?

Which leads to this question: What role have government bodies played, and what role can they play, in the development of the country?

The DRC is among the lowest ranking nations on earth for economic freedom and ease of doing business. And it has a poor track record for governance. Add to this decades of civil war and a weak central government unable to secure national borders and you have an explanation for the lack of infrastructure development.

However, business has a funny way of solving its problems, and if public sector institutions lag because of poor management and/or inadequate budgets, the private sector will sometimes step in to fill the gap.

This is the main hope for the DRC in the short term. And it is not a vain hope either. China, which is now the most important international partner for the DRC (China-DRC trade was worth $4.3 billion in 2014), in 2007 signed a deal through which — in exchange for cobalt and copper — Beijing committed to build or rehabilitate some 2,000 miles of roads, 1,500 miles of railroads, 32 hospitals, 145 health centers and two universities in the DRC.

This is a good start, assuming the agreement is fully implemented. But much more is needed, and again the growing international interest in DRC from investors might well prove to be critical.

A good example of what is possible comes from Guinea, in West Africa. There Rio Tinto, the global mining company, is building a 416-mile multi-user railway line from Simandou in the south of the country, where it is developing a huge iron ore extraction operation, to the northern port at Conakry, the capital.

Rio Tinto has already spent $3 billion on the line and other development, out of a project estimated to cost $20 billion in all. Rio Tinto gets the railway it needs to haul iron ore to a seaport, and Guinea gets an important area of the country opened up for commerce and movement of people and goods.

In these two examples (China and Rio Tinto), the key to development proved to be government willingness to put in place policies and agreements that freed up the private sector and/or foreign investors of whatever kind, to invest heavily in infrastructure in exchange for access to natural resources.

In 2002, a Mining Code passed by the DRC Parliament in Kinshasa had the desired effect. By regulating the industry and giving investors clear rules to operate by (and profit by), the DRC managed to spur a robust and sustained wave of foreign direct investment in the mining sector, which continues to this date.

This wave of investment has been virtually unabated and raised the annual GDP growth rate from 6 percent in 2007 to 8 percent in 2014.

Could the success in mining be replicated in other sectors? Diversifying away from dependence on extraction industries is a clear priority of the DRC government, and with proper legislation and enforcement to protect investors there is no reason the success in the mining sector cannot be replicated elsewhere in the economy.

Abundant water and arable land are precious resources, as are forests. With some two-thirds of Congolese engaged in agriculture, and of these only 300,000 in commercial ventures (the rest in subsistence farming), the potential for development in the agricultural sector led by private investors is huge.

And this is where the government is putting much of its effort (see related story on agriculture).

In a July 2015 interview with World Finance magazine, DRC Prime Minister Augustin Matata Ponyo Mapon stressed the need for his country to diversify its economy away from a traditional dependence on mining.

“While the country is very wealthy in natural endowments regarding mineral resources, it is imperative to diversify beyond this wealth alone to propel the Democratic Republic of Congo to a state that can compete economically on a global scale,” he said.

“The agricultural sector is where we can have the most significant impact on the population,” he added.

Electricity is in short, unreliable supply. This is a major constraint on growth. The $80 billion-plus Grand Inga hydroelectric project will go a long way to addressing this energy need, as well as provide power to other African countries, especially South Africa. The World Bank is the lead international agency working with the DRC to get Grand Inga (including the Inga III dam) funded and built.

But DRC has vastly greater hydropower potential than just the Inga dams, and has the potential to meet all of Africa’s electricity needs. For domestic consumption, basing plants on rivers in various parts of the country can reduce transmission costs and speed the much-needed electrification of the country.

A stable, prosperous DRC will be good for its citizens but also for the whole region and all of Africa. This “new DRC” is not beyond reach as we have seen it emerge from years of turmoil to go down a path of sustained national development.

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